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Public Development Banks and SDGsBuilding a research based constituency: A GDN Project

Pierre Jacquet

Global Development Network

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SDGs represent an innovative, post-2015 « global objectives and performance contract » globally negotiated.

However, a major challenge will be to translate these SDGs into (locally-owned) national development strategies

– How to define an operational list of national priorities within the (long) list of SDGs? (this implies sound knowledge and assessment of the current local situation, and mobilization of collective action)

– How to implement these priorities?

– How to mobilize and effectively allocate domestic savings and international aid?

Locally linking policy instruments and performance with public policy objectives in local contexts is all the more important

The SDG challenge

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Not as much one of resource availability, as one of resource allocation

– Little reason to consider that the « global savings glut » has disappeared! There are still lots or resources looking for efficient and effective use.

– Spontaneous market allocation often leads to « misallocation »: some sectors are excessively over-financed, others are underfinanced given social objectives.

The allocation problem cannot be solved by throwing public money at issues (budget constraints, and lack of effectiveness). The key lies with proper incentives to promote public policy objectives and engage all stakeholders in pursuing them.

Toward revisited public-private partnerships

The financing issue

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Their generic mandate and original rationale is very relevant:– « A PDB is a state financial institution whose mandate is to promote socio-

economic development by financing specific economic activities, sectors or segments » (de Olloqui, 2013)

– Assumption that some economic and social objectives are left unattended by private financial intermediaries, and that intelligent financial intermediation by governments can remediate these market failures

Many developing countries’ governments have PDBs and are using them: doing it wisely is immensely important. – Across Latin America, PDBs have significantly expanded since the mid-2000s.

Despite the rationale of their mission, results have often – but not always – been disappointing. More needs to be known in order to better understand how such an instrument can better fulfil its promises. A crucial question is how PDBs can advance the SDG agenda in an effective manner.

How do Public Development Banks come in?

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Significant work conducted so far. It documents (De Olloqui , 2013)

– Permanence of the rationale – general dissatisfaction with results – some successes – recent improvement (in Latin America notably)

– Main, twofold, challenge: achieve public policy objectives and ensure financial sustainability

More (state-of-the-art) evaluations needed 3 major performance dimensions (Smallridge and de Olloqui, 2011)

– Coherence of public policies, specification and focus of mandates and quality of corporate governance

– Operational and financial performance– Specific and broad development impact.

Broad consensus that there is no silver bullet, no single model, no real relevance of universal « good practices »: local conditions matter on each of the previous performance dimensions, and we need to know more about specific local contexts.

What do we know about PDBs (snapshot)?

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Three historical phases (de la Torre et al., 2007)– Interventionist approach (post WWII) : predominance of State involvement.

– Disillusion leads to Laissez-faire approach (1980s and 1990s): retreat, markets perform systematically better than governments.

– Disappointing results lead to new « pro-market activism » approach in the 2000s: PDBs expected to support interventions that complement the market and address explicit market failures (including counter-cyclical role).

What next?– From supporting markets to enlisting markets into producing public goods

– Catalytically using public resources to engage the private sector in the provision of public goods: a revisited Public-Private partnership concept

Implications– Need to understand countries’ institutional and market idiosyncrasies, to test

new public finance instruments designed to catalyze other stakeholders.

Hypothesis about the PDB of the future

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Focus on innovative uses of public funds Focus on the local dimensions through careful local evaluations and

research: importance is recognized, work is still underdeveloped Deepen the move from « prescriptive general » approaches to

« informative, local » ones. Create local constituencies (sort of epistemic communities)

– Sharing interest on revisited role for PDBs– Connecting with other stakeholders (PDBs themselves, policy-makers, civil

societies, media)– Interested in effectiveness of public policies and PDBs interventions– Interested in generating, sharing and using evidence

Connect them globally to generate global, informed momentum on an enhanced role of PDBs in development finance.

A proposal for next steps: principles

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Complementing existing literature with detailed, locally based analyses about various aspects of PDBs operations (governance, mandate, operational procedures and strategies, instruments)

Series of 15 to 20 country studies, conducted by local researchers (with guidance and mentorship)– To document effectiveness of specific characteristics of PDBs (for example in line with

Eslava et al. 2012 for Colombia), possibly building on the evaluation grid provided by Smallridge (2011), which mixes quantitative and qualitative assessments within a structured framework.

– To relate impact studies to specific country characteristics– To highlight locally relevant ways to address identified shortcomings– And to document innovative, catalytic approaches

Diversity across typologies of PDBs and sectors– Promoting industrial productivity, promoting agricultural development, financing

public goods (including the environment and climate), in line with SDG objectives– Various modalities of governance

Innovative use of financial instruments (partial guarantees, quasi-equity, contingent instruments…)

Specific proposal: research component

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Produce relevant knowledge outputs with competitively selected teams– Choose themes in consultation and partnership with practitioners

(PDBs, policymakers)

– Encourage evaluations of existing PDB programs (as well as involvement of evaluators in forthcoming PDB interventions), review initiatives and innovations

– Document how specific public policy objectives can be reached through PDBs in a financially sustainable way

– Assess existing instruments and potential of innovative financial instruments

– Store data and facts in a publicly accessible knowledge-bank about PDBs

Specific proposal: project operation

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The number of concrete outputs will be depend on funding for the project

Nature of proposed outputs: – Policy management cases (to be taught in schools of public management and business

schools, and also within PDBs own training programs)

– Comparative and operational synthesis of country studies, conceived as a « policy-risk management documents »: « how to avoid current mistakes »?

– Series of policy workshops and roundtables to disseminate research results

– Series of policy briefs.

GDN’s goal, at this stage (to be discussed with project sponsors): – 15 country studies (5 in each region: Latin America, Africa, Asia),

– 3 regional inception meetings (Africa, Asia, Latin America) to adapt the proposed research to regional and country characteristics and experience

– 3 regional intermediary and final workshops, as well as one final global Conference, to organize peer review and present and discuss research outputs

– 3 policy management cases along each of the 3 performance dimensions identified above,

– One policy brief per country study (to summarize results in a synthetic, policy-oriented way)

– 3 global policy briefs to highlights the lessons from the project.

Specific proposal: proposed outputs

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Further document the local specificities of NDBs performances Evidence-based understanding about role and potential of NDBs

toward pursuing the SDGs Informed policy-debate and improvement in the quality of public

financial intermediation, also exploring a new vision of public policy as a catalyst rather than an autonomous agent in charge of providing specific public goods.

Dissemination of knowledge, analysis and issues, informing « how » to use financial instruments to achieve public policy objectives (as opposed to « what should » be done): this can be a contribution to revisiting the way public policies are conducted.

Local empowerment through the mobilization of domestic researchers

Expected benefits

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As interactive as possible with major stakeholders– Academics and experts knowledgeable on the subject

– PDBs and their federations

– Policy-makers and Civil society organizations

Based on the selection of engaged and promising researchers in chosen developing countries

Based on sound , peer-reviewed and publishable research, generating relevant and sound local knowledge and evidence, organized with the help of mentors, supervised by a scientific advisory council.

Based on interaction with policy-makers

These principles constitute the signature of GDN’s programs.

Organization

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Mission coherence: GDN’s mission of research capacity building, aiming at promoting local research-and-policy ownership on important development issues

Capacity: GDN’s experience in mobilizing developing country researchers and in managing complex, global research and research-to-policy projects

Theme: GDN is working on raising developing countries’ voices on development finance: – Next Horizons essay competition, organized in partnership with the Bill and

Melinda Gates Foundation, leading to 14 “winning essays” on development aid– Joint project with AERC (African Economic Research Consortium), funded by USAID,

including studies on financing development in Africa

Global Network: GDN’s reach to more than 130 countries and 3800 grantees to date

Global partnerships: GDN believes that its contribution is enhanced by linking research with policies through partnerships with decision makers and other stakeholders.

GDN: a partner of choice for such a project

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GDN would like to engage WDFMI and its members– To sponsor, and provide financial support to, the project so that it can

be implemented as part of a conducive institutional partnership

– Beyond funding, to mobilize existing expertise and receive feedback on the proposal, so that it can be strengthened and organized interactively: driven not uniquely by research interests, but by concrete policy and experience-based issues so that knowledge generation can be better mobilized to address them.

– To help shape a global research-to-policy constituency on a very concrete and important aspect of development finance.

A full project proposal, with a budget, will be discussed with potential research, project and funding partners.

Next steps

THANK YOU

Contacts: Pierre Jacquet, President, GDN (pjacquet@gdn.int)

Alina Zyszkowski, director, GDN Washington D.C. (azyszkowski@gdn.int -T: 202-861-4364)