Short on cash, G20 leaders try ‘Innovative Financing’ for size

Last year in Seoul, G20 leaders made an ambitious commitment to the “Seoul Development Consensus for Shared Growth.” This week in Cannes, the global financial meltdown and Eurozone crisis are likely to dominate.

G20 leaders estimate that 64 million more people are now living in extreme poverty as a result of the financial crisis. Meanwhile, the Organization for Economic Cooperation and Development has predicted a sharp slowdown of aid levels in the next three years.

It’s no surprise, then, that the French G20 presidency has prioritized finding “innovative sources of finance” to meet the G20’s development commitments. Earlier in the year, French President Nicolas Sarkozy asked business magnate Bill Gates to identify the most promising sources of new finance. Gates’s report will be formally presented to G20 leaders this week, but the substance was shared with G20 finance and development ministers in September.

Gates is expected to identify a financial transactions tax as one way to make up cash, estimating an additional $50 billion raised for global development if G20 countries adopted an FTT. Sarkozy has championed the FTT, and the European Commission recently drafted legislation for a European FTT. However, U.S. Treasury Secretary Tim Geithner has taken a strong stand against a European FTT, voicing his disapproval at a September meeting of European finance ministers. Geithner’s intervention may backfire at Cannes once he realizes how much the French love getting lectured by America.

Gates will also propose to G20 leaders a surcharge on shipping emissions, so-called “bunker” fuels, as another credible and feasible option, estimating an additional $25 billion raised if the charge was adopted by G20 countries. A measure is on the table at Cannes, but the United States again appears to be playing a blocking role.

In a measure that’s getting less attention, Gates will also call on the G20 to tap into the long-term power of domestic resources for tackling poverty. Gates will ask G20 leaders to share the experience of strengthening their tax and budget systems with developing countries, supporting governments to collect in a transparent manner the revenues they need to finance investment in the health and welfare of their citizens.

The bigger question on the table in Cannes will be whether the G20 will graduate from perpetual crisis mode to taking more proactive steps to promote broad-based growth. G20 nations are facing increased pressure at home, as more than half of the world’s poor live in G20 countries, and income inequality has worsened in most G20 countries since the 1990s. The success of the Cannes summit will depend largely on the willingness of G20 leaders, including the United States, to accept Gates’s challenge and adapt to a changing world.

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Originally posted by Devex.

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