CENTRAL ASIA: Epochal change in the finance world with multilateral banks to invest for sustainable development

BISHKEK (TCA) — What is happening around the world from Asia to Africa, Europe and America cannot go unnoticed. There is an epochal change in the financing world, where public and private sectors will join together to tackle worldwide fundamental development, hopefully working together without competing not only in the infrastructure requirement but also in financing new productive projects and goods in order to give to various parts of the underdeveloped world the means to create productive projects for internal consumption and export.

We are going trough a critical time when governments understand that providing loan to bail out previous credit often given for political reasons cannot solve the ongoing crisis. Today it is Greece that is showing to the world that austerity, lack of reforms and easy money cannot be the solution. We need a combined effort of private and public sectors, and a constant monitoring on the use of money. Unless we achieve a balance between productive investments and infrastructure supported by internal reform and the gradual reduction of corruption it will be impossible to come out of the continuous nightmare of financial crisis, where at the end only poor countries and poor people will continue to suffer.

In the last few months we have been witnessing a call for investing not any more billions of dollars, but trillions. The call came first from the Asian Development Bank that already in 2014 in their study regarding the infrastructural need of the Asian continent clearly indicated the need of not less than one trillion dollars of investment per year. The message was immediately taken up by China with the creation of AIIB (Asian Infrastructure Investment Bank), a new multilateral bank that in few months has assembled a group of more than fifty countries with a clear message to other multilateral banks to do more. In the meantime we have been watching the Greece situation that is challenging to create an unprecedented damage to the Euro, the cohesion of the European Union and a new political scenario in the Mediterranean in the ongoing conflict between Russia and the West. In the last few days the BRICS (Brazil, Russia, India, China and South Africa) and SCO (Shanghai Cooperation Organization) had summits in Ufa (Russia) to discuss new financial strategy, and ways and means to re-address what are the requirements of various parts of the world. The development bank of the BRICS is planning to join forces with AIIB, and SCO does not exclude the possibility to create a new development bank. In Addis Ababa from 13 to 16 July a third international conference on financing for development will take place, with participation of not only the World Bank and IMF, but also the ADB, EIB, EBRD, African Development Bank, and several others. The call is to invest trillions every year, but how such investment will be coordinated and how the need of various countries will be re-addressed is still unclear.

The need to achieve Sustainable Development Goals (SDG) and to reduce poverty around the world, or to introduce reforms and reduce corruption, is clear to all sides, but how to achieve such goals besides the usual announcements to mobilize public and private resources, or to ask for reforms, is still unclear, and so is the monitoring process of the proper use of funds. Political and power game is still the main key to the distribution of investments and credits, and creating opportunity and supporting local productive requirements with sustainable credits always come second. In view of the International financing conference, Multilateral Development Banks (MDB) have announced investing the sum of $400 billion over the next three years. This is certainly good news but when ADB indicates that only the Asian Pacific region will require at least one trillion dollars every year only for infrastructure it is clearly an inadequate amount. The world needs to mobilize trillions in annual funding, and this can only be achieved by mobilizing public and private sectors and working together in a synergetic way where competition, duplication, and political priorities are put aside. Given the present situation of continuous conflicts, terrorism and power games, it may be an utopia but working together and reducing friction is possible and should get priority over many other considerations only if the good common sense will prevail over political games.

Below we are reprinting parts of the article provided by the EBRD press office about the commitment of various western multilateral development banks in view of the Addis Ababa conference from 13 to 16 July 2015. The article provides a good platform for working together by certain western institutions, but in a global time what other multilateral banks (AIIB, BRICS, SCO, etc.) are planning and doing cannot be ignored and there is a need for a global international financing conference to coordinate the worldwide financing and to make sure that a proper coordination is achieved. For the full article of EBRD please go to http://www.ebrd.com/news/2015/international-financial-institutions-announce-400-billion-to-achieve-sustainable-development-goals.html.

“The multilateral development banks (MDBs) and IMF today signalled plans to extend more than $400 billion in financing over the next three years and vowed to work more closely with private and public sector partners to help mobilize the resources needed to meet the historic challenge of achieving the Sustainable Development Goals (SDGs)….

“The SDGs are ambitious and demand equal ambition in using the “billions” of dollars in current flows of official development assistance (ODA) and all available resources to attract, leverage and mobilize “trillions” in investments of all kinds—public and private, national and global.

“ODA, estimated at $135 billion a year, provides a fundamental source of financing, especially in the poorest and most fragile countries. But more is needed. Investment needs in infrastructure alone reach up to $1.5 trillion a year in emerging and developing countries. Meeting the staggering but achievable needs of the SDG agenda requires everyone to make the best use of each dollar from every source, and draw in and increase public and private investment. The MDBs—the engines of development finance—are looking to a range of options for scaling up.

“MDB development finance has grown from $50 billion in 2001 to $127 billion in 2015. For each dollar invested by its shareholders, MDBs are able to commit $2-5 in new financing each year. The MDBs’ own direct private sector investments have increased fourfold over this period. They mobilize an additional $2-5 in private investment for every dollar they invest directly in private sector operations. The vow to increase their contribution to more than $400 billion over the next three years reflects in part efforts to make even better use of their balance sheets.

“Additional steps to leverage more resources include the development of new approaches and tools to help developing countries play a stronger role in harnessing national resources. The MDBs and the IMF are partnering with countries on, for example, the introduction of a new toolkit to assess and improve tax policies and expanding instruments such as e-procurement to achieve better government spending.

“Increasing external resource flows to developing countries for investment is essential to achieving the SDGs—but these flows can be expected to materialize only in circumstances where countries have coherent development strategies consistent with maintaining macroeconomic stability while also ensuring the delivery of key public sector services and a business environment supportive of growth.

“Through their policy advice and technical assistance, the MDBs and IMF support countries in designing economic policies to achieve these objectives; through MDB policy support loans and IMF-supported programs, these institutions provide general financial support towards meeting budgetary and balance of payments needs……”

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