At the second round of talks to design a loss and damage fund for climate-fuelled extreme weather, Global North nations doubled-down on ‘solutions’ that would likely deepen the debt crisis in the Global South.
Between 25 and 27 May, the Transitional Committee for loss and damage convened in Germany to discuss plans for the new fund. However, as the Canary previously reported, Global North nations were keen to utilise existing structures to deliver sources of loss and damage finance. This is not what Global South nations have been calling for.
In essence, Global South nations articulated the need for a new grant-based facility. Conversely, Global North countries focused on loan and insurance mechanisms. Naturally, these will likely further entrench the debt burden on countries contending with the devastating impacts of the climate crisis. Moreover, these structures maintain unjust colonial economic power dynamics.
For example, Oxfam has estimated that G7 governments and banks are claiming US $230m a day in debt from the Global South. It stated that:
Over half of all debt payments from the Global South are going to the G7 or to private banks based in G7 countries, notably New York and London.
In this way, finance continues to flow into the coffers of the Global North from the Global South – in spite of unjust climate consequences.
Funding structures that fail Global South communities
The multilateral development banks (MDBs) and insurance schemes that the Global North wants to address loss and damage haven’t exactly got form on successfully aiding countries in extreme weather crises. The World Bank Group (WBG) is the largest multilateral institution providing climate finance to Global South countries for adaptation and mitigation of climate impacts.
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However, in January, Climate Home News reported that a WBG climate finance project had failed to protect residents in Karachi’s slums from the devastating floods that have hit Pakistan between 2020 and 2022. Worse still, provincial authorities used the funds to demolish homes that had been built without planning permission.
As a result of the construction work, residents of the informal settlement also suffered increased risks to the flooding. Specifically, the project focused on Karachi’s ‘nullahs’ – riverbeds that carry wastewater to the sea – which get clogged by litter.
Locals told Climate Home News that no fatalities had ever occurred in the nullahs themselves before the project began. But during the construction works, several people died when extreme flooding turned the nullahs into quicksand-like conditions.
Meanwhile, climate justice groups highlighted in a 2022 report that a previous insurance-based scheme had failed to deliver vital funds to countries in crisis. For instance, Caribbean Catastrophe Risk Facility (CCRF) disbursed less than 1% of the estimated finance needed after hurricane Maria hit Dominica in 2017. The WBG supported this insurance facility.
Alongside its partner institution, the International Monetary Fund (IMF), the WBG has heightened global economic and development inequality. The two institutions have imposed capitalist ‘structural adjustment’ programmes – austerity – on Global South countries to meet their debt.
In other words, these predatory financiers have ‘underdeveloped’ vital public services and resources. Meanwhile they continue to push for unjust and unsustainable energy infrastructure that Global South countries can’t afford anyway.
World Bank entrenching debt
Moreover, WBG climate finance has added to Global South nation debts. In 2020, for example, the World Bank Group (WBG) and other MDBs provided over 70% of climate finance in the form of loans.
Meanwhile, as the Canary previously reported, the WBG has failed to align its investment policy with Paris climate goals. Instead, it has continued to pour financing into fossil fuel projects:
to the tune of $165bn since countries signed the Paris Agreement.
Naturally, the promotion of fossil fuel projects through these loans is also deepening Global South debts. The collaborative debt and climate justice report explained that:
many global south countries are trapped in a debt-fossil fuel production trap whereby countries rely on fossil fuel revenues to repay debt, anticipated revenues from fossil fuels are often overinflated and require huge investments to reach expected returns, leading to further debt alongside the environmental and human harms caused by such projects.
For example, the report highlighted how lending institutions had promoted the Vaca Muerta fracking mega-project in Argentina. The WBG has funded this project through its financial lending arm, the International Finance Corporation. As the Canary identified previously:
the potential societal costs and losses of the project could amount to 13 times the country’s national debt.
This demonstrates how the WBG’s function is not to promote development to support Global South countries. Instead, the WBG serves the economic interests of rich Global North nations. Author and anthropologist Jason Hickel has poignantly captured the dynamics of this unjust system:
To put it simply, rich countries have disproportionate influence when it comes to setting the rules of international trade and finance – and they tend to do it in ways that serve their own economic interests, quite often at the expense of everyone else.
In other words, the WBG’s true mandate preserves the cycles of debt that render Global South countries at the mercy of the Global North economic agenda. Naturally, this is the continuation of a colonial transfer of wealth and resources from the Global South into the Global North.
Unjust economic systems founded in colonialism
the impact of flooding in Pakistan is made worse because of the colonial climate crisis. The actions of Western countries like the UK, US, and Canada have directly created the deaths and displacement of people in Pakistan.
Jameela also highlighted that:
Pakistan’s historically lacklustre infrastructure cannot be explained away without adding in the British empire’s impact.
In other words, colonialism’s role in shaping development historically has compounded the impact from the climate crisis today. Of course, the World Bank Group has had a huge role in influencing the shape and direction of development.
The Gender & Development Network (GADN) has underlined the colonial origins of the Bretton Woods Institutions. This includes the World Bank and International Monetary Fund (IMF) which:
simply maintained exploitative relationships under a new guise and was described by Ghana’s first prime minister, Kwame Nkrumah, as ‘neo-colonialism’.
Moreover, it described how Global North colonising nations established these institutions to curtail newly independent nations’ attempts to create:
a New International Economic Order that would see the redistribution of wealth from the Global North to the Global South.
Today, as then, Global South nations are articulating their demands for a more just and equitable world. A loss and damage fund free from the paternalistic hands of Global North colonial institutions must only be the start.
Feature image via Al Jazeera/Youtube.Support us and go ad-free
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