UNCTAD’s Trade and Development Report of 2019 reveals that the UN Sustainable Development Goals would be met only if there is a political will to change the rules of the international economic game and adopt policies that scale up the resources needed for big investments push led by the public sector and set global economy on an expansionary course.
Richard Kozul-Wright, Director of UNCTAD’s Division, responsible for the report said: “The global economy does not serve all people equally. Under the current configuration of policies, rules, market dynamics and corporate power, economic gaps are likely to increase and environmental degradation to intensify.”
The report recasts that Global Green New Deal- as the right policy framework to make a clean break with years of austerity and insecurity following the global financial crisis, help bring about a more equal distribution of income and reverse decades of environmental degradation. It proposes a series of reform measures to make debt, capital and banks work for development and finance a deal.
It also emphasizes that Public banking should be given its traditional, bigger role if the environmental and economic landscape is to be transformed by 2030.
As to the report, the efforts to leverage private finance by channeling public money through global banking giants or shadow banking will more likely introduce new costs and vulnerabilities than finance investments in cleaner and greener energy, jobs and development.
Thus, it calls for bank to change its game, rejecting today’s financialzed markets, which have consistently focused on speculative activities and under-served productive sectors. UNCTAD maintains that it is public banking that does the heavy lifting and hence public banking should be better supported for the future.
It was argued on the report that public banks are designed to be different from private banks, to focus on long term projects whose benefits exceed purely commercial returns and on sectors and locations that private finance ignores.
And despite the constant ideological barrage, public banks in many countries are already doing this, especially in the developing world where Southern led and Southern-oriented banks and funds have added hundreds of billions of dollars of loan to development.
However, UNCTAD’s analysis shows that public and especially development banks are insufficiently capitalized to scale up their required role. Some banks are highly engaged with outstanding loans by the China Development Bank at over 13.4 percent of China’s GDP and the Korean Development Bank at 10.5 percent of Korea’s GDP, but public banks in countries such as India.
Malaysia, Mexico, the Russian Federation and South Africa have severe loan portfolios at just between one percent and two percent of their countries’ GDP. This is too low for the Sustainable Development Goals or for Global Green New Deal.
Another constraining factor that the report reveals is that many banks’ low loan-to-equity ratio. This is particularly problematic in development banks that raise resources in national and international capital markets. Since banks have a fixed capital base, the scale of their leading is limited by how markets view their solvency, which to a large extent depends on their credit ratings. Banks’ effort to achieve high ratings are unnecessarily constraining their lending by up to one trillion USD, according to estimates from Credit Rating Agencies(CRAs) themselves.
The report argues that greater policy support is essential to build on the positive opportunities public banking is already creating. Amongst the suggested actions are freeing central banks from their narrow focus on price stability/inflation targeting, so they can recover their historical, bolder role and support a Global Green New Deal.
Giving development and other public banks more capital so they can scale up lending, including by direct financing and enabling banks to reinvest their profits was another area that was recommended to be considered by government.
Moreover, the report suggested that public banking should be supported by a clear mandate from governments and performance indicators and accountability mechanisms that value long-term social and development returns and not just financial ones.
Shiferaw Shitahun, an Economist, on his part said that public banks take the lion share in shouldering the under-served productive sectors. As to him, public banks such as Commercial Bank of Ethiopia (CBE) should be supported with regard to enhancing their capital at the end of the day serve the unserved and the underserved ones.
While executing ways to increase capital, he suggested that public banks should consult those who take loans [exporters] in a manner they can broaden their market and earn huge foreign currency in return.
Though capital remains to be the major constraints in the sector, he emphasized that public banks should consider having a department that consults its clients to be more competitive and successful.
Facilitate the provision of more capital for development and other public banks to scale up their lending capacity by direct financing; and enabling them to reinvest their profits was the other area suggested in the report.
The Ethiopian Herald October 2, 2019
BY BETELHEM BEDLU
