IMF member countries reject green fund plan

Thu Mar 25, 2010 2:47pm EDT

* IMF board rejects Fund's involvement in green fund

* Staff proposal sees mobilizing $100 bln a year

By Lesley Wroughton

WASHINGTON, March 25 (Reuters) - International Monetary Fund member countries have rejected an idea supported by IMF chief Dominique Strauss-Kahn to create a green fund to help developing nations pay for the impact of climate change.

The IMF made no public acknowledgment of the rejection by the board and instead published the proposal on Thursday as a staff paper, emphasizing it did not represent the views of IMF member countries.

Board officials privately told Reuters the paper was the subject of much disagreement at an informal meeting earlier in March, where many members argued the IMF had no expertise or mandate to address climate change.

The paper said the IMF would not create, finance or manage the green fund and that the proposal should be seen as part of the overall debate over how to finance climate adaptation. It is a big theme in global talks on a new climate treaty expected to be hammered out in Cancun, Mexico, at the end of the year.

Strauss-Kahn has been a proponent of creating a green fund, something he first mentioned during the World Economic Forum in Davos earlier this year.

The IMF paper outlines ways for mobilizing $100 billion a year by 2020 to help poor countries cope with climate change.

This is the same amount the World Bank and United Nations estimated last year as the cost to developing countries of adapting to the impact of climate change -- which is equivalent to foreign aid flows provided to poor countries by rich ones.

Developing countries argue rich industrial economies that prospered while using environmentally damaging fossil fuels should help poorer countries deal with climate change.

The IMF paper proposes rich countries make an initial contribution to the green fund in the form of IMF special drawing rights, or SDRs, an international reserve asset and the fund's unit of account.

Last year, IMF member countries agreed to issue $250 billion worth of SDRs to central banks to boost liquidity in the face of a financial crisis and credit squeeze.

The idea would be that developed countries would make an initial capital injection into the fund using some of the $176 billion worth of SDR allocations from last year in exchange for a stake in the green fund.

The fund would then leverage resources from private and official investors by issuing low-cost "green bonds" in global capital markets, the IMF paper said.

The fund would use the money to provide grants or cheap loans to developing countries to deal with climate change.

IMF DIFFERENCES

Strauss-Kahn unveiled the proposal to IMF member countries during an informal board meeting on March 4, a day before he left for Africa where he launched the idea in Nairobi, Kenya.

Board officials, speaking on condition of anonymity, told Reuters most of the 24 directors present, except for those from France and Britain, rejected the proposal.

They said board members, speaking in turn, told Strauss-Kahn that climate was not part of the IMF's mandate and that SDR allocations are a reserve asset never intended for development issues.

"The message to the managing director was clear ... no one wants the IMF involved in this," one director from a large developing country said.

Another director complained that Strauss-Kahn was trying to make the IMF relevant in an area it had no expertise and would probably require a change in the IMF's articles of agreement if it pursued the idea.

The director said climate-related development should be left to the World Bank, which already oversees several funds to deal with clean technology and climate adaptation.

In a speech in Nairobi, Strauss-Kahn acknowledged while "some rightly argue that climate change is not in the mandate," the amount of resources needed for climate change would have a bearing on countries' economies.

He said the IMF did not intend to manage such a fund but "now is the time to put new ideas on the table."

Oxfam, the international development group, welcomed the IMF proposal, saying it showed there are ways to deliver large-scale resources to fight climate change.

"The fact that the IMF is proposing that adaptation efforts are funded by grants rather than loans is positive," said Oxfam spokesman David Waskow. "Worryingly, what is not specifically laid out in today's proposal is where this money will come from."

He said money needed to be funneled through a "fair and accessible" fund that is accountable to the U.N. climate process. (Editing by John O'Callaghan)

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