The financial system has meant that, for many countries, adapting to climate change is a trap. The islands and small countries of the Caribbean, for example, where hurricanes hit with increasing intensity, must be rebuilt almost every year. To do so, they also need money that, if they don’t have it in their pockets, they have to borrow. This throws them into a vicious cycle of debt that makes it impossible for them to tackle a problem for which they are not directly responsible: small states and islands are the most vulnerable to climate change, but they are also among the countries that emit the least greenhouse gases. generate globally.
On how to stop this cycle there are several proposals. There has been talking of issuing catastrophe bonds similar to those issued after the covid-19 pandemic or loans with hurricane clauses. However, a topic that has become a recurring topic at Climate Change Summits, such as COP27 that ended in November of this year, and about which several Latin American presidents have spoken, is the debt swap for climate action. In other words, getting a country or organization to which money is owed to cancel or reduce it in exchange for the debtor country using that amount to finance global warming adaptation and mitigation projects.
But as Juan José Guzman Ayala, an economist, and financial consultant, points out, these types of transactions are not new, only that previously they were not carried out for climate action, but for conservation. “Fondo Acción de Colombia, which has existed for more than 20 years, obtained its resources from a debt swap,” he points out. And in addition to the current president Gustavo Petro, who has taken advantage of several occasions to talk about this type of exchange, former president Iván Duque had also mentioned it during the Summit of the Americas called by Biden, he recalls. This is how some debt-for-conservation swaps have worked in Latin America and the Caribbean.