Partially lifting the lid on a “treasure trove” of international economic data has not dampened interest in getting a closer look inside, but the crystal ball for the future is hazy.
The valued data in question is known by the acronym GEMs. There’s information from 26 development finance institutions covering 20,000 contracts over 30 years. GEMs is run by a consortium of the 26 contributing development finance institutions and has the full name of the Global Emerging Markets Risk Database.
GEMs officials were in a celebratory mood at a forum Oct. 23, talking about the significance of a recent report, based on the data, showing that investments in developing countries are less risky than sometimes perceived. (See reports and also a related Research Note.)
The headline disclosure is that the average default rate on private loans in the GEMs database was 3.6 percent, “roughly comparable to average default rates observed in noninvestment grade companies that receive a B credit rating from S&P (3.3 percent) and a B3 from Moody’s (4 percent).” The GEMs statistics also reveal that recovery rates, which measure the amount of investment recovered after a default occurs, “were higher than expected,” on average, 72 percent.
“It’s a really good day for the consortium,” said one official, whose name can’t be connected to his message. No speakers can be quoted under the rules for the session, held during the fall meetings of the World Bank and the International Monetary Fund and attended by more than 100 people.
They heard not only from GEMs officials, but also from three speakers from the private sector, from Moody’s Ratings, J.P. Morgan and a Dutch investment company.
The private sector representatives, while appreciating the new reporting, jumped at the moderator’s invitation to offer suggestions for what else should be disclosed.
They recommended revealing more about investment returns, investment impacts and state-owned enterprises. Also, they suggested more regular reports, and with more detail, such as on the size and types of companies, the currencies involved, interest rates, the subjects of the investment and more.
One speaker said, “We want to sit down and understand the why and the how behind this data,” adding, “They are only as useful as far as we can understand them.”
A GEMS official said the some of the suggestions are being looked into.
The GEMs consortium governing body has not indicated what its future plans are. It meets privately several times a year but does disclose any minutes.
Eye on Global Transparency requested the minutes and is appealing the denial of the request through the EIB appeals process. EYE also was denied access by the International Finance Corporation to a market assessment report about GEMs. The study was funded by the Multilateral Development Banks Challenge Fund, backed by the Bill and Melinda Gates Foundation, the Rockefeller Foundation and Open Society Foundations, who normally require disclosure of studies they support.
Disagreement Over Whether G-20 Goal Met
Calls for more transparency of GEMs data have been circulating for several years and came most significantly from a special committee created by the G-20 in a 2022 report called the Capital Adequacy Framework (CAF) review.
“We have answered the expectations of the G20,” said one speaker at the forum held in the World Bank headquarters. Participants for GEMs included Román Escolano, Chief Risk Officer at the European Investment Bank (which manages GEMs) and Paolo Mauro, Director of Economic and Market Research at the International Finance Corporation.
However, Nancy Lee, a member of the G-20 Independent Expert Group, disagreed, saying much more needs to be disclosed to meet the G-20 goals.
Lee was presiding a few blocks away a session held by the Center for Global Development (CDG), where she is Director for Sustainable Development Finance.
At the CDG forum, Gary Forster, CEO of Publish What You Fund, a nongovernment organization based on London, summarized a new report on how to encourage more mobilization of private capital for development.
The PWYF report says that mobilizing private capital “requires a combination of the right incentives to improve measurement and the disclosure of relevant data to create the environment that leads to significantly more investments by the private sector.”
The report is sharply critical of nondisclosure agreements included in most contracts with development finance institutions. It states: “Claims of commercial confidentiality are not only overused but are also contradicted by many in the private sector who support our disclosure proposal, including the identification of the mobilised party by typology. Further, the lack of disaggregated data discourages private sector investment, as critical missing information increases market inefficiencies and the cost of doing business with DFIs.”
