SHARM EL SHEIKH, Egypt – The World Bank and International Monetary Fund were established 80 years ago to rebuild countries ravaged by World War II and stabilize the global economy. But a growing group of world leaders say two powerful institutions need a 21st-century overhaul to deal with a new destructive force: global warming.
There’s growing momentum behind a flurry of ideas that would essentially overhaul two powerful financial institutions, which often lend or give money from wealthy industrialized nations to developing nations. . The proposals are quickly gaining the attention of heads of state, finance ministers and even leaders of banks and foundations, who are currently meeting in UN climate summit called COP27.
The current global financial system is designed to try to alleviate poverty through loans or grants to help countries develop or recover from disasters. Risk-based loans and rich countries charge lower interest rates and offer better maturities than poor countries.
But as climate change continues to cause a series of hurricanes, floods, droughts and fires, poor countries are not only victims of extreme weather but also of the financial institutions designed for another era. They are in dire need of money to recover from a climate disaster while also starving for the next disaster. They are saddled with debt, but need to invest in a transition away from fossil fuels that can reduce emissions that are heating the planet and causing so much damage in the first place.
If implemented, the reforms under consideration would generate significantly more money for developing countries to mitigate the effects of climate change, deploy those funds more quickly, provide troubled countries lower interest rates and allow them to pause debt payments after major disasters. Advocates say the changes will also allow organizations to attract trillions of dollars in private capital to help countries prepare for climate disasters and transition to wind and solar power. and other clean energies.
If the World Bank and IMF do overhaul, it could represent the largest mobilization of international finance in history to help developing countries cope with and adapt to a warming planet.
The proposals are generally in line with the so-called Bridgetown Initiative, launched this summer by Mia Mottley, prime minister of Barbados, a heavily indebted, highly vulnerable Caribbean nation. by climate disasters. Ms Mottley began her campaign at last year’s climate summit in Glasgow by calling attention to the plight of small and poor island nations.
In July, she gathered economists, fund executives and Amina Mohammed, deputy secretary-general of the United Nations, in the Barbadian capital, Bridgetown, to develop the plan.
At the ongoing UN climate summit, what Mottley saw as an improbable idea drew momentum, even from the leaders of the organizations themselves. Huge loan.
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“The world has changed dramatically,” Kristalina Georgieva, managing director of the IMF, said in an interview on the sidelines of Wednesday’s summit, adding that she broadly supports the Initiative. Bridgetown. “Once our institutions were established, there was no common global challenge like climate change. Now we have to campaign to address them.”
On Wednesday, David Malpass, the president of the World Bank, accepted his calls for institutional reform.
“At COP27, recommendations were made to multilateral development banks to significantly increase our climate finance,” Malpass said in a speech to finance ministers around the world. bridge. “I warmly welcome these appeals. Successful climate action to reduce greenhouse gas emissions will have a synchronized global push, and we are committed to the effort.”
Nearly every country is a member of both the World Bank and the IMF, but the power distributed through the quota system gives the United States a dominant position in decision-making and leadership.
US Treasury Secretary Janet Yellen said last month she would make a formal request to the World Bank that it come up with a “development map” by the end of the year.
“Given the scale of the challenges, development banks must continue to explore financial innovations to responsibly stretch their existing balance sheets,” she said.
And Svenja Schulze, Germany’s minister of economic cooperation and development, a major shareholder of the bank, said in a statement Last month, her government supported the reforms, adding that the bank’s “current model” is “no longer relevant in this time of global crisis”.
John Kerry, President Biden’s climate envoy, said at a Bloomberg News event on the sidelines of COP27 on Wednesday that reforming banks and funds could free up a circuit of capital that could save lives.
“That can be done,” he said, adding that if everything goes as planned, it could lead to more than $1 trillion in new funding. “Those are the real things.”
French President Emmanuel Macron on Monday said he supported Ms Mottley’s plans and joined her in calling for the creation of a task force that would make recommendations for new climate funding programs ahead of meetings. World Bank and IMF annual spring in Washington.
Such institutions, Macron said, “need to come up with concrete proposals to enable these innovative financial mechanisms, develop access to new liquidity, new concessional financing ideas for emerging economies, proposing solutions that take vulnerability into account”.
These two organizations are products of the Second World War. Allies convened economists and policymakers from 44 countries in Bretton Woods, NH, and outlined a plan for an interconnected global financial system designed to help economies rebuild after the war and provide a measure of stability for the global economy.
The established institutions have functioned virtually unchanged since then, with the rich nations essentially financing loans to developing nations and holding most of their debt – and thus that exercise a great degree of control over their growth and progress.
Now, as leaders call for fundamental changes to the way organizations operate, they are convening the founding conference once again.
Former Vice President Al Gore said at a climate summit on Monday: “We need to reconnect Bretton Woods and completely overhaul the World Bank system and make it accessible to private capital. for developing countries. “This is the time for the global epiphany. This is not the time for moral cowardice and reckless indifference to the future of humanity.”
Ms. Mottley, in a speech to world leaders on Monday, echoed Mr. Gore.
“Yes, it’s time for us to revisit Bretton Woods,” she said Monday. “Yes, it is time for us to remember that the nations sitting in this room today did not exist at the time when most Bretton Woods institutions were formed. And so we didn’t see, we didn’t fully hear.”
Unlike discussions about climate fixFirst on the agenda of this year’s climate summit but failing to gather a large amount of financial support, banking and fund reform is being seen as the most immediate and practical way to helping the developing world face serious threats. caused by increasing floods, fires, heat and drought.
Raj Shah, president of the Rockefeller Foundation, attended the meeting in Bridgetown in July and said that if the proposed reforms were passed, it would be a huge achievement, on par with past commitments. past to address global crises such as the AIDS pandemic.
“This is urgent, this should happen now, for absolutely no reason, and if we don’t, the next generation of youth activists should hold them accountable. for trying to behave like World War II has just ended, when in reality we are “facing a completely different world out there”, Mr. Shah said during the panel discussion at COP27. on Tuesday.
If used to help developing countries transition to renewable energy sources like wind and solar, he said, the money released from reforming the World Bank and the IMF could help keep The average global temperature has not increased by more than 2 degrees Celsius above pre-industrial levels.
A temperature rise of more than 1.5 degrees Celsius will significantly increase the likelihood of catastrophic climate impacts, scientists say. The average global temperature has increased by 1.1. poison.
Among the most transformative changes being discussed is a new approach to risk ratings and the resulting interest rates paid by developing countries on loans from the World Bank.
Ngozi Okonjo-Iweala, head of the World Trade Organization, said her experience as Nigeria’s Finance Minister has helped her support Ms. Mottley’s agenda.
Like many developing countries, Nigeria borrows on average at much higher interest rates than richer nations. Paying off that debt is a huge drain on the national budget, leaving governments without the necessary reserves when they face a crisis like this one. extensive flooding recently experienced by Nigeria.
“It’s totally exaggerated risk, I can tell you,” she said. “It’s not right that some countries can borrow at 3% and others at 14, 15.”
