World climate leaders push for overhaul of IMF and World Bank

A rebellion against the status quo of the World War II-era global financial architecture gathered momentum in New York this week as developing world and climate leaders demanded action to help them cope to climate change.

In closed-door meetings on the sidelines of the UN General Assembly and so-called climate week discussions, rich countries have faced increasingly pressing questions about who is paying for the catastrophic impact of hurricanes. , floods and forest fires.

Mia Mottley, the prime minister of Barbados, who has become the de facto leader of efforts by smaller and less wealthy nations to build a global coalition to secure funds to help fight the ravages of climate change, called on Friday for “a new internationalism”.

The post-war financial institutions created as a result of the Bretton Woods agreement in 1944, including the IMF and what became the World Bank Group, “no longer serve in the 21st century the purpose that they served in the 20th century,” Mottley said.

Actions on several fronts demanded of the IMF and the World Bank included redistributing $100 billion in special drawing rights or additional foreign reserve assets; the requirement for the IMF to temporarily suspend interest surcharges for large borrowers in need of funds; and concessional financing to be provided for infrastructure related to climate resilience.

Mottley’s proposed plans included issuing $650 billion in special drawing rights or other long-term, low-interest debt instruments to fund clean energy development around the world. All major debt issuers should “standardize” natural disaster and pandemic clauses in debt instruments to help borrowing countries better absorb shocks, she said.

Mottley wasn’t the only leader pushing to rethink how the world pays for the effects of climate change. Earlier in the week, his Caribbean compatriot Philip Davis, Prime Minister of the Bahamas, said that the IMF and the World Bank should “review” their recommended debt-to-GDP ratios for borrowing countries “in the context of adaptation, mitigation, loss and damage”. , in particular due to climate change”.

Davis pointed out that “vulnerable countries” were “well above” the debt-to-GDP ratio recommended as sustainable by multilateral development banks, but still had to pay to rebuild after natural disasters.

Simon Stiell, newly appointed executive secretary of the United Nations Framework Convention on Climate Change, told the FT there was a “growing consensus” that the so-called Bretton Woods structures were “appropriate for the post-war world” but now needed to be “reformed and adjusted”. ”.

John Kerry, center left, has expressed frustration with the role of banks providing loans and grants to poorer countries facing climate change ©Getty Images

Critically, US climate envoy John Kerry said on Wednesday that he had also pushed for reform of international financial institutions following the failure to raise funds related to climate change. He said the need for an overhaul was discussed at a leaders’ roundtable hosted by the UN that day.

The United States is the largest shareholder in the IMF and World Bank, seen as a laggard in funding climate change action under its chairman David Malpass, who fired the shots this week after he repeatedly failed to directly answer a question about his acceptance of the science of climate change. .

Kerry expressed frustration with the role of 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 larger debate around so-called ‘loss and damage’. At the UN’s COP26 climate summit in Glasgow last year, wealthy countries that 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 help pay for damage caused by climate change.

Vanessa Nakate, a Ugandan climate activist, told the Financial Times this week there should be more funding available to help developing economies transition from fossil fuels to energy and adapt to climate change , and that this should take the form of a loss and damage facility. .

“International climate finance must help countries in the South, which do not have the resources to pay for the transition to clean energy,” Nakate said.

During the week, Denmark became the first country in the world to offer compensation for loss and damage to countries affected by climate change, pledging around $13 million in support.

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 profits to countries affected by climate change.

Kristalina Georgieva, managing director of the IMF, said on Tuesday that the demands of developing and climate-affected countries for developed countries to help pay for loss and damage were “very fair”.

“I’m following the loss and damage discussion very closely,” Georgieva said. “It worries me that this still 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 push to replenish” its catastrophic containment and relief trust after the Covid-19 pandemic “sucked” money from the trust.

“The question is how can we pay institutions like ours to build this funding capacity,” Georgieva said. “When an innocent bystander is hit by an exogenous shock, by an external shock, then we can step in and make the debt go away.”

Climate capital

Where climate change meets business, markets and politics. Check out the FT’s coverage here.

Curious about the FT’s commitments to environmental sustainability? Learn more about our scientific goals here

About Wanda Dufresne

Check Also

Africa hurt in COP27 climate finance negotiations

Venue for the 2022 United Nations Climate Change Conference in Sharm el-Sheikh, Egypt. [Carole Kimutai, …