World
Multilateralism might be broken, but it is not dead yet. Or so we should conclude from the multilateral negotiations ahead of the fourth edition of the UN Financing for Development conference, about to begin in Seville. A once in a decade meeting, the last FfD was hosted by Ethiopia in 2015; this year it will be hosted by Spain over four days from June 30—without the participation of the US, which officially withdrew from the conference two weeks ago. As is the case with all UN processes, FfD4 will involve extensive intergovernmental negotiations to reach a consensus on a final outcome document, with civil society organizations, international development institutions, and corporations all lobbying to contribute.
The four co-facilitators—Mexico, Nepal, Norway, and Zambia—tasked with the “writing pen,” released an “elements paper” in November and a “zero draft” in January. UN Members then negotiated the wording in several PrepCom meetings in New York, until with unusual punctuality the final draft was agreed on June 16 ahead of the Seville meeting—an easier task without the participation of Washington.
I have followed the process closely as a member of the UN’s International Commission of Experts convened by the Spanish government and will attend the meetings in Seville. In a series of dispatches published at Phenomenal World, I will report on the meetings as they occur and explore what they mean for the future of development finance going forward. In this first dispatch, I explore the context and negotiations leading up to Seville.
The Billions to Trillions hijacking of FfD3 in Addis Ababa
From the turbulent perch of the present, 2015 seems like a lifetime ago. That year, a trifecta of UN agreements announced transformative global ambitions on climate and development. In July 2015, 193 UN Member States agreed to the Addis Ababa Action Plan of the Third International Conference on Financing for Development (FfD3). Solving the financing question, the UN Secretary-General Ban Ki-moon stressed, provided “the foundation of a revitalized global partnership for sustainable development that will leave no one behind.” In September of that year, UN members signed the Agenda 2030 for Sustainable Development, a “broad and universal policy agenda” aiming to “transform our world” through a new set of Sustainable Development Goals. Then, the Paris Agreement in December marked a new direction in climate politics. Climate action was no longer synonymous with carbon pricing, but instead a long-term project of economic transformation.
The FfD3, the World Bank reported, was marked by “one stark difference from previous gatherings in Doha and Monterrey: unequivocal acceptance that the financing will have to come from private as well as public resources.” The change was inaugurated in part by the sheer force of a new Bank-created motto for financing development: “From Billions to Trillions.” Public, concessional funding in the billions could unlock trillions in private investment. To meet the aims of the social development goals, the Bank claimed, required trillions in financing, which could only materialize through “a paradigm shift… a financing framework capable of channelling resources and investments of all kinds—public and private, national, and global.” It was music to many ears, eager to hear that trillions of investment only required small amounts of public expenditure.
What had been the catalyst for change? Like its sister Bretton Woods institution, the IMF, the Bank had been suffering a crisis of legitimacy as the vehicle of the Washington Consensus. External critique and internal rebellion had multiplied against the global economic liberalization paradigm. In one famous episode, US Treasury Secretary Larry Summers demanded that the Bank’s Chief Economist, Joseph Stiglitz, be forced out. Stiglitz had been a vocal IMF critic after the 1997 East Asian crisis, even once advising Ethiopia against the IMF and US Treasury demands for financial liberalization. Summers was furious to see an insider echo the progressive voices that blamed the Bretton Woods institutions for lost decades across the global South. Stiglitz left the Bank.
The World Bank eventually revised the Washington Consensus with a new emphasis on market-failure and social sustainability. But geopolitical and ideological shifts were underway. The tide was turning back towards state involvement in the economy, as countries across the global South wondered how to emulate China’s success story. At the same time, China’s Belt and Road Initiative preoccupied Washington with the concern that geopolitically strategic infrastructure investment might build a credible alternative to US-dominated global order and its Bretton Woods institutions.
The Bank needed a new development paradigm—albeit without radical change. The world of illicit financial flows, ever lessening corporate tax, committed fiscal restraint, and neoliberal constraints on public money creation would remain intact. What the “billions to trillions” slogan captured was a desire to get public money to activate the power of private cash—billions for investible trillions, would be a more accurate description of the new paradigm.
I have termed this new paradigm the Wall Street Consensus, to capture the new vision of SDG development as an asset class. The investible development paradigm involves new development partners in institutional investors seeking the right risk-adjusted returns. This means, for example, a new hospital becomes investible once private investors can count on concessional funding from the World Bank or local fiscal resources. The principle is to shield private investors from certain risks. For such investors, the trillion dollar question became “just how much derisking can I get from the state and international development institutions?”
According to this logic, rich countries could agree to “mobilize” USD100 billion a year by 2020 for developing countries, since the language of mobilization did not require them to specify how much they would fork up in concessional funds. Financiers found their preferred solution to the USD 1.5 trillion infrastructure financing gap in the FfD3 document. As articulated by BlackRock CEO Larry Fink, a year earlier, it proposed “a natural partnership.” “Most governments,” he said, “simply don’t have enough cash for the projects they need, and investors are looking for new sources of return in increasingly difficult and correlated financial markets.” Public money, via an infrastructure bank, would constitute “this sort of big and bold initiative—an act of confidence by the government—that investors want and need, and which can help unleash the power of private dollars.”
Closely echoing Fink, the FfD3 document pleaded with “long-term institutional investors, such as pension funds and sovereign wealth funds, which manage large pools of capital… to allocate a greater percentage to infrastructure, particularly in developing countries.”
The derisking development model, and its Billions to Trillions shorthand, brought together financiers looking for stable returns in a world of low interest rates, politicians animated by transformative ambitions but too timid to challenge the ideological and institutional restrictions on fiscal space, development activists and officials that saw an opportunity in the new SDGs, and geopolitical hawks in the US seeking to counteract China’s BRI. The implication was that transformative ambitions could be funded by inviting Wall Street to invest in infrastructure without the need for institutional and political change.
From Addis to Seville
As preparations for the meeting in Seville began in 2024, participants agreed on one thing: the Billions to Trillions promise was, in the words of Charles Kenny of the Centre for Global Development, a “fiction.” Even the World Bank had ceased its talk of the trillions of dollars to be poured into development. This was not for lack of trying. In 2017, its president had declared that “to get to the trillions, we needed to change the way we do our work.” With the approval of the first Trump Administration, the Bank had to shift from being a lender to being an investor that “systematically de-risks both projects and countries to enable private sector financing.” The Bank would extend guarantees or take first loss tranches in private investments across health, education, housing, energy, nature, biodiversity, and water, helping these new SDG asset classes yield reliable cash flows for institutional investors.
The Bank also announced a new Maximising Finance for Development (MFD) initiative that same year. The plan was to hardwire the imperative of mobilising private trillions into staff incentives and programs, including the Strategic Country Diagnostics and Country Partnership Frameworks, the new InfraSAP (Infrastructure Sector Assessment) and Country Private Sector Diagnostics. This was an initiative that was explicitly about raising money, the question of actually using that money for development had completely disappeared from view.
But by 2023, in a quiet admission of failure, references to both the Trillions agenda and the MFD disappeared from the Bank’s public documents. An OECD assessment delivered a particularly unpleasant arithmetic. Every dollar of multilateral investment mobilized just 30 cents of private investment. The trillions were simply not there.
Progressive critics had an explanation: the model was fundamentally flawed. Investors demanded returns on their infrastructure assets that were simply incompatible with developmental goals of universal access to high quality social infrastructure, and governments could not find the fiscal resources to subsidize such returns
But the “investible development” model had still bigger problems. The new development partners, the Bank’s chief economist Indermit Gill pointed out in 2024, were in fact taking more money out of the global South than they were putting in. “The financing landscape for development has been upended,” he wrote. “Since 2022, foreign private creditors have extracted nearly USD141 billion more in debt-service payments from public-sector borrowers in developing economies than they have disbursed in new financing.” The Covid-19 pandemic and the interest rate hikes of the US Federal Reserve had produced new fiscal pressures, once again revealing the faultlines of the global financial architecture. External debt distress loomed large across the global South, with total debt-servicing costs (principal plus interest payments) reaching an all-time high of USD1.4 trillion in 2023. Global North-led debt relief and restructuring initiatives, like the Debt Service Suspension Initiative and the Common Framework for Debt Treatments, made little progress in forcing the involvement of private creditors. Countries that were promised trillions in private investment were instead paying trillions in debt service, often redirected from public spending on health and education. Reform of the debt architecture would thus become a pressing priority, and a sticking point in the Seville negotiations.
But while the rhetoric shifted away from “Trillions,” the general model retained its dominance. In the run up to Seville, both rich countries and financiers continued to push it. The Biden Administration had embraced it enthusiastically. National Economic Council head Brian Deese had come to the Administration from BlackRock, where, in 2018 he oversaw a new Climate Finance Partnership between BlackRock, the governments of France and Germany, the Hewlett Foundation and the Grantham Environmental Trust. The CFP Fund was a blended finance vehicle, in which governments and philanthropies gave BlackRock USD 100 million, to mobilize climate investment in the global South. It notably purchased the controlling stake in the Lake Turkana Wind Power project in Kenya. The Kenyan state’s generosity towards Wall Street ultimately became so controversial that the government was forced to impose a moratorium on power purchasing agreements, while local manufacturing groups complained that high energy costs were undermining industrialization efforts.
Rather than drawing the lessons from this (and numerous other) episodes of “investible development,” the Biden Administration instead promoted another derisking effort, the G7 Partnership for Global Infrastructure and Investment (PGII). Launched in 2022, PGII would “invest and mobilize up to USD 600 billion by 2027 to narrow the infrastructure investment gap in partner countries,” a “strategic opportunity for developing countries to accelerate progress towards achieving the Sustainable Development Goals (SDGs) and the targets of the Agenda 2030.” At the June 2024 G7 meeting in Italy, the panel on PGII saw heads of state listen to Larry Fink stress that global infrastructure investment could not be shouldered by taxpayers. Rather, he argued, “we should look at the growing pool of private investment.” While the Billions to Trillions slogan had fallen out of favor, desriking remained the model for global development policy.
The Seville commitment
The outcome document of the FfD4 process offers some signs of where the consensus is headed next. Saliently, it is clear that the Seville process has remained a prisoner of the Trillions model. The section of the document on domestic resource mobilization notwithstanding, commitments to derisking run throughout. Parties emphasize the need to “develop an enabling policy environment which facilitates private investment in agriculture and food systems, and the role that public investments can play in incentivizing and derisking private investments.” There is strong language on working to “strategically attract foreign development investment, including from institutional investors, into developing countries building on national planning frameworks.”
There is even stronger language in the section on “Private Capital Mobilization”: “We will work to increase the mobilization ratio of private finance from public sources by 2030 by strengthening the use of risk-sharing and blended finance instruments, such as first-loss capital, guarantees, local currency financing, and foreign exchange risk instruments, taking into account national circumstances. We invite MDBs and DFIs to harmonize and strengthen impact metrics to support mobilization targets, building on ongoing work, and to align incentives with maximizing sustainable development impact tailored to national needs.” Point 33.o expresses support for extending the WB Guarantee Platform, a new “one-stop shop” to mobilize private finance. It calls on MDBs to introduce “innovative financial instruments such as portfolio guarantee platforms.” Indeed, that Section includes only a single point on aligning derisking with development outcomes, and twelve points on initiatives to scale up derisking. The climate commitments call for “assessing and improving the mobilization of finance from all sources to address the global biodiversity finance gap by 2030.”
The consensus diagnosis emerging from FfD4 for why trillions of investment have not appeared is that more carrots are needed. There is an acknowledgement of tension between the goals of increasing returns to investors and development goals of nations. The outcome document notes that blended finance may skew benefits towards private investors, that governments and MDBs have allowed investors to cherry-pick revenue-generating assets in middle-income countries (80 percent of blended finance still flows there), that there is little transparency which in turn may generate significant fiscal burdens and debt sustainability problems. These are significant concessions to the critics of the investible development model.
But the FfD4 document glosses over the institutional mechanisms that could improve developmental outcomes. In the UN Expert report commissioned by the Spanish government published in February, we provided clear suggestions on building an institutional framework for countries to closely govern derisking. We stressed that “the quantity, quality and types of finance mobilized have proven insufficient for the task,” and suggested: (a) new institutions and metrics to measure, monitor and, through conditionality, align “investible” projects with development outcomes; (b) fair public-private partnerships, that transparently divided the risks and benefits between the state and the private investors it subsidises; (c) criteria for fiscally responsible derisking, including ceilings on contingent liabilities and derisking debt rules to limit long-run fiscal costs. The FfD4 document falls far short of such suggestions. It calls for “clear monitoring and accountability mechanisms” but without conditionalities. On debt sustainability in blended finance, it calls for monitoring rather than hard ceilings on contingent liabilities.
The Expert FfD4 report called for developmental carve-outs, or ringfencing social infrastructure from derisked private ownership in areas such as education, health, or water. This is a shift away from the old language of “mobilization.” Since universal access to high-quality public goods is incompatible with investors’ demands for adequate returns, social infrastructure should remain public infrastructure, financed by progressive redistributive fiscal policies. But the outcome document does not envision such carve-outs, and instead promotes “well-designed public-private partnerships that share both risks and rewards fairly.” It fails to point out that private rewards are the consequence of either high public subsidies or high user fees.
In parallel, a commitment in the earlier zero draft “to close financing gaps in the provision of essential public services, such as health, education, energy, water and sanitation, and building social protection systems” was deleted from the final document.
Reforming the global debt architecture
Throughout the process leading up to the Seville conference, global South countries in various formations (the Small Island Developing States (SIDS), the Africa Group, Pakistan and Brazil) called for the creation of a UN Framework Convention on Debt. Insisting on a formal UN process was not naive idealism, but rather a bid to wrest deliberative control away from the closed-door clubs where Northern financial might prevails.
By shifting deliberations to the UN General Assembly’s one-state-one-vote system, debtor nations hoped to improve the fairness and transparency of debt resolution mechanisms. To support the proposal, European civil society organisations offered concrete steps for the UN process: a multilateral sovereign-debt resolution mechanism, binding responsible lending and borrowing principles, an automatic mechanism for debt relief in the wake of catastrophic external shocks, a global debt registry and critically, domestic legislation in creditor countries to contribute to effective debt resolution by mandating private creditor involvement.
These proposals systematized the measures necessary to dismantle the debt architecture that disproportionately benefits private creditors who enjoy ironclad legal protections enforced by New York and London courts. The Zero Draft surprisingly took steps in that direction:
Building on existing work, the review of the sovereign debt architecture envisioned in the Pact for the Future and the United Nations Secretary-General’s update on progress and proposals, we will initiate an intergovernmental process at the United Nations, with a view to closing gaps in the debt architecture and exploring options to address debt sustainability, including but not limited to a multilateral sovereign debt mechanism.
This paragraph turned out to be one of the points of substantive controversy. In the Seville document, paragraph 50f survived in a much weaker form, with references to a multilateral sovereign debt mechanism deleted, replaced by gestures towards dialogue and recommendations:
Building on existing work, the review of the sovereign debt architecture envisioned in the Pact for the Future and the update by the United Nations Secretary-General on progress and proposals, we will initiate an intergovernmental process at the United Nations, with a view to make recommendations for closing gaps in the debt architecture and exploring options to address debt sustainability, including through holding a dialogue among Member States of the United Nations, the Paris Club, and other official creditors and debtors, along with the IMF and World Bank, other multilateral development banks, private creditors and other relevant actors.
According to Eurodad, the European Union and the UK wanted the paragraph on sovereign debt reform removed altogether. They eventually accepted a diluted wording to allow for formal agreement, while dissociating from that paragraph. (“Dissociation” allows countries—in this case the EU, Canada, Republic of Korea and Japan—to sign the FfD4 document without considering themselves bound by a particular paragraph.) Notably, China did not dissociate from 50f. Beijing recognizes the global South’s debt crisis as leverage to fracture the Bretton Woods monopoly. Meanwhile, the overall message from the North was clear: sovereignty stops where BlackRock’s yield curve begins.
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