Declaration / Statement

Why the CADTM disputes the “Swapping public debt for climate action" proposal

14 December 2022 by CADTM

It is essential to have a responsible debate and to demystify the “Swapping public debt for climate action” proposal, which is not new and was actually very popular in the 1990s, when members of the Paris Club used debt swaps to promote the interests of their private companies. Indeed, debt swaps are usually used by creditors to convince the debtor country’s government to contract with or buy products from companies in the creditor country. This reproduces the dependency relationship and, when directed towards environmental projects, promotes green capitalism propaganda. Moreover, it also generates more debt.

What we want is to achieve the abolition of all illegitimate public debts, both in the North and in the South, it is NOT to debate and/or mobilize for the '“Swapping public debt for climate action” proposal'

What we want to achieve is the abolition of all illegitimate public debts, both in the North and the South, it is NOT a debate and/or mobilization on a specific issue or management of debt structure such as the “Swapping public debt for climate action” proposal.

This initiative, which promotes “Swapping public debt for climate action” swaps, is currently supported by international financial institutions (IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
, WB World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, IDB, etc.), investment funds Investment fund
Investment funds
Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity.
and creditor governments that negotiate with debtors to cancel or reduce their debt in exchange for binding commitments to protect biodiversity and reduce greenhouse gas (GHG) emissions.

Many questions arise: who defines which assets are conserved and which are not, how is the environmental promise verified, what does it mean to put a price on an ecosystem service, could a market for services arise to the benefit of the highest bidder and, in such case, could that protection disappear?

Globally, the volume of debt renegotiated under these agreements was estimated at $2.6 billion between 1985 and 2015. These negotiations have also been criticized for their lack of transparency [1].

It is essential to bear in mind that public debt (external and internal) has an unavoidable impact on the environment since foreign currency must be generated to service the debt. This involves the intensification of extractivist export sectors, which increases socio-environmental impacts. Among the activities that are being intensified for this purpose are fossil fuel extractions (conventional and non-conventional), mega-mines, agricultural commody production, new lithium extraction projects and all the institutional structures that serve them, such as the Initiative for the Integration of Regional Infrastructures in South America (IIRSA) [2]. Twenty-two years after the emergence of this project, which is based on 10 axes crossing the whole of South America from north to south and from the Atlantic to the Pacific, it is appropriate to question the interests they serve, and to consider that the debts contracted (with bodies such as the Inter-American Development Bank -IDB-) are intended to connect enclaves, ports and free trade zones, as well as creating roads to facilitate the expansion of the mining and agribusiness frontier, leaving behind desolation after looting, burnt forests and scorched lands, all of which accelerate the climate crisis.

See: Climate and environmental crisis: Sorcerer’s apprentices at the World Bank and the IMF

Therefore, the questions to be considered are: how to ensure socio-environmental well-being in this context; what are the capacities of the countries of the South to face environmental challenges when their economies are so conditioned by the need to earn foreign currency; is popular sovereignty and self-determination possible under these conditions?

The countries of the South must find ways to regain their sovereignty, end dependency and unmask the false generosity of the IFIs and the world’s major polluters who try to convince us with ’false solutions’.

At the CADTM, our analyses lead us to the conclusion that, in the relationship between debt and climate change it is essential to establish the origin of the ’climate crisis’, which is closely linked to the current phase of intensive capitalist development, where the search for profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. continues to be the axis around which political and social policies are analyzed and organized. Also, we must bear in mind that debt is a structural condition of this development model, an agro-exporting, extractivist model and a mode of global insertion providing cheap labour and raw materials.

We do not align /agree with this proposal, first because it is a negotiation with the ’lenders / speculators’ and such initiatives always partake of some cheap marketing, especially given the strong conditionalities imposed during such negotiations.

Another reason is that our Political Charter states that:

Debt is a mechanism for transferring wealth and a tool for political domination. Thus, since the main objective of the CADTM is to achieve the immediate and unconditional abolition of the public debt of the countries of the South and the abandonment of structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

policies, our objective is clearly not a ’swap’. All the more so since, despite their innumerable natural and human riches, the peoples of the South have been and continue to be exploited Extreme inequalities grow every day. Social policies and public investment, accompanied by a real plan of social progress is what is needed.

See also: Isn’t the cancellation of Southern debt a solution to the climate crisis?

For the above reasons, we consider it essential to unilaterally suspend payments and to immediately carry out citizens’ audits, which will identify odious, illegal and illegitimate public debts. The initiative to establish a “Swapping public debt for climate action” structure is not compatible with our fundamental premise. It ignores the legal arguments that can support a unilateral decision to suspend payments. Among them is Alexander Sack’s Odious Debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
Doctrine, which in 1927 developed the arguments that determine those categories.

The initiative to establish a “Swapping public debt for climate action” structure is not compatible with our fundamental premise

The multidimensional crisis of the capitalist system is taking on increasingly dramatic forms: food crisis, health crisis, ecological crisis, economic crisis, rise of racism, in short a crisis of civilization, caused and aggravated by the prolonged application of neo-liberal policies imposed under the pretext of debt repayment. Arguments such as the following can be used to justify the unilateral and sovereign suspension of public debt: state of necessity, fundamental change of circumstances or force majeure.

We reiterate that we do not support in any way the proposal of a trade-off for ’climate action’, which leads to a loss of sovereignty over natural assets, commodification of nature based on green capitalism with the famous carbon credits, false solutions such as geo-engineering, which include a set of technological proposals to intervene, on a large scale, on terrestrial or marine ecosystems or on the atmosphere.

The actions of carbon-intensive transnational corporations that have devised, in collaboration with governments, various ’greenwashing’ strategies to pretend to care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. about climate change while protecting their investments and avoiding making the necessary emissions reductions must be exposed. One of the main rhetorical tools used by industry is the concept of ’net zero emissions’ or the claim of ’climate neutrality’. This ’net zero’ assumes that emissions can be continued, or even increased, if they are ’balanced’ by removing carbon from the atmosphere and/or if they can be offset by carbon credits. This is nothing more than an accounting trick to justify continued extraction of fossil fuels rather than reducing GHG emissions. On this deceptive basis, 2,000 of the world’s largest companies have announced ’net zero emissions’ commitments. These are the same companies that are pushing for a new mechanism for carbon markets and offsets to be established in the negotiations on Article 6.4 of the Paris Agreement (Silvia Ribeiro) [2].

See again: Roundtable on Sustainable Palm Oil (RSPO): 19 years is enough

What we want is to achieve the abolition of all illegitimate public debts, both in the North and in the South, it is NOT to debate and/or mobilize for the '“Swapping public debt for climate action” proposal', a motion tabled by Colombian and Argentinean governments at the recent COP27, supported by some organisations and social movements, and sympathetically considered by the IMF, which continues to impose conditionalities.

We recall that the line of action of the CADTM International focuses on the following:

a) The development of processes of popular education, awareness raising and self-organisation of peoples oppressed through debt mechanisms.
b) Implementing debt audits that include citizen participation and aim to repudiate odious and illegitimate debt.
c) Unilateral and sovereign decisions by governments to suspend payments, restructure or repudiate debt in favour of social justice.
d) Denouncing the agreements made with the IMF and the World Bank.
e) The creation of a united front of debtor countries, not a front to advance any ‘debt swap x climate’ proposal as mentioned at the last COP27 in Egypt.
f) The rejection of any kind of conditionalities imposed by creditors.
h) Returning to citizens of the South the assets embezzled by their own corrupt leaders, with the complicity of the banking institutions and governments of the North.
i) The payment, without conditions, by the powers of the North, of economic reparations for the historical, social and ecological debt accumulated towards the peoples of the South.
g) Legal action against the International Financial Institutions (IFIs).
h) In case of nationalization of failed private banks, recovery of the cost of the operation from the assets of the main shareholders and directors.
i) Replacing the World Bank, IMF and WTO WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

with democratic institutions that prioritise respect for basic human rights in the financing of development, credit and international trade.
j) Abolition of free trade, investment, association, political and military treaties, etc., which undermine the sovereignty of peoples and perpetuate the mechanisms of dependence.

With regard to crimes against humanity, the slave trade and colonial plunder, we demand reparations and the return of cultural and other property.

The CADTM clearly states that to move towards a socially just and ecologically sustainable world, it is essential to scrap the capitalist system in order to build a society where the satisfaction of social and environmental needs is at the heart of political choices.

It is necessary to abolish the capitalist system which, for two and a half centuries, since the industrial revolution, has been crushing peoples and causing catastrophic ecological crises on a global scale.

We consider that the proposal “Swapping public debt for climate action” proposal promoted by several governments, some social movements and with the approval of the IFIs is a mechanism that exacerbates dependency, deepens inequality and worsens the serious climate and other crises that we are now experiencing.

Translated by Mike Krolikowski and Christine Pagnoulle.

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