Category: Reports and Papers
The climate agenda as the central axis of foreign policy in Latin America
The climate crisis, global in nature, demands joint and urgent actions. For Latin America to advance on this agenda, it is necessary to reflect on possible ways to strengthen a multilateral narrative in favor of a coordinated foreign policy in the region. In this sense, the project “The Climate Agenda as a Central Axis of Latin American Foreign Policy” carried out by the Brazilian Center for International Relations (CEBRI) and the Regional Program for Energy Security and Climate Change in Latin America of the Konrad Adenauer Foundation (EKLA-KAS) aimed to discuss the role of the climate agenda in the region’s elections, as well as its current importance for the foreign policy of Latin American countries.
The Sovereignty of Developing Countries: The Challenge of Foreign Aid
Foreign aid has a well-established and significant role in international relations. The role of foreign aid in the repertoire of international development programs is extensively documented, with its goal being the promotion of human and economic development. Foreign aid can be defined as “all forms of assistance that a country derives from other governments or multilateral agencies and financial institutions to fill noticeable gaps, especially in production, savings, and investments; it takes diverse forms such as grants, loans, foreign direct investment (FDI), joint ventures, and technical assistance” (Omotola and Saliu, 2009, p. 88). Foreign aid offers numerous benefits, including a long-term positive influence on economic growth (Karras, 2006), and its function in reducing poverty has been acknowledged (Mahembe and Odhiambo, 2018). There is also evidence that aid improves human development and infant mortality prevention outcomes (Gomanee et al, 2005, p.299), making it a popular tool (Figure 1). However, given that foreign aid is “anything but simple” (Ridell, 2008, p.1), it is associated with several drawbacks. For instance, the provision of aid can facilitate opportunities for corruption and bureaucratic misconduct, which can threaten good governance (Booth, 2012). If this happens, foreign aid can play a hostile role that diverges from its purported purpose, especially considering that evidence indicates aid can have the consequence of increased inequality vis-à-vis income distribution (Herzer and Nunnekamp, 2012). Furthermore, poor quality institutions (Kabir, 2020) can reduce further the effectiveness of foreign aid—a consequence made especially stark given that many developing countries are characterized by institutional deterioration. This forms an important backdrop to claims that corruption has increased due to foreign aid, which can be fungible by nature because of its possible utilization by recipient states for a variety of unintended purposes (Mahembe and Odhiambo, 2018).
MDB Policy-Based Guarantees: Has Their Time Come?
Multilateral development bank policy-based guarantees (PBGs) have long been an instrument in search of demand. First introduced in 1999 at the International Bank for Reconstruction and Development to help governments access market borrowing at attractive rates, their track-record has been uneven, and their uptake limited. The multilateral development bank (MDB) business model tends to favor direct lending over non-lending products. And MDBs have experienced high-profile bumpy patches with PBGs—including a 2015 PBG for Ghana which sparked significant controversy around whether it generated an actual financial benefit for the country – that may have deterred countries from using the instrument. Moreover, the benign global interest rate environment that has prevailed since the Global Financial Crisis has generally helped governments access external commercial financing at historically low rates, making PBGs less directly relevant.
But PBGs have also had their successes, especially during times of stressed market conditions. PBGs have proven useful in insulating issuers from external market turmoil and helped governments secure better terms – reducing funding costs by an average of 330 basis points compared to what governments would have achieved had they pursued unenhanced issuances. They have helped new issuers establish market access and grow their investor base. They have helped countries reprofile expensive commercial debt on more favorable terms. They have helped governments secure private sector participation in restructuring exercises. And some governments are starting to use PBGs to raise funds for environmental, social, and governance (ESG) programs and projects, raising the possibility of a new generation of ESG PBGs.
PBGs have also proven more catalytic than direct lending, with $1 PBG mobilizing on average $1.8 in commercial finance.
PBGs could become freshly relevant as the world grapples with multiple crises, increased capital market volatility, heightened risk aversion, and tightening monetary conditions. Indeed, many of their strengths are well-tailored to the challenges governments in emerging and frontier markets will increasingly face in the coming years. Going forward, PBGs could be particularly useful debt management tools to help governments maintain market access on more favorable terms and reprofile or restructure debt while mobilizing more private finance for ESG programs.
Read the full note here.
Threats without borders: Are we apt to cope with the challenges?
In order to better analyze the various challenges that countries and multilateral organizations need to deal with, situations
that go beyond countries’ borders, the Forte de Copacabana International Conference will present four central topics of discussion, focused on the following themes: climate change and the energy crisis; water and food security; the Covid-19 pandemic; and technological security, focused on artificial intelligence and cyberwarfare.
Traditionally released each year during the Forte de Copacabana Conference, the Policy Papers 2022 publication aims to bring these strategies and analyses that emphasize the search for solutions to challenges related to mitigating global security problems. Analysts, speakers, decision makers and researchers were invited to this project in order to present their policy recommendations, and they certainly rose to the challenge.
Thus, we intend to promote a debate that addresses various possibilities and risks that are at stake in the current context of international security, considering
not only the direct impacts caused by armed conflicts. So, it is with this objective that we have launched this publication.