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Climate Finance Exposes the West’s Debt Hypocrisy

The proposal from today's Paris finance summit to tackle the climate crisis through more loans to indebted countries will only harm the Global South – exposing the reality of an economic system built to suit the West.

Protesters, including an indigenous activist from Brazil, demonstrate over climate justice. (Photo by Sean Gallup/Getty Images)

This week, President Macron is convening the Summit for a New Global Financing Pact in Paris in response to the increasing financial pressures on global south countries. The global financial system has long been unfit for purpose and has been found desperately wanting in the face of the multiple, intersecting crises over the last few years—with the pandemic, accelerating climate and ecological breakdown, rising food and fuel costs and spiralling debt crisis.

It’s against this backdrop that the summit has been convened. But this summit is not the answer, and instead, it is set to make things worse.

Macron has given himself the mandate to negotiate a new global financial pact, but this cannot be the pet project of a self-appointed nominee. Reforming the global financial architecture needs to be negotiated in democratic, multilateral spaces with clear processes to ensure participation, transparency and accountability. However, in the run-up to this summit, meaningful engagement with global south governments and civil society groups from around the world has so far been mostly absent. Excluding the countries and communities most affected by the inequality created by the international financial system is hugely problematic. As the saying goes, if you are not at the table, you are on the menu.

Not only are there questions about legitimacy, but the solutions on the table are woefully inadequate and are set to exacerbate the crises that they claim to address. On the debt crisis, the summit is likely to get bogged down in ideas such as debt for climate swaps. This is where external debts are cancelled in exchange for spending a similar amount to address climate or nature goals. But these swaps aren’t the ‘win-win’ solution that they appear on the surface. Research has shown that debt swaps just don’t cancel enough debt to ensure countries are left on a sustainable footing. Countries in a debt crisis don’t have the finances to make their debt repayments in the first place, so cancelling some of the debt and asking countries to channel the repayments into tackling the climate crisis is asking for resources that, in many cases, simply don’t exist.

Focus on debt swaps and other inadequate solutions is diverting attention away from the concrete action needed to strengthen international processes to deliver the level of debt cancellation required for countries to get out of a debt crisis. These include new legislation in the UK and New York which would prevent banks and hedge funds from holding out on debt cancellation.

The idea of releasing resources from debt payments to invest in climate action also flies in the face of demands for climate justice. Global south countries are demanding climate finance as a form of reparation and compensation for centuries of industrialisation and carbon emissions by the global north. This means that funding needs to be additional and not just diverted from other areas of public spending, and it needs to be in the form of grants from polluting countries.

One of the summit’s core aims is to mobilise ‘innovative climate finance’, but this is just summit-speak for loans. You don’t have to be an economist to know that offering climate finance in loans to countries that are already heavily indebted, is a recipe for disaster. But also lending money to someone you are compensating, at high interest rates, is not compensation.

Countries need both debt cancellation and grant-based funding. The real debt here is the one owed to the global south, and wealthy governments and corporate polluters can’t pay their dues on the cheap.

None of the solutions on the table are surprising as the summit is based on the idea that all financing issues can be solved by more private sector involvement. But private finance is geared for corporate profiteering through more lending while also providing the convenient impression that climate finance is being delivered to address the climate emergency. This is all smokescreen. The proposals on the table will see more debt being piled onto the 54 countries already in a debt crisis with no concrete action on the scale of debt relief needed. Meanwhile, polluting governments and corporations are let off the hook for their failure to pay up for a crisis they are responsible for.

President Macron will be keen to hail this summit a success, but in reality, it is one big dangerous distraction from the real solutions that are rooted in democratic participation, climate justice and debt cancellation.