By Philippe Benoit
PARIS, Oct 26 2022 – With COP 27 approaching, pressure is mounting on wealthy countries to increase their support to poorer ones in the face of climate change. The recent floods in Pakistan have amplified this issue.  China, as the world’s second largest economy, will similarly face increasing pressure to help other developing countries on climate. 

At last year’s COP, the Asian Development Bank (ADB) unveiled an innovative program to fund the early retirement of coal power plants by mobilizing capital to buy-out the investors in these plants. This approach has an interesting, and potentially even easier, application to the coal plants financed by China in Pakistan and elsewhere overseas under its Belt and Road Initiative (“BRI”).  The key to unlocking this, somewhat surprisingly, lies in the dominance of China’s state-owned companies in BRI transactions.

At last year’s COP, the Asian Development Bank (ADB) unveiled an innovative program to fund the early retirement of coal power plants by mobilizing capital to buy-out the investors in these plants. This approach has an interesting, and potentially even easier, application to the coal plants financed by China in Pakistan and elsewhere overseas under its Belt and Road Initiative

In 2015, Beijing and Islamabad launched a program under the BRI to build a series of new power plants in Pakistan.  Over the next five years, five coal plants were commissioned and there are currently an additional four plants under construction. These plants are largely being developed by Chinese energy firms with loans from Chinese banks and financiers … companies that are all mostly owned by the Chinese Government.

Beijing has repeatedly been criticized for the BRI’s funding of new coal power plants considered to exacerbate the climate vulnerabilities of the countries where these projects are being built, like Pakistan.  Even as President Xi pledged last year to stop building new coal-fired power plants abroad, there has been an increasing understanding that achieving the temperature goals of the Paris Agreement — and reducing the type of climate devastation experienced by Pakistan – requires not only slowing new construction, but also retiring existing coal power plants early, worldwide.

In response to this challenge, the ADB announced the Energy Transition Mechanism which includes an initiative to buy out existing coal investors to shutter their plants early and thereby avoid the attendant future emissions. Typically, this would involve mobilizing international financing from multilateral development banks, climate funds, etc. to compensate the private sector investors in these plants.

Interestingly, the dominance in the BRI’s overseas projects of China’s state-owned companies creates the opportunity for the Chinese Government to apply the ADB mechanism in a streamlined manner — under what could be called the “BRI Clean Energy Transition Mechanism”. How might this work?  Some initial ideas follow.

As noted above, Chinese state-owned financial institutions are the major lenders to the BRI coal power projects in Pakistan. Similarly, Chinese government-owned energy firms are the dominant coal plant owners.  It is the financial interests of these various Chinese state-owned lenders and other enterprises (SOEs) that would be affected adversely by any early retirement.

Consequently, under the proposed mechanism, China would be compensating its own SOEs for the revenues they would lose in the future from the early plant retirements in Pakistan. In essence, China would pay itself.  This is a unique feature of this BRI coal retirement program that flows from China’s reliance on its own SOEs … and it presents several operational and financial advantages.

1. The financial arrangements for early retirement should be easier to negotiate and execute since the parties are all affiliated — i.e., the Chinese government, its state-owned banks and other SOEs. This should also reduce transaction costs.
2. In the ADB’s early retirement context, private sector investors would typically insist on some compensation being paid today for the loss of projected future revenues. In contrast, because the BRI context would involve compensation from the Chinese Government to its own SOEs, the Government could reasonably delay payments till the point at which the SOEs would actually be foregoing revenues. So, for example, if we assume early retirement in 2030 — an interval that would give Pakistan the time to replace the retired coal electricity generation with renewables in an orderly manner (see discussion below) – then the payments by the Chinese Government to its SOE lenders and energy firms could similarly be deferred till that time.
3. The Government would also, as a practical matter, enjoy significant discretion regarding the level of compensation to be paid to its SOE lenders and energy firms in 2030 and beyond. Notably, the Government could impose a discount on these future payments — especially if it has implemented by that time financial disincentives targeting coal generation (e.g., a carbon price) to support its own carbon peaking and neutrality goals.
4. The proposed BRI mechanism would resemble in various ways a debt-for-nature swap, notably from the perspective of China as a creditor/donor country.  In this BRI “debt-for-coal” swap, China would forego the payments due its SOEs in the future from the operation of these Pakistan coal plants in exchange for the reduced emissions generated by their early retirement. Significantly, this mechanism would produce emissions avoidance benefits without China providing any new overseas funding.

What are some possible motivations for Beijing to launch this type of initiative?

First, it provides a mechanism for China to respond to the increasing pressure it is facing as the world’s second largest economy to help poorer developing countries meet their climate and sustainability challenges. China’s status as the world’s largest emitter of greenhouse gases amplifies this pressure.

Second, the ability to launch an international climate program that does not require China to disburse funds for the next several years — and, when it does so, to pay its own SOEs — may appeal to the Government, particularly given the current domestic economic stress.  This is consistent with other debt-for-nature swap programs advanced by other donor countries where the financial cost to the donor is from foregone revenues, not new funding.

Moreover, the loss in revenues for China and its SOEs from the early BRI coal plant retirements would only take place in 2030 when China’s economy should be markedly larger and more capable of absorbing the expense.

Finally, there is an argument that to the extent the ADB and BRI approaches retire the same type of coal capacity with the same climate benefits, China’s inducements to its SOEs to retire BRI coal assets early should be counted as international climate financial support (e.g., a type of “synthetic carbon credit”) just as actual monetary transfers to private sector investors would be recognized with respect to an ADB coal retirement transaction.

Importantly, Pakistan and other BRI developing countries will need even more electricity to power their economic development. Consequently, the BRI Clean Energy Transition Mechanism needs to include additional funding for new renewables power generation capacity (as is the case under the ADB’s approach).

Helping BRI-recipient countries to transition from coal to renewables would also support international efforts to reduce emissions — efforts whose importance for Pakistan and various other developing countries has been made abundantly evident by the devastating weather they have been experiencing.

The extreme climate events of 2022 have increased awareness regarding the vulnerability of poorer countries to climate change and the consequent importance of reducing future emissions.  This article sets out a proposal for how China could retire BRI coal plants early in Pakistan and elsewhere that capitalizes on its use of state-owned companies, while supporting more renewables in these countries to reduce the climate change threat and promote sustainable economic growth.

Philippe Benoit has over 20 years working on international energy, climate and development issues, including management positions at the World Bank and the International Energy Agency. He is currently research director at Global Infrastructure Analytics and Sustainability 2050.

By Jan Lundius
STOCKHOLM, Oct 26 2022 – In his treatise On War, the Prussian general Carl von Clausewitz (1780–1831) stated that war is “merely a continuation of policy with other means”. With his experience from the Napoleonic Wars von Clausewitz knew that totalitarian regimes could end up conducting huge and ruthless military campaigns. Furthermore, he assumed that to win a war it is necessary to mobilize and indoctrinate the inhabitants of an entire nation. Such an endeavour is called total war, a term that actually can be applied to Putin’s war in Ukraine.

Putin came to power during the turbulent times following the collapse of the Soviet Empire. His image as a forceful personality convinced many that Putin could make Russia “safe for democracy and business”. In June 2000, Bill Clinton proclaimed that Putin was “fully capable of building a prosperous, strong Russia, while preserving freedom and pluralism and the rule of law.”

Soon business flourished, satisfying foreign investors eager to enjoy Russia’s vast deposits of natural riches. At the same time, fear of terrorism was boosted by explosions in heavily populated residential areas. Putin’s answer to these assumed terrorist threats was in accordance with von Clausewitz´s advice to use “force unsparingly, without reference to the quantity of bloodshed.” The pursuing escalation of the war in Chechnya, pinpointed as the origin of terrorism in Russia, made Putin a nationalist hero, while his characteristics as teetotaler, capable administrator, quick learner and talented actor made him assume the role of a Hollywood-inspired saviour/hero. He single-highhandedly flew planes and rode bare-chested through the wilderness surrounding Siberian rivers. Media lionised him as a rough and strong judo/black-belt champion capable of leading an entire, long suffering nation onto a straight path to prosperity.

Some worrisome signs were nevertheless written on the wall. In 2004, Putin declared the collapse of the Soviet Union as” the greatest geopolitical catastrophe of the twentieth century.” Meanwhile, his acolytes were amassing the spoils from the collapsed Soviet Empire. Putin supported and protected those oligarchs who backed him, while bankrolling his inner circle.

In Munich 2007, Putin bared his teeth and claws in a speech given at an international Security Conference. He declared that the US was a predatory nation prone to apply an ”almost unconstrained hyper-use of force – military force – in international relations [.-..] plunging the world into an abyss of conflicts.” This revelation was in 2008 followed by Russia´s military assault on neighbouring Georgia.

General elections were rigged, while some political opponents ended up dead, like Boris Nemtsov, who in 2015 was killed on a bridge close to the Kremlin. Alex Navalny, Putin’s most prominent and fearless opponent, was arrested and imprisoned for thirteen years. Out of jail, he was in 2020 poisoned on a flight to Siberia. Close to dying, he was brought to Germany for expert treatment. After recovering, Navalny went back to Russia, where he was immediately put on trial and imprisoned.

Non-compliant oligarchs were and are routinely harassed. First to be rounded up were those who controlled independent media, like Vladimir Gusinsky and Boris Berezovsky. Both fled the country. In 2013, Berezovsky died ”in suspicious circumstances”. Another oligarch, Mikhail Khodorkovsky, who had funded independent media, was already in October 2003 arrested on board his private jet and imprisoned for ten years.

Putin can now unopposed claim that the belligerent attack on Ukraine was necessary for protecting the Motherland. Subdued Russian media affirm that ruthless Ukrainian leaders have transformed their nation into a pawn in the cynical game of a Superpower intending to subjugate, or even annihilate, the Russian Federation.

It appears as if Putin is not only dedicated to make “Russia great again”. Another goal of his seems to be to enrich himself and his cronies. As a means to cover up his greed, Putin poses as upholder of “strict” morals, based on “pro-life” and traditional “family” values, as well as heroic patriotism and religious fundamentalism. Twenty years after coming to power Putin could declare: “The liberal idea has become obsolete. Liberals cannot simply dictate anything to anyone just like they have been attempting to do over recent decades.”

In spite of the Ukrainian war and his disrespect for human rights, Putin remains an icon for right-wing nationalists. A symbol of defiance to Western Liberal Establishment’s alleged encouragement of mass immigration and affinity to ”multiculturalism”, conceived as attempts to undermine morals and national identities.

As a counterweight to such assumed measures, backward looking politicians around the world pay homage to nostalgic notions, like a lost Great Chinese Tradition, a Russian Empire, Hindu pride before the arrival of Islam, a Global Britain, the Ottoman Empire, etc. This trend is occasionally joined with a global system where ruling elites consider themselves to be unrestrained by international norms, traditional modes of state governance, and democratic decision processes. Some world leaders try to pull the wool over the eyes of their followers by packaging their intents within populist opinions, like despise for political correctness, globalism, investigative journalism, LBTQ rights, feminism and environmental NGOs. A dangerous trend that, if unchecked, might as in the case of Putin´s Russia lead to socioeconomic conflicts degenerating into total war.

In the US, a strengthened adherence to illiberalism was fostered by Donald Trump. Under his watch US politics began to shift from rule-based order to one where might and wealth make right, a message boosted by media like Fox – and Breitbart News. Trump behaved like a wannabe despot, trying to apply authoritarian tactics at home, while paying homage to thugs and dictators abroad. Before him, US presidents had pledged their adherence to human rights, democracy, and freedom of speech. Nevertheless, their governments occasionally supported despots and dictators, not linking concerns for human rights to security, economy and financial affairs. A Realpolitik, which to “friendly” despots indicated that the US did not care so much about repression and corruption within the fiefdoms of their friends. Such behaviour was based on strategic reasons, while Donald Trump appeared to embrace authoritarians because he actually admired them – Dutete, Xi Jinping, Orbán, Erdoğan, Kim Jung-un, and not the least, Putin.

The former US president´s homage to ideas similar to those of Putin and his pose as a nationalistic superman might be connected with his obvious narcissism and appeal to nationalistic extremists. However, his senseless bragging is also combined with greed. A wealth of investigating reporting has demonstrated links between organized crime and corrupt rulers/oligarchs with the Trump Organization’s overseas business connections.

Money is also part of Russian foreign relations. Populist, chauvinistic parties like Italian Lega Nord (currently known as the Lega) and the French Front National (currently Rassemblement National) have received intellectual and economic support from Russia. This support to European political parties may be considered as a Russian effort to secure support for Putin’s policies abroad, as well as locally.

Germany’s former chancellor, Angela Merkel, a fluent Russian speaker far from being a friend of Putin, dismissed him as a leader using nineteenth-century means to solve twenty-first century problems. For sure, Putin’s attack on Ukraine mirrors age-old use of devastating warfare as a radical solution to complicated sociopolitical problems. It seems to be a stalwart application of the two-hundred-years-old advice provided by von Clausewitz:

Philanthropists may easily imagine there is a skillful method of disarming and overcoming an enemy without causing great bloodshed, and that this is the proper tendency of the Art of War. However plausible this may appear, still it is an error which must be extirpated; for in such dangerous things as war, the errors which proceed from a spirit of benevolence are just the worst. As the use of physical power to the utmost extent by no means excludes the co-operation of the intelligence, it follows that he who uses force unsparingly, without reference to the quantity of bloodshed, must obtain a superiority if his adversary does not act likewise. By such means the former dictates the law to the latter, and both proceed to extremities, to which the only limitations are those imposed by the amount of counteracting force on each side.

Putin´s Ukrainian war neglects human suffering and has now disintegrated into a bloody power struggle, where Russia “to the utmost extent” makes use of its military strength, while being supported by “the co-operation” of a propaganda striving to engage the entire Russian population in the war effort.

The Ukrainian war not only concerns the protection of Mother Russia from a “predatory West”, its ultimate goal is to control a hitherto sovereign nation’s politics and natural resources. Putin’s declared support to an allegedly discriminated Russian minority in Luhansk and Donetsk seems to be a subterfuge for grabbing an essential part of Ukraine’s economic resources.

During early 2000s, privatization of state industries yielded a so called Donbas Clan control of the economic and political power in the Donbas region. These oligarchs were supported by Kremlin and a rampant corruption soon took hold of an area dominated by heavy industry, such as coal mining (60 billion tonnes of coal are waiting to be extracted) and metallurgy.

Before Russia in 2014 backed separatist forces in a ferocious civil war, this particular area produced about 30 percent of Ukraine’s exports and a huge amount of gas reserves in the Dnieper-Donets basin was beginning to be extracted. In those days, the most prominent oligarchs in the Luhansk and Donetsk regions were Putin proteges – Rinat Akhmetov and Viktor Yanukovych, the latter had become Ukraine’s President, though his attachment to Russia and conspicuous corruption led to his fall through the Maidan Uprising in 2013, starting point for Ukraine’s transformation into a prosperous nation.

The Maidan Revolution caused a wave of insecurity sweeping through the former Soviet Empire, shaking up corrupt “counterfeit” democracies/dictatorships like Belarus, Azerbaijan, Kazakhstan, Tajikistan, and Uzbekistan. Small wonder that the authoritarian leaders of these nations are stout supporters of Putin’s war in Ukraine.

While reading von Clausewitz’s On War it is quite easy to relate it to Putin’s politics that undeniably have resulted in war as a “continuation of policy with other means.” It is not the first time in history that authoritarian regimes have plunged entire nations into a blood-drained pit of war. All of us have to be be aware that support of authoritarian regimes might lead us all down into Hell.

Main Sources: Klaas, Brian (2018) The Despot´s Accomplice: How the West is Aiding and Abetting the Decline of Democracy. London. Hurst & Company. von Clausewitz, Carl (1982) On War. London: Penguin Classics.

IPS UN Bureau

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By Zofeen Ebrahim
Karachi, Oct 26 2022 – The rise in militancy in Swat still haunts many locals with flashbacks of what they went through 15 years ago.

Dr Jamila Khan can recall every last detail of the day she and her family were forced to leave their hometown of Matta, in Khyber Pakhtunkhwa’s (KP) idyllic Swat valley, along with thousands, days before the Pakistan army launched an offensive, Operation Rah-e-Rast, against the militants of Tehrik-i-Taliban Pakistan (TTP) after the failed peace agreement with the latter, in 2009.

It was not just the “excruciating” pain running with her braces (Khan is a polio survivor) but the mayhem that afternoon that she recalls.

“We ran with nothing but the clothes on our back,” and went to Madyan, a town an hour’s drive from Matta, and stayed for three months with their uncle. She was among the nearly three million people, many of whom fled Swat for several years.

She can still recall the indignity faced by “the women, the children and the elderly – some of whom were being carried on the shoulders of their sons” after they ran for their lives amidst the sound of deafening “bombing”.

“The militants forced the burqa (an enveloping outer garment worn by women which fully covers the body and the face) upon us, but that afternoon I saw women running for their lives without covering themselves with the chadar (traditional Pashtun cloth that envelops the body from head to foot),” Khan said.

“I never want to go through that again,” she said resolutely. “We will not let anyone bring us to the brink, and this time, we will not be deceived.”

The images of dead bodies on streets are as fresh as the hushed tones that echo in her ears of elders talking of young girls from her family being kidnapped, raped, and even forced into marriage to militant commanders and of defiant men who were punished in the most barbaric manner including being beheaded and slaughtered. The victims were then put on public display. “I was old enough to remember many things,” she said.

“I don’t think I have healed and come out of the horror of all that I witnessed,” said Khan. “Neither has anyone else; we just don’t talk about it and have bottled it all up.”

In 2002 a firebrand cleric from Swat, Mullah Fazlullah, set up his headquarters at his village in Imam Dehri.

Between 2004 and 2007, he started wooing the locals, especially the women, through several dozen illegal FM radio stations promising the Nizam-e-Adal (Islamic justice system), not just in Swat but the entire Malakand division, of the KP province, comprising the districts of Bajaur, Buner, Chitral, Dir and Shangla. By 2007, the TTP had established its writ in the valley, just 160 km from the country’s capital, Islamabad, while the 20,000 army troops deployed looked on helplessly. The Taliban spokesperson Muslim Khan had told IPS in a 2009 interview: “We want to give women their rightful place in Islam”.

“People say it was the women of Swat who supported Fazlullah by giving large donations, even their jewellery, but no one asks why,” said Musarrat Ahmad Zeb, a Pakistani politician from Swat, who had been a member of the National Assembly of Pakistan, from June 2013 to May 2018.

Talking to IPS from Swat, she said the TTP promised quick justice to the locals, which they had enjoyed when the wali ruled Swat and had eroded after the princely state acceded to Pakistan in 1969. Zeb is the widowed wife of Miangul Ahmed Zeb, son of the wali of Swat, Miangul Jahan Zeb.

But instead of giving the women what the TTP promised, they took away their right to life altogether. They were forced to give up jobs where there was interaction with men, they were forbidden from walking to the market unescorted and adolescent girls were not allowed to go to school.

Twenty-one-year-old Gulalai Noor is worried she may have to close down her beauty parlour in Mingora, the capital city of Swat.

“We had a fairly good clientele, but since the last two months, it’s a trickle. If this continues, how will we be able to pay the rent and utility bills of the place?” she told IPS over the phone. She not only supports her parents but also pays for her tuition. Noor is enrolled in the two-year diploma course for a lady health visitor programme.

Senator Mushahid Hussain Sayed, the chairperson of the Senate Committee on Defence and National Security, told IPS the “resurgence of terrorism” in KP was of “serious concern”, recalling the sacrifices made by Pakistan’s armed forces and the people to combat and contain the “scourge”.

But the arrival of the Taliban is not new and not in Swat alone. “They have been there for many years and are everywhere in KP. I have been bringing it to the notice of colleagues in the assembly since 2018,” Mohsin Dawar, a legislator, from North Waziristan, and chairperson of the National Democratic Movement, a nationalist party.

He told IPS the militants got energized after the Taliban took over Kabul last year.

According to a recent research paper produced by the Islamabad-based think tank, Pak Institute of Peace Studies, as many as 433 people were killed and 719 injured in 250 attacks in Pakistan between August 15, 2021.

Terming them “isolated incidents of terrorism”, the officials claimed all did not take place in KP. However, the TTP has claimed responsibility for a majority of these attacks.

Last month eight six persons, including a former peace committee head Idrees Khan, were killed by a remote-controlled bomb attack. Khan was at the forefront of mobilizing resistance against the Taliban in 2007. Earlier this month, a minister of Gilgit Baltistan was taken hostage; in return, they demanded the release of their comrades involved in the deadly 2013 terrorist attack on the Nanga Parbat base camp, in which foreign climbers were targeted. They also wanted an end to women’s sports activities in GB. “These high-profile cases create fear among the general public and are very demoralizing for them,” Dawar had said in the assembly recently.

While it was the “people’s resistance” that had “contained” the situation, he warned it can get out of hand and become “even more dangerous than last time” if not taken notice of now.

Fazal Maula Zahid, a member of the Swat Qaumi Jirga (a platform of elders and notables working for peace in the region), has high hopes for the youth and women of the valley. “If they come out as a collective force and are organized,” he said, no harm can come to the valley.

“Today’s youth are energetic and have seen or heard the troubles of their elders; they will not allow history to repeat itself,” Zahid said, adding the people had no faith in government functionaries who have done little to protect the hapless people.

For a few weeks now, residents from different towns and cities of KP, like Khawazakhela, Kabal, Matta, Mingora, Charbagh and Madyan, have been coming out to protest against the surge in terrorist attacks.

“At Mingora, there were more than 80,000 at Nishtar Chowk; it was huge,” said Zahid, who attended the event. “I am told the one at Charbagh was even bigger!”

“It is heartening that people have risen against this resurgence and showed their resolve to never again allow this phenomenon to pollute their society,” said Sayed and the “gains of the recent past are not frittered away”.

He informed that at a committee meeting held earlier this month, it was resolved to “revitalise the counterterrorism apparatus”, especially the National Counter Terrorism Authority, (responsible for making counter-terrorism and counter-extremism policies and strategies). He hoped, there “won’t be a yawning chasm between words and deeds” and the interests of the people and the state will remain paramount, not “political expediency”.

But these were only men, as the custom of segregation in public spaces is still prevalent.

However, said Zahid, in an unprecedented move, on October 21, a handful of women also protested in Madyan.

Both Noor and Khan said they, too, want to come out.

“I think if there are enough women, my family will give permission,” said Khan.

Note: Names of the women interviewed have been changed to protect their safety.

IPS UN Bureau Report

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By Bhumika Muchhala
NEW YORK, Oct 26 2022 – Held in-person for the first time in three years, the annual meetings of the International Monetary Fund and World Bank last week in Washington, D.C. failed to offer solutions to the dozens of developing countries in debt distress or on the forewarned global recession instigated by monetary tightening.

Meanwhile, austerity measures are reinforced through a repeated emphasis on fiscal tightening, underpinned by a monetarism upheld by the IMF and rich country central banks.

The scenario of a dual tightening in both monetary and fiscal policy is only exacerbated by the absence of political will among creditors to cooperate in debt restructuring, bolstered by narratives of losing market access to financial flows.

New loan programs are created by the IMF to boost concessional financing for food price shocks, climate transitions and liquidity shortfalls. However, these very loans create new debt and reinscribe the very austerity measures that worsen the challenges of inflation and climate.

Within these asymmetries of power and access in the world economy, and the foreclosing of developmental policy tools for developing countries, what then is the fate of the vast majority of people and nations in the world?

The IMF’s World Economic Outlook warned of an imminent recession amidst a shift of financial regime from cheap and easy money to an aggressive synchronization of global monetary tightening.

“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” said IMF Chief Economist Pierre-Olivier Gourinchas. Convening the world’s finance ministers, central bank governors, and financial market leaders, the IMF announced a slowdown in global growth by 2.7%, down from the 3.2% growth projected for this year.

On the heels of a global pandemic followed by the war in Ukraine, the US Federal Reserve’s interest rate hikes, aimed toward domestic price stability, is creating a global push toward more expensive money.

A stronger dollar, higher international and domestic interest rates, coupled with depreciating currencies and sell-offs in many developing country assets, is generating protracted economic and social pain across the globe.

The spillover impacts are seen in soaring food and fuel prices, increases in dollar-denominated debt and imports costs, volatile commodity markets and debt distress intensifying into a 50-year record across the developing world.

The UN’s 2022 Trade and Development Report warns that the most vulnerable countries and communities are being hit the hardest. Warnings of another ‘lost decade’ abound, in that the current interest rate hikes resemble those of 1979-82, which triggered debt crises in over 40 developing countries where ‘structural adjustment programs’ through IMF loans contributed to a decade of lost growth and development across the Global South.

Inflation targeting consumes financial rule makers

The tightrope global central banks are walking is acknowledged by IMF Managing Director, Kristalina Georgieva, who says, “Not tightening enough would cause inflation to become de-anchored and entrenched — which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people.

On the other hand, tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”

Meanwhile, the topline recommendation of the IMF’s Global Financial and Stability Report is that “central banks must act resolutely to bring inflation back to target.” Doing otherwise would risk credibility and market volatility, or in other words, create difficulties in market access to financial and investment flows and/or worsen borrowing terms.

One of the central tenets of neoclassical economic consensus among global central banks is that of maintaining price stability through a low inflation target of 2%. Financial rulemakers have for decades deemed inflation a threat to economic growth by way of the specter of hyperinflation. However, empirical evidence points to the contrary.

Collating data from 31 countries from 1961-94, World Bank chief economist Michael Bruno and William Easterly concluded that the inflation does not lead to lower growth, even when the significant oil price increase of 1974-75 is included.

The US Federal Reserve’s own historical archives demonstrate that the so-called ‘Great Inflation’ of 1965-82 did not harm growth either. In light of these studies by neoclassical economists and central bank institutions, economists Anis Chowdhury and Jomo Kwame Sundaram argue that “there is no empirical basis for setting a particular threshold, such as the now standard 2% inflation target – long acknowledged as ‘plucked from the air.’”

From press conferences to panel speeches, the IMF leadership repeats that the danger of “entrenched” inflation requires a global commitment to tackle it head on through global to domestic monetary tightening.

This stems in large part from a belief that once inflation begins, it has an inherent tendency to accelerate. Consequently, IMF loans and surveillance recommend central bank independence (from the executive) as a means to ensure unbiased financial policymaking, while critics contend that it has only enhanced the influence and power of big banks and financial actors, largely at the expense of the real economy.

However, history again demonstrates that inflation does not accelerate easily, even when workers have more bargaining power, or wages are indexed to consumer prices – as in some countries.

Lost decade redux?

The IMF’s Fiscal Monitor, published on October 12, called upon all policymakers to “maintain a tight fiscal stance, so that fiscal policy does not work at cross-purposes with monetary policy.” In essence, fiscal policy must serve monetary policy in its “fight against inflation,” by retrenching public spending for the singular objective of sending “a powerful signal that policymakers are aligned in the fight against inflation.”

The rationale is straightforward: “In a time of high inflation, policies to address high food and energy prices should not add to aggregate demand.” Increased demand is anathema, as it “forces central banks to raise interest rates even higher.”

The fiscal tightening is not new. In 2021, 131 governments started scaling back public spending. The geographic and population scale of austerity cuts is expected to intensify up to 2025.

Governments are implementing, or discussing, a range of fiscal adjustment policies, such as targeting social protection, regressive taxation, reducing public expenditure in social sectors, eliminating subsidies, privatizing public services or State-Owned Enterprises, pension reforms, labor flexibilization.

All have long histories of negative social impacts on economic and social rights, such as the right to food, water, health, housing, education, and livelihoods. The human impact will reach over 6 billion people, or 85% of humanity, in 2023.

In a time of poly-crisis, retrenching public spending and imposing regressive taxes that disproportionately hurt the poor, especially women, not only extinguishes the hope of achieving the Sustainable Development Goals by 2030, but more fundamentally, regresses decades of fighting poverty.

Meanwhile, the IMF’s Board has approved the creation of two new loan facilities, the new Food Shock Window, available for a year to countries reeling from the global food price crisis, and the Resilience and Sustainability Trust (RST), through which many rich countries may re-channel their unused Special Drawing Rights if the funds are used to address “external shocks, including climate change and pandemics” by rules set out by the Fund.

While both loans address urgent threats, they also create new debt. The RST is also conditional upon an IMF loan program hinged on fiscal consolidation.

The severity of the food crisis warrants aid in the form of grants not loans. Based on prior research done by the World Bank and Center for Global Development on food price spikes, Oxfam estimates that another 65 million people could be pushed below the $1.90 extreme poverty line as a consequence of food price increases.

Debt crises nearing point of no return

Despite the imminent threat of a debt crises imploding across many developing countries, sovereign debt solutions, the Group of 20, IMF, World Bank as well as the Institute of International Finance, the consortium of private financial actors, have to date failed to create viable solutions.

The G20’s Debt Service Suspension Initiative, which suspended debt payments for 73 low-income countries, was terminated at the end of 2021. And two years after the Common Framework was established in 2020, it’s multiple flaws have led even the World Bank to call it a ‘slow-motion debt tragedy.’

One key dilemma is the lack of political will to enforce a comparability of treatment, where all creditors, including private, participate on equivalent terms or restructuring and in the principle of burden sharing. Another challenge is the glacial pace of restructuring is not only protracted but also riddled with uncertainty.

Middle-income countries, where the vast majority of the world’s poor reside and where serious debt defaults are taking place, are not included. Low-income countries fear that access to commercial financing will be cut off if they apply to the Common Framework, as evidenced by Fitch and S&P slashed Ethiopia’s sovereign rating when the nation applied to the Common Framework in 2021.

Out of the three countries that have so far asked for their debt to be treated – Chad, Ethiopia and Zambia – only Zambia has seen some forward movement.

The narratives coming from within the IMF reiterate a subservience to market access and creditor interests. Across panels and webinars, senior level IMF staff remarked that a large debt restructuring is a serious event, which may result in a decrease of future multilateral and private financing, in amounts that outweigh the financing gained in relief or restructuring.

Some warned that private creditors will not participate in debt restructuring where national fiscal instability reigns. To secure market access, countries have to tighten fiscal belts even more. The logic here is that financial stability imperative for accessing private credit requires fiscal consolidation that generates social devastation.

The lack of official creditor participation and the dilemma of transparency, referring in large part to China, was repeatedly stressed as a key problem. At the same time, an old and wholly condescending trope of the need to increase debtor discipline in light of its financial mismanagement and irresponsibility repeatedly emerged.

Meanwhile, there is no mention of the often-legalized corruption of private actors, such as tax evasion and avoidance, speculative and/or rigged trading. Amidst the talk, actual debt solutions are in omission. While political will is already in short supply, the lack of cooperation toward problem-solving is exacerbated by the finger-pointing between the creditor groups of bilateral, private, and multilateral.

History has repeatedly illustrated the way forward on debt, and the waves of austerity that it generates. For decades, advocates and policymakers alike have called for a transparent and binding debt workout mechanism within a multilateral framework for debt crisis resolution, in a process convening all creditors.

The UN General Assembly has adopted multiple resolutions calling for such a mechanism over the years. Debt justice movements from across the developing world have urged for the cancellation of all unsustainable and illegitimate debts in a manner that is ambitious, unconditional, and without repercussions for future market access.

Past cases show how reducing debt stock and payments allow for countries to increase their public financing for urgent domestic needs.

The principle of burden-sharing ensures genuine debt relief, as does the commitment to include all creditors in an automatic or orderly way. Recognizing that multilateral institutions account for around one-third of the outstanding debt of low- and lower-middle-income countries, the World Bank and IMF must participate in such efforts.

They should both cancel debt payments owed, and the IMF should eliminate surcharges. Protection needs to be provided to debtor states against holdouts and lawsuits by non-participating creditors, while laws and procedures for responsible borrowing and lending need to be ensured to protect citizens and communities against corrupt, predatory and odious debts.

Last but not least, an automatic mechanism for a debt standstill in the wake of an extreme exogenous shock should be created. As proposed by the G77 group of developing countries in the UN General Assembly in response to the global financial crisis of 2007-8, such a mechanism must “be established for a determined period in response to external catastrophe events, as climate and natural disasters, health pandemic, military conflict and inflation.” The prescience of the G77 group in 2009 offers a salient message.

While the developing world has little recourse but to ‘dance to the tune of the Federal Reserve,’ the devastating toll of the human, social and economic crisis must be addressed through tools and choices that can be generated.

The question is how to muster political will, be it from the moral pressure of global justice movement to analysis of the effects that soaring poverty and intensifying climate change will have on the very survival of our planet and species.

Bhumika Muchhala is development economist and senior advocate on economic governance at Third World Network. She works on research, analysis, advocacy and public education on the international political economy of development, feminist economics and decolonial theory and approaches.

IPS UN Bureau

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