Transparency and accountability: the soap and water for COVID-19 financial packages to the private sector
While the world is experiencing an unprecedented health and economic crises, international financial institutions have stepped up to support developing countries to respond to the pandemic and save lives and livelihoods. This support is coming in many forms, primarily to governments which are necessarily the most relevant and appropriate actors to be leading on this response. But there is also support going to the private sector from actors like the International Finance Corporation (World Bank’s private sector arm) to support companies, their workers, and their economic activity in this challenging time. I think of it as the IFC’s “stimulus package” of sorts.
Living in the US, where this government has passed multiple stimulus packages, we have seen how the vague guidelines and requirements allowed for more than $1billion in economic stimulus aimed at small businesses to be crowded by publicly traded companies exposing the unintended effect of exploiting such needed resources to the detriment of local and small businesses that actually provide the majority of jobs that support workers and their families. And it got me thinking: where is the IFC’s COVID-19 financing going?
Here’s what I can tell you: IFC’s COVID-19 package of $8 billion aims to “support private companies and their employees hurt by the economic downturn caused by the spread of COVID-19.” The bulk of IFC’s financing -$6 billion- will be channeled through financial intermediaries to offer trade financing, working capital, and medium-term financing to private companies struggling with disruption in the supply chain. And the remining $2 billion will support clients in the “infrastructure, manufacturing, agriculture and services industries vulnerable to the pandemic” including direct support to “strategic sectors including medical equipment and pharmaceuticals.”
We also know that in order to speed up due diligence and screening processes, the IFC will only provide COVID-related financing to existing clients, and management will approve financing, skipping the usual process of having the resident Board of Directors approve every loan. The speed at which the multilateral system, including the World Bank and IFC are moving, is commendable. However, it is critical not to let the urgency lead to neglect of obligations for transparency and accountability. Unlike the World Bank that has created a dedicated webpage disclosing all COVID-19 operations with all the relevant documentation, the same cannot be said for IFC, which has a special webpage indeed, but not yet disclosed any COVID-19 related investments in a similar manner. The IFC needs to improve its dedicated COVID-19 webpage in a manner that actually offers relevant information about the recipients of IFC’s COVID-19 financing.
But, what information should IFC be disclosing?
Firstly, it is important to know which private sector companies and banks are receiving the funding.
IFC should start disclosing all recipients of COVID-19 financing –both those receiving direct financing and those receiving financing through IFC’s financial intermediary clients.
This level of transparency is even more critical for IFC’s financial intermediary lending to ensure that financing is ultimately reaching local and small businesses as opposed to bailing out big corporations, multinationals or publicly listed companies. Oxfam and many other civil society organizations have been advocating for greater transparency in this portfolio of IFC’s lending for years now because of the high levels of opacity in this sector. We have welcomed IFC’s recent commitments to improve transparency in its financial intermediary lending. However, this is largely for environmentally and socially higher risk projects, and I would argue that $8 billion COVID-19 financing moving quickly out the door would need an additional level of transparency and disclosure.
Secondly, it is important to know what the terms of the financing are, and what can companies do or not do with the money.
Ideally, we would find links to relevant documentation describing the objectives of such financing including all contractual obligations and requirements guaranteeing that the funding will directly address the challenges of local and small businesses to protect their workers and their families.
Thirdly, how is the IFC measuring its own impact on the COVID-response?
It would be important to see clarity on that answer as it would also help explain how it is prioritizing investments. For example, are they targeting a percentage of investments to small and medium businesses? How many workers have retained their jobs and salaries, how many have access to paid sick leave or care leave? Are there particular sectors the IFC is staying away from at this time or prioritizing investments in, say critical sectors like health, food, or renewable energy? How can the IFC support companies that will form the energy basis for the economic future we want to see?
Why is this important and why should we care?
An all too common unintended effects that arises from the need to respond quickly to any urgent crisis are an increased discretion in decision-making for the allocation of resources, limited oversight and enforcement to ensure the needed resources reach their intended target, and fewer transparency and accountability mechanisms. This in turn increases the risks of corruption, fraud, and/or rent-seeking opportunistic activities as more resources are made easily available to overcome the crisis.
As we have seen with the US stimulus package, some large companies are taking advantage of the pandemic and gaming the system by seeking limited funds when their businesses have ample access to different financing sources.
COVID-19 is forcing many countries to lock down and slow down their economies. As countries put in place stay-at-home orders to prevent the spread of COVID-19, many workers — especially those that cannot work from home and those deemed essential — are facing huge challenges in terms of safety, caring for their most vulnerable family members, losing their jobs if they don’t go to work, losing their jobs due to sickness, childcare duties as schools are closed (women especially), facing the risk of being laid-off without pay, or furloughed without guarantees of getting their jobs and lost income back. Similarly, small business employers globally are facing similar challenges in terms of keeping their employees safe from COVID-19 transmission, offering paid sick leave and care leave, training to meet alternative skills needed while continuing operations and/or offering job security and other types of support while closing businesses until the situation improves.
IFC’s fast COVID-19 response package to support private companies and banks to help sustain economies and preserve jobs during this global crisis is critical, no doubt. However, it is also important for IFC to maintain high standards of transparency, disclosure, and accountability to ensure that the needed financing is reaching its intended purpose and most importantly, is helping to protect jobs, the livelihoods of workers and their families, and is not used ineffectively or worse, misused, wasted, or lining the pockets of shareholders.
Less transparency and accountability will only lead to short and long-term consequences that undermine developing countries’ chances for a steady, sustainable and more resilient recovery, and even worse, could increase poverty and inequality. In the same way that washing hands and social distancing are the best tools we have to prevent the spread of COVID-19, transparency and strong requirements for COVID-19 financing going to the private sector is the best tool to prevent the misuse of these resources.
IFC can set a high standard for the role companies can play in the COVID-19 crisis. But nobody will be able to assess or learn from this financing without having more information. IFC has been a frontrunner among other Development Finance Institutions (DFIs) in setting standards for transparency in the private sector. Now it can do the same for COVID-19 financing. We certainly hope they continue moving ahead in this effort, and that other DFIs follow.
This post was written by Christian Donaldson, economic justice senior policy advisor at Oxfam International’s Washington Office.
