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Emerging Markets

Barbados PM on climate finance — we need to ‘deconstruct and reconstruct’

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GlobalCapital speaks to Barbados prime minister Mia Mottley, whose calls for the world to increase efforts to fight the climate crisis are intrinsically linked to sovereign debt

Her country may occupy only 166 square miles of surface area, but Barbados’s prime minister Mia Mottley’s voice is reverberating in all corners of the planet as smaller nations — who often suffer the worst effects of the climate crisis, despite having had little role in causing it — fight to be heard. In September, the government even launched the Bridgetown Agenda, which it describes as “a guide for urgent and decisive transformation of the international financial system”.

IMF managing director Kristalina Georgieva credited Mottley for her advocacy in developing the fund’s Resilience and Sustainability Trust (RST), a facility that experts say could transform the institution’s role in development finance. Barbados was duly the first nation to reach a staff-level agreement on this facility.

Indeed, much of the prime minister’s campaigning relates directly to sovereign debt markets. Barbados either pioneered or was an early adopter of innovations such as natural disaster clauses, pandemic clauses and blue bonds.

Last year at the COP26 climate conference in Glasgow, Mottley drew attentionwith a fierce call for the leaders of the world’s largest economies to do more in the fight against climate change. Ahead of COP27, set to begin in Egypt on Sunday, GlobalCapital sat down with the prime minister on the sidelines of the IMF Annual Meetings in Washington DC in October.

GlobalCapital: Why is a small country such as Barbados leading on so many policy issues? What is your motivation?

Mia Mottley, prime minister of Barbados: People in the world need a chance, and countries need some room to give them that chance. Unless we deconstruct and reconstruct a lot of what we are doing, we are not going to get the space — or the money — to help people live better lives. The climate crisis is an existential crisis, by definition, and that should tell us everything that we need to know. This is an opportunity where those in the South and those in the North have to come together to make the world a better place. I don’t want to say to save the planet, because it sounds trite, but that’s effectively what it is. At the end of the day, it’s not just about the planet, it’s about the people.

What needs to be deconstructed and reconstructed?

There is a — regrettably, growing — number of countries on the precipice of a debt moment. Even though Barbados finished its debt restructuring literally the month before Covid hit, we are conscious that, as a small island in global environment, we will only do as well as our neighbours and the wider world. At the same time, there is a very clear direct benefit of [realising] what we need to do for middle-income countries. Middle-income countries will be pauperised if we don’t find a way of recognising that they are still vulnerable. If a hurricane hits us tomorrow, instead of dealing with qualitative issues of curriculum reform and education, immediately we are back dealing with access issues like children having access to school.

And countries facing a debt crisis will struggle to do this. You have been pushing for the IMF’s Resilience and Sustainability Trust (RST). Why is this important?

The IMF is responding to the very [fact] that climate is capable of providing as much damage as exogenous financial shocks for most countries. If we don’t find a way of allowing them to be able to become more resilient to these shocks, they will find themselves with increased poverty, economic difficulties, and balance of payments issues. When you look at today’s world, and ask what would trigger the kind of implosion that the IMF was originally established to be able to fight, you begin to understand that we either change our mindset and change our arsenal of tools, or we become a victim of the circumstances.

Does the RST do the job?

What the IMF has put on the table is not a perfect framework by any stretch of the imagination, but it’s a lot more than was there before. I think we have to claim ground and then work to perfect it even more. The fact that they are prepared to give long-term capital — 20 year money with a 10.5 year moratorium — is good and admits more of the kind of space that we need to adapt to the new climate reality. The fact that it is linked to an IMF conditionality is, I suppose, a function of the institution, but it doesn’t necessarily help those countries who still have not reached the stage where they believe that they want some kind of IMF programme. This perhaps speaks to the fact that you probably need a corresponding type of approach from the World Bank, recognising that middle-income countries are vulnerable, and that they need instruments that go beyond what they have. The fact that the RST is linked to quotas is, equally, not ideal, because vulnerability isn’t linked to quotas. But I suspect that has more to do with the fact that, until the fund grows, there is going to have to be caution on their part to make sure that they can treat the condition of as many countries as are interested.

Some finance ministers say it will take them more than six months to get a climate assessment and other requirements for the RST…

That’s part of the difficulty. Look at the rate at which countries are getting to a debt crisis moment. We need to be more nimble and agile. I’m not speaking about the IMF alone, but more generally. If we spend too much time thinking, reflecting, and planning, there won’t be anybody there for you to service. These issues are urgent and require, as Secretary Yellen said last week [mid-October], an ambitious and bold response. We feel that this is perhaps the most serious moment since World War II that the world has faced, with polycrisis. In these circumstances, we have to be equal to the moment, both in terms of our ambition, but also in our nimbleness and speed. 

Is it multilaterals that must do the heavy lifting?

I think the World Bank the IMF need to relook at their purpose and their scope, but obviously private capital markets also need to look at their own position. I think private capital needs to look at how they can de-risk a lot more. Regrettably, their perception of investments in the South invariably leads to them pricing in a lot more risk, and making the cost of capital a lot higher than it perhaps needs to be. Maybe that comes from their lack of familiarity with the circumstances on the ground, and their absolute caution with respect to dealing with the Global South. I always used to reflect on the fact that, at a time when Greece and Ghana had the same credit rating, Ghana was being forced to borrow at a much higher rate than Greece. What explains that? Let’s deconstruct and see how we can create a more level playing field?

I think everyone has to look again at where they are and how they can be more effective in today’s world, which is considerably different from the one that they were operating in a decade ago. In multilateral development banks, it’s the same thing. We need to see what we can do to enlarge the capital through multiple mechanisms, whether first-loss guarantees, looking at the capital adequacy framework that the G20 countries have come up with, or [having] a clear recognition at the end of the day that there’ s not enough public capital to save the world alone.

How do we therefore start to bring into the discussion — especially as it relates to global public goods — those companies that have either caused the problem or who are profiting egregiously from the solution? How can they — out of profits, not revenue — help contribute? At the end of the day, their ability to help solve these global public goods also comes from a position of enlightened self-interest. They help themselves in the long run.

Loss and damage will be on the agenda at COP 27. Are you confident that there will be some kind of agreement?

I don’t think anybody can be confident in this environment. Certainly, Ukraine and the combined other crises have countries focusing a lot more domestically rather than on the global common good, as we would have hoped. We are hopeful that we can at least move the needle on that. Are we likely to see major meaningful change? I would love to say so, but I feel that we are not at that point yet.

You have launched the Bridgetown Agenda. Do you feel you are being listened to?

Mottley, Barbados: I think so. We are starting to get enough attention that these are real issues. As I said, there is commonality with what Secretary Yellen came up in her speech. I like to call myself a Jimmy Cliff girl: you can get it if you really want, but you must try and try and you’ll succeed at last. One of the ways you will succeed is by building progress based on common ground. And if we can get common ground on a number of these issues, and then continue to distil what separates us, I think we can start to make that defining difference. We call it the Bridgestone initiative only because we don't expect we can change the world from 166 square miles, but we feel that we have a valid voice. We feel we have a perspective that reinforces why people must be kept at the centre of development: at 166 square miles up, you can’t run from people, people are ever present at the top of your head.

The world has become a very small place because of global problems — whether it is the pandemic, climate, or the consequences of the war in Europe. [But some of] the populations in the North, who are speaking out about the inequity and who are just as concerned about the climate crisis, are actually on the same page as the populations in the South. Therefore, how can we move with alacrity? The notion that we are all talking now about global public good is great. We weren’t talking about that five years ago in the same way. The notion that the world recognises that the smallest country in the world can have implications for the largest country in the world, in the context of a pandemic, is a great thing.

As to exactly how we do it, we would perhaps like to see perhaps more movements on SDRs, but understand the complexity of that. The articles of agreement of the IMF require 85% for amendment, and the Americans hold 17%, which means, effectively, the Americans have a veto. We are conscious there are certain political realities that have to be confronted as well. So you will have different [rates of] progress. But those things that can immediately address liquidity or the crisis should be done. The recognition that middle-income countries need access to concessional capital because they are vulnerable can be addressed. Other things may take longer, but they ought not be taken off the table. What makes the end of the 1960s so different from now? Why could we find and summon the leadership to create the SDRs in the first place [back then], and not reflect the amendments that are necessary to ensure that they are used for the countries that most need them?

You mentioned private capital markets. What you can do, as a government, to attract international capital on a much greater scale in the context of the climate crisis?

Whatever happens, we need to think outside the box. And we also probably need to be having some conversations with the credit rating agencies, because they are key to unlocking the international capital markets and the pricing of capital. I pause, because no one knows where this financial or quasi-financial meltdown will end up... so I am a little diffident. I am not sure that we are engaging private capital sufficiently, as to how they see the solution out of this crisis. Why is it that they overprice capital in the Global South? I certainly wouldn’t want to speak for them, but I would want to hear from them what they believe can be done to deconstruct and reconstruct their assessment of the risk. 

As we are getting technical, you have used natural disaster and pandemic clauses in your debt. How significant are these?

We think that both are critical, especially for smaller states. If Barbados is hit by a hurricane tomorrow, a natural disaster clause allows us to suspend principal and interest for two years. The creditors are provided certainty that there’s not going to be a credit default, but that, under the trigger, we will back-end the payment. The country benefits from the fiscal space. Nobody else in the world, no company or institution, will give us the equivalent of 18% of GDP over two years to help reconstruct the country after a serious climatic event. That’s effectively what this clause gives us.

That’s just from the power of the pen. When we restructured, we added a natural disaster clause to all our debt. After the pandemic, when we purchased back some of our debt and did the blue bond issue [in September], we also got them to agree that we would include a pandemic clause. It makes sense, because at the end of the day, if you don’t do these things, countries are at risk of default anyhow. The most perfect example of where it makes sense is Pakistan. Pakistan is obviously trying to have discussions now, because it needs all the fiscal space it can get to fight what is really an apocalyptic event.

Was it hard to get creditors to agree to these clauses?

Negotiators would tell you that, obviously, there was a lot of back and forth. But it makes eminent sense. What you are doing is providing certainty to the lender, and you are providing space to us as the borrower. Because let's be also real, what has happened with the climate crisis is that the numbers of uninsured and underinsured people have increased significantly. When you add to that the damage to public infrastructure, we are going to need all of that [fiscal] space — and possibly more.