COVER STORY
“We’re trying to build a bridge between policy-relevant research and what happens in the field.”
Anthony Bartzokas, Professor of Development Economics, University of Athens
loan syndications, where they become off-balance sheet structures for scaling up investments, while improving local capabilities and overall efficiency. How does this work in practice? Let me come back to loan syndications. One side, the beneficiaries, often suggest that we need to be more local-oriented. The other side, the international investment community, often cite quality problems for the lack of bankable projects in the pipeline. In my experience, it’s best to pursue investments where you can align local capabilities with local and international needs. Take infrastructure development, where investment decisions must be tailored to local communities. Those localized decisions don’t have to end there. Instead, they can feed into standardized approaches, which are often required by international investors. That in turn can improve efficiency and unlock future investments in developing countries. Moreover, where cross- border collaboration is needed for big infrastructure projects, these aspects are even more important. OFQ : How can we encourage more private sector involvement in sustainable development projects? AB: One tried and tested approach is to provide technical assistance to
help local stakeholders identify needs, formulate proposals and understand the regulatory environment. There should indeed be private sector involvement, even limited contributions, because that boosts investment capacity. This is the main issue when it comes to the polarization between bankable and missing markets. Where you lack investment capacity the way to create it is to add a thin layer of technical assistance to help identify needs and start building the project. It is also important to be practical and develop platforms where you can share the established practices and data of IFIs with local financial institutions from the Global South, as well as other institutional investors. The attractiveness and opportunities that the development finance asset class present have been reinforced by an impactful EIB initiative, i.e. the Global Emerging Markets Risk Database report on recovery statistics. This report, coupled with IFI-specific disclosure on sovereign default and recovery rate statistics, will contribute to an accurate risk assessment, mitigate the current disparity between perceived risk and actual risk, and grow investors’ confidence when investing in emerging markets. It’s important in this debate to bring in the central banks of developing
countries. To not include them is a missed opportunity because there’s one in every country and it’s usually a strong institution with fair credibility that monitors the quality of loans across the territory. However, there’s often a big gap between the data held by central banks and what the rating agencies are observing. The best way to break that inertia – and to help rating agencies make better decisions – is to bring the central banks formally into the process. OFQ : What should we be focusing on next? What holds the greatest potential for development effectiveness? AB: The challenge ahead for policy relevant research is how to gain a deeper understanding of the imbalances in capital allocation and innovation processes and how these imbalances can be effectively addressed with scalable innovation- driven and market-based solutions. Let me give you an example: Because we’re now dealing with deglobalization, a prominent area for easy wins is trade finance. At the same time there are fascinating technological changes – and opportunities – in how trade transactions are taking place. If we want to help developing countries catch up, including via sharing knowledge and building capacity, trade finance is a key area.
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