Mia Mottley’s speeches in defence of climate justice dominated media headlines at Cop26 in Scotland last year, where she called on world leaders to seize the moment and deliver on climate action. On Monday she tried again. “We have the collective capacity to transform,” she urged those gathered at Cop27 in Egypt.
One of the main targets in the sights of Mottley, prime minister of Barbados, is a new finance solution to the climate crisis, which is swiftly becoming one of the key issues being negotiated at the conference.
One of the people who has been working behind the scenes with Mottley on this is Prof Avinash Persaud, who has been friends with her since the 1980s when they were both studying at the London School of Economics.
Persaud believes the global financial system is simply not set up to deliver on the scale needed to avert climate disaster. He says this puts the burden of climate impacts on the world’s poorest countries, those who are “most pressed to act [and] least able to act”.
Barbados, one of the Caribbean nations on the frontline of the climate crisis, is a perfect example of this, and the country’s recent experience of Covid-19 also indicates how, without a paradigm shift in the architecture of global finance, natural disasters translate into bigger debt burdens on those who can least afford to shoulder them.
“Covid took our debt from 120% of GDP back to 150%, [from] a level that was heading towards sustainability to a level that was not,” says Persaud.
The Caribbean is among the world’s most indebted regions, with debt levels averaging 90.1% of GDP since the beginning of the pandemic. Persaud points out that, across the region, climate shocks and debt continue to feed one another in an unhappy downward spiral.
“We found that 50% of the increase in our [regional] debt could be traced back to some natural disaster that we had to pay for ourselves,” he says.
Persaud was one of the architects of the post-2008 international banking regulation Basel 3, established in the aftermath of the Lehman Brothers collapse. This proved to be a strategy for fiscal stability that effectively overturned decades of neoliberal financial orthodoxy.
“It was a decade of crisis,” says Persaud. He says the solutions promoted by the IMF and the World Bank, such as currency devaluation and rapid debt reduction, meant emerging markets effectively “doubled down” on their vulnerability, increasing the overall level of instability in the system. “People like myself were arguing that we needed a different financial system,” he says, “but no one listened.”
The turning point came with the 2008 global financial crisis where, according to Persaud, “because it involved America and Europe more people became willing to accept that booms and crashes were being amplified by finance and that we needed a more shock-absorbing financial system”.
Following the quick succession of two category 5 hurricanes, Irma and Maria, which hit the Caribbean within two weeks of each other in 2017, he saw the threat posed by the growing vulnerability of countries situated on the frontline of climate breakdown and already straddled with debt due to decades of structural adjustment.
In Dominica, for example, storm damage from Hurricane Maria alone cost the country more than twice its annual GDP. “Climate is the [economic] crisis of today,” says Persaud.
Throughout 2022 Persaud has been working with Mottley to draw up a blueprint for a reformed architecture that would speak as poignantly to the leaders of global finance as to communities living on the frontlines of climate breakdown.
The evolving proposals, called the Bridgetown Agenda, have seen the pair make inroads into organisations as diverse as the IMF and the Climate Vulnerable Forum, while also winning the support of key figures, including the UN climate champions Mahmoud Mohieldin and Nigel Topping, and the leading economists Nicholas Stern and Vera Songwe.
Topping says: “We do need more of a Marshall Plan-type mentality, because this is about growing the global economy and growing global economic stability and global prosperity. If we don’t solve this then we have very bad economic and security outcomes.”
Central to Barbados’s proposals is the establishment of a climate mitigation trust that would prompt the release of $650bn from the IMF through a mechanism called special drawing rights, which allows members to borrow from each other’s reserves at very low interest rates.
Persaud’s calculation is that if the IMF puts up an initial $650bn, it will stimulate private investment by an additional $2tn, which would get significantly closer to the sums that experts say need to be raised to get on track to stop global heating.
Additional features of the Barbados initiative include giving climate-vulnerable countries access to low-interest, long-term loans for adaptation, natural disaster clauses in all bank loans, and grants for loss and damage that would be funded by a 2% tax on fossil fuel exports, shifting the burden from the poorest people in the world directly on to the polluters.
As questions of climate finance and implementation move centre stage at Cop27, Persaud hopes this blueprint will be recognised as “achievable, practical, as well as meaningful and morally right”.
“In Barbados,” he says, “it’s part of our makeup that we don’t beg. So we’re not coming to the world and begging, we’re coming to world and saying, this will make the world a better place for everybody.”