After the great recession of 2008, are we facing epochal change? To what extent is development finance (flows, policies, and architecture) evolving? What are the opportunities opening ahead for making development finance more transformative? Seeking answers to these questions, Eurodad commissioned the report Whither development finance, authored by Elisa Van Waeyenberge and Jeff Powell, to carefully assess current trends and changes in development finance and to help inform decisions in the field over the next three years.
The global financial crisis, as it took hold in the fall of 2008, had dramatic repercussions worldwide. In 2009, global output fell by 2.2 percent, while trade contracted by nearly 12 percent, amounting to the sharpest downturn in the global economy over the last 60 years. The repercussions in the developing world were not less dramatic, with the effects variously transmitted though falls in trade, foreign investment, remittances, and the general drying up liquidity internationally. According to the World Bank calculated output in the developing world grew very slowly by 1.2 percent in 2009, which translated into a fall of 2.2 percent once India and China are excluded. These trends in output loss imply that an estimated additional 64 million people will be living in extreme poverty by the end of 2010
Apart from the dramatic effects in the real economy, the crisis has thrown into disarray the model of development and growth that had been so heavily promoted by the North and the various institutions it controls. Across countries in the industrialised world, governments intervened with enormous rescue packages for the financial sector, initiated countercyclical policies of various kinds, and provided comprehensive guarantee programmes for the banking industry, policies previously abhorred in the North – at least officially. Further, through a host of summits, the G20 has sought to coordinate necessary policy actions, both to address the immediate needs implied by the crisis (recovery) as well as to deal with some of its attributed underlying causes (reform).
Yet, while a set of parallels prevailed between the first G20 crisis meeting in Washington (2008) and indeed the original 1944 Bretton Woods conference the achievements of the Washington summit, and its follow-up events (London, April 2009; Pittsburgh, September 2009), failed to deliver on radical and much-needed international financial reform.[1] Meanwhile, under the auspices of the UN, a commission of experts was gathered to advise on the nature of necessary reforms in the international monetary and financial systems, and a host of events have taken place within ‘global’ civil society concerned with attempts to redefine the international financial and economic order. As a result, amultitude of ideas have surfaced in the last year pertaining to issues of international financial and monetary reform, global governance, climate finance, etc.
Within this context of flux, both materially and intellectually,opportunities exist to redefine a now much-discredited policy order, that has operated powerfully both globally and, although to a varying degree and depending on a host of domestic political-economic features, at the domestic level. This report seeks to make its own contribution in providing a few notes on the issues of development finance and development, against the backdrop of these dramatic circumstances.
Whither Development Finance? presents some critical reflections on trends and prospects regarding development and development finance. In this context section 1 provides a mapping of the state of development finance prior to the crisis – with a particular focus on low-income countries. Section 2 first highlights the main trends that have characterised aid over the last two decades. This is followed by a subsection which teases out an underlying trend determining much of Northern aid policy, namely the ‘private turn’. Finally, a last subsection provides a few brief comments regarding the impact of aid in recipient countries.
Section 3 provides an assessment of the implications of the crisis for development finance, and singles out for closer scrutiny two main global policy issues implied by the crisis. These are, on the one hand, issues implied by the revival of the Bretton Woods Institutions World Bank and IMF, and on the other, global financial regulation. Section 4 looks forward by identifying important fields for future development finance. Domestic resource mobilisation is seen as central to any recapturing of the policy space in developing countries, with the immediately apparent benefit that improved domestic resource mobilisation enhances the prospects for a particular country to emancipate itself from the various hazards that heavy reliance on external development finance implies. The report discusses both, the private and public dimensions of domestic resource mobilization: mobilizing private savings to finance productive investments, and public revenue for the provision of public goods. It also addresses the challenges of building an enabling financial system in developing countries.
Whither development finance? : Kb
Source: Eurodad