Green Industrial Policy Needs a New Financial Architecture

One of the biggest obstacles for enacting green industrial policy (GIP), particularly for fiscally constrained countries in the Global South, is financing it. This is especially true for the type of holistic GIP framed and envisioned in the first report in this series, that could actually address intertwined social, economic, and ecological crises at the scope and scale required. This second report builds on that vision by examining the structural constraints imposed through financial subordination via the US-dominated international financial architecture (IFA)—a system of institutions, rules, and norms that conditions how global financial flows are governed and the type of support available for countries in crisis contexts. 

We provide an overview of the IFA and show how its rules and institutions create a hierarchy of access, affordability, and control that systematically marginalizes Global South countries. The resulting limited access to finance restricts the policy choices available to governments, forcing limited investment in social and environmental priorities and contributing to repeated cycles of extractive export dependence and underfunded climate efforts. Examples in this report, primarily from Latin America, help illustrate how these dynamics play out in practice.

The IFA pushes countries into commodity dependence to earn dollars for debt repayment, which blocks long-term planning for green industries and fuels ecological and social harm. Scaling up finance is just as important as how that finance is delivered, and that goes beyond the cost and concessionality aspects to also putting an end to the conditionalities imposed on recipients. 

For Global South governments, a GIP-aligned IFA would:

• Provide access to liquidity and macroeconomic stability tools
• Allow for fiscal and policy autonomy
• Ensure an equitable voice in global economic governance

The current IFA has baked-in flaws going back decades that trap countries in cycles of debt, extraction, and austerity. Unless those structures are reformed or replaced, no electoral shift will get around them. This report shows why new IFA arrangements are necessary building blocks for a better and fairer path towards a pro-working-class, pro-development green transformation—a transformation that can be accomplished through the use of green industrial policies.