A revolt against the status quo of global financial architecture dating back to World War II got a boost in New York this week as leaders of developing countries and climate demand action to help them deal with climate change.
During closed sessions on the sidelines of the UN General Assembly, and the so-called Climate Week discussions alongside, rich countries were confronted with increasingly pressing questions about who pays for the catastrophic effects of hurricanes, floods and wildfires.
Mia Mottley, the Prime Minister of Barbados who has become the de facto leader of efforts by smaller, less wealthy countries to build a global coalition to secure funds to tackle the ravages of climate change, called on Friday to “a new internationalism”.
The post-war financial institutions created as a result of the Bretton Woods Agreement in 1944, including the IMF and what later became the World Bank Group, “in the 21st century no longer serve the purpose they served in the 20th century,” Mottley said.
The multiple actions demanded of the IMF and World Bank included the redistribution of $100 billion in special drawing rights or additional foreign reserves; a requirement for the IMF to temporarily suspend interest rates for heavy borrowers in need of money; and concessional financing for infrastructure related to climate resilience.
The plans Mottley put forth included issuing $650 billion in special drawing rights or other low-interest long-term debt instruments to fund clean energy development around the world. All major debt issuers should “normalize” natural disaster and pandemic clauses in debt instruments to help borrowing countries better absorb the shocks, she said.
Mottley wasn’t the only leader to push for a rethink of how the world is paying for the effects of climate change. Earlier this week, compatriot Philip Davis, the Prime Minister of the Bahamas, said the IMF and World Bank should “review” their recommended debt-to-GDP ratio for borrowing countries in the context of adaptation, mitigation, loss and damage, particularly from climate change.”
Davis pointed out that “vulnerable countries” were “far above” the debt-to-GDP ratio recommended by multilateral development banks as sustainable, but they still had to pay to rebuild after natural disasters.
Simon Stiell, the newly appointed executive secretary of the UN Framework Convention on Climate Change, told the FT there was a “growing consensus” that the so-called Bretton Woods structures were “fit for the post-war world”, but that they are now “reformed and had to be adapted”. ”.
Critically, US climate envoy John Kerry said on Wednesday that he had also pushed for reform of international financial institutions for failing to raise funds related to climate change. He said the need for an overhaul had been discussed on? a round table discussion with leaders organized by the UN that day.
The US is the largest shareholder in both the IMF and the World Bank, and is considered a laggard in financing climate change actions under President David Malpass, who came under fire this week after repeatedly failing to answer a question directly. on his acceptance of climate change science.
Kerry expressed frustration at the role of the institutions that provide loans and grants to poorer countries and are seen as crucial in distributing money to help limit global warming as developing economies grow.
The discussion is part of a fraught wider debate about so-called “loss and damage”. At the COP26 UN climate summit in Glasgow last year, the rich countries, which account for the bulk of historic global greenhouse gas emissions, rejected a proposal by the world’s poorest countries to create a new facility to mitigate the damage from climate change. help pay.
Vanessa Nakate, a Ugandan climate activist, told the Financial Times this week that more funding should be available to help emerging economies move from fossil fuels to energy and adapt to climate change, and that this should be the shape accepting a loss and damage facility .
“International climate finance should help the global south, which lacks the resources to pay for the clean energy transition,” Nakate said.
Over the course of the week, Denmark became the first country in the world to offer loss and damage compensation to countries affected by climate change, pledging about $13 million in aid.
UN Secretary-General António Guterres has called on governments to impose a windfall tax on the profits of oil and gas companies and redistribute the proceeds to countries affected by climate change.
IMF director Kristalina Georgieva said Tuesday that developing and climate-affected countries’ demands for developed countries to help pay for losses and damages were “very reasonable”.
“I follow the discussion about loss and damage very closely,” Georgieva said. “I am concerned that it appears to be at a very early stage as we are only 50 days away from COP27 [the next UN climate summit].”
Georgieva said the IMF was in a “desperate effort to replenish its Catastrophic Containment and Relief Trust” after the Covid-19 pandemic “sucked” the trust’s money.
“The question is how can we afford institutions like ours to create this financing capacity,” Georgieva said. “If an innocent bystander is struck by an exogenous shock, by an outside shock, we can step forward and make the blame go away.”
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