SWFs and the role of the State. Diana Barrowclough, UNCTAD - PowerPoint PPT Presentation

New regional financial and monetary institutions and their un-sung partner - Development banks, PPPs, SWFs and the role of the State. Diana Barrowclough, UNCTAD Johannesburg 11 May 2017 Diana.Barrowclough@unctad.org

What UNCTAD member countries say …. " We want …." • Disruptive innovation • To go beyond traditional criteria for loans • No conditionality (long memories of last time) • Transform the multilateral institutions • Voice of the South • Liberate reserves (which we sacrifice out of fear) • Transform our economies • Crisis management (counter-cyclical); FfD; SDGs • Our investment and capital needs are massive….

Bad memories of what happened last crisis …

Why financial & monetary cooperation.. 1 • Globalization ~ a world of "open regionalism » (Ocampo) • And now – new version – Davos to Mar-a-Lago • Regional institutions ~ important complementary role in a diverse international world. • And as multilateral arrangements require institutional changes that are out of immediate reach. • National mechanisms can help but only go so far • "More than neighbours" or "Federalist" argument - greater sense of ownership of regional institutions • Voice of the South • Competition in the provision of services to small and medium-sized countries - a good thing

Net capital flows 2000-2016 ($bn) – volatile and short-termist

Not only developing countries urgently need contingency plans

Trouble ahead -- Debt service to income ratio, private non- financial sector 2007-2015 (TDR 2016) 150 140 130 120 Dev eloping countries 110 100 Dev eloped countries 90 80 2007 2008 2009 2010 2011 2012 2013 2014 2015

How to pay? The threat of secular stagnation Among developing regions, only East, South and South-East Asia maintain growth momentum

Catching up is already harder Only the economies of East Asia have made noticeable strides closing the absolute income gap with leading economies Ratio of GDP per capita of selected countries and country groups to GDP per capita of the US, 1950 – 2015

Profits and investment – the wrong direction • Investment to profit ratios declining, while dividend to profits rise • Investment rates in most developing regions too low to support rapid structural transformation 21 20 Investment, excl. construction 19 18 17 16 15 Corporate profits 14 1980 1985 1990 1995 2000 2005 2010 2015

Productivity in Manufacturing (USA is 100) 11

Opportunities (challenges) for governments to work with the new DBs • Industrial transformation – with industrial policy • New markets, new models. • One complementary mechanism – Government as procurer, consumer of last resort • OECD “expand and accelerate wherever possible” • EU – public procurement 19% GDP in 2014 • South-south examples - procurement in pharmaceuticals • Role in regional integration, role for DBs • Public Private Partnerships – with care • A mechanism for getting infrastructure up and running quickly • A useful source of long-term finance for development -- especially in context of paucity of other sources • BUT many ramifications and risks • Still heavy reliance on the State

The contribution of PPPs. Private sector participation in infrastructure (World Bank ($bn)).

Banks (new or old) do not (need not) work alone • Can Sovereign Wealth Funds make a difference? • Trillions of $ owned by DCs to work with • Some regions have used them effectively for development • How to encourage them to act less like private institutional investors? • Can social and long-term yields be included in their objectives? • Public investment remains essential • Invest in Public capacity – in Ministries of Trade, Industry, Finance, procurement experts, top engineers, project managers etc. • Institution building – strong developmental state, in close but not too close contact with business. • Reciprocal controls, Alice Amsden

How to pay? Boosting fiscal space

Africa Latin America 30 30 25 25 20 20 15 15 10 10 5 5 0 0 1991–1995 2001–2005 2011–2012 1991–1995 2001–2005 2011–2012 East, South and South-East Asia West Asia 30 45 40 25 35 20 30 25 15 20 10 15 10 5 5 0 0 1991–1995 2001–2005 2011–2012 1991–1995 2001–2005 2011–2012 Transition economies Developed economies 45 45 40 40 35 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0 1996–2000 2001–2005 2011–2012 1991–1995 2001–2005 2011–2012 VAT Tax revenue Border tax Corporate income tax Other income tax Other tax revenue Social contributions Other revenues

Short memories …. regional cooperation needed to redress the slide.

Are the new institutions really different? • Counter-cyclical investment • More equal power between the shareholders • Southern countries as majority shareholders OWN • Leaner structure (no residential board) • More agile (quicker approvals) • No conditionality • Bigger focus on productive & regional integration • Keener to cooperate with financial institutions • Greener (?) • Credit Ratings -- all are still obsessed

Does it matter? • At the least, new institutions add scale • They add diversity - deepens the landscape • Good to mix complementarity and competition • Balance between consultation and surveillance • Voice • Can credibility be borrowed • "Not a Bretton Woods moment »? Global New Deal – lessons from the Marshall Plan... • Forum shopping - push for better service • "Productive redundancy" a good thing (Grabel)

Making the most of the new institutions – help them to be different • Use the more equal power between shareholders to support developmental regional projects. • Bigger focus on productive integration and regional integration projects • Strong counterparts in the public sector • Industrial and trade policies that are aligned • Including procurement – direct and indirect • Gap filling finance (for CRA obssessed banks) • Boost demand!

All countries urgently need contingency plans

Some references • UNCTAD Trade and Development Reports (2016, 2015, 2013) • UNCTAD (2017), The Role of Development Banks in Promoting Growth and Sustainable Development in the South • UNCTAD (2017 forthcoming), Regional financial and monetary integration and sustainable development in the South • Working papers • Barrowclough (2016), Tackling vulnerability and building resilience -- South-South mechanisms for a new regional financial architecture, UNCTAD background paper • Studart and Gallagher (2016), Infrastructure for Sustainable Development: the role of National Development Banks. • Ocampo (2016), Regional financial co-operation, Colombia University. • .