by Dec 13, 2022All Articles

A new debt crisis for the Global South: between 2010 and 2020, debt payments have risen by 120%. 54 countries are in a debt crisis, having to be bailed out by the IMF.

WE NEED TO DEVELOP a perspective and strategy for financing a public pathway to an energy transition; it must be capable of addressing energy poverty and climate protection. The current neoliberal approach to climate finance is based on loans, whether at “concessional” rates or not; and it is reliant on the illusion of development finance unlocking trillions from private investors. It has failed and it will continue to fail.

Private sector finance unworkable

Even though international climate agreements have acknowledged the ecological debt of the Global North to the Global South and pledged $100 billion per annum to support the countries in the South, the state of climate finance is hopelessly inadequate. Firstly, its dependence on private sector investment is misplaced. And secondly, it will be debilitating: it is likely to increase the indebtedness of the South, and through conditionalities, it will further lock Global South countries into disastrous neoliberal policies.

The Paris agreement at COP21 provided that every country would produce its own target to reduce emissions. These were called Nationally Determined Contributions (NDCs). The Standing Committee on Finance (SCF) of the United Nations Framework Convention on Climate Change (UNFCCC) has assessed 78 NDCs. According to its most recent Needs Determination Report, the countries in the Global South will require at least $5.8 trillion to reach their individual NDC commitments for adaptation and mitigation by 2030.

The prospects for trillions of dollars of private sector investment flowing into the so-called green economy in the South are poor, especially if the ayre not attached to generous public sector subsidies and guarantees, such as 20-year power purchase agreements. Moreover, research by Oxfam raises serious methodological concerns with the OECD’s climate finance reporting, which has been shown to be prone to overcounting. According to Oxfam, bilateral climate finance could be around two-thirds lower than indicated. Due to their persistent failure to reach the yearly target, Global North countries are responsible for withholding $381.6 billion, or 48% of pledges made, in bilateral and multilateral public climate finance between 2013 and 2020.

This is the context for us as we advance new anti-systemic and anti-neoliberal (essentially anti-capitalist) feminist approaches to energy transition and climate protection. It is in this context that activists have campaigned to mobilise the trillions of dollars required to address the social, economic, ecological and geopolitical dimensions of the crises which define our conjuncture.

A struggle for power

However, we will not achieve our emancipatory visions of a comprehensive Just Transition just because we demand them. It will require a massive shift in power away from the predominance of transnational capital, particular the power of finance capital. We experience this unfavourable balance of forces not just in the rapid and extensive growth of right-wing, neo-fascist forces, but also in the power of capital to disrupt, paralyse and defeat progressive reforms. Jerome Roos in his book, Why not Default? The political economy of Sovereign Debt asks: why do so many heavily indebted countries continue to service their external debts, even in times of acute fiscal distress…What moves them to assume the full burden of adjustment for recurring international crises, inflicting enormous damage on their own economies and untold suffering on their people, while letting their creditors off scot-free?

Roos points out that, despite the frequency and intensity of international financial crises in recent decades, the total amount of outstanding sovereign debt has actually skyrocketed to a record $60 trillion, or over 80 percent of global GDP. As a result of the rapid expansion of global finance and the widespread insistence on full repayment, recent decades have witnessed a vast and largely uninterrupted flow of capital “upstream”: from public hands in the global periphery to private hands in the advanced capitalist core. 

In the years since 1982, developing countries have thus ended up transferring an estimated $4.2 trillion in interest payments to their creditors in Europe and North America. This far outstrips the official-sector development aid these countries received during the same period. It is this power of the creditors, their acolytes in the big four credit rating agencies and the International Financial Institutions (IFIs), which we have to take into account when fighting for a Just Transition and a publicly driven “Marshall Plan” which can mobilise the trillions of dollars of investment needed to effectively drive the energy transition and protect the climate.

If we wish to avoid being idealistic, utopian or rhetorical in our perspectives for financing a public pathway approach, then it is crucial that we have a very sober assessment of our current context, key elements of which are:

● Global capitalism has entered a new stage in its long downturn. This is the cost of living crisis, framed by a crisis of stagflation – low economic growth with high levels of inflation. Central banks and governments have responded to this situation with sadomonetarism – pushing up interest rates regardless of whether this drives the world economy into another global recession.

● A new debt crisis for the Global South: between 2010 and 2020, debt payments have risen by 120%. 54 countries are in a debt crisis, having to be bailed out by the IMF.

● According to a recent report, 143 countries—94 of which are developing nations—are pursuing austerity.

Two immediate consequences flow from the debt crisis and the intensifying of austerity:

1. A new wave of privatisation is being undertaken by governments in the Global South to offset the fiscal and debt crisis.

2. Natural resource extraction is intensified as a way to generate resources to meet debt repayments. This has devastating human and environmental consequences, not least for the capacity of countries to meet their Nationally Determined Contribution targets.

So in the short to medium term, the prospects for publicly driven energy transitions do not look favourable.

Focus on Finance

Where can we take the fight to liberate the resources necessary to fund a public pathway?

1. We have to join the fight for debt cancellation. That means linking up with formations like Jubilee South that focus on the illegitimacy of debt and reject conditionalities linked to the limited debt relief programmes of the IFIs;

2. We must join the struggle to combat illicit financial flows, used by transnational corporations to evade and avoid taxes and wages. The United Nations Economic Commission for Africa estimates that between 2000 and 2016 Africa had, on average, $83 billion a year in net outflows through trade mis-invoicing. Cumulatively between 2000 and 2016, the mis-invoicing was estimated at $1.4 trillion, equivalent to 11.4 per cent of the value of Africa’s trade.

3. As part of fighting the unjust trade system of the WTO and similar regional and bilateral trade agreements, we urgently have to fight to end the WTO moratorium on custom duties on electronic transmissions. This affects electronic imports of software, films, music, 3D printer design files, etc. A recent study estimated that in the period 20172020, developing countries and LDCs lost $56 billion of tariff revenue.

4. We need to renew the struggle for a financial transaction tax – a so-called Tobin or robin hood tax. If a tax were put on every financial transaction taking place globally, it could raise billions in revenue and help contain financial speculation.

5. In addition, there are a host of other progressive tax reforms which can be implemented nationally. According to the United Nations Inter-Agency Task Force’s 2022 report on Financing for Sustainability, countries can institute solidarity taxes or other measures aimed at appropriately taxing high-net-worth individuals. Strengthening property and capital gains taxation can also generate new revenue.

Lastly, public banks should be a key source of financing a public pathway for energy transition and climate protection. As of mid-2020, there were 910 public development, commercial/retail and universal banks worldwide, with nearly US$49 trillion in combined assets. If we include public central banks and multilateral banks, then institutional numbers reach 1,160 and combined assets exceed US$66 trillion.

Because public banks exist within the public sphere, they do not need to function according to market-based and profit-maximizing imperatives. This has contributed to rapid and directed interventions at times of crisis, such as with Covid-19. The same can be true for financing a genuine, low-carbon energy transition.

What the above points to is the urgent need for a change in approach. This will require the creation of spaces and alliances like the World Social Forum, underpinned by the slogan “Another world is possible” – or rephrased for our purposes,“ Another energy transition is both possible and necessary” – where thousands of social movements, trade unions, popular organisations and other civil society formations are drawn together to constitute a counter-power to that of the elites.

Perhaps the growing depth of the climate crisis will provoke such a global movement to come into existence, which can use its collective power to mobilise as powerfully as was done in 2002 against the imperialist war in Iraq.

Brian Ashley is a member of the Amandla Editorial Collective.

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