Was a Global Financial Summit the Start of a New Bretton Woods?

Climate change presents an urgent imperative to transform the world’s energy system, but with more and more countries—particularly in the Global South—in debt distress, the volume and availability of low-cost finance needs to increase dramatically in order to meet climate and other development goals. With this problem in mind, more than sixty heads of state and government gathered in Paris in late June for the Summit for a New Global Financing Pact, which aimed to “build consensus for a more inclusive financial system.”

The summit, hosted by French President Emmanuel Macron, failed to deliver significant headline announcements, but it provided a platform for leaders from the Global South to articulate their desires for reform. Ultimately, the gathering could be a milestone shift toward a more inclusive financial system that meets the significant needs of the twenty-first century.

The Need for Reform

Countries in the Global South are under significant fiscal pressures, as costs of importing food and energy increase in the wake of the coronavirus pandemic, Russia’s invasion of Ukraine, and increasing impacts of climate change. The start of the El Niño weather pattern this year could make these costs significantly higher, with some estimates in the trillions of dollars.

Now one in five people on the planet live in countries in or at risk of debt distress. Countries that default risk being locked out of capital markets and seeing borrowing costs increase. To avoid default, other countries are making difficult choices between servicing debt and paying salaries. (In April, Kenya chose the former, leaving civil servants without their paychecks.)

And with an urgent imperative to transition the global energy systems away from fossil fuels, emerging economies (excluding China) need roughly $1 trillion a year by 2025 and $2 trillion by 2030 to do so and meet human development needs.

In response, a growing chorus of governments from the Global South are calling for a reform of the Bretton Woods institutions—principally the International Monetary Fund (IMF) and World Bank, which were established in the wake of World War II. In a 2022 speech, UN Secretary General António Guterres spoke of the need to reform “a morally bankrupt global financial system” that “perpetuates poverty and inequalities.” He noted that the system was created before many countries had decolonized—no African country was part of negotiations—and that the institutions were created by rich countries to benefit themselves. “We need to balance the scales between developed and developing countries and create a new global financial system that benefits all,” he said.

But the agenda goes beyond these institutions. African presidents have called for a permanent African Union seat at the G20—a proposal now supported by the United States, China, Japan, France and Germany but not the EU as a bloc. Kenyan President William Ruto has called for reform of the credit rating agencies, accusing them of a bias against African countries that increases their cost of borrowing by an estimated $74.5 billion. (Moody’s has said this criticism is unwarranted.)

The Bridgetown Initiative, spearheaded by Barbadian Prime Minister Mia Mottley and supported by major philanthropic organizations such as the Open Society and Rockefeller foundations, has sought to bring together many of these reform agendas into a collective. It has sketched out six areas for reform—a number of which were on the summit’s agenda, including reforming the debt architecture and dramatically increasing public and private finance.

High Ambition and a Risk of Failure

Macron, to his credit, recognizes these needs. Through the summit, he sought to build a coalition of governments and civil society to champion reforms that generate the scale of resources needed—roughly 2 percent of global GDP. But this scale demands fundamental reforms that are hard to achieve and need a high level of focus and careful sequencing of reforms across multiple domains.

The broad agenda, structured around six roundtables, reflected the scope of needed reforms: evolving the model of multilateral development banks; debt; green growth partnerships; innovative financing; ensuring more reliable, comparable information and data; and mobilizing the private sector for the Sustainable Development Goals.

Informal summits like these tend to be successful when they lay out a very clear outcome agenda and have a robust diplomatic operation that pushes attendees to make ambitious and additional commitments to that outcome goal. Conversely, broad agendas tend to create an a la carte approach: leaders fly in and announce something they were already doing.

Leaders in the Global South are increasingly tired of high-profile summits that fail to account for previous undelivered pledges yet make new ones. South African President Cyril Ramaphosa starkly made this point after the EU-African Union Summit in Brussels in 2022. “We have lived through various promises, from the COP [UN conference on climate change], where $100 billion was promised per year … we look at this with a degree of … ‘will this really be done?’ because we remember what was not done in the past.”

The Summit’s Achievements

The summit ended with a small number of concrete commitments.

First, a pledge driven by Macron at a May 2021 summit was declared victorious: “recycling” $100 billion IMF Special Drawing Rights (SDRs) from advanced to vulnerable countries. SDRs are reserve assets issued by the IMF to stabilize economies, but they have recently been used to help countries strengthen their fiscal positions. However, to reach the $100 billion goal, the summit included a $21 billion pledge from U.S. President Joe Biden’s administration that cannot be fulfilled without congressional approval. With no viable legislative route to achieving this approval, the “real” number (at the time of writing) is $81.14 billion. While this signals a significant commitment, overclaiming success could be read by some in the Global South as cooking the books without meaningful delivery on promises.

Second, World Bank President Ajay Banga announced a new commitment to offer “pause clauses” on debt service for countries facing natural disasters. This frees up fiscal space to allow countries to prioritize recovery as part of a broader toolkit to support those facing natural disasters.

Third, a Just Energy Transition Partnership (JETP) was launched for Senegal to mobilize public and private finance toward transitioning the country’s energy system. JETPs, which first pioneered in South Africa, present a comprehensive plan for a country’s energy transition backed by both public and private investors.

Finally, Zambia saw a $6.3 billion breakthrough in its debt restructuring negotiations, which have been moving slowly for years.

These commitments are far from the transformational ambition laid out in the summit’s goals. But what could be much more significant would be the development of a coalition of the willing that would champion reforms through the G20 and the governing boards of Bretton Woods institutions.

A chair’s summary and an accompanying road map laid out an agenda for action that could be significant, but the former document failed to acknowledge the 2 percent of global GDP needed for investment in climate and development. However, it did—perhaps for the first time—bring the climate and development finance agendas together and set out a specific agenda to champion the needed reforms at the G7 and G20 summits.

For example, thirty countries endorsed a vision statement on multilateral development bank reform that identified specific steps that the banks’ boards could take to increase the speed and volume of financing. This echoed a call from African finance ministers for a tripling of World Bank finance to low- and middle-income countries. A task force to examine new sources of finance through taxation will report on their findings at a summit hosted by the Kenyan president in September.

In addition, twenty-three countries and regional organizations committed, in principle, to a levy to mobilize revenues from the carbon-intensive shipping industry that could potentially yield $60 billion to $80 billion a year.

In a geopolitical context where China and Russia are growing in influence and nineteen countries have applied to join the BRICs, the lack of meaningful commitments could further embed the sentiment that Europe and North America are not serious about their partnerships with countries in the Global South—a sentiment articulated clearly by African leaders present at the summit. However, if the coalition Macron has built truly champions these reform proposals, this could be noted in the history books as the beginning of a “new Bretton Woods” initiative. That will be the true test of the summit’s success.