Sophie E. Smyth (TempleUniversity)
Global Environment Facility, international finance, paradigm-changing, governance, flexible financing
As countries grapple with challenges of a global dimension; a worldwide economic meltdown, global warming and HIV Aids among them, calls for the developed world to make funds available to the developing world to address these challenges are inevitable. The Global Environment Facility and the Global Fund for HIV AIDs are testament to this trend. Recently, the President of the World Bank suggested that developed countries create a vulnerability fund to blunt the effects of the financial crisis on developing countries and Muhammad Yunus, the Nobel prize-winning microfinance pioneer, is calling for the developed world to create a fund to support microfinance in developing countries. This article shows what it takes to translate such a hortatory call for action into an international collective financing vehicle that will function as a solid funding machine.
Drawing upon the experience of the Global Environment Facility, a paradigm-changing international financing effort, I show the choices that must be made for such an effort to succeed; choices that include critical decisions about the effort’s financial plan and governance structure. On the financing side, supporters of the effort must address threshold questions, such as how they will share the financial burden and whether the effort will be a long-term initiative. These initial decisions must then be followed by a series of second order decisions, such as how a long term effort will be replenished and how, if at all, its supporters will deal with a failure on the part of one or more of them to follow through on the commitments they have made.
On the governance side, the threshold question is who will control the allocation of the effort’s pooled resources. Its supporters must decide whether they will retain that power for themselves or delegate it to an intermediary. If they retain it for themselves, they will have to devise a governance structure with the basic component parts (fund allocation council, secretariat and trustee or other financial manager) that will be necessary to facilitate that choice. Second order choices will include deciding on the flow of funds, whether they will go direct to beneficiaries from the financing vehicle or through a pre-approved list of intermediaries, and if the latter, who should be on that list. Supporters will also have to balance between creating a flexible financing vehicle that can adapt to changing demands and warding off the danger of mission creep.
The considerations underscored in this article are poorly understood and frequently overlooked when new funding efforts are launched, becoming lost in the rhetoric of the moment. In the realm of international cooperation, there are no stock answers to the decisions that have to be made. To the contrary, they are fraught with supporters’ political and other sensibilities. Nonetheless, it is important that the supporters of new funding efforts are made aware of the choices and the lessons that can be drawn from the mistakes and triumphs of landmark precedents such as the Global Environment Facility. This article aims to serve as that consciousness-raising tool and analytical road map. In doing so, it fills a significant gap in the legal scholarship on inter-governmental financing initiatives, all of which focuses on the public international law aspects of these initiatives to the exclusion of the significant international finance and corporate governance issues involved.
(2010) 22 Georgetown International Environmental Law Review 29
A Practical Guide to Creating a Collective Financing Effort to Save the World: The Global Environment Facility Experience