Discuss Bridgetown Initiative

ANTÓNIO GUTERRES’ latest highlighting of the inequities of the global financial system in Jamaica this week was timely and appropriate.

Hopefully, it will further focus attention on an important issue, add pressure to demands for major overhaul of the post-war Bretton Woods architecture, and give greater purchase to the Bridgetown Initiative, Mia Mottley’s radical programme for channelling more financial support to developing countries, including to address the existential problem of climate change.

Guterres, the United Nations (UN) secretary general, in his public remarks in Kingston, mentioned neither Ms Mottley, the Barbadian prime minister, nor the Bridgetown Initiative. He noted Prime Minister Andrew Holness’ advocacy for reforming the multilateral financial institutions, such as the World Bank and International Monetary Fund (IMF) to do better by developing countries.

Significantly, though, Guterres announced the UN’s plan to, in June, issue a policy brief “on the reform of the international financial architecture”.

Coincidentally, on June 22-23 Prime Minister Mottley and the French president, Emmanuel Macron, will jointly host a conference in Paris at which the Bridgetown Initiative and other elements of reform of the global system will be the centrepiece.

SYSTEM’S INEQUITY

Developing countries’ demands for a shake-up of the Bretton Woods institutions – the IMF and the World Bank, launched in the immediate aftermath of the Second World War – are not new. As Mr Guterres pointed out, at the time of their founding in 1945, the countries of the Caribbean, Africa and large swathes of Asia were not independent.

“... Obviously, the structure of what was created, with smaller limitations during the last decades, reflects the power relations that existed after the Second World War,” he said.

Real decision-making and how these institutions allocate resources largely rest with those who created them. Insistence on reform, however, has become louder in recent years, spurred by the inability of developing countries to adequately respond to the crisis posed by climate change and the challenges left by the COVID-19 pandemic.

The pandemic induced a global recession, causing a liquidity crisis. The IMF responded by creating additional Special Drawing Rights (SDR). But how those were allocated, as Mr Guterres observed, underlined the system’s inequity.

The countries of the European Union, with under 500 million people, the secretary general noted, were allocated US$160 billion in SDRs. “The African continent, three times the population, received 34 billion,” he said.

Additionally, middle-income developing countries like Jamaica do not qualify for most programmes of debt relief and are largely locked out of concessional financing.

These same countries, which generally contribute the least to the greenhouse gases that cause global warming, are among the most affected by climate change. Yet, they lack the resources to adequately adapt to rising oceans, eroding coastlines, more frequent storms, longer and hotter droughts, and the diminution of their arable land.

Obviously, the global architecture on which these dysfunctional arrangements rest demands to be reframed, allowing it to be more responsive to the needs of all stakeholders.

There have been some efforts at this, such as the IMF’s liquidity support during the pandemic, and the World Bank’s recent pledge to lend much faster to developing countries in the coming years. These are welcomed.

But the Bridgetown Initiative, unveiled by Prime Minister Mottley at last July’s COP27 climate conference in Egypt – and subsequently endorsed by the Caribbean Community – is a far more ambitious and creative proposal.

Among the initiative’s more innovative proposals is a climate mitigation trust, backed by US$500 billion donor-guaranteed SDRs, which would be used to leverage private capital to provide up to US$5 trillion for lending/investment for climate resilience projects, using proven technologies. These loans would go directly to the projects, rather than to governments.

This proposal is apart from the call for the World Bank and other multilateral development banks (MDBs) to expand their lending to governments by US$1 trillion, which would mean MDBs expanding their risk appetite and putting underused resources to work.

PUBLIC DEBATE

MDBs would also be required to i ncrease concessional financing to middle-income countries that are prone to climate-related catastrophes, to pay for adaptation and resilience projects.

At the same time, the IMF would sustain the rapid credit and financing arrangement it introduced during the pandemic, as well as release up to US$100 billion in unused SDRs to countries that need the money.

The initiative also proposes that G20 countries suspend debt servicing, including loans from multilateral development banks, for the world’s poorest countries. Additionally, natural disaster and pandemic clauses would be written into all debt instruments to suspend payments during such crises, thus putting countries in a better position to absorb shocks.

Discussions around the Bridgetown Initiative must be taking place somewhere in Jamaica – perhaps within the finance ministry and in the academies. Unfortunately, there is little in the public domain on the issue.

Jamaica has a stake in a fairer global financial architecture, and as Mr Guterres pointed out, Prime Minister Holness is among the campaigners for reform. It would be useful, though, if the Government’s specific positions on the various issues were known and all the ideas were subject to public debate. Perhaps Prime Minister Holness and the finance minister, Nigel Clarke, will get this process going. A ministry paper on the subject would be in order.