How the IMF could save the world, by George Soros

With the rich and poor nations showing precious few signs of coming to any meaningful agreement at COP15, the Copenhagen climate change summit, billionaire philanthropist George Soros has a cunning plan.

Soros, dubbed "the man who broke the Bank of England" when he profited from the 1992 devaluation of the pound to the tune of $1bn, says the IMF should divert $100bn-plus away from saving the world's credit crunched financial system to funding the greening of the developing world.

The question of funding the poorer countries‚ conversion to green technology and adaptation to the worst effects of climate change, such as flooding and drought, has emerged as one of Copenhagen’s thorniest issues.

"I think it is already becoming apparent in the negotiations that there's a gap between the developed and developing world on this issue which could actually wreck the conference," Soros told journalists in the Danish capital.

India says developed nations should give developing nations 1 per cent of their GDP - about $400bn per year. But so far, rich nations have offered a mere $30bn for the next three years - $10bn of which will come from EU nations, European leaders announced today. In June, Gordon Brown called for developed nations to give $100bn per year from 2020 towards green technology and climate change adaptation.

Today, Soros said the $10 billion-a-year short-term plan is "more than nothing, but not much, it's not sufficient". He says that in addition to that money, a one-off injection of $100bn could be generated if rich nations were prepared to allow the International Monetary Fund to divert money intended to provide liquidity to ease the current financial crisis to developing countries.

This money is held by the IMF in the form of Special Drawing Rights, essentially a made-up currency based on the value of the US dollar and other currencies. In September 2009, the IMF created $283bn in new Special Drawing Rights in response to the financial crisis - something President Barack Obama struggled to persuade the US Congress to agree to.

Soros says the money is currently sitting largely untouched in the reserve accounts of developed countries. Poor countries would be given the money in loans over the next 25 years, but they would have to pay it back with interest. The loans would be guaranteed by the IMF's gold reserves, so there would be no risk to donor countries who lend their SDR money.

"All that is lacking is the political will to fight global warming by using SDRs," Soros said. Of course, even if Obama and US Congress did agree, there is no guarantee developing countries would sign up to another loan from the IMF, a body they regard with suspicion.

And with the world's major economies only now emerging from the worst recession since the Great Depression, the thought of handing over the keys to the vault of the world's lender of last resort to poor countries with a history of defaulting on their loans will not appeal to many.

As Artur Runge-Metze a European Commission negotiator at Copenhagen noted cautiously today: "We have to be very careful in the way we use the Special Drawing Rights." Presumably he is wary of Soros becoming the man who broke the IMF. ·