I. Priorities of Argentina’s G20 Presidency
The 2018 G20 Troika is comprised of the Presidency (Argentina); the former Presidency (Germany) and the future Presidency (Japan).
Each G20 Presidency invites guest countries to participate in the Summit process. Spain is always invited. In addition, Argentina has invited Chile, the Netherlands (and possibly Switzerland) to attend the G20 meetings. Traditionally, three regional groups are invited: ASEAN (Singapore), African Union (Rwanda) and NEPAD (Senegal). Argentina has invited a fourth, CARICOM – the Caribbean Community – represented by Jamaica (A fifth, the European Union, is a full member of the G20).
In terms of institutions, Argentina has invited the Inter-American Development Bank (IDB) and Development Bank of Latin America (CAF) to play a key role, especially in infrastructure investment issues (The government of Argentina has also hired many IDB staff members to manage the G20 process). The other usual participants are the United Nations, IMF, World Bank, WTO, OECD, Financial Stability Board and ILO.
During its Presidency, Argentina anticipates holding more than 45 meetings, specifically those of the two G20 “tracks” – namely the Finance and Sherpa Tracks.
A.The Finance Track is led by Argentine Finance Minister Nicolas Dujovne, the newly-appointed Deputy Finance Minister Laura Jaitman (formerly with the Inter-American Development Bank), and Central Bank Governor Federico Sturzenegger. This Track is focused on two priorities: infrastructure investment and the future of work (e.g., especially the nexus between technology, on the one hand, and productivity, growth, job market, and economic equality, on the other). The full agenda of the Finance Track comprises these topics:
- Global Economy and Framework for Growth
- International Financial Architecture
- International Tax
- Financial Regulation
- Financial Inclusion
- Sustainable Finance
The Finance Track is run by the Finance Ministers and Central Bank Governors and their groups, including:
- Infrastructure Working Group (IWG)
- The Sustainable Finance Study Group (SFSG)
- International Financial Architecture (IFA) Working Group
As mentioned in Part II, below, the U.S. was hostile to the SFSG. It was also hostile to the IFA Working Group, which as this 2017 final report describes, has managed a full agenda. Yet, France will continue to co-chair the IFA Working Group in 2018 and its new agenda includes issues relating to capital flows, governance reform of the IMF, Guidelines on Sustainable Financing, and transparency of debt burdens of low-income countries (to avoid meltdowns, such as occurred in Mozambique). It will also address key MDB challenges, such as capital optimization – in other words, making the most of insufficient capital.
The U.S. opposes a General Capital Increase while the World Bank is lending to creditworthy countries, such as China. Inadequate capital curtails the capacity of the World Bank and other development banks to lend. The U.S. is widely perceived as ceding power to China and its Asian Infrastructure Investment Bank (AIIB) by many actions in the trade and finance arenas, including by standing in the way of a World Bank capital increase or greater fairness in the governance of the IMF (to give greater representation to developing countries).
Because capital is so constrained, optimizing balance sheets has become an important preoccupation. Some estimate that the Asian Development Bank expanded its lending capacity by 50% by merging its concessional and non-concessional balance sheets. The World Bank’s International Development Association (IDA) is optimizing capital through use of its new private sector window. To optimize its balance sheet, the African Development Bank (AfDB) is opening a non-concessional window, which could risk lending volumes for lower-income countries. The importance of representation of low-income countries in the G20 grows as the G20 mission expands, including as it relates to these countries.
In order to enhance capital adequacy, the G20 and its IFA Working Group also focus on the goals of additionality and leverage. The principle of additionality means that MDB capital should only be used when sources of private finance are not available. Violating the principle results in “crowding out” private investment, which is anathema to the institutions. Indeed, “crowding in” and leveraging private investment is now the raison d’etre of the MDBs. 
The G20 has designed a methodology to rate the performance of each MDB on its capacity to leverage private investment. The World Bank’s new strategy of “Maximizing Finance for Development” (MFD) – also known as the “cascade” – is intended to significantly expand the institution’s “additionality” and leverage. The nine pilot countries for MFD are: Cameroon, Côte d’Ivoire, Egypt, Indonesia, Iraq, Jordan, Kenya, Nepal and Vietnam. The World Bank Group and its allies have designed a range of “Standards for Infrastructure Finance & PPPs” as set forth in this end-2017 blog by Jordan Schwartz, the World Bank representative to the G20 Infrastructure Working Group. With these standards, which are highly biased to disproportionately benefit private investors, the World Bank Group intends to introduce private sector solutions in energy, transportation, and other infrastructure sectors in the pilots. The pilots will gradually expand to include other sectors and countries. I have written about MFD here and the cascade here.
The “cascade” is very ambitious, as it aims to use billions in public money to leverage trillions in private investment. At the scale envisioned, this is a new model for development finance, which relies on financializing infrastructure (e.g., energy, water, transport, health care, education) as an asset class for trading on the global financial markets, as described in Part II, below.
B. The Sherpa Track, which is led by the Argentine Sherpa Pedro Villagra Delgado, focuses on 2 sets of issues: Sustainability (e.g., improving soil productivity, changing the energy matrix and reducing the impact on the environment) and unleashing peoples’ potential (innovation in education, embracing new technologies and empowering women). The Track includes nine working groups and task forces:
Task Force on the Digital economy (digital inclusion, future job skills, digital government, SMEs & entrepreneurship, Industry 4.0 & agricultural technology)
Employment Working Group (labor policies, education, productivity, the informal economy, job security, and social protection initiatives; addressing the gender employment gap)
Energy Transitions Working Group (flexible, transparent, and clean energy grids; energy efficiency; renewable energy, access to affordable energy in Latin America and the Caribbean, the reduction of inefficient subsidies to fossil fuels, and the transparency of information on energy, digitalization, and energy markets)
Anti-Corruption Working Group (1-Practical cooperation; 2-Beneficial ownership; 3-Private sector integrity and transparency; 4-Bribery; 5- Public sector integrity and transparency; 6-Vulnerable sectors; 7-International organizations)
Health Working Group (antimicrobial resistance and the financing of universal health coverage)
Development Working Group (early childhood education, habitat, and inclusive business)
Education Working Group (skills for life and work; financing education)
Climate Sustainability Working Group (a- Promote climate sustainability with a focus on job creation and infrastructure development; b- Project long-term low-emissions development (2050 and beyond); and c- Align and mobilize climate finance flows for the implementation of Nationally Determined Contributions under the Paris Agreement (NDCs) and low-emission development strategies)
Trade & Investment Working Group (Global value chains and the agricultural sector and the Fourth Industrial Revolution and Industry 4.0)
II. G20 Infrastructure Working Group (IWG)
The focus of the IWG is expanding infrastructure as an asset class for investment. This involves securitizing the revenue streams from the “pipelines” of projects and bundling them for trading by investors. Any projects – public-private partnerships (PPPs); public works; state-owned enterprises (SOE) – can be bundled in this way. According to Argentina’s G20, the promise is enormous. Its website says,
“The global infrastructure gap projected from now to the year 2035 amounts to USD 5.5 trillion according to some estimates. Meanwhile, institutional investors around the world have USD 80 trillion in assets under management, typically offering low returns. Mobilizing private investment toward infrastructure is crucial to closing the global infrastructure gap. It can also ensure a better return for those who today save and invest. This is a win-win objective and it requires international cooperation. We will seek to develop infrastructure as an asset class by improving project preparation, addressing data gaps on their ﬁnancial performance, improving the instruments designed to fund infrastructure projects, and seeking greater homogeneity among them. Developing infrastructure as an asset class holds great promise to channel the savings of today into public infrastructure, efficient transportation services, basic sanitation, energy ﬂows and digital connectivity that will make each person of today a global citizen and worker of tomorrow.”
Importantly, as projects are financialized in this manner, it frees up capital on the balance sheets of MDBs to make more loans. Hence, it addresses the inadequate capitalization of the Western-dominated MDBs as compared to the AIIB.
The IWG’s 2018 meetings will be held as follows: 22 or 23 February in London, possibly with engagement by private investors; early June in Australia; and September in Tokyo. The Japanese will continue promoting its Quality Infrastructure program, which includes a focus on environmental, social and governance (ESG) criteria. Usually, social criteria get the least attention, but under Argentina’s Presidency that could change, since jobs and social well-being are important aspects of its Finance and Sherpa Track (under the “future of work”).
The IWG Agenda includes 4 issues:
- Scalability and the role of MDBs
- Project Preparation Facilities (perhaps establishing these on a country level)
- Data required to create an asset class… who compiles data of what type? Would the Global Infrastructure Hub perform that function as well as others, such as preparation of contract templates? In 2018, the Hub’s mandate is likely to be renewed for 4 years with Australia likely covering about half of its budget and soliciting donors for the remainder.
- Quality of infrastructure (e.g., environmental, social and governance (ESG) criteria). Japan and Singapore help lead the ESG discussion, which overlaps with the data-related issues. There has also been consideration of cost-benefit analysis (CBA) indicators to include non-financial aspects of projects.
Despite U.S. hostility to the decision, much of the work of the G20’s Green Finance Study Group will continue under the name: “Sustainable Finance Study Group”. This Study Group is expected to help the IWG focus on the ESG dimension of the infrastructure challenge.
With regard to the scalability and role of MDBs, the IWG oversees the design of standard templates for scaling up projects (e.g., standard contracts for public-private partnerships (PPPs)); and the design of methodologies related to additionality as well as ascertaining how infrastructure projects prove their value for money (VfM). It is crucial that VfM (or cost-benefit analysis) incorporate life cycle costs and impacts, including as they relate to environmental and social goals.
With regard to additionality, the institutions should not exhaust their capital in leveraging private investment, since the private sector will not be interested in certain countries or investments (e.g., sanitation; rural roads and electricity), including serving poor populations that cannot afford certain “user fees”. It would be profligate to spend public money to subsidize corporations to engage in fundamentally loss-making enterprises.
As noted above, the World Bank Group is implementing the “cascade” system (e.g., inducements to the private sector; changes to the regulatory regime) for this purpose. The World Bank Group’s two private sector arms lead the way in terms of providing inducements to the private sector. (See box.)
The 2018-2020 Strategy 3.0 of the World Bank Group’s International Finance Corporation (IFC) launches New Platforms to Create Markets; New Institutions; New Tools; and a new internal organization. It will be important to watch the development of one IFC platform -- the Managed Co-Lending Portfolio Program – since it is spearheading efforts to create infrastructure as an asset class. Different types of guarantees, which transfer risk from the private to public sector, are in fashion. The project bond has been certified as a “green and social bond” by Vigeo EIRIS.
As the cascade is implemented, the IFC Financial Intermediary portfolio is also important to watch. As described by Inclusive Development International (IDI), IFC funneled $50 billion into financial intermediaries (FI) such as commercial banks, private equity funds and hedge funds between 2010 and 2015, but audits show how little is known about the impacts of these investments. And, lax supervision by IFC of its FI operations resulted in FIs financing projects that IFC would not finance for its own account, such as investments in coal.
The World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) – continues its rapid expansion of products to attract the private sector with political risk insurance (PRI) and credit enhancement products. MIGA’s 2018-2020 strategy describes expanding the issuance of these products in Fragile and Conflict-Affected States (FCS) and for climate change mitigation and adaptation. By 2020, 28% of its new issuances would be climate-related.
The 2018-2020 Strategy 3.0 of the World Bank Group’s International Finance Corporation (IFC) launches New Platforms to Create Markets; New Institutions; New Tools; and a new internal organization. It will be important to watch the development of one IFC platform -- the Managed Co-Lending Portfolio Program – since it is spearheading efforts to create infrastructure as an asset class.
Different types of guarantees, which transfer risk from the private to public sector, are in fashion.
The project bond has been certified as a “green and social bond” by Vigeo EIRIS.
As articulated in “The Forward Look” by the World Bank Group, its goals are to achieve the twin goals of ending extreme poverty and ensuring shared prosperity in a sustainable manner, to realize the Sustainable Development Goals (SDGs) and the Paris Climate Accord, and to lead the “Billions to Trillions” agenda. However, to date, there is a mismatch between these goals and the means to achieve them.
The mismatch often arises because the obligation of private firms is to serve their shareholders, not the public good. While these objectives can be compatible, such compatibility should not be assumed. Instead, the G20 and the MDBs should more adequately define the opportunities and limitations of expanding the roles of the foreign and/or domestic private sector. Good planning and life-cycle costing of projects and “pipelines” of projects (taking into account ESG factors) can help ensure positive outcomes such as: mitigating climate change by locking in low or no-carbon technology; adapting to climate change through resilient projects; providing access to and affordability of infrastructure services; creating decent work; and avoiding the build-up of debt.
One danger is that the MDBs and borrowing countries will not compare options for infrastructure development to ascertain the feasibility of public works versus public-private partnerships (of one type or another). There is a bias toward megaprojects and public-private partnerships that should be corrected. Another danger is that the MDBs and borrowing countries will be be unrealistic about the extent to which its “de-risking” efforts will revive the appetite of foreign investors in low-income, fragile and conflicted-affected countries. At present, foreign direct investment (FDI) and public-private partnerships (PPPs) are concentrated in select, low risk countries and sectors. And, efforts to create markets by “de-risking” may backfire and, among other things, swamp countries in debt. (Already, 60% of Africa’s rising volume of debt is owed to China.) After all, investments are not de-risked, the risk is just transferred from the private to the public sector. Without proper controls and transparency, gains can be privatized and losses socialized, exacerbating levels of inequality and deprivation.
In addition to project-specific risks of crowding in the private sector, there are additional risks related to financializing infrastructure as an asset class. As G20 President, Argentina hopes that it can help solve a long-standing G20 puzzle by unlocking the coffers of long-term institutional investors, such as pension and insurance funds, to finance infrastructure. Already, NEPAD (New Partnership for Africa’s Development) has launched the “5% Agenda” which will mobilize 5% of domestic pension and Sovereign Wealth Fund capital for African infrastructure projects (including the Program for Infrastructure Development in Africa (PIDA)).
In theory, this sounds like a win-win strategy. However, pension funds in rich countries dwarf those in low-income countries, so user fees and revenue streams from infrastructure operations in the developing world could be sucked into the Global North for generations. Moreover, pension funds work closely with private equity and hedge funds – impatient and speculative capital sources that could create financial volatility as they seek inordinate and short-term gains. This pattern is evident in other markets, such as those for commodities. Here too, gains can be privatized and losses socialized on a major scale (e.g., the case of PPP roads in Portugal).
In terms of ESG considerations in infrastructure projects and portfolios, the danger is not that all ESG considerations will be forgotten, but that some will be and others will be viewed as secondary and optional or discretionary goals. This critique of the OECD/G20 High-Level Principles on Long Term Investment Financing by Institutional Investors shows that this danger is real.
Many civil society organizations (CSOs) are in a position to help the G20, MDBs, and regional and national governments match ambitious “means” and “ends”. However, first, the G20 and MDBs should help stop the repression of civil society around the world. It was an ominous sign that Argentina blocked entry into the country of civil society organizations (CSOs) attempting to participate in the World Trade Organization Ministerial in December 2017. It even blocked CSOs that were accredited by the WTO. Moreover, the government of Argentina is not providing financial support to the Civil 20 process, as other G20 Presidencies have. Such actions fuel the impunity of governments and capture of governments by special interests.
As the “State of Civil Society – 2017” by CIVICUS documents, “Civic space is being seriously constrained in 106 countries, over half of all United Nations (UN) members. This means that the restriction of civic space has become the norm rather than the exception. It should now be considered a global emergency.”
To be effective, the G20 and the MDBs need to be part of the solution to this emergency, not part of the problem. The success of their agendas depend upon it.
 Two key U.S. actors are Heath Tarbert and Everett Eissenstat. Tarbert is Acting Executive Director at the World Bank as well as Assistant Secretary of the Treasury for International Markets and Development. Previously, he was an attorney with Allen & Overy; Special Counsel to the Senate Committee on Banking, Housing and Urban Affairs involved in negotiating the Dodd-Frank bill, and law clerk for Justice Clarence Thomas of the US Supreme Court. Eissenstat is the US Sherpa (and Deputy Assistant to the President for International Economic Affairs and Deputy Director of the National Economic Council).
 The IBRD has the highest leverage ratio, followed by the Inter-American Development Bank, the Asian Development Bank and the African Development Bank, in that order. Building MDB leverage is a dominant purpose of the G20, as seen in Annex 2 of the G20’s Hamburg Principles, a/k/a "Principles of MDBs’ strategy for crowding-in Private Sector Finance for growth and sustainable development", which call for metrics to measure leverage: http://www.bundesfinanzministerium.de/Content/DE/Downloads/G20-Dokumente/principles-on-crowding-in-private-sector-finance-april-20.pdf?__blob=publicationFile&v=2
Other 2017 sources on metrics for leveraging include: the "Mobilization of Private Finance by MDBs" (including AIIB & NDB): 2016 Joint Report: http://documents.worldbank.org/curated/en/860721492635844277/pdf/114433-REVISED-11p-MDB-Joint-Report-Mobilization-Jul-21.pdf. A year ago, some of the preparatory work for these metrics was done for the G20 by the Global Infrastructure Hub: http://www.g20.utoronto.ca/2017/2017-Germany-GIH-report-to-G20.pdf In terms of setting the context for the leveraging of private investment for infrastructure, see the Global Infrastructure Forum Outcome Statement: http://www.un.org/esa/ffd/wp-content/uploads/2017/01/2017_gi_forum_outcome_statement_final.pdf
 For MDBs, a key aspect of their involvement relates to how much capital is required to back their credit enhancement products. For instance, the EBRD is backing its €89 million provision of liquidity with a much lower sum. In some cases, the World Bank Group sets aside only 25% of the value of its guarantees, whereas some IDB’s guarantees are backed by the full amount of their value.
 The scheme involves the AAA-rated EBRD providing €89 million as interim liquidity to mitigate the risks of construction and operation. This is intended to attract banks and long-term institutional investors to subscribe to the investment-grade portion of the bond. The International Finance Corporation is expected to invest on a parallel basis in an unenhanced tranche of the bond.