Editorial | Overhaul Bretton Woods

Last week’s conference in Paris promoting a fairer global financial system and increased flows to developing countries, seemingly excited little official attention in Kingston. Yet, Jamaica has much to gain if the initiative is successful, which is why our Government should be aggressively engaged in the process.

While there was no wildly transformative breakthrough in Paris, sufficient happened for this newspaper to be optimistic that real change is possible. For instance, the World Bank, and other multilateral development banks (MDBs), reaffirmed plans to introduce language in their borrowing agreements to allow countries hit by natural disasters to suspend repayments.

A post-conference statement also pointed to movement on, or broad acceptance of, several of the proposals central to the Bridgetown Initiative, Barbados’ Prime Minister Mia Mottley’s plan to help developing countries prepare for climate change, ease their crisis of debt, and move on a path to sustainable growth and development.

These include achieving the target of rechannelling US$100 billion of Special Drawing Rights (SDRs) to vulnerable countries, especially in Africa, and the likelihood of the long-delayed target of US$100-billion-a-year climate financing being reached this year.

Developed countries also placed their imprimatur on the proposal that each dollar of lending by multilateral development banks should be matched by at least one dollar in private financing.

“Based on this, we expect from them to leverage at least 100 billion dollars of private money each year in developing and emerging economies,” said the conference statement issued by the Élysée Palace.

It added: “We also expect an overall increase of 200 billion dollars of MDBs’ lending capacity over the next ten years by optimising their balance sheets and taking more risks. If these reforms are implemented, MDBs may need more capital. We will also cooperate to boost the investment for a list of major infrastructure projects in Africa.”

A CLIMATE-MITIGATION TRUST

The statement did not address what is perhaps the most ambitious element of Ms Mottley’s Bridgetown Initiative, which she launched at last year’s COP climate conference in Egypt: a climate-mitigation trust, backed by US$500 billion of donor-guaranteed SDRs. These SDRs would, in turn, be used to leverage up to US$5 trillion in private capital for lending/investment for climate-resilience projects.

A version of this idea was promoted by the United Nations (UN) secretary general, António Guterres, in his own brief for global financial architecture reform launched in May.

Nonetheless, like this newspaper, Avinash Persaud, Ms Mottley’s adviser, and a key architect of the Bridgetown Initiative, believes that its essential elements gained good traction in Paris.

“It’s a roadmap for genuine change,” he told the Reuters news agency of the conference, which was hosted by the French president, Emanuel Macron. Mr Macron invited Ms Mottley to co-host the conference and made her initiative the centrepiece of the discussions.

“What’s emerged here is a real ... understanding of the scale and pace of what is required,” Mr Persaud said.

This newspaper agrees. However, we are sufficiently aware of the history of the many promising initiatives on behalf of developing countries that have been paid lip service, but allowed to flounder and eventually collapse.

Therefore, developing countries, including those in the Caribbean, which face existential threats from climate change, must not allow it to happen in this case. For even if all the initiatives given the nod in Paris were to come to fruition, the financing would still be short of the US$2.7 trillion a year in climate resilience investment developing and emerging economies need over the next decade.

And there is likely to be little room for carve-outs or special benefits based on presumed exceptionalism. In that regard, notwithstanding the relative macroeconomic stability it achieved over the last dozen years, and its success in reducing its debt as a proportion of gross domestic product, Jamaica will still pay proportionately far higher interest rates on its borrowings than developed economies.

THE CARIBBEAN SHOULD BE IN LEADERSHIP

As Mr Gutteres noted at the Paris conference, in the face of the recent series of global crises that reduced liquidity, “wealthy countries could print money to revive their economies, [but] developing countries could not do likewise and are grappling with exorbitant borrowing costs – up to eight times higher than those of developed countries”.

The UN secretary general also underlined other glaring disparities in the global financial architecture and how these impact negatively on developing countries, few of which were independent states when the current order was being crafted at Bretton Woods.

Two years ago, in response to the COVID-19-induced meltdown and resulting liquidity problem, the International Monetary Fund allocated over $650 billion in SDRs to members, based on their quotas. “European Union countries…received $160 billion,” Mr Guterres recalled. “African countries: $34 billion.”

It was all within the rules, notwithstanding Africa’s population is twice that of Europe. As Ms Mottley said in Paris, “global problems like the climate crisis show us that we simply cannot address modern issues with institutions which were created for a very different world nearly 80 years ago”.

These institutions demand transformation, not reform. Even as they continue efforts to strengthen their economies in the existing paradigm, the Caribbean, including Jamaica, should be in the leadership of this campaign for transformation.