Governments aren’t hearing the calls for aid

For a second week running I’m going to avoid talking about Donald Trump as the first subject in this newsletter, not least because he’s been too busy bombing Iran to go off on any new tangents on trade. Obviously, if Iran closes the Strait of Hormuz, the implications for oil prices and the global economy could be enormous. But absent that, the conflict is just another “everything’s awful but globalisation is surviving” for the voluminous scrapbook.

It’s still a couple of weeks until Trump’s supposed July 9 deadline for concluding talks with other governments, set when the bogus so-called “reciprocal tariffs” were imposed on April 2 and then suspended for 90 days a week later. His “90 deals in 90 days” are proving (surprise!) elusive. He also signed an executive order last week supposedly implementing part of the nonbinding UK deal agreed in May, but the bit on steel (SURPRISE!) is still up in the air.

Ahead of a big financing for development conference in Seville next week, today’s main pieces are on the need to fund the green transition and the gaps opening up in development finance thanks to savage aid cuts, as well as more evidence on how the private sector just isn’t going to fill them. Charted Waters, where we look at the data behind global trade, is on how not to do it if you’re an emerging market, in the form of the mess Venezuela is making of everything.

Governments resist the heat from aid campaigners

Holding a development conference in Seville (aka “la sartén de España” — the frying pan of Spain) in July is certainly one way of reminding everyone about the imperatives of climate change. The temperature is currently forecast to hit a challenging 47C on the first day of the gathering.

As I’ve written before, there’s a deep sense of doom in the aid and development world. The Trump administration’s vandalism of US aid programmes is killing thousands of people, and the other big donors (the UK, France) have also been cutting development assistance and redirecting it away from where it’s going to do the most good.

The one bright spot is that financing conditions for lower-income countries in general have been relatively benign in recent months, largely because the dollar has been soft and US bond yields have stayed quite low. But that doesn’t help countries without bond market access or whose debt burdens are so heavy that easier external financing considerations are beside the point.

I got some fairly weighty pushback recently for being too optimistic about low-income countries and sovereign debt loads. Fair enough. I might well have suggested that more boats were being kept at elevated levels by a buoyant financing tide than is actually the case. (I’ll come back to this in a future newsletter.)

But what’s really clear is that while campaigners are winding up to deliver a repeat of the big calls for sovereign debt relief from 20 or 25 years ago, governments aren’t really listening. 2025 is a once-a-quarter-century “jubilee year” as declared by the Catholic church, where biblically-inspired tradition has it that debts are forgiven. The Vatican has made a big push for another round of write-offs just as it did in 2000, which inspired the Jubilee 2000 debt relief campaign.

In case anyone thinks this is just papal wokery, as the Trump administration presumably does, the previous drive was led by Pope John Paul II, no one’s idea of a squishy liberal. The social studies institution he founded, the Pontifical Academy of Social Sciences, has joined forces with Columbia University, last week publishing a chunky report calling for reform of the global financial system.

But it’s really not clear anyone’s listening. The OECD, which records these things, said aid fell last year after five years of growth, with falling expenditure on Ukraine meaning overall levels were reduced rather than redirected elsewhere.

Trump is not George W Bush, who embraced the aid cause with religious fervour. Keir Starmer is neither Tony Blair nor Gordon Brown, who both made a big deal over pushing for debt relief. Indeed, present-day Blair and Brown aren’t their former selves either: both have been shamefully silent over their party’s decision to cut the UK’s aid budget. China has been very active in development finance for decades, but a lot of it is commercial lending.

The strong and active political and public consensus from 25 years ago in favour of aid in the big donor countries hasn’t endured. That’s no one’s fault in particular — it’s hard to keep a mass movement going without an immediate goal. But I’d say the pope’s up against it.

Intruding into private fantasies

In the meantime, in a world where official aid doesn’t materialise, we’re left hoping that private finance will. As I said above, external borrowing conditions haven’t been too bad this year. But governments managing their public debt is not the same as the long-term investment financing needed for the green transition. And private finance hasn’t appeared despite decades of hopium: the shortage of appetite for risk or long-term investment in environments of uncertain policy has deterred it. There’s no particular reason it should materialise now.

There’s a new report out today from the research and campaign organisation Oil Change International which gives a granular look at “blended finance”, where public money is used to coax in private funds. The researchers calculate that the world in 2023-24 spent only 38 per cent of the $5.7tn needed to do the green transition properly, and rich countries plus China accounted for 85 per cent of that.

Official assumptions have been that each dollar of concessional public finance pulls in between $4 and $7 of private money. OCI finds that in recent years it’s only been $1.12, and from 2015-24 only 24 per cent of blended finance for the energy transition was private money. Even if governments meet their promises for climate aid, low- and middle-income countries excluding China will reach only two-thirds of the level needed to keep global temperatures within the 1.5C target.

Within the overall green transition for all countries, which two sectors have managed to reach even 50 per cent of the financing requirement? Electric vehicles and renewable energy. And what do they have in common? Rich governments have shovelled consumer subsidies (Bidenomics and the EU Green Deal) at them. QED. Public subsidies work.

Now, let’s be fair about this: the international financial institutions themselves are well aware of the problems with private financing. Last October I wrote about the difficulties of getting private finance for developing-country infrastructure. The next month (I’m recounting a chronological sequence here, not claiming some causal link) Ajay Banga, president of the World Bank, dropped by the FT and told us: “It is not a panacea for everything. This idea that the trillions are waiting in the private sector to rush into the development of a poor emerging market country — that’s not what I’m telling you.”

Yet what are the institutions supposed to do? Unless they start doing some tricky financial juggling with their balance sheets, which is likely to make shareholder governments very nervous, they can’t make the global pot of climate assistance bigger by force of will. They can make the case for more aid from rich governments and, like Oil Change International, they can present good evidence that public money is a non-negotiable part of the green transition for emerging markets. Banga is obviously right; OCI is obviously right. But governments aren’t delivering.

Charted waters

There are a few emerging markets that can be relied on to do badly however benign the external environment, and Venezuela in recent times is certainly one of them. Inflation has surged after the government was forced to abandon an exchange rate peg in October. It has now taken to going after people who diss its policies and the economy, which is bound to work.

Trade links

• The FT’s Free Lunch column argues that Trump’s immigration policies could hurt the US economy more than his tariffs.

• Whatever trade deal Trump reckons he’s put together with China, Chinese companies are still busy reducing their dependence on exports to the US.

• China has said it will cut tariffs on imports from almost all African countries, in an attempt to burnish its not-exactly-spotless record as a friend to the developing world.

• Meanwhile, China definitely isn’t flavour of the month in Brussels, which has cancelled a meeting ahead of a leaders’ summit next month because of the lack of progress on resolving various trade disputes.

• The think-tank Center for a New American Security looks at the prospects for the Asia-Pacific Quad group (Australia, India, Japan and the US) to expand its role, including in trade.

Trade Secrets is edited by Harvey Nriapia