Scoop: Macron summit docs show limited vision for development banks

A two-day summit in Paris this week is billed as a chance to strike a new financial pact between wealthy nations and those most at risk from climate change and crippling debt. Yet internal documents seen by Devex show countries in many cases deferring the big questions on when and how to reform multilateral development banks, the concessional lenders seen by many as critical to boosting access to finance for low-income countries. MDBs like the World Bank and European Investment Bank have come under increasing scrutiny in recent years, criticized for being too risk averse and not doing enough to help countries adapt to the impact of climate change. A report by the Group of 20 major economies last year prompted the banks to evaluate their capital adequacy framework, while a separate expert group, convened under India’s G-20 presidency, is also due to make recommendations in coming days. So, when French President Emmanuel Macron announced the June 22-23 Summit for a New Global Financing Pact last year, it was clear that MDB reform would feature prominently. French organizers want the summit to generate a “vision statement” on MDB reform, as well as an output summary from the working group — one of three such formations, plus a steering committee, that have meeting to prepare the event — that focused on how to create more fiscal space for low-income countries, including through changes to MDBs. However, drafts of the vision statement and output summary, seen by Devex, reveal friction between the French organizers trying to reach a consensus text and working group participants, which include most of the main MDBs, as well as China and the United States. “In our understanding, this document is neither binding nor consensual, and should not be seen as an agreed work plan with a specific timetable for future follow-up,” Japan wrote in response to a draft “output summary,” which it also suggested renaming as a “summary of discussions.” The summary covers topics such as MDBs, debt, and rechanneling of Special Drawing Rights, with dates for the “next opportunity to assess progress” on each — such as this September’s G-20 summit in New Delhi or the annual meetings of the World Bank and International Monetary Fund in October. “Each item listed here has already been under an intensive discussion within MDB’s own governance or at other fora, such as G20, and we should not overlap and/or preempt the ongoing initiatives,” Japan commented. “Therefore, we should avoid using verbs (e.g., “calling on”) that sound as if the participants were unanimously asking MDBs for certain actions with a specific timetable.” Slight expectations Tokyo is not the only member of the working group taking a cautious approach. Making debt-suspension clauses for countries hit by climate disasters more ubiquitous has been one idea seen as likely to gain the most traction in the leadup to the summit. Avinash Persaud, the architect of Barbados Prime Minister Mia Mottley’s Bridgetown Agenda, told a webinar last week that the clauses could be worth $1 trillion to low- and middle-income countries and that the concept is “bigger than any other idea on the table” at Macron’s summit. Yet the European Commission wrote in its correspondence to the rest of the group that it preferred language about the need to “work towards” introducing these clauses in loan agreements, rather than “to commit to introduce” them. “The language ‘commit’ seems too strong,” the commission wrote. On the IMF’s Poverty Reduction and Growth Trust, designed to support concessional lending to low-income countries, the organizers pushed for language calling on the IMF to consider allowing states’ easier access to the PRGT. But the commission opposed mentioning the idea of expanded access to the PRGT in the outcome document, writing that “this must be decided at the IMF Board and we should not create expectations that in the end will not be fulfilled.” And on biodiversity, there was pushback on the idea that the MDB vision statement should include the need to commit to aligning the banks’ portfolio with the goals and targets of the Global Biodiversity Framework adopted in December 2022. “As others noted, these are significant commitments,” the World Bank wrote on the draft language on biodiversity alignment, “and more discussions are needed at MDBs’ Boards.” The Asian Infrastructure Investment Bank took a different line, however, writing that the text should send a stronger message on “why it is inevitable that nature and biodiversity cannot anymore be treated separately from the notions of [climate] mitigation and adaptation. Some of the biggest tipping points to come will emerge from biodiversity loss/deterioration.” Double vision One of the most sensitive topics in the vision statement remains the question of whether MDBs will need a new capital injection from shareholders if they are to rise to the demands being made on them to fight poverty and the effects of climate change simultaneously. “Following the implementation of all appropriate [Capital Adequacy Framework] recommendations to make the most efficient use of existing resources, a capital increase of some MDBs, with its leverage effect, could be considered,” the latest version, still subject to change this week, states. Adding that, “the Board of each MDB will be best placed to determine if and when new capital injections are needed in addition to these measures.” Major World Bank shareholders such as Japan and the United States would foot some of the highest bills under any capital increase, or else see their voting share diluted by China. For that reason, Japan wrote that language putting the focus on the board of each MDB on capital increase questions is “the last line we can barely concede.” Meanwhile, China wanted to go further, proposing a sentence, “recognising capital increase as the most powerful avenue of increasing financial firepower of MDBs.” Overall, China wrote to the organizers last week that even the third draft of the vision statement focused too much “on the need to address global challenges and the approaches to this purpose” — presumably a reference to climate change — “without due attention paid to further advancing poverty reduction and achieving SDGs.” “In addition to responding to global challenges, more paragraphs should be inserted to reflect our commitments to the core mandate of poverty reduction and development of the MDBs,” China wrote. “In this regard, we believe the tone and structure of the draft statement should be adjusted in a meaningful way.”