Balancing accessibility and quality in the financing of Blue Dot Network infrastructures
Author: John Taishu Pitt, Georgetown University
While the US-led Bretton Woods institutions have supported infrastructure projects since the 1940s, there have been critical in recent years, that the United States has not adequately responded to China’s Belt and Road Initiative (BRI). The Biden administration is expected to use the Blue Dot Network (BDN) to incentivize private investment in sustainable infrastructure projects in conjunction with existing Bretton Woods institutions.
By striking the right balance between accessibility and quality, the BDN would create a unique opportunity to narrow the infrastructure gap while strategically responding to the BRI through coalition building.
In November 2019, Australia, Japan and the United States spear the BDN, a voluntary program that aims to certify infrastructure projects that meet high standards of transparency, sustainability and development impact to help countries continue to invest in quality infrastructure. Since there is currently no certification process to assess quality infrastructure projects, the BDN could also be used by the Bretton Woods institutions to assess existing projects, including those under the BRI.
The BDN is seen as a way to provide alternative project finance to the Chinese BRI. One of the major differences often highlighted between the Bretton Woods institutions and the BIS concerns the level below the optimum. loan criteria of the BIS. Since Chinese state-owned banks have state backing, BIS partner countries can receive loans even if the projects are not expected to be profitable.
Even before the COVID-19 pandemic, the World Bank valued that nearly a third of BIS partner countries were at high risk of debt distress. The low emphasis the BIS places on environmental and social impact assessments means that the World Bank and other lending institutions have struggled to promote high-quality infrastructure projects. The BDN certification process should be a driving force for projects with better commercial loan viability while maintaining an openness that will invite a critical mass of private investment to guide quality infrastructure goals.
While the BDN received $ 2 million from the US State Department, no specific certification plans have been announced. The fiber optic submarine cable to Palau was the only project that attracted funding from all three BDN countries, but it is not clear whether this will be a test case to receive certification by the BDN.
The Center for Strategic and International Studies has underline that the United States does not want to compete with the BIS on a dollar-for-dollar basis, and should instead focus on promoting rules that reflect American values. But efforts to promote ‘the highest standards‘were only criticized for reflecting the values of developed countries. To avoid such criticism, the BDN will need to be implemented in a way that captures the characteristics and needs of recipient countries, rather than applying a single standard.
Since the BDN is supposed to invite private investment, the focus on accountability could be more focused on investors seeking a better rate of return than on those affected by politics. It is imperative to see how the BDN will balance the promotion of high quality infrastructure projects while being accessible enough to reduce the infrastructure gap, which is projected to about US $ 94 trillion over the next two decades.
In recent years, environmental, social and governance-related assets have grown exponentially, with around a third of global assets in sustainable investments. Norway, the world’s largest sovereign wealth fund, recently published his plan to impose stricter ethical and environmental guidelines on its investments and said it will not add more emerging markets to its portfolio. While surveys show that a certification program for quality infrastructure projects would increase the likelihood of private sector participation in infrastructure projects, standardization efforts should be structured to promote infrastructure projects where they are needed. also need.
These factors underscore the importance of setting standards through a multi-stakeholder mechanism. The OECD provided technical support by establishing a multi-stakeholder design process for the BDN certification framework. The aim is to make sustainability a goal in both the design and implementation phases, signaling to financial markets that the risks have been managed, which would make it more attractive for private sector investment.
While the OECD indicated that BDN certification would be based on existing criteria such as G20 Principles for Investing in Quality Infrastructure, the OECD declared that stakeholders from 96 countries have committed to finalizing the BDN certification framework, including China as an observer. As the Biden administration has shown a keen interest in mobilizing allies and like-minded countries to various normative initiatives, the BDN is a great opportunity to show the United States’ commitment to multilateralism.
Even though the BIS has been criticized to be poorly coordinated and too fragmented, the Asset and Biden Administrations saw the BRI as a tool to achieve Beijing’s geopolitical goals. Countries, especially in Southeast Asia, have often shown their reluctance align with the United States or China, although some ASEAN members have expressed interest in the search for funding opportunities with trilateral partners.
The Biden administration should emphasize to developing countries that BDN will be used for the common goal of achieving the Sustainable Development Goals, rather than being seen as another way to contain China.
John Taishu Pitt is a trade policy specialist in a Washington DC law firm and a fellow of the Institute for International Economic Law at Georgetown University Law Center.