FfD Forum 2019
Statement to Opening Segment – “Navigating the headwinds and tailwinds: current global economic context and emerging trends” on behalf of Civil Society FfD Group (including the Women’s Working Group on FfD)
Delivered by Kavaljit Singh, Director, Madhyam
15 April 2019
I would like to discuss 3 issues in the context of SDGs.
First and foremost, we need to manage volatile short-term capital flows that can threaten financial stability in the recipient countries, most of them belong to poor and developing world.
As we all know, financial stability is a public good and is vital for achieving the SDGs.
The global financial safety nets are not adequate to prevent or manage a financial crisis.
The safety nets are patchy, and they are getting further fragmented.
Many countries avoid the IMF loans because of strict conditionality.
On the other hand, bilateral currency swap agreements are often driven by geo-political interests, rather than the needs of countries facing a crisis-like situation.
So for a number of recipient countries, they have 2 options:
The first is self-insurance through accumulating large forex reserves – but it is a costly option.
The second option is to use capital controls and macroprudential measures.
In my view, recipient countries should proactively use capital controls.
If need be, countries should roll back those investment treaties that prohibit the use of capital controls.
And recipient countries should reconsider the benefits of rapid capital account liberalization, because there is no evidence of a positive relationship between capital account openness and economic growth. While the costs are clear in the form of recurring financial crises.
The 2019 FSDR has rightly recognized the role of national development banks in financing SDGs.
In the 20th century, NDBs and DFIs were largely dealing with credit market failures, but in the 21st century, their role is much bigger because they have development mandate and they can provide patient capital to address big societal challenges such as climate change and inclusive growth, provided NDBs are governed in a transparent and accountable manner.
Nowadays there is a lot of buzz on fintech. FSDR recommends a balanced approach.
Fintech can help in the achievement of SDGs provided 5 following preconditions are met.
First, we need robust regulation and supervision (not a light touch approach) because fintech firms are dealing with poor clients who don’t fully understand the financial products.
Second, we need regulation now, not later. Because after some years, fintech industry will become too big and too complex to regulate.
Third, we need regulators who understand data science and technology. This is a big challenge for all countries.
Fourth, data protection laws should be upgraded.
Fifth, we also need greater international cooperation on fintech because fintech could be potentially abused for money laundering and terror financing activities.
Once we have the robust regulatory infrastructure in place, fintech can develop in an orderly manner and contribute in the achievement of SDGs.