“African and Latin American Development Banks Face Roadblock in Climate Finance Plan as ECB Stands Firm”

The African Development Bank (AfDB) and Inter-American Development Bank (IDB) are facing obstacles in their efforts to mobilize finance to address climate change, as the European Central Bank (ECB) is standing in the way of a plan to re-channel special drawing rights (SDRs) to multilateral development banks (MDBs).

SDRs are financial assets issued by the International Monetary Fund (IMF) to supplement member countries’ foreign exchange reserves. The AfDB and IDB have been advocating for rich nations to give their SDRs to them, arguing that the money can be more effectively utilized for social and climate projects, rather than returning them to the IMF.

However, the ECB has instructed Eurozone countries not to re-channel SDRs to MDBs, citing concerns about financial safety margins and the potential impact on currency stability. This has hindered the AfDB and IDB’s efforts to access additional funding for their development projects.

During the COVID-19 pandemic, the IMF issued $650 billion worth of SDRs to support cash-strapped developing countries. While some rich nations re-allocated their SDRs to the IMF’s Resilience and Sustainability Trust (RST) and Poverty Reduction and Growth Trust (PRGT), the AfDB and IDB argue that channeling the funds directly to them would allow for greater leverage and impact on climate and social projects.

Despite receiving approval from the IMF, the ECB has maintained its stance against re-allocating SDRs to MDBs, citing legal and constitutional constraints within the EU framework. While some countries like France and Italy have supported the idea, others like Germany have opposed it, creating a divide within the Eurozone.

Experts suggest that to overcome these challenges in the future, MDBs should be directly allocated SDRs rather than relying on wealthy governments to re-allocate them. However, this would require significant agreement within the IMF’s executive board, which may be difficult to achieve in the current political landscape.

The debate over the re-allocation of SDRs highlights the complexities and challenges in mobilizing finance for climate and development projects, and underscores the need for greater collaboration and innovation in addressing global challenges.