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IMF Chief Proposes $100 Billion Annual Fund to Tackle Climate Change

DAVOS, Switzerland, January 30, 2010 (ENS) – The head of the International Monetary Fund today proposed to create a multi-billion dollar Green Fund that would provide the financing that countries need to cope with climate change and move to a low-carbon growth model.

At the World Economic Forum in Davos, IMF Managing Director Dominique Strauss-Kahn said the funding needed could amount to $100 billion a year within a few years.

“We are going to provide some ideas built around a Green Fund devoted to finance the $100 billion a year, which is the figure which is commonly accepted that is needed for addressing the problem, based on a capitalization of this fund coming from central banks, backed by special drawing rights issued by the Fund, said Strauss-Kahn.

He said climate change financing is such a big issue that “it cannot be seen as a problem that cannot be solved.”

During a panel discussion on the future of the world economy chaired by Martin Wolf of the “Financial Times,” Strauss-Kahn said it is obvious that developing countries do not have the cash to finance the measures needed to tackle climate change, while developed countries are burdened with enormous debts from combating the global economic crisis.

Dominique Strauss-Kahn (Photos by Sebastian Derungs courtesy World Economic Forum)

Strauss-Kahn said alternative solutions are needed and announced that the IMF will release a paper in a few weeks setting out ideas on how the proposal can be financed.

He said the world must adopt a low-carbon model for growth as it rebuilds from the global economic crisis. “I can’t believe we don’t have the solution to this huge problem,” he told the audience in Davos.

Strauss-Kahn said the need for such a fund became clear to him as he reflected on the outcome of the United Nations climate conference December 7-18 in Copenhagen, the 15th Conference of Parties to the UN Framework Convention on Climate Change.

At the Copenhagen conference governments were expected to agree on limits to greenhouse gas emissions that would avert catastrophic global warming, but negotiations foundered on differences between developed and developing countries. While no binding limits were agreed, the Copenhagen Accord formalized pledges of action by the United States and large developing nations such as China and India for the first time.

“It may surprise some of you that this may be a concern for the IMF, but it is, because when I look at what happened in Copenhagen, it seems to me that the question behind the discussion was not only a question of binding requirements or things like that, but also obviously a question of financing,” Strauss-Kahn told the panel today.

“It may be the biggest challenge that mankind ever had to face, that for several generations our kids and the kids of our kids will live in an impossible world and that we will be stopped by traditional financing problems,” he said.

We have to “think out of the box,” said Strauss-Kahn. “If it’s obvious that developing countries don’t have the money to pay for adaptation and mitigation of the climate change problem because they have this debt sustainability problem, directly linked to the solution we provide for this crisis, then we’ll have to find innovative ways to finance it.”

Strauss-Kahn said the IMF will start discussions with central banks and finance ministers on the feasibility of creating this Green Fund, possibly partly financed through the issuance of additional Special Drawing Rights, a reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves.

Yoshito Sengoku (Photo courtesy WEF)

The value of this asset is based on a basket of four key international currencies, and Special Drawing Rights can be exchanged for freely usable currencies. The amount of SDRs in use by countries around the world is currently equivalent to about US$324 billion.

Panel member Yoshito Sengoku, the minister for national policy at the Cabinet Office of Japan, said, “Some kind of global center of regulation would be needed, or maybe the case like international solidarity tax to tax the speculative transaction of currencies and others, and that tax revenue could be used for the aid assistance for developing countries or for alleviating the global environmental issues. And, whether the governments in the world would agree to that and accommodate to that, that I think is a major issue.”

“Now, Japan is committed to continue to excel in manufacturing technology activities and green and ecological technology like clean energy and rapid transit and the marine water desalination and so forth,” Sengoku said. “Such advanced technology we are willing to offer to all the countries in the world and to make it as a part of a long-term project by all, and this is going to be a part of a national strategy to cooperate with all the countries.”

Montek Ahluwalia (Photo courtesy WEF)

Panel member Montek Ahluwalia, deputy chairman of the Planning Commission of India, brought the discussion back to the stalled round of trade negotiations of the World Trade Organization which began in November 2001 in Doha, Qatar.

Its goal is to lower trade barriers around the world, allowing countries to increase trade globally, but talks have stalled over differences between developed nations led by the European Union, the United States, and Japan and the major developing countries led by India, Brazil, China, and South Africa.

“You know, the credibility for global action is going to be tested by the Doha round, not by climate change. That’s a very important issue, but it’s a longer-term issue,” Ahluwalia said. “I find it very difficult to believe that if the global community can’t resolve multilateral trade negotiations that it will be able to handle much more complex issues like climate change. It’s going to be difficult.”

All panel members agreed that the global economy is recovering but that recovery is still fragile.

Strauss-Kahn told the panel that the global crisis had created a problem of fiscal sustainability for many countries that could take up to seven years to fix because of the huge debts that have accumulated.

The International Monetary Fund is an organization of 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty. It is a specialized agency of the United Nations but has its own charter, governing structure, and finances. Its member governments are represented through a quota system broadly based on their relative size in the global economy.

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