Working Papers | G-24

Fintech for Financial Inclusion

Fintech for Financial Inclusion: A Framework for Digital Financial Transformation

September 2018 Abstract

Growth and Reducing Inequality

The Growth and Reducing Inequality Working Paper Series is a joint effort of the G-24 and Friedrich-Ebert-Stiftung New York to gather and disseminate a diverse range of perspectives and research on trends, drivers and policy responses relevant to developing country efforts to boost growth and reduce inequality. The series comprises selected policy-oriented research papers contributed by presenters at a Special Workshop the G-24 held in Geneva (September 2017) in collaboration with the International Labour Organization and the Friedrich-Ebert-Stiftung, as well as relevant sessions in G-24 Technical Group Meetings.

Financing for Development

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.

End of Infrastructure Finance Series

The Global Crisis and the International Financial System: Reform to Recover

12th March 2014 Abstract

There is intense debate on the origins of the current crisis. The causes of the world’s current financial and economic meltdown can be traced to two different factors: regulatory failures and macroeconomic imbalances.

It seems that global imbalances are here to stay, at least for a while. Curbing them definitively is hard to achieve when economies are managed with no explicit attention to global consistency.

There is a great need for coordination and cooperation. The International Financial System (IFS) has shown flaws in dealing with the imbalances. Changes are necessary. The sustainability of the recovery process may profit from a reformed system, which takes into account the current global economic scenario.

The purpose of this paper is to focus on the IFS, its role in the current crisis and in preventing and addressing future ones. History has taught us at least one lesson – crises are cyclical, but their frequency and effects can be managed and mitigated.

Developing a Global Partnership for Development: Critical Issues and Proposals for Trade and Finance

3rd March 2014 Abstract

Debt Relief, Sustainable Development and Achieving the Millennium Development Goals in Sub Sahara Africa

4th November 2012 Abstract

Sustainable development entails three interrelated objectives - economic, social and ecological. The Millennium Development Goals (MDGs), which set clear targets for reducing poverty, hunger, disease, illiteracy, environmental degradation, and discrimination against women by 2015 can be seen as operationalising the objectives of sustainable development. Sustained growth is a fundamental determinant of reducing poverty because it enables households to increase their income expenditure and it also provides the government with resources to provide infrastructure and social services. During the 1970s, Sub Sahara Africa borrowed heavily but these loans did not promote sustainable growth of output and exports. The recession of the early 1980s, the increase in world interest rates and the collapse of Africa's terms of trade ignited the debt crisis. For more than two decades, Sub Sahara African countries have faced a debt crisis that has retarded growth, undermined poverty reduction and degraded the environment.

Although the HIPC program is more ambitious than previous debt reduction programs in promising more and faster debt relief for more countries, it is not grounded analytically in a realistic conception of the amount of debt reduction needed for most countries to achieve a sustainable path of growth and poverty reduction. African countries are in poverty traps with levels of income too low to cover basic needs. Debt servicing reduces the ability of governments to provide basic social services and build the necessary physical infrastructure to promote economic growth. Africa needs 100 percent debt cancellation and the provision of grants to support an investment program to promote growth and poverty eradication.

The HIPC Initiative has been linked to implementation of a strategy to reduce poverty in poor countries particularly by utilizing savings from debt relief to increase expenditure in the social services. Increased social sector spending is commendable but it is not on itself a growth strategy that can eradicate poverty in a sustainable way. SubSaharan Africa is the only region in which both the proportion and absolute number of people in extreme income poverty have been rising sharply. Most countries in SSA are off track to achieve most of the MDG goals. In almost all African countries a big push in investment is needed to attain the Millennium Development Goals. It will require a significant increase of investment spending, especially in areas of infrastructure and human capital needed to attract private investment.

Even with 100 percent debt cancellation, improved governance and effective public expenditure prioritization, domestic resources will not be adequate to break the poverty 2 trap, and additional external assistance will be required. In order to attain the millennium development goals, African countries need to draw up a 10-year perspective plan that is derived from a detailed analysis of what it will take to achieve all MDGs. The three-year poverty reduction strategy papers should be implementing instruments of the perspective plan.

Infrastructure for development: meeting the challenge

13th July 2012 Abstract

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.

Financial Services, the WTO and Initiatives for Global Financial Reform

19th October 2009 Abstract

The ongoing global financial systemic crisis and the “Bretton Woods II” processes under way in various fora seem likely to result in reformed national and global regimes for governance, stronger regulations in public interest, and their stricter enforcement. However, these will be incomplete and may not even be successful unless there are parallel efforts in the WTO and its ongoing Doha Round, in particular on “Trade in Financial Services,” where lacking data, negotiations are being conducted on faith and failed theory. A reformed global regime on finance will be incompatible with a trading system outcome of liberalised trade in financial services and capital movements. This is an area needing attention at the highest levels of developing-country governments.

Building on the counter-cyclical consensus: A policy agenda

12th October 2009 Abstract

The current financial crisis shows that pro-cyclical behavior is inherent to financial markets. Regulation reform needs to be comprehensive, to avoid regulatory arbitrage, and counter-cyclical, to manage the effects of boom-bust cycles. Policy makers now agree on implementing counter-cyclical regulation for financial regulation reform to improve capital, provisions, and liquidity requirements. The paper discusses different instruments that can be used in parallel, referring to the successful Spanish central bank use of counter-cyclical dynamic provisioning. Arguments in favor of implementing counter-cyclical regulation through rules, rather than discretion, as well as the trade-offs between stronger regulation and access to credit are highlighted

Financing for Climate Investments

16th August 2009 Abstract

Climate change is an increasingly serious threat to lives and livelihoods in every part of the world. It is also a crisis for economic development, which has historically been synonymous with high-carbon growth. By now the earth’s atmosphere is filled, almost to its sustainable limit, primarily by the past emissions from today’s developed countries. It is essential, therefore, to make the transition to a new, low-carbon style of economic growth.

The efficient solution is to find the least-cost opportunities to reduce emissions, regardless of location. Responsibility for funding these reductions is a separate question; developed countries might be expected to pay a large share of total global costs, due to current ability to pay and to historical responsibility for creating the problem. What new institutions and mechanisms are needed to finance the least-cost global solution to the climate crisis?

According to recent UNFCCC estimates, two-thirds of the world’s greenhouse gas emission reduction potential through 2030 is located in developing countries. More than half of the opportunities to reduce carbon emissions in developing countries are in forestry, including reduction of emissions from deforestation and forest degradation (REDD). Separate funding and new institutions to address REDD measures could be a part of a new climate agreement.

More broadly, emission reduction in developing countries will require substantial investment in energy, transport, and other sectors; hundreds of billions of dollars per year will be needed to realize the full potential of emission reduction. One of the easiest ways to obtain financing for these investments may be the sale of offsets to developed countries – roughly speaking, expanding the opportunity created by the Clean Development Mechanism (CDM). The value of such opportunities depends both on the scope of a future trading system, and on the initial distribution of carbon allowances.

Adaptation to the unavoidable damages from climate change is an additional financial burden on developing countries, and cannot be addressed through carbon markets. Adaptation measures, however, may have more direct synergy with development plans, since they often involve improvements in infrastructure, public health, and disaster preparedness. Estimates of global adaptation needs are very uncertain, but may be in the tens of billions of US dollars annually.

Existing financial flows and institutions fall far short of what is needed. Climate funding available under the UNFCCC and the Kyoto Protocol is less than $10 billion per year, most of it provided through CDM; this funding has been heavily concentrated to date in China and a few other large emerging economies. Additional funding is provided by the World Bank’s Climate Investment Funds, which are likely to provide $1.5 billion per year for four years; and by 1 Senior Economist, Stockholm Environment Institute-US Center, e-mail 2 bilateral aid from Japan, Norway, Germany, and others; the annual total of all multilateral and bilateral climate funding is less than $15 billion. This is too small, by more than an order of magnitude, to meet the needs for climate investments in developing countries.

Existing climate funding mechanisms and investment flows are not only dangerously small, thereby risking failure to address the problem before it is too late to solve it. They are also, in part, channeled through institutions such as the World Bank that stand outside the existing multilateral UNFCCC process; past World Bank aid has involved strict conditionality, requiring tight fiscal discipline and structural reforms in exchange for funding. Donor preferences frequently distort bilateral and some multilateral aid efforts; funding for climate investments could be weighted down by the reappearance of similar obstacles. Streamlined and improved institutional arrangements, such as a much-simplified replacement for CDM, will be needed to address the climate problem in a timely manner. Some observers have suggested the need for a new World Environment Organization (or World Environment and Development Organization) to manage international cooperation on climate and related issues.

Finally, it is worth remembering that success in international environmental cooperation is a real possibility, as shown by the example of the Montreal Protocol for reduction of ozone-depleting substances (ODSs). A number of lessons can be learned from the success of the Montreal Protocol: it paid nearly all the net costs of compliance for developing countries; its governance structure put developed and developing countries on an equal footing, requiring agreement from both groups for all decisions; it successfully addressed concerns about trade distortions; and it set a threshold for per capita emissions, above which developing countries “graduated” into responsibility for meeting the developed-country standards. With this cooperative structure in place, the parties to the Montreal Protocol moved rapidly toward reduction of ODSs, finding that costs were lower and benefits were higher than had been anticipated in advance. Could the same turn out to be true for the reduction of greenhouse gases?

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