Poor countries should be provided with $300bn (£246bn) a year from the International Monetary Fund to finance their fight against the climate crisis, the Nobel prize-winning economist Joseph Stiglitz has said.
Speaking to the Guardian at the IMF’s annual meeting in Marrakech, Stiglitz said developing nations needed their equivalent of the US Inflation Reduction Act – a package of grants and subsidies designed to promote green growth and jobs.
Stiglitz said the battle against global heating would only be won if poor countries were onboard but there was no hope of them coming up with their equivalent of the act, which he said was expensive and flawed but working.
Instead, he said rich countries should support the creation of $300bn of IMF special drawing rights (SDRs) each year to finance a global green transition.
The US economist admitted it would be impossible to get his plan through the US Congress in its current deadlocked state but said he would continue to campaign for it.
“As the scale of climate change impresses itself more and more on us, we are going to need bolder things. When the time comes and we are frying and somebody says: ‘How do we get out of the frying pan?’, this [annual SDR allocations] is one way of doing so.”
The need for extra money to help poorer countries cope with the effects of global heating and decarbonise their economies has been high on the agenda at the annual meeting of the IMF and its sister organisation, the World Bank, in Morocco this week.
Stiglitz, a former World Bank chief economist, said he welcomed plans to provide the bank with more capital to lend for green projects but said a far more ambitious approach was needed.
SDRs are an accepted international reserve asset that can be exchanged with hard currencies and can be used as a credit line. Seen as a form of money creation similar to quantitative easing, the IMF issued a $650bn tranche of SDRs in 2021 in response to the coronavirus pandemic. Rich countries did not need to use their allocations and agreed to recycle some of their SDRs into special IMF funds to support poor nations.
Stiglitz said of SDRs: “Basically, it is printing money. It wouldn’t be inflationary but it would be transformative.”
He said the EU was planning its own version of the Inflation Reduction Act – but on a smaller scale.
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“Developing countries can’t do it on any scale. Unless developing countries and emerging markets reduce their emissions, no matter what pieties we do in the US and Europe, we will get global warming. The rhetoric is about doing something about climate change and then rather than getting onboard [the people] you most need to get onboard, you alienate them.”
The act was originally sold by the US president, Joe Biden, as a $370bn plan to rebuild the country’s industrial base by boosting investment in projects designed to achieve net zero. Stiglitz said the actual size of the stimulus could turn out to be $1.5tn. “It is an open-ended tax credit. The good thing is that we are getting a lot of green investment.”
Stiglitz said he supported the act even though it was poorly designed and included some “massively protectionist” measures that violated international rules.