Bridgetown Initiative: Macron hosts summit to reform multilateral financial institutions
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Rising interest rates major concern; More financing for countries needing most among demands
PARIS (Reuters) – President Macron hosts a summit in Paris this week to discuss reform of the world's multilateral finance institutions in the face of climate change and other development challenges.
The summit on Thursday and Friday aims at pining down a roadmap for easing the debt burdens of low-income countries while freeing up more funds for climate financing.
The summit brings dozens of leaders together in the French capital to forge a top-level consensus on how to progress a number of initiatives currently struggling in bodies like the G20, IMF, World Bank and United Nations.
Ranging from debt relief to climate finance, many of the topics on the agenda take up suggestions from a group of developing countries, led by Barbados Prime Minister Mia Mottley, dubbed the 'Bridgetown Initiative'.
"We are moving to a world - I would call it the Bridgetown system of finance - (that) recognises that we have to massively upscale the public sector and focus that on building resilience and adaptation because it's hard for that to be funded any other way," said Avinash Persaud, a special envoy for Mottley on climate finance.
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Though binding decisions are not expected, officials involved in the summit's planning said that some strong commitments should be made about financing poor countries.
Nearly eighty years after the Bretton Woods Agreement created the World Bank and International Monetary Fund (IMF), leaders aim to squeeze more financing from multilateral lenders for the countries that need it most.
In particular, there should be an announcement that a $100 billion target has been met that will be made available through the International Monetary Fund for vulnerable countries, officials said.
The plan, first agreed two years ago at an African finance summit in Paris, calls on wealthy governments to lend unused special drawing rights to the IMF to, in turn, lend to poor countries.
Governments are also looking at ways to allow the World Bank to use leverage to lend more to poor countries without putting its top AAA credit rating a risk.
"We want to go farther and should be able to set targets to put more public money on the table," a French presidency source said.
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RISING INTEREST RATES
Rising global interest rates have left a growing number of low-income countries dependent on IMF funding while the most distressed - Ethiopia, Ghana, Sri Lanka and Zambia - have had little choice but to default.
A G20 'common framework' for debt restructuring has proven painfully slow with western officials blaming China - now a major creditor after years of heavy lending - of dragging its feet.
A source close to the Paris Club creditor nations said on Monday that the governments Zambia owes money to aim to make a debt restructuring proposal in time for the summit in what is widely seen as a test case for the much-criticised G20 restructuring framework.
On top of interest rate stress, developing and emerging market countries are also struggling to secure the $1 trillion economists say they need by 2030 to finance carbon emission cuts, boost climate resilience and deal with damage from climate change.
Persaud said support was also expected for the IMF and other multilateral development banks to offer $100 billion in currency risk guarantees to unlock private investment in poor countries for climate and development initiatives.
Some leaders are expected to lend their weight to long-stalled proposals for a levy on shipping industry emissions ahead of a meeting next month of the International Maritime Organization, officials said.
They said calls are also expected to be made in favour of disaster risk clauses in lending agreements, which allow a country to suspend repayments in the case of a disaster.
BRIDGETOWN INITIATIVE EXPLAINED
The key demands of the Bridgetown Initiative are:
- LIQUIDITY SUPPORT
UN member states should fast-track the transfer of $100 billion in so-called 'Special Drawing Rights', a monetary reserve currency, to programmes that support climate resilience and subsidise lending to low-income countries.
The International Monetary Fund should also immediately suspend surcharges - additional interest payments imposed on heavily indebted borrowing countries - for two to three years.
It should also restore "enhanced access limits" established during the COVID pandemic for two emergency financial support instruments, the Rapid Credit Facility (RCF) and Rapid Financing Instruments.
- DEBT SUSTAINABILITY
G20 creditor countries should redesign their Common Framework for restructuring the debt of poor countries in default, notably by speeding up debt relief talks and allowing middle-income countries to access it.
The IMF should encourage the restructuring of unsustainable debt in a way that is consistent across countries, and change the way it analyses the debt to incentivise investments that create future savings, such as those for climate adaptation.
Public and private creditors should include disaster clauses in lending deals to allow countries to divert debt payments to disaster relief; and refinance high-interest and short-term debt with credit guarantees and longer maturities.
UN member states should agree to raise $100bn on a year for a fund to help pay for the climate-related loss and damage suffered by developing countries.
- PRIVATE CAPITAL
The IMF and multilateral development banks should offer $100bn a year in currency risk guarantees to help drive private sector investment in projects that would help developing countries make the transition to a low-carbon economy.
Connected to that, they should also expand their support to countries to help them create a pipeline of investable projects, and make greater use of blended finance and other structures where public lenders take on more project risk.
- DEVELOPMENT LENDING
The G20 and other shareholders of the World Bank, IMF and development institutions should fully implement the 2022 recommendations of a panel of experts aimed at boosting lending by the multilateral development banks.
They should commit an extra $100bn a year in fresh capital to the various institutions and move the Special Drawing Rights capital to multilateral development banks, starting with the African Development Bank by September 2023.
Increase the leveraging of the World Bank's International Development Association, which provides concessional finance; fully fund its emergency support facility to $6bn by end-2023; and scale up the IDA's funding to $279bn.
Raise the access limits to concessional finance through the Poverty Reduction and Growth Trust and the Resilience & Sustainability Trust.
Assess funding eligibility in light of a country's vulnerability and provide low-cost, 50-year loans to help them invest in areas including climate resilience, water security, pandemic preparedness and access to renewable energy.
Simplify and harmonise the way countries can apply to access loans across the world, and provide more support in the process. The international financial institutions should also finance development plans that help protect shared resources.
- TRADING
Groups such as the World Trade Organisation and other major trading partners should work with governments to strengthen supply chains to make them more resilient, ensure they benefit countries that produce raw materials and protect the vulnerable.
- GOVERNANCE
The governmental shareholders of International Financial Institutions should change the way they are structured and run - largely by richer nations in the Global North - to make them more "inclusive and equitable".
