FINANCE: IMF Proposes 100-Billion-Dollar Climate Fund

• by Adam Robert Green (london)
• Thursday, March 25, 2010
• Inter Press Service

Outlined in a staff paper by IMF economists Hugh Bredenkamp and Catherine Pattillo, the Green Fund could launch from a capital injection by developed countries, in the form of Special Drawing Rights (SDRs), a currency issued by the IMF to member countries.

The facility would eventually combine resources from investors, raised through 'green bonds' in global capital markets, with developed country subsidies. Contributors could scale their equity stakes in proportion to their IMF quota share.

Aid would then be extended in the form of grants or highly concessional loans to developing countries but the IMF would not finance or manage the Fund, according to the authors.

The IMF began working on the concept of a Green Fund following the talks at the United Nations Copenhagen Conference (COP15) in December because, while finance was discussed and various figures pledged, it was not clear where the money was going to come from.

'The risk is that, without a credible framework for delivering financing on the scale necessary, soon enough, and on the right terms, developing countries' response to climate change will be either insufficient or delayed, thereby endangering sustainable growth and increasing ultimate costs, or financed in ways that are inconsistent with maintaining fiscal and broader macroeconomic stability,' the authors write.

IMF officials told IPS the Fund could enable faster and more reliable disbursement than uncoordinated aid pledges from rich countries, which often fail to materialise.

Thursday's report is the first time the IMF has directly implicated itself in the issue of climate-related financing efforts. However, the authors stress that the proposal is not a formal announcement by the IMF to create the facility.

Ilana Solomon, policy analyst at ActionAid, told IPS that she welcomed the IMF paper as 'an interesting contribution to the debate', and that she supports the use of SDRs in climate financing and believes this proposal has broken through the barrier of using SDRs for finance.

'A consolidated, centralised Fund, as long as there is transparency, will also facilitate the tracking of commitments,' she said.

But Solomon expressed concerns about 'lack of clarity regarding where the Fund would sit, and the implicated role of the World Bank' in terms of funding management.

'ActionAid wants to see an explicit endorsement of the United Nations Framework Convention on Climate Change (UNFCCC) as the medium through which resources should flow,' she told IPS.

Solomon also questioned the 100-billion-dollar per annum benchmark against which the Fund is framed, suggesting 200 billion dollars per year in public financing as a more appropriate figure, and pointed out that climate finance should consist entirely of grants, not loans, because the developed countries are responsible for the majority of emissions.

Peter Chowla, programme manager at the Bretton Woods Project, told IPS he was also pleased that the issue of using SDRs in climate finance was being raised, but that the IMF was stepping beyond its mandate.

'No institution other than the UNFCCC should run climate finance. That is the only legitimate forum where everyone has a say,' he said. He added that before they can play a constructive role in climate financing, IFIs needed to undergo radical reform.

'You cannot take an institution with a lop-sided governance structure and expect it to be trusted,' he said. 'To base any new institutional arrangement on the IMF quota formula is backward looking.'

The IMF paper is published just days before the first meeting of the newly formed U.N. High-Level Advisory Group on Climate Change Financing, which takes place on Monday, Mar. 29 in London.

The advisory group is chaired by British Prime Minister Gordon Brown and Ethiopia's Prime Minister Minister Meles Zenawi, along with other heads of state including Jens Stoltenberg, prime minister of Norway. Trevor Manual, South Africa's respected minister for national planning, the philanthropist George Soros and Nicholas Stern, the climate change economist, are also members of the group.

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

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