Who will pay for the reconstruction – maybe us?

Economic and Social Council Forum 2022

Miguel Ángel Velasco cmf

Member of the cmf UN team

Master in Development S. and Diplomacy. UNITAR

Watching the images of all the news, whether in print, on television, or through the Internet, these days, we are offered the spectacle of destruction in Ukraine. After the First World War, one of the major problems that the “victorious countries” had to face was the payment of compensation for the damage caused. The “tug of war” between France, England, and the United States – Germany was excluded from any kind of negotiation – resulted in massive demand for compensation that Germany could only pay after reunification (2010). The systematic destruction of cities in Ukraine being carried out by Vladimir Putin is not as tremendous as that unleashed by Germany in World War I, but it is significant.

After the Second World War, even more destructive, the only solution to lift Europe was the Marshall Plan; it was 13,000 million dollars, equivalent to more than 60,000 million dollars. Is Russia going to pay them as compensation? The International Monetary Fund or the World Bank? The European Union? If the reconstruction of Ukraine is going to be a substantial financial effort for everyone, other disasters will cost even more.

Crisis after crisis

In 1992, the UN convened the Rio de Janeiro Conference on “Development and Environment,” where the degradation of the environment was denounced with forcefulness and urgency. We are destroying the earth that is our home. Human beings will disappear with it.

In 2000 the UN approved the Millennium Development Goals (MDGs). The MDGs were a breakthrough in addressing global imbalances in Hunger, Health, Education, Child Care, HIV, and Gender Equality. Unfortunately, when everything seemed to be on the right track, we ran into the economic crisis (2009) caused by Lehman Brothers, financial engineering, and mortgages. World GDP contracted by 1.68 points; the crisis hit the most disadvantaged populations very hard.

The MDGs (2000) was transformed into the SDGs 2030, adopted in 2015. The 2030 Agenda (20015), approved after an enormous effort of consultation and consensus among governments, UN experts, and civil society, was more complex than the MDGs but reflected the reality of our world much better. That same year, the “Third International Conference on Financing for Development” was held in Addis Ababa, also under the umbrella of the UN. It seemed all on track when no one expected it; in 2019, we were faced with the COVID-19 Pandemic.

The calculations of progress in fulfilling the 2030 Agenda, with its 17 Sustainable Development Goals, its 169 targets. With their corresponding average indicators not only came to a standstill, but we went backward in the achievements made. The blow dealt with the entire world has been tremendous: education, women’s rights, decent work, informal work, migrants, human rights freedoms, health, equality between human groups, international cooperation, health, welcoming cities. Everything, including the planet’s sustainability and the little that had been achieved with the Kyoto and Paris climate agreements, came to a standstill or collapsed. Global GDP was shrinking by 5.2 %. If the “High Income” countries suffered a collapse of their economies, the “Low Income” or “Middle Income” countries suffered the direct consequences of COVID-19 plus the implications of the collapse of the rich countries.

Initially, governments reacted to the COVID-19 catastrophe by locking each country into its own problems. This attitude changed to some extent once the rich countries had solved their problems. However, the world was trying to regain its pre-COVID-19 pulse when a new problem erupted: the invasion of Ukraine ordered by Vladimir Putin. The invasion signifies a new crisis on top of the still unresolved COVID-19 crisis. International prices of Gas, Oil, and other raw materials have skyrocketed; exports of wheat and other grains from Ukraine have come to a standstill.

The 2030 Agenda for Sustainable (Human) Development Goals

In all previous crises, although the higher income countries have suffered the consequences on their populations, especially the most vulnerable groups, the other countries have suffered even more dramatically. Who will pay for the reconstruction of this world? There is no doubt that the bill will be much higher than that for rebuilding Ukraine.

From April 25 to 28, 2022, the “ECOSOC Forum on Financing for Development” has taken place. The annual Forum is held in compliance with the resolution of the UN General Assembly, which, in its resolution 69/313 on the Addis Ababa Action Agenda (resolution 69/313, annex, paragraph 132). Throughout the many interventions at the Forum, one thing became clear: the blueprint we must follow for reconstructing this world after all the catastrophes we have experienced so far is the 2030 Agenda.

We do not know what the next blow to be suffered by humanity will be, but it is clear that everything that happens in the world, even in a tiny part, will influence the whole of humanity. Looking back at the issues that have been affected by past crises and comparing them with the matters addressed in the 2030 SDGs, we can see a constant correlation. The 2030 Agenda is indeed complex, but it presents us with a picture of the world’s complexity that reflects the reality of what we are.

We cannot act partially; we cannot now become obsessed with the vaccine system thinking that the next problem will come from healthcare; we do not know the content of the next crisis. We know that, wherever it comes from, if we have advanced in the Sustainable Human Development presented by the 2030 Agenda, we will have built a more resilient humanity; thus, we will be able to face the next global crisis with more strength. Well, we have the blueprints, but who pays for the re-building of the world?

Inputs from the ECOSOC Forum on Financing the 2030 Agenda

The “ECOSOC Forum on Financing for Development, 2022” has repeatedly pointed out two documents to follow: the 2030 Agenda (2015), the economic commitments expressed in the Addis Ababa “Financing for Sustainable Development” document (2015). Addis Ababa document and development may be valid in 2022, but with the necessary modifications after COVID-19 and the invasion of Ukraine. We have to spend more, but we have a problem with paying the public debt. The “international credit system” gives “high credit rating” and low-interest rates on debt to “High-Income countries”, like European Union countries. The situation with middle- and low-income countries is quite the opposite: low credit ratings and high-interest rates on debt; sometimes, it is too difficult for some of these second group countries to pay the debt and declare a default. Therefore, it is urgent to seek a different international credit system; the Forum offers some guidelines.

Following the Forum’s guidelines, the funds for Sustainable (Human) Development of the 2030 Agenda must come from public-private financing. Regarding intergovernmental public financing, the International Monetary Fund and the World Bank remain key but follow the criteria of the 2030 Agenda and not the principles of Neoliberalism or the Washington Consensus (1989).

The change of policies of the Bretton Woods institutions is becoming a reality through their periodic meetings with the UN institutions (Special High-Level Meeting with the Bretton Woods institutions, the World Trade Organization, and the United Nations Conference on Trade and Development. April 13, 2021), but they are to be accelerated. The benchmark for “conditional lending” to countries by the World Bank or the International Monetary Fund can be none other than implementing the SDG 2030. Along with the WB and IMF, institutions such as the European Investment Bank and other regional banking institutions must continue to increase funding.

The 2022 Forum of the Economic and Social Council has also called for the creation of Private Investment Funds that focus on financing projects based on the 2030 Agenda. In addition, after years of hesitation before any decision, the European Union has launched “Green Bonds” and “Social Bonds” on the market. Social bonds reached a global volume, at the end of 2020, of about EUR 170 billion; in the case of “Green Bonds”, they exceeded EUR 850 billion. Member States and EU institutions account for about 50 % of the total EUR 1.1 trillion. “The European Commission raised (22 March 2022) a further €10 billion in NextGenerationEU funds through its second bond syndication of 2022. The 10-year bond, due on 06 July 2032, brings the total financing raised under the program to €91 billion. This placement will continue to support Europe’s economic recovery under the Recovery and Resilience Facility and the other EU-budget programs funded through NextGenerationEU.”

(https://ec.europa.eu/commission/presscorner/detail/en/IP_22_1935)

(https://ec.europa.eu/info/sites/default/files/about_the_european_commission/eu_budget/2021.1967_es_02.pdf)

For the “reconstruction” of their country, each of the states would have to specify the program to implement the 2030 Agenda, set priority projects, and draw up a financing plan. This financing project would include: resources from the country itself via taxes, resources from private 2030 bonds, and aid and loans from international aid banks (WB, IMF, EIB). The problem to be solved is the credibility and transparency of the countries.

The UN (Financing for Sustainable Development Report 2021), regional organizations, and the Bretton Woods institutions themselves would provide expert assistance in preparing projects and budgets. In addition, the existence of taxonomies defining “green and social activities”, such as the one developed by the European Union, will help in the formulation of projects and budgets acceptable to the private sector. It will also make it possible to obtain private and supranational financial resources at affordable prices.

The best thing about this guaranteed public-private solution is that these bonds are offered on the international market and can be bought by anyone on the bond market. With proper monitoring based on the criteria of the 2030 Agenda, this would allow us all to help rebuild our world.

Let’s keep an eye out for the issuance of these bonds to subscribe to them.

Miguel Ángel Velasco cmf