When world leaders meet for their much-vaunted “summits,” what do they actually do? The question was posed by last week’s meeting in Beijing between US secretary of state Antony Blinken and Chinese president Xi Jinping. The meeting lasted a whole thirty-five minutes. It was barely long enough to exchange diplomatic pleasantries, let alone to make progress on the various areas of US–China rivalry, in the South China Sea, on trade, technology and Ukraine. The actual negotiations had clearly happened elsewhere. The summit was mainly an exercise in symbolism: a handshake for the cameras and a carefully worded communiqué for the record.
A few days later president Joe Biden and Indian prime minister Narendra Modi tried a different approach. Modi was given the full state visit treatment: marching troops on the south lawn of the White House, a glitzy (vegetarian) dinner, lengthy talks and a special address to both houses of Congress. The two leaders signed a series of strategic business deals in key fields such as semi-conductors and space technology, and held a joint press conference. (Though if anyone was in any doubt who Modi’s primary audience was, the fact that he spoke in Hindi may have been a clue.)
The Biden–Modi summit communiqué, covering myriad arenas of cooperation and every major global issue, ran to fifty-eight numbered paragraphs: this was clearly not the product of the meeting itself, but of months of prior negotiation by the two countries’ diplomats.
Hard on the heels of these two summits came a third, on Thursday and Friday this week, this time involving not just two leaders but more than forty. Hosted by French president Emmanuel Macron, the “Summit for a New Global Financing Pact” brought together ministers from around eighty countries at the imposing Napoleonic Palais Brongniart in central Paris. And unlike the others, this encounter wasn’t largely for the photographs: over two days the meeting saw substantive and unexpected progress made on a range of issues to do with the financing of sustainable economic development in the global South.
The summit was an ad hoc event, not part of the United Nations, G20 or other regular governance mechanisms. It was proposed by Macron last November following discussions with the prime minister of Barbados, Mia Mottley, on her “Bridgetown Initiative” for global financial reform. Mottley’s plans, first articulated at the COP26 climate conference in 2021, aim to mobilise hundreds of billions of dollars in new public and private financing for climate-related investment.
Unusually, Mottley’s ideas got traction both with developed country heads like Macron and EU president Ursula von der Leyen, and with governments in Africa and among the “V20” group of climate-vulnerable nations. A remarkable consensus has arisen: on the eve of this week’s summit thirteen leaders from across the world issued a jointly written article calling for an urgent scaling-up of financial flows.
The summit filled out some of the detail. In a set of round tables on different topics on the Thursday, followed by an evening dinner for heads of government and two hours of talks on Friday morning, a number of specific proposals were presented and agreed. Well, sort of agreed: with the summit having no formal ability to make binding decisions, the French hosts asked countries to indicate which of the proposals they could support, and then set out in the final communiqué what had been discussed and how it would be taken forward. It was a clever way of preventing the biggest countries exercising veto powers and thereby generating a weak, lowest-common-denominator agreement.
The most significant announcement was that the richest countries had met their promise to reallocate US$100 billion of Special Drawing Rights, or SDRs, to pay for poverty reduction and climate adaptation measures in developing countries. SDRs are the reserve currency used by the International Monetary Fund in times of financial trouble. In 2021, a huge US$650 billion of SDRs were issued to help countries through the Covid pandemic. But the problem was that the IMF constitution requires that SDRs go to countries in proportion to their shareholdings in the IMF, so the vast majority went to the richest countries who needed them least. In October 2021 they promised to give US$100 billion back, to be spent in the poorest countries — but up to now they had not done so.
After months of determined persuasion of his fellow leaders, Macron was able to announce in Paris that the figure had been reached. Only the most churlish of observers pointed out that the American contribution had still to be ratified by Congress, which might never happen.
You wait a long time for US$100 billion, and then two come along at once. Macron was also able to say that the US$100 billion in finance for climate change first promised by the developed world in 2009, and again in the Paris agreement of 2015, was also going to be achieved this year. A long time overdue, it was nevertheless a welcome statement that the developed world would (eventually) keep its promises. As several emerging economy leaders noted, those countries’ previous failure to do so has been a trust-depleting blight upon international relations for a long time.
Four issues dominated this week’s summit discussions. The first was reform of the World Bank and its regional counterparts, including the Asian, African and Inter-American Development Banks. Using capital provided by the richest countries, these banks provide low-interest (“concessional”) and commercial loans to emerging and developing economies, aimed especially at poverty reduction. But in recent years the banks have been heavily criticised as too slow and cumbersome, applying too many conditions and making overly cautious decisions, especially in comparison with the huge scale of lending now being undertaken by China.
Perhaps surprisingly, the United States has led the calls for reform. In Paris, treasury secretary Janet Yellen repeated her demand that the World Bank “evolve,” particularly by providing more money for climate investment. She found a willing partner in the bank’s new president, former Mastercard CEO Ajay Banga, whose commitment to reform has been widely welcomed. Banga’s new definition of the World Bank’s purpose — “eliminating poverty on a liveable planet” — provided a neat acknowledgement that climate change and wider environmental sustainability must now be incorporated into everything it and the other multilateral development banks do.
But this was not enough for the African leaders present. Noting that the World Bank’s lending to the poorest countries will fall this year because much of it was “front-loaded” to deal with the crises of the last two, they called for an immediate increase in contributions from the developed nations. In pointed asides, several noted that when it came to Ukraine, the West has been able to find apparently unlimited sums of money for arms and aid without any budgetary constraints. Why not similarly for Africa?
In response, Yellen did promise new funds from the United States, and Banga said the World Bank would seek to squeeze more out of its balance sheet. But the kind of quantum leap in funding demanded by Africa will only come through a recapitalisation of the bank: that is, an injection of new equity by its major shareholders. The United States won’t commit to that now. But the word on the grapevine is that Biden is open to the idea if Banga can prove he can deliver reform.
And that in turn would open up another front: reform of the bank’s governance structure. Today, Western developed countries own just above 50 per cent of its shares, thereby maintaining control of an institution they have long regarded as theirs. But a new capital injection would also bring in more money from China and India, and thereby tip the balance of shareholding away from Western control. This is of course precisely what the global South would like to see, and equally precisely what makes the US most nervous. So we can expect some serious negotiation about this over the next year.
The second major agenda item was debt. The IMF estimates that around two-thirds of the lowest-income countries are now in “debt distress” or at risk of it, meaning that they are close to defaulting on the international loans they have received from richer countries, international institutions and private lenders. The rise in US interest rates over the last year has seen many of them spending over half of their government revenues on debt service payments, with devastating impacts on health and education budgets. It is clear that their debts need relieving, but talks with the most affected have failed to yield much progress over the last two years.
So it was welcome news that two of the most heavily indebted countries, Ghana and Zambia, had now reached agreement on debt restructuring packages. Separately, the Ivory Coast and France announced a “debt reduction and development contract” to convert a portion of the former’s debts into grants for poverty reduction and education.
At the same time, a number of countries and multilateral development banks announced that they would start using “natural disaster clauses” in their debt contracts. Pioneered by Grenada and Barbados, such clauses allow debt service payments to be suspended for two years when a borrowing country is hit by an extreme weather event such as a hurricane or major flooding, thereby releasing much-needed cash for clean-up and reconstruction efforts. With such events occurring ever more frequently, the widespread use of these clauses could prevent billions of dollars leaving vulnerable countries just when they most need the money.
Another initiative emerged during the summit when presidents Gustavo Petro of Colombia and William Ruto of Kenya proposed the establishment of an expert review of the relationship between debt, nature and climate. The two leaders expressed concern that debt repayments were forcing countries to destroy rainforests and other biodiverse habitats. The review will examine proposals such as “debt for nature” swaps, in which creditors cancel debt in return for verifiable conservation efforts, and debt linked specifically to the achievement of climate action plans.
The third main issue was climate finance. In preparing the summit, France had called for a number of taxes to be considered as new sources of funding. But in the pre-summit negotiations, taxes on aviation, fossil fuels and financial transactions were ruled out. This left just one new tax on the table, a proposed levy on carbon emissions from shipping. Countries agreed to ask the International Maritime Organization to examine how such a levy could work. To the disappointment of some, though, the text failed to mention the possibility that some of the revenues could be used to compensate countries for the climate-related loss and damage they are experiencing. With the last round of climate talks having agreed a fund for this purpose but no money, this idea is likely to gather increasing support over the next year.
Fourth, the summit discussed how more funds can be provided by the private sector. For many years the holy grail in this field has been the mobilisation of private capital for clean energy and environmental conservation. With government budgets highly constrained, this was felt to be the only way in which the dollars flowing to developing countries could rise “from billions to trillions.” But these sums have so far proved elusive: asset managers have perceived the risks as too high and the rewards too few.
So in Paris countries welcomed an idea developed by Barbados’s economic adviser, Avinash Persaud. Persaud proposed a special facility to insure foreign investors against the risk that the returns they make could fall if the local currency declines in value. He pointed out that such risk can often be the difference between a renewable energy or agricultural project in an emerging economy looking profitable or not; he estimates that his proposed scheme could release tens of billions of new investment.
These discussions proved the value of summits in which leaders don’t turn up mainly for show but actually engage with the substance. Negotiations on the final communiqué had, of course, been taking place behind the scenes for several weeks. But they continued long after the meeting was due to close, as developing country leaders insisted that the wording on the urgency and scale of the funds required should be strengthened, and developed ones sought to limit the commitments they were being pushed into making.
It was not till late on Friday that the French government issued the final documents. They included, in addition to a statement of principles and decisions, a detailed roadmap setting out how each of the policy proposals discussed could be taken forward over the next eighteen months, at future meetings such as September’s G20 Summit in India, the World Bank Annual Meetings in October and the climate COP28 in Dubai in November–December.
No one came away from Paris thinking the job was finished. By 2030 the world will need to invest around US$2.4 trillion every year in sustainable development, of which around US$1 trillion will have to come from international flows. The world is still well short of such figures. But there was also little doubt that the summit had given new momentum to these efforts. This was perhaps best symbolised by an announcement on the sidelines of the event that a new Just Energy Transition Partnership, or JET-P, had been agreed between a range of Western countries and the government of Senegal, led by president Macky Sall.
JET-Ps are the new hope for development and climate financing: national plans for clean energy and industrial development backed by new public and private investment, both domestic and international. Three JET-Ps were announced last year, in South Africa, Indonesia and Vietnam, all committing to phasing out the use of coal-fired power. In Senegal the plan involves — controversially — exploiting new gas reserves, but for the first time that will happen under an explicit commitment that these will subsequently need to be phased out again as the country aims for net-zero emissions.
In the long term this will be the real test of whether the summit was worth it. Can enough money be invested to give developing countries a new path to prosperity, one that doesn’t involve trashing their natural environments as the now-rich countries largely did at the same stage of development? Will financing partnerships like JET-Ps see emerging economies find a role supplying minerals and goods for the green industrial transitions that are now a central aim of economic policy in the United States, the European Union and China?
We shall discover the answers over the next decade. In the meantime attention will shift across the Atlantic. Under its new, outspoken president, Luiz Inácio Lula da Silva, Brazil will host next year’s G20 Summit, where the decisions made in Paris will be brought back for a progress report and new commitments. Fittingly, this will coincide with the eightieth anniversary of the Bretton Woods summit in 1944, when the present global financial system was designed.
That meeting set a high bar. The usual summit handshakes and photo opportunities make it easy to be cynical. But sometimes meetings like these do actually change the world. •