THE WORLD IS facing a confluence of problems that arose from Covid, climate disasters and regional conflicts. Barbadian economist of Indian origin Avinash Persaud is seen as a man who can help solve them. He is the key brain behind the Bridgetown Initiative of Barbados that sets out three ways to change how development finance works on the global stage. His pragmatic solutions to reform the international financial systems and climate financing are getting support both from the developed and the developing world. Persaud calls himself a “man in a hurry” and urges the world to make every effort needed to save the planet. Excerpts from an exclusive interview:
Q/ The world, especially the global south, is facing hardships because of many shocks―Covid, climate disasters, Russia-Ukraine conflict and a strong dollar. Do you think there is widespread pessimism in the global economic sphere?
A/ The world is at a very difficult place. You mentioned Covid. And that led to a significant increase in debt, a shock to our economic systems that not all countries have managed to get over. And then related to Covid, the big fiscal stimulus in the wealthy countries is now raising interest rates and [the result is a] strong US dollar. And that is compounding the problem. That is why an unprecedented number of countries around the world are facing a debt crunch, and appealing to the International Monetary Fund for short-term support. So, we are in a very uncertain, fragile place, underscoring the inadequacy of the international environment to help out emerging and developing economies.
Q/ Will the debt crisis in emerging markets affect India?
A/ India is not facing the same kind of direct debt crisis that several other countries are, but of course, Covid had a big impact. And, it has certainly placed some stress, and the country is recovering quickly, but that stress is there. But I think India is sufficiently big and strong, that it is not going to face the trouble we are seeing in small or middle-income economies, especially in Africa, which has been doubly hit by the Ukraine crisis in terms of food and fuel prices. But the international environment is still difficult. Interest rates are up, the dollar is strong. So, there are some headwinds against India’s recovery. And, so, policymakers will have to be very adept and smart at managing that.
Q/ The Bridgetown Initiative proposed by Barbados wants to reshape the current international financial system. As the main brain behind this initiative, could you please explain the initiative?
A/ Experts have identified that developing countries need a huge amount of money every year [for just green transitioning]; the number quoted is $2 trillion. But it is big money. And, if we stand there and say these countries must give us $2 trillion a year, that would be shouting into the wind. But what we have come up with is a system of finance that allows the $2 trillion to be achieved. And the system says: ‘Look, there are three things we need the money for’.
The first: things that generate money themselves; things like solar farms, wind farms, and a new hydroelectric power station. All these generate money themselves. So yes, we need investment, but getting investment in things that generate money is easier. We need to support the projects, we need to lower the riskiness of the projects, especially the foreign exchange risk. Imagine someone in Germany is investing in a project in India, the value of the rupee against the euro will make them not want to invest. But we need international investments because some of the technology and the materials are coming from abroad. So, we are saying that is a big part of the $2 trillion―about 75 per cent of it. So, the private sector, with some help, will fund that.
Then there is another bit in which there are no revenues, but [will provide savings in the future]. For instance, if I build a stronger seawall, it means that the next time the high tides come and the hurricanes and the monsoons come, then the damage caused will be less. And if I have less damage, I am making savings in the future. So, I can borrow to make savings for the future, I can use the savings to pay the interest on the mortgage. So, we say there is a second set of money that we can borrow, to spend. But the borrowing rates need to be very low, long-term, and low-cost. Because that then allows us to do even more investment in resilience than we would otherwise do. Because there is no point in being resilient in 20 years when the climate is changing today. And we have seen the heat waves India had last year, and the changing monsoon season; we cannot wait 20 years, and we need to build resilience today.
And then the final bucket is those things that produce no revenues, no savings, but we still need to spend the money [for it]. That is often in climate loss and damage. It is so from a bad monsoon or cyclone or tornado of sea level rising, creating costs. It is also about some of the transformation costs. If I turn the economy from being coal-powered to solar-powered, that is good from an energy point of view. But what about the coal miners? What about the town that was next to the coal mine? So, we need to spend money on protecting the livelihoods of people who will lose out from this transformation. We need grants for that. And we are all agreeing on a new global tax to help fund that transformation. After all, the transformation is good for the planet. So, the planet should contribute. And so, we need maybe a tiny tax on financial transactions, or maybe a tiny tax on all of the production of oil and gas, or maybe a tiny tax on shipping, or airlines that produce a lot of emissions.
Q/ But does this proposal take into consideration the historical responsibility of rich countries in causing global warming?
A/ Well, it is saying that they need to be part of the agency that is going to reduce the risks of investments in developing countries because of their historic responsibility. They, who are the main shareholders of the development banks, need to lead the banks into making more lending. And they will be bigger contributors to this global tax than other countries because they are bigger consumers. But we are not saying that it has to come directly from their governments. And so that is why they prefer it.
Some people may say, we should insist that they sign us a cheque. And I think that that is a little bit of a strategic, tactical issue, as opposed to simply a moral issue. The moral case to me is loud and clear. But if I sit here and demand rich countries to give me $2 trillion a year, I will get a big round zero. And I don’t think we have got time to waste in getting a big round zero. I am a man in a hurry, we have to make a difference in months and years, and I believe this strategy will make a difference. That does not mean that there should not be other people making the moral case. But it is just that I have been in this [development] business too long to understand that sadly, moral arguments are not enough.