Ambition and reality

Paris financing summit falls short of its targets

French President Emmanuel Macron hosted what he called the “Summit for a New Global Financing Pact” last week. The summit’s agenda was greatly ambitious. It aimed to address an entire complex of different issues affecting developing economies in general: From debt sustainability to the financing of adaptation to climate change. It ended with some clear steps forward but without a conclusion commensurate to the scale of its ambition. This is hardly to be considered surprising, since some of the problems it aimed to address are intractable. What the summit did do is clarify, far more effectively than ever before, exactly what the obstructions are in addressing these problems.

One is the unwillingness of developed countries to lay out large sums of public money for climate finance. However, given the scale and importance of the climate crisis, they have been forced to acknowledge that some assistance is required by developing economies in this respect — both to support their energy transition, and thereby mitigate carbon emissions, and to minimise the impact of the crisis on their populations as they adapt to a changing climate. The solution that many of them have come up with is to repurpose existing pots of cash — for example, what they already give to support the lending of multilateral development institutions such as the World Bank. The International Monetary Fund (IMF) is also being called on to increase its support to indebted countries in the wake of twin debt and climate crises. One announcement that did emerge from the summit was that $100 billion worth of IMF special drawing rights would be made available to developing countries — cushion for their balance sheet, drawn in part from those of rich-country central banks that do not necessarily need them. Some of this money will have to be approved by a United States Congress that, under the Republican Party, is unusually detached from reality. But, overall, it is symptomatic of attempts to find short cuts by which existing money and resources can be detached to serve in other capacities as well.

Countries like India view this as an inadequate and even problematic response. On the one hand, it is seen as undermining institutions like the G20, which has taken its own approach to discovering mechanisms by which indebted countries can be bailed out. But, as Union Finance Minister Nirmala Sitharaman pointed out at the Paris summit, the primary focus of many multilateral institutions in particular must remain development. The West is essentially adding to the mandate of these institutions without increasing their capacity to lend. This will have a clear and negative impact on development in multiple countries, particularly those that have limited access to private capital and therefore must rely on multilateral development banks to fund projects.

Mr Macron’s objective in calling this summit is partly, no doubt, to solve this crisis — but also geopolitical. One intention is to put pressure on other lender countries, particularly the United States, to take a more proactive approach to solving the multiple crises facing developing countries. The other is also to allow developing countries a forum to express their anger about being abandoned, and give them a sense that some action is being taken by multilateral forums to address such issues. In terms of economics and climate, the summit did not succeed at the level of its ambition. Whether it was successful geopolitics is somewhat less clear.