(SOUTHBRIDGE) - In the occasion of the third Finance Ministers and Central Bank Governors meeting under Indonesia’s G20 Presidency, Dr Frannie Léautier (photo), Senior Partner and CEO of SouthBridge Investments, presented the final report of the Independent Review of MDBs’ Capital Adequacy Frameworks. The Review was launched under the Italian G20 Presidency, with the objectives to help shareholders, and others, better understand how MDBs assess their capital needs and to consider ways to boost their investing capacity. The Report is the results of many in-depth discussions within the Panel, and intensive consultations with MDBs, credit rating agencies, shareholder representatives, and other relevant stakeholders, bolstered by commissioned analytical work.
The world is currently facing unprecedented crises and turbulence that makes the work of this panel even more urgent. The needs are great, particularly in the most vulnerable countries, and the economic recovery and the achievement of the Sustainable Development Goals (SDGs) are at risk. In this context, MDBs are called to play a critical role to respond to these challenges.
The Report, Boosting MDBs’ investing capacity, sets out an actionable, practical and interdependent package of recommendations that, taken together, will help MDBs pursue increased development investment and impact as well as sound financial management while mitigating the associated risks.
The Panel identified five areas to maximize the impact of MDB capital:
1. Adopt a more efficient management of MDB capital and risk, including by further reflecting on the approach to defining risk tolerance.
2. Give appropriate recognition to callable capital. Callable capital is a powerful instrument expressing the commitment of shareholders to stand behind MDBs. MDBs should incorporate its financial benefits in MDB capital adequacy assessments, as is already the practice in some MDBs and in credit rating agency methodologies.
3. Expand uses of financial innovations by adopting a more strategic, cooperative, and proactive approach to innovations that can improve the use of existing capital and free additional financing.
4. Enhance dialogue with credit rating agencies (CRAs) to improve mutual understanding.
5. Create an enabling environment for reform through greater transparency and information. More accessible and comparable data and analysis, as well as regular capital reviews, will support all the stakeholders in their assessment of MDB strength and demystify their financial model.
These actions would allow MDBs to substantially increase available funding, while protecting the MDBs’ AAA credit ratings that underpin their business models, through clear communication from shareholders and more dynamic risk management.
“I believe this initiative has come at a most appropriate time, and I was honored to be asked to chair this Review. The needs are great, with both the economic recovery and achievement of the Sustainable Development Goals at risk. Implementation of the Report’s recommendations would allow MDBs to increase their firepower, playing a greater role in addressing the challenges of today and tomorrow. Implementation will not be easy, and some recommendations will require very careful decisions about trade-offs. However, this is an opportunity that cannot be missed” said Dr Frannie Léautier, Expert Chair of the Independent Review of MDBs’ Capital Adequacy Frameworks.
For more information on the Panel and a list of members, go here