Climate: How the leader of Barbados revived the idea of global finance reform

June 22, 2023

By presenting her plan for reforming international finance at COP27, Mia Mottley, Prime Minister of Barbados, convinced world leaders to seriously tackle the problem that climate change negotiations have been dragging on for decades.

Along with other southern leaders, Barbados has “really reinvigorated strong political will”, including pushing French President Emmanuel Macron to host a summit on Thursday for a new global financial pact, think tank expert Alex Scott said. E3G.

“We are facing a new and huge groundswell,” she told AFP.

The international financial architecture was born in 1944 from the Bretton Woods agreements, when the priority was the reconstruction of Europe. But faced with the challenges of the 21st century, such as climate change, the International Monetary Fund and the World Bank, resulting from these agreements, are considered increasingly inadequate.

“A new agreement is necessary”, launched in November Ms. Mottley during the United Nations climate negotiations in Egypt, presenting the “Bridgetown initiative”, named after its capital.

“The most vulnerable have the least access to finance and are even punished when they try to act because of high interest rates and rock-bottom financial ratings,” financial adviser Sara Jane Ahmed told AFP. of the V20, a group of more than 50 climate-vulnerable countries.

They have been calling for a radical transformation of the international credit system for a long time, but the situation finally seems favorable.

The multiplication of climatic disasters, capable of wiping out most of a national economy overnight, is attracting attention, said Ms. Ahmed, while the countries concerned are speaking out with a “more coordinated voice”.

In 2022 alone, Pakistan saw its crops ravaged by the heat wave before suffering cataclysmic floods: 30 million people affected, 30 billion dollars in damage.

At the same time, the geopolitical center of gravity has shifted, Alex Scott believes: the historical dominance of the United States is giving way to a more fragmented landscape, with the rise of China as a financing alternative, “creating more ‘space’ for ideas from small countries. “There is definitely a chance of making these changes this year or the next two,” she adds.

The first signal came from COP27, where the rich countries, historically responsible for global warming, finally agreed to create a global fund for the “losses and damages” suffered by vulnerable countries.

But the hardest part remains to be done: agreeing on the source of the money and its distribution.

While rich countries have yet to deliver on their pledge to provide $100 billion a year from 2020 to help developing economies reduce emissions and adapt to climate impacts.

The promise could be kept this year, three years late. But its figures are already exceeded: the needs are estimated at more than 2,000 billion dollars per year by 2030.

For Avinash Persaud, the economist behind the Bridgetown initiative, we must adopt an “entrepreneurial mentality” to close this colossal financial gap.

“Bridgetown has caught the eye because it’s the only plan that scales from billions to trillions,” he told AFP earlier this year.

The plan recognizes the limits of official development assistance funding. To address this, the proposals suggest using hundreds of billions of special drawing rights, an IMF reserve currency, to attract climate investment, as well as adding clauses in loans to suspend repayments in the event of disaster or pandemic.

To top up the “loss and damage” fund, a tax on fossil fuel profits is suggested, among other things.

More realistic in the short term: A pollution tax on maritime trade, proposed by the Marshall and Solomon Islands, has serious political momentum. It could bring in $60 billion, according to the World Bank.

For Sara Jane Ahmed, “developing countries have brilliant ideas on how to solve this problem, it is time to listen to them”.