While the commitment to retain the 1.5-degree Celsius rise in global temperature was a significant victory, the establishment of a “loss and damage” (L&D) facility was also a specific positive victory for threatened poorer countries. However, we have to recognise that it was not accompanied by any commitment on funding. After the experience with the other previous commitment over a decade ago: by the wealthier countries to contribute US$100 billion annually to the poorer ones to assist them in mitigating associated damage etc, which was never met, there is justified widespread skepticism about the new promise. And this even though one would have hoped that the devastating effects of climate change in their own countries, such as drought – in addition to countries like Pakistan – would awaken them from their slumber. Even the funds that were claimed to have been contributed were shown to be highly inflated
But at least it is agreed now that financing is the key constraint, going forward, on confronting the challenge of Climate Change overall, and not only in the L&D facility. But even though Barbados PM Mia Mottley has been lauded for her eloquent presentation at COP 27, sadly, not enough attention was given, especially in the region, to the seminal proposal – dubbed the “Bridgetown Initiative” – that proposed a novel approach involving the Breton Woods institutions to funding overall funding for Climate Change, which would eventually add up to trillions. Persons like France’s President Emmanuel Macron and IMF Managing Director Kristalina Georgieva supported the Initiative, so that it is now part and parcel of the final COP 27 cover text which calls for “the multilateral development banks and financial institutions”.
The Bridgetown Initiative is based on a special facility created in 1969 by the International Monetary Fund (IMF) called “Special Drawing Rights” (SDRs). They “are supplementary foreign exchange reserve assets defined and maintained by the IMF. SDRs are units of account for the IMF, and not a currency per se. They represent a claim to currency held by IMF member countries for which they may be exchanged.” In effect, the IMF creates SDRs which can be allocated to member countries in proportion to the size of their economies, which can then be exchanged for actual currencies of a particular country to repay a debt or purchase foods, and does not have to be paid back to the IMF. For instance, in August 2021, the IMF had issued SDRs the equivalent of US$650 billion to various countries to deal with the COVID-19 pandemic. In November, at COP 26 in Copenhagen, Mottley had called for an additional $500bn worth of SDRs to be issued every year for 20 years, to unlock the carbon-cutting investments needed to limit heating to 1.5C. Unfortunately, her innovative proposal did not gain traction.
The plan had been crafted by a team headed by her economic advisor Avinash Persaud, and this year they refined it by involving a wide array of experts from the world of finance in a series of workshops in Bridgetown during last July. The plan was unveiled at COP 27, and called for the IMF to issue SDRs to the tune of US$650 billion, but as a one-time event, and not annually, as suggested the year before. She also called for development banks to issue $1 trillion in low-interest loans for climate spending in developing countries. Mottley pointed out that standard borrowing costs on international markets are generally around 1 to 4 percent in G-7 countries, but can be as high as 12 to 14 percent for much of the global south.
After Mottley’s formal presentation, Persaud published a fleshed-out version of the Bridgetown Initiative, which also called for a tax on oil companies to finance reconstruction grants that would be allocated to developing countries affected by climate disasters. He also proposed that a moratorium be declared on loan repayments from affected countries after such disasters. The Bridgetown Initiative should be backed by Caricom.
