Debt haircut called for

Edition 89 - Winter 2020

Ulrich Volz, head of the London SOAS Center for Sustainable Finance, calls for a haircut for developing countries in an interview.

Ulrich Volz calls for a haircut for developing countries.
Ulrich Volz, SOAS Center for Sustainable Finance
Most experts agree on the relevance of green recovery, especially in industrialized countries. However, not many decision-makers in poorer regions of the world have just other problems? 

Volz: Seeing sustainability issues as a luxury problem is the wrong approach. Ultimately, it is a question of time perspective: is it just about surviving the next six months? Or is it about sustainable development that will continue for the next few decades? That green growth is supposed to be too expensive does not match the reality. Let's look at the energy sector as one of the major emitters of CO2 an: Ten years ago it could indeed be said that coal was much cheaper than solar energy and that we therefore cannot afford the latter. But that is no longer the case. There are also a number of studies that show that investing in green projects and renewable energies can generate more employment than conventional fiscal stimuli. Renewable energy is cheaper, creates more jobs - and this is the only way to save the climate.

What role do international financial institutions play in financing green recovery in developing countries? 

Volz: Both the International Monetary Fund and the World Bank use very strong rhetoric with a view to green recovery. IMF chief Kristalina Georgiewa gives a speech almost every day in which she emphasizes the need for green recovery. She always says: Now is not the time to think about national debt. In my opinion, that's not true. We are heading for a massive debt crisis in large parts of the global south. If the crisis drags on for a while, as it currently looks, a large number of developing countries will no longer be able to bear their debts. Unfortunately, there is no room to finance a green recovery. 

What do you suggest? 

Volz: I co-founded the Debt Relief for Green and Inclusive Recovery initiative. We propose a haircut for highly indebted countries. This should free sufficient resources there to cushion the social consequences of the crisis, make recovery sustainable, strengthen the resilience of economies and promote a just transition to a low-carbon economy. 

Thank you for the interview!

Ulrich Volz is director of the SOAS Center for Sustainable Finance in London and financial expert of the German Development Institute.
Photo: provided

To the main story

In Pakistan, green recovery is being promoted by planting billions of trees.

Green recovery as a way out of the crisis

Under the catchphrase Green Recovery, the restart of the global economy after the corona crisis and the fight against climate change are to be tackled hand in hand. Can this vision stand up to reality in developing countries?