The Bridgetown Initiative to reform the international financial architecture | Global Policy Forum

Source: The Bridgetown Initiative to reform the international financial architecture | Global Policy Forum

02/22/2023

By Bodo Ellmers

Mia Mottley, the Prime Minister of Barbados, presented a comprehensive approach to development finance last summer. Developed in collaboration with the United Nations, the Bridgetown Initiative is a three-step plan to mobilize short-term liquidity for crisis response and long-term funding for sustainable development. Originally unveiled in the run-up to the UN climate summit in Sharm El Sheikh, it was not a flash in the pan, but is now being taken up by French President Macron as a blueprint for his idea of a new financial pact with the Global South.

In some ways, it is a response to the reform logjam caused by the multiple postponements of the Fourth International Conference on Financing for Development (FfD4). In part, it fills the glaring gaps in the now-outdated 2015 Addis Ababa Action Agenda and could fertilize the new FfD World Summit that the UN is now finally planning to convene in 2025.

Delivering more and faster liquidity

The Bridgetown Initiative is set in the context of multiple crises. When Mottley introduced it, the COVID-19 crisis was at its peak, the Ukraine crisis with its shocks to food and energy prices had just begun, and the climate crisis was making itself increasingly felt. Countries affected by shocks need large amounts of financial liquidity in the short term to compensate for loss of revenue, massive capital flight, or higher import prices. Barbados itself was affected in the COVID-19 crisis by the total collapse of tourism, which was the most significant source of foreign exchange for the Caribbean island. The energy and food crises have driven many countries into balance-of-payments crises or to the brink of national bankruptcy.

The Bridgetown Initiative envisions four measures:

1. Improved access to International Monetary Fund (IMF) condition-free financing facilities

2. Temporary suspension of IMF interest rate surcharges

3. Rechannelling at least US$100 billion of unused special drawing rights (SDRs) to those who need them

4. Make the resilience and sustainability trust operational by October 2022.

Thus, for the policy measures on liquidity, the IMF is at the center, which is also consistent with its role as the central institution of the financial safety net in the global financial architecture. The first two points concern traditional IMF instruments. Most IMF facilities are extremely unpopular with member countries because they contain massive policy conditionality, thereby undermining democracy and sovereignty. Flaws in conditional design on the part of the IMF have in many cases caused severe economic and social damage in borrower countries. However, the IMF also has facilities that are free of programme-based conditionalities, such as the Rapid Financing Instrument and the Rapid Credit Facility. Better access to these facilities would lower the barrier to access IMF resources in the event of a crisis.