If We Are to Survive Climate Change, the Global South’s Debt Must be Cancelled
There is a toxic cycle of debt burden and climate change in the Global South that is yet to be addressed.
During the handover of G7’s presidency in January, Germany’s Federal Chancellor Olaf Scholz declared that the group would prioritize “the pursuit of climate neutrality and an equitable world.”
However, once again, the G7’s 2022 summit has only exhibited the complete inadequacy of the world’s leading nations to take climate change seriously. Despite the predictions of a catastrophic rise of 4°C in the next decade; despite the egregious heat waves in India and Pakistan leading to over 90 deaths; despite the thousands of climate protests around the globe —we are still left clutching at straws.
What G7 has promised us is a ‘Climate Club’. That’s right. A fucking Climate Club — it almost makes me want to laugh. All this consists of is more promises to advance “ambitious and transparent climate mitigation policies”, to accelerate decarbonisation, and to boost international ambition to encourage climate action — things we have all heard before.
However, they provide no plan on how to effectively transition to green energy, they tiptoe around setting a coal generation end date, and renew (for the umpteenth time) a pledge to raise $100bn a year in climate finance to aid developing countries in cutting emissions (this pledge was made in 2009 but has yet to be fulfilled.)
Instead of wasting time on this so-called ‘Climate Club’, what these leaders could have directed their energy to is the cancelation of the Global South’s (GS) debt. Currently, 135 out of 148 nations in the Global South are classified as “critically indebted”. Furthermore, the GS has paid over $13 trillion in debts since the 1980s, with $4.3 trillion going to interest payments alone.
Please note that the reason the GS requires these loans in the first place is because it is still reeling from decades of exploitation and colonialism at the hands of the Global North (GN). Even today, the GN still relies heavily on the appropriation of the GS’s materials. In a recent study, it has been estimated that the GN appropriates $10 trillion from GS commodities yearly. For context, this would be enough money to end global poverty 70 times over.
In addition to this, the GS also bears the consequences of climate change to a disproportionate extent. Despite the GN producing 92% of carbon emissions, countries in the GS remain the most vulnerable to climate disasters. Moreover, the burden of climate change has increased these developing nations’ dependence on loans as they do not have the infrastructure or funds to survive climate catastrophe after climate catastrophe. Simultaneously, as their debt burden increases, their credit score also decreases, and thus cripples the GS even further.
Argentina is an emblematic example of the consequences of the IMF and its policies. In 2019, the IMF granted its biggest loan in history ($57.1bn) to Argentina. Later, it was discovered that the U.S. representative on the IMF board “admitted that the intention was for the loan to sway the election in favor of right-wing incumbent Mauricio Macri.” The fund’s preferred candidate lost, but the country was still stuck with the loser’s loan.
Most of the IMF’s fund escaped the country through illegitimate financial schemes whilst also perpetuating restricted public expenditure and increased interest rates for Argentinians. Now, the government — instead of auditing or fighting against the debt — has signed a new deal with the IMF to pay off the interest from their loans, thus continuing the positive feedback loop of debt and poverty.
This is only one example from the 148 nations in the GS — and it gets worse.
Because the GS’s burden of debt only continues to increase, this also means that they have no choice but to continue extracting fossil fuels to support their economy. This is not to say that nations in the GS are unwilling to leave their fossil fuels in the ground.
In 2007, Ecuador’s President Rafael Correa started the Yasuní Initiative. It proposed that Ecuador would leave 20% of its oil reserves untouched in the Yasuní National Park. The country would forgo half of these oil revenues (worth $3.6bn), if it received the other half through international compensation from a UN administered trust fund.
However, in spite of its widespread support, the Yasuní project failed. The initiative only received 0.37% of the target pledged by donors, thus making it impossible for Ecuador to sustain itself without its oil reserves.
Currently, Ecuador has a national debt of $60bn. Over 25% of the Ecuadorian population live under the national poverty line. Climate change has also made it extremely vulnerable to natural disasters including floods, droughts and earthquakes, despite the fact it only producing 0.19% of global greenhouse gas emissions.
Correa’s initiative demanded for a co-responsible approach to climate change. However, the GN still refused to take action — even though they are largely accountable for the climate change burden of the GS.
That is why we must take action now — at the tipping point of the climate crisis. The IMF and G20 have the power to solve this issue through a number of methods:
- The IMF’s Special Drawing Right (SDR)
The SDR is an interest-bearing international reserve asset whose value is based upon a basket of international currencies. Although SDRs cannot be directly used to purchase commodities, countries can exchange them for hard currency with other IMF members. Additionally, SDR allocation does not further a country’s public debt burden and can increase liquidity for public expenditure. This would allow for the GS to invest in infrastructure against climate disasters and other needs of the public.
2. Conditional Debt Relief
Although this does not really solve the problem of debt in the GS, it would encourage G20’s Debt Service and Suspension Initiative to further suspend debt-service payments and provide temporary relief to many.
3. Debt-for-climate swaps
This would consist of proposals similar to the Yasuní Initiative, and would allow the GN to pay for its ecological debt. Financial strangulation of the GS has translated into political strangulation for the benefit of the interests of developed countries and their organizations. By employing mechanisms of debt-trap diplomacy, the GN has deepened “the neocolonial plundering of the natural resources of the subjugated countries”. Additionally, numerous debts from these credit organizations have been obtained through illegal or corrupt means that violate the statutes of the organizations themselves.
It it is time for the GN to take responsibility for the victims of its exploitation and contribute to the fight against climate change in the GS.
4. Cancelling the Debt
This would be the ultimate solution. As over 30 countries in the GS face a default on international default payments and climate change continues to worsen, how are these nations supposed to survive? The COVID-19 pandemic has only intensified the gravity of debt-burden, and has left countries with no other option than to continue harmful environmental practices to sustain their economies. The GS needs its debts to be cancelled — not only because it will allow governments to focus on the needs of their citizens, but to also facilitate a decreased reliance on fossil fuel extraction.
If the GN used its influence to pressure creditors to cancel the debts, this could finally break the positive-feedback loop of debt burden and the climate crisis. It would truly allow for G7 to achieve its goal of a climate neutral and equitable world.