RESEARCH AND ANALYSIS By Mathew Carr

Aug. 12, 2022

As countries start to tweak their economies and environments in the wake of the pandemic and climate crisis, consider that our new level of awareness, dear reader, might not sit so well with ongoing geopolitical tensions.

Solutions such as carbon credits or making polluters pay get demonized. Elderly political leaders are suspended in inertia and refuse to stand aside. Yet years of talks might be about to pay off, even for the poorest nations.

One country, Sri Lanka, is seen on the forefront of potentially striking a deal to win some debt relief by protecting its natural environment.

It’s seen at the forefront because of the country’s economic pain and its unique geographical location that raises the prospect of a proxy war between the US, China and India.

The nation, with a history of trying to redefine capitalism, is now trying to rebuild some stability in government, which will potentially allow negotiations for debt relief and economic reform to proceed. There’s already a plan for wealth tax.

Elephant in the Room

Some potential nature-based options for Sri Lanka include better protecting blue whales, forests and elephants, as well as making farming better for the climate, said Arjuna Mahendran, an economist and banker and former governor of the Central Bank of Sri Lanka, in an interview with CarrZee.

Handling of plastic pollution and waste chemicals has been “quite weak,” he said. “A lot of environmentalists are quite upset.”

In a way, Sri Lanka is like the US: Its population is highly literate, yet so full of hate and division the big picture gets missed. The South Asian island nation emerged from decades of civil war in 2009 where a separatist group Liberation Tigers of Tamil Eelam waged a war against the government. The LTTE, also known as the Tamil Tigers, fought to create an independent state, accusing the Sinhalese majority led government of flagrant discrimination and persecution.

The new government is still establishing itself and setting the stage for a new budget / financial plan, Mahendran said. “Environmental stuff would come with that or after that.”

As for debt relief for climate action:

“I don’t think there’s an agreed international framework for this,” as Sri Lanka negotiates with the World Bank, IMF and the Club de Paris, the informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries, he said. See here for earlier treatment of Sri Lanka’s debt, which apparently succeeded.

Club de Paris

(This Paris club is not to be confused with the Paris climate deal, where nations are seeking to form cooperation agreements that are good for the climate because they install carbon pricing and speed the shift to cleaner ways of economic production.)

Yet, lenders are already cooporating.