Development Bank to Empower Small Island States
BRIDGETOWN, Barbados – It’s an ambitious project, but don’t tell that to Dr. Hyginus ‘Gene’ Leon, the St. Lucian-born economist, who is leading a visionary effort in establishing the Development Bank for Resilient Prosperity Initiative (DBRP).
“I think the first point of departure and we need to clue into different words, there’s development, there’s resilience, there’s prosperity,” he tells the Caribbean Media Corporation (CMC) regarding the establishment of the DBRP.
“The prosperity side is a coined word that captures what we can call development from a social justice perspective. And by that what we mean when we talk of prosperity, prosperity of people, is one access to rights, equality of treatment, fairness, of treatment, and third, resource allocation of community resources.
“So that in a sense, is what prosperity means in the first instance, the second part of resilient is now not resilience of climate, but resilience of prosperity. And since I have talked about prosperity, having those dimensions, what we’re seeing is resilience as a system in each of those dimensions, and it captures the idea that you cannot have prosperity today, that like a sugar high is up and tomorrow at the first bit falls, and then it doesn’t go back up,” he added.
Leon is convinced that the idea of resilience prosperity is that “your prosperity can continue to grow and be sustained.
“So, in essence, then it is how do you first attain prosperity, but maintain that prosperity and grow that prosperity from a people’s perspective and the development side as a development bank, what we are seeing is first and foremost, it’s a bank, which means that it has to have a policy dimension, it has to have a financing dimension.
“It has to be a capacity building dimension, that in principle brings together all of the elements of what we want to call development and development for us is not just economic activity, it is the economic, the social, the institutional, the environment, and the finance all brought together as an integrated system.
“And that is the concept of development that we have been promoting. Development as a system…and as you may have heard me say before it has to be resilient, it has to be sustainable, and it has to be based on prosperity not on activity on income.”
The concept of a financial institution dedicated to Small Island Developing States (SIDS) was first introduced at the SIDS Inter-Regional Conference in Cabo Verde in August 2023. The initiative aimed to amplify the voices of SIDS, mobilize finance for resilient infrastructure, and address regional economic disparities.
The fourth International Conference on Small Island States (SIDS4) held in Antigua and Barbuda in May this year, provided even further impetus for the DBRP that aims to address the persistent financial challenges faced by SIDS, which have long struggled to secure affordable financing and are often burdened by unsustainable debt.
“We need change, and the Development Bank for Resilient Prosperity will be designed to address the structural challenges that SIDS uniquely face, while complementing existing institutions with innovative financial mechanisms such as leveraging Nature Based Assets as Real World Assets (RWAs) that leverage the inherent resource value of island nations,” Leon told the conference.
Concurrently, there were discussions on the establishment of an institution to address the climate challenges of the Global South, with a focus on carbon sequestration and achieving Net Zero emissions.
The initial concepts were further refined, expanding the scope to encompass Nature-Based Assets (NBA), including forests, wetlands, and marine environments across green, blue, biodiversity, and carbon economies, collectively referred to as RWA.
Initially led by the SIDS, the DBRP aims to foster resilient prosperity and sustainable development by addressing the extensive impacts of climate change, economic inequalities, and environmental degradation through a systems approach to these systemic challenges.
Leon says the target still remains the SIDS that have been very vocal in the past about the impact climate change is having on their development.
“The bank we paraphrase as having three dimensions, it is SIDS-focused …it is outcomes driven and it is global in nature. So outcomes driven, says it has to be able to target and deliver on the let’s call it sustainable development goals as outcomes of desirable outcomes of interest.
“It has to have a global in nature perspective, because it means that Those small island states cannot exist on their own, they operate within a global space. And so we need to ensure that the inequities that occur in the Global North versus the Global South are reduced to get to the concept of prosperity. And it has to be SIDS-focused,” Leon said, noting that in principle, the audience becomes the 39 countries that are the members of the small island developing states classification, plus those other less developed countries within the UN system.
“So it’s a wide audience that is global in the development space. And we can think of them as the countries that the global financial architecture in its current state has not targeted adequately, has not delivered on prosperity wise adequately, and therefore, having the ability to target in a way that can move those countries from the state they’re in to one of prosperity, with resilience as the underlying description”.
The headquarters of the bank has not yet been decided upon, but Leon hopes “ it ought to have a presence in each of the regions that we talk about, if anything…to mobilize local knowledge, local expertise, local content, but at the same time ensuring that you have a unification that will allow for sharing of experiences, replication of activities in each of the regions, aggregating for scale and efficiency across regions, either in finance or in deployment of particular projects”.
The DBRP will adopt a multi-source and multi-instrument funding strategy to fill critical gaps and complement the existing global financial architecture. Underpinned by robust governance, the DBRP will secure funding from a variety of sources, including sovereigns, particularly Non-Borrowing Development Partner countries and those rich in natural assets, global family offices, philanthropic organizations, and the private sector .
But Leon says the bank will have a system that provides for maximum voting control in SIDS, and so “we are not apologetic it has to be for SIDS, controlled by SIDS.
“And so the voting power has to be within SIDS. But because SIDS do not have adequate finance, at least government finance, we have to supplement that equity with other resource mobilization, whether it’s private sector, or for that matter, non seed sovereigns that can infuse not equity, but net equity and other debt instruments in a way that will provide you with the totality of resources that you need, but without losing control.
“So it will be for SIDS, managed by SIDS, controlled by SIDS, but benefiting from global resources. So that’s why we say multi source that will include the totality of resources needed for deployment, and we all know it is not millions, not billions, but it’s actually in the trillions. So we want to be able to attract that type of capital to deploy in the SIDS space, but without losing the control, because if we do, then we become another World Bank,” Leon told CMC.
A crucial element of the DBRP is its commitment to strategic partnerships and collaboration with member states, multilateral development banks, the United Nations system, international financial institutions, environmental organizations, global family offices and the private sector. These collaborations are designed to enhance the bank’s global impact, liquidity, and scalability, and to foster knowledge-sharing and financial cooperation, which will improve productivity and competitiveness on both national and regional levels.
“The financing has to come from the way we describe it, it’s multi source, multi instrument, multi source, meaning that we will deviate from your traditional multilateral development bank, which is principally a sovereign owned and sovereign capitalized institution.
“This institution will have sovereign equity, it will equally have other finance, mobilizing instruments from the private sector will have financing from multilateral development institutions, financing from other agencies,” said Leon, the former president of the Barbados-based Caribbean Development Bank (CDB).
He says as an example, most people associate with the Green Climate Fund (GCF) that can be a climate fund “not by way of equity, but by way of finance that could be funneled through that institution in aggregate and deployed in smaller amounts to the countries that we are talking about”.
Asked whether he believes that the DBRP could facilitate Caribbean development given the outburst from regional leaders that they are unable to get access to concessionary loans,, Leon responds “absolutely, for two key reasons.
“The first is that and as you know, we have always championed the idea that GDP (gross domestic product) is not an adequate tool for the allocation of resources, so much so that half of our countries or maybe more than half are locked out of concessional financing because the per capita GDP is too high.
“And one of the elements we’ve talked about getting out of that is using vulnerability and resilience as metrics that ought to be incorporated in the way we analyze country performance as a means of getting access to finance.
“So we want to actually stop there, it is part of the multi dimensional vulnerability index work. But you will equally recall, we promoted the idea of internal resilience capacity as a more appropriate measure.
“So clearly moving in that direction is important. But one of the maybe equally transformative elements that the bank is going to be utilizing is the concept of natural assets. Now, natural assets essentially recognize that what you have is a planet. And the planet has a finite set of assets that are now being depleted.
“So it is part of the climate change but broader than climate change. And what we need to do is to have policies that a focus on conservation, preservation and restoration of natural assets, so that we move away from value in things only when they are dead. So your forests don’t have value until you cut the tree and have lumber, your fish don’t have value until you kill it and put it on your plate, because that’s when you pay for it,” Leon said.
The former International Monetary Fund (IMF) senior official also dos not believe that the DBRP would be in direct competition with development bank’s, particularly those operating in SIDS
“Absolutely not. And the reason for that is simple. The existing and I would say global financial architecture has not served, those countries we are talking about as well as they could.
“And the reason is, I would argue, one, we have not had an institution that was designed to channel the efforts to attain the objectives that SIDS have had, whether it’s the Barbados Accord, Mauritius, or the recent Samoa accord, all of those visions probably have not attained the degree of success that they could have.
“Because there was no institution, they relied on the global financial architecture to serve them. But the mandate, the culture, the focus of those global institutions was such that they were not able to be able to focus laser like on SIDS”.
He insists that the DBRP, will, in principle, by focusing on SIDS, embracing natural assets, to increase that quantum of resources that it can do, partnerships with the private sector, to allow it now to be able to channel national objectives as anchors will make a significant difference that complements complements the global financial architecture, making it more complete, not competing.
“So we don’t see the new bank as a competitor. But through partnerships we will aim to complement all the work that other institutions have been doing, but in areas and in ways that are different to what those institutions do not do. And therefore, it will plug a hole close gaps in the global architecture rather than compete away with the other institutions that exist now.”
Leon remains confident that the DBRP is feasible telling CMC “the reason why I say it is feasible is that a large chunk of the resource mobilization is likely to come from non- SIDS sovereigns, and so we are not going to be asking the sovereign SIDS for monies that they do not have.
“And if you think through it in a large way, a large part of that financing is likely to come from the private sector, different elements of the private sector.
“For example, you have a host of institutional funds that fall under the banner of what we call the family offices for sustainable development that we can equally talk a little about, that can provide the means both financial technology and other information, creating resources that can now be used and deployed in that sense to upgrade upskill the factors needed by SIDS to allow for the development without necessarily having the government’s take particular debt in that particular state,” he added.
This is indeed an interesting concept, but how will the bank attract these people?
“Not every wealthy person in the world wants to make a difference. But with 7,000 family offices, we don’t need all of them to sign up, really are looking to find a way to connect those family offices that specifically care about a sustainable development goal, and give them an opportunity to connect them with governments ministries, through the development bank for resilient prosperity….
“And increasingly, those families are willing to be more patient,” Leon told CMC.