THE NEXT BIG CRISIS: WHAT, WHERE, HOW ? Matthew Martin Development Finance International  EURODAD Policy Forum Brussels, 11 June 2018

BACKGROUND AND KEY QUESTIONS DFI has worked for 25 years with 60+ middle- and low-income countries, as well as CSOs, unions, parliaments, building capacity to manage all types of development finance (debt, private flows, aid, tax), and still doing so eg in UNDP Development Finance Assessments on how to finance the SDGs Multiple research analyses of different flows, what causes them, how to manage them well Helping smallest and poorest countries get their voices heard in global negotiations on debt, aid, private flows, tax (currently OIF network 30→68) Based on Southern and analytical viewpoint: The two crises we already have The two potential massive crises

CRISIS 1 WE ALREADY HAVE: DEBT When: NOW – even the IMF says so ! Where: Small Island Developing States & LICs/LMICs, but also UMICs and HICs. Not only external public debt but domestic, & private (see Jubilee UK, Eurodad, DFI) Vastly underestimated by IMF/WB assessments – > 60 countries now spending > 20% of their budget revenue on debt service, crowding out SDGs

CRISIS 1 WE ALREADY HAVE: DEBT How are we dealing with it ? Appallingly badly – blaming countries (partly true but we are equally responsible – who regulates CSFB & Glencore ?), messing about at the edges (« costless » market-based long-term solutions – insurance, contingent loans etc) – or making countries adjust to the debt How could we deal with it ? Preferably FTAP, more likely HIPC +++ ie start from where HIPC ended, cancel debt up front, make sure bondholders brought in, global VF laws How do we get there ? Defaults on odious debt, need a new Jubilee campaign and to focus on making case for large core group of countries, mobilise like-minded leaders (UN, RDBs, IMF ?)

CRISIS 2 WE ALREADY HAVE: AID When: NOW and growing. Where: SIDSs, LLDCs & LICs/LMICs. ODA stagnating globally and increasing proportions spent on « unreal aid » Virtually no climate finance reaching LIDCs So has halved as % of LIDCs GDP South-South cooperation still growing But massive shortfall in concessional funds needed to « Leave No One Behind » Financialisation/privatisation of aid « at service of trade and investment interests » And massive roll-back of « effectiveness »

CRISIS 2 WE ALREADY HAVE: AID How are we dealing with it ? Appallingly badly – trying to change goalposts to pretend all sorts of non-aid is aid (TOSSD etc), trying to pretend we are making progress on effectiveness, suggesting countries fund « low-return » projects with taxes How could we deal with it ? Allocate aid by vulnerability to shocks + SDG needs; not call ODA anything spent in our countries; judge compliance with 0.7% more toughly; commitments to 1% including climate finance; rebuild budget support. How do we get there ? Strong aid policies and accountability in countries, tough global campaigns for « social » sectors (eg girls education), need a new Gleneagles of popular mobilisation, analysis to show cannot fund SDGs otherwise (SDSN/DFI)

CRISIS HERE/COMING ? : TAX When: NOW with massive growth potential Where: developing (+ developed) countries Corporate and personal income tax rates falling again and seems popular (Austria, Italy, US?), collection falling due to tax dodging Hitting LIDCs even more than HICs (and even though they are not cutting rates) because have less capacity to fight tax dodging LIDCs also hit by tax treaties and tax exemptions on donor and PPP projects (4-6% of GDP) THOUGH: new drive to increase tax collection Risk of massive budget crises or huge cuts to social spending in order to balance budgets

CRISIS HERE/COMING ? : TAX How are we dealing with it ? Often swallow false story that cuts bring growth, jobs; tinker slowly at edges (BEPS/non-public AEOI); aid for DRM mostly admin > policy; say it is LIDCs fault >shared Some good things like treaty changes, beneficial ownership (esp trusts), gender/progressive tax How could we deal with it ? Fundamental policy changes: much tougher standards on tax havens and public EOI; common minimum regional taxes (UEMOA 25-30%); end tax exemptions on aid, esp. PPP/DFIs projects; redo treaties (+fishing licenses); audit all large companies and HNWIs; How do we get there ? Global tax justice movement, shame dodgers for killing people, analysis to show what countries cannot fund

CRISIS COMING : FINANCIALISATION When: ALREADY in some countries, with massive growth potential Where: developed (now developing) Mirage since Addis: can achieve SDGs largely with private finance - privatisation, PPPs, PFIs Massive failures in social sectors at huge costs to government budgets; big problems in semi-social sectors like water/energy for all, agric Dramatically exacerbating inequality Yet drive to huge global infrastructure program (« pooled assets for SWFs ») – mismatch between return and risk is recipe for subprime mortgage crisis cubed…and undermining private flows to LIDCs for a generation

CRISIS COMING : FINANCIALISATION How are we dealing with it ? Too many still promoting financialisation, even in social sectors; tinkering slowly at edges (dont do PPPs for large health projects); build capacity for « better PPPs »; say it is LIDCs fault for poor management >shared Some good things: LIDC governments, parliaments, CSOs realising potential for disaster and refusing to do PPPs How could we deal with it ? CSO PPP manifesto, strong opposition to global pooled assets, policy changes vs PPPs by donors and MDBs; much greater transparency and accountability; How do we get there ? Analysis to show countries will be bankrupted, global mobilisation, predict crisis, hope dont need worse crash to wake up !