Jürgen Zattler summarizes the problem in one sentence: “It is very difficult for developing countries to get money.” The Ministerial Director in the German Development Ministry travels a lot in the world, negotiates with governments about cooperation, how Germany can help initiate a climate-neutral turnaround. It’s always about money. And thus a currently growing problem.
More than 100 heads of state and government spoke on the podium at the world climate conference in Sharm el-Sheikh on Monday and Tuesday. And every time someone from Africa or South Asia or the Caribbean came up, it was mostly about finance. The consequences of the pandemic, the Russian war in Ukraine, inflation and now the turnaround in interest rates in the USA and Europe are hitting developing countries hard. Huge financial flows are currently flowing from the Global South to the industrialized countries. The poorer countries managed to put the topic of “damage and losses” caused by the climate crisis on the agenda of a world climate conference for the first time. But it’s not just about compensation. It’s about the big picture: the international financial system.
“And then we wonder,” exclaims the President of Barbados
The world today, said Mia Mottley, President of the island nation of Barbados, still resembles too much the world that was once divided into empires. The South is dependent on the mercy of the North. She denounces the fact that rich industrialized countries pay one to four percent interest on borrowing, while developing countries pay 14 percent. “And then we’re surprised when the partnerships for an energy transition don’t work. And when some countries prefer to exploit their natural gas reserves,” she called out to the plenum. Other heads of government made similar statements.
The biggest donors are the World Bank, the International Monetary Fund (IMF) and development banks. They generally work according to an agenda drawn up by the victorious powers after World War II. They are intended to combat poverty and trigger growth. Critics say they have no answer to global crises such as a pandemic, species loss or global warming.
That should change now. 189 countries participate in the World Bank, proportionally depending on their economic strength. The USA is number one with around 15.5 percent shares, Germany is fourth with just over four percent. “We have asked the World Bank to present a plan for a reform by the end of the year. We want to make decisions next spring,” says Jürgen Zattler.
“We need a spearhead in climate finance.”
The US supports this plan, which draws on recommendations from a commission of experts working on behalf of the G-20 countries. Accordingly, the World Bank should pay less attention to the risk assessment of the rating agencies when granting loans. Huge sums of money could be mobilized in this way. In addition, special pots are needed to tackle cross-border problems. “We need a climate champion, we need a spearhead in climate finance,” says Jürgen Zattler.
Sven Harmeling would be happy if the World Bank and other institutions would tie their lending and grants to the climate goals of the Paris Agreement. The climate policy expert from the aid organization Care criticizes that far too much money is still flowing into fossil fuel infrastructure. In addition, more money is needed for social security, for example to help those affected after natural disasters. However, Harmeling sees progress in recent months, the pressure on the institutes is great.
World Bank President David Malpass announced during the Sharm el-Sheikh conference that he would set up a new trust fund to help developing countries deal with climate change. This year, the World Bank provided 32 billion US dollars for climate finance, a new record. Malpass itself plays a nebulous role in this. Once employed by Donald Trump, he recently expressed skepticism about climate science. The director of the International Monetary Fund, Kristalina Georgiewa, called for the worldwide introduction of a noticeable CO₂ price in order to open up new funds for the green transition.
But all this is far from enough for the developing countries. They call for a major system change. Also to be able to help yourself in case of doubt. According to Mia Mottley, this includes a clause in the debt service. If her island of Barbados is badly hit by a hurricane tomorrow, she said the country will mobilize more than 18 percent of its gross domestic product by deferring interest and principal for two years until the disaster at home is dealt with. Her conclusion: “We need a new deal.”