Last weekend, G20 Finance Ministers met in Turkey, and although the resulting communiqué covers a whole host of issues, it is becoming clear that two areas dominate in terms of actual work planned this year: infrastructure financing and financial sector reform.
As Eurodad noted in our scorecard analysis of the G20’s work last year, infrastructure has featured prominently on the G20’s agenda, particularly its push to harness private financing for infrastructure. Actual concrete initiatives have been limited: a tiny Global Infrastructure Hub with an information sharing mandate was the underwhelming centrepiece of last year’s G20 Global Infrastructure Initiative.
However, the underlying efforts to set a new agenda for infrastructure financing continue to be significant, driven by the World Bank and the Organisation for Economic Co-operation and Development (OECD). Existing agendas include the promotion of the idea of an ‘infrastructure asset class’ for institutional investors such as pension funds to invest in – despite the fact that there is very little evidence of any appetite for this – and a push to promote public-private partnerships (PPP), with only limited recognition of their chequered history.
This year, there will be more – perhaps a lot more – of the same. G20 Finance Ministers aim to “improve PPP models to attract further involvement by the private sector” and “to facilitate long-term financing from institutional investors and to encourage market sources of finance, including securitization”. “To promote infrastructure as an asset class,” the Ministers say, they “will encourage an increasing role for new financial models including transparent asset-based financing structures”. A “special emphasis” this year will be placed on “improving the financing situation of and investment environment for SMEs [small- and medium-sized enterprises]”.
While the World Bank has been the G20’s go-to agency on these issues in the past, this year the OECD – a rich country think tank – is getting in on the act too, with four background papers on infrastructure. Sadly neither the G20 website nor the G20 Research Centre has collated these yet, but some are available on the OECD’s website.
The theme of creating an asset class for institutional investors is picked up in a lengthy OECD report Mapping Channels to Mobilize Institutional Investment in Sustainable Energy, which begins by confirming just how little interest there currently is from institutional investors regarding this issue. “Looking just at large pension funds surveyed by the OECD, due to a range of barriers, direct investment in infrastructure projects of all types accounted for only 1% of their asset allocation in 2013”. This leaves the OECD undaunted, because they believe the public sector can get these recalcitrant investors to change their preferences by ‘mitigating’ their risks. However, it soon becomes clear that this really means transferring the risks to the public sector, “by providing coverage for risks which are new and are not currently covered by financial actors, or are simply too costly for investors”.
The second main G20 priority for the year – judging by the amount of actual work that is promised for the concluding summit in Antalya, Turkey in November – is financial sector reform. This largely means the conclusion of existing initiatives, but these apply to a wide range of areas, including setting a global standard on “total-loss-absorbing-capacity for globally systemically important banks”, “identifying systemically important financial institutions beyond the banking and insurance sector.” As Eurodad has previously noted, it is not at all clear that the sum package of these G20-backed reforms has actually made the global financial system more stable and less prone to crises.
As the G20 notes, the global economy continues to recover slowly from the global financial crisis, and new risks continue to emerge, amid a backdrop of “rising financial market volatility”. One such example is the recent collapse in global oil prices, which could threaten to destabilise the financial sector. The IMF’s background paper for the G20 Ministers notes that “the exposure of some global banks to oil and gas companies is substantial – between 2 to 8 percent of total assets for some banks – and an increase in non-performing loans would have an impact on the balance sheet of those banks”.
Other issues seem to have dropped down the agenda. Tackling tax avoidance and tax evasion – a clear priority for the G20 in 2014, but one where rhetoric significantly exceeded achievement – is addressed purely by following up on existing initiatives.
Finally, the G20’s motivation to do anything about International Monetary Fund (IMF) governance reform seems to have disappeared completely. The US’s failure to ratify the limited IMF governance reforms agreed in 2010 has prevented their implementation (the US has a blocking minority of shares in the IMF). However, the G20 Ministers have only asked the IMF to find alternatives that could “constitute a meaningful interim step” towards these limited five-year-old reforms.
It remains relatively unclear what the true focus of this year’s G20 summit will be – the Turkish presidency’s stated priorities cover virtually all issues previously tackled by the G20. The best way to judge is to see where actual new work will be done by November. Using this yardstick, 2015 could be the year of infrastructure and financial sector reform, unless the fragile global economy delivers fresh crises to grapple with.