Notes of the MFD/PPP coordination call 

‘Private finance’ in the context of Covid-19’ – 8 April, 2020

Participants

Luiz Vieira (BWP); Stefano Prato (SID); David Boys (PSI); Motoko Aizawa (xxx); Nancy Alexander (Jubilee USA); Patricia Miranda (Latindadd); Claudio Fernandes (GESTOS); Neil Gupta (Corporate Accountability); Mark Fodor (Coalition for Human Rights in Development); Sebastian Duwe (Boell Foundation); Myriam Vander Stichele (SOMO); Masaya Llavaneras Blanco (DAWN); Dario Kenner (CAFOD); Siomha Cunniffe (STOPAIDS); Jo Herbert (Tearfund); Rosa Lizarde (WWG on FfD); Katie Malouf Bous (Oxfam Intl, DC); Ella Hopkins (BWP); María José Romero and Cecilia Gondard (Eurodad)

Issues discussed

1. Round of analysis on private finance and Covid-19

Luiz: Many countries will struggle to respond to the Covid-19 crises, and will question state capacity. There is no obvious come back to public services.

Stefano: The crisis is exposing things we’ve said for decades. But unfortunately it will be used to fast track the opposite of what is required. I feel therefore in a defensive mood rather than proactive mood. Democratic processes and accountability is even weaker than usual. Strong push to do more of the same that has brought us there. Short term as well as longer term.

Patricia: Covid-19 exposed inequalities more than ever. Between people but within countries. I would like to share some points: 1) the investment on infrastructure is a critique. Latin America has a 5-6% gap in infrastructure and governments (with the push of MDBs) have focused on physical infrastructure, rather than social infrastructure. Now we have very weak health system. 2) The privatisation of hospitals and the health sector is another trend. State and public sector have limited capacity to do something. Some countries say the public sector will oblige private hospitals to take Covid-19 patients, but this has to be seen. It is critical to improve and finance our very precarious health systems, where most employees are women. 3) It won’t be possible to finance the lock down in countries with small or no fiscal space. 60% of the economy is in the informal sector - where women are over-represented. 4) The situation of SMEs in our region is very precarious. SMEs are very important in terms of decent jobs in formal sector, they are very vulnerable, high risk of disappearing in lock down, etc. Is the IFC taking into account these realities? They will provide funds to big multinationals – should rather address the SMEs struggle. 

Claudio: Lack of transparency and democracy. In Brazil 44.7% of economy relies on the informal sector. The money provided is not going to the informal sector. I have worked on long term projections and foresees fiscal collapse and lack of liquidity. It will create a new process of refinancing, problem of maintenance of contracts and lack of accountability, making the possibility for big amounts of liquidity to be concentrated in the top. Lack of social infrastructure. Need to point to the institutionality in response to the crisis. SMEs and informal economy do not have a direct interface with international institutions. Possibility for banks also to seize public social allowances.

Neil: IFC taking authorization for its capital increase through the Covid-19 crisis. Half of the 14 billion package is being pointed out to the private sector. Malpass has talked about “policy based financing for structural reforms” which means that history repeats itself. Need to expose historical inequities driven by BW institutions. Malpass said he has submitted a framework for approval of Covid-19 projects. Does it mean they eliminate the board approval for Covid-19 projects?

1 in 4 people do not have access to water. And now telling everyone to wash their hands. Urgent need to focus on water. Corporate Accountability has worked on water a lot. In Nigeria: the government will use the state of emergency to suspend procurement and transparency laws, and will prompt new PPPs whatever the long term financial impact on these projects is.

Claudio: 90% of total outflow of last year left in a few weeks. Big problems with capital outflows. Private sector behaviour of not guaranteeing jobs.

Mark: I also agree with Stefano, we saw similar enthusiasm in 2008 and things only got back to where they were before. Do we have previous research in financial intermediary in 2007/2008? Kate from Re-course might have knowledgeable on this. Looking at EIB, money to banking system was not going to SMEs. https://bankwatch.org/documents/missinginactionEIB.pdf  / https://bankwatch.org/blog/the-recap-on-recapitalisation 

Luiz: Re financial intermediaries, what is the money being used for? 

Maria Jose: It is important to look at the situation of PPP projects (both under implementation and in the pipeline) and how they perform in the current situation because we can see some contingent liabilities being triggered by the crisis and this can exacerbate the debt problem.  

Motoko: What could the Covid-19 crisis mean for PPPs? Just starting to gather data. Interested in the reaction of others. There will not be a big rush, bigger picture might be that certain infrastructure sectors will collapse (airport projects, port projects, etc. with limited movements of people and goods). This means the public sector will have to step in, contracts might be renegotiated. Greater pressure on the public sector to make it work. Sovereign wealth funds are thinking on infrastructure funds in those markets. Need quick work on that. Not a PPP issue but about having to show up some of the failing investments in key social infrastructure sectors. New sources of financing might arise.

Sebastian: I’m worried about the lack of international leadership. The group of 7 or group of 20. Lack of cooperation is problematic. Push for autocratic regimes - what this all means for the climate crisis. The money being spent now will lack for the climate crisis. The health crisis we are in now. 

Nancy: Jubilee USA is looking at the debt problem. The WB released the “global waves of debt” report, which is really eye opening. No space for economic and health crisis response. Flattening a curve of debt service would mean stretching out and cancelling debt to a level that ensures protecting the health of citizens. Target of 8% GDP vs debt levels. This idea of flattening the curve is important along with any conditionality related to debt relief. Malpass said strengthening the public sector would just be a short term response. Need to ask for more transparency esp on contingent liabilities that will be called. More PPP deals are unlikely because we are seeing a collapse of PPPs. Are we going to call for a moratoria on PPP projects? New flows flowing into countries - need to ensure the public purse not excessively used to pay for private sector debt. The risks of hunger and starvation are as great as the risk coming from the pandemic itself. Agriculture and food supply - need intel on what kind of food relief should be provided. 

Stefano: The food dimension of the Covid-19 crisis is very important. Will probably step into a food crisis that will be as big as the pandemic crisis. It shows the limitation of commodity dependent economies. Food security depends on exports. Production is squeezed by extremely cheap food exports that dominate urban markets and large distribution channels. Multilayer situation where local food markets, local producers etc. are being hit harder. It is important to strengthen local food markets rather than focusing on traditional food supply through imports. 

Myriam: Big problem of food prices. Goes back to how IMF and WBG have been developing countries to structure and open up their financial markets to foreign banks. Here you are figures about outflows from EM by the IIF: https://www.iif.com/COVID-19 

Luiz: Agree with Nancy on the issue of debt. There is some thinking around ensuring that support to private sector goes to jobs and people paying taxes rather than to tax havens. What are the impacts of the crisis on the private finance first approach? To what extent lack of capital by states will create defaults for PPP contacts? 

MJ: Letter to FT on international financial coordination to support developing countries confronting the Covid-19 crisis: https://criticalfinance.org/2020/03/24/developing-and-emerging-countries-need-capital-controls/ the letter is focused on capital controls - I will add this point to the background

Eurodad is working with colleagues to organise a conference/initiative on public services, trying to engage UN Special Rapporteurs. [Participants of the call agreed that we should continue engaging in this conversation]

Rosa: We welcome the inclusion of impact of Covid-19 crisis on women and inclusion of gender equality issues in first draft of the background. The WWG on FfD can provide more inputs/feedback in these sections of the draft. We are part of a larger Feminist Response group where we are assessing and articulating impacts, including PPP's (re: health, food, education vis a vis women/girls) as you just mentioned.  Happy to continue in dialogue. 

Dario: On debt a number of civil society have already signed this international statement https://jubileedebt.org.uk/press-release/call-for-immediate-cancellation-of-developing-country-debt-payments and will be on social media on 14th April. 

Patricia: Agree on debt issues with Nancy and Myriam. Also on the corporate debt risks. The CSO statement where we also participate, does not take this into account, and it is needed to be addressed. China built fast hospitals for Covid-19 patients only, can we ask that to MDBs and private sector for developing countries?

David: Agree with Luiz. There is still unclear thinking! We need to do this work, but we may need to adjust tactics, see that ILO has tracked country Covid-19 measures, ILO ACTRAV Analysis: Governments' Responses to Covid-19 (6 April 2020) https://www.ilo.org/actrav/info/pubs/WCMS_740916/lang--en/index.htm 

1. Joint work going forward on private finance and COVID-19 (“Springs+”)

Neil: In relation to the spring meetings, there is no real space for civil society. Opportunity for groups to issue a joint statement/press release to follow up on the manifesto in relation to the lack of transparency. Pointing out the failure of privatisation. This could be one way to change the narrative of the meetings.

David: PSI is not doing anything for the spring meetings. The issue of guarantees triggered by the crisis is very important, if they claim guarantees for private funds helping big corporations and private equity funds. Any way to track or assess which guarantees are being activated? 

1. Next steps 

Eurodad will update the background paper to inform our next call on MFD/PPP in the context of Covid-19. We need to jointly agree what strategic steps will take in our work.