Over the course of its 75-year history, the World Bank has been the go-to organization for solving global crises: It was charged with rebuilding Europe after the Second World War, and then again with reconstructing Iraq and Afghanistan after they were invaded by the U.S. During the global economic downturn of the 1970s, it loaned poor countries millions of dollars with the stated purpose of ending third world poverty. And earlier this month, the institution was picked to manage one of the most monumental tasks of the century: dispensing climate reparations to the developing world.
The World Bank’s role managing this so-called loss-and-damage fund was formalized on the very first day of COP28, this year’s United Nations climate conference, which just concluded in the United Arab Emirates. The fund, which provides a trove of money for relatively poor countries that have emitted little carbon yet disproportionately suffer the effects of climate change, was capitalized with more than $650 million in just a few days after the start of the conference.
But this success came after a string of furious debates, in which representatives from several coastal and low-income nations expressed vehement opposition to the World Bank’s management of the fund. When developing countries finally agreed that the Bank could host the fund on an interim basis for the next four years, they included a long list of conditions that the institution must meet. The deal was struck largely due to attrition, after weeks of negotiations in which wealthy nations, largely led by the U.S., rejected an alternative to set up a standalone fund.
Experts unanimously agreed that developing countries have little trust in the World Bank as a result of its governing structure, which gives the U.S. outsized influence, as well as the failures of its past programs, which led to debt crises that compounded poverty in many developing nations during the 1980s and 1990s. Moreover, the Bank’s track record as a major investor in fossil fuel projects around the world has led some critics to question its fitness for a position meant to battle climate change.
“The structure of the international organizations [like the World Bank] reflects a global power structure that is no longer the case, no longer true,” said Paul Cadario, a 37-year veteran of the World Bank who is now a distinguished fellow at the University of Toronto. “It doesn’t give sufficient weight to the concerns of the Global South. Those concerns are inevitably going to wash over something as specific as the loss-and-damage fund.”
The World Bank’s primary function is that of a credit institution — a bank like any other. Given its creditworthiness, the bank borrows money at low interest rates, which it then loans to developing nations. It is in part this setup that has sounded alarms among potential loss-and-damage fund recipients: Grantmaking and fund management, two integral components of the loss-and-damage effort, are not core functions of the bank. While the exact extent to which the loss-and-damage funding will take the form of no-strings-attached grants versus interest-bearing loans is unclear, developing nations have argued vehemently against loans that would further trap heavily indebted nations.
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