Mia Mottley, Prime Minister of Barbados, made headlines around the world last year with her candid but solutions-focused speech at the COP26 climate change conference in Glasgow. And just last month, she was named one of Time Magazine’s 100 Most Influential People of 2022.
Now co-chair of the United Nations Secretary-General’s Sustainable Development Goals (SDGs) Advocacy Group, Prime Minister Mottley is proposing a bold economic and financial agenda that would not only help her country, but arguably all communities around the world vulnerable to change. climatic. .
Speaking at last month’s Global Citizen NOW Thought Leadership Summit in New York alongside fellow SDG Co-Chair Prime Minister Justin Trudeau of Canada, Mottley pointed out the gross injustice at the heart of global financial systems. This is the scenario in which the countries most in need, including Barbados, are unable to access the financing needed to sufficiently respond to urgent crises, such as pandemics and natural disasters, and to achieve longer-term climate and development goals. In contrast, larger and wealthier economies can access trillions on a whim to boost their economies in times of disaster.
Mottley’s frustration with the unresponsiveness and inflexibility of the global financial system, which includes Bretton Woods institutions like the World Bank, is shared by Southern leaders and finance ministers. In short, “Complacency is the enemy of progress in modern society,” Mottley noted.
What makes listening to leaders like Mottley so refreshing, however, is that in addition to highlighting significant challengesShe also pleads for practical measures. These are solutions that would make a huge difference for climate-vulnerable countries and yet seem relatively simple to implement.
1/ Urgent reallocation of special drawing rights
First, there is the urgent reallocation of Special Drawing Rights (SDRs), a kind of reserve asset issued by the International Monetary Fund (IMF) primarily to the world’s largest economies. Last year, the IMF issued an unprecedented $650 billion in SDRs, of which countries like Barbados received only a tiny fraction, with a large amount now sitting idle in Central Bank reserves. from North America and Europe. Germany, for example, received more SDRs than all of Africa. However, the richest countries probably do not need these SDRs because they can lend as much as necessary, and at relatively low rates, to meet their financing needs. As Mottley pointed out, there are still unused SDRs that were issued following the 2009 global financial crisis.
These SDRs would make a real difference for poor countries and small island developing states if reallocated, allowing countries to access debt at very low interest rates. Currently, most poor countries have no access to capital markets at all, or can only do so at prohibitively high rates.
What is critical though, as Mottley and some of his peers argue, is that the SDRs are reallocated not only by the IMF, but also by the institutions that know the recipient countries best, such as the African Development Bank , the International Fund for Agricultural Development and the Caribbean Development Bank, and as soon as possible. This will help countries deploy SDRs for long-term development and climate goals and not just to pay off pre-existing debt or for currency stability. In more technical and urgent terms: SDRs must be harnessed as much as possible for long-term green and just growth, as Lazard pointed out.
Some rich countries have already stepped up, with France tops last year’s Global Citizen Live festival, where they promised to reallocate 20% or even 25% of their shares. However, as Mottley went out of his way to point out to Global Citizen Now, all rich countries must follow suit, especially the United States, the Nordic countries and Ireland. And they must translate their political commitments into concrete decisions, reallocating their SDRs to existing instruments within the IMF and the development banks mentioned above. The G7 and G20 should take the lead in ensuring that by the end of the year, the promise to reallocate $100 billion in SDRs is met, if not exceeded.
2/ Reconceptualize our vision of debt
Second, Mottley pointed out that we need to reconceptualize how we view debt, because not all debt is bad. Mottley pointed out how having a high debt-to-GDP ratio on paper makes it difficult for Barbados to access finance at affordable rates – the finance it needs to finance development, infrastructure and of energy that will in turn fuel economic growth. What we need more than ever is access to cheap, long-term debt.
One approach would be to reconsider how debt is defined. Barbados, in fact, needs funding to counter the impacts of climate change, for which the country is not responsible. Is it fair to count these investments as debt? Or should they be excluded from the calculation of the debt-to-GDP ratio and considered for what they really are: financing global public goods and investing in our common future? The same could be said for financing education or the health system. These arguments have also been raised in Europe, for example, in the context of the most recent euro debt crisis. Multilateral development banks and the IMF should lead the way by reinventing the definition of debt, mobilizing more of their capital and making available on a larger scale financing instruments such as loans, but also guarantees, for example.
3/ Preserving liquidity during the crisis
Third, the world and its financial system must be better prepared for pandemics, large-scale natural disasters, and other major forces. Such external shocks, as we all know by now, can significantly disrupt and even temporarily shut down key economic activity. This is especially true for economies heavily dependent on tourism or trade. Such disasters make it difficult for many governments to honor existing debts while meeting the urgent and essential needs of their people. The risk of default and the lack of liquidity make it even more difficult for them to access financing just when they need it most. This is not a theoretical problem, but one that many countries have faced during the Covid-19 pandemic, having to make perverse compromises, such as spending more on debt repayment than on health care.
One way to help avoid such scenarios, Mottley says, is to embed the use and acceptance of natural disaster and pandemic clauses in sovereign debt or bond contracts. Such clauses, the use of which has been very limited so far, would give the government in question a pause in the repayment of debt in the event of a disaster, providing it with the liquidity necessary to respond adequately without jeopardizing its too valuable credit. Evaluation. The Biden administration could play a key role in normalizing creditor acceptance of bonds with such clauses and thereby fostering a market for them.
Additionally, at Global Citizen NOW, Mottley promoted a range of other fundamental and transformational ideas and solutions that would help fund global public goods that benefit all countries. These could, for example, include levies on sectors that make excessive profits due to pandemics and other external shocks. Such practices could also include better rules outlining which countries have the right to continue using fossil fuels like natural gas to finance their transition, and which countries, including those that have already consumed most of the global carbon budget, have to wean themselves off fossil fuels much faster than expected.
Ever the pragmatic leader, Mottley is keenly aware that while disrupting a nearly 80-year-old financial order won’t happen overnight, it has to start somewhere. Repurposing SDRs and promoting disaster bond clauses may not sound glamorous, but these are exactly the kinds of measures that would make a big difference.
A shining example of a transformational global leader, Mottley inspires ordinary citizens to act together and use their voice to disrupt the status quo of global governance systems in a movement to end poverty, defend the planet and achieve justice. for everyone, NOW.
“We’re at a stage right now where everything that challenges us is global,” Mottley told his audience in New York. “So if we can link individual action to global consequences, we’re moving in the right direction.”