Working Papers | G-24

Financing for Development

Political Economy of Tax Reform for SDGs

20th August 2017 Abstract

Emerging market economies need tax reform packages not just for the revenues to finance budgetary spending, but also to create a level playing field in an increasingly interconnected world, to address incentives for firms to locate in clean "hubs", and to meet distributional objectives. Often, however, such practices accord special preferences to achieve these objectives and, when failing to meet them, create vested interests that block further reforms. The paper outlines the lessons learned from the Chinese reforms in 1993/4 and 2016 -critical to rebalancing for sustainable development. Also, the Mexican reforms of 2013 illustrate how combinations of taxes and non-standard approaches to administration can overcome long-standing opposition to reforms. We conclude by examining the options being developed in research programs for sub-national and local taxation that are critical for local service delivery, access to credit, for involving the private sector, and achieving sustainable and inclusive development.

Public Investment for Sustainable Development

12th September 2017 Abstract

The SDGs have reignited interest in investment, particularly in public infrastructure. International financial institutions (IFIs), such as the IMF and World Bank, have issued sensible new "good practice" guidelines. While most are non-controversial, we argue that they are not sufficient to ensure sustainable development. In this paper, the first of two papers that focus on the investment cycle, we address questions on "what" to invest in and "where". We focus on Chile, which meets most of the recommended criteria and is appropriately held up as an example of efficient and transparent management of investment. But, over two decades the economy has become less "complex" and reliant on primary exports with limited utilization of its enormous potential. It suffers also from spatial disparities, inequality, and congestion and pollution in the metropolitan areas. We show how a system of economy-wide shadow prices linked to a sustainable growth strategy, and the creation of new "clean" hubs can help. Although national connectivity is critical, local investments in infrastructure and public services are also critical in making the "hubs" attractive for private investors and sustained employment generation.

Contracting Arrangements and PPPs for Sustainable Development

27th September 2017 Abstract

This paper extends a discussion of the investment cycle in another G-24 paper (Ahmad, 2017), in which the questions concerning "what" to invest in and "where" are addressed. This paper examines the "how" of investment for sustainable development, focusing on options for contracting arrangements, such as PPPs, that would help to involve the private sector, manage risks in the presence of asymmetric information, as well as uncertainty about climate change. It also addresses the strengthening of national and local institutions and the possible role of international financial institutions. In discussing the investment options, the paper also updates an earlier G-24 review of the empirical and theoretical literature on involving the private sector involvement in public investments (Ahmad, Bhattacharya, Vinella, and Xiao, G-24 2015).

Stemming the Tide of De-Risking

Stemming the Tide of De-Risking through Innovative Technologies and Partnerships

16th August 2016 Abstract

Infrastructure Finance in the Developing World

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.

Multilateral Lending Instruments for Infrastructure Financing

5th June 2015 Abstract

Challenges and Opportunities for Multilateral Development Banks in 21st Century Infrastructure Finance

5th June 2015 Abstract

National Development Banks and Infrastructure Provision: A Comparative Study of Brazil, China, and South Africa

5th June 2015 Abstract

Involving the Private Sector and Public-Private Partnerships in Financing Investments: Public Opportunities and Challenges

5th June 2015 Abstract

Public Finance Underpinnings for Infrastructure Financing in Developing Countries

5th June 2015 Abstract

The Infrastructure Pipeline and the Need for Robust Project Preparation

5th June 2015 Abstract

Private Finance for Infrastructure Investments: Analysis and Implications for New Multilateral Development Banks

5th June 2015 Abstract

Green Infrastructure: Definition and Needs

5th June 2015 Abstract

Assessing the Changing Infrastructure Needs in Emerging Markets and Developing Countries (forthcoming)

5th June 2015 Abstract

Discussion Papers

The G-24 Discussion Paper Series is a collection of research papers prepared under the research program of the G-24, This project aims at enhancing understanding of the complex issues in the international monetary and financial system, and at introducing a development dimension into the discussion of international financial and institutional reform.

Revising Basel 2: The Impact of the Financial Crisis and Implications for Developing Countries

10th June 2010 Abstract

Since the start of the drafting process of Basel 2 ten years ago the agreement has assumed a central position in the reform of international rules on financial regulation. The finalization of Basel 2 has proved much more difficult than anticipated by the initiators of the negotiation process owing to the complexity of its subject-matter, its global scope and the moving target of what regulatory rules are expected to achieve in rapidly changing conditions. These features of Basel 2 are mutually related: its complexity reflects the challenge of designing global rules suitable for institutions of different levels of sophistication in countries at different levels of development as well as of responding to continuing financial innovation and, most recently, to a cross-border financial crisis triggered by inadequate control of risks, malpractice and regulatory failures in countries with the most sophisticated financial systems.

Policy Space to Prevent and Mitigate Financial Crises in Trade and Investment Agreements

10th May 2010 Abstract

Do nations have the policy space to deploy capital controls in order to prevent and mitigate financial crises? This paper examines the extent to which measures to mitigate this crisis and prevent future crises are permissible under a variety of bilateral, regional and multilateral trade and investment agreements. It is found that the United States trade and investment agreements, and to a lesser extent the WTO, leave little room to manoeuvre when it comes to capital controls. This is the case despite the increasing economic evidence showing that certain capital controls can be useful in preventing or mitigating financial crises. It also stands in contrast with investment rules under the IMF, OECD and the treaties of most capital exporting nations which allow for at least the temporary use of capital controls as a safeguard measure. Drawing on the comparative analysis conducted in the paper, the author offers a range of policies that could be deployed to make the United States investment rules more consistent with the rules of its peers and the economic realities of the 21st century

Financing the Climate Mitigation and Adaptation Measures in Developing Countries

10th December 2009 Abstract

Climate change creates a crisis for economic development, which has historically been synonymous with high-carbon growth. It is essential for the world economy to make a rapid transition to a new, low-carbon style of growth. Developed countries might be expected to pay a large share of the total global costs of this transition, due to their ability to pay and their historical responsibility for causing the problem.

Two-thirds of the world’s greenhouse gas emission reduction potential through 2030 is located in developing countries. More than half of that is in forestry, including reduction of emissions from deforestation and forest degradation (REDD), a top priority for near-term reductions. Beyond REDD, achieving the full potential of emission reduction in developing countries requires investment of hundreds of billions of dollars in energy, transport, and other sectors. One source of funding is the sale of offsets to developed countries – expanding the opportunities created by the Clean Development Mechanism (CDM). The value of such opportunities depends on the scope of a future trading system, and on the initial distribution of carbon allowances.

The 2008 Food Price Crisis: Rethinking Food Security Policies

10th June 2009 Abstract

This paper examines the 2008 global food price crisis, identifying long- and short-term causes as well as the two factors which distinguish the 2008 food price increases from earlier episodes – speculation and diversion of food crops to biofuels. The paper contends that while most attention has been focused on factors including higher energy costs, decline in growth of agricultural production and increased demand from emerging economies, it is essential to examine the structural causes of growing food insecurity to understand what is really behind the food price crisis. It then explores the impact of several factors including systemic decline in investment in agricultural productivity; state’s reduced regulatory role in agricultural production and trade; indiscriminate opening of agricultural markets which has resulted in import surges, and emphasis on cash crops, on food security of developing nations.

The paper also examines both national and international responses to the crisis and goes on to propose several short-term and long-term measures to address the crisis. The implementation of the proposed policies, the paper argues, however depends on several prerequisites based on the principle of food sovereignty which would allow policy space for developing countries to protect their agriculture, markets, and livelihoods of farmers.

The Contemporary Reform of Global Financial Governance: Lessons from the Past

10th April 2009 Abstract

As the world experiences its worst financial crisis since the 1930s, policymakers are increasingly calling for a “Bretton Woods II”. This paper argues that officials will need to think more creatively and ambitiously about international financial reform than they have done so far if they are to claim the mantle of the 1944 Bretton Woods conference.

The first section of the paper describes how the global financial crisis of the early 1930s generated bold thinking about the need to assert public authority more centrally into the realm of international finance. This thinking culminated in three sets of proposals discussed during the Bretton Woods negotiations which were genuine innovations in global financial governance: (i) those designed to regulate international financial markets more tightly, (ii) those designed to address global imbalances, and (iii) those designed to promote international development.

Post-War Experiences with Developmental Central Banks: The Good, the Bad and the Hopeful

10th February 2009 Abstract

In the last two decades, there has been a global sea change in the theory and practice of central banking. The “best practice” now commonly prescribed by the international financial institutions such as the International Monetary Fund (IMF), as well as by many prominent economists, is best characterized as the “neo-liberal” approach to central banking. The main components of this recipe are: (1) central bank independence, (2) a focus on inflation fighting (including adopting formal “inflation targeting”) and (3) the use of indirect methods of monetary policy (i.e., short-term interest rates as opposed to direct methods such as credit ceilings).

Carbon Markets and Beyond

10th December 2008 Abstract

The climate policy debate has advanced from science to economics, with a growing focus on creating carbon markets and getting the prices right. This is necessary but far from sufficient for an effective and equitable response to the climate challenge. While market-oriented forces such as the IMF and the World Bank have focused almost exclusively on carbon markets, others, such as the Human Development Report and the Stern Review, have emphasized the need for complementary, non-market climate initiatives to promote energy conservation and above all, to create and adopt new low-carbon technologies.

Global Liquidity and Financial Flows to Developing Countries

10th November 2008 Abstract

After a slump in cross-border financial flows of capital in the years following the East Asian financial crisis, capital flows to developing countries have seen a robust revival in recent years. This paper attempts to examine: (i) the factors responsible for this revival and surge in capital flows into developing countries; (ii) the qualitative changes in financial integration that are accompanying this surge; and (iii) the impact that this surge is having on financial volatility and vulnerability, macroeconomic management and growth, in countries that have been “successful” in attracting such flows.

It argues that in the wake of financial liberalization that facilitates cross-border flows of capital, supply-side factors rather than the financing requirements of developing countries, explain the surge. Financial liberalization and the globalization of finance, have also resulted in changes in the financial structure – the markets, institutions and instruments that define the global financial architecture. Increasingly a small number of centralized financial institutions intermediate global capital flows and the investment decisions of a few individuals in these institutions determine the nature of the “exposure” of the global financial system. This has implications for the accumulation of risk and vulnerability to financial crisis in markets where agents tend to herd.

Associated with this increasing risk, are changes in the business practices and motivations of financial firms that reduce the role of finance in ensuring broad-based economic growth. Together with the constraints on fiscal, exchange rate and monetary policy set by large capital flows, this can limit the prospects of long-run, noninflationary growth as well.

The External Debt Contentious, Six Years After the Monterrey Consensus

10th September 2008 Abstract

This paper has three objectives. It discusses the main developments and new issues that have arisen after the Monterrey Conference. It critically reviews the Monterrey Consensus on external debt. It provides a set of recommendations for reviewing the implementation of the Monterrey Consensus, to take place in Doha, Qatar, in December 2008. In doing so, the paper discusses the shortcomings of standard debt sustainability exercises; it presents new results on the additionality of debt relief; and discusses the need for developing new financial instruments and institutions aimed at reducing the risks of sovereign and external borrowing. The paper also briefly discusses issues related to the definition of external debt and touches on the odious debt debate.

Enhancing the Role of Regional Development Banks

10th July 2008 Abstract

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.

Research Papers

Developing Countries Role in International Tax Cooperation

13th July 2017 Abstract

International tax cooperation has become a high-profile and controversial area in recent years, the product of media scandals about corporate tax avoidance, and disagreements between countries about how best (and perhaps how much) to tackle it. This document sets out brief background on a number of these international tax areas of interest to developing countries, where the G-24 may have a role to play in ensuring that these views are represented in global discussions. It is intended as a scoping document to aid consultations with G-24 members and other stakeholders.

Sovereign Debt of Developing Countries: Overview of Trends and Policy Perspectives

10th May 2016 Abstract

In Chapter 2, Marilou Uy and Shichao Zhou provide an overview of the broadly favorable public debt trends in developing countries over the past decade. They also note that while the increased access to international debt markets provides more opportunities for investments that stimulate growth, it may also bring with it new sources of risk that could seriously affect some sovereign borrowers. The paper also highlights the unique challenges that some groups of countries face in managing sustainable levels of debt. The paper further acknowledges countries’ responsibility in managing their debt but also recognizes that the global community has a role in strengthening the system of sovereign debt resolution. Yet a global consensus on how to move forward on this has been elusive. In this context, the paper documents the evolution of highly divergent views on how to reform the global system for sovereign debt in intergovernmental forums, and the potential approaches that could pave the way for a wider consensus.

Are Credit Rating Agencies Limiting the Operational Capacity of Multilateral Development Banks

30th October 2015 Abstract

Multilateral development banks (MDBs) represent one of the most successful types of international organization created in the post-World War II era. Over 20 MDBs currently operate in the world, and two more—the Asian Infrastructure Investment Bank and BRICS New Development Bank—are due to begin operations in 2016.

A key reason for the enduring popularity of MDBs is their financial model. With a relatively small amount of capital contributions from shareholder governments, MDBs can borrow much larger amounts from private capital markets at attractive financial terms, and on-lend those resources for development projects with enough of a margin left over to cover administrative costs. Thus, government shareholders can have a very significant development impact (in financial terms, at least) with a relatively small budgetary outlay (Table 1).1

China’s Emergence: A Wake Up Service for Latin America

13th September 2014 Abstract

Country Ownership of Reform Programs and the Implications for Conditionality

13th May 2014 Abstract

The essence of ownership is the acceptance of full responsibility for the consequences of a program. Ownership matters because of the expectation that program design will be more appropriate and country authorities will be resolute in taking steps domestically to ensure full implementation of the program. The steps include seeking proper domestic legitimation, which will prevent certain "political economy" factors from disrupting program implementation. That program success is correlated with degree of ownership and that ownership is correlated with implementation, which in turn is correlated with program legitimation, are supported by available evidence. Ex ante selectivity is easily made preferable to ex post, and for financial support a recipient country must satisfy the donor country team as to the reality of ownership, soundness of the program (policies and outcomes), and adequate implementation capacity. From a positive perspective, forces operating on both the demand and supply side of aid should inevitably bring about a new equilibrium regime in the aid relationship that excludes traditional conditionality

Malaysia’s September 1998 Controls: Background, Context, Impacts, Comparisons, Implications, Lessons

13th May 2014 Abstract

The IMF at Sixty: An Unfulfilled Potential?

13th March 2014 Abstract

The governing structure of the Bretton Woods Institutions –that is, the International Monetary Fund and the World Bank– was determined sixty years ago. In 1944, a few industrial countries accounted for the bulk of world output, trade, and capital flows. This is no longer the case. Developing countries and economies in transition, the more dynamic elements of the world economy, account today for the same volume of output as the Group of Seven (G-7) countries in terms of purchasing power parity, and for 84 percent of the world’s population. They can no longer be dismissed as minor partners in the global economy.

The lack of adequate representation of the developing countries and emerging market economies in the governance of the global economy and the declining commitment of major countries to a multilateral rules-based system of international monetary cooperation has resulted in short-sighted, and politically motivated decisions by major shareholders, which undermine the efficacy of the IMF and World Bank and have adverse consequences for world economic growth and stability. Indeed, the non representative character of the governance of these institutions increasingly threatens the integrity of the international monetary system, as countries in Asia and elsewhere move away from the IMF and take distance from the World Bank, leaving the institutions to deal mainly with low-income countries.

This paper provides an overview of the international monetary system, briefly discussing six key problems1 in which the concentration of power in a few countries and the limited participation of developing countries in the discussion of systemic issues leads to poor results:

1. the correction of global imbalances;

2. the role of the IMF in the adjustment process; 1 For reasons of space, other important problems, such as the issue of negative net transfers of resources to developing countries, and the problems of the low income countries will not be discussed. 2

3. combating deflation through countercyclical policies; crises prevention and resolution;

5. the management of international liquidity, and

6.responding to commodity shocks.

Overcoming these problems requires a renewed commitment of industrial countries to a rules based multilateral system and the participation of developing countries in decision making in a manner commensurate with their economic importance.

Does the IMF Need More Financial Resources?

13th March 2014 Abstract

Can More Representative Governance Improve Global Economic Performance?

13th March 2014 Abstract

The governing structure of the BWIs was determined in 1945 when a few industrial countries accounted for the bulk of world output, trade and capital flows This is no longer the case.The developing countries and economies in transition account for the same volume of output as the G7 countries, in terms of purchasing power parity, and for 84 percent of the world’s population and can no longer be dismissed as a minor partner in the global economy. The lack of adequate representation of the developing countries in the governance of the global economy has adverse consequences for world economic growth and stability.

The paper discusses seven key problems of the international monetary system; namely, correction of global imbalances, combating deflation through countercyclical policies, financial crises prevention and resolution, negative flows of capital to developing countries, management of international liquidity, commodity shocks, and the problems of the poorest countries. It is argued that optimum solutions in these areas require the participation of both developed and developing countries. The correction of global imbalances by (Plaza type) agreements among a few industrial countries is found to be no longer feasible and solutions arrived at without the full participation of developing countries, are unlikely to work (i.e. the CCL, the SDRM, the HIPC strategy) Solutions to global problems require the full involvement of developing countries in a manner commensurate with their economic importance.

A New Voting Structure for the IMF

13th March 2014 Abstract

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