Colombian Revolutionary Proposal at COP28 on Climate Change

A few hours before the climate summit, COP28, concludes in Dubai, Colombia is assessing its proposal to swap debt for climate action, alongside France and Kenya. This has been an idea presented by the Colombian government under President Petro at various international forums since he began his term in August 2022.

Now, at the climate change summit held in Dubai, Colombia, along with France and Kenya, is analyzing the actual potential of this practice for countries in the southern hemisphere. Nevertheless, the Colombian Minister of Environment, Susana Muhamad, has clarified that this policy does not imply “reduced long-term indebtedness.”

Colombia’s Flagship Proposal in Environmental Matters

The possibility of exchanging external debt for climate action has been the flagship proposal of the Colombian government from the outset. Over the course of its 15 months in office, the idea has been presented at various global events. Initially, the Colombian president argued for it before the United Nations General Assembly in September 2022; subsequently, in discussions with US President Joe Biden, and also during the Paris Summit on Climate Finance.

However, for now, there hasn’t been a specific proposal on how to materialize that idea. On the contrary, there have been corrections and suggestions from the Colombian government itself to narrow down those options. For instance, a few months ago, the Minister of Finance, Ricardo Bonilla, stated that “there is no work being done on any debt swaps,” arguing that it was better not to use that word as it might “alarm credit rating agencies.”

Evaluation with Kenya and France

In the context of the significant climate forum in Dubai, Minister Muhamad met with Kenya’s representative, Ali Mohamed, and the French Minister for Energy Transition, Agnes Pannier-Runacher.

From that meeting emerged the announcement of establishing a group of experts tasked with reviewing how the debt held by countries prevents them from investing in climate action and what financial mechanisms can help free up fiscal space for them to do so. What Colombia, alongside France and Kenya, proposes, is to study how developing countries can be freed from their debts to invest that money in climate-related issues.

“External debt (both public and private) and sovereign debt (owned by the State) hinder the capacity of developing countries to drive climate action. These are highly indebted countries,” stated the Colombian minister in a press conference. For example, in this country, “only 0.16% of GDP is invested in climate change and not 3%,” as it should be.

According to Minister Muhamad, “We can’t be making this transition (energy) at the level we need to if we have a budget every year. If we can or cannot pay the external debt, if international risk agencies tell us, because of transitioning, that they will lower our risk rating.”

“What we want to examine is how swapping debt for nature has been carried out because it has not necessarily meant reduced long-term indebtedness. That’s why we have gone further by placing debt bonds in the market related to environmental and climate issues, and we launched an investment portfolio for energy transition,” concluded Susana Muhamad.

Commission to Study Options

In this proposal, Colombia has an ally in France. In this regard, the French representative, Pannier-Runacher, stated that “the flow of money reaching developing countries in time is a critical issue… Therefore, we want to analyze things such as whether debt swaps work or not. Or what financial mechanisms can allow developing countries to incur less debt.”

Thus, the three countries announced the creation of a commission that will analyze the necessary reforms to reduce the debt of developing countries in exchange for measures against climate change and environmental protection.

The commission will conduct a “thorough assessment of how the structure, volume, and analysis of external debt affect the capacity of developing countries to preserve nature, adapt to climate change, and decarbonize their economies.” What Colombia, France, and Kenya expect from this work are “ideas and recommendations that, with innovation, address the challenges of the relationship between debt, climate change, and environmental degradation.”

For the Colombian minister, this commission “is a resounding step, a tangible example of what climate action is.”