Even Larry Summers, the former World Bank chief economist who recommended sending garbage to poor countries, thought an Ebola financing scheme cooked up by his former employer went too far. As recounted by another former World Bank economist, Olga Jonas, in of all places Nature, the World Bank was enamored of the idea of having the private sector somehow participate in getting money to countries stricken by Ebola if and when they needed it in the wake of the 2014-2016 outbreak that killed over 11,000. Readers familiar with the sorry tales of privatization and social impact bonds know well that these gimmicks enrich intermediaries and investors at the expense of the intended beneficiaries. But schemes like this World Bank Pandemic Emergency Financing Facility (PEF) are particularly loathsome because they divert funds from critically important targets when there was no reason to be worried about a shortfall of financing. In other words, this looks like World-Bank-enabled looting.
It would be nice to do the customary thing and summarize the main terms of PEF but better people than me have thrown up their hands. Summers called it “financial goofiness”; Jonas tried parsing the “confusing” 386 page prospectus and appears able only to have teased out a few key elements. If I have this right, the bonds were intended to operate like credit default swaps, with investors getting 13% interest payments (ginormous) and somehow ALSO in ways that Jonas does not make clear, also got premiums from the PEF. Investors would get their principal back in 2020, but they stood ready to provide more funds if Certain Bad Things Happened.
However, as Jonas points out, the desire to have the financing look like a success (as in attract enough investors) led the World Bank to craft terms that were was too favorable to the money bags. For instance:
The PEF stipulates a payout of $45 million for Ebola if the officially confirmed death toll reaches 250 (which occurred in the DRC [Democratic Republic of the Congo] by mid-December last year), but only if at least 20 deaths occurred in a second country. Given that the WHO lists only one multi-country outbreak amid more than 30 that occurred in a single country, this requirement is inappropriate. The DRC is much bigger and more populous than all three countries involved in the West African outbreak.
The structure was so lopsided that despite the complexity of the program (a deterrent), the bond offering was 2x oversubscribed.
But why bother with this scheme, save to satsify the World Bank’s desire to be a good student of bad neoliberal ideas? Jonas points out that the World Bank, the UN and other international bodies have been able to provide funds for disease outbreaks like Ebola on a prompt basis. The shortcoming hasn’t been access to funds, as the PEF scheme presupposes, but poor information flows:
The world’s second-largest Ebola outbreak, in the Democratic Republic of the Congo (DRC), has now entered i
ts 13th month and has caused at least 1,800 deaths. In July, the World Bank announced that it would, independently of PEF mechanisms, mobilize up to $300 million towards the Ebola outbreak….
Rather than a lack of funds, vigilance and public-health capacity have been the main deficiencies. When governments and the World Bank are prepared to respond to infectious-disease threats, money flows within days. In the 2009 H1N1 influenza outbreak in Mexico, clinics could diagnose and report cases of disease to a central authority that both recognized the threat and reacted rapidly. The Mexican government requested $25.6 million from an existing World Bank-financed project for influenza response and received the funds the next day.
For the 2014–16 Ebola outbreak, substantial funds started flowing nine months after it began. Financing was slow because the affected countries, the World Bank and the WHO were not adequately monitoring the disease, and global health leaders did not pay attention until the outbreak became a full-blown crisis.
Even with the limited information Jonas ferreted out, the PEF bonds look like a boondoggle:
The PEF has already paid around $75.5 million to bondholders as premiums, but has not disclosed how much they have been paid in interest — and it is set to pay much more. However, outbreak responders have received just $31 million from the PEF, and the much-touted potential payout of $425 million is highly unlikely.
And worse, they may actually deter making far more critical investments:
The World Bank has said that the PEF is working as intended by offering the potential of ‘surge’ financing. Tragically, current triggers guarantee that payouts will be too little because they kick in only after outbreaks grow large. What’s more, fanfare around the PEF might have encouraged complacency that actually increased pandemic risk. Following false assurance that the World Bank had a solution, resources and attention could shift elsewhere….
Increasing surveillance, diagnostics and other capacities for response to outbreaks will do more than flashy financing schemes to reduce threats from infectious disease — including antimicrobial resistance. World Bank analyses show that poor countries’ investments in core veterinary and human public-health systems bring returns of 25–88% annually. The World Bank can provide robust financing and operational support for such investment; it should make this a priority.
Astonishingly, the World Bank plans to launch another round of PEF bonds. Who is benefitting from what look awfully close to payoffs? Jonas is correct in concluding:
But the best investment of funds and attention is in ensuring adequate and stable financing for core public-health capacities. The PEF has failed. It should end early — and IDA funds should go to poor countries, not investors.
But that sort of shoulder-to-the-wheel work that takes time but eventually produces substantial must not be flashy enough for the mandarins at the World Bank.