This monthly column tracking developments in the world of the international finance looks into the review of Equator Principles, ITUC’s critique on IMF Framework on Social Spending, and World Bank’s report on the Global Economic Protects.
Equator Principles being reviewed!
Equator Principles, a set of voluntary guidelines, were formulated in 2003 when International Finance Cooperation (IFC), the private arm of the World Bank, invited private financial institutions like Citigroup, ABN AMRO, Barclays, and West LB to come up with environmental and social risks management guidelines for the private financial institutions. Thus, the Equator Principles are a framework used by financial institutions to determine, assess and manage environmental and social risk in projects. This was in the context of global struggles against destructive projects like the Sardar Sarovar Project and their impact on people and the environment.
The EPs are adopted and applied voluntarily by Equator Principles Financial Institutions (EPFIs). So far, approximately 90 EPFIs in 37 countries have officially adopted the EPs covering over 70 per cent of international project finance debt in emerging markets. The EPs are applied globally to all industry sectors and four financial products: Project Finance Advisory Services; Project Finance; Project-Related Corporate Loans; and Bridge Loans.
The EP Association is currently undertaking a targeted review of the Equator Principles, working towards fourth version of the Equator Principles (EP4). The review, which began in 2017, is expected to be completed by the end of 2019. The review focuses on four key thematic areas: Social impact and human rights, Climate change, Designated Countries and Applicable Standards, and Scope of applicability of the EPs.
Bank Track, commenting on the draft observed “this was a disappointing draft, in which ‘climate risks’ are considered purely in terms of how they might impact the banks’ investment, and in which the Free, Prior and Informed Consent of Indigenous Peoples to projects that affect their land and heritage is presented, in one option at least,as ‘nice to have’ rather than their sovereign right. Banks will need to act to address these major flaws in the months ahead.”
The draft was also criticized by the First People World Wide, which expressed concerns “about the lack of a human rights-based implementation of free, prior and informed consent (FPIC) and the distinction between Designated and Non-Designated countries. Neither of these revisions are in line with international standards set forth in the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), nor aligned with the expectations of Indigenous Peoples which flow from international human rights instruments. Similarly, more specificity and accountability on human rights and climate impacts in reporting is necessary to ensure effective implementation of EP4 by clients, by EPFIs, and by the EPA.”
It is quite disappointing that Equator Principles instead of moving towards an enforceable regime gets diluted even at the voluntary framework level.
ITUC questions the IMF framework on social spending
At the International Labour Conference, International Monetary Fund’s (IMF) Managing Director Christine Lagarde unveiled an institutional view on social spending that will guide lending on social protection, health and education. This was in response to IMF’s Internal Evaluation Office report that noted that the institution was increasingly out-of-step with “the rights-based approach to social protection espoused by UN agencies including the ILO.” The report suggested having program design and conditionality to ensure that adverse impacts of program measures on the most vulnerable are mitigated.
The IMF’s view is problematic as social protection is seen in a narrow sense of safety net and not comprehensively that also provides for the basic social security guarantees. The International Trade Union Confederation (ITUC) has also criticised IMF’s views. In a statement, it said, the (IMF’s) view does not “put the IMF in a position to fully support the Sustainable Development Goals on universal health coverage and free, equitable and quality primary and secondary education.” The Confederation also criticised the IMF for pressurising countries to cut social spending and reduce the coverage of social protection. This has impeded the ability of states to deliver on their commitment to deliver adequate, comprehensive social protection systems consistent with ILO standards.
World Bank’s 2019 Global Economic Prospects report
The report forecasts that the global economic growth will ease to a weaker-than-expected 2.6% in 2019. The report points out to high government debt in emerging and developing countries resulting in reversing of hard-won cuts in public debt ratios. Investment growth is also expected to be subdued below historic average held back by sluggish global growth, limited fiscal space, and structural constraints. However, the regional outlook for South Asia is given as solid with 7% growth. India’s growth is expected to accelerate with strong domestic demand growth.