Yesterday, central bank governors and finance ministers of the Group of Twenty (G20) met for the last time this year. They did not solve one pressing issue: poor countries are being pulled between funding public health responses to the pandemic, and making debt payments to their private bondholders.

When the G20 and Paris Club of major public creditors agreed on a Debt Service Suspension Initiative in April 2020, they had hoped that the private sector would voluntarily join official creditors in the suspension of payments. But such hopes were misplaced. Private creditors refused to provide temporary liquidity relief.

The implications are far more serious than the ongoing squabbles led by the United States over whether Chinese state-owned banks should join the initiative. Indeed, it is estimated that China has provided roughly half of all relief negotiated this year. By refusing to impose mandatory private participation, the G20 places the financial burden of the pandemic on the shoulders of taxpayers in both rich and poor countries. It cements an unequal power relationship, which poor countries have no instruments for challenging and their private creditors have few qualms in exploiting.

According to the World Bank, the forty-four countries included in the Debt Service Suspension Initiative (DSSI) “gained” around $5 billion USD of room in their public budgets by suspending official bilateral debt payments. But without private-sector participation, this fiscal space may in practice be used to service the debt owed to private creditors. Take Zambia, for example. Its Initiative participation allows it to suspend around $139 million USD in debt service to official bilateral creditors until the end of 2020. But for that same period, it has to pay $156 million USD to its bondholders. Ethiopia gets $511 million USD in temporary liquidity relief, and it still has to pay around $67 billion USD. To the French or German Ministry of Finance, this may look like taxpayer money subsidizing private bond holders rather than Zambians’ access to the public health system. Little wonder that Zambia just announced it would seek suspension of its payments to bondholders for six months.

Private creditors have resisted involvement by leveling threats. Their stick is financial market access. As it was put in a September letter to the G20 from the Institute of International Finance, the global association of the finance industry, poor countries would be jeopardizing their hard-won access to international bond markets by supporting mandatory private-sector involvement in the initiative. Indeed, around thirty eligible countries — including those at high risk of debt distress like Kenya and Ghana — did not apply to participate in order to preserve bond market access. The Institute of International Finance also warned the G20 that emerging countries could see significant capital outflows and/or higher interest rates.

Barely a decade after the global financial crisis, and under a new regime of unprecedented central bank support for private asset markets, it may come as a surprise to many that private finance would threaten the G20 so directly. But this chutzpah is not self-grown. It has been nurtured by a growing consensus in international development circles — from the UN to multilateral development banks, the official development aid offices of high-income countries, and the G20 — that private finance is a critical partner in the global efforts to achieve the UN’s Sustainable Development Goals.

The mantra of the World Bank’s Maximizing Finance for Development, the G20’s “Infrastructure as an Asset Class,” and the recent “Nature as an Asset Class” initiatives is the same: turn the Sustainable Development Goals into asset classes that can attract the trillions of institutional investors. Make development bankable or investible! This new Wall Street Consensus updates the now ill-famed Washington Consensus that the World Bank and the IMF imposed on poor countries since the 1980s in the guise of structural adjustment and the unholy trinity of “liberalize, privatize, and stabilize.”

The Institute of International Finance’s letter draws on this new “Grand Development Bargain” with private finance to dangle two carrots in front of poor countries: the Sustainable Development Goal funding gap and the growing mainstreaming of environmental, social, and governance (ESG) concerns in institutional portfolios.

The development funding gap, the argument goes, cannot be closed without private finance. The trillions held by institutional investors could find their way into local currency bonds to finance education, health, roads, electricity, water, and sanitation in poor and emerging countries. But if the measure of any solid partnership is what your partner does in bad times, then private creditors’ threatening behavior in the current negotiations throws into doubt the promise of maximizing development finance. Poor countries are forced to prioritize social pain at the height of a pandemic for the uncertain promise of development-related inflows, on commercial terms and into commodified public services, at some point in the future.

The Institute’s second carrot highlights that the pandemic has come at a watershed moment for investors considering sustainability in their portfolios. This is not only about the pandemic. High-income countries, the European Union in particular, have committed to greening finance as an essential pillar of low-carbon transitions. The Institute’s letter implies that the incoming “environmental, social, and governance” tsunami will shower poor countries with (sovereign bond) market liquidity, as long as there are no barriers to entry such as mandatory participation in an extended Debt Service Suspension Initiative.

Yet this “Grand Bargain” calls for caution. It is well known that ESG ratings have provided cover for systematic greenwashing. To date, no credible solution has been found to address the underlying conflicts of interest. Beyond inconsistent ESG ratings lies another serious challenge. The wall of (ESG) liquidity into Sustainable Development Goal asset classes will not arrive without public resources lubricating it. Examples abound. The Institute’s letter calls for multilateral banks to provide partial guarantees on sustainable bond solutions.

Poor countries are also expected to provide subsidies: for instance, Kenya just approved in Parliament a public toll fund that guarantees demand for a highway to be built through a public-private partnership funded by French asset managers. Kenya will use taxpayer money to guarantee returns for French asset managers when its citizens cannot pay the toll fees. On a more ambitious scale, the “market access” camp on the African continent has also thrown its weight behind the United Nations Economic Commission for Africa proposal to subsidize private investors’ demand for African sovereign bonds through a dedicated “Liquidity and Sustainability Facility” (a repo market for Africa).

This world of “de-risking,” of courting private creditors with subsidies diverted from concessional aid and poor countries’ budgets, was exactly what Jim Yong Kim, then president of the World Bank, envisaged in 2017:

We have to start by asking routinely whether private capital, rather than government funding or donor aid, can finance a project. If the conditions are not right for private investment, we need to work with our partners to de-risk projects, sectors, and entire countries.

But the pandemic has clarified that international financial institutions and G20 countries have constructed this partnership to benefit private finance at the expense of the citizens in poor countries. It’s time we mobilized to change that.