This article is a partnership between ProPublica and The New York Times Magazine.
Late on May 31, 2018, five days after she was sworn in as prime minister of Barbados, Mia Mottley and her top advisers gathered in the windowless anteroom of her administrative office in Bridgetown, the capital, for a call that could determine the fate of her island nation. The group settled into uncomfortable straight-backed chairs around a small mahogany table, staring at framed posters of Barbados’ windmills and sugar cane fields. Mottley, who was then 52, can appear mischievous in the moments before her bluntest declarations, but on this evening her steely side showed. She placed her personal cellphone on speaker and dialed a number in Washington for the International Monetary Fund. As arranged, Christine Lagarde, the managing director, answered.
Mottley got to the point: Barbados was out of money. It was so broke that it was taking out new loans just to pay the interest on the old ones, even as its infrastructure was coming undone. Soon the nation would have no choice but to declare itself insolvent, instigating a battle with the dozens of banks and creditors that held its $8 billion in debt and triggering austerity measures that would spiral the island into further poverty. There was another way, Mottley said, but she needed Lagarde’s help.
Mottley, the first woman to lead Barbados, had been working toward this conversation for nearly two years, consulting expert financial and legal advisers to develop a plan that would restructure the country’s soaring debts in a way that would free up money to invest in Barbados’ economy. Then, nine months before voting day, that plan took on new urgency as two powerful hurricanes ripped through the Caribbean 12 days apart; they missed Barbados, but one of them obliterated nearby Dominica.
In Mottley’s view, that obliteration was “like a nuclear event.” It was increasingly clear that climate change would make all the projects that Barbados already could not afford more necessary — and more expensive. The storms revealed that even the most heroic economic planning could be laid to waste in a moment. It was already obvious that every climate crisis was an economic crisis; but going forward, she realized, every economic crisis would effectively be a climate crisis. For Mottley, this meant the money she needed the IMF to help her recoup wasn’t just for her people’s prosperity but for their survival.
Mottley’s insistence on speaking directly with Lagarde — she had been pushing for the meeting for nearly a week while Lagarde’s office demurred — was an unorthodox way to approach the leader of one of the world’s dominant economic institutions. Having descended from two generations of elite politicians, Mottley had learned, though, that important decisions at large organizations are made at the top. Her grandfather was the mayor of Bridgetown; her father served as the country’s consul general to the United States. She was groomed at the island’s elite girls’ academy, Queen’s College, and at the private United Nations International School in New York. Beside her in the anteroom was her adviser Avinash Persaud, a close friend since the days when they each studied at the London School of Economics, where she received her law degree in 1986. Persaud, who went on to lead research departments at J.P. Morgan and State Street Bank, was deeply knowledgeable about development finance. The two friends were joined by the principals of a little-known but influential London financial firm called White Oak Advisory — Sebastian Espinosa and David Nagoski — debt experts who had developed a novel contractual clause to protect countries from at least some of the economic consequences of climate-driven catastrophes.
With Lagarde on the phone, Mottley made her pitch. Barbados, she said, was going to default on the debt it owed to private banks and investors. She wanted Lagarde’s support in persuading them to renegotiate its terms. The IMF is both the assessor and the enforcer of global economic policy, the de facto gatekeeper to the world’s capital markets. Mottley knew that banks and investors would work with her only if Barbados were participating in a formal IMF program for economic reform — and it had to start immediately.
Mottley told Lagarde that Barbados was prepared to do voluntarily what most countries have to be coerced to do: cut its budget and raise taxes. But she needed something in return. With the effects of climate change bearing down on the region, the kind of austerity the IMF demanded from developing nations — slashing the size of government agencies and firing thousands of public employees while auctioning off real estate and other national assets — would no longer work. Mottley wanted Lagarde to endorse an economic program that would still allow her to raise salaries of civil servants, build schools and improve piping and wiring for water and power. “Before you carry people on a long journey,” she told Lagarde, “you have to give them a little breakfast.”
Barbados, while considered relatively wealthy by World Bank standards, hadn’t been able to borrow on the international market since 2013, and it had no capacity to pay for essential programs and projects. The concern was immediate, Mottley explained: Hurricane season was about to begin. The room fell quiet. No one was sure how Lagarde would respond. Would she trust Mottley to spend on Barbados first? Or demand — as the IMF usually did — deference to debtors? Then, as Mottley’s advisers recall, came the director’s surprising reply: She was extremely supportive of what Mottley was proposing.
The next day, Mottley declared that Barbados would stop making its payments on the nation’s debts. “Today, my friends, we pry off the hands that have been strangling us,” she said. Some of the business leaders she had gathered to stand behind her at the lectern winced. The value of Barbados’ bonds on the global markets crashed. S&P Global downgraded the island’s credit. The country teetered on the edge of financial chaos. With that, Mottley’s adventure onto the global stage of financial and climate activism began.
What Mottley sought would not be easy. She would have to untangle the relationships connecting the IMF with the financial institutions that invest in countries like Barbados — a global financial system that simultaneously helps and preys upon countries at their moments of greatest need. She would have to challenge the rules of that system and its powerful figures, who often struggle to recognize how climate change is altering the traditional dynamics of debt and development. Mottley would come to see the traps of that system as fundamentally unjust, born from generations of colonial rule. Just as outsiders once pillaged the Caribbean for wealth created by the hands of slaves, investors in those former imperial powers now squeezed former territories for their assets, for access to markets, for interest on loans. And she would have to contend with all of that waiting for the next storm, knowing she governed a dot of land isolated in one of the most vulnerable places on Earth.
Few parts of the planet are as imperiled by the changing climate as the Caribbean’s crescent-shaped string of islands. Every summer, the warm waters off the northwest coast of Africa spin off cyclonic systems that hurtle across the Atlantic, reaching the easternmost stretch of these islands — where Barbados stands sentinel. Quick successions like that of Hurricane Irma and Hurricane Maria, the two storms that narrowly missed the island, were supposed to be rare. Now, though, experts believe that global warming could drive a fivefold increase in strong hurricanes, suggesting that hits from Category 4 and 5 storms will become an annual near-certainty.
Droughts, meanwhile, are growing longer and drier, threatening drinking-water supplies and making it difficult to grow food. Barbados, a teardrop-shaped island of 290,000 people, is among the half of Caribbean islands the United Nations already describes as water-scarce, with seawater seeping into its aquifers and rainfall that might drop by as much as 40% by the end of the century. The droughts will lead to wildfires, killing more vegetation and crops. When it does rain, it is projected to rain heavily and all at once, causing precipitous landslides, which will wipe out roads, rip up electrical grids and cut off energy supplies. At the same time, rising and warming seas are eroding shorelines and killing off reefs and fisheries. According to the IMF, roughly two-thirds of the 511 disasters to hit small countries since 1950 have occurred in the Caribbean, taking more than 250,000 lives.
These islands have another dubious distinction: They carry more debt, relative to the size of their economies, than almost anywhere else on the planet, a fiscal burden that makes it virtually impossible for them to pay for the infrastructure necessary to protect them from the climate disruptions to come. Barbados, which in 2017 had the third-highest debt per capita of any country in the world, was spending 55% of its gross domestic product each year just to pay back debts, much of it to foreign banks and investors, while spending less than 5% on environmental programs and health care.
This is true beyond the Caribbean too. In poor nations around the world — from the deserts of North Africa to the low-lying islands of the Pacific and the Caribbean — rising sovereign debt is becoming a hidden but decisive aspect of the climate crisis. According to the United Nations Conference on Trade and Development, external debt for what are called Small Island Developing States, or SIDS, more than doubled between 2008 and 2021. The IMF projected that three-quarters of emerging-market economies would pay a third or more of their tax revenue just on debt service in 2021. In the zero-sum game of budgets, that means less money for shoring up infrastructure that is already in shambles. A recent analysis by Eurodad, the European debt-and-finance advocacy organization, found that over the last six years, Latin American and Caribbean countries have slashed what they pay on anything non-debt-related by 22%. As Mottley explained to me, “We always have to put aside debt money first.”
The warming planet has turned this into a self-perpetuating cycle: Were it not for the disasters worsened by climate change, much of the region’s debt might not exist in the first place. Jamaica’s debt, for example, can be tied to the response to Hurricane Gilbert more than three decades ago. Grenada’s is in part because of Hurricane Ivan in 2004. Dominica’s 2017 loss, relative to its GDP, was the equivalent of a $44 trillion hit to the U.S. economy.
According to the World Bank, these climate-driven damages have made it difficult for the Caribbean economies to achieve anything resembling healthy growth. Since 1980, the cumulative cost of disasters has amounted to more than half of a year’s worth of total economic product for 14 Caribbean nations. The costs have eclipsed average annual GDP growth in five of them. There are poor countries with more debt, and there are island countries in the Pacific facing more imminent climate threats, but nowhere in the world do the debt and climate vulnerabilities overlap to the extent they do in the Caribbean. Fixing the debt crisis, as Persaud told me, “isn’t about countries mopping up their fiscal discipline. It is that countries on the front line face a different kind of risk. They face wipeout risk.”
The IMF could buffer this crisis. Indeed, doing so is arguably its mission. The IMF was formed in 1944 when the soon-to-be victors of World War II met at a hotel in Bretton Woods, New Hampshire, to build a new economic system for a world devastated by years of war and depression. Its mandate: to stabilize global markets and keep currencies — and debts — predictable. Today 190 member countries pay dues into a pool from which they can borrow in a crisis.
On balance, the IMF and the World Bank have served their primary function well, steadying economies and offering the reassurance of economic leadership to global markets over many decades. But the fund also became a conduit by which global capital, and the mixed blessings that come with it, flow to the world’s poorer nations. Its advisers are the people who dictate the often-painful recalibrations a troubled country must take to crawl back toward economic recovery and regain market trust. It has become one of the most influential, if underappreciated, determiners of climate policy in the world.
The IMF doesn’t lend much money directly — that’s the job of the World Bank and other development banks — and it doesn’t negotiate between a country and its creditors. But it does draw the boundaries of possibility and policy, and its stamp of approval is an essential prerequisite for other investors, banks and ratings agencies to encourage new projects or lend more money. Should those private contracts fail, the bankers and other buyers know that to some degree, the great international finance institutions stand by ready to help make them whole. An indebted developing country is paralyzed and ostracized without the IMF’s stamp of approval, which gains it access to the world’s capital markets. And that approval is conditioned on fiscal changes that can carve deeply into the bone of civil society.
For her entire life, Mottley had watched Barbados painstakingly build itself up as a postcolonial democracy. Now climate change was prying away the nation’s — and the whole region’s — grip on its destiny. The big institutions capable of aiding Caribbean countries, Mottley could see, leaned too heavily on outdated assumptions and equations. The IMF requires countries to perform within its framework but has been slow to allow that global warming might require the framework to change, only recently beginning to fold some nominal climate risk into its calculations. It continues to hold countries to metrics for success — primarily the ability to keep the ratio of total debt to annual GDP quite low — that many economists say are unrealistic and arbitrary. The IMF has held steadfastly to its doctrine for years, based on its studies of how larger economies, not small ones, function. But a doctrine that demands austerity often only increases a country’s vulnerability to climate threats. “There’s an orthodoxy as to what is acceptable, and what can be sustained,” Mottley said.
By declaring nations like Barbados too rich to qualify for development aid, the World Bank — which effectively puts IMF policy into practice — has relegated them to economic purgatory. The bank has folded climate risk into a range of climate-related aid and disaster-finance programs, but it still does not formally consider a country’s specific climate risk when it evaluates eligibility for its discounted development loans.
Then, by failing to fully account for how the exceptional costs of climate change affect national wealth, the IMF and the World Bank have wound up driving countries in need toward profit-reaping hedge funds and banks, to borrow billions of dollars, often at credit-card-like interest rates.
Throughout, the debts have been collected. They were collected as the shadow of the 2008 financial crisis lingered and as a pandemic decimated tenuous health care systems and tourist-reliant economies. They continue to be collected despite a climate crisis that is caused almost entirely by the copious fossil fuels that those same powerful creditor nations burned to industrialize and achieve their own wealth, the very wealth that undergirds the IMF. Caribbean nations are being asked, in a sense, to pay not only their own debts but the rest of the world’s debts, too, for all the progress it made while leaving the Caribbean behind.
Mottley’s ascent seemed inevitable to some Barbadians — one childhood friend said that at 12, she promised she would be prime minister — but not to all. Even after she earned her law degree at 21, her father urged her toward private practice. Why would Mia, the oldest of four siblings, a girl who loved music and for a while even managed a reggae band, want to wade into the island’s internecine politics? “Horses for courses,” Mottley told me recently, using the British phrase suggesting that everyone has a purpose in life. Her mother was the real politician. “Mommy would tell us all along that you all and your father are lawyers, but I am the law,” she said. It was her mother who “sees people, she hears people, she feels people.” That became Mottley’s creed. As prime minister, she is often seen at food trucks and is known as Mia to cabdrivers and reporters.
Mottley was first elected to Barbados’ Parliament in 1994. She was the youngest Barbadian ever appointed to a ministerial position and has served as both the country’s attorney general and its minister of economic affairs. Since 2008, she has twice headed the Barbados Labour Party. Her 2018 election was a landslide, with the party taking all 30 seats in the country’s lower Parliament.
She told me once that one of her great regrets was not being around to fight for Barbados’ independence in 1966. The country’s first prime minister, Errol Barrow, was a family friend, and Mottley grew up steeped in his belief that it was the responsibility of the island’s government to use its resources to lift up, educate and house its citizens. She also shared Barrow’s indignation about Barbados’ past. The island, first claimed by King James I of England, was importing slaves from Africa as early as 1625, receiving thousands of people from Guyana and the Gold Coast and using them up — their life expectancy once on Barbados was less than 10 years — to produce sugar. When the British Parliament passed the act that abolished slavery in its territories in 1833, it paid white slave owners 20 million pounds to compensate them for the loss of their property, even as it required the kidnapped Africans to provide four additional years of free labor as “apprentices.”
“It goes further,” Mottley told me. The British rulers then told its freed slaves that if they didn’t continue to work, they couldn’t live on the plantations that made up most of the 166-square-mile island, “the master and servant land.” That arrangement continued for many decades, extending the system of sugar and exploitation that powered the modernization of Britain and its boom in banking, shipping and insurance. Along the way some 250,000 Black Barbadians died.
As it turns out, Mottley says, she didn’t miss the rebellion after all. “My belly full but me hungry,” she intoned one afternoon, recalling Bob Marley. “A hungry mob is an angry mob.” Her point was that the stakes for Barbados and the Caribbean are still high and the dynamics the same: The region’s 45 million people still have little voice and are easy to forget, and as the Caribbean becomes increasingly unlivable, it could become a source of potential destabilization — and mass migration — right at America’s door.
For at least a decade before Mottley was elected, a mixture of poor management and corruption had eroded the country’s economy. As Barbados’ former central bank governor DeLisle Worrell described it to me, the country had developed a “dysfunctional” fiscal culture in which government agencies and departments took loans and negotiated deals without consulting the central bank, accumulating sprawling debt and a backlog of need. On the touristed southern end of the island, sewage erupted from neglected pipes as funding to fix them lagged. The country’s response was to print more money and borrow more from abroad, to stanch the economic bleeding. In 2013, during Worrell’s term, Barbados took one of the largest commercial loans in its history — $150 million — from Credit Suisse at 7% interest; within a year, it had grown to $225 million, and by 2018, the interest on the balance was 12%. The money didn’t last, and the sewer lines weren’t fixed. It would be the last commercial loan Barbados could get. Running a consistent deficit, the country began drawing down its foreign reserves to service the loans. By the time of the 2018 election, the government was nearly broke, its reserves having dwindled to enough for just 28 days.
The people of Barbados did not choose Mottley — or her Barbados Labour Party — over its rival by a margin of 3-to-1 because their political philosophies were substantively different. They were not; both are center left. Nor was the vote driven by people thinking Mottley would challenge the global finance system or solve climate change. The vote was for fiscal competence.
Climate change was only a small part of the fiscal morass, but it was a big part of what could keep Barbados from ever clawing out. As Mottley plotted how to escape the fiscal spiral, she met repeatedly with European climate scientists who helped bring into focus how everything from the island’s housing stock to its coral reefs would determine how habitable Barbados would be in the future. Along with restructuring the country’s debt, Mottley laid out a plan, called Roofs to Reefs, to restore the island’s physical and ecological infrastructure. But it was going to take money — a lot of it. Mottley thought she could work her way to the heights of global finance to gather that money. She wasn’t the first to try it, and she didn’t know how hard a climb that would soon prove to be.
The IMF’s education in the economic threat of climate change began with Hurricane Ivan in 2004. It was heading straight for Barbados but veered south and instead hit Grenada, another former British colony, as a Category 3 storm; it damaged most of the structures on the island, including 73 of the country’s 75 schools. Four-fifths of Grenada’s power grid was knocked out, along with most of its nutmeg trees, virtually eliminating a key export for years. The total damages topped $800 million. Aid did come; the World Bank disbursed $20 million almost immediately. Grenada, already heavily indebted before the storm, still plunged into a deep recession. In December 2004, it missed its first payment, entering what Standard & Poor’s termed “selective default.” Then, seven months later, another hurricane struck.
In the IMF’s view, Grenada could not sustain its debts, and that judgment gave cover for the country to renegotiate with the banks and foreign governments that it owed. The IMF’s assessment came at the usual price, though. Grenada agreed to slash its federal payroll — the government was the largest employer on the island — as well as sell off assets and privatize agencies, all toward the goal of reducing its debt.
As the IMF sees it, reducing debt is the recipe for financial stability. But in the climate era, stability also requires enormous spending. Grenada needed sea walls to protect its towns against ocean surges and retaining walls to keep its mountainous roads from collapsing. It needed to harden the country for worse storms and droughts to come. And immediately after Ivan, it needed a place to send its children and its sick. So the government spent a part of its budget on new schools and hospitals and roads. But when Grenada missed its fiscal targets, the IMF instead blamed the country’s “capital expenditure overruns” for its “fiscal slippages.” From then on, according to a 2007 staff report, the IMF wanted Grenada to pay off its debts to outside investors first.
“The IMF always blames the countries,” says Timothy Antoine, director of the Eastern Caribbean Central Bank and Grenada’s permanent secretary in the Ministry of Finance during the hurricanes. Focusing on debt alone was “absolutely ludicrous,” a sign that the fund was still unprepared to acknowledge the extreme effect that a catastrophic event had on a country’s finances. Grenada had cut its budget and increased its revenues but watched its economy crumble and its poverty explode anyway. Lack of fiscal discipline alone could not account for the country’s troubles, and it wanted the support of the most powerful global institutions in finding a solution.
Over time, the IMF did begin to recognize the importance of preparing for the economic shock that climatic changes could bring — by 2014, several of its Grenada reports mentioned it. Still, connecting the risk to the consequence of default appears to have been too great a leap. Climate change was not even identified as a cause or risk factor when the IMF released its post-mortem on Grenada’s restructuring in 2017, suggesting that it had few methods for quantifying how environmental pressures might affect debt or the pace of its repayment. What was discussed was political instability and rising interest rates, not faltering agricultural exports or rising heat. “They only have a hammer,” says Daniel Munevar, a former senior analyst for Eurodad now with the U.N. Conference on Trade and Development.
In June 2014, as Grenada again approached insolvency, Antoine gathered civic and religious leaders in the second-story meeting room of a Catholic church overlooking Grand Anse Beach to plot a different approach. Grenada’s leaders wanted a mechanism that could protect them against repeating the same fate when another climate catastrophe hit. But the IMF staff weren’t sure how to put a value on the chance of a catastrophe and how to measure something that hadn’t even happened yet. A breakthrough came from White Oak Advisory — the consultants Grenada had hired.
Espinosa, the firm’s co-founder, had long seen how wealthy countries pushed exotic insurance products as the fix to protect against high risk. But it occurred to him that insurance, which is designed to protect against unlikely calamities, was a poor match for the grim certainties of the climate crisis. He thought instead about how debt and equity contracts often have triggers that change the terms when parties aren’t confident about their risk. What if debt relief were to be triggered by a storm? It could guarantee that Grenada would be protected when the next climate catastrophe arrived.
White Oak constructed a contract clause that would automatically grant Grenada a reprieve from payments on much of its commercial debt if another hurricane hit the island, introducing a new tool for managing sovereign debt crises in a climate-plagued region.
As Mottley began to shepherd Barbados through its own insolvency, Grenada’s experience taught her that success would depend on her ability to use the IMF to her advantage. If she failed, Barbados risked being recolonized, this time financially. Moreover, when it came to facing off against the country’s creditors, Mottley didn’t just want a discount on her debts. She wanted the one thing she’d learned would begin to make her public debt resilient to the shocks of climate change — Barbados’ own hurricane clause.
After Mottley announced that Barbados would default on its debts, the IMF wasn’t the main obstacle to restructuring them; instead, it was the financial institutions that held the debts. It might stand as a mystery how anyone thinks he or she can make money off the tribulations of a group of tiny countries. But impoverished Caribbean islands have delivered wealth to larger powers for centuries, and today is no exception. Before, it was risky commodity ventures that made great fortunes. Now it is increasingly the risk itself. Traffickers in debt offer money that is desperately needed. By taking on the risk that these tiny nations will default, they profit handsomely — and if the risk gets to be too high, they can pass the debt on at a discount to more adventurous investors. That’s the nature of finance. But the climate crisis is raising the risks considerably, and in so doing, it is once again binding the destiny of these fragile nations to the speculative will of faraway powers. Postcolonialism barely had a chance to take hold before it gave way to climate colonialism.
When in 2018 Mottley told Barbados’ creditors that she did not intend to pay them, she and her team had a plan. The country owed approximately $8 billion, much of it to Barbadian banks owned by Canadian institutions like Scotiabank and CIBC, but nearly $1 billion of the total was owed to global financial firms, including Credit Suisse, the investment-management firm Pimco and a Morgan Stanley subsidiary called Eaton Vance. Her goal — drawn up in collaboration with the IMF — was to reduce Barbados’ total debt load by a third within 15 years. She needed to persuade her creditors to take what’s known as “a haircut,” reducing what they were owed, in this case by roughly a third. The old bonds would be exchanged for new ones at a lower interest rate. It was essential that a hurricane clause be included, too.
On the other side of the negotiations was a young, ambitious investment manager out of Boston named Federico Sequeda. A portfolio manager in emerging markets for Eaton Vance, Sequeda was accustomed to buying sovereign-debt stakes in places like Vietnam and Brazil. The mutual funds he oversaw held large positions in Barbados’ bonds. Sequeda, for one, would take umbrage at the suggestion that emerging-markets investors are predatory. Clearly, these developing countries need capital to function, he points out. Nobody is willing to donate that capital, and so accessing it — just like every other service purchased in the world — comes at a price. Ideally, there is sufficient transparency of motive and transaction so that the exchange can be a win for both sides.
In the run-up to Mottley’s election, Sequeda had flown down to the island to meet with Worrell, the former central bank chief, to get a pulse on the changes foreign investors could expect should she be elected. Still, he was caught off guard by both the sweep of Mottley’s plan and her determination to execute it. The creditors thought that Barbados could pay more and that the country was using the IMF’s cooperation to leverage lower payments. They were neither versed in nor particularly concerned with climate change as a unique risk to their investments. The notion that a hurricane clause might be imposed on funds that firms sold to their clients as less volatile than other investments was untenable. Sequeda didn’t think climate change — or the invention of a debt instrument to address it — was his business or responsibility. “We’re not really set up to analyze the probability of a climate-type risk taking place, and we don’t really think we’re actually the investors who want to be taking on that risk,” he told me.
The problem was that Sequeda and others already had huge exposure to climate risk. Commercial banks and private investors now hold approximately $54 trillion, or more than half, of the total global sovereign debt in emerging markets, linking themselves to the fate of the world’s poorest countries in what the Institute of International Finance warns is “a vicious circle of interdependency.”
Complicating matters is that only part of that total debt is publicly known. Bloomberg records, for example, show that before Mottley’s default, Barbados had at least 30 outstanding bonds and loans worth more than $1 billion, at interest rates as high as 12%. Eurodad examined another financial trading database for The New York Times, looking at bonds in Jamaica, the Dominican Republic, Belize and Suriname — four countries with bonds issued in U.S. or European currencies — and found foreign commercial debt worth nearly $10 billion. The records show that almost every major bank and investment house has a stake in these countries. BlackRock, for example, held $840 million in Dominican bonds as of January 2021. Goldman Sachs, Credit Suisse, Deutsche Bank and Citigroup have all held bonds in the countries, some at exorbitant interest rates. Jamaica, for one, recently owed some $208 million to J.P. Morgan Chase at 11.6%.
Almost certainly this is only a glimpse of a bigger and murkier picture. Eurodad researchers estimate that a vast majority of holdings — about 75% — is private debt that cannot be identified. It is obscured by the contracts that funds and equity groups make with governments, which are not required to be disclosed. Sometimes, Persaud said, even governments aren’t sure to whom they are beholden. Or, as one sovereign-debt lawyer once joked, the only reliable way for a country to identify the holders of its bonds is to stop paying.
The lack of transparency raises fundamental questions about the fairness of default negotiations and the inability of the people most endangered by the debt-climate collision to hold their governments — and their creditors — accountable. In many cases, creditors can sue countries, but countries have difficulty suing back, leaving citizens even more exposed. Over the past two decades, according to Eurodad, half of sovereign debt restructurings have led to litigation, often forcing higher payments than a country can afford.
The most aggressive litigators are found within an ecosystem of hedge-fund investors, sometimes called vulture funds, that wait for the most vulnerable moment to buy distressed debt cheaply and then flip it for a profit, often by resisting any sort of restructuring or renegotiation. In 2008, NML Capital, a subsidiary of Elliott Management, a hedge fund, bought a discounted stake in Argentina’s pre-default debt and then pursued a relentless legal strategy for repayment — at one point having an Argentine Navy ship seized off the coast of Ghana. It earned its money back and then some when Argentina issued a new bond deal. A fund called Aurelius Capital Management similarly bought up Puerto Rico’s debt, then argued in court that the island had to repay the fund before it could finance other projects, including hurricane preparedness. That case was dismissed.
In late 2018, Persaud received an email stating that a Connecticut hedge fund called Greylock Capital had bought an undisclosed portion of Barbados’ debt, and with it, a seat at the table among its creditors. The email, as Persaud recalled, warned that “they could take us to court.” But Greylock’s interest offered an opportunity. A distressed-debt fund also doesn’t need to recoup the same value that Sequeda did to make its profit, because it bought the bonds for a lower cost. Greylock might be able to drive down Sequeda’s price, helping Mottley get the terms she wanted.
From almost the start, the disaster clause Mottley sought was a sticking point. Her team would write up a lengthy proposal, always with a natural-disaster clause among Barbados’ demands. The creditors’ committee routinely would remove it. Mottley, patient, held out.
The clause White Oak designed wouldn’t reduce Barbados’ debt directly. But by suspending payments, it provided immediate access to funds in the aftermath of a calamity and shifted payment to the back end of the term. It would avoid disorderly default and keep Barbados, in the event of a catastrophe, at the table. The investors, though, didn’t buy it. Some of them, Persaud says, sharpened their tactics, telling reporters that Barbados was slow-walking its economic repair. The Financial Times reported that some creditors found White Oak’s $27 million fee to be “absurd.” Then, Sequeda and the creditors’ committee went to Washington and lobbied the IMF, demanding that it require Barbados to set aside a larger annual surplus — in essence, to free more cash to repay its debt faster.
The IMF maintains it kept the creditors at arm’s length. But sometime soon after, according to Persaud, its mission chief on the Barbados deal, Bert van Selm, grew impatient for the government to settle — even if it meant the hurricane clause would be lost. “I said, ‘Bert, are you trying to pressure us into a debt restructuring?’” Persaud told me. He says van Selm replied that the IMF needed the restructuring to be finished. Alejandro Werner, though, the IMF’s former director for the Western Hemisphere, is more direct about what occurred. For months, he says, he struggled to keep the IMF’s internal departments aligned so that Barbados’ program could succeed. But the more Mottley delayed, the more the pieces threatened to come apart. Some of the IMF staff thought Barbados was “being very obnoxious in asking for the natural-disaster clause,” he told me. “Everybody was kind of like: ‘OK, we’re so close. Let’s just close.’”
One day in early 2019, with the negotiations at an impasse, Persaud flew to New York for a private meeting with Sequeda. For nearly a year, the two sides had been in a stalemate. In person it was different. They sat for coffee at the luxurious Mandarin Oriental hotel, with views over Central Park and Midtown Manhattan. Sequeda, who was unyielding in previous meetings, softened. His father-in-law and Persaud’s father were both from Guyana. Persaud, once a Wall Street executive himself, could talk Sequeda’s talk. Sequeda wanted to make sure the new bonds would be large enough for him to easily sell his stake later on — something made more likely if the bond met the $500 million threshold to be listed on the J.P. Morgan emerging-market index. Persaud, of course, wanted the disaster clause. “He kept saying liquidity,” Persaud said. “I kept saying disaster clause.”
A few months later, the agreement was signed. There would be a fund of roughly $530 million. Barbados received a 26% reduction in its debt, enough to — at least temporarily — drop its interest payments from 7% of its economy to 3% and free up more than $500 million a year. And it received its disaster protection, making Barbados the largest issuer of bonds with hurricane clauses in the world.
It was a tremendous victory for Mottley and Persaud, but soon afterward, two things happened to remind them just how precarious life on an island can be: The COVID-19 pandemic struck, and a relatively modest storm rolled over the country.
The July 2, 2021, forecast was for blustery rains, but not extreme by Caribbean standards. As the winds picked up in Bridgetown around 7:15 a.m., Sandra Clarke made up some peanut butter on biscuits for breakfast. Clarke had worked as a stenographer for the Health Ministry. She liked Mottley — “She’s down to earth.” When the IMF terms spurred the Barbados government to cut roughly 1,000 jobs, Clarke was among those let go. It hurt her finances, but she still felt that Mottley was acting in Barbadians’ best interests. That morning, the howling grew louder, and the rain came harder. A tearing sound made Clarke look up — there was a gap where a wall and the ceiling met. “Run!” her son shouted. “I can see the sky.”
Months later, I met Clarke where she was staying, a government-run emergency shelter in an 18th-century stone seminary overlooking the eastern shore of the island. The good news, she told me, was that the government planned to rebuild her home. The bad news was that progress had been slow, and the house remained a series of dilapidated courtyards, with a yellow dumpster in the front yard filled with soggy mattresses and splintered wood.
Three years after Mottley identified climate change as Barbados’ preeminent threat, and three years into her effort to restructure its economy to better prepare for that threat, the country still hadn’t been able to address one of its highest priorities: shoring up vulnerable, poorly built housing. The storm, called Elsa, which barely ranked as a Category 1 hurricane, happened to fall just short of the catastrophe level that would trigger the country’s hurricane debt relief. It was, however, the kind of routine challenge the government should be able to withstand. Indeed, Clarke had gone to the government a year earlier to apply for a program that would have fixed up her house, but the waiting list was long and the funding short.
The dollars that might have saved Clarke’s home were instead used to amass a surplus that the government had promised the IMF. Mottley had reduced the public work force and raised all sorts of taxes to ballast the government’s balance sheet. All of this was done for the sake of two metrics by which the IMF still judged a country’s success: How much savings could the government set aside, and how quickly could it reduce the ratio of its debt to its GDP? To critics like Mark Weisbrot, co-director of the Washington-based Center for Economic and Policy Research, these metrics weren’t fit to the task, and meeting them was proving to be more than Barbados could bear.
As a key condition of its IMF program, Barbados agreed to produce a surplus of 6% of its GDP each year. Because government revenues — from taxes and fees — were dependent on how well the nation’s economy performed, this assumed that it would grow at a rate it had not in years, if ever, an expectation that several economists described as unrealistic, even cruel. Van Selm, the IMF’s mission chief for Barbados at the time, defends the number. “It can be done,” he told me. The IMF, meanwhile, held Barbados to its second critical measure: It would have to use much of that surplus to slash its debt levels until the debt made up just 60% of the nation’s GDP.
These are metrics that looked great in the textbooks of global economics schools in the 1960s, but they are not the measure by which the ruling economies of the world are judged today. Japan’s economy is doing fine with a debt ratio of 258%, and the United States has a ratio of 150% — both countries, Mottley said, that “did everything that they tell us traditionally not to do.” The 60% ratio, in particular, requires extreme austerity. “It’s a little bit of a matter of theology rather than economics,” Persaud told me. He and many others believe that it’s not the total amount of debt that matters, but to whom it is owed and how much it costs to carry. Development aid, for example, is often delivered as extremely low-interest loans. Should that count the same as high-interest debts to hedge funds? “It’s become a fetish,” Persaud said.
As small nations accumulate substantial debt because of climate change, which they neither caused nor benefited from causing, it raises even larger questions. Should those countries be penalized again for carrying that debt on their balance sheets, even as investors — in the purest distillation of climate colonialism — profit from that debt? Should there not at least be an allowance in IMF policy that distinguishes between climate-caused expenses and other, normal governing expenses?
When she was elected, Mottley thought she could work within the IMF’s system — that it could be flexible enough to let her whittle away at the drastic needs her country faced. A year after the negotiations were complete, though, she was beginning to see this was an illusion. That was when the COVID pandemic kneecapped Barbados’ tourism industry. Government revenues plummeted, the country’s surplus flipped into a 2% deficit and its debt started to rise again. The IMF cut Barbados a break when the pandemic hit, lowering its surplus target, but only temporarily. As the free-fall continued into 2021, the IMF announced that it would soon push Barbados toward its 6% target surplus once again, with van Selm saying that he was “pretty sure that tourism in Barbados will bounce back.” If the IMF’s goal was to support Mottley in building resilience to shock — climate as well as economic — its policies seemed to be having the opposite effect. The fund’s insistence on building a surplus was instead putting Barbados in a holding pattern, effectively sidetracking climate priorities.
Why? One reason, according to current and former staff members I spoke to, was that some groups within the IMF still didn’t think that accounting for climate change was essential to their work. Lagarde, who declined to be interviewed for this article, was sympathetic to Mottley’s climate fears, says Mark Plant, a 24-year veteran of policymaking at the IMF who now runs a finance division at the Center for Global Development, but during her tenure the fund made few strides on the issue. Then, in 2019, Kristalina Georgieva, a Bulgarian environmental economist, came from the World Bank to direct the IMF. Climate issues were trending politically, “and so she has pushed it quite hard,” Plant said. The same year, Alejandro Werner and Krishna Srinivasan, then the IMF’s deputy director for the Western Hemisphere, wrote a policy paper that for the first time laid out a broad philosophy for incorporating climate risk into the fund’s analytical framework. It suggested that in the future the IMF should lead countries into considering climate costs and make its support conditioned on it. Implementing those intentions has proved complicated, though. “The fund,” Plant says, is still “struggling to fund the right levers.”
One problem, according to Aldo Caliari, who heads policy and strategy at Jubilee USA, an interfaith group active in development finance, is that the organization is still trying to build the staff and expertise it needs to grasp the fiscal impact of the climate threat. Sometimes, its efforts have appeared borderline disingenuous. A few years back, for example, the IMF began advising countries to build a climate reserve fund made up of roughly 1% of their GDP to help pay for disaster recovery. But that, say analysts of IMF policy like the U.N.’s Munevar, basically is asking struggling countries to not use money that they could spend to prevent a disaster — so that they can use it to mop up afterward instead.
The IMF, through the official statements it offered for this article, says that climate change is “now in the DNA” of the institution and that it is acting aggressively on the issue. “The IMF is a learning institution,” a fund spokesman said. “We recognized the need for change in recent years and are moving fast on that journey.”
The fund points to the paper Srinivasan and Werner wrote in 2019, which called for new mechanisms, like the hurricane clauses Grenada and Barbados enacted, to create fiscal breathing room for countries to pay for climate impacts. It presented a vision for the future in which climate issues rise to such prominence within the organization that climate planning becomes a central criterion for IMF approval.
By 2022, the fund had made some headway. Among other efforts, it and the World Bank have both begun to help countries either self-insure against disaster or secure discounted institutional financing before a catastrophe happens. The two organizations are running a pilot program in six vulnerable countries to assess their climate-change policies. For low-income countries, the IMF now requires the economic shock of a disaster — though not the gradual and corrosive trends of climate change — to be considered in its analysis of debt. Most recently, in April, the IMF announced the creation of a new, $45 billion resilience trust, some of which is likely to head to Barbados. Mottley, for her part, says she has found the IMF increasingly attuned to her country’s needs.
Still, when in late 2020 Eurodad looked for evidence that the climate-change policies were rising to prominence within the IMF, it found little. Researchers examined 80 IMF programs around the world and found that climate was central to the fund’s assessment in only one country — Samoa. Critics and insiders both observe that a sense of urgency is still missing. “Eventually” the IMF will have to figure out how to better incorporate climate vulnerability, Werner told me. “I mean, we’re still advancing on that.”
One evening in January, I visited Persaud at his home atop a neighborhood called Beacon Hill. Winding up his short, steep drive, I parked in front of a set of broad concrete steps with views over Bridgetown. Persaud came to the porch dressed casually, in a light blue button-down and slacks. We headed toward his backyard, where two friends, Barbadians visiting from the United States, sat among trees on a short-cropped lawn.
Much had happened in the previous few months. In November, Mottley announced that Barbados would cast off Queen Elizabeth as the country’s titular head of state and declare itself the world’s newest republic, then called for a snap election, which she won handily. The mood was light; the next day, a new government would swear allegiance to its own country for the first time. Persaud poured a glass of California cabernet while his guests told stories about Mottley from high school.
Then Persaud got serious, returning to Barbados’ precarious future. “We cannot do this just through debt, even if there were no limits,” he said. Nor could any country in the Caribbean — or, for that matter, any vulnerable country in the world — survive the climate crisis by borrowing more money. No amount of economic growth would ever be enough, either. The deeper he and Mottley got into their economic reeducation, he said, the clearer it became that a just future for people in small, front-line countries would require a radical shift in how the IMF and the World Bank applied their resources.
For years, Persaud has been at Mottley’s side, answering midnight text messages, tuning her fiscal options, looking five chess moves ahead, innovating ways to fix the region’s fiscal crisis even as her star rose through international speeches and she worked to raise the issue of sovereign debt from an obscure cause to a global climate concern. When Mottley talks about economics, it’s partly her thinking — she is indisputably the boss and has a striking fluency in policy minutiae — but almost always partly his, too. He writes many of those speeches. If Mottley is the decisive leader, Persaud is the fount of possible solutions, churning out or delving into economic innovations he thinks might save the world.
There are the hurricane clauses, catastrophe bonds, “blue bonds” — which designate money just for ocean conservation — and a trendy new category called debt-for-climate swaps. The list goes on, Persaud said. The problem isn’t lack of ideas. It’s how to scale them so they can have measurable effects.
Lately, he had been focused on a new plan that would draw on two pools of money. The IMF directly controls nearly $1 trillion worth of member reserves, which it can distribute to members using what it calls “special drawing rights” and mostly holds for some larger emergency. Surely the climate crisis counted as an emergency. The IMF could use its internal drawing rights and expand the availability of 0% loans to help fund the kinds of adaptation efforts that the United Nations estimates will soon cost as much as $500 billion annually. Doing so would require changing a lot of rules, particularly about who qualifies for that funding and how it is earmarked. The IMF’s new Resiliency and Sustainability Trust — a catchall for everything from climate mitigation to pandemic costs — is a start, but only just that. “It’s about 10 times too small,” Persaud said.
Persaud’s plan has an even more costly and ambitious element: addressing mitigation, which Morgan Stanley estimates will cost $50 trillion globally over the next 27 years. IMF members hold $13 trillion in national reserves. Persaud proposes using 1% of that larger pool to seed an enormous new climate trust that would attract outside investment for emissions-slashing projects. The trust could make seed loans at a nominal interest rate and target those loans to specific development projects, keeping the debt off governments’ balance sheets — and excluded from debt-ratio calculations. Persaud thinks that funding could attract perhaps another $2.5 trillion in annual investments from banks and equity funds. That, finally, would be big money.
As expensive as these plans may sound, they are likely to save money and ultimately pay for themselves. According to Colin Young, executive director of the regional Caribbean Community Climate Change Center, for every dollar spent on climate resilience, six dollars are saved in recovery efforts. Not doing anything, researchers at Tufts University found, will allow costs to mount so much that they will subsume today’s Caribbean economies even without the shock of devastating storms. By 2050, the researchers wrote, the costs of inaction will amount to 10% of the region’s total economic activity — a fiscal death sentence.
It is possible that none of the approaches that Persaud argues for will ever be enough. But the IMF is increasingly aware that the scale of the problem requires solutions that are antithetical to the old way of thinking. One person close to the IMF’s highest levels of policymaking told me that some of the countries facing the most intense climate peril will never be able to pay back what they owe. “They’re going to require complete debt forgiveness, and some bit of austerity around the edges is not going to change that,” he said. “The order of magnitude of the problem is just too big.”
Persaud, like virtually everyone I spoke to, is hesitant to talk about erasing sovereign debt. After all that Barbados has been through, he would still prefer to work within the global finance system. “I know we don’t want to create the moral hazard of giving away money for free,” he says. Besides, global institutions can forgive only their own loans. Because most of the debt is now held by commercial investors, it stands to reason that to receive relief from them, the development banks or other large economies would have to be willing to pay those investors back.
There is an argument to be made, though, that the loss of the money owed is a minimal price in the context of the profit that has been made, and that there is justice to this form of mercy. BlackRock, for example, is now among the largest holders of Barbados’ publicly traded debt, having purchased large blocks of it once Sequeda and the creditors settled. Consider what BlackRock, which is also the largest global financier of the oil-and-gas industry, has earned directly from the processes that have caused climate warming.
In a capitalist society, it is fair to ask why anyone should get anything free. But Barbados and the countries of the Caribbean are paying a tangible price now in lives and in dollars because of the emissions of wealthier nations. Perhaps the suggestion that lenders forgive debt isn’t about kindness but about obligation — about seeing it as a kind of back tax that they owe to society and to front-line societies, in particular.
Throughout the winter, the pressure mounted on Mottley. The IMF’s three-year program was drawing to a close, and the fund was still insisting that Barbados would have to swing back toward 6% budget surpluses by 2024 — or else it would lose access to promised funding, as well as the credibility that would allow it to borrow from markets in the future. The IMF announced this while Barbados’ economy continued to struggle and while COVID still raged, and so Mottley, perhaps approaching the end of her patience, raged too.
I reached Mottley one afternoon at her house on the beach, a home where she had spent time since she was a little girl. She arrived for our video call late, delayed by a stop she made across the island at a water-pumping station, where she had gone to assure locals that the government would fix its 70-year-old cast-iron foundation. It was the sort of thing, the most basic thing, that her government was managing to address in these difficult budgetary times — but only barely.
She sat on an outdoor sofa, her laptop on her knees, the camera close to her face in the way we have all grown accustomed to in the era of Zoom. It was the second of our three interviews over the course of the past year, and she began by telling me about the beach in front of her house. It used to teem with spiny sea urchins. “As a child, I stepped on more cobblers than I would like to recall,” she said. “Now you can walk, you don’t see anything.” The beach itself was eroding, her house edging into the rising sea.
In four years, Mottley had become a leader not just for Barbados but effectively for dozens of Caribbean countries, many with populations smaller than a midsize American city, all of which had to face these global institutional juggernauts by themselves. In 2018, she excoriated the United Nations General Assembly — “For us, it is about saving lives. For others, it is about saving profits” — in a speech about the forgotten countries on the climate front lines. She spoke, in 2021, at the opening of the 26th annual U.N. Climate Change Conference in Glasgow, in which she pointedly accused the developed world of hypocrisy, asking, “When will our leaders lead?” Since 2008, she pointed out, the G20 nations had spent $25 trillion printing new money to juice their own stalling economies, money they could have used to prevent the worst of the climate crisis instead. That failure “will allow the path of greed and selfishness to sow the seeds of our common destruction,” she said. She left the conference holding hands with President Joe Biden.
All that access to leaders like Lagarde, Georgieva and Biden gave Barbados an advantage over other Caribbean countries — an advantage Mottley was happy to leverage but which meant that even Barbados’ modest successes might be unrealistic for its regional peers. “We are unequally yoked,” she said. If there was any consolation, it was that the IMF itself finally appeared to be attaching action on climate to its reputation. Thanks to Mottley’s efforts, Barbados had become a showcase for the IMF, a way to prove it could be agile on climate issues, too.
Barbados, though, was still being measured against the antiquated convention of its ratio of debt to GDP, which happened to be growing as the pandemic and war unsettled markets. How could the IMF still want the budget to swing back into surplus? Mottley found it infuriating. “I can’t do these things if I have to spend money on augmenting water supply because of the climate crisis,” she said.
Suddenly it seemed as if all of it had become a treadmill exercise. The efforts to win a disaster clause — a clause that the Inter-American Development Bank has now made standard for its loans in the Caribbean. The deep thinking and brainstorming of bigger solutions. The climate swaps to exchange debt-service fees for ecological upgrades. And so on. Maybe her goal hadn’t been big enough. Maybe it wasn’t about finding more money in the current system but about changing the system altogether. “I’m saying the same things over and over, over and over,” Mottley told me. “You begin to feel as though you’re going crazy.”
In March, Mottley was scheduled to give a speech at the World Trade Organization. She has two rules for capitalizing on her high-profile public appearances: Always make a big ask, and never leave the podium without offering a solution. Persaud set to writing the speech, but this time felt different. Neither he nor Mottley was confident that trade helped solve the big problems of the world. It seemed to make them worse.
For Mottley, the fact that Britain was swimming in vaccine doses for months while Barbados had to beg China for a few thousand vials was a prime example. The politics of the pandemic had erased Mottley’s inhibitions about dealing more straightforwardly with the climate crisis, too. The World Trade Organization couldn’t protect against pandemics. It couldn’t preserve peace in Europe. It couldn’t fix climate change. Mottley would now disavow the current global financial system in its entirety, because it was still, at its heart, a colonial system, a system of oppression.
Lately, she told me, she had been thinking a lot about the idea of reparations, and about how Barbadians have struggled, and how far they had come. The horrific paradox, of course, was that after the British banned slavery, they did pay reparations — just not to the victims of the crime. At every step, Mottley reflected, freedom had come incrementally for Barbadians. Or rather, the oppression had found new, seemingly more benign forms. First, it was the decadeslong work-for-land scheme. Later, it was their beaches and banks — almost all of which are foreign-owned. And after that, it was their cash, in the form of interest. What more was there to give?
Elsewhere, the world has confronted its past abuses. Mottley recalled a trip to Europe 20 years ago, during which she observed a ceremony for Germany’s reparations paid to survivors of the Holocaust. While she was there, South Asians were rioting in Britain over their former colonial oppression. She was struck that no such thought was given to the Caribbean. The Caribbean was unseen then, and it remains unseen now. To fight the climate crisis, to fight the pandemic or meet development goals, Mottley said, countries are still fighting for a platform. “You will realize that in almost every instance, we’re fighting our old struggles on the same basis,” she said. “What is its underlying cause? The inequity in the world in which we live, and the inequity is preserved fundamentally because we’ve not changed the power structure.”
There were no misgivings or hesitations about what she was preparing to deliver to the WTO. She and Persaud had decided to be blunt. The rest was a delicate balance. “She does not want to be put into a box,” Persaud said. “She does not want to be put in a female box, I don’t want her in a SIDS box, and we don’t want to be anti-West, because that’s not who we are.” Mottley read the speech the day before and read it again, absorbing it.
“My friends,” she began, with a nod across the floor to Director General Ngozi Okonjo-Iweala, “the global order is not working.” It does not deliver on peace or on prosperity or on stability, she said. The words of global partnerships were hollow, the partnerships themselves glib, corrupted by greed and selfishness — and they remained fundamentally imbalanced. Debt is written off in Ukraine, as it was for Germany after World War II. Other countries, though, the ones subjugated throughout history, have seen their humanitarian crises ignored. The world, she said, “is segregated regrettably between those who came first and in whose image the global order is now set” and a global order that is itself “simply the embalming of the old colonial order that existed at the time of the establishment of these institutions.”
Gone was the patient case-building, the appeals to logic and empathy, that characterized so many of her recent speeches. Her hair, always in a neat Afro, was grayer and frazzled; her fatigue seeped through her expression. “We have therefore to ask ourselves whether we can live in this global order.”
It was time to reset. The war in Ukraine was forcing that reset anyway. She could work with the global economic system to raise capital. She could probably find a strategy to bolster her island’s standing in the face of cataclysmic climate change, at least for a while. But combining both? It had proved impossible. It was time to use the IMF’s drawing rights, the hurricane clauses, all of it. And then Mottley laid out Persaud’s plan to establish a new climate trust based on the IMF’s reserves, her big ask.
But to make these changes, she warned, the world had to get to a new place in spirit. It had to fill some gaping moral cavity. “That we are more concerned with generating profits than saving people,” she said, “is perhaps the greatest condemnation that can be made of our generation.”
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Doris Burke contributed research.
