UN deems international financial system ‘outdated, dysfunctional and unfair’ during Paris summit for debt relief for Global South

The problem is serious, but there is enormous ambition. There is a sort of miniature UN, or a Parisian Davos, aspect to the two-day meeting that French President Emmanuel Macron has convened in Paris with the aim of seeking answers to the multiple crises that are rocking the poorest countries. Suffocating debt, coupled with the environmental crisis, is dragging many of these nations into a downward spiral from which they cannot pull themselves out without external assistance.

One of the measures announced at the so-called Summit for a New Global Financial Pact, which commenced on Thursday and concludes Friday, is a World Bank offer to suspend loan payments to indebted countries during times of crisis or catastrophe. The International Monetary Fund (IMF) announced that it has freed up reserves of $100 billion in supplementary financing for allocation to low-income countries. Meanwhile, in Paris, an agreement was announced between China and the West to provide debt relief for Zambia, an example of a financially throttled African economy.

Nevertheless, the aim of the summit, rather than reaching specific agreements, is to set the stage for the coming months: a brainstorming session with the participation of some fifty political leaders and dozens of representatives of civil society with a view to reducing debt and mobilizing funds for countries battered by climate change, with no money to deal with it. The purpose is to demonstrate that development is not incompatible with the protection of the planet.

During the inaugural session, Macron called for the resolution of this conundrum with a “new consensus” that would rebuild relations between the North and the South. The objective is pompous and might easily raise eyebrows, coming from a successor in Nicolas Sarkozy’s Elysée Palace, who sought to “re-found capitalism” 15 years ago. Yet this ambition is widely shared, judging from developments in Paris this week.

The fact that the Bretton-Woods system, created at the end of World War II to restructure the international economy, is in need of an overhaul was not disputed by anyone at the summit. Neither was it mentioned that the so-called Washington consensus — the dogma of market liberalization and the removal of trade barriers — has been in crisis, certainly since the 2008 financial meltdown. Macron intends to replace this with the Paris consensus.

“No leader of any country should have to make a choice between reducing poverty and protecting the planet,” Macron told a host of leaders, including Saudi Arabia’s Mohammed Bin Salman and UN Secretary General António Guterres. The list of attendees includes Brazilian President Lula da Silva, Colombian President Gustavo Petro, South African President Cyril Ramaphosa, Chinese Premier Li Qiang and U.S. Treasury Secretary Janet Yellen.

“We must shoulder a public financing burden,” stated the French president, “and we need more private financing, there is plenty of liquidity in the world, a lot of money.” By 2030, developing countries will need more than €2 trillion to tackle the environmental emergency, according to a study by the UN climate conference.

No leader of any country should have to make a choice between reducing poverty and protecting the planet”

French President Emmanuel Macron

The 2020 pandemic and the 2022 Russian invasion of Ukraine have overwhelmed low-income countries. While Europe, the United States and the richest countries revived their economies thanks to the capacity to incur unchecked debt, the poorest nations found themselves in the reverse situation. They were unable to take on “loans with excessive costs, up to eight times higher than those in developed countries,” as Guterres termed them. As a result, some African countries have been forced to spend more on debt repayment than on healthcare, “with dire consequences for entire generations,” said the UN Secretary General.

“Today,” said Guterres, “52 countries are in default or are dangerously close to default, and this includes the majority of the least developed countries, as well as most of the 50 countries that are most vulnerable to climate change.” This is compounded by food and energy inflation and soaring interest rates.

An ‘unsustainable’ situation

Consequently, development has stagnated or regressed. In 2023, it is predicted that more than 750 million people will go hungry. The number of countries with unsustainable debt has doubled since 2015 and, in the last two decades, a new force has emerged: China, the largest creditor of developing countries. The Zambian debt restructuring effort has significance because it could serve as a model for others in Africa.

“The situation is unsustainable,” summarized the UN Secretary General and, in his opinion, “a new Bretton-Woods moment” is urgently needed. In other words, a watershed event, comparable to the 1944 creation of the international financial system, whose central institutions comprise the International Monetary Fund and the World Bank, a system that survived the end of the Cold War in 1991, but that has now been exposed as “outdated, dysfunctional and unjust.”

“When these institutions were founded, our countries did not exist,” pointed out the Prime Minister of the West Indian island of Barbados, Mia Mottley, the initiator, together with Macron, of the Paris summit and also of the so-called Bridgetown Initiative launched to help poor countries cope with global warming. “Poverty and the climate cannot be separated,” Mottley said, “and education and the climate cannot be separated.”

Ideas for reform discussed in Paris include one that would require international institutions to assess the viability of debt and distribution of financing, taking into account exposure to climate change and biodiversity erosion, on top of the traditional indicators. According to sources at the Élysée Palace, Macron discussed this proposal in a separate meeting with the head of the International Monetary Fund, Kristalina Georgieva; the president of the World Bank, Ajay Banga; the president of Kenya, William Ruto; and Melinda Gates, the co-chair of the Bill & Melinda Gates Foundation.

I appeal for pure and simple debt cancellation to compensate for the vast damage caused by climate change and the huge burden regrettably placed on African countries”

Chad President Mahamat Déby Itno

During one of the round table sessions, Georgieva warned: “Let’s not lose the institutions we have; we should work to make them perform better.” The moderator of the discussion, Spanish Deputy Prime Minister Nadia Calviño, added: “The Bretton-Woods institutions may not be perfect, but if they didn’t exist, they would have to be invented.”

The North-South divide over the war in Ukraine, though rarely brought up in Paris, loomed over the summit. One of Macron’s objectives in convening the meeting was to strengthen the ties of a part of the world that wishes to preserve the equidistance between Russia and the West. In the Stock Exchange’s conference room, lamentations could be heard about how Western mobilization in response to Russian aggression is supposedly greater than the mobilization in favor of poor countries. There were also statements directly linking the environmental crisis with jihadism in the Sahel.

“Powerful countries largely account for climate disruption in Africa,” said General Mahamat Déby Itno, President of Chad. “I appeal for pure and simple debt cancellation to compensate for the vast damage caused by climate change and the huge burden regrettably placed on African countries.”

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