World Bank to suspend debt in case of catastrophes – 06/23/2023 – Environment

Gathered in Paris for the Summit of the New Financial Pact, which received more than one hundred heads of state and government since Thursday (22nd) and ended this Friday morning (23rd), global leaders from developing countries and also from the developed world showed in their speeches to agree on the need to reform multilateral financing systems and development banks.

The summit ended with speeches by leaders from the developed bloc, such as Germany and France, and from developing countries, such as Brazil, South Africa, China, Kenya, Barbados, among others.

The two-day meeting promoted six round tables to discuss the reform of financial institutions, with the aim of leveraging investment in basic infrastructure and climate action in developing countries.

At the summit, the World Bank announced that it will include a new clause in its agreements with the countries most vulnerable to the climate crisis, providing for the temporary suspension of their debts.

During the period when they recover from climate catastrophes, countries will have their debts temporarily suspended. The measure prevents countries from losing credibility with risk rating agencies, facilitating the search for investments and credit.

The announcement was already expected by the French and was among the discussions that reached consensus in the working groups that preceded the meeting in Paris. The inspiration came from the Prime Minister of Barbados, Mia Mottley.

She had suggested the measure as part of the Bridgetown Initiative, a movement she created precisely to rethink funding for countries most vulnerable to the climate, as is the case of the Caribbean island of Barbados, which is currently facing a hurricane season with strong storms.

Another initiative announced by the World Bank seeks to encourage private investment in developing countries. The agency must offer a guarantee —in a one-to-one ratio— to private investments made in countries classified as riskier.

At the end of the summit, French President Emmanuel Macron highlighted the World Bank’s decision among the main results of the discussions – which he hopes will advance in the next meetings of global leaders, such as the G20, in September; the IMF meeting in October; and the Climate COP28, in November.

Macron reinforced the need for coordination between development banks, which should occur through a multilateral structure that coordinates efforts, avoiding competition between actors.

The French president once again defended the taxation of maritime transport and other modes. “This will only work if it’s truly international,” he said.

The German Prime Minister, Olaf Scholz, defended, in addition to financial reforms, a trade reform. As an example, he mentioned the concentration of the fertilizer trade, which had impacts on the price of food in the world due to the War in Ukraine.

“Many countries in Africa and around the world produce fertilizers, but they are monopolized by the same few [países]”, he exemplified. Market diversification is a security strategy sought by the European Union also in the energy area, after the Russian gas cut.

“China’s development is not a threat, but an opportunity for other countries,” said Chinese Premier Li Qiang, also at the end of the summit.

The leader reinforced China’s economic growth numbers – whose GDP grew 4.5% in the first quarter of the year – and also investment in climate, which has the largest installed capacity for renewable energy in China, according to the prime minister.

The Chinese leader showed support for the IMF and World Bank reform proposal, defended the partnership to increase financing and technology in developing countries and said that China has already offered more debt relief to developing countries than any bank.

Qiang defined the country as a great economy and yet a developing country — something the developed bloc has questioned in recent years. The Chinese leader also reminded rich countries that, when dealing with the climate agenda, they need to face the fact that they have historical responsibilities, in reference to accumulated carbon emissions and agreed climate finance.

“China will join international efforts to avoid trade protectionism and keep global industrial and supply chains safe and stable, while also encouraging multinational companies to make more investments in developing countries,” Qiang said.

Lula, who also endorsed the defense of IMF and World Bank reform, criticized the lack of mention of the word “inequality” by the other leaders.

“Alongside the climate issue, we have to put inequality. Salary, race, gender, health,” proposed Lula, adding that the world has increased the concentration of wealth. “If we don’t discuss inequality with equal priority to the climate issue, we could have very good weather and people dying of hunger in several countries,” she said.

_{The reporter traveled at the invitation of the French Embassy in Brazil.}

_{The Planeta em Transe project is supported by the Open Society Foundations.}