15 June 2023
Transformational Economics Commission
When President Macron first announced the Summit for a New Global Financing Pact in November 2022, many economists, scientists and civil society organisations had high hopes that it would live up to its stated aim of generating political support for a new contract between the North and the South (i.e the global majority) and give vulnerable countries access to the financing they so urgently need.
As members of the Earth for All Transformational Economics Commission (TEC), our expectation was that the Summit would have sent a strong message to the G-7 and G20 Summits and UNFCCC COP 28 — that reform of the multilateral financial system is essential to ensure global equity for a healthy planet. However, we are concerned about the low level of ambition of the actual proposals on the table and the fact that low-income countries and civil society have been under-represented in the Summit’s four official working groups.
Failure to address the dire needs of the most vulnerable is a familiar pattern. The Spring Meetings of the World Bank and the IMF, as well as the recent G-7 meeting in Hiroshima, have all failed to galvanize the trillions needed to tackle poverty, inequality, and climate change. They have also failed to embrace a reform path to ensure that the unaccountable, undemocratic international financial system is retrofitted for a world that is very different from the one in which it was first created.
If we are to avoid yet another lost decade for low-income countries, we cannot further downgrade already inadequate responses to stabilising the fragile economies. With every failed multilateral moment, the challenges grow more complex and daunting. Indeed, Earth4All’s system dynamic modelling has shown that redressing inequality between and within societies is critical to avert global economic disorder and breakdown of peace and security. And the best way to tackle inequality is to ensure that financing flows in the right direction, to those who need it most and for those sectors that are essential for human wellbeing within planetary boundaries.
This is the only way to deal with current crises and build resilience to future shocks. Otherwise, we will see global emergencies on a scale never witnessed before because, in the words of UN Secretary-General António Guterres: “a two-track world of haves and have-nots holds clear and obvious dangers for every country.“ Now is not the time for another multilateral failure. We owe it to the global majority to ensure that the levels of financing needed for genuine economic and financial stability are anchored in principles of equity and prosperity for the many, not the few.
Let us highlight four important outcomes that are essential for the Summit’s success.
The failure of high-income countries to deliver their 2009 climate financing commitments of $100 billion/year by 2020 has delayed necessary investments and seriously eroded trust with lower-income countries. At the same time, serious and meaningful commitments are urgently needed to the Loss and Damage Fund since countries and people least responsible for climate change are those who are the most harshly affected by it. The lack of willingness to honour even past financing promises is one of the most important expressions of the low ambition in the Paris Summit’s preparatory process. Whilst we are heartened to know that many leaders from low-income countries will be present, the no-show of most rich nations is cause for concern and calls into question the intention of these countries to honour existing pledges.
The financing gap is exacerbated by a global debt crisis that is spinning out of control. One-third of emerging economies and two-thirds of low-income countries (LICs) are in or near debt distress. Many of them are also simultaneously facing major climate shocks, including floods, cyclones and earthquakes. The combined effects of climate impacts and unsustainable debt servicing are greatly exacerbating development crises, yet we know that the resources can be quickly mobilised, as they were for the global pandemic and the war in Ukraine. We are therefore surprised that the only concrete proposals on the table include climate-resilient disaster clauses and a user guide to the Common Framework! This is simply unacceptable at a time when fundamental reforms are needed in the debt architecture.
We urge the Summit to:
– Signal that the Common Framework for Debt Treatment should grant debt treatment to those countries who have requested it. It must also highlight the need for the IMF’s Global Sovereign Debt Roundtable to provide swifter and equitable sovereign debt restructuring and resolution, based on realistic assessments of a country’s ability to pay without harming its population.
– Call for debt restructuring commitments to include significant and equitable debt reductions by all public and private creditors. Many private creditors have made immense profits from providing credit based on high-risk premia, and must also be accountable. We are concerned that the Summit’s working group on debt is dominated by rich country governments and private financial institutions who are directly profiting from the global debt crisis.
Rechannelling SDRs is an important stopgap measure to assist countries during this polycrisis. However, the $650 billion in SDRs that were allocated in 2021 were distributed according to IMF quotas rather than actual need. As a result, 66% went to high-income countries, while African countries received just 5%. G20 countries promised to reallocate 30% of their SDR shares (totalling $100 billion) to those countries most in need. However, to date, only a handful of G20 countries have fulfilled that promise, and the IMF has failed to disburse even these small recycled amounts to countries in distress.
We urge the Summit to:
– Call on those governments who have not yet done so to commit to reach their promised targets of recycling SDRs and consider expanded forms of recycling.
– Signal its support for new $650 billion issuances annually for the next few years and call for a change in the mode of allocation so that SDRs are disbursed to those countries who are most in need.
– Emphasise that the forthcoming IMF quota review is an opportunity to reform that body’s outdated governance structure. This could begin with creating a third African chair on the IMF’s Executive Board.
The Summit could be much more ambitious with its tax-related proposals. For example, wealth taxation is not on the agenda, but a wealth tax starting at just 2 percent annually for millionaires and rising to 5 percent annually for billionaires could generate $2.52 trillion a year. Taxing the ultra-rich is not just essential for reducing inequality, which is creating deeply dysfunctional and polarised societies around the world. It also plays a vital role in the climate crisis, since the carbon emissions of the richest 1 percent — around 80 million people — account for more than double the emissions of the poorest half of humanity.
We urge the Summit to:
– Endorse the recently mandated tax negotiations at the United Nations towards a UN Tax Convention.
– Send a strong message that wealth taxation must be on the agenda in future international discussions.
– Call on governments to consider a minimum global tax on companies in 2023 (i.e. close to the global average rate of 25%).
– Call for taxation of windfall profits in all sectors, especially profits made during periods of scarcity and speculation when the rest of the world is worse off.
– Support the call recently made by more than 70 economists from around the world for a financial transactions tax on the sale of financial assets and currency exchange transactions. Given the current scale of such transactions, even an extremely low tax could generate significant tax revenues for climate action.
The geopolitical landscape is now extremely polarised, in large part because multilateral institutions and processes have repeatedly failed the global majority. But now is not the time for yet another multilateral failure. These proposed actions must carry us towards the radical transformation of the global financial system. We count on global leaders to heed this call for change and adopt a Global Financial Pact that delivers global equity and well-being for people and planet as we head into a very uncertain future.
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
Fadhel Kaboub, President of the Global Institute for Sustainable Prosperity
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.
Ernst Von Weizsäcker, Honorary President, The Club of Rome
Stewart Wallis, Executive Chair, Wellbeing Economy Alliance
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.