Mark Gongloff
If you hired a financial adviser and the first nugget of wisdom for you was “Stop being poor,” then you would probably fire that adviser. Oh, and meanwhile, the adviser’s family owes you a fortune. That’s a bit how developing nations should feel about the IMF at the moment.
The International Monetary Fund and World Bank held their annual meetings in Marrakesh, Morocco, recently. Ahead of those, the IMF released a paper arguing countries should balance fighting climate change – a pricey endeavor, at least at the front end – with avoiding debt. It may not seem like terrible advice, but it ignores some real-world complications.
For one thing, a key ingredient in the IMF’s secret formula for beating both climate change and debt is raising taxes, basically. The IMF suggests governments put a high price on carbon emissions to raise the revenue they need to address climate change without breaking the bank. Expensive carbon, along with other regulatory goads and incentives, will lure private financing and inspire companies to invest in reducing their emissions, the IMF says, sparing governments most of the cost of going green.
A big, obvious problem with this trick is that jacking up carbon prices, while absolutely the right thing to do, is often politically toxic. This is especially true in the US, which left $754 billion in potential fossil-fuel tax revenue on the table last year, the IMF estimated recently. That’s a huge subsidy for the industry, amounting to more than 10% of the world’s $7 trillion in total fossil-fuel subsidies.
Eliminating those lavish, unnecessary perks would indeed recoup a lot of revenue that could go a long way toward fighting climate change and avoiding debt. But if the world’s leading economy refuses to do it, then how eager should poor economies be to fall on that grenade? And how much revenue could they actually raise if they did? Speaking of debt, developing countries already have far too much of it, often at exorbitant interest rates. The debt-service payments of the world’s poorest countries alone rose to $70 billion last year, according to a recent Brookings Institution estimate. To put that number in perspective, consider that developed countries have promised to give $100 billion a year to these nations to fight climate change. Developing countries are spending 70% of that amount on interest payments alone. Maybe that vigorish trickles down to the climate-change fight eventually, but there’s got to be a better way.
In fact, there is: Advanced economies and China – which continues to declare itself a developing nation and therefore exempt from developed-nation responsibilities – can help by forgiving or restructuring these debts. If creditors balk at wiping debts clean, then they should at least try alternatives such as debt-for-nature swaps, in which loans are forgiven if the benefits go toward environmental efforts. And if debt absolution is out of the question, then advanced economies could at least finally deliver on their promises to help the developing world mitigate and adapt to climate change. So far, they have never met that $100 billion annual aid promise, made in Paris in 2015. At a climate in meeting in Bonn, Germany, last week, developed nations managed to raise just $9 billion to top up the United Nations’ Green Climate Fund. The US didn’t contribute a penny. It’s galling to hear the gatekeepers of the global economy sniff about fiscal responsibility when the elite nations that bankroll them won’t live up to their own responsibilities.
Meanwhile, the private financiers the IMF says are so critical to developed nations have been even more disappointing. Governments and development banks have consistently failed to lure private money at anywhere near the rate they once hoped. Private lenders tend to cling to “middle-income countries with relatively conducive enabling environments and low-risk profiles,” said a recent report by the Organization for Economic Cooperation and Development. While advanced nations are responsible for the bulk of planet-heating carbon emissions so far, developing ones bear the brunt of the catastrophes that result. Climate change accounted for $143 billion in weather-related damages around the world every year, a recent study in Nature Communications estimated. The costs of such disasters average roughly 1% of gross domestic product per year for poor countries, compared with 0.2% for wealthy countries.
People in developing countries have the same right to safety and rising living standards as people in developed ones. Wealthy nations claim they want clean energy to drive that development. But that means they’ll have to accept more of the financial burden of cleaning up the mess they have made. However expensive this might seem in the short term, the long-term costs of doing nothing will only keep rising.
The Japan Times
