Rich nations need to commit to a new global financial pact

Over 25 economists and thought leaders are concerned that the summit for a new global financing pact, which takes place in Paris on 22 and 23 June, will not deliver its original ambition of increasing financial solidarity with low-income countries.

When President Macron first announced plans for the summit in November 2022, he promised that it would produce a new financial contract between high- and low-income countries, giving vulnerable countries access to urgently needed finance to deal with the consequences of ongoing and future crises.

Instead, the proposals that are now being negotiated represent only incremental change, with no sign that rich nations will commit to the necessary financing and debt relief that low-income countries so urgently need.

Sandrine Dixson-Declève, co-president of The Club of Rome and co-author of Earth for All said: “This summit is a critical opportunity for progress but there is a real danger that low-income countries are going to be failed again. It is not just a question of honouring finance pledges and accelerating debt relief, we need to see a genuine commitment by rich countries to radically reform the global financial system that is outdated and unfairly weighted in their favour”.

High-income countries, have disproportionate power in key international financial institutions like the World Bank and the IMF institutions because of outdated and undemocratic voting arrangements. Yet, these countries do not make up a majority share of the global economy, or the world’s population. Instead, they just keep taking decisions that continue to fail the global majority. For example, the 2023 Spring Meetings of the World Bank and IMF once again did not provide a feasible roadmap to the $1 trillion financing needed to address climate needs and reach the Sustainable Development Goals by 2030.

Jayati Ghosh, Professor of Economics at University of Massachusetts Amherst and co-author of Earth for All said: “Responses to COVID-19, the war in Ukraine and the recent banking failures show that rich countries can act quickly when they want to. But, despite debt stress in more than 70 countries and likely default in almost 50 countries, debt relief is still unavailable. And there is no sign that the new financing that lower income countries desperately need to cope with worsening challenges is going to be unlocked. Vulnerable countries are forced into debt servicing that makes it impossible for them to meet either the short or longer term needs of their people, even as creditors make obscene profits from the interest payments alone.”

An open letter endorsed by members of the Transformational Economics Commission of Earth4All highlights the lack of transparency and inclusion around the Summit’s preparatory process and details four essential outcomes to ensure success at the Summit: to honour existing climate pledges; stop and reverse the fatal debt doom loop; transform the way Special Drawing Rights (SDRs) are allocated and issued; and raise the bar on innovative tax instruments.

The letter calls for radical reform of the international financial architecture, especially the decision-making processes of the World Bank and IMF, which are woefully out of date.

Dixson-Declève concludes: “One-third of emerging economies and two-thirds of low-income countries are in or near debt distress. Many of them are also simultaneously facing major climate shocks, including floods, cyclones and earthquakes. Their trust in global finance was already low and their lack of representation in the preparatory process for this Summit has made this worse. The original aspirations of a new Global Financial Pact must stay at the forefront of conversations next week.”

Letter signatories

The open letter is endorsed by members of the Transformational Economics Commission of Earth4All, a group of leading academics and experts created to explore new economic thinking based on models of different future scenarios on Earth. Signatories include:

• Lewis Akenji, Managing Director, Hot or Cool Institute
• Tomas Björkman, Founder Ekskäret Foundation
• Alvaro Cedeño Molinari, Former Costa Rican Ambassador to Japan and the WTO
• Robert Costanza, Professor of Ecological Economics, Institute for Global Prosperity at University College London (UCL)
• Sandrine Dixson-Declève, Co-President, The Club of Rome and Author/Project Lead, Earth4All
• Lorenzo Fioramonti, Professor of Political Economy, Director of the Institute for Sustainability, University of Surrey
• John Fullerton, Founder and President, Capital Institute
• Owen Gaffney, Earth4All Project Lead and Chief Impact Officer Nobel Prize Outreach
• Maja Göpel, Political economist and transformation researcher
• Jayati Ghosh, Professor of Economics, University of Massachusetts Amherst
• Andrew Haines, Professor, London, UK
• Connie Hedegaard, Chair, OECD’s Roundtable for Sustainable Development
• Julia Kim, Program Director, Gross National Happiness Centre, Bhutan
• David Korten, Author, speaker, engaged citizen, and president of the Living Economies Forum
• Roman Krznaric, Public philosopher and author
• Hunter Lovins, President, Natural Capitalism Solutions
• Jane Mariara, President of the African Society for Ecological Economists
• Chandran Nair, Founder and CEO, The Global Institute for Tomorrow
• Carlota Perez, Honorary Professor at IIPP, University College London (UCL); SPRU, University of Sussex and Taltech, Estonia
• Janez Potočnik, Co-chair of the UN International Resource Panel
• Kate Pickett, Professor of Epidemiology, University of York
• Mamphela Ramphele, Co-President, The Club of Rome
• Jorgen Randers, Professor Emeritus of Climate Strategy, BI Norwegian Business School
• Kate Raworth, author Doughnut Economics, and co-founder of Doughnut Economics Action Lab
• Otto Scharmer, Senior Lecturer, MIT and Founding Chair, Presencing Institute
• Per Espen Stoknes, Director Centre for Green Growth at the Norwegian Business School BI.
• Stewart Wallis, Executive Chair, Wellbeing Economy Alliance
• Ernst Von Weizsäcker, Honorary President, The Club of Rome
• Ken Webster, Visiting Fellow Cranfield University and Univ of Auckland Business School
• Anders Wijkman, Chair of the Governing Board, Climate-KIC, Honorary President, The Club of Rome.

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