Monday, October 28, 2013

Equator principles as a hindrance to developing economies

The equator principles defines the term "Designated countries" as "those countries deemed to have robust environmental and social governance, legislation systems and institutional capacity designed to protect their people and the natural environment." The list (which can be viewed at: http://www.equator-principles.com/index.php/ep3/324) of such countries comprises of almost exclusively developed countries. I find this quite one sided, it is obvious that developed countries will have far less pollution and energy usage emenating from construction when compared to developing countries. The latter have not reached their optimum yet, and as such they obviously need to keep their economic stability first.

To put things in perspective, there are just 6 out of the 70+ lending institutions from Asia and the Middle East, and just one from India (IDFC). IDFC only joined in the earlier half of this year, so it will be quite interesting to see how this move is received.

The equator principles, if applied to institutions financing projects in these countries, would definitely hinder their growth. This is probably why we see so few institutions from Asia and the Middle East.

It is not that these principles have not been violated. There have been cases such as the Baku-Tbilihi-Ceyhan pipeline, where the principles were tossed aside because the project had to go ahead. Selectively applying them in situations can lead to all sorts of irregularities in the future, all the way up to banks strong arming the client into doing things their way in the name of these principles. 

These factors have made lending institutions of developing countries very wary of the principles as they view them as something that will just slow them down and reduce their competitiveness.

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