The Summit for a New Global Financial Pact: Outcomes and challenges

There is a long way to go in the reform of the international financial architecture. Photo: Flickr.com

The Summit for a New Global Financial Pact organized by President Macron organisierte on on June 22^nd and 23^rd, 2023 discussed questions around a just international financial architecture. This articles gives an overview of the most importatn results and an assessment of the summit. It highlights the challenges after the summit and how Germany can support the work on a just financial architecture that also contributes to international climate finance.

Summit set-up: daring the system

The Global South is currently facing a poly-crisis in which an accelerating debt crisis, natural disasters, and more are exacerbating one another. Estimates suggest that nearly USD 4.2 trillion in additional annual financing is needed to meet the Sustainable Development Goals (SDG) finance needs by 2030. To respond to these multiple crises, a reform of the International Financial Architecture (IFA) is necessary to overcome the global imbalances that have been inherent to the system of international financial institutions since their inception with the Bretton Woods meetings in 1944.

In that context, Barbados Prime Minister Mia Mottley initiated a call for an international reform process that received increasing attention, with attention culminating the first time at COP27. There, French President Emmanuel Macron announced that he would invite to the Summit for a New Global Financial Pact in June 2023. Mia Mottley called the Summit the “How dare you”-Summit, as President Macron dared to put the system into question.

President Macron had set out the goal for the Summit to establish a new global financial pact between Global North and Global South countries to “(…) better protect the people and the planet (…)”, and tackle negative effect from the current polycrisis. In the months prior to the Summit, representatives from governments, international institutions, academia, private sector and civil society had integrated a steering committee and four thematic working groups to prepare the Summit outcomes:

The Summit itself saw six thematic high-level roundtables, a multitude of side-events, and a head of states dinner on June 22^nd, and a high-level dialogue of Heads of States on June 23^rd.

What the main outcome documents say

In the end, the Summit produced a variety of outcome documents. The Paris Agenda for People and the Planet can be considered the Summit’s declaration. It reflects the Summit’s guiding principles, its key achieves, and tasks ahead. For the time being, 24 countries plus France have signed up to the declaration. Whether the declaration is still open for signatures remains unclear. Originally, France engaged in a significant diplomatic effort following the Summit to secure additional sign-ons. As of today, Germany has not signed the Paris Agenda.

A more extensive reflection of the variety of issues addressed at the Summit is the Chair´s Summary of discussions at the Summit. It highlights central agendas that have been driving the reform agenda, including the V20 Accra-Marrakech Agenda and the Bridgetown 2.0 Agenda and summarizes the policy commitments and requests made at the Summit. The Chair’s Summary neatly displays the vastness and complexity of the reform agenda, including elements on taxation, debt, development banks, in particular multilateral ones, the international monetary fund, public and private climate finance, etc. And it shows the need for all these elements to reform and go beyond what is the status quo.

The Roadmap for milestones as follow up of the Global Financing Pact lays out clear deliverables for the different agenda elements, building on upcoming relevant multilateral events related to the IFA Reform until September 2024. The events that feature prominently include the Africa Climate Summit, the FinanceInCommon Summit, the G20, the UNSG’s Climate Ambition Summit, the World Bank/IMF Annual Meetings, and COP28, amongst others. While these deliverables are not enforceable, they draw a path for how the reform agenda could become a reality.

The document that received most sign-ons is the Multilateral Development Banks vision statement. While a purely Global North-driven document in the beginning, it has obtained significant backing from Global South countries in the meantime. Importantly, this includes the current G20 Presidency India, under whose auspice an Expert Group is working on MDB reform elements. The vision statement focuses on the relevance of enhanced coordination among MDBs, as well as with other relevant institutions of the international financial system (IMF, philanthropies, private sector, and governments). It addresses several topics, including some controversial ones like Special Drawing Rights (SDRs) rechanneling and MDB capitalization.

Further released documents include “Debt swaps – lessons learnt and way forward”, Contribution of Private Philanthropies to the Summit for a new Global Financial Pact, and the Paris-Aligned Carbon pricing.

A take on the Summit

Prime Minister Mia Mottley called the Summit an “inflection point” – an inflection point in the debate around the IFA reform. And in fact, the Summit managed to put the topic on Heads of States’ radar, it triggered inner-governmental discussions, and it forced governments to develop and advance positions on a wide array of topics. It is fair to say that the Summit helped creating a previously unseen dynamic on the topic.

The Summit constituted a big step in acknowledging the problem. At best, it provided a vision, but it fell short on providing actual solutions and outcomes. The Summit was a good instance to facilitate dialogue among Global North and Global South countries on the need for a reform of the International Financial Architecture. It provided a rare occasion of actual, publicly displayed dialogue of high-level government officials.

The driving force of momentum, of creative and far-reaching proposals were leaders from the Global South. Most Heads of States from the Global North were strikingly absent and; hence, it was very important that Chancellor Scholz participated in the Summit. The Summit provided a stage for a more inclusive IFA Reform process and shared vision that is substantially driven by Global South leaders. The message from leaders from Africa for example was clear: We want to mobilize change.

Unfortunately, despite the vast array of topics covered, the Summit and the discussions therein fell short on several levels. While those Global South countries present were drivers of the debate, a wider representation of Global South countries would have been key to better reflect the needs from all Global South countries – in particular in the Summit’s preparation. The possibility for civil society to engage throughout the process was insufficient, both in the Summit’s preparation and at the Summit. While leaders shed light on the different finance aspects, the need for a true governance reform of the Bretton Woods Institutions to overcome the imbalances in representation and power is not sufficiently reflected in the outcome documents. And once again, there was more talk about mobilizing private climate finance, than the recognition that more grants-based finance will equally be necessary.

Eventually, whether the Summit was a really inflection point will depend on whether the vision will translate into action. President Macron has already announced a Joint Committee to accompany the process and that he will invite for a follow-up summit in 2025 to take stock. It will be crucial that the joint committee has ample representation from the Global South and civil society in order to hold leaders accountable and exert pressure for action. Accountability will be key.

A role for Germany to play

At the Summit, Chancellor Scholz in his statement at the high-level dialogue barely touched on the main IFA reform elements, except for the MDB reform. He made however clear that countries need to deliver on past promises – a clear domestic signal that Germany will need to provide for its six billion EUR climate finance commitment in 2025. Something that is not reflected in the current budget. Meanwhile, Global South leaders showed most interest in Scholz’s suggestion that green value chains should be increasingly placed in the Global South.

Going forward, Germany has the chance to remain a relevant Global North stakeholder in the IFA reform debate. The next moment along the IFA reform roadmap is the Africa Climate Summit between September 3-6. Kenyan President Ruto has invited Chancellor Scholz to join him in Nairobi at the Summit.  

To show continued leadership, Germany could do the following:

• Endorse the establishment of the Global Expert Review on Debt, Nature and Climate proposed by Kenya, Colombia, and France. Germany should provide support to the Expert Group for them to expeditiously take up their work.
• Come out in clear support of an overhaul of the global debt framework, recognizing that the existing framework is insufficient.
• Follow other countries’ and institutions’ lead in finding responses to the immediate liquidity needs of developing countries hit by extreme weather events and the need to temporarily suspend debt repayments and interest rate payments.
• Push to advance discussion on new innovative financial sources, including taxation options that help reduce negative climate and environmental externalities, provide additional climate and development finance, while taking into account common but differentiated responsibilities.
• Advocate for an ambitious World Bank Evolution Roadmap, emphasizing the need to overhaul the operational model more profoundly, changing the Bank’s internal incentive structure and ensure full alignment with the Paris Agreement.
• Create momentum to contribute to the implementation of the Evolution Roadmap, as it has recently been stated by G20 Finance Ministers and Central Banks Governors.

Mariana Micozzi and David Ryfisch / Germanwatch and Romie Niedermayer / Klimadelegation