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WASHINGTON – US Treasury Secretary Janet Yellen on Thursday urged the World Bank Group and other multilateral development banks to revamp their business models and dramatically increase lending to address pressing global needs such as climate change .
In a speech ahead of the World Bank and International Monetary Fund annual meetings next week, Yellen said she would ask World Bank management to develop an “evolutionary roadmap” for changes in December, with “deeper work” from spring 2023.
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Among the changes it calls for are plans to tap more private capital and use more soft loans and grants to finance investments that benefit the world more broadly, such as helping countries transition away from coal power.
“Given the scale of the challenges, development banks must continue to explore financial innovations to responsibly stretch their existing balance sheets,” Yellen told the Center for Global Development, a Washington think tank.
His directive came just weeks after World Bank President David Malpass was criticized for refusing to say whether he accepted the scientific consensus on the global warning.
Malpass said his response to a question on the issue at a forum was mishandled and that he believes human activity is responsible for climate change, but no shareholders have asked him to resign.
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A World Bank spokesperson said the institution was actively working to expand trust funds, grants and climate-related donor guarantees while exploring ways to increase lending capacity.
“We welcome the discussion on capital adequacy and Secretary Yellen’s leadership on the evolution of IFIs (international financial institutions) as developing countries face severe resource shortages, the risk of ‘a global recession, capital outflows and heavy debt service burdens’. the spokesman said in an emailed statement.
Yellen made it clear that climate change was a prime example of a global challenge that required change from development banks, calling it “an existential threat to our planet.”
she
announced a Treasury loan of $950 million
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to the Clean Technology Fund (CTF), a multilateral trust fund that helps developing countries accelerate their transition from coal to clean energy, the first of its kind from the Treasury.
STRETCHING THE BALANCE SHEET
Yellen said the World Bank and other multilateral development banks (MDBs) must adopt stronger goals for mobilizing private finance and deploy a wider range of instruments, including loan guarantees and insurance products.
He said MDBs needed to preserve their ability to borrow from financial markets, but did not mention the debate over whether they could accept lower credit ratings.
Nancy Lee, senior policy fellow at the Center for Global Development, said the World Bank could increase lending capacity by hundreds of billions of dollars without jeopardizing its credit rating. This could be done by including callable capital (money pledged by governments but not currently “paid out”) as part of its capital adequacy framework, he added.
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The development think tank and other groups are advocating that the World Bank also launch a “green capital surge” focused on boosting lending to tackle climate change.
On macroeconomic issues, Yellen said the top priority for countries facing high inflation was to return to a stable price environment, a struggle she said was primarily the responsibility of central banks.
He said the Group of Seven members have “committed to market-determined exchange rates. But we are alert to the political consequences of exchange rate movements.” (Reporting by David Lawder and Andrea Shalal; Editing by Paul Simao and Richard Chang)
