New Global Financial Pact: A Summit Without Substance

Praskanva Sinharay

Despite issuing an open letter communicating the significance of the NGFP summit, most leaders of the global north did not attend the event.

In June 1956, an informal meeting was held in Paris to find a solution for debt-ridden Argentina which, at the time, owed $450 million to western creditor countries such as the UK, France, Belgium, Switzerland, and a few others. This meeting led to the formation of a consortium of these rich western countries that came to be known as the Paris Club. The members of the Paris Club designed a debt settlement plan for Argentina by restructuring the latter’s repayment scheme with a longer grace period, and by dictating Argentina to enter into multi-trade agreements with other countries. The Paris Club, the 22 permanent members of which are the major western financial powers including the US, continued to dominate the terms of bilateral lending in the coming years, and claimed itself as a group “whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries.”

Decades later, on 22-23 June 2023, the city of Paris once again hosted a first-of-its-kind international event, namely, the New Global Financial Pact Summit (NGFP). The official agenda of the Summit was to “provide the opportunity to examine interactions between multilateral development bank reform, mobilisation of private capital, climate finance, green infrastructure and solutions related to debt” in order to achieve “a more balanced financial partnership between the North and South.”

The summit, hosted by the French President Emmanuel Macron, was attended by 40 Heads of States and finance ministers (many from the Global South), as well as global leaders such as the United Nations Secretary-General Antonio Guterres, European Commission President Ursula von der Leyen, IMF Managing Director Kristalina Georgieva and World Bank President Ajay Banga. What connects the two events, apart from the month of June and the city of Paris, is their extra-institutional nature and the zeal of the global North to rethink the global financial architecture.

The global financial system has fundamentally changed since the 1970s. There are new actors and newer challenges. On the one hand, non-Paris Club countries (such as China, India or Brazil) are now key actors in international politics and economy, while on the other, what the world is currently experiencing is a polycrisis – constituted by debt distress of low and middle-income countries, poverty, inflation, climate change, war in Ukraine, democratic backsliding, and the pandemic. 

To address the existing and emerging shared concerns, poorer countries from the Global South (such as Zambia, Senegal, Kenya, among others) are keen on renegotiating the terms of international finance. Barbados, for example, has advanced the Bridgetown Initiative, a toolkit for reforming the global financial system through measures such as constitution of a Climate Mitigation Trust, reallocation of special drawing rights (SDR) to Multilateral Development Banks (MDBs), concessional funding and temporary suspension of debts, funding for loss and damage for climate disaster recovery, and making the system more shock absorbent. Driven by the issues raised by the Global South, the NGFP Summit, as Macron’s team opined, was thus “a momentum- and confidence-building event.” Therefore, it is important to note, and keep on record, whatever happened in Paris. 

The summit: deliberations and demands

A day before the NGFP Summit, a team of international leaders issued an open letter to communicate the rationale behind the organisation of the event. The summit, they wrote, would be used “as a decisive political moment” to fulfil the development and climate commitments in line with the Addis Ababa Action Agenda, leverage all financial sources (especially private capital mobilisation, accelerate progress towards the SDGs and just transitions, promoting technology transfer, and “contribute to an inclusive, open, fair and non-discriminatory economy.” Despite issuing a letter, most leaders of global North did not attend the event. 

President Macron, in his opening address, told the audience that the world needs a “public finance shock” as the current financial system is incapable of resolving the interlinked concerns of tackling poverty, reducing carbon emissions, and protecting nature and biodiversity. Reliance on more private investments thus became a key agenda from the very beginning of the summit. 

Over the next two days, the key issues and demands that were raised by the delegates, particularly from the Global South included: (a) greater financial assistance from developed countries to address the climate catastrophe, (b) addressing the debt emergency of the least developed countries through concessional or grant-based financing, or through reduction or cancellation of debts, (c) reforming MDBs so that they can de-risk private investments by providing guarantees and long-term loans, (d) implementation of Just Energy Transition Partnerships (JETP), and (e) making polluters pay through taxation on shipping and aviation, and windfall tax on fossil fuel companies. 

The Indian Finance Minister, Nirmala Sitharaman, who attended the event, talkedabout the schemes implemented by the government of her country to address financial inclusion, and stated that MDBs need to address “transboundary challenges” alongside their “core development mandate.” 

Seemingly, the summit provided a platform where the leaders of the poorer countries in particular could vent out their demands and call for real action for transformation of the global financial system. As the Prime Minister of Barbados Mia Mottley put it, the need of the hour is “not just reform but an absolute transformation” of the international financial architecture. Did this call for absolute transformation get reflected in the outcome of the summit? 

The outcome 

The answer to the above question is no. Although the summit culminated in some crucial announcements that need to be followed up in the coming days, observers claimed that it failed to address the larger concerns – such as debt relief and climate crisis – of the low and middle-income countries. 

First, the summit did not deliver anything new in terms of the current debt crisis. Not a single penny was committed by the developed world to financially assist the developing countries. Instead, as Iolanda Fresnillo of the European Network on Debt and Development noted, the summit pushed for “further financialisation of development and climate action.” 

Although the World Bank agreed to include “pause clauses” in the repayment of new loans for a debtor country in case it encounters a climate disaster, there is no relief as it is not debt cancellation. Moreover, such clauses do not apply to the existing loans. As a consequence, a debt-ridden country will not be able to channelize sufficient money to public spending, and have to turn towards the private sector. 

What was noteworthy is that Zambia has settled a $6.3 billion debt restructuring plan with its bilateral creditors during the summit. While this is a welcome development, Zambia still owes $4.3 billion to private creditors such as BlackRock and needs immediate relief. To address the debt crisis, leaders of Colombia and Kenya therefore proposed to form a “Global Expert Review on Debt, Nature and Climate.” 

Second, a new 2.5 billion Euro JETP deal was announced to address Senegal’s renewable energy capacity with a group of countries (Germany, France, Canada, EU, and UK). Moreover, the IMF chief announced that the developed countries will meet its existing commitment of providing $100 billion in climate finance through SDRs to poorer countries every year. This will inevitably burden poor countries with new loans, and worsen the debt crisis. 

At a time when economists estimated that the developing countries will require $2.4 trillion per year to cut emissions and deal with climate change, no additional funding, as activist Teresa Anderson noted, was allocated to address this emergency. Rather, the focus has been on reforming MDBs and ensuring private investments. 

For instance, the World Bank launched a Private Sector Investment Lab to remove barriers and attract more private capital by providing guarantees by States at the expense of public money. In other words, as economist and climate activist Carola Mejia noted, the Summit represented “an undemocratic space that promotes more loans, greater participation of MDBs and the private sector.”

Finally, in spite of recommendations from organisations like Amnesty International, no announcement on loss and damage funds for climate crises was made. Similarly, nothing came out of the summit in terms of instituting a social protection fund to safeguard the rights of vulnerable communities who are paying the price for climate change. This is largely because social movements or civil society organisations representing those people who are at the receiving end of the climate crisis, as Amnesty International observed, were never made a part of the summit.  

What next? 

In addition to the above, discussions on issues such as polluters tax on shipping emission, carbon pricing and global green bank were discussed in the summit. However, in the absence of a formal institutional framework, a summit like the NGFP generated little trust. 

Amnesty International’s Secretary General Agnès Callamard, for example, has asked, “Whether the Paris meeting, called by France’s President Macron, outside of the usual UN framework for discussions is an appropriate forum for the substantial reforms required is questionable.” 

On a similar note, Fresnillo commented, “Unless the discussions on international financial architecture reform include the need for a new multilateral debt resolution framework, under UN auspices, together with a UN Tax convention, amongst other substantial financial sector regulations, we cannot take them seriously.” 

The concerns raised and the announcements made in the NGFP Summit need to be reiterated and closely followed up, particularly by the countries of the Global South, in the forthcoming annual events of the traditional institutions such as the World Bank Group, the International Maritime Organization, the G20 and the COP28. 

With no new commitment towards pumping more money for the climate crisis, no substantial debt relief plan, and pushing for private investment in the development project, the NGDP 2023 turned out to be a summit without substance. The summit’s roadmap will only add to the existing vicious cycle of debt and climate crisis encountered by the Global South. 

To conclude, let us remember that if the city of Paris had once given the rich western creditor countries the Paris Club, the walls of the city from May 1968 had gifted the people of the world its slogans. And it is time to recall one such slogan – ‘the future will only contain what we put into it now.’

This article was originally published in The Wire and can be read here.

Centre for Financial Accountability is now on Telegram. Click here to join our Telegram channel and stay tuned to the latest updates and insights on the economy and finance.