Extortionate debt forces nations to pursue climate-unfriendly policies in the hope of repaying loans. Until the next crisis strikes.
Cross-posted from Common Dreams
As climate activists, we are used to banging our heads against brick walls.
Amid the need to rapidly move away from fossil fuels, deforestation and destructive export agriculture, we’re used to marshalling the full weight of scientific evidence, moving testimony, ethical arguments, persuasive advocacy and creative campaigning to pushing for changes needed to save the planet. Unfortunately, we’re also accustomed to governments ignoring us, and scaling up climate-harming activities instead.
But why do so many governments make such apparently irrational decisions when the climate crisis is on their doorstep, their own citizens are losing out, and the weight of evidence is telling them to act?
The answer might surprise you.
One of the biggest factors preventing governments in the Global South from taking climate action is barely discussed at conferences and debates meant to find solutions to the planet’s existential crisis.
It is time for us to talk about debt. Especially now, with the Spring Meetings of the World Bank and the International Monetary Fund (IMF) held recently and economic policy options for Global South countries under the spotlight. If we want countries to have the freedom to take action that is in their interests, we must understand that the World Bank, the IMF and private banks based in wealthy countries are preventing climate progress.
How? Because of their unhealthy obsession with debt repayments from the Global South at any cost.
This extortionate debt which hangs over the heads of many countries is forcing them to make difficult choices in order to pay that debt back. Indonesia, for example, is paying back loans equivalent to more than 40 percent of its gross domestic product (GDP), a key factor leading it to cut down rainforests to make way for money-making palm oil plantations. The need to repay external debt worth more than 80 percent of GDP has also been a factor in Brazil’s prioritising of soybean exports over the protection of the Amazon. And an external debt equivalent to 101 percent of GDP is why Mozambique has been trying to expand its coal and gas production in recent years.
This type of external debt almost always needs to be repaid in US dollars or other foreign currencies. So even when countries would benefit from supporting smallholder farmers, agroecology and small and medium-sized businesses, many have been forced to shape their economies around destructive fossil fuel and large-scale industrial agribusiness exports, in order to earn the dollars needed for debt repayment.
And the difficult decisions continue, with many countries spending more on servicing their debt than on education and health. Even though many have paid back their original loan amounts, a combination of rising interest rates, successive currency devaluations, fluctuating global commodity prices and the destructive impacts of climate change have kept the debt repayment finish line perpetually out of reach.
Indeed, sometimes the climate crisis has forced countries to take on more loans at even higher interest rates.
Even worse, loans from the World Bank and the IMF almost always come with rules attached – that countries privatise their public services, cut public spending, and go gung-ho into producing export commodities. These “conditionalities” and the power wielded by these institutions are worsening the climate crisis, and undermining countries’ capacity to take climate action through investing in green technologies, resilience or recovery from disasters.
Sniffing the climate winds of change, the IMF and the World Bank are now desperately attempting a makeover, and trying to present themselves as responsible climate leaders. But in reality, the IMF has advised more than 100 countries to expand their fossil fuel infrastructure, while the World Bank has spent $14.8bn supporting fossil fuel projects and policies since the Paris Agreement was signed. Their claims of being responsible climate leaders do not hold up to any scrutiny.
New research by ActionAid finds that 93 percent of countries most vulnerable to the climate crisis are in debt distress, or at significant risk of debt distress. This reflects a vicious cycle in which climate impacts put countries into debt, but that debt accelerates the climate crisis and leaves countries even more exposed to its impacts. And so the cycle continues.
All this points us towards a clear conclusion: that the global debt crisis is a major barrier to climate action and that debt cancellation can be a highly effective climate solution.
A proposal from last year called the Bridgetown Initiative, conceived by the prime minister of Barbados, Mia Mottley, is gathering momentum and putting the climate spotlight on debt and the role of international finance institutions. This initiative was initially seen as a progressive opportunity to overhaul the global financial system and put a stop to the harm that the World Bank and the IMF are doing to the climate and climate-vulnerable countries.
The agenda is still evolving, but there are concerns that despite some progressive elements, other components would drive countries deeper into debt. Proposals on the table suggest that these international financial institutions could merely tweak their ways, and channel even more loans to climate-affected countries while branding this as “climate finance” for adaptation and mitigation.
Given that rich countries have the greatest historical responsibility for causing the climate crisis, it is only right that they contribute their fair share of funds as grants, to support lower-income countries that are already suffering from the impact of climate change.
International loans must not be allowed to masquerade as “climate finance”, and rich countries must not be enabled to wriggle out of their own obligations to contribute real funds. If we want to address the climate crisis, debt cancellation — rather than yet more spiralling debt — must be at the top of the agenda.
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