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On January 30 at the World Economic Forum in Davos, Dominique Strauss-Kahn, the Managing Director of the IMF, announced a possible new initiative – a multi-billion dollar Green Fund (that name is popular – see below) that would help developing countries finance the measures needed to tackle climate change – possibly with partial funding through issuance by the IMF of new Special Drawing Rights (SDRs).

This would be one way of jump-starting the financing of the Green Fund that Mexico has proposed. Of course such a Fund would not need to be “at” the IMF (more on that below).

Meanwhile George Soros has proposed that current unused SDRs of the developed countries (rather than a new issuance) be used to finance climate and other global public goods for the benefit of developing countries. The developed countries would have to pay interest on the SDRs (which fluctuates with the market and is low now but could of course rise) once they contributed them. Developing countries could contribute their unused SDRs too, to a Green or GPG fund; the potentially high interest costs could be financed using IMF gold.  (But using IMF gold requires a nod from the U.S. Congress.  Though funding climate mitigation costs in poor countries would certainly be in Americans’ interests, right now Congress does not seem in the mood for anything that looks like an international giveaway.)

An ActionAid report sets out the case for such financing well. But its authors worry about the IMF managing anything in poor countries. That is misguided - let's assume Strauss-Kahn is proposing a fund be created not that the IMF run it. What matters is who decides how to use the resulting funds not where they come from. In fact, the IMF has no control over use of SDRs once issued.  They are owned and controlled by the countries who get them.  Except in unusual circumstances SDRs cannot be issued only to some countries.  Every member country has some and gets some.  (It took over 10 years to get the necessary approvals, in this case from the U.S. Congress, for a “special” SDR issue for the former Soviet Union countries which of course entered the IMF without any SDR allocation at all.)  

It would be a good idea if whatever Green or GPG fund were created, wherever it is created, to be jointly managed (50/50 developed and developing), as I proposed last fall.  In fact it would be even better if such a fund were located in Beijing, Delhi, Sao Paulo, or Jakarta.

There are other ideas for financing climate and other public goods – the financial transactions tax (go here to see the list of 350 economists that have endorsed it) and the Europeans’ aviation tax. Like the financial transactions tax this one puts little pressure on debt-ridden and fiscally beleaguered industrial countries.

The government of Mexico is hosting the next UN conference in the elusive search for a global climate agreement. My suggestion to the Mexicans?  Put Strauss-Kahn and Soros’s ideas on the pre-Cancun discussion agenda.