GLOBAL POLICY LAB
LSE
LSE Institute of Global Policy
How the G20 and International Financial Institutions Can Work Together to Achieve the SDGs
Fabrizio Saccomani
Chairman of the Board of Directors of UniCredit
Fabrizio Saccomani

As the global economy is still in the midst of unprecedented policy uncertainty with increasing risks of a widespread slowdown of trade and economic activity, the G20 is going to examine in the coming months the proposals of the G20 Eminent Persons Group (EPG) on Global Financial Governance. The EPG Report was broadly endorsed by G20 Leaders at their Summit in Buenos Aires last December and its implementation is currently being considered by the relevant technical instances under the aegis of the G20 Japanese Presidency.

The EPG proposals are considered valuable, although most of them are deemed to require a multi-year time commitment. It is understood that the Japanese Presidency will identify a limited number of proposals for early discussion and possible approval by Leaders at the Summit in Osaka at the end of June 2019. The EPG made 22 proposals covering three separate chapters of the Report: Development (9 proposals); Finance (7 proposals); Governance (6 proposals). Of these 7 are expected to be considered: 4 in the Development agenda and 3 in the field of Governance; regrettably, none of the Finance proposals have been selected.

While this outcome reflects current political disagreements among G20 countries on the functions and institutions of multilateralism, it is important that development issues are put at the center of the Leaders’ debates as soon as possible. Indeed, the main conclusion of the EPG report is that: “The magnitude of the development challenge will require greater resources than before, from every source – domestic savings and public revenues, and external financing from private, official and philanthropic sources. Even by conservative projections, the gap in infrastructure financing alone is well over USD $1 trillion annually. This gap in financing must be closed to ensure the quality and scale of investments in economic and social infrastructure that will be critical in the next decade.”

As proposed by the EPG, a prerequisite for such gigantic mobilisation of finance is the build-up of effective country and regional platforms to identify investment priorities and to coordinate the activity of all development partners. Primary responsibility for the design and operation of such platforms would fall on Multilateral Development Banks (MDB), namely the World Bank and regional development banks.

As proposed by the EPG, a prerequisite for such gigantic mobilisation of finance is the build-up of effective country and regional platforms to identify investment priorities and to coordinate the activity of all development partners. Primary responsibility for the design and operation of such platforms would fall on Multilateral Development Banks (MDB), namely the World Bank and regional development banks. This proposal has been endorsed by the Japanese Presidency and seems to have garnered a broad consensus among G20 members.

However, official resources, both national and multilateral, are likely to fall significantly short of the targeted amounts. It is therefore crucial to adopt a comprehensive staregy to involve private investors in the process. This will not be realistically possible unless a new approch is introduced to maximize the potential of capital markets and institutional investors. The EPG recommended a fundamental shift in the basic business model of MDBs from direct lending towards risk mitigation aimed at mobilizing private capital. This goal could be achieved in several ways, which are analyzed in detail in the EPG report. For example, MDBs could offer credit enhancements to private investors by taking a first-loss piece in a synthetic securitization structure, allowing them to take a standardized senior debt exposure at a price that would reflect the lower risk. Moreover, MDBs could adopt the model of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank to develop a system-wide political risk insurance, standardizing contracts and processes and expanding the use of private reinsurance markets. Another option would be to build a developing country infrastructure asset class by pooling investments from the MDB system into securitized assets with the scale and diversification required to attract private capital.

As the global economy is still  in the midst of unprecedented policy uncertainty with increasing risks of a widespread slowdown of trade and economic activity

The G20 has so far only taken note of these innovative proposals, limiting itself to endorse the suggestion of building on the MIGA risk insurance capabilities. This prudent approach may be understandable, but the G20 could also recommend that the preliminary work conducted by the EPG be completed by involving a more systematic way representatives of private banks, insurance companies, capital market intermediaries and institutional investors, as well as companies specialized in project design and execution. This broad consultation among the official and private sectors would give a fundamental contribution to the identification of the appropriate financial instruments and procedures to be submitted for approval by the G20 and the MDBs. The early activation of such consultation process would give a positive signal to global markets and public opinion that the G20 is indeed determined to promote a massive program of infrastructural investment, thus reducing policy uncertainty and downside risks or the global economy.

Fabrizio Saccomanni has been appointed Chairman of the Board of Directors of UniCredit in April 2018 for a period of three years. He has been a member of the Board since November 2017.

He is Deputy Chairman of the Italian Banking Association and member of the Board of Directors of the Institute of International Finance in Washington. Since December 2018 he is President of the Orchestra Filarmonica della Scala Association in Milan. Currently he is also Vice President of Istituto Affari Internazionali and Senior Fellow of the School of European Political Economy at LUISS Guido Carli University of Rome.

He has been a member of the G20 Eminent Person Group on Global Financial Governance (2017-2018) and a Visiting Professor at the Paris School of International Affairs at SciencesPo (2016-2017) and at the London School of Economics (2015).

He has been Minister of Economy and Finance in the Italian Government from April 2013 to February 2014.

He was Director General and member of the Governing Council of the Bank of Italy from 2006 to 2013. In this capacity, he held positions at the European Central Bank and at the Bank of International Settlements.

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