April 17, 2025 • 34 mins
Developing countries require trillions of dollars a year to transition to clean energy and build climate-resilient infrastructure. So where will the money come from? Avinash Persaud, special advisor on climate risks to the president of the Inter-American Development Bank, joins Zero to make the case for giving more money to Multilateral Development Banks (MDBs), which already funnel hundreds of billions of dollars a year to poorer countries around the globe, much of which goes to climate projects. His pitch is now harder than ever to make as the US slashes international climate finance and European countries reduce their overseas aid budgets to support defense spending.
Past episodes of Moving Money:
- How the financial system can work for climate, not against it
- The fight over finance brewing at COP29
Explore further:
- COP29: Exxon CEO Darren Woods Interview Transcript From UN Climate Summit
- Unlocking Climate Trillions With a Global Plan From a Sinking Island - Bloomberg
- Debt-for-Nature Swaps Gain Traction Among Developing Countries - Bloomberg
Zero is a production of Bloomberg Green. Our producer is Oscar Boyd. Special thanks to: Mythili Rao, Sommer Saadi, Mohsis Andam, Blake Maples and Siobhan Wagner. Thoughts or suggestions? Email us at zeropod@bloomberg.net. For more coverage of climate change and solutions, visit https://www.bloomberg.com/green.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to zero I am Akshatrati this week the mysterious
Beauty of development packs. It has been a wild couple
of months in the world of development finance. Since January.
(00:22):
One by one we've seen countries pull back from their
aid commitments. The US, the UK, the Netherlands, France. The
list keeps growing. This comes just a few months after
Rich countries agreed to ramp up climate spending at COP
twenty nine. The headline target was three hundred billion dollars
a year by twenty thirty five, tripling the previous commitment
(00:45):
of one hundred billion dollars, which is supposed to be
reached by twenty twenty. Now these new commitments are in
serious doubt. What isn't under question is the need for
that money. Developing countries still require trillion of dollars a
year to transition to clean energy and build climate resilient infrastructure.
(01:05):
So where will the money come from? That's the question
we'll explore in this episode of Moving Money. We are
welcoming back avinash Parsod, special advisor on Climate risks to
the President of the Inter American Development Bank and former
economic advisor to Barbados Prime Minister Mia Mottley. Last week
we explored how to reshape the global financial order for
the climate era. Today we'll explore the role of multilateral
(01:29):
development banks, or MDBs. The World Bank is the best
known MDB, but there are many others. Collectively, they funnel
hundreds of billions of dollars a year to poorer countries
around the world, much of which goes to climate projects.
Our conversation was recorded at Coptery nine in Baku, but
remains as relevant as it was then, perhaps even more
(01:52):
so as President Trump doubles down on US isolationism. We
sat down to talk about how MDBs can be used
to move move more money to developing countries, what they
can do better, and who will fill the gap if
the US WU draws from these MDBs. Avinash is a
special advisor to an MDB. That makes him, unsurprisingly a
(02:13):
supporter of their work, but he's not just an MDB insider.
He's come to that role after a long career as
a banker on Wall Street in New York and in
the City of London. He's also been an advisor on
economic issues to a developing country government, so his insights
come from seeing all sides of the financial system. As
(02:34):
you'll hear in our conversation, he's come to the view
that MDBs play a crucial role in the global financial system,
and one that becomes more important in the volatile times ahead.
Hi Avinash, welcome back for another episode of Moving Money.
Speaker 2 (02:51):
Thank you.
Speaker 1 (02:52):
Today we're going to talk about multilateral development banks, things
like Worldbank, which most people think have an idea of,
but also so many other development banks, one that you
work for, Inter American Development Bank, Asian Development Bank, African
Development Bank. The fact that they have development in them
makes them seem like good banks. What are MDBs?
Speaker 3 (03:14):
You know? Actually, when I think we first spoke, I
was part of the Bridgetown Initiative, one of the architects
of that for international financial reform, and in doing that work,
I realized that the multilateral development banks have a very
critical role to play, which is why I joined one.
Now I think it's actually, and excuse the potential perversity,
(03:40):
but actually a thing of beauty that the center of
the global financial system are a handful of Triple A
rated institutions, which are development banks, which means they're not
for profit.
Speaker 1 (03:55):
And rating just gives them this credit rating which allows
them to go to private investors, and they will invest
in this thing because they are guaranteed a return.
Speaker 3 (04:04):
Did you say, just gives them? It's such a powerful thing.
So what a development bank can do, and this is
very different from say a climate fund or development fund.
You put a dollar into a development fund, you get
a dollar out. You put a dollar of capital into
a multilateral develoment bank and you can get eight dollars out.
(04:26):
Now how does that happen? So capital, what is capital?
Capital is loss absorbing. So I go into the marketplace.
The British governments give me a pound of capital. I
go into the marketplace. I say to the marketplace, I've
got a pound of capital. I can lose this pound.
I don't need to pay it back to anybody. I
can lose this pound, and as a result, can I
(04:48):
borrow money from you. So it's like my first loss.
I've got the ability to do first loss. And therefore
the market says, oh, I don't mind lending you seven
or eight pounds knowing that, but if you run into trouble,
the first pound to suffer is not my pound, it's
the British government's pound.
Speaker 2 (05:07):
The capital.
Speaker 3 (05:08):
So when we go to the marketplace, with a pound
of capital, I could therefore borrow seven pounds. That seven
pounds is comfortable because it knows if there's a loss,
their money isn't touched until the first pound is gone.
Speaker 1 (05:26):
So how big is the MDB system when it comes
to a total amount of lending relative to say, private lending?
Speaker 2 (05:32):
Tiny?
Speaker 3 (05:33):
So I think I began by saying that it's beautiful
that they the middle of the system is not for
profit triple A development banks. The ugly bit is they're
really really tiny, and we need to make them much bigger,
at least three times bigger. And at the moment development
banks are lending in the order of around two hundred
(05:56):
billion dollars a year. We need them to be lending
three times that amount, with a big chunk on climate,
maybe half on climate. So they need to be lending
six hundred billion dollars a year and three hundred billion
perhaps on climate. And private lending is in the trillions
of dollars. I'm assuming tens of trillions of dollars on
(06:18):
an annual basis, So private lending is around one hundred
trillion dollars. Yes, But the point is that we have
a very financialized system with lots of assets and debt
far in excess of the national income. Those assets and
debts are recycled and shuffled around and lent and bought.
(06:39):
The development banks therefore, as a proportion of that do
a fairly modest amount.
Speaker 1 (06:45):
But what are development banks? How do they exactly work?
What is the structure of a development bank? That makes
them a thing of beauty?
Speaker 3 (06:52):
What makes me a thing of beauty is that you
can put some money into a develoment bank and much
more money can come out. Their main job is to
give you a loan. Because they are not for profit institution,
they try to give you a cheap loan and they
try to make it as long term as possible. They're
not trying to maximize the profitability.
Speaker 2 (07:15):
Of this loan.
Speaker 3 (07:16):
Now, what makes them not for profit is that they're shareholders.
Are governments who again are not looking to make money
from their investment.
Speaker 1 (07:26):
And these are rich governments mostly right, it's America, it's Britain,
it's the G seven countries. They have about half of
the shareholding and most development banks when we looked at
their numbers.
Speaker 3 (07:37):
Actually that you said half, I mean half is not most.
Half is actually quite small. So One of the interesting
things about the development banks is it is the one
of the broadest ownership structures, so the third biggest shareholder
in many of the development banks, as China, India has
a bigger shareholding in the World Bank than a G
(07:59):
seven Italy then in had a future seven countries Italy
and Canada, so it's actually fairly broad. But they were
set up by the rich.
Speaker 1 (08:08):
Countries, right and to me, when we think about development
banks in that context, one way to think about it
is these are mostly colonial powers that were forced to
eventually give up their colonies and realize that if they
wanted to remain in a world that remains peaceful, they
need to ensure these colonies that they extracted so much
(08:30):
value from do develop on their own. That will require
them to have some capital, and we better create a
system that allows some development money to go to these places.
And you can control that a little bit so that
no way, they are not colonies anymore, but at least
we have some control over how much money they can get.
Speaker 3 (08:49):
You're revealing so much about yourself actually in this description,
because you know the way the rowbag was established was
the European reconstruction after the War it wasn't actually about
economic development and the empires. Like the IMF, the IMF's
remit was not about conditionality on poor countries. It was
(09:11):
about managing a global system of fixed exchange rates. So,
in fact, what's quite innovative about these institutions is how
they've actually repurposed themselves as their original purpose disappeared. You know,
it's a story of all institutions. They were set up
to do something, they achieved it, and they reinvented themselves
(09:33):
to do something else so they could stay along. So
now are these institutions if you look at the shareholders,
and I recommend any listener have just google the shareholdings
of the World Bank. It is an amazingly mixed structure.
Russia is a major shareholder, Iran is a major shareholder
of the World Bank. It's not as broad as it
could be, but it is surprisingly broad, which is why
(09:56):
I think it's role in climate finance helps to move
us along this process of which we do need a
global response to a global problem.
Speaker 1 (10:07):
Why are they involved in climate The name is development,
and I understand climate change can affect development. Is that
the link climate.
Speaker 3 (10:17):
Is one of the biggest threats to poverty. We're seeing
a tremendous number of people being pushed into poverty by
climatic events. I was born in the Caribbean Akshatt and
we often think about these hurricanes, and the same hurricane
went over Grenada and almost a third of the population
is homeless. The exact same hurricane goes over Caymans. In fact,
(10:39):
Camans is probably underwater at one point and very little
damage is done because of differences in development. So climate
vulnerability has a lot to do with levels of development,
but also the energy transition is probably the biggest best development.
Speaker 2 (11:00):
Strategy for many developing countries.
Speaker 3 (11:03):
So we've just done this work which shows that we're Latin,
American and Caribbean to reach net zero. The net economic
benefits will be fifty percent of GDP, and a big
chunk of that comes from the savings of electrification. You've
taught me a lot about the power of electrification. A
big chunk comes now from the fact that renewables are cheap,
(11:26):
there's fuel savings, and an even bigger chunk comes from
something that people don't realize. Fossil fuels are really bad.
Speaker 2 (11:33):
For your health.
Speaker 3 (11:34):
More people are dying from air pollution that dying from
climate change. About four point seven trillion dollars is spent
on health to manage the repercussions of pollution. So if
we were to get to net zero, we will have
a huge positive economic benefit and the development banks should
(11:55):
therefore be playing a role in that.
Speaker 1 (11:57):
So in this reinventioned story from Europe in reconstruction to
reducing poverty, is this now a new phase of reinvention?
Speaker 3 (12:06):
There is a reinvention, and I think it's a function
firstly of the fact that climate has now become, as
a result of it in action, become this global force
that is having a huge impact on poverty. It's also
a global public good. Very hard for us to manage
climate individually. So the World Bank is part of it.
(12:29):
Of this reinvention, you might say, it began to change
its strap line. It's not just about eliminating poverty, it's
about doing it in a livable world, and I think
that's good and important. I think a recognition that development
isn't all about climate is also important. The development banks
are committing themselves to fifty percent of their lending is
(12:51):
climate related climate positive, which I think is a good
and reasonable number. It's I say reasonable because the scale
of the task what we need to do, but it's
not one hundred percent, and it shouldn't be one hundred percent. Okay,
So if you're going to triple the lending on development
banks a lot of that supporting climate work, how exactly
(13:13):
do you get there? Because that will require these shareholders
to actually put more money into the system.
Speaker 2 (13:19):
Correct.
Speaker 3 (13:19):
It's one of those wonderful issues where as you begin
to delve into it, it gets more and more complicated.
Speaker 1 (13:28):
Okay, let's break it down.
Speaker 3 (13:30):
Well, let's begin at the topic where it's simple, which is,
you know, you get out a multiple of what you
put in. And if they want to do a lot more,
they've got to put in some money. So the multil
actual development banks at COPP made a announcement that if
you know, business as usual, no new shareholder support, they
(13:52):
could probably lend around one hundred and twenty billion dollars
per year on climate by twenty thirty.
Speaker 1 (14:00):
Right, and that would be roughly double or one and
a half times what they're doing now.
Speaker 3 (14:04):
What they're doing now is not very far short of
that number. It's more like seventy five billion dollars today,
and the ability to be much higher is clearly limited
by not having new resources, but there are things devin
banks can do. There's been a whole push around what's
(14:24):
called the cafe reform, the Capital Adequacy Framework reform. So
what is the ratio of capital to lending? Can we
change that ratio and lend a bit more with existing capital?
Can we do something that was an idea of much
(14:45):
led by the UK or what's called portfolio guarantees. So
the develop banks might pull together a portfolio of the
loans they've got and say to a donor interested in climate, say, well,
here's ten loans that we lent for climate resilience. Would
you guarantee the portfolio, not any individual loan, But the
(15:06):
portfolio doesn't lose money, and that guarantee is unlikely to
be hit that the whole portfolio loses money, but it
allows the development bank to reduce the amount of capital
it puts in and use that capital somewhere else. And
then more so, the whole things they can do with
the existing money being clever with it. Pulling the lever
is the metaphor users squeezing the lemon, that the lemon
(15:28):
can be squeezed a bit more. But there comes a
point where you've squeezed or you can for my lemon,
and so then you need new money. So if you
think about it in the multiplier terms, it's sort of
one pound in six or seven pounds out initially, and
then you do these lemon squeezing activities and you get
eight pounds maybe nine pounds out of.
Speaker 2 (15:49):
That's exactly right.
Speaker 3 (15:50):
Yes, I don't need to explain anymore now, okay, So okay,
So now we've got that level of complexity. Level, let's
add another layer of complexity, so adaptation, climate adaptation of
building stronger sea walls, better flood defenses, better drainage systems.
It's not that easy to get the private sector involved
(16:10):
in that because, yeah, they're no returns to be made.
There's savings to be had, but no returns to be made.
But mitigation investing in a solar farm or wind turbines,
hydroelectric power today, nuclears coming back in those things, you
could probably co invest with the private sector. The banks
have what's called B loans. You know that they'll they'll
(16:32):
do a loan and then they'll have another part of
the loan which has almost exact same terms the maturity,
the interest rate, and the private sector.
Speaker 2 (16:42):
May fund that.
Speaker 1 (16:42):
Right, So the A loan is the development banks loan
and the B loan is the private sector in matching.
Speaker 2 (16:47):
That's right.
Speaker 3 (16:48):
So that is another way in which they can expand
a bit of leverage, but only for mitigation. So once
we've got say the one to eight ratio, half of
that one to eight could be done for adaptation adaptation loans,
the other half could be on mitigation loans. So I've
got now one to eight, but by mitigation loans could
(17:12):
be blended with private sector loans, right, one to sixteen. Right,
I could match whatever my lending on the on the
development bank with lending on the private sector.
Speaker 1 (17:27):
Now you're starting to talk like NASA talks about investing
in one dollar and getting fifty dollars a return for
the US economy because rockets are cool.
Speaker 3 (17:38):
Yes, So on mitigation, maybe a dollar of capital can
end up with sixteen dollars of lending on mitigation. But
whilst adaptations want to eight and that therefore that means
that if the shareholders of development banks put in say
ten billion dollars of capital every year, we could probably
(18:00):
expand about the debt banks lend by over one hundred
billion a year lend directly themselves or mobilized directly with
the private sector.
Speaker 1 (18:11):
So this idea that was talked about at COP twenty
nine around a new collective quantified goal on finance, which
is supposed to be rich countries helping poor countries do
mitigation and adaptation. There were these layers of onion, the
first being direct money being given from a government to
another government, the second layer being multilateral development banks lending more,
and then the third being investors come in. Now already
(18:36):
the explanation you've given to me is that MDBs are
really already mobilizing private sector because the lending that MDBs
are able to make is because they're able to go
and create bonds and borrow from private markets which consider
the MDBs to be a credit worthy lender to give
(18:57):
money to, and then they use that money and give
it to somebody else.
Speaker 3 (19:00):
That's a great point that many people don't get. The
way an MDB works is mobilizing private sector money.
Speaker 2 (19:06):
The donor the government.
Speaker 3 (19:08):
Has put up one and a dollar of capital, and
I've used that dollar of capital to get seven or
eight dollars of private sector money.
Speaker 2 (19:17):
I've already mobilized private.
Speaker 1 (19:18):
Sector after the break, Avinash wants to see much more
money going to development banks. But what happens if President
Trump polds back And by the way, if you've been
enjoying this episode, please take a moment to rate and
review the show on Apple Podcasts and Spotify. It helps
other listeners find the show. There are lots of criticisms
(19:50):
of MDBs that come up. One is that because they
have to keep their Triple A status, they're quite conservative
that they lend to projects, but they do a lot
of work on those projects. It takes our long time
to get those loans. They make sure that they're going
to get their return because if they don't, then you know,
their Triple A status is at risk. In a world
(20:13):
where we're going to have to do this very quickly
and we're expanding this lending, how is the MDB going
to be prepared?
Speaker 2 (20:20):
I think that's an important point.
Speaker 3 (20:21):
However, I would say there is beauty in the leverage
of the one dollar capital leading to eight dollars of lending,
and that is only really possible with the triple A status,
so that we should maintain that leverage, try to make
them as efficient as they can. But I think there's
(20:43):
efficiency and results, so caution, and the caution is linked
to the credit rating, so that is not going to
change dramatically. But I think what you're saying is that
the MDBs.
Speaker 2 (20:55):
Can't do everything.
Speaker 3 (20:56):
They will need to be a form of higher risk
taking that probably has to be funded separately. So there's
something called project preparation facility. You know that the most
risky dollar in any project is the first dollar. It's
the feasibility because you may determine that it's not feasible,
in which case you've lost that dollar. So there's much
(21:17):
talk about the MDB's doing more project feasibility, and maybe
that needs to be separately funded because that's very risky.
That's one of the reason why they don't do it.
The MDBs often complain in that they say we've got
money to lend. Actually, all this talk about giving us
more money, we've got money to lend, we don't have projects.
And the fact that there aren't projects in countries with
(21:40):
huge amounts of potential is because there's not a lot
of money invested in project preparation. There's a lot of
work being done on solar and of course some of
the poorest countries in the world have the most amazing
solar resources, but projects aren't there. Is that because there
aren't really good projects?
Speaker 2 (21:58):
No, we haven't got them.
Speaker 3 (22:00):
Need to invest in the feasibility.
Speaker 2 (22:02):
Well.
Speaker 1 (22:02):
Another criticism that private sector branks make is that MDBs
sort of are secretive.
Speaker 2 (22:08):
They do not.
Speaker 1 (22:08):
Share the loan portfolios that they've given out over the years,
and if they did, you know, private sector could take
that information and be like, actually, building this project in
Ghana was very good. We didn't suffer any losses as
a result. We don't need the MDBs. We are private
sector banks. As long as we know we can make
(22:29):
a return on a project, we'll just go there ourselves.
And that would mobilize a lot of private capitals. It's
share the information.
Speaker 2 (22:37):
It's a nice narrative, you know.
Speaker 3 (22:38):
The reality is the private sector is not as much
of a risk taker as it would like to think
of itself. As often the risk taking is done by government,
whether it is Tesla or many of these other big investments.
Government has to put up the first dollars. But it's
a valid argument in the past, but MDBs have jointly
(23:02):
produced a database of their investments and loans and how
they performed, so there's lots of information, and information sends
a strong signal that investing in companies in developing countries
is fairly low risk. The other thing I've learned actually,
I learned this from speaking to the sustainability person at
(23:24):
a major oil company about what they were investing in.
And they were investing in these very speculative things, particular
types of hydrogen. And I was saying to him, but
sol and wind is out there, it works, it's cheap,
and he looked at me and said, yeah, there's not
(23:44):
enough return for us from that. So, you know, we
used to think that the problem was that the renewables
weren't profitable. That's not the problem for start. They're profitable today.
It's they're not more profitable than other things. That's the
problem we need to deal with.
Speaker 1 (24:02):
We have the CEO of Exonmobile come on a climate
podcast this one, and he made the case that you know,
Exonmobile doesn't have any expertise in delivering electrons. It does
have expertise in moving molecules and delivering molecules, whereas when
it comes to renewables, they've never built renewables before. And
(24:24):
if the profit is lower anyway, why should they invest
in those projects.
Speaker 3 (24:28):
You know, I think that that's a wonderfully actually political
point dressed up as a technical point, because the reality
is that the problem with renewables is the barriers to
entry are very low. While so if you look at
the oil industry, they have found ways of limiting and
(24:49):
restricting supply. They can do that and as a result
they can get higher profitability. So one of the things
is occurred to me in this space, working in this space,
is we actually need that we have a different industry structure.
We can't expect an industry or a market that is
(25:10):
based around restricting supply and generating super profits to be
finding this whole thing very exciting because anyone can put
a solar panel.
Speaker 2 (25:22):
On their roof.
Speaker 3 (25:23):
So either we find ways of restricting it, which I
think would be a mistake, or we find ways of
developing out.
Speaker 2 (25:31):
A different industry structure.
Speaker 3 (25:32):
We have a once in a lifetime generational shift. It's massive,
it's another revolution, and we can do it in a
good way in terms of societal development and justice and equity,
or we could do it in a bad way. It's
not the tech doesn't tell us which way to do it,
and we need to think about doing it in a
(25:53):
way that is as democratic as possible.
Speaker 1 (25:55):
One other criticism of the MDB's that comes up is
that they're pushing an agenda from rich countries. Many call
it the neoliberal agenda, because they will end up supporting
these developing countries through lending. Maybe some of these developing
countries aren't able to pay those loans back, and then
comes in the IMF for the World Bank and says,
(26:18):
you have to pay this back. We can help you
pay it back. Here are the things that you need
to do. Typically those things are open up your markets,
reduce the amount of public spending you're doing on social activities.
Speaker 2 (26:30):
And it's a.
Speaker 1 (26:31):
Very hands on approach that sometimes MDBs can end up taking,
which from developing country perspective can be very annoying, can
be quite colonial.
Speaker 3 (26:42):
I think it's a fair criticism that many of the
people in development banks their fundamental sort of starting point
is that the problem here is that the countries have
the wrong ideas and the wrong policies, and that we're
here to correct their policies, and that there's a belief
(27:03):
And I say this both as a development bank professional
and an economist. Is often a belief in economics that
comes out of theories that we teach but may not
be very road tested in terms of what actually happens.
Speaker 1 (27:18):
On the ground.
Speaker 3 (27:19):
But it's equally fair to say that most developing country officials,
and I say that as having been one of those too,
also start off a position of believing that the only
problem is they don't have enough money, and the truth
is probably somewhere in between the two.
Speaker 1 (27:34):
One of the instruments that could be used through development
backed support but really bring in private players at a
large scale and mobilized capital, is to use something called
a debt for nature swap. Now, simply it means a
country like Barbados, which has plenty of debt, will go
(27:55):
to investors and say, take some of our debt off
our books, and instead of us paying you money, we'll
try and protect this ocean, which will be pretty beneficial
to the rest of the world and to us, and
that will help our economy grow faster and be more resilient,
and thus we will be a better country that you
(28:15):
can continue to lend to. Well, isn't it all good
for business?
Speaker 2 (28:18):
Almost?
Speaker 3 (28:19):
And to be fair to you, actually, it's an industry
where it's every new debt for nature swap is different,
so it's hard to kind of pin it down a bit.
But within ten years it's gone from being exotic to
being seen as a panaceer. And I hate panaceas. So
(28:41):
I'm spending most of our time here and.
Speaker 1 (28:44):
I hate telling you he hate exotic too, because you
want scalable, trillion dollar instruments.
Speaker 2 (28:48):
Yes, exactly, I'm just a hater. No, I think that.
Speaker 3 (28:53):
I think the challenge is now people thinking that the
debt for nature swaps will solve everything.
Speaker 2 (28:58):
So even though we're.
Speaker 3 (28:58):
Doing we're doing most of them, we're also coutioning people
at the same time, which is a slightly odd feeling.
So today the latest debtfinature swap is one where a
country has a pocket of high youding debt. It's very
important that the country is not completely debt laden. So
(29:19):
you've got a pocket of high youding debt. Maybe you
issued some debt some time ago, maybe you've got a
loan with somebody that was doing something specific and it's
quite high youuding, and so a developm bank will come
along and say, well, you know what, I'm going to
allow you to use my triple A credit rating to
guarantee a new bond that you're going to issue.
Speaker 2 (29:41):
So you could borrow.
Speaker 3 (29:41):
At five percent, and you've got some debt out there
yielding nine percent, and you use a five percent bond
to repurchase the nine percent bond, and so you've now
saved yourself four percentage points of interest rate. But I'm
saying to you, the Demand bank is saying to you,
we're only doing this putting our credit rating on your debt,
(30:04):
stretching our credit to you. If you use those savings
in a particular way. We want a significant part to
be used for a climate or a nature purpose. We
just did a one point six billion dollar debt swap
in Ecuador where massive conservation in the Galapagos was being
(30:28):
funded by the debt swap. We did one in Barbados
where we funded marine conservation. So the in the first
Barbados debt swap, they were saving about four million dollars
every year. And because I remember being a little bit
skeptical at the beginning, thinking four million dollars, because as
you say, actually, I keep on thinking will this move
(30:48):
the needle. In the second one, we found a way
of taking that ten years of four million dollars and
basically capitalizing it. So up from in the second one
is going to be a massive investment of perhaps one
hundred million dollars for which they could do a big
infrastructure investment, and they're basically redoing their waste management system
(31:11):
on the south coast of the island. It's going to
protect the water quality, it's going to protect the coral reef.
It's going to allow this water to be reused for irrigation.
It's a very water short country and that is all
possible with this.
Speaker 2 (31:25):
New death swap.
Speaker 1 (31:27):
The US is the largest shareholder in most MDB's around
the world. If under a Donald Trump presidency, the US says,
we don't care so much about the world anymore. We
have so many problems we have to deal at home.
We've been giving these tens of billions of dollars every year,
hundreds of billions. We can apply that to Middle America
(31:48):
and re energize and put America first and starts to
not contribute as much to MDBs or reduce as its
shareholding in the MDBs. Doesn't that pose a risk for
how much lending and how much more money MDBs can
give out, which is the mandate that they are going
to have to deal with to increase climate finance.
Speaker 3 (32:06):
So the World Bank is the one of the largest
development banks. The US has a sixteen percent shareholding, therefore
plays an important role. I think that in the future
shareholdings should relate to money put in, and I think
that that's a way in which some of the large
(32:28):
middle income countries can have a greater shareholding. If anything,
if you look at the shareholdings at the moment, the
countries that are disproportionately positioned are the middle income emerging markets.
China shares is too low, India shares is too low
relative to where they are in the world economy.
Speaker 1 (32:49):
Thank you having USh, Thank you very much. Thank you
for listening.
Speaker 2 (33:00):
Zero.
Speaker 1 (33:01):
Join us next week for another episode of Moving Money,
where we'll be discussing the role of the private sector.
And now for the sound of the week. That is
one of many sounds you may hear at a wastewater
treatment facility. If you like this episode, please take a
(33:24):
moment to rate and review the show on Apple Podcasts
and Spotify. Share this episode with a friend or someone
who thinks banks are beautiful. You can get in touch
at zero port at Bloomberg dot Net. This episode was
produced by Oscar Boyd. Bloomberg's head a podcast is Sage
Bowman and head of Talk is Brendan Nuna. Our theme
music is composed by Wonderly Special thanks to Mighta le Rau,
(33:45):
Samersadi Mosses, Andem, Blake Maples, and Shawan Wagner I am Akshadrati.
Back next week for another episode of Moving Money
Welcome to zero I am Akshatrati this week the mysterious
Beauty of development packs. It has been a wild couple
of months in the world of development finance. Since January.
(00:22):
One by one we've seen countries pull back from their
aid commitments. The US, the UK, the Netherlands, France. The
list keeps growing. This comes just a few months after
Rich countries agreed to ramp up climate spending at COP
twenty nine. The headline target was three hundred billion dollars
a year by twenty thirty five, tripling the previous commitment
(00:45):
of one hundred billion dollars, which is supposed to be
reached by twenty twenty. Now these new commitments are in
serious doubt. What isn't under question is the need for
that money. Developing countries still require trillion of dollars a
year to transition to clean energy and build climate resilient infrastructure.
(01:05):
So where will the money come from? That's the question
we'll explore in this episode of Moving Money. We are
welcoming back avinash Parsod, special advisor on Climate risks to
the President of the Inter American Development Bank and former
economic advisor to Barbados Prime Minister Mia Mottley. Last week
we explored how to reshape the global financial order for
the climate era. Today we'll explore the role of multilateral
(01:29):
development banks, or MDBs. The World Bank is the best
known MDB, but there are many others. Collectively, they funnel
hundreds of billions of dollars a year to poorer countries
around the world, much of which goes to climate projects.
Our conversation was recorded at Coptery nine in Baku, but
remains as relevant as it was then, perhaps even more
(01:52):
so as President Trump doubles down on US isolationism. We
sat down to talk about how MDBs can be used
to move move more money to developing countries, what they
can do better, and who will fill the gap if
the US WU draws from these MDBs. Avinash is a
special advisor to an MDB. That makes him, unsurprisingly a
(02:13):
supporter of their work, but he's not just an MDB insider.
He's come to that role after a long career as
a banker on Wall Street in New York and in
the City of London. He's also been an advisor on
economic issues to a developing country government, so his insights
come from seeing all sides of the financial system. As
(02:34):
you'll hear in our conversation, he's come to the view
that MDBs play a crucial role in the global financial system,
and one that becomes more important in the volatile times ahead.
Hi Avinash, welcome back for another episode of Moving Money.
Speaker 2 (02:51):
Thank you.
Speaker 1 (02:52):
Today we're going to talk about multilateral development banks, things
like Worldbank, which most people think have an idea of,
but also so many other development banks, one that you
work for, Inter American Development Bank, Asian Development Bank, African
Development Bank. The fact that they have development in them
makes them seem like good banks. What are MDBs?
Speaker 3 (03:14):
You know? Actually, when I think we first spoke, I
was part of the Bridgetown Initiative, one of the architects
of that for international financial reform, and in doing that work,
I realized that the multilateral development banks have a very
critical role to play, which is why I joined one.
Now I think it's actually, and excuse the potential perversity,
(03:40):
but actually a thing of beauty that the center of
the global financial system are a handful of Triple A
rated institutions, which are development banks, which means they're not
for profit.
Speaker 1 (03:55):
And rating just gives them this credit rating which allows
them to go to private investors, and they will invest
in this thing because they are guaranteed a return.
Speaker 3 (04:04):
Did you say, just gives them? It's such a powerful thing.
So what a development bank can do, and this is
very different from say a climate fund or development fund.
You put a dollar into a development fund, you get
a dollar out. You put a dollar of capital into
a multilateral develoment bank and you can get eight dollars out.
(04:26):
Now how does that happen? So capital, what is capital?
Capital is loss absorbing. So I go into the marketplace.
The British governments give me a pound of capital. I
go into the marketplace. I say to the marketplace, I've
got a pound of capital. I can lose this pound.
I don't need to pay it back to anybody. I
can lose this pound, and as a result, can I
(04:48):
borrow money from you. So it's like my first loss.
I've got the ability to do first loss. And therefore
the market says, oh, I don't mind lending you seven
or eight pounds knowing that, but if you run into trouble,
the first pound to suffer is not my pound, it's
the British government's pound.
Speaker 2 (05:07):
The capital.
Speaker 3 (05:08):
So when we go to the marketplace, with a pound
of capital, I could therefore borrow seven pounds. That seven
pounds is comfortable because it knows if there's a loss,
their money isn't touched until the first pound is gone.
Speaker 1 (05:26):
So how big is the MDB system when it comes
to a total amount of lending relative to say, private lending?
Speaker 2 (05:32):
Tiny?
Speaker 3 (05:33):
So I think I began by saying that it's beautiful
that they the middle of the system is not for
profit triple A development banks. The ugly bit is they're
really really tiny, and we need to make them much bigger,
at least three times bigger. And at the moment development
banks are lending in the order of around two hundred
(05:56):
billion dollars a year. We need them to be lending
three times that amount, with a big chunk on climate,
maybe half on climate. So they need to be lending
six hundred billion dollars a year and three hundred billion
perhaps on climate. And private lending is in the trillions
of dollars. I'm assuming tens of trillions of dollars on
(06:18):
an annual basis, So private lending is around one hundred
trillion dollars. Yes, But the point is that we have
a very financialized system with lots of assets and debt
far in excess of the national income. Those assets and
debts are recycled and shuffled around and lent and bought.
(06:39):
The development banks therefore, as a proportion of that do
a fairly modest amount.
Speaker 1 (06:45):
But what are development banks? How do they exactly work?
What is the structure of a development bank? That makes
them a thing of beauty?
Speaker 3 (06:52):
What makes me a thing of beauty is that you
can put some money into a develoment bank and much
more money can come out. Their main job is to
give you a loan. Because they are not for profit institution,
they try to give you a cheap loan and they
try to make it as long term as possible. They're
not trying to maximize the profitability.
Speaker 2 (07:15):
Of this loan.
Speaker 3 (07:16):
Now, what makes them not for profit is that they're shareholders.
Are governments who again are not looking to make money
from their investment.
Speaker 1 (07:26):
And these are rich governments mostly right, it's America, it's Britain,
it's the G seven countries. They have about half of
the shareholding and most development banks when we looked at
their numbers.
Speaker 3 (07:37):
Actually that you said half, I mean half is not most.
Half is actually quite small. So One of the interesting
things about the development banks is it is the one
of the broadest ownership structures, so the third biggest shareholder
in many of the development banks, as China, India has
a bigger shareholding in the World Bank than a G
(07:59):
seven Italy then in had a future seven countries Italy
and Canada, so it's actually fairly broad. But they were
set up by the rich.
Speaker 1 (08:08):
Countries, right and to me, when we think about development
banks in that context, one way to think about it
is these are mostly colonial powers that were forced to
eventually give up their colonies and realize that if they
wanted to remain in a world that remains peaceful, they
need to ensure these colonies that they extracted so much
(08:30):
value from do develop on their own. That will require
them to have some capital, and we better create a
system that allows some development money to go to these places.
And you can control that a little bit so that
no way, they are not colonies anymore, but at least
we have some control over how much money they can get.
Speaker 3 (08:49):
You're revealing so much about yourself actually in this description,
because you know the way the rowbag was established was
the European reconstruction after the War it wasn't actually about
economic development and the empires. Like the IMF, the IMF's
remit was not about conditionality on poor countries. It was
(09:11):
about managing a global system of fixed exchange rates. So,
in fact, what's quite innovative about these institutions is how
they've actually repurposed themselves as their original purpose disappeared. You know,
it's a story of all institutions. They were set up
to do something, they achieved it, and they reinvented themselves
(09:33):
to do something else so they could stay along. So
now are these institutions if you look at the shareholders,
and I recommend any listener have just google the shareholdings
of the World Bank. It is an amazingly mixed structure.
Russia is a major shareholder, Iran is a major shareholder
of the World Bank. It's not as broad as it
could be, but it is surprisingly broad, which is why
(09:56):
I think it's role in climate finance helps to move
us along this process of which we do need a
global response to a global problem.
Speaker 1 (10:07):
Why are they involved in climate The name is development,
and I understand climate change can affect development. Is that
the link climate.
Speaker 3 (10:17):
Is one of the biggest threats to poverty. We're seeing
a tremendous number of people being pushed into poverty by
climatic events. I was born in the Caribbean Akshatt and
we often think about these hurricanes, and the same hurricane
went over Grenada and almost a third of the population
is homeless. The exact same hurricane goes over Caymans. In fact,
(10:39):
Camans is probably underwater at one point and very little
damage is done because of differences in development. So climate
vulnerability has a lot to do with levels of development,
but also the energy transition is probably the biggest best development.
Speaker 2 (11:00):
Strategy for many developing countries.
Speaker 3 (11:03):
So we've just done this work which shows that we're Latin,
American and Caribbean to reach net zero. The net economic
benefits will be fifty percent of GDP, and a big
chunk of that comes from the savings of electrification. You've
taught me a lot about the power of electrification. A
big chunk comes now from the fact that renewables are cheap,
(11:26):
there's fuel savings, and an even bigger chunk comes from
something that people don't realize. Fossil fuels are really bad.
Speaker 2 (11:33):
For your health.
Speaker 3 (11:34):
More people are dying from air pollution that dying from
climate change. About four point seven trillion dollars is spent
on health to manage the repercussions of pollution. So if
we were to get to net zero, we will have
a huge positive economic benefit and the development banks should
(11:55):
therefore be playing a role in that.
Speaker 1 (11:57):
So in this reinventioned story from Europe in reconstruction to
reducing poverty, is this now a new phase of reinvention?
Speaker 3 (12:06):
There is a reinvention, and I think it's a function
firstly of the fact that climate has now become, as
a result of it in action, become this global force
that is having a huge impact on poverty. It's also
a global public good. Very hard for us to manage
climate individually. So the World Bank is part of it.
(12:29):
Of this reinvention, you might say, it began to change
its strap line. It's not just about eliminating poverty, it's
about doing it in a livable world, and I think
that's good and important. I think a recognition that development
isn't all about climate is also important. The development banks
are committing themselves to fifty percent of their lending is
(12:51):
climate related climate positive, which I think is a good
and reasonable number. It's I say reasonable because the scale
of the task what we need to do, but it's
not one hundred percent, and it shouldn't be one hundred percent. Okay,
So if you're going to triple the lending on development
banks a lot of that supporting climate work, how exactly
(13:13):
do you get there? Because that will require these shareholders
to actually put more money into the system.
Speaker 2 (13:19):
Correct.
Speaker 3 (13:19):
It's one of those wonderful issues where as you begin
to delve into it, it gets more and more complicated.
Speaker 1 (13:28):
Okay, let's break it down.
Speaker 3 (13:30):
Well, let's begin at the topic where it's simple, which is,
you know, you get out a multiple of what you
put in. And if they want to do a lot more,
they've got to put in some money. So the multil
actual development banks at COPP made a announcement that if
you know, business as usual, no new shareholder support, they
(13:52):
could probably lend around one hundred and twenty billion dollars
per year on climate by twenty thirty.
Speaker 1 (14:00):
Right, and that would be roughly double or one and
a half times what they're doing now.
Speaker 3 (14:04):
What they're doing now is not very far short of
that number. It's more like seventy five billion dollars today,
and the ability to be much higher is clearly limited
by not having new resources, but there are things devin
banks can do. There's been a whole push around what's
(14:24):
called the cafe reform, the Capital Adequacy Framework reform. So
what is the ratio of capital to lending? Can we
change that ratio and lend a bit more with existing capital?
Can we do something that was an idea of much
(14:45):
led by the UK or what's called portfolio guarantees. So
the develop banks might pull together a portfolio of the
loans they've got and say to a donor interested in climate, say, well,
here's ten loans that we lent for climate resilience. Would
you guarantee the portfolio, not any individual loan, But the
(15:06):
portfolio doesn't lose money, and that guarantee is unlikely to
be hit that the whole portfolio loses money, but it
allows the development bank to reduce the amount of capital
it puts in and use that capital somewhere else. And
then more so, the whole things they can do with
the existing money being clever with it. Pulling the lever
is the metaphor users squeezing the lemon, that the lemon
(15:28):
can be squeezed a bit more. But there comes a
point where you've squeezed or you can for my lemon,
and so then you need new money. So if you
think about it in the multiplier terms, it's sort of
one pound in six or seven pounds out initially, and
then you do these lemon squeezing activities and you get
eight pounds maybe nine pounds out of.
Speaker 2 (15:49):
That's exactly right.
Speaker 3 (15:50):
Yes, I don't need to explain anymore now, okay, So okay,
So now we've got that level of complexity. Level, let's
add another layer of complexity, so adaptation, climate adaptation of
building stronger sea walls, better flood defenses, better drainage systems.
It's not that easy to get the private sector involved
(16:10):
in that because, yeah, they're no returns to be made.
There's savings to be had, but no returns to be made.
But mitigation investing in a solar farm or wind turbines,
hydroelectric power today, nuclears coming back in those things, you
could probably co invest with the private sector. The banks
have what's called B loans. You know that they'll they'll
(16:32):
do a loan and then they'll have another part of
the loan which has almost exact same terms the maturity,
the interest rate, and the private sector.
Speaker 2 (16:42):
May fund that.
Speaker 1 (16:42):
Right, So the A loan is the development banks loan
and the B loan is the private sector in matching.
Speaker 2 (16:47):
That's right.
Speaker 3 (16:48):
So that is another way in which they can expand
a bit of leverage, but only for mitigation. So once
we've got say the one to eight ratio, half of
that one to eight could be done for adaptation adaptation loans,
the other half could be on mitigation loans. So I've
got now one to eight, but by mitigation loans could
(17:12):
be blended with private sector loans, right, one to sixteen. Right,
I could match whatever my lending on the on the
development bank with lending on the private sector.
Speaker 1 (17:27):
Now you're starting to talk like NASA talks about investing
in one dollar and getting fifty dollars a return for
the US economy because rockets are cool.
Speaker 3 (17:38):
Yes, So on mitigation, maybe a dollar of capital can
end up with sixteen dollars of lending on mitigation. But
whilst adaptations want to eight and that therefore that means
that if the shareholders of development banks put in say
ten billion dollars of capital every year, we could probably
(18:00):
expand about the debt banks lend by over one hundred
billion a year lend directly themselves or mobilized directly with
the private sector.
Speaker 1 (18:11):
So this idea that was talked about at COP twenty
nine around a new collective quantified goal on finance, which
is supposed to be rich countries helping poor countries do
mitigation and adaptation. There were these layers of onion, the
first being direct money being given from a government to
another government, the second layer being multilateral development banks lending more,
and then the third being investors come in. Now already
(18:36):
the explanation you've given to me is that MDBs are
really already mobilizing private sector because the lending that MDBs
are able to make is because they're able to go
and create bonds and borrow from private markets which consider
the MDBs to be a credit worthy lender to give
(18:57):
money to, and then they use that money and give
it to somebody else.
Speaker 3 (19:00):
That's a great point that many people don't get. The
way an MDB works is mobilizing private sector money.
Speaker 2 (19:06):
The donor the government.
Speaker 3 (19:08):
Has put up one and a dollar of capital, and
I've used that dollar of capital to get seven or
eight dollars of private sector money.
Speaker 2 (19:17):
I've already mobilized private.
Speaker 1 (19:18):
Sector after the break, Avinash wants to see much more
money going to development banks. But what happens if President
Trump polds back And by the way, if you've been
enjoying this episode, please take a moment to rate and
review the show on Apple Podcasts and Spotify. It helps
other listeners find the show. There are lots of criticisms
(19:50):
of MDBs that come up. One is that because they
have to keep their Triple A status, they're quite conservative
that they lend to projects, but they do a lot
of work on those projects. It takes our long time
to get those loans. They make sure that they're going
to get their return because if they don't, then you know,
their Triple A status is at risk. In a world
(20:13):
where we're going to have to do this very quickly
and we're expanding this lending, how is the MDB going
to be prepared?
Speaker 2 (20:20):
I think that's an important point.
Speaker 3 (20:21):
However, I would say there is beauty in the leverage
of the one dollar capital leading to eight dollars of lending,
and that is only really possible with the triple A status,
so that we should maintain that leverage, try to make
them as efficient as they can. But I think there's
(20:43):
efficiency and results, so caution, and the caution is linked
to the credit rating, so that is not going to
change dramatically. But I think what you're saying is that
the MDBs.
Speaker 2 (20:55):
Can't do everything.
Speaker 3 (20:56):
They will need to be a form of higher risk
taking that probably has to be funded separately. So there's
something called project preparation facility. You know that the most
risky dollar in any project is the first dollar. It's
the feasibility because you may determine that it's not feasible,
in which case you've lost that dollar. So there's much
(21:17):
talk about the MDB's doing more project feasibility, and maybe
that needs to be separately funded because that's very risky.
That's one of the reason why they don't do it.
The MDBs often complain in that they say we've got
money to lend. Actually, all this talk about giving us
more money, we've got money to lend, we don't have projects.
And the fact that there aren't projects in countries with
(21:40):
huge amounts of potential is because there's not a lot
of money invested in project preparation. There's a lot of
work being done on solar and of course some of
the poorest countries in the world have the most amazing
solar resources, but projects aren't there. Is that because there
aren't really good projects?
Speaker 2 (21:58):
No, we haven't got them.
Speaker 3 (22:00):
Need to invest in the feasibility.
Speaker 2 (22:02):
Well.
Speaker 1 (22:02):
Another criticism that private sector branks make is that MDBs
sort of are secretive.
Speaker 2 (22:08):
They do not.
Speaker 1 (22:08):
Share the loan portfolios that they've given out over the years,
and if they did, you know, private sector could take
that information and be like, actually, building this project in
Ghana was very good. We didn't suffer any losses as
a result. We don't need the MDBs. We are private
sector banks. As long as we know we can make
(22:29):
a return on a project, we'll just go there ourselves.
And that would mobilize a lot of private capitals. It's
share the information.
Speaker 2 (22:37):
It's a nice narrative, you know.
Speaker 3 (22:38):
The reality is the private sector is not as much
of a risk taker as it would like to think
of itself. As often the risk taking is done by government,
whether it is Tesla or many of these other big investments.
Government has to put up the first dollars. But it's
a valid argument in the past, but MDBs have jointly
(23:02):
produced a database of their investments and loans and how
they performed, so there's lots of information, and information sends
a strong signal that investing in companies in developing countries
is fairly low risk. The other thing I've learned actually,
I learned this from speaking to the sustainability person at
(23:24):
a major oil company about what they were investing in.
And they were investing in these very speculative things, particular
types of hydrogen. And I was saying to him, but
sol and wind is out there, it works, it's cheap,
and he looked at me and said, yeah, there's not
(23:44):
enough return for us from that. So, you know, we
used to think that the problem was that the renewables
weren't profitable. That's not the problem for start. They're profitable today.
It's they're not more profitable than other things. That's the
problem we need to deal with.
Speaker 1 (24:02):
We have the CEO of Exonmobile come on a climate
podcast this one, and he made the case that you know,
Exonmobile doesn't have any expertise in delivering electrons. It does
have expertise in moving molecules and delivering molecules, whereas when
it comes to renewables, they've never built renewables before. And
(24:24):
if the profit is lower anyway, why should they invest
in those projects.
Speaker 3 (24:28):
You know, I think that that's a wonderfully actually political
point dressed up as a technical point, because the reality
is that the problem with renewables is the barriers to
entry are very low. While so if you look at
the oil industry, they have found ways of limiting and
(24:49):
restricting supply. They can do that and as a result
they can get higher profitability. So one of the things
is occurred to me in this space, working in this space,
is we actually need that we have a different industry structure.
We can't expect an industry or a market that is
(25:10):
based around restricting supply and generating super profits to be
finding this whole thing very exciting because anyone can put
a solar panel.
Speaker 2 (25:22):
On their roof.
Speaker 3 (25:23):
So either we find ways of restricting it, which I
think would be a mistake, or we find ways of
developing out.
Speaker 2 (25:31):
A different industry structure.
Speaker 3 (25:32):
We have a once in a lifetime generational shift. It's massive,
it's another revolution, and we can do it in a
good way in terms of societal development and justice and equity,
or we could do it in a bad way. It's
not the tech doesn't tell us which way to do it,
and we need to think about doing it in a
(25:53):
way that is as democratic as possible.
Speaker 1 (25:55):
One other criticism of the MDB's that comes up is
that they're pushing an agenda from rich countries. Many call
it the neoliberal agenda, because they will end up supporting
these developing countries through lending. Maybe some of these developing
countries aren't able to pay those loans back, and then
comes in the IMF for the World Bank and says,
(26:18):
you have to pay this back. We can help you
pay it back. Here are the things that you need
to do. Typically those things are open up your markets,
reduce the amount of public spending you're doing on social activities.
Speaker 2 (26:30):
And it's a.
Speaker 1 (26:31):
Very hands on approach that sometimes MDBs can end up taking,
which from developing country perspective can be very annoying, can
be quite colonial.
Speaker 3 (26:42):
I think it's a fair criticism that many of the
people in development banks their fundamental sort of starting point
is that the problem here is that the countries have
the wrong ideas and the wrong policies, and that we're
here to correct their policies, and that there's a belief
(27:03):
And I say this both as a development bank professional
and an economist. Is often a belief in economics that
comes out of theories that we teach but may not
be very road tested in terms of what actually happens.
Speaker 1 (27:18):
On the ground.
Speaker 3 (27:19):
But it's equally fair to say that most developing country officials,
and I say that as having been one of those too,
also start off a position of believing that the only
problem is they don't have enough money, and the truth
is probably somewhere in between the two.
Speaker 1 (27:34):
One of the instruments that could be used through development
backed support but really bring in private players at a
large scale and mobilized capital, is to use something called
a debt for nature swap. Now, simply it means a
country like Barbados, which has plenty of debt, will go
(27:55):
to investors and say, take some of our debt off
our books, and instead of us paying you money, we'll
try and protect this ocean, which will be pretty beneficial
to the rest of the world and to us, and
that will help our economy grow faster and be more resilient,
and thus we will be a better country that you
(28:15):
can continue to lend to. Well, isn't it all good
for business?
Speaker 2 (28:18):
Almost?
Speaker 3 (28:19):
And to be fair to you, actually, it's an industry
where it's every new debt for nature swap is different,
so it's hard to kind of pin it down a bit.
But within ten years it's gone from being exotic to
being seen as a panaceer. And I hate panaceas. So
(28:41):
I'm spending most of our time here and.
Speaker 1 (28:44):
I hate telling you he hate exotic too, because you
want scalable, trillion dollar instruments.
Speaker 2 (28:48):
Yes, exactly, I'm just a hater. No, I think that.
Speaker 3 (28:53):
I think the challenge is now people thinking that the
debt for nature swaps will solve everything.
Speaker 2 (28:58):
So even though we're.
Speaker 3 (28:58):
Doing we're doing most of them, we're also coutioning people
at the same time, which is a slightly odd feeling.
So today the latest debtfinature swap is one where a
country has a pocket of high youding debt. It's very
important that the country is not completely debt laden. So
(29:19):
you've got a pocket of high youding debt. Maybe you
issued some debt some time ago, maybe you've got a
loan with somebody that was doing something specific and it's
quite high youuding, and so a developm bank will come
along and say, well, you know what, I'm going to
allow you to use my triple A credit rating to
guarantee a new bond that you're going to issue.
Speaker 2 (29:41):
So you could borrow.
Speaker 3 (29:41):
At five percent, and you've got some debt out there
yielding nine percent, and you use a five percent bond
to repurchase the nine percent bond, and so you've now
saved yourself four percentage points of interest rate. But I'm
saying to you, the Demand bank is saying to you,
we're only doing this putting our credit rating on your debt,
(30:04):
stretching our credit to you. If you use those savings
in a particular way. We want a significant part to
be used for a climate or a nature purpose. We
just did a one point six billion dollar debt swap
in Ecuador where massive conservation in the Galapagos was being
(30:28):
funded by the debt swap. We did one in Barbados
where we funded marine conservation. So the in the first
Barbados debt swap, they were saving about four million dollars
every year. And because I remember being a little bit
skeptical at the beginning, thinking four million dollars, because as
you say, actually, I keep on thinking will this move
(30:48):
the needle. In the second one, we found a way
of taking that ten years of four million dollars and
basically capitalizing it. So up from in the second one
is going to be a massive investment of perhaps one
hundred million dollars for which they could do a big
infrastructure investment, and they're basically redoing their waste management system
(31:11):
on the south coast of the island. It's going to
protect the water quality, it's going to protect the coral reef.
It's going to allow this water to be reused for irrigation.
It's a very water short country and that is all
possible with this.
Speaker 2 (31:25):
New death swap.
Speaker 1 (31:27):
The US is the largest shareholder in most MDB's around
the world. If under a Donald Trump presidency, the US says,
we don't care so much about the world anymore. We
have so many problems we have to deal at home.
We've been giving these tens of billions of dollars every year,
hundreds of billions. We can apply that to Middle America
(31:48):
and re energize and put America first and starts to
not contribute as much to MDBs or reduce as its
shareholding in the MDBs. Doesn't that pose a risk for
how much lending and how much more money MDBs can
give out, which is the mandate that they are going
to have to deal with to increase climate finance.
Speaker 3 (32:06):
So the World Bank is the one of the largest
development banks. The US has a sixteen percent shareholding, therefore
plays an important role. I think that in the future
shareholdings should relate to money put in, and I think
that that's a way in which some of the large
(32:28):
middle income countries can have a greater shareholding. If anything,
if you look at the shareholdings at the moment, the
countries that are disproportionately positioned are the middle income emerging markets.
China shares is too low, India shares is too low
relative to where they are in the world economy.
Speaker 1 (32:49):
Thank you having USh, Thank you very much. Thank you
for listening.
Speaker 2 (33:00):
Zero.
Speaker 1 (33:01):
Join us next week for another episode of Moving Money,
where we'll be discussing the role of the private sector.
And now for the sound of the week. That is
one of many sounds you may hear at a wastewater
treatment facility. If you like this episode, please take a
(33:24):
moment to rate and review the show on Apple Podcasts
and Spotify. Share this episode with a friend or someone
who thinks banks are beautiful. You can get in touch
at zero port at Bloomberg dot Net. This episode was
produced by Oscar Boyd. Bloomberg's head a podcast is Sage
Bowman and head of Talk is Brendan Nuna. Our theme
music is composed by Wonderly Special thanks to Mighta le Rau,
(33:45):
Samersadi Mosses, Andem, Blake Maples, and Shawan Wagner I am Akshadrati.
Back next week for another episode of Moving Money
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com