“Nine months ago, nobody was speaking about natural disaster clauses… Nine months ago nobody was talking about multilateral development bank reform at scale… Nine months ago we were not prepared to discuss issues of debt.”
The words of Mia Mottley, prime minister of Barbados, delivered at the recent Summit for a New Global Financing Pact in Paris, seemed to strike a chord with her audience. In many ways, she was right.
In September last year, the launch of her Bridgetown Initiative marked something of a turning point. This agenda, which calls for reforms to the global financial system to help the most vulnerable countries, has helped to mainstream discussions of debt relief and mobilising more funding for their climate policies.
Last November at the UN’s COP27 climate summit – an event at which Mottley was a prominent voice – the final agreement between nations acknowledged, for the first time, the need for “a transformation of the financial system and its structures and processes” to meet decarbonisation goals. The two-day Paris climate finance summit, which ended on 23 June, sought to take steps towards making this a reality.
Organised by the French government, the event sought to provide a space to find consensus on changes to a financial system that was structured after the Second World War, and which is today failing to respond to simultaneous crises of poverty, financial debt and climate change. It saw a range of bilateral meetings and working groups behind closed doors, as well as roundtables and events open to the public.
While the summit saw ambitious statements, including from hosting French president Emmanuel Macron, and some progress towards reforms, many observers were left underwhelmed by a lack of firm commitments, though others acknowledged a sense of momentum ahead of COP28 in Dubai later this year.
Here, we round up the key takeaways from the summit, which may, in time, open up lifelines for Latin America and the Caribbean – a region facing economic struggles and debt stress, and increasingly impacted by climate change, all while trying to respond to problems such as poverty and inequality.
Where is the promised money?
Most delegates and observers, especially those from developing countries, came to Paris with a clear hope: to see some progress – however small – on developed countries’ pledge to mobilise US$100 billion a year in climate finance to developing countries by 2025. It is a promise that was made in 2009 and reinforced in 2015 with the Paris Agreement, but it is still unfulfilled.
These expectations had been heightened by nearly two weeks of recent negotiations in Bonn, Germany, where finance was the divisive issue between a developed world that wants to focus on increasing ambition on mitigation – that is, greater emissions reductions – and a developing world that wants this too, but claims it can only do so if there are discussions on increasing financial support.
“Delegates, are we willing to talk about the US$100 billion? Are we willing to talk about this?” Pedro Luis Pedroso Cuesta, head of the Cuban delegation, asked angrily during a plenary at the Bonn talks, which were preparatory sessions ahead of COP28. “It is so clear that there is no intention to talk about finance,” he added. It was in this malaise that developing countries arrived in Paris, and with similar results that they left.
The Paris summit did see progress towards a different US$100 billion goal, in the commitment made in 2021 by rich countries to redirect some of their unused International Monetary Fund (IMF) special drawing rights to help the most vulnerable countries.
Special drawing rights are international reserve assets created by the International Monetary Fund (IMF) and used by its members, with their value based on a basket of currencies: the US dollar, the euro, the Chinese yuan, the Japanese yen and the British pound. The IMF allocates SDRs among its member countries, who can exchange them for freely usable currencies. SDRs are a great potential source of liquidity for member countries.
IMF head Kristalina Georgieva said that of this $100 billion, $60 billion is already with the organisation working for developing countries, while the other $40 billion has been committed by richer members.
Sources of finance
Of the various issues discussed at the Paris summit, several were priorities for Latin America and Caribbean delegates, including changes in multilateral organisations, bringing new actors to the table to mobilise finance, increasing the flow of climate finance to the level required, and finding innovative methods to respond to the current crises. Among the sources highlighted by voices from the region were:
● Debt swaps Under the consensus that no country should have to choose between fighting poverty and acting on climate change, the Paris summit saw discussion on how to begin to alleviate the financial debts of developing countries so that they can implement climate policies simultaneously.
Colombian president Gustavo Petro, one of the region’s leaders to attend the Paris summit, led calls for debt-for-climate action swaps. He told Diálogo Chino: “Debt swaps would free up budgets to dedicate exclusively to mitigation or adaptation to the climate crisis. Added on a global scale, it would be an increase in liquidity that would go into productive investment towards what matters most today, which are solutions to the climate crisis.” Petro called for the creation of a group of experts to further study the prospects of debt swaps and generate a proposal to be taken to COP28.
● The World Bank Ajay Banga, the new president of the World Bank, announced the Climate Resilient Debt Clauses at the summit. Under this initiative, when a country faces an extreme weather event, its debt payments will be paused and/or given greater flexibility. Initially, the initiative will be implemented for the most debt-vulnerable countries, and will later seek to expand to more countries that may need such help. Which of these two categories the countries of Latin America and the Caribbean will fall into remains to be seen.
On the broader functioning of the World Bank and the IMF, Brazilian president Lula da Silva was critical during his time at the summit: “What was created after the Second World War no longer works. Let us be very clear that the World Bank leaves much to be desired when it comes to what we expect of it, that the IMF leaves much to be desired in terms of people’s expectations of the institution.”
● The private sector In his addresses to the summit, President Macron repeatedly highlighted a need to mobilise and increase private finance for climate change – seen by many as the area in which developed country governments may put their focus in finance negotiations. Macron said that “for every dollar of public money that goes to climate action, a dollar of private money also has to go.”
The conclusion text of the summit reports that, from 2016 to 2019, private philanthropy has committed US$42 billion to development. But for Mottley, it is not just a question of mobilising the amount of money, but also to where and what it is being mobilised for. “We thank philanthropy for what they do,” she told the summit, “but it cannot be that they put the money into what they want, rather into what the world needs.”
Financing was the protagonist of a summit that was billed as being jointly organised by France and Barbados, but ended up largely under the leadership of the European country. Funding was also a key issue in disputes between countries in Bonn, to the point of almost jeopardising the progress that had been made during the two-week talks. Finance is now likely to be the biggest challenge at the COP28 summit.
If we don’t act today at scale, we can’t be there in time to save more people. Let’s not only do the right thing, but do it at the right time and for the right reasonMia Mottley, Prime minister of Barbados
The outcomes of two days of talks at the summit for a new financial pact were summarised in a 10-page document, categorised under four main areas: “winning the battle against poverty and vulnerabilities” through, for example, new methods to soften financial debts; “standing united in increasing international solidarity” to meet financial commitments; “protecting the planet and our shared goods” with a possible future international carbon price; and “mobilising additional financial resources, especially from the private sector”.
These outcomes are not yet legally binding. They will be reviewed and reported on every six months, and a second edition of the summit will follow in two years, at which there will be a stocktake on progress. Observers will be following closely how these talks, and the discussions that have emerged since “nine months ago”, move on to concrete actions that respond to the needs of the most affected countries, including those in Latin America.
As the Caribbean region feels the effects of tropical storm Bret, and anticipates a season of storms – growing ever more intense due to climate change – Mottley was blunt: “If we don’t act today at scale, we can’t be there in time to save more people. Let’s not only do the right thing, but do it at the right time and for the right reason.”