Laura Klein | 2024 Latin America Fellow
Protestors with ShutdownDC take the street in October 2022 as part of the #ForPeopleForPlanet mobilization demanding the IMF and World Bank stop investing in fossil fuels and stop indebting nations in the Global South. Image sourced from Vvertuccio via Wikimedia.
While unprecedented weather events, novel once-in-a-generation fires, flooding, heatwaves, storm events and biodiversity loss are only just now beginning to be experienced in the Global North, they have been known to Latin American and Caribbean states for decades.The frequency and intensity of such events is pushing already climate fragile nations to increasingly invest in credit to sustain their livelihoods. This unquestionably normalised financialization of the climate crisis brings to the fore systemic negative consequences that emerging and climate susceptible economies face.
Dominica, a small island nation in the Caribbean, constitutes one such economy. On a Monday in mid-September 2017, a category five hurricane named Maria made landfall in Dominica. Hurricane Maria reached wind speeds of 258 km/h (160 mph) destroying 95 per cent of the nation’s housing stock and causing further damage worth 226 per cent of Dominica’s GDP.
To help finance Dominica’s recovery from this crisis, the state was forced to borrow from official creditors - its greatest and most notable being the World Bank. When international entities such as the World Bank or the International Monetary Fund (IMF) provide financing to countries following acute disaster events, this relief is conditioned. Consequently, nations in climate distress are frequently saddled with debt, at often expensive commercial rates. This leads to what is called the debt-disaster-debt spiral. The need to make debt repayment puts downward pressure on governments that constrains post-disaster spending on other necessities. This ultimately dampens these governments’ ability to recover in a manner that prioritises natural disaster mitigation and adaptation measures. 2024 marked the seventh year since Hurricane Maria’s domination of Dominica. Yet the state is still struggling to make repayments on these loans, and, according to the IMF, is at a high risk of debt distress.
This problem is not solely endemic to Dominica. Earlier in 2024, the category four Hurricane Beryl destroyed and severely damaged over 90 per cent of housing in St Vincent and the Grenadines who were already saddled with debt obligations following the decimation of the nation’s smaller islands of Carriacouan, Petite Martinique and Union Island. On the mainland in Central America, many countries like Honduras face similar realities. Following hurricanes Eta and Lota’s devastation over a two-week span in 2020, the country was plunged into deep climate-induced debt.
Many of these Caribbean nations are labelled ‘small island developing states’ (SIDS) by the UN. SIDS only contribute to less than 1 per cent of global greenhouse gases, yet today are pitted against the greatest climate change fueled natural disasters seen to date. Research has found these islands collectively lose at least $1.7 billion USD yearly due to climate change. Alongside these losses, SIDS are forced to allocate large portions of government revenue to repay creditors in the Global North. These arrangements need to be condemned and stopped as they indirectly divert already depleted resources away from climate mitigation and adaptation.
Instead of truly ‘helping’ these countries experiencing the brunt of climate change, Western creditors and international organisations worsen their economic, social, political and climate-related outcomes by indebting them. Why has this been allowed to occur? Economists in these important institutions are agents of norm construction who foster the normative belief in the desirability of global finance. Their ideas and teaching born from the top Anglosphere universities have historically been given policy relevance without question. As a result, finance has become a key tool to assist developing and disaster-stricken economies in a world where the use of intergovernmental aid relief is declining.
We, as members of the international community, need to be doing more to question these norms and understand their historical roots. Postcolonialist theorists are importantly starting to bridge this gap. Colonial legacies of slavery and exploitation aimed at the accumulation of wealth for European world powers are systematically embedded in the region's history and continue to be perpetuated by modern global finance. In the wake of climate disasters, debt bondage paid with interest to the same global powers continues to leave the region trapped in cycles of wealth extraction that mirror these exploitative histories.
The international community has a historical responsibility to ensure SIDS and other emerging economies are not left to solve climate-induced hardships alone. First and foremost, states need to be provided with tools to escape the debt-disaster-debt cycle. This will allow them to invest in their own countries' climate adaptation and mitigation resources rather than cycling these funds back into structures of Western wealth accumulation. Such a solution simply cannot be achieved by bureaucrats in predominantly Western international organisations. It must instead be reached through genuine cooperation with participating countries, wherein their demands are heard and respected.
Climate change and related disaster relief need to be considered international public goods outside the matrix of capitalist finance. By doing so, these countries can shift away from borrowing arrangements that prioritise austerity and the accumulation objectives of global finance. Unconditional relief without debt burden needs to be a policy priority not just for Latin America and the Caribbean, but for all developing and emerging economies on whom the unequal burdens of climate change fall. Climate change and global finance are growing increasingly economically and morally problematic as they become further intertwined. Accordingly, their divorce is a necessity to allow SIDS and other emerging economies an equal shot at a sustainable future.
Laura Klein was the July-December 2024 Latin America Fellow for Young Australians in International Affairs. She recently completed her Bachelor of International Relations at the Australian National University majoring and minoring in Spanish and Latin American Studies, and has since been accepted to a Masters program at the London School of Economics where she looks forward to further engaging in research. She has a deep affection and respect for the Latin American region and in her writing, strives to destigmatise and promote the opportunities that abound in Latin America, especially to an Australian audience.
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