Mega-infrastructure as a mechanism of indebtedness

The risk of illegitimate, ecological and gender debt.

4 April 2018 by ODG (Observatorio de la Deuda en la Globalización)

ODG’s publication “Mega-infrastructure as a mechanism of indebtedness – the risk of illegitimate, ecological and gender debt” analyses the main mechanisms of indebtedness that mega-infrastructure projects entail, raising the question of the illegitimacy of debt, and also considering the creation of other debts such as ecological and gender debt.

Since the financial crisis shocked the United States and the international financial system in 2008, private investors have lobbied international policy agendas to find and promote new lucrative assets. Based on the assumption of perpetual economic growth, mega-infrastructure projects are becoming the new asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). for international investors and transnational companies to obtain benefits. Furthermore, austerity plans have forced governments in the North to cut public budgets and remedy the lack of new public investment through new financial mechanisms that attract private investors.

We are witnessing a trend towards the financialisation of infrastructure; a new bubble in the making. Public project financing is loosing importance whilst private financial actors are gaining it. A variety of private investors, including investment funds Investment fund
Investment funds
Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
, banks, insurers, pension funds Pension Fund
Pension Funds
Pension funds: investment funds that manage capitalized retirement schemes, they are funded by the employees of one or several companies paying-into the scheme which, often, is also partially funded by the employers. The objective is to pay the pensions of the employees that take part in the scheme. They manage very big amounts of money that are usually invested on the stock markets or financial markets.
and private equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. firms are financing the building of mega-projects all around the world. The trend is backed up by International Institutions like the G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). or the OECD OECD
Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.
who argue the existence of an “infrastructure financing gap”, especially in impoverished countries that need these large investments to acquire westernised-visions of development. The financialisation of infrastructure has strong repercussions on which infrastructure is being built and who builds it, promoting in particular mega-infrastructure and a specific model of financing. The BIG-BIG-BIG model (large projects, large investments and large corporations) captures the attention of investors.

Financialisation of infrastructure has brought a variety of instruments to finance mega-infrastructure projects. We analyse project bonds, which are being utilised especially in Europe and America to fund infrastructure projects and Public Private Partnerships (PPPs), explaining how they lock governments into long-term debt commitments. In impoverished countries, many risky infrastructure projects receive support through foreign Export Credit Agencies (ECAs) that belong to enriched countries in the global North. We explain how these agencies turn private corporation debt into public debt for impoverished countries. Finally, we explain the debt mechanisms of multilateral loans from International Financial Institutions (IFIs) and argue that the conditionality attached to the loans, lead to the loss of sovereignty of impoverished countries in favour of the IFI’s.

Mega-infrastructure projects have serious social and environmental impacts and are often responsible for illegitimate debt. We analyse the concept and give examples. However, when it comes to critically evaluate mega-infrastructure debt, we also have to take into account the ecological and gender debt it also entails.

Here the full document


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