We must change the banking mind set on development finance and soft diplomacy

The UN estimates the infrastructure development costs in the Asian Pacific to be in excess of $1.7 trillion USD over the next 30 years. This estimate raises a raft of questions not only about how this figure was arrived at but where, how and in what context this money is to be spent. Throughout the Asia Pacific are clear concerns over sovereign debt levels and the impact of foreign asset ownership. With debt to loan repayment levels standing at a ratio of 1.2 : 1 the impact on the lives of the urban and rural poor are often ignored by wealthy nations seeking to promote their soft diplomacy and Climate Change agendas. Development agendas are always argued to reflect the host nation’s development objectives. What is entirely unclear however is whether these development agendas reflect the objectives of the national government or the state and regional authorities? In a large number of cases regional development agendas receive international donor funding approval via special interest groups lobbying for these funds. Often these groups are aligned with key individuals in government and business who will directly benefit. As a consequence we are witnessing an arrogant abuse of authority ensuring the repeat of the same development mistakes many accuse previous government officials of. Even though a raft of checks and balances exist in the development finance sector, we continue to see the approval of projects that are handpicked by donor countries and industry insiders with little regard for their broader social and economic impact. Project design and all aspects of project management are calculated to ignore future debt obligations that might lower the gulf between rich and poor. Development banking institution from the World Bank through to regional banking and NGO finance institutions are simply incapable of designing appropriate loan mechanisms for integrated projects, enabling the broadest social and economic benefit at the lowest debt to equity ratio even when they acknowledge the problems with current approaches.

Let’s put this into some perspective! Infrastructure aid and development needs in the Asia Pacific have been estimated at 1.7 trillion USD without accounting for specific Climate Change adaptation needs. If the developed world would make all these funds available tomorrow, the combined Asia Pacific debt; including all outstanding loans and excluding loan default or other contingency banking arrangements; would exceed 31 trillion USD by 2050. There is little doubt that vast sways of community leaders and activists have a point when they argue that development finance mechanisms deployed by the wealthy nations through powerful global bureaucracies such as the UN are little more than the vanguard of a new type of economic imperialism designed to maintain the existing international order. A large part of the problem rests with the type of development finance and social impact finance methodology deployed. Irrespective of whether a top down or bottom up development strategy is recommended, the macro economic analysis contextualizes the nature of the specific problem within a national straight jacket of assumptions that are presented as desirable outcomes. Invariably people are asking whether these assumptions realistically meet the desired objectives of the communities whose lives the development projects target. Questions are increasingly being raised about the ethical, cultural and social principles these aims are meant to improve for who, what, where and when and at who’s cost. Many of the reports highlight GDP agendas in the context of governance, income tax reform and local institutional reforms without questioning whether the idea of increasing indirect taxes and government charges coupled with privatizing transport, water, electricity, health and education services is in the long term development interest of the most marginal nations in the Asia Pacific. Despite ample evidence in both the developed and the emerging world that this approach increases private household debt, this traditional macro-economic methodology to development financing continues to persist.

It is clear that the traditional narrow formal training economists receive is part and parcel of the problem. Unable to think outside the box these people write the same old rubbish reports and slavishly cite statistics to support their own preconceived ideas of what developing nations need and want. Perhaps more intriguingly is that the assumptions that underpin the methodology of these reports highlight a single unified pathway to development that mirrors western thinking without recognizing that 21^st century technology offers a vastly different way of inclusive development then was previously thought possible. This is precisely where the new battlegrounds are.  We should not be under the illusion that the emerging economies of the Asia Pacific have to follow the same 18^th and 19^th century economic development model of the west.  Modern technology allows us to leapfrog much of these outdated ideas with innovative and culturally appropriate development methods without destroying the very community fabric that makes these nations the vibrant historic and culturally unique societies they are.

In the Asia Pacific local community leaders are anxious over a new type of economic colonialism as rural landownership, affordable housing, social welfare, jobs, education and health become battlefields in the growing divide between rich and poor. Invariably the reports blame the economic development problems in transport, housing, energy, water, sanitation and health infrastructure on the readiness of the institutions to design, plan and manage the western funded projects to a standard acceptable to the western donors. Blaming poor levels of governance and low levels of accountability on national and regional institutions in the Asia Pacific whilst approving loans to the very people international financiers are critical of seems an entirely pointless prattle. Influential businessmen and politicians are forever building monuments to themselves in an effort to enrich themselves and grow their spheres of influence. Mugabe is exempt from prosecution for years of incompetence and theft.  There is no doubt that the embedded commercial interests underpinning the aims of soft diplomacy in the international aid and development finance sectors drive the interests of the developed world at the expense of ordinary people in the emerging nations of Africa, Latin America and the Asia Pacific. Recent trade disputes between the US and China merely reflect the tip of the underlying socio-economic problems with international agreements. Ignoring local customs and values in favour of trade agreements that will inevitably depend on the subsidy arrangements of the host country is something no government should willingly agree to. Poor nations are aware that their relative advantages in labour and other resource costs must be balanced against disparities in education, environmental degradation, land ownership, population displacement as well as the costs to health and the loss of social and community identity.

The future urban ghetto’s in Kolkata comprise of high rise developments constructed on farm land, wetlands and swamps that used to drain the Ganges into the Bay of Bengal. Roads and building foundations are not designed to cope with heavy monsoons or Climate Change. Daytime summer temperatures frequently exceed 45 degrees Celsius.

Displaced rural workers migrate into the city for low paid construction jobs. They often live in the unfinished buildings without basic sanitation or clean drinking water.

Transport outside one of Delhi’s railway stations on a relatively smog free day

Children washing themselves in the back streets of Balia

At the heart of these problems are perceptions of empowerment and alienation. Invariably these matters coalesce with local traditions, culture, religion and ethnic mores that find expression in unique and sometimes violent nationalistic sentiments. Creating sustainable urban and rural environments that nourish and support local communities whilst providing access to economic participation often involve political choices that are difficult to reconcile. Conventional liberalist thinking pushes a raft of agendas that have evolved little from the master and servant arrangements of the Middle Ages. Some would go as far as to say that modern day slavery is merely hidden behind a veiled façade of privilege, inherited wealth and institutionalised corruption. Others point out that each age in human evolution has given rise to new heroes who against overwhelming odds battled the establishment in order to carve out a new future for themselves and their followers. Today we worship Bill Gates and Elon Musk. It was not so long ago people talked of Alexander the Great, Genghis Khan, Napoleon and the great Chinese dynasties. Just as we have commodified the great leaders of the past we institutionalize the leaders of tomorrow. The disgusting immorality of this trend is that we have outsourced personal responsibility and accountability to a self-serving behemoth known only as the bureaucratic machine and its political masters.

Electricity and communications infrastructure in rural India

Wiring standards, safety and compliance are not on the agenda here.

There is of course logic behind the denationalization of control. Hiding decision making processes behind a wall of labyrinthine procedure and unfathomable processes is all about maintaining standards of equity and fairness whilst enabling compliance through rule based enforcement. This arrangement has, we are told, always been considered as the most rational organizational principle for all complex human organizations. A homogenized and pasteurized sausage factory for the masses to chew on and stew over provides ample fodder for disagreement and hopefully little chance for collective action. Unlike Pacific Island communities who can often wait for years until a true village leader emerges, we prefer to elect or nominate our representatives from those willing to apply for the job. As a consequence, modern societies are riddled with people who are prepared to put their own interests before those of the community they are employed to serve. Self-interest is perhaps the most powerful instinct of any living organism. Other components to this subset are survival and procreation.  All living organisms deploy strategies for space, mating rights and all other resources needed for individual survival. These strategies can include any type of co-operative arrangement as well as competition in every form.

Social housing in Cebu Philippines is often constructed with poorly planned road access on land little more than 1 meter above sea level. Housing construction methods as well as building and planning codes are ignored or subject to bribery from government contracted developers. During heavy rains the sewage mixes with road drainage flowing out of the manhole covers into the streets.

All our great cities exist because of the collective needs of the people that chose to live there. The need for shelter, security and commerce remains an evolutionary imprint we do not seem to be able to escape from. No matter how hard we try to remove ourselves from the immediate nastiness of what this may entail, we are increasingly confronted by the compromises we need to make. This is true whether we look at problems of housing affordability, cost of living, or the health and welfare for ourselves and our families. By 2050 our small planet will host more than 41 mega cities with inhabitants of 10 million people or more. Most of us are acutely aware that greater urban densities, rural migration, homelessness, urban congestion, crime and Climate Change will make these places a nightmare on earth. The motivations that caused humans to congregate in collective communities for security in the past are no longer a valid reason for living in large urban centres. Karachi has more than six hundred assassin for hire. 80% of their business derives from political assassinations with the rest attributed to the Karachi mafia. Entire neighbourhoods in the US are gang controlled and theft, graft, rape and many other crimes riddle major cities in the developing as well as the developed world. This does not have to be the legacy we bestow to our children and grandchildren.

Communities are living organisms. Like all living organisms they must have the freedom and the rights to manage and control their own collective needs. This is true irrespective of whether we are talking about a remote island or a neighbourhood in one of our great cities. Every successful urban renewal or rural development project respects these fundamental aspects of shared responsibility implied by this statement. Modern technology combined with strong local community representation supported by proper planning, zoning and building codes can transform the urban ghettos of today into the liveable cities of tomorrow. It can transform rural poverty into vibrant self-sustaining communities halting the breakdown of families and the relentless migration in search for jobs and greater economic security. The key to achieving this is to move away from large scale infrastructure planning and embrace the concepts of small scale, distributed development solutions that are customized and integrated to specific community needs.

In the absence of modern medicine local herbal remedies are prepared under the instruction of a visiting doctor. All of these remedies contain water from the local well contaminated with cyanide, E.coli and other bacteria. The water is neither boiled nor filtered.

Enormous sums are spent on E-WASH-E ( energy, water, sanitation, health and education) initiatives every year. Add to that the disaster and emergency relief funds collected by the many NGO’s and it becomes increasingly plain that the accountability and effectiveness for the expenditure of these vast sums are increasingly questioned. The question is not how do we spend money on soft diplomacy more effectively but how do we spend money more appropriately? How do we ensure economic development impacts evenly on all levels of the community without cultural and social dislocation and without increasing the divide between rich and poor? In a world where trickledown economics seems to dominate rationalist economic thought these notions are perhaps unfathomable left wing utopian ideals best enshrined as principles we should aspire to rather than act upon. This is precisely the problem! Instead of spending a $1 to fix the problem our institutional banking guru’s prefer to spend $1 without comprehending the entirely avoidable consequences the expenditure of this $1 creates. Let us look at a specific example!

The Republic of the Marshall Islands is designated as one of the 50 at risk and 23 at critical 'Need nations' by the UN. The atolls that comprise this Pacific nation are typical of the many island nations to the north of Australia with perhaps several key distinctions. Firstly, the country is the site of US nuclear experimentation. As a result, the island’s government and people are still fighting for full compensation from the US government. Secondly, the coral atolls are little more than 1 meter above sea level. This will make the entire population of the Marshall Islands the first man made Climate Change refugees unless the rest of the world will make Climate Action a reality now. Thirdly, without any land for agricultural production, the economy of the Marshall’s is entirely import dependent for its food, energy and all other materials. Despite a small banking services industry the country is dependent on selling its fishing rights to Taiwan, Japan, Russia and other nations. A small merchant maritime service sector provides the only other industry that provides income to a population living with chronic diabetes, high unemployment and a raft of avoidable health problems.

Despite years of development aid the lives of the people have not improved. Net migration to the US mainland is increasing every year.  A close look at the expenditure of ADB and US aid funds reveals that E-WASH-E infrastructure expenditure is poorly coordinated and largely wasted in expensive and ineffective consultancy fees or inappropriately planned and atrociously mismanaged projects. Not one aspect of this money is integrated with a properly integrated E-WASH-E Climate Action agenda even though all of the funding; other than the current work in training the department of finance in basic economics; is paid by the ADB under a Climate Action development pretense. 

As a consequence there is no properly planned WASH infrastructure. What exists has been constructed and is maintained by foreign companies who for some reason have managed to procure contracts in line with their donor country’s foreign aid policy. You will find that Majuro’s main water supply is the airport runway. There is no municipal planning or building code that requires rainwater storage to be mandated for each building on the island as part of a standard building approval process.

Instead of building a faecal and bio-waste to energy plant the only sewage treatment facility on Majuro operates on diesel pumps without any bio-digestion capacity. Sewage sludge is piled behind a series of storage vats near the main part of town. During high tides, or when the diesel powered electricity grid fails, raw sewage is released into the lagoon used by the local children ( see picture above). The subsequent health issues are something every visitor to the island is warned of in a casual conversation over turkey tail soup. Instead of recycling grey water and reprocessing sewage sludge into fertilizer, the increasing frequency of dry weather spells leaves the few raised garden beds filled with imported potting mix around town struggling in the salt laden coral rubble that forms the top soil on Majuro.

There are a few remaining breadfruit and coconut palms not covered with concrete and asphalt. They barely survive the harsh conditions. Despite the government’s food security agenda few coordinated solutions exist. Tourism is the only other option that seems to be on the agenda for a government looking for answers to a growing debt to GDP ratio. However, when a country can’t even process its own sewage into fertilizer and redirect its grey water into raised garden beds, the idea of growing something as simple as a few herbs is unlikely to attract foreign visitors other than the most committed diving enthusiasts.

There are clear and simple answers that can be implemented with a little planning and foresight. The problem is as always that development money for integrated project solutions and the training of local staff disappears with the next consultant and foreign adviser appointment. Somehow these people are forever pushing the agenda of a company interested in a plush contract sponsored by the donor country. Urgent funding in appropriate planning and construction standards and infrastructure compliance governance remain ignored. The idea of implementing project management standards and compliance codes run contrary to the agendas of the donor agencies and the companies interested in securing the contract. Even the idea of integrated solar and small scale wind generators to reduce the country’s diesel import bill is largely left to donor nations who take advantage of cultural traditions by gifting a few solar panels in return for prominent signage, the extension of commercial fishing rights and a generous tax deal.

It is true that much of the governance issues in the Pacific rest with the traditional authority structures. Government has always been run and management by a few prominent families. The Marshall Islands are no different in this respect. This does not mean that foreign companies who have installed themselves as preferred suppliers of services with their donor nations must exploit their preferred status by constructing substandard infrastructure and devising idiotic solutions to relatively simple engineering problems. In Australia's case the systematic outsourcing of DFAT ( Department of Foreign Affairs and Trade ) functions to four external consulting firms poses a serious accountability and value for money contradiction.

Where are the Australian and US Universities who could be engaged in substantial Climate Change, oceanographic, agricultural and environmental research, local training and knowledge exchange programs? Where are the diploma and undergraduate exchange programs in urban and rural planning, transport, civil engineering, building and construction? What we have instead are basic education and training solutions Australian companies organize with DFAT under contract. No one seems to have informed DFAT that the inappropriate primary and secondary school support, including the standard automotive and other basic TAFE training programs have not cut the mustard for 20 years. It took me 2 hours to discover that the Australian company offering education and training consultancy services is so incompetent in structuring any education and training consultancy / advisory service contract in the Pacific, that it can’t write an international consultancy proposal correctly. Even the idea of teaching basic construction techniques are a bit droll for an Island nation likely to suffer from cyclones and tsunamis. Instead of building cinder block structures on tiny coral islands, flood proof social housing should be constructed on pontoons and pylons in Majuro’s lagoon. This would leave the available land clear for raised garden beds filled with fruit trees and vegetables. Not that this idea is ever going to receive any serious financing before sea level rises claim the Marshall Islands for good.

The scarcity of arable land in the Marshall Islands requires innovative solutions. These solutions must by necessity not include covering the few acres of coral atoll with concrete slabs for housing only to see the housing washed away in the next king tide. Someone might even think of importing a few bee hives to help the only guy trying to grow a few tomatoes in his green house. The fact that DFAT employs a company to design education and training support packages for the Pacific without bothering to check whether this company is actually qualified to offer qualified advice to the government of Pacific Nations continues to amaze and disgust me. But then again DFAT employs a senior diplomat who used to lobby for the coal industry in Delhi and who is now pushing a gas power agenda in the Pacific.

Many of the most basic education and training pathways programs for local youth are simply ignored. Adult education is simply not even mentioned. As a consequence the chain of respect and leadership passed down from grandparents and parents breaks down in these traditional societies. This causes social dislocation, community disharmony and eventually families will fragment and migrate to the US or elsewhere. The old people know that the life style of the young is killing them. The women know improvements in local fresh produce production will assist in the reduction of diabetes and related health issues. Instead of being a nation known for having the worst diet on the planet, a simple process of improving local fresh food production will benefit the promotion of tourism. This in turn will promote improvements in hospitality education and service standards. Perhaps someone might even learn how to set a hotel dining room table properly. 

What the majority of ADB economists and advisers simply don’t get is that funding for infrastructure projects begins and ends with a properly articulated development plan that includes and requires ownership of this plan by the local community. Spending a few million dollars on a sewage plant built by a foreign company to outdated specifications that will fail when the generators are off line is simply a waste of ADB ( Asian Development Bank) money. Improving the electricity infrastructure by changing a diesel generating infrastructure to gas is a pointless exercise no matter which DFAT and ADB consultant promotes it. What the boffins at the ADB and other development banking institutions don’t seem to comprehend is that no one in the Pacific cares about Australia’s addiction to gas. No one wants to be dependent on Australia’s gas exports. So devising an ADB energy development policy that ignores the Paris Climate Convention defies standard banking risk analysis protocols.

For those of you not familiar with the Paris Agreement let me put it in black and white for you. The Paris agreement states that no knew coal fired power stations are to be approved beyond 2017. No new gas fired power stations can be built beyond 2030 if we are to remain within the agreed global temperature range. The integrated E-WASH-E infrastructure focus for all Asia Pacific, Caribbean, Latin American and African nations is an integrated solar/ wind / tidal and wave generation profile optioned on a base load sewage sludge / bio-mass / bio-gas digester backbone with suitable energy storage configuration in a standalone smart grid. The fact that ADB internal as well as external senior consultancy thinking is not even on the same page puts ADB loan management for any Pacific Island nation into serious risk management territory. Why would any economist worth his salt even suggest such a silly diesel for gas substitution idea when in 10 years the entire gas energy project will have to be torn down anyway? That is unless the host country has not gone broke paying for the gas imports from Australia before that happens! Alas, that is the nature of development politics. Waste and incompetence are dictated by the foreign policy agendas of the donor nations.