IDB touts role of financial innovation in facing climate change

Washington, Jun 22 (EFE).- The president of the Inter-American Development Bank (IBD) cites recent initiatives in Latin America and the Caribbean as grounds for optimism about the ability of governments to finance responses to climate change.

“Skeptics may wonder whether most of the world’s cash-strapped countries really have the incentives and the capacity to do much … to address what is undoubtedly the most serious, and expensive, shared challenge of our age,” Ilan Goldfajn said ahead of a meeting in Paris aimed at producing agreement on a New Global Financing pact for climate.

Yet, he added, “countries from Barbados, Ecuador, Jamaica to Uruguay have been working with multilateral development banks and other stakeholders to better leverage existing resources and create innovative financial instruments to address climate and nature challenges.”

“In today’s polarized world, the work by these countries also shows that even in an age of uncertainty, governments, civil society, private sector and international institutions can work together and point the direction,” the former head of Brazil’s central bank said.

The “innovative instruments” being used fall into three categories, according to Goldfajn: debt swaps tied to environmental or social targets; sustainability-linked bonds; and climate/disaster resilience clauses in debt agreements.

The potential exists to standardize, reproduce and scale-up those approaches, he said.

He noted Ecuador’s announcement last month of the largest-ever debt-for-nature swap, a mechanism that will allow Quito to save more than $1 billion and protect sensitive habitats in the Galapagos Islands.

Both the IDB and the United States International Development Finance Corporation helped make that deal possible, Goldfajn said, while the IDB and the Nature Conservancy worked with Barbados to enable the island nation to invest in conservation money that would have gone toward servicing debt.

The economist then pointed to Uruguay, which last year issued bonds with interests rates that fall as long as the country meets environmental goals such as reducing gas emissions and conserving forests.

Montevideo sold $1.5 billion worth of those bonds to 188 investors from Europe, Asia, and the Americas.

“So as leaders gather in Paris, we should encourage them focus on these innovative financial instruments. To be sure, financial innovations are not panacea for the climate crisis. But they show we can do more to help countries act,” Goldfajn said.

EFE pem/dr

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