Nancy Alexander, Guest Blogger
The Communique of G20 Finance Ministers & Central Bank Governors Meeting (April 18-19, 2013) was recently released.
The Communique “underscores the importance of long-term financing for investment, including in infrastructure, in enhancing economic growth and job creation.” In addition, it emphasizes the G20’s latest views on a variety of issues, including the European financial architecture, medium-term fiscal consolidation in the US and other advanced economies, currency “wars,” IMF quota and governance reform, public debt management, regional financial arrangements, financial (and shadow banking) regulation, tax avoidance/evasion.
The Russian Goals
According to presentations in Washington by Russian Deputy Finance Minister Sergey Storchak and Sherpa Ksenia Yudaeva, “growth and jobs” are the headline issues for their Presidency. However, the means to achieve these goals is through progress on “financing for investment” (especially in infrastructure public-private partnerships (PPPs).
The issue of “financing for investment” (FfI) has surged to the top of the G20 agenda. The Sherpa stressed the ambitiousness of the work program of the study group, co-chaired by Germany and Indonesia. The work program is contained in the annexes of this “umbrella paper” prepared by the World Bank in coordination with OECD, IMF, UNCTAD, UN-DESA, and FSB: http://www.g20.org/news/20130228/781245645.html.
What do these documents mean for development? To examine this question, it is important to consider the working paper, “The Age of Austerity: A Review of Public Expenditures and Adjustment Measures in 181 Countries” by Isabel Ortiz and Matthew Cummins of the Initiative for Policy Dialogue (IPD) and South Centre (March 2013):
Among other things, this working paper describes the widespread fiscal contractions underway, especially in the developing world where 68 developing countries are projected to cut public spending by 3.7% of GDP, on average, in the third phase of the crisis (2013-15).
Against this background, leading thinkers are projecting the need to more than double infrastructure financing by 2020. See: “Infrastructure for development: meeting the challenge” by Amar Bhattacharya, Mattia Romani, and Nicholas Stern:
This paper estimates that “investment spending in infrastructure (excluding operation and maintenance) in developing countries will need to increase from approximately $0.8-0.9 trillion per year currently, to approximately $1.8-2.3 trillion per year by 2020, or from around 3% of GDP to 6-8% of GDP. This includes about $200-300 billion to ensure the infrastructure entails lower emissions and is more resilient to climate change.” (*See note below on BRICS-led Bank.)
This paper estimates that “investment spending in infrastructure (excluding operation and maintenance) in developing countries will need to increase from approximately $0.8-0.9 trillion per year currently, to approximately $1.8-2.3 trillion per year by 2020, or from around 3% of GDP to 6-8% of GDP. This includes about $200-300 billion to ensure the infrastructure entails lower emissions and is more resilient to climate change.”
If many developing countries are cutting budgets by 3.7%, as projected by Ortiz and Cummins, and increasing infrastructure spending by 3% to 5% of GDP, as suggested by Bhattacharya et al., it means that (all other things being equal, including growth rates), in many countries, spending on sectors other than infrastructure (health, education, agriculture, social protection) could undergo an unusually sharp contraction. (The envisioned infrastructure is largely cross-border economic and trade facilitation infrastructure, which is intended to boost growth and living standards, but probably not in the near- to medium-term because these mega-projects take many years to implement.)
It is ironic that – while the UN system is conducting intense discussions on the post-2015 MDGs – the G20 and the IMF are promoting austerity and infrastructure programs that could jeopardize their achievement of these goals.
Infrastructure is definitely necessary; it is an important priority. But we must also ask: how much infrastructure? Where? For whose benefit? At what cost? Will it reduce the planet’s carbon footprint? And, are PPPs the right modality for infrastructure development? In certain countries and sectors, PPPs have a bad record.
Is austerity the right medicine to avert or address high debt levels? This week, researchers at the Political Economy Research Institute (PERI) of the University of Massachusetts, showed how “conventional wisdom” on austerity is based on bad data. See: http://www.peri.umass.edu/realnews/