The Infrastructure Finance in the Developing World Working Paper Series is a joint research effort by the Global Green Growth Institute and the G-24 that explores the challenges and opportunities for scaling up infrastructure finance in emerging markets and developing countries. Each paper addresses a unique piece of the infrastructure finance puzzle and provides critical analysis that will give impetus to international discourse and play a catalytic role in the creation and success of new development finance institutions. The papers have been authored by top experts in their respective fields, and the process has been carefully guided by the leadership of both organizations. This work has important implications in the post-2015 environment, given the essential role infrastructure must play in achieving sustainable development. To this end, GGGI and the G-24 look forward to further development and operationalization of the contents of these papers.
Access by emerging market countries to private capital markets can be unreliable, limited and costly, and thus lending through multilateral development banks (MDBs) needs to continue playing an important role in the international development architecture. At the same time there are a number of important reasons why lending by regional and sub-regional development banks (RDBs, SRDBs) can and should play an important and valuable complementary role to multilateral lending and institutions.
The main issues and conclusions discussed in our paper are the following. Firstly we analyse the successful experiences of the European Investment Bank (EIB) and the Andean Development Corporation (CAF). European integration offers very valuable precedents and lessons; the EIB was central to the process of European integration since the beginning, as it was especially created to support this process. An interesting question is whether EIB lending to developing countries could not be expanded more. The CAF on the other hand is unique in being almost exclusively owned by developing countries. A noteworthy feature is also the exponential growth of its loans since 2000 and the great average speed at which their loans are approved, with an average period of around 3–4 months. These, and other positive features of the CAF provide very good lessons for potential new development banks.
Non-state actors have come to exert an increased influence on the management, decision-making, and activities of the leading international financial institutions, the IMF and the World Bank. This has important implications for the mandates of the IFIs, global governance, and the interests of developing countries. The paper distinguishes three broad categories of non-state actors – non-governmental organizations, standardsetting institutions, and credit rating agencies – each of which plays a distinct and useful role. NGOs have helped to broaden the development agenda to include the social and environmental impact of the IFIs’ activities and pressed to make the IMF and the World Bank more open and sensitive to public opinion. Improving standards in accounting, auditing, banking, insurance, and security markets should help financial markets to function more efficiently while improving transparency and accountability.
Nevertheless, there are also serious concerns. The increased insertion of nonstate actors has served to amplify the already disproportionate power and influence of the industrialized countries in the decision-making fora of the IFIs. The issue of developing country representation in global governance has, therefore, become only more pressing. There is also the question of the increased burden of cost entailed by an ever-broadening development agenda and demands for increased and improved information that the developing countries must provide.
The paper argues that the issue is not one of questioning or fighting the legitimate role of the non-state actors, but one of pace and degree of change that the IFIs may insist on as a condition for their support and operations in the client countries. It identifies six areas of concern that need consideration in the discussion on improving global governance. These are: NGOs’ own accountability, the costs and benefits of additional information, the implications of standards and codes on good practices, the ideological issues they give rise to, the need for interim measures for countries unable to meet the prevailing standards and codes, and the need for improving representation of developing countries in global governance.