Poverty vs Climate Change - The World Bank's DilemmaApr 22, 2023
In 1944, Harry Dexter White was just one of those looking to the end of World War II grappling with the problem of how the
worldcould recover and, while recovering, avoid the kind of economic instability and competitive devaluations that had fed start. of the conflict in the first place, in other words, the whites and others like him were focused on how a new global economic system could be established that would avoid some pretty serious problems that the
worldhad just gone through. He proposed what became the International Bank for Reconstruction. and development is one of two institutions, the others being the international monetary fund that was created at the Bretton Woods conference in 1944.
IBRD was created to provide loans for the reconstruction and redevelopment of war-torn Europe, but as it transformed the world Bank of today has taken on the broader mission of lending to developing countries around the world to help end global
povertyand foster positive economic progress now, although the scale of the task defined there is large and complex, yet one could argue that it had a job to become a public-minded and benign lender of first resort to poorer countries to help them escape
povertyand this on the enlightened principle of interest well, we had seen to our cost how their problems could quickly become the world's problem it was cheaper better less likely to have explosive consequences if such problems could be solved early rather than ignored until it was too late over the decades it has done some things that possibly supported that mission and obviously made mistakes by getting mired in bureaucracy and corruption and all the things that such institutions are prone to, but at least it had a clear mission, today there has been a vigorous debate that this mission is not enough and specific, but that in addition to promoting the end of poverty, the World Bank should also be positioned as a primary vehicle for advancing action on
change, not just that, but this is happening just as the challenge of China's emergence as a major lender and investor in developing countries is putting the whole notion of that post-World War II financial situation on the map. system seriously challenged China's approach to lending is building a parallel system of loyalties, but by doing so in a way that seems less benign and less careful with consequences, it feeds into decades of criticism that the
bankwas set up to promote the interests of the United States as the dominant world power does not represent the interests of the borrowing countries, so how do we make sense of all this in a way that looks beyond the bewildering complexity of global institutions to the crucial jobs that need to be done in the world today because even if we don't currently have a war-torn continent to repair we have some increasingly serious problems over 70 low-income nations currently face a collective debt burden of about $326 billion.
With 15 of the low-income countries in what is termed debt distress and another 45 classified as highly debt vulnerable, some would add to that equation the imperative for all of these countries, however poor, to move rapidly from energy to fossil fuels to zero carbon energy on a rapid time scale and so some of the recent debate now, you can start by asking why the World Bank has to take
changeas a major factor, I mean even if you are totally committed to the idea that an energy transition needs to happen worldwide, why can't this? the institution focuses on its one job while other people focus on that separate job some people say, well, climate change is so important that it should be at the heart of every institution, even though it does, to use an analogy, the Food processing is essential for the survival of my body.
I would be in a poorer place if the cells in my hand in my heart in my brain decided that digesting food was so important that they would start doing that instead of the specific functions they currently have, even the important things don't need to be the work of each institution, although it is always a natural tendency for those who specialize in such things to claim otherwise in the case of a World Bank, there are those who argue that the work of reducing poverty remains just as absolutely crucial and more urgent in In recent years, no less now, those who defend that the World Bank should have a climate focus would counter, but it is a great job that is not isolated from the process of generating greenhouse gas emissions, in fact, there are already an overlap specifically if your projects constitute loans to developing countries to create fossil fuel power generation, then you potentially add to one problem while addressing the other, while you should at least focus on ways to address both at the same time or address one in a benign way for the other that is all very well, but that is not the definition of the problem to take future loans and make it climate friendly, it is actually to answer the question of how a world with middle-income countries and The poorest can shift existing functional energy sources from polluting technologies to cleaner technologies and do so, by the way, without impoverishing those countries during the transition, those loans for fossil fuel projects weren't done just to piss off environmentalists. , but they provided an essential development for countries that needed reliable power and still the answer, of course, is that this can only be done. with an extremely large amount of money the actual cost of which is often not entirely clear when people approach the issue in the abstract to put it in perspective in the last fiscal year, the World Bank committed $115 billion of Finance primarily to development , which is a considerable sum and a much-needed one in the face of recent global conflicts and, of course, the pandemic that has significantly worsened financial conditions in many countries.
The Bank estimated that if it added climate change to the list of jobs supporting all those countries adapt to climate change as well, that annual bill would rise 20-fold to $2.4 trillion in total spending between now and 2030. Why? as well? According to the
bank, low- and middle-income countries are home to nearly 90 percent of the $1 trillion in coal-fired power generation, which risks being stranded, they phrased it that way because the alternative view that those assets continue to generate power while polluting the atmosphere for decades to come until they become obsolete, that's not an option they want to put in the head of anyone who returns the question that has stopped progress at more global summits than any other thing, where does the US treasury money come from?
The United States, despite its status as the richest nation in the world, cannot commit to channeling more cash, has its own debt and deficit problems, has to worry, we return specifically to the problem of the Magic Tree of Money, but so far even with the miracle of genetic engineering no such tree has ever been discovered, you can add to that the question marks people always have about a huge expansion of global institutions, which is how effectively they use the money they get anyway , Muhammad El erian, the chief economic investment adviser this week was quoted by firm aliens as saying that if I were a decision maker, I would not go out and try to get more money for the world bank right now, but I would go out and show that the bank can use its existing money much better developing countries are mixed on this those who feel they can make a strong case of being disproportionately at risk from the impacts of climate change while, incidentally, they have done little to create the problem in They believe that more climate-focused funding would be a potential windfall for them in the first place and one they particularly need due to those impacts, but several other developing nations, particularly in Africa, have expressed concern that shifting the focus towards climate emissions reduction would direct the capital they want for poverty reduction and development to comparatively wealthier nations, in other words the original mission of abolishing poverty they say has not yet been completed those in the queue don't believe it will be should change the mission until they have benefited as some of the others already have as always when large amounts of money are involved countries follow the incentives that are most clearly in front of them and that might allow them to get their hands on some of it Well, whether they make their case strongly or not, the simple truth of bill size means that not much is happening anytime soon after all. even the global powers are finding challenges with their own energy transition plans more than they had initially anticipated last weekend a key Summit that was meant to make progress all of this ended in a deadlock they managed to adjust to the ratio of capital to loans demanded by the bank that freed up capacity to lend an additional $4 billion now I hesitate to call that a silly move, but it doesn't hold up for long next to that $2.4 trillion figure and ironically it doesn't matter much that the president of a world bank is a triumph. appointed David Malpass, is about to give way to one who will undoubtedly be more ideologically aligned with the progressive agenda.
We expect the new president to be Rajiv Shah, who is widely believed to be Washington's preferred candidate and was previously the head of the US Agency for International Affairs. Development, you might think well just because you're Washington's preferred candidate, which presumably doesn't mean you're guaranteed to get the job, except pretty much yes, you see in 1944, the world was much clearer about the geopolitical status quo of so the price of agreeing to major entities like the world bank and imf remember that any great power will always be reluctant to garner power for global bodies if the governance of those bodies were to be kept firmly in check specifically it was agreed that the president of the world bank always being chosen by the US Administration, meanwhile, Europe chose the managing director of the IMF and has done so ever since, to the growing annoyance, of many of those rising powers in other parts of the world, including Beijing and New Delhi, both the most populous and fastest growing nations on the planet, not only that, but of course there has always been criticism of some of the terms that come with World Bank and IMF loans, economic reforms onerous bills that are somewhat focused on trying to prevent those countries from getting more and more indebted.
Such reforms often create internal political difficulties for governments, as the various austerity measures affect their populations, so it should come as no surprise that a front has opened up for an alternative source of World Bank lending. and the IMF and that has provided a perfect opportunity for those who would like to break and replace the current global financial system because it's not that they can't now find common cause with a number of other nations who feel left out of the existing regime and such. Perhaps this is why China is now catching up with a world bank and VIMF, in addition to being well ahead of other governments as the largest lender to significant parts of the developing world, went live with the China Belt initiative. and Roads.
A decade ago when he was looking to buy leverage with potential partners, Beijing's approach was much more transactional and much less concerned with all those onerous conditions, but it was very clear that he was interested in things like gaining access to oil and minerals and other products. The basics that this created in fact a bipolar system were no longer the Bretton Woods institutions the only game in town. We now had another major operator who worked directly with the borrowers and followed his own rules. those old rules were there for a reason and now that the global financial system is, let's face it, under significant stress with inflation and an energy crisis and war and everything else, the amount of debt overhang has skyrocketed and China has been looking for itself the results of its more risk-tolerant approach to lending, for example Zambia, a major borrower of China, defaulted on its public debt two years ago, other countries such as Sri Lanka and Ghana, Ethiopia and Pakistan, heavily indebted to China , have already defaulted or are in arrears. teetering on the brink China is not quite willing to condonenone of its debt until this week argued that it certainly would not engage in sovereign debt restructuring unless the World Bank and IMF did the same now that the World Bank rules out that Rich countries that have historically lent to developing countries development are part of what is called the Paris Club through which they would negotiate with struggling governments to generally end up reducing their debt, something that was done with several poorer African nations in the 1990s and early 1990s. 2000.
China's approach has been different. Their loans have a higher commercial rate than those offered elsewhere. themselves as having few other options, borrowers are often required to sign confidentiality agreements that prevent them from sharing information about what they owe to Chinese institutions that could become part of the horse game by talking about debt repayments and whether China offers concessions they come in the form of rescheduling payments that don't actually forgive some of the debt, the US and others argue that it's just a basic economic reality that unless Beijing tries to reduce some of that debt, it simply will never it will be paid for, so this is an interesting At the time we found ourselves in a world under stress, until the pandemic hit in 2020, we had made steady and continuous progress in reducing absolute poverty around the world, that Progress had an environmental cost, but we knew we had to address it because ultimately it would start to undermine progress if we didn't ultimately you can't reduce poverty forever if the environment is collapsing around you, but that it was feasible in theory to adopt the dual objective of continuing to build human well-being but in ways that have fewer negative consequences that you then have to deal with, but now we now have a much sharper edge to deal with poverty since the pandemic exacerbated by global inflation and supply chain disruptions and all the rest.
The alternative profile of China as a lender to support its leadership in the bipolar. world he claims to create under pressure, as his uncompromising approach is being smacked in the face by reality. Western decision makers are also heaping pressure on what at first glance appear to be unrealistic expectations about the scale and pace of climate action and seemingly careless for the impact that may have on poverty reduction, something you would say it probably has to hit both sides and the idea that absolute poverty will simply continue its relentless push downward after this brief pandemic hiatus. Sadly, you may be the first casualty of this high-powered clash. interests that are happening before our eyes now look none of this is going to make headlines in this polarized and fractious political time that we live in, but nonetheless it will have more impact on the lives of people around the world than almost any other thing that we can We could worry, since we say that there is everything to play.
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