Financial experts from around a hundred countries met yesterday and today in Paris for a summit “For a new global financial pact”. The host was French President Emmanuel Macron. Representatives of international organizations and development banks, but also politicians, have come. At its heart was the reform of the International Monetary Fund and the World Bank.
Are the IMF and the World Bank simply getting on in years?
Many see it that way. The IMF was founded to stimulate trade after the war and to create a system of fixed exchange rates. Today the challenges are probably just as great. Almost 60 states are facing bankruptcy. There is war in Europe. Inflation is at its highest in decades and climate change is unstoppable.
Legend:
The IMF director at the press conference of the meeting for a new global financial pact
Keystone/LEWIS JOLY POOL
IMF Director Kristalina Georgieva described the challenge at the Paris conference as follows: “If you have your head in the fridge and your feet in the oven, then on average you have the perfect body temperature, but you are dead.”
Do the financial institutions lack the financial strength to solve the problem?
Yes. In Paris, many politicians and many NGOs emphasized that more money is needed for the IMF and World Bank and also for the other multilateral development banks. There are about three dozen of them in the world. But many developing and emerging countries say the money is being misallocated. For example, during the 2021 coronavirus pandemic, the IMF distributed $650 billion to its 190 members. Of this, 68 percent went to the G20 countries and only around seven percent to the 44 poorest countries. In the meantime, some industrialized countries have agreed to voluntarily redistribute some of this money to developing countries.
How are developing countries supposed to get more money – for example to fight climate change?
There are different ideas and demands. The reform of the multilateral development banks seems to have progressed furthest and is the most concrete. These banks give long-term loans to developing countries on favorable terms. The banks should lend more, and they can do that in two ways: either the member states inject more money, or the banks shovel out more capital themselves. Specifically, they should lower their equity ratios in order to have more money available. This adjustment has already been initiated at the World Bank. The World Bank wants to reduce its rate from 20 to 19 percent.
Financial aid from the IMF is usually linked to reforms. Some countries have therefore turned to China – China grants loans without strict conditions.
At the World Bank, many NGOs are demanding that the bank become much stricter and, for example, no longer finance gas-fired power plants and only give more loans for projects that serve climate protection. But that doesn’t necessarily meet with approval in many developing countries. Because they want to invest in infrastructure that brings growth and that is cheaper, especially if they have their own raw materials. There is a great temptation for these countries to simply let China pay for the loans for this infrastructure.
There were no concrete decisions at the Paris financial summit. What’s next?
A whole series of conferences are planned for the next few months. The G20 summit will take place in India in September, the fall conference of the World Bank and IMF in Morocco in October and then the UN climate conference in Dubai in December. Some of the ideas discussed in Paris could take on more concrete forms.