IDB: We have to go from billions to trillions for climate – 08/15/2023 – Environment

While heads of state of Amazonian countries gathered by President Lula (PT) ask for more resources for the protection of forests, the president of the IDB (Inter-American Development Bank), Ilan Goldfajn, points to a limitation of donations by developed countries and the need of another strategy, in charge of the banks: to multiply the resources.

“Going from the billions to the trillions” is imperative, says Goldfajn in an interview with Sheetawarded amid a series of announcements of new partnerships between the IDB and governments and banks during the Amazon Summit, which took place last week in Belém.

Goldfajn admits the difficulty of keeping track of the developments of initiatives announced at major conferences. For him, there is a lack of coordination — something that the IDB proposes to do by uniting regional actors in the implementation of projects, through the umbrella program Amazônia Semper.

In this interview, he mentions financial innovations, such as the conversion of debts for investments in nature and the possibility of creating Amazonian bonds, and also tells what is missing for a reform of development banks. One of the tensions that needs to be resolved in the short term, he assesses, is budget competition between social and climate issues.

“If you invest in climate, less people will be displaced [por catástrofes], so this fights poverty. But in the short term, if you look at the World Bank budget, for the first time it had more money for climate than for social, so there’s this tension,” he says.

Governments rely on donations, such as the Amazon Fund, to finance forest conservation. How can the bank, through loans, help fight deforestation?

Combating deforestation is linked to actions to develop the entire region. So, for example, when you finance family farming, it [o agricultor] does not deforest and works with it.

We have Acre’s sustainable development program, where you finance the development of the bioeconomy and forest management of 140,000 hectares, by large local producers, in the community. In Pará, we have the [programa] Decarbonizes Pará, supporting small farmers, structuring the state to monitor and combat deforestation.

The way in which we see the fight against deforestation is institutional strengthening. In the case of the Amazon, it is the strengthening of the states.

And do these programs work like loans, guaranteed by the Union?

Yes, in both cases, yes. There is also technical assistance and a non-reimbursable budget, which is relevant for places where you need to give the resources, because there is no condition for the resource to return.

As mr. Do you see the role of this modality of financing for climate?

We are calculating the needs [globais] for climate and social issues. First they talked about US$ 1 trillion, now it has gone up to US$ 2.5 trillion, because I think they included social as well.

The loans that we have together, if we add them all up, we get [na casa dos] billion. From US$200 billion to US$2.5 [trilhões]look at the difference.

And if you say “grants” [doações]direct, non-refundable, is [da casa dos] millions. Another magnitude, completely different. Now, if you want to go from billions to trillions, you need to use non-refundable money wisely.

IDB money is government money. We can take the direct capital and give the money. But then you don’t multiply the resources. You don’t go from billions to trillions. And the world is on it: we need trillions.

So mr. Do you disagree with the assessment that forest protection demands non-reimbursable resources?

I disagree with the thesis that it is just that. I think you need both. We need to get out of this assessment of what we would like. We all would like non-refundable money.

For me, it would be easier, I would just pass it on, I would do even more good than I do today. I even joke that when changing from the Central Bank, the IMF [Fundo Monetário Internacional]I switched to the side of good.

Now, the IDB is entering the world of implementation, to make speeches and resolutions [em projetos] with foot on the ground. And then there’s no point in saying “I’ll give you non-refundable billions” because governments don’t have that money. I just had [reuniões] bilateral agreements and I heard: “Look, I have a war in Ukraine, I’m sorry, but I don’t have [dinheiro]”.

Now, you can make smart use of resources by giving incentives. Do you have indicators? Do you have goals? So let’s do the following: if we reach the target, we will reduce the cost of borrowing, the so-called “step down”. It’s a smart use of resources, you can turn billions into trillions.

During the Amazon Summit, the IDB announced a series of initiatives, such as the Amazônia Semper program and the Green Coalition, but international conferences always generate announcements that are later lost and left unattended. Is what was announced here an idea or a project already with budget and deadlines?

I have the same feeling: there is a lack of focus, there is a lack of organization. That’s why we created an umbrella program, which is Amazônia Semper, to organize the lack of coordination. Because there is an Amazon Fund, there is an initiative in Colombia, there is a guy who did this. The people do. It comes out a little bit here and there, but it’s not focused.

At Amazônia Semper, we will focus on a few points: 1) combating deforestation and promoting agriculture; 2) take care of cities; 3) infrastructure; and 4) people, indigenous communities, civil society. And let’s look at examples: internet for all worked in such a place, let’s do it. We want to sit down with everyone and organize.

The Mayor of Bethlehem [Edmilson Rodrigues, do PSOL]for example, said he needs an office [de projetos] to help with the bureaucracy, because it will host the COP30 [Conferência do Clima da ONU]. I said: it’s the typical thing that the IDB can help. We are talking, thinking about helping.

At the Summit of the New Financing Pact, last June, in France, it was clear that countries from different blocs agree on the need to reform development banks to meet social and climate challenges. What reform needs to happen?

What I think we can say where we’re all aligned is, let’s all think — multilateral banks, governments and ratings agencies — how to increase resources for climate and social.

It has to be both social and climate, but sometimes money competes in the short term. I agree that it goes together: if you invest in climate, fewer people will be displaced [por catástrofes]combat poverty.

But, in the short term, if you look at the World Bank budget, for the first time it had more money for climate than for social, so there is this tension. Everyone has to think of a joint way to solve this…

Does it mean no one knows the answer?

I think people still don’t know how to arrange the resources. It has several ideas.

We are thinking about financial instruments, like Amazon bonds. A novelty: a regional title —when, in general, the titles are from each country— linked to sustainability indicators. It’s the governments issuing bonds specifically for the resources here. It’s something we want to bring into the conversation to attract resources. It is one of the dimensions of Amazônia Semper.

Would it work as a “green bond”?

It goes along the lines of the “green bond”, which you raise funds for an objective. Here the objective is [conservar] the Amazon, but here the objective is for a group of countries. We have to bring evidence, to be credible, attract investors and go from billions to trillions.

What other innovations are being conceived?

There is a whole idea of ​​exchanging risky country debt for good debt. And the difference between a risky bond and a new one frees up money.

We are the ones who make the magic of exchanging these titles. We provide the guarantee for that business, the public sector provides insurance for the political risk, the risk of guarantees. And the difference between the risky bond and the good bond was, in Ecuador, for example, US$ 1 billion, to be used in the Galápagos [para conservação do arquipélago].

Everyone loved the idea, we are receiving many requests for debt conversion. It’s a use of two problems for one solution. We have a lot of debt in the world and we have the climate problem. Put the two together to come up with a solution.

Is there already a perception today that climate risk becomes financial risk?

I think so, it has already entered the agenda of central banks. The banks understand that it has become a financial risk.

If you loaned to a region that flooded, no one will be able to pay you back. And with people’s willingness to invest in ESG [investimentos com critérios socioambientais e de governança]there is a role for the regulator not to allow “greenwashing”, to say what is green and what is not.

One of ACTO’s proposals [Organização do Tratado da Cooperação Amazônica] is to create its own financial mechanism to implement projects in the region. How does the IDB see this possibility?

We understand that ACTO is the political arm of governments, and the IDB is the economic and implementing arm. We think we are the ones doing this.

We are from the region, it is the most relevant bank in Latin America and it has the priority of doing regional projects. Those who can think about the region are the ones with the mandate to do so, it’s us.

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Ilan Goldfajn, 57

Former director of the Central Bank (2016-2019) and of the western hemisphere department of the IMF (International Monetary Fund), the economist was elected president of the IDB (Inter-American Development Bank) in 2022. He was born in Israel and moved at age 13 to Brazil with the family. He holds a degree in economics from UFRJ (Federal University of Rio de Janeiro) and a PhD from MIT (Massachusetts Institute of Technology).

_{The journalist traveled at the invitation of the NGO Avaaz.}