Watch the recording (skip to minute 17:30 to watch Bodo's presentation on the "Cost of capital", which is based on our briefing paper "The price of money")
Developing countries continue to struggle with unfair and unequitable borrowing costs and practices. The roots of the problem are complex and intertwined. The Compromiso de Sevilla calls for the establishment of a working group to propose a consolidated set of voluntary guiding principles on responsible sovereign borrowing and lending.
However, even assuming that voluntary instruments would do the job, this is only one dimension of the problem. The cost of borrowing is influenced by several factors, including interest rates, currency dependence and other macro-economic and monetary dimensions, biased and often procyclical assessments by Credit Rating Agencies, and widely unregulated practices by non-banking financial intermediaries. Meanwhile, colonial roots of commodity dependencies are reinforced by this debt cycle, as the higher cost of borrowing for many Global South countries maintains the need for export-oriented production to earn dollars and repay those interests in foreign currencies.
These lock-ins and vicious cycles deepen inequality and commodity traps for many developing countries at the expense of their local socio-economic transformation agenda. In turn, while countries remain focused on export-oriented trade models and stuck in using much of their resources to repay debts, private finance appears as a solution to fix development challenges in the immediate term, unfortunately proving to be a false one on most if not all occasions. Such a systemic challenge requires a systemic approach. More importantly, it calls for clear and enforceable normative instruments in international law.
