IMF working on US$100bn ‘green fund’
2010-03-09 Pringle, Chanel (Engineering News Online, Johannesburg)
Resources > By Topic > OTHER TRADE TOPICS > Environment
The International Monetary Fund (IMF) is “working on the idea of a green fund” to raise US$100 billion a year by 2020 to mitigate the impacts of climate change on developing economies, IMF Managing Director Dominique Strauss-Kahn told a conference in Kenya on Monday.
He noted that climate change could “well be the shock to end all shocks”, with the amount of resources needed to mitigate climate change having clear macroeconomic implications.
“It will hit low-income countries soonest and hardest. Africa has contributed little to the carbon emissions that endanger our planet, but Africa is already paying the price. Without action, Africa will suffer more from drought, flooding, food shortages, and disease – possibly provoking further instability and conflict. We must take urgent action,” he stated.
Strauss-Kahn highlighted that developing countries would require large-scale, long-term investments for climate change adaptation and mitigation, with the Copenhagen Accord suggesting that US$100 billion a year in funds over and above current aid commitments would be required by 2020.
The IMF is not planning to manage the proposed green fund, but intends for this to make a significant contribution to the global debate and to be considered by the international community, he noted.
Strauss-Kahn explained that such a fund could provide a mechanism that could act as a bridge to large-scale carbon-based financing in the medium term.
As the United Nations High Level Advisory Group on Climate Change Financing is expected to start its work soon, this financing would be in the form of grants or highly concessional loans, which would require subsidies.
“Ultimately, these will have to come as budgetary transfers from developed countries, drawing on scaled-up carbon taxes and expanded carbon trading mechanisms. But these new revenue sources will take time to put in place. So we need an interim solution,” said Strauss-Kahn.
He emphasised that the establishment of a green fund would take major political effort, but said that the payoff would be “enormous” for Africa and the world.
Meanwhile, Strauss-Kahn forecast that the African economy would grow by 4.5% this year.
He noted that “signs of life” could be seen across the continent, with rebounds in trade, export earnings, bank credit, and commercial activity.
He cautioned, however, that while economies on the continent are seeing improved conditions, a lot still depends on the global economic recovery, which is still at an early stage.
Strauss-Kahn praised the African countries that had implemented good economic policies before the start of the global economic downturn, saying that this had inoculated these countries against a more severe downturn.
“Because debt positions had improved dramatically, many countries were able to use the budget to counteract the crisis, rather than making it worse. They strived to preserve, and sometimes even increase, public spending, at a time when revenue was falling rapidly. Fiscal policy was appropriately countercyclical in two-thirds of sub-Saharan African countries in 2009,” he commented.
However, now is not the time to “rest on our laurels”, said Strauss-Kahn, noting that African economies have to start planning to begin rebuilding the buffers that had served the continent well during the global crisis.
“The twin challenges for Africa are to revive strong growth and reinforce resilience to shocks. The first place to start is with macroeconomic policies. A major lesson from the crisis is that countries that sowed in times of plenty were able to reap in times of loss.”
Strauss-Kahn emphasised that Africa has to take a leadership role in transforming its own economy, while the international community should continue to offer its support, as a “prosperous Africa is in everybody’s interest”.
Good governance would be critical, and Africans have to put the common good ahead of parochial concerns, he noted.
“At the same time, richer countries must not cave in to domestic political pressures at the expense of future generations and poorer countries. They must resist the temptation to reduce aid, or engage in protectionism.”
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