Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
Inter Press Service
KUALA LUMPUR, Malaysia, Nov 22 (IPS) – In recent decades, failure to sustain economic progress has been blamed on a supposed middle-income country (MIC) trap. Such blaming obscures as much as it supposedly explains.
The ‘middle-income trap’ fable began as a World Bank story about why upper MICs in Latin America failed to become high-income countries (HICs) after pursuing policies required or prescribed by the Bretton Woods institutions.
Bretton Woods’ Frankenstein
The 1944 Bretton Woods rules-based international monetary system ended in August 1971 when President Richard Nixon unilaterally repudiated US obligations. This happened after the US Treasury had borrowed heavily from the rest of the world from the 1960s.
Jomo Kwame SundaramThe US government’s ‘exorbitant privilege’ of ‘spending well beyond its means’ has continued despite the resulting international monetary ‘non-system’. Continuing acceptance of the US dollar, or ‘greenback’, as the virtual world currency has enabled its Treasury to borrow internationally at low cost.
This has enabled the US to maintain massive trade and current account deficits, and a military presence in much of the world, despite its huge, but still growing fiscal and trade deficits. The US exorbitant privilege seems to have been sustained by its ‘soft power’ and unassailable military superiority.
Facing ‘stagflation’ – economic stagnation with inflation – US Fed chair Paul Volcker raised interest rates sharply from 1980. This soon killed US inflation, but also Roosevelt’s ‘New Deal’ legacy from the 1930s.
With inflation high, real interest rates seemed low despite high nominal interest rates in the developing world. With growth high in the global South in the 1970s, borrowing to sustain investments, even from abroad, remained attractive.
But US interest rate hikes soon triggered fiscal and sovereign debt crises in many countries: Poland in 1981 was followed by various Latin American, African and other developing economies.
Washington Consensus
Facing rising interest rates, many governments could no longer service accumulated debt, let alone borrow to invest more. Instead, they had to pursue contractionary monetary and fiscal policies domestically, causing economic stagnation.
With Margaret Thatcher and Ronald Reagan demanding such macroeconomic policies, the Washington-based Bretton Woods institutions soon prescribed them, ending the post-Second World War Keynesian ‘Golden Age’.
The International Monetary Fund (IMF) demanded contractionary stabilisation policies to qualify for short-term credit facilities. World Bank structural adjustment programmes (SAPs) typically required economic liberalisation and privatisation for longer-term financing.
The Bank also advocated more export-orientation and foreign investment. When paid by Japan’s government, the Bank celebrated its post-war industrial boom as a ‘miracle’, a new model for emulation. But this soon ended with its demise due to the US-demanded overvalued yen and its ill-advised financial ‘Big Bang’.
Latin American conundrum
Latin American and other vulnerable economies lost over a decade from the 1980s while African economies lost a quarter century. Low-interest official Japanese credit initially mainly went to Southeast Asia, while South Asia took on less foreign debt.
Stabilisation and SAP conditionalities undermined Latin America’s modest industrialisation, which also prevented the region from recovering strongly until the new century. But their economies had not been sufficiently liberalised for ‘neoliberals’ despite turning more to foreign trade and investment from the 1980s.
Prosperous economies became more protectionist, especially after the 2008 global financial crisis. But developing countries were told to open up even more despite shrinking export markets.
But with globalisation over, even East Asia can no longer rely on export growth. Also, it is difficult to turn away from export-oriented production, especially as earlier trade deal commitments cannot be unilaterally repudiated.
In many prosperous economies, workers captured some of their productivity gains. But the oft-heard claim that productivity increases lag behind wage rises usually serves employers. In most ‘labour-surplus’ developing countries, wages remain low.
As in South America early this century, progressive redistribution has often accelerated, rather than subverted growth. Common claims that such redistribution is bad for growth must be critically reconsidered. After all, progressive redistribution sustained growth in post-war Europe.
Breaking out of the trap
The ‘middle-income trap’ argument claims MICs cannot sustain rapid economic progress. Supposed reasons vary with policy and ideological biases, as ostensible structural, cultural, political, behavioural or governance causes typically reflect such prejudices.
Recent narratives have proclaimed the need to ‘graduate’ from secondary to tertiary economic activities. Modern services growth is supposedly needed to sustain progress to become HICs.
Another popular argument has been that progressive redistribution has subverted growth. But it is now uncontroversial that progressive redistribution was crucial for sustaining growth in post-war Europe.
Discretionary state powers have undoubtedly been abused for political patronage and self-aggrandisement. Clientelism plagues many societies, undermining needed state interventions. But we should not throw the baby out with the bathwater.
History suggests the best way to overcome the ‘middle income trap’ would be to implement appropriate investment and technology policies. Selective policies are needed to promote growth, not only of manufacturing, but also of high-end services, as well as safe, nutritious and affordable food supplies.
But all this is not going to happen spontaneously. Reforms need to be deliberately elaborated and sequenced through various interventions as part of well-designed, coherent and sustained initiatives.
Opinion by Jomo Kwame Sundaram, Ong Kar Jin (kuala lumpur, malaysia)
Inter Press Service
KUALA LUMPUR, Malaysia, Nov 15 (IPS) – US President Joe Biden’s Indo-Pacific Framework for Prosperity (IPEF) is the economic arm of his administration’s Indo-Pacific Strategy, aimed at countering China’s influence in the region.
Despite its lofty pronounced goals, IPEF’s shortcomings expose a disconcerting lack of political will, inconsistent trade policies, and US inability to match China’s infrastructure initiatives.
Ong Kar Jin
Bull in a China shop?
Launched in Japan in May 2022, IPEF was widely touted as the Biden administration’s better follow-up to Trump’s withdrawal from Obama’s Trans-Pacific Partnership (TPP).
Many had anticipated a robust reply to China’s growing economic influence in the region, particularly following US depiction of the Regional Comprehensive Economic Partnership (RCEP) as an instrument of Chinese expansion.
China may well stand to benefit most from RCEP by virtue of its size and economic relations with the region. But outside the US echo chamber, RCEP is seen as truly East Asian led. It has involved not only ASEAN leadership, but also Japan, South Korea, Australia, New Zealand and Singapore, all long-term US allies.
In sharp contrast, IPEF has disappointed many. It seems to be little more than a half-hearted economic cooperation appendix to the Biden administration’s Indo-Pacific strategy.
The alternative US infrastructure initiative – coordinated with NATO allies in Europe – is small potatoes compared to the Asian Infrastructure Investment Bank, which – unlike most of its allies – the US has attacked from the outset.
Also, the US has no answer to China’s flagship ‘Belt and Road Initiative’ (BRI) – which succeeded ‘One Belt One Road’ (OBOR) and earlier Chinese Silk Road initiatives. BRI ostensibly focuses on critical transport and communications infrastructure like internet cables, roads, ports and railways.
These projects are seen as directly contributing to economic development, making them highly attractive to developing nations. In contrast, IPEF offerings appear more like diplomatic gestures with little for infrastructure development.
The chasm between IPEF’s lofty rhetoric and its actual content shines light on modest US capacities and commitment. US inability to offer substantial benefits through IPEF not only jeopardizes its standing, but also cedes influence to China.
Jomo Kwame Sundaram
Domestic quagmires bog down IPEF
The hasty negotiations are seen as catering to the Biden’s re-election campaign. This is a far cry from what US allies were expecting, to signal greater commitment to the region. In its current form, IPEF offers little in tangible benefits.
As a Biden White House initiative without Congressional support, IPEF is dismissed in some circles – especially in the US – as part of Biden’s re-election strategy. It will most certainly be dropped if he does not secure a second term.
The irony is palpable: while there is bipartisan agreement to ‘contain’ China, US politics is so mired in partisan squabbles that it fails to act, even when interests are aligned. This lack of political will is not just a domestic failing; as a result, the international community sees the US as unreliable.
No more trade liberalization?
Despite decades of ‘free trade’ rhetoric from the US, its NATO allies, the Bretton Woods institutions and others, US commitment to trade liberalization has long not been taken seriously, especially since the Trump administration.
Before that, the Obama White House had blocked appointments to the World Trade Organization’s dispute settlement panel, effectively rendering the WTO’s most important component dysfunctional.
IPEF’s modest content is largely due to increasingly hostile US public sentiment on trade liberalization. By 2016, most presidential candidates seeking to succeed Obama – from both major parties – opposed the TPP.
While most US voters know nothing about IPEF, ‘outsourcing’ manufactured imports is widely seen as behind the decline of US manufacturing, as well as related ‘good’ jobs and incomes.
While many initially expected a more Obama-like approach from the Biden administration, policy developments so far suggest Trump’s ‘America first’ rhetoric and policies are here to stay.
Biden’s Inflation Reduction Act denies Hyundai, the Korean industrial conglomerate, as well as other foreign automotive brands, the significant tax credits available to domestic electric vehicle manufacturers.
Outdoing Trump, the Biden administration has broadened technology bans and restrictions, e.g., in its ‘microchip war’ with China. US allies – notably the Netherlands and South Korea – have largely agreed to restrict chip technology exports to Chinese companies.
Ceding regional hegemony
While initially welcomed despite qualms, IPEF has not been attractive to the region, especially to developing countries, including India. It does not even offer US market access, a staple of earlier free trade agreements. Instead, it mainly seeks to impose new standards associated with the new US protectionism.
IPEF’s lack of tangible benefits is unlikely to be of much interest to member governments and prospective members, let alone their publics. Worse for the US, IPEF’s modest offer may unwittingly strengthen longer term concerns about US hegemony and leadership, instead of restoring confidence in it.
The largely cool and ambivalent reception to IPEF reflects a divide. On one side, the US and its allies seek to strengthen their hegemony in the region. On the other are the mixed interests and ambivalent attitudes of others, mainly developing countries, coping with US-China rivalry.
IPEF’s fate is compounded by domestic political constraints on US foreign policy, which have reduced its room for manoeuvre. To be attractive to the region, IPEF needs to offer more tangible benefits to current and prospective members, especially developing countries.
Thus far, it has appealed to fears of Chinese expansionism and its alleged ‘debt traps’. For all but the staunchest US allies, however, concerns about privacy, surveillance or sovereignty are secondary to the need for finance and economic development.
China understands this, often sweetening its infrastructure deals, and making them more attractive to developing countries. Without a more generous response, it will be difficult to overcome IPEF’s current reputation as a low-cost means to enhance US dominance of the region.
Currently, the US is imposing itself on, rather than trying to be supportive of the region. Hence, the IPS and IPEF run the risk of simply being the latest in a series of US hegemonic initiatives from the first Cold War’s Southeast Asian Treaty Organization (SEATO) in the 1950s to Obama’s TPP.
Ong Kar Jin is an independent researcher and writer focusing on the socio-political dimensions of technology.
Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
Inter Press Service
KUALA LUMPUR, Malaysia, Nov 08 (IPS) – Public-private partnerships (PPPs) for infrastructure and service provision are both costly and risky. Worse, PPPs typically fail to ensure universal, let alone fair access to public amenities.
Public-private partnerships?
PPPs usually involve long-term contractual arrangements in which private businesses provide infrastructure and services traditionally provided by governments. In recent years, PPPs have built or run hospitals, schools, prisons, roads, airports, railways, water and sanitation.
Jomo Kwame SundaramRisk-sharing between public and private sectors has long been widespread. In recent years, more than two dozen different types of PPPs have been identified. Such variations reflect differences in deals between governments and commercial partners.
Most international financial institutions (IFIs) advise governments to guarantee profits for their private partners. The IFIs continue to urge governments to ‘de-risk’ commercial providers to attract their investments.
Private investor preferences for specific types of PPPs may vary over time and with circumstances, often reflecting changing needs and priorities. As no one type fits all, changing circumstances and preferences have increased the variety of PPPs.
PPP problems
PPPs are far more complex than suggested by their cheerleaders’ narratives. Their negative impacts on infrastructure and public service delivery have been highlighted again by a Eurodad-led report. Public expenses rise as governments bear private costs and risks.
Following World Bank and other IFI advice, national authorities attract commercial financial investments by appealing to private greed. PPPs have been used to ‘de-risk’ such investment, by using their terms to ensure profits for private investors.
The report also exposed PPPs’ negative impacts for democratic governance. PPP arrangements typically lack transparency, and rarely involve prior consultation with affected communities. Thus, they have been more prone to corruption and abuse.
While private partners are guaranteed profits, their PPPs may still fail. In recent years, PPPs’ fiscal and other costs kept mounting as their shortfalls grew despite their rising profitability. As such problems grow, criticisms and dissent have risen.
Why PPPs fail?
PPPs have increasingly been touted as the magic solution to many problems, particularly financial constraints, poor management and delivery. PPPs have become popular among elites in the global South, where their ‘middle classes’ were enticed by the promise of better services and ‘trickle-down’.
The private sector is supposedly more efficient and better able to deliver public amenities including energy, education, health, water and sanitation. But better value for money has rarely ensued, as many studies show. Instead, the converse is more typical.
A 2020 study by the European Federation of Public Service Unions and Eurodad identified eight major reasons why PPPs in Europe have not improved outcomes.
First, PPPs rarely raised additional funds. Instead, they have typically incurred more public debt in the form of government guarantees, rather than direct borrowing. But such additional public debt has often been obscured from the public.
Second, private commercial loans generally cost much more than government borrowings. Third, public authorities, especially central governments, still bear ultimate responsibility, especially in the event of project failure.
Fourth, PPPs have rarely delivered better ‘value for money’ than reasonably managed public projects. Fifth, seeming PPP efficiency gains have been largely due to risky cost-cutting, e.g., in public infrastructure or healthcare provision.
Sixth, PPPs distort public policy priorities, typically requiring even more cost-cutting. Seventh, PPPs have rarely delivered both ‘on-time’ and ‘on-budget’. Eighth, PPP deals are typically opaque, rather than transparent, often involving abuses and corruption.
From early 2020, the Covid-19 pandemic exposed the long-term adverse effects of earlier austerity and underfunding of public health. More recently, inflation, stagnation and more extreme weather have exposed other vulnerabilities and their causes.
What can be done?
As the world faces multiple and interconnected crises, PPPs offer bogus, even dangerous solutions. Eurodad has made policy recommendations to national governments and development finance institutions (DFIs) to improve infrastructure and public service financing.
• Stop promoting PPPs. The World Bank, IMF, regional development banks and DFIs should all end the promotion of PPPs, especially for social services. Access to health, education, water and sanitation should not depend on capacity to pay.
• Fiscal and other major PPP risks should be publicly acknowledged. Governments should be warned of PPPs’ generally poor outcomes, and of the pros and cons of various financing arrangements. DFIs should all more effectively finance national plans for sustainable and equitable development.
Countries should be helped to find the best financing means to deliver responsible, transparent, gender-sensitive, environmentally and fiscally sustainable public infrastructure and social services consistent with national and multilateral obligations.
• Informed public consultations should always precede any infrastructure and public service provision agreement by PPPs. These should include ensuring the rights of all affected communities, including those to fair remedy or compensation.
• Exercise rigorous and transparent government regulation, especially for public spending, PPP contract values, project impacts, and long-term fiscal implications. The public interest must always prevail over commercial ones.
DFIs should only finance projects serving the public interest. Appropriate, publicly funded public services should be promoted, with transparent contracts for and accountable reporting on social service and infrastructure project delivery.
PPPs have often proved to be budgetary frauds, exacerbating, rather than reducing national fiscal deficits. Far from being the financial silver bullet they have been touted as, PPPs have proven to be blanks, making much noise, but with little real benefit.
Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
Inter Press Service
KUALA LUMPUR, Malaysia, Nov 01 (IPS) – Governments the world over are worried about investor-state dispute settlement (ISDS) rules. These allow foreign investors to sue them for billions over new laws or policies reducing their profits.
Typically favouring powerful transnational corporations (TNCs), ISDS blocks policy changes needed to address new challenges. Companies have successfully sued governments for policy changes which allegedly reduce their profits.
Jomo Kwame SundaramThe wicked of Oz
Tobacco giant Philip Morris tried to block the Australian government’s demand for ‘plain packaging’, with larger and more graphic health warnings on cigarette packs, by suing under ISDS and also in Australian courts. In the domestic case, Australia’s highest court ruled the legislation constitutional.
The company then transferred Philip Morris Australia to Philip Morris Asia in Hong Kong. Invoking ISDS in the bilateral investment treaty (BIT) between Australia and Hong Kong, it sued Australia. Luckily, the ISDS tribunal ruled it had no jurisdiction as considering the case would constitute an abuse of process.
More recently, Australian Clive Palmer has hired a former Attorney-General to demand nearly A$341 billion from state governments after moving his major mining companies to Singapore in 2019. His two ISDS claims invoke the Australia-New Zealand-ASEAN Free Trade Agreement (ANZAFTA).
The first seeks about A$300 billion in compensation and for ‘moral damages’ after Australia’s highest court ruled in favour of the Western Australian (WA) state government. Palmer is challenging the 2022 WA legislation to indemnify the state, ensuring he would get nothing.
He is also demanding A$41.3 billion in compensation for rejecting exploration permits for the Waratah coal mine in Queensland. The licence was refused on environmental grounds, including increasing carbon emissions.
Palmer is expected to take a third ISDS case against Australia’s Federal and Queensland government decisions to reject his coal mine licence application due to its likely adverse impacts on the local environment, including waterways, and the Great Barrier Reef.
Even if the governments win these cases, they would still incur millions in legal expenses. The Philip Morris cases against Australia took five years, and cost A$24 million in legal expenses, of which only half was recovered by the government.
Evading ISDS?
After such costly experiences, almost a decade ago, Australia successfully demanded a ‘tobacco carve-out’ to the Trans-Pacific Partnership’s (TPP) ISDS provisions.
Australia’s new Southeast Asia Economic Strategy to 2040, announced on 6 September 2023, promises to review existing free trade agreements (FTAs) with the region. This will include agreements containing ISDS clauses, including the ANZAFTA and other bilateral and plurilateral agreements.
Using side-letters, Australia has already opted out of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) ISDS provisions with both the UK and New Zealand.
Other ISDS second thoughts
The New Zealand government is now also against ISDS. While ISDS is part of several of its FTAs – e.g., the CPTPP and China-New Zealand FTA – its government has opposed ISDS provisions in FTA negotiations since 2018.
Hence, there is no ISDS in the Regional Comprehensive Economic Partnership (RCEP), the New Zealand-United Kingdom FTA, and the New Zealand-European Union FTA.
While it was considered too late to exclude ISDS entirely from the CPTPP at a late stage in negotiations, New Zealand has secured side letters with Australia, Brunei, Malaysia, Peru and Viet Nam. This means ISDS does not apply between New Zealand and these countries.
The current Chilean government is also concerned about ISDS. Hence, it has asked all other CPTPP governments for side-letters excluding ISDS between them, but only New Zealand has agreed so far!
Rich nations wary of ISDS
The US removed most ISDS provisions when the Trump administration replaced the old North American Free Trade Agreement (NAFTA) with the US-Mexico-Canada Agreement (USMCA) in 2020.
ISDS was in the TPP because Obama administration negotiators wanted it. But most 2016 presidential aspirants to succeed him, including Democrats, rejected the TPP. Trump’s US Trade Representative (USTR) Lighthizer specifically cited ISDS as the reason for US withdrawal from the TPP.
Biden and his USTR have maintained Trump’s anti-ISDS stance instead of reverting to Obama’s position. ISDS is not in Biden Administration ‘economic cooperation’ agreements such as the Indo-Pacific Economic Framework.
Meanwhile, the EU is urging withdrawal from the Energy Charter Treaty (ECT) as its ISDS provisions will block needed European climate policies. Several EU and non-EU countries have already begun withdrawing from the ECT, arguing it constrains their ability to act against global warming.
Developing countries saying no
Many developing countries have already been withdrawing from their BITs while the RCEP does not include ISDS. So, the CPTPP, other BITs and FTAs’ ISDS provisions are out of date. Worse, they block addressing emergencies, such as the COVID-19 pandemic and global warming.
Countries should reject and even withdraw from BITs and FTAs with ISDS. After all, there is no evidence ISDS attracts foreign direct investment. More and more developing nations – including India, Indonesia, Pakistan, Ecuador, South Africa, etc. – have already withdrawn from such BITs.
Governments should urgently review and remove ISDS provisions in all existing BITs and FTAs, or withdraw from them, to avoid more costly ISDS cases. They must be more critical and careful in ensuring future economic cooperation agreements to ensure they really serve their current and future best interests.
A farmer tends to his tomatoes. Because of the risks in the agricultural sector, including climate change, many farmers were not able to get finance. Now several non-profits have come into the market to assist. Credit: Geoffrey Kamadi/IPS
by Geoffrey Kamadi (nairobi)
Inter Press Service
NAIROBI, Oct 30 (IPS) – Smallholder agricultural enterprises in Africa face a lot of challenges getting loans from financial institutions like banks due to the stringent requirements they can hardly fulfil. Investor confidence is usually lacking, given the risks involved in this sector of the economy.
Climate change has not helped matters either. Prolonged droughts and unreliable rainfall patterns have made them less resilient. And since a paltry 1.7 percent of climate finance goes to small-scale agriculture (according to the Climate Policy Initiative), small-scale farmers are left particularly vulnerable.
However, innovative financial solutions targeted at these farmers are transforming the sector in tangible ways in Africa. Organisations like Root Capital are working with small-scale agricultural enterprises using a financial model that is accommodative to their unique needs while addressing the climate change component on the ground.
Root Capital is a nonprofit that supports agricultural enterprises working directly with small-scale farmers. On the other hand, Mercy Corp – an international NGO – through its venture capital arm, supports entrepreneurs who are developing transformative technologies, innovative business models and effective climate adaptation resilience solutions which are usually tech-enabled.
Users of these technologies are in 35 most climate vulnerable countries, according to Scott Onder, the chief investment officer at Mercy Corp. In Kenya, for example, the NGO has partnered with Safaricom, the largest mobile network operator in the country through its DigiFarm product.
The product bundles together a range of solutions for smallholder farmers, helping them become more productive, increase their yields and grow their income.
Batian Nuts Ltd, an edible nuts processing enterprise based in Meru County in central Kenya has seen its operations expand, ever since it started working with Root Capital. This enterprise exports macadamia nuts internationally but also deals in peanuts processing for the local market. It has a base of 8,000 small-scale farmers.
“We chose to work with Root Capital because their interest rates are below what you would normally get from the financial market, plus their terms are very accommodative to a start-up like ours,” says James Gichanga the co-founder of Batian Nuts Ltd.
He explains that commercial banks require considerable collateral, such as parcels of land or other assets, which they do not have.
On the other hand, Root Capital will provide the finances they need, based on the commitment made by the overseas buyer of their produce. The buyer need only provide a letter of intent, committing to purchase macadamia nuts from Batian Nuts Ltd, and “Root Capital will give us money based on that alone,” says Gichanga.
In other words, the buyer of farm produce based in the US, Europe or Asia and the borrower (it could be a coffee cooperative in, say, Rwanda) – or Batian Nuts Ltd in this case – signs an agreement with Root Capital. And when the time comes for payment, the buyer pays Root Capital directly.
“We take our principal interest and then pass the rest of the payment to the coffee cooperative,” explains Elizabeth Teague, the senior director of Climate Resilience at Root Capital.
Even though this type of financing has existed before, their innovation involves applying it to the smallholder agricultural context. This, explains Teague, is a way of mitigating risk without requiring collateral from smallholder farmers.
In addition, they provide small and medium sized agricultural enterprises with technical assistance through a programme known as “agronomic and climate reliance advisory.”
Prior to its partnership with Root Capital, Batian Nuts Ltd used to handle between 300-400 tonnes of produce per year. However, since 2017 when the collaboration begun, the business has more than doubled this capacity to 1,000 tonnes, and its workforce has grown from 26 permanent employees to 55 currently. Its seasonal workforce has increased as well from a couple dozen to 160, who are engaged seven months in a year.
Investors have traditionally shied away from putting their monies in small-scale farmers in sub-Saharan Africa, due in large part to higher cost and risk involved, thus creating an estimated USD 65 billion financing gap for small businesses in the region, according to Teague.
“And then climate change exacerbates that and makes it even riskier for investors,” she adds.
Root Capital works with a network of 200 businesses and 500,000 farmers in Africa, Latin America, and Indonesia.
On residential streets of Caracas with little traffic it is possible to see cars that have been abandoned by their owners for years. They probably migrated from Venezuela or cannot afford to repair and sell their vehicles. CREDIT: Humberto Márquez / IPS
by Humberto Marquez (caracas)
Inter Press Service
CARACAS, Oct 23 (IPS) – Diego has just enrolled to study journalism at a university in the Venezuelan capital and, with 2,000 dollars that his family members managed to gather, has bought his first car, a small 2007 Ford that can take him to class from his home in the neighboring Caribbean port city of La Guaira.
Tomás, an experienced physiotherapist who sold Diego the car, is leaving for Spain where a job awaits him without delay, “so I’m quickly selling off things that will give me money to settle there, such as furniture, household goods and appliances, but for now I sold only one of my two cars,” he told IPS.
“This Ford Fiesta was my first car, I loved it very much, but it doesn’t make sense for me to hold on to two vehicles. I’m keeping a 2011 pickup truck that is in good condition, just in case I don’t do well and I have to return,” added the professional who, like other sources who spoke to IPS, asked not to disclose his last name “for safety reasons.”
The migration of almost eight million Venezuelans in the last 10 years, and the general impoverishment of the population, have led to the deterioration of what was once a shiny fleet of vehicles, with one out of every four vehicles left standing now due to lack of maintenance and leaving much of the rest aging and on the way to the junkyards.
In the basements of parking lots, and in the streets of towns and cities, thousands and thousands of vehicles are permanently parked under layers of dust and oblivion, because their owners have left or because they do not have the money to buy spare parts and pay the costs of repairs.
Along the streets of any Venezuelan city can be seen old rundown vehicles with no sign that the necessary repairs will be made. The impoverishment of the population is at the root of this decline. CREDIT: RrSs
Aging vehicle fleet
Omar Bautista, president of the Chamber of Venezuelan Automotive Manufacturers, told IPS that “the vehicle fleet in Venezuela – a country that now has 28 million inhabitants – is about 4.1 million vehicles, with an average age of 22 years, and 25 percent of them are out of service.”
“The loss of purchasing power of the owners has caused most of them to delay the maintenance of their vehicles and the replacement of the spare parts that suffer wear and tear, such as tires, brakes, shock absorbers and oil,” Bautista said.
Moreover, in contrast to the immense oil wealth in its subsoil, gasoline in Venezuela is scarce and, after more than half a century being the cheapest in the world, it is now sold at half a dollar per liter, a cost difficult to afford for most owners of private vehicles or public transportation.
The country needs some 300,000 barrels of fuel per day and for several years it has had less than 160,000 barrels, according to oil economist Rafael Quiroz, who added that interruptions in the work of Venezuela’s refineries are frequent.
There is almost no residential building that does not have at least one vehicle in storage waiting for its owners to return from abroad. They are part of the 1.5 million vehicles that are permanently parked in the country. CREDIT: Humberto Márquez / IPS
Not enough money
The minimum wage in Venezuela is four dollars a month. Most workers receive up to 50 dollars in non-wage compensation for food, and the average income according to consulting firms is around 130 dollars a month.
Luisa Hernández, a retired teacher, earns a little more giving private English classes, but “the situation at home is very difficult. I can’t afford to pay for the repair of my Toyota Corolla, but a mechanic friend agreed to do the work, and I can pay him in installments,” she told IPS.
Mechanics have their finger on the pulse of the situation. “People leave and the cars often sit idle for years, and then the owners end up selling them, from abroad. Quite a few of those I have gone to pick up and have fixed them, to sell them,” Daniel, who runs a garage in the capital’s middle-class east side, told IPS.
He said that “many people do not sell their cars before leaving the country, thinking that they’re just going abroad to ‘see how it goes’. But they stay there and then decide to sell their vehicle before it further deteriorates and depreciates.”
Another mechanic, Eduardo González, told IPS that “There are people who go away and leave their cars in storage and from abroad they contact us so that from time to time we can check them and do some maintenance. Or they entrust their vehicle to a relative. There are people who travel and come back, but most of them end up selling.”
This situation “has favored buyers, who can get cars at a low price. But the problems come later, because that very used car will require spare parts and maintenance, and that is expensive and often the parts are difficult to get,” added González.
The same difficulty is also a concern for owners of cabs, buses and private vans that transport passengers, as well as cargo trucks.
“At least half of the truck fleet in the region is affected by the shortage and scarcity of spare parts,” said Jonathan Durrelle, president of the Chamber of Cargo Transportation of Carabobo, an industrial state in the center of the country.
Large and small buses for passenger transport in Venezuelan cities, including Caracas, as well as cargo vehicles, also suffer from the lack of sufficient revenue, as well as spare parts, to keep them in proper working condition. CREDIT: Humberto Márquez / IPS
Industries have closed down
Elías Besis, from the Chamber of Spare Parts Importers, attributed this to the closure of companies that “years ago manufactured 62 percent of the spare parts needed in the country, and now that production has plunged to two percent.”
Thousands of manufacturing companies closed down in Venezuela during the eight years (2013-2020) in which the country was in deep recession, suffering a loss of four-fifths of its GDP according to economic consulting firms.
Financial and banking activity has also declined, as has the vehicle loan portfolio, which peaked at 2.3 billion dollars in 2008 and plummeted to just 227,000 dollars by late 2022, according to economist Manuel Sutherland.
Vehicle assembly plants, of which there were a dozen until recently, also closed their doors. In addition to selling to hundreds of dealerships, they used to export vehicles to the Andean and Caribbean markets.
Their production peaks were recorded in 1978, with 182,000 new vehicles – Venezuela then had 14 million inhabitants and 2.5 million vehicles – and in 2007, when 172,000 cars were assembled.
In 2022 only 75 vehicles – trucks and buses – were assembled, and in the first six months of this year just 22.
Newer vans and cars drive through middle and upper class neighborhoods, but are part of the “bubble,” the small segment of the population less impacted by the deep economic crisis that Venezuela has suffered over the last decade. CREDIT: Motorpasión
Farewell to the bonanza
The result of this scenario is the aging and non-renewal of the vehicles circulating on Venezuela’s roads.
The new ones, Daniel pointed out, “are SUVs, crossovers and off-road vehicles that cost a lot of money and can only be bought by those who live in the bubble,” the term popularly used to refer to the segment of high-level officials and businesspersons whose finances are still booming in the midst of the crisis.
In addition, in view of the almost total closure of automotive plants, individuals are opting to import new vehicles directly from the United States, favored by the elimination of tariffs for the importation of most models.
For that reason, said Bautista, “there is no shortage of new vehicles, what there is is a shortage of consumers with the necessary purchasing power and conditions to buy new vehicles.”
These consumers were part of the hard-hit middle class – nine out of 10 families in that socioeconomic category had fallen below the middle class by 2020 according to the consulting firm Anova – and they no longer buy new or newer cars because they have swelled the legion of migrants, selling or leaving behind their main assets.
Since the days of the oil boom (1950-1980), Venezuelans developed a sort of sentimental relationship with their vehicles, associating them with comfort and enjoyment that favored cheap gasoline and a network of paved roads that made it easier to travel to places of recreation.
In middle class and even lower middle class families, it was quite common to change cars every two years and to give one to their children when they turned 18. They were helped by credit facilities, and were encouraged to buy cars in cities where public transportation has always fallen short.
They have had to say goodbye to their easy past on wheels, like migrants have said farewell to their country and homeland. Or at least “see you later”.
Tabeth Gowere (76) makes extra cash from weaving plastic waste. A group of seniors started weaving plastic out of a need to improve the environment and make some extra cash. Credit: Jeffrey Moyo/IPS
by Jeffrey Moyo (harare)
Inter Press Service
HARARE, Oct 20 (IPS) – They do not have a pension nor financial support from families or relatives, but they have themselves. Now they have become collectors of plastic waste, which they turn into products as they battle for survival – earning money from the growing plastic pollution in Zimbabwe.
Such are the lives of the country’s senior citizens, like 76-year-old Tabeth Gowere and 81-year-old Elizabeth Makufa, both hailing from Harare’s Glenora high-density suburb, where they become famous as plastic waste collectors.
Gowere and Makufa, thanks to plastic waste, now care for themselves financially despite their old age, so they said.
“At first, we saw plastic waste just being flown around by the wind, and we started to pick these, cleaning the environment, burning it, but later realized we could make something out of these plastics and earn money. So, using plastic waste, we started weaving different things, including mats to decorate sofas. Many people were impressed by our work, and they started placing orders for the plastic products we were making,” Gowere told IPS.
Makufa, like Gowere, has also seen gold in the dumped plastic waste.
“We say this is waste, but from it, we find something that is helping us to sustain us in life. I make 30 US dollars daily at times from selling the products I make from plastic waste, which means at least I get something to survive,” Makufa told IPS.
The young are learning from the lessons from the senior plastic waste entrepreneurs – like 40-year-old Michelle Gowere.
“Weaving things using plastics is a skill I learned from my mother-in-law, Mrs Gowere. We spend time together daily, and because of this, I ended up learning the skill from her; this is helping me to, at least, help my children with food to carry in their lunch boxes when they go to school,” Michelle told IPS.
To Michelle’s mother-in-law and many others, the environment has been the secondary beneficiary of the geriatrics’ initiative collecting plastic waste.
“You would see that in our area, waste collectors from the council rarely come to empty the refuse bins. So, as we use plastic waste to make our products, we are making our environment clean,” Michelle told IPS.
Zimbabwe Environmental Management Agency (EMA) about 1.65 million tonnes of waste are produced annually in Zimbabwe, with plastic making up 18 percent of that.
However, Makufa says it was not the love of money that swayed them into getting into plastic waste but improving the environment.
“It was not because we lacked money that we turned to collecting plastic waste, but we copied some people who were doing it, and we started doing the same. We thought of removing plastic waste from our environment, and we told ourselves if we could take those plastics and weave them together, we could have impressive products that we could sell and earn some money,” Makufa told IPS.
As the group of elderly people are making a difference in collectively fighting plastic waste, the local authorities welcome their contribution but add that it is everybody’s responsibility to care for the environment.
“The job of caring for the environment is not a responsibility of the council alone. In fact, it is the duty of everyone to make sure where they live there is cleanliness. As a council, we thank people who are beginning to realize that there is money in plastic waste. It’s not every waste that should be dumped; there is what we call recycling, and some people make money from it, but the duty to take care of our surroundings is not a prerogative of the council, but ordinary people as well,” Innocent Ruwende, Harare City Council spokesperson, told IPS.
Priscilla Gavi, director of Help Age Zimbabwe, a non-governmental organization mandated to take care of the elderly’s needs, says the elderly, too, are critical in the fight against plastic waste.
“Old age does not make someone incapable of supporting their families and taking care of themselves. It doesn’t stop the aged from working for their country. In fact, old age gives people opportunities to use skills gained during their prime ages, and they, for instance, make use of plastics, producing different things for sale from plastic waste as they also rid the environment of the plastic waste,” Gavi told IPS.
Yet for many like Makufa, collecting plastic waste has also turned out to be therapeutic in addition to being an economic venture.
“These things that we make with our own hands using plastic waste help us to rest from mental stress owing to problems we have these days that strain us psychologically. So, this helps us to be always occupied and refrain from overthinking about things we don’t have control over,” said Makufa.
According to the Environmental Management Agency (EMA), an estimated 1.65 million tonnes of waste are produced annually in Zimbabwe, with plastic making up to 18 percent of that.
Gowere and Makufa and other elderly recyclers and plastic entrepreneurs have drawn the admiration of organizations like EMA.
“This is a commendable initiative that is promoting upcycling of waste and upscaling recycling as a business. This reduces the amount of waste that ends up in landfills and the environment. Plastic waste takes hundreds of years to decompose, and it releases harmful toxins into the environment when burned,” Amkela Sidange, spokesperson for EMA, told IPS.
Transport barges navigate one of the branches of the Paraná River in Argentina’s Santa Fe province. The Paraná, the second longest river in South America, has been turned into a major waterway through which a large part of Paraguay’s and Argentina’s agricultural exports are shipped out of the region. CREDIT: Fundación Humedales
by Daniel Gutman (buenos aires)
Inter Press Service
BUENOS AIRES, Sep 29 (IPS) – In addition to being a majestic river – the second longest in South America after the Amazon – the Paraná River is the waterway through which a large part of the area’s primary goods are exported. Today, its economic importance has sparked an unexpected diplomatic conflict between Argentina and the countries with which it shares the basin.
Argentina’s decision to charge tolls to vessels on its stretch of the river led to a formal complaint from Paraguay, Brazil, Uruguay and Bolivia, which argue that the river corridor agreement signed by the five countries in 1994 stipulated that no taxes or tariffs could be imposed without the approval of all parties.
The Paraguay-Paraná Waterway River Transport Agreement created an Intergovernmental Committee as the political body that would ensure its operation and maintain it as a motor for the development of the Southern Common Market (Mercosur), established by Argentina, Brazil, Paraguay and Uruguay in 1991 and later joined by Bolivia.
Tension reached unprecedented levels with Paraguay, a landlocked country that owns a gigantic fleet of ships that carry millions of tons of soybeans and beef, the engines of its economy, to the Atlantic Ocean and often return with fuels, essential to supply a nation that produces no oil or gas.
“What is happening is very serious. Paraguay has invested three billion dollars in the last 10 years and has 2,500 transport barges, one of the largest fleets in the world,” Andrea Guadalupe, vice-president in Argentina of the Mercosur-Southeast Asia Chamber of Commerce, which groups export companies from different countries, told IPS.
“It is not wrong for Argentina to charge a toll, because it carries out dredging and beaconing works that allow large ships to pass through the Paraná. But what is wrong is that it has not consulted the other countries and has taken a unilateral decision,” she argued.
Paraguayan Pesident Santiago Peña announced that he would resort to international arbitration, saying that his country’s sovereignty was at stake, and stating: “Paraguay has no future without the free navigability of the rivers.”
Although Peña denied that it was a reprisal, Paraguay announced this September that it would keep half of the electricity from the Yacyretá power plant located on the border between the two countries, on the Paraná River, which has an installed capacity of 3,200 megawatts.
Traditionally, although it is entitled to 40 percent, Paraguay has kept only 15 percent of Yacyretá’s energy and ceded the remaining 85 percent to Argentina, a country with a population of 46 million inhabitants, six times larger than Paraguay’s, which means it obviously consumes more energy.
The Rio de la Plata, seen from Buenos Aires, is at the mouth of the Paraná River and leads to the Atlantic Ocean, allowing the transportation to the export markets of a large part of the agricultural products of one of the most productive areas of South America. CREDIT: Daniel Gutman / IPS
Argentina says it invests between 20 million and 25 million dollars a year in dredging work on the Paraná, which in recent years has become more necessary due to a persistent drop in the water level, which has forced barges to carry less cargo and has increased the companies’ logistical costs.
“The situation is affecting the relationship between two countries that are brothers. Argentina’s attitude is not in line with the agreements, and Paraguay is a landlocked country that needs the river to connect with the world,” Héctor Cristaldo, president of the Union of Production Chambers (UGP), which groups Paraguayan agricultural business chambers, told IPS.
Cristaldo said the main impact for Paraguay is in the supply of fuels used for agriculture and livestock and also for land transportation. “Paraguay has no trains; everything moves on wheels,” he said.
The toll crisis escalated into open friction in early September, when a Paraguayan flagged barge heading north with 30 million liters of fuel was held up for several days by Argentine authorities who released it when it agreed to pay some 27,000 dollars in tolls.
The rate for vessels put into effect in January 2023 is 1.47 dollars per ton transported. It was set by the General Administration of Ports (AGP), the government agency that controls the Argentine section of the waterway.
The new toll drew a statement from the governments of Paraguay, Brazil, Bolivia and Uruguay, which expressed “special concern because it is a restriction on the freedom of transit” and asked Argentina to collaborate “to facilitate commercial transport, favoring the development and efficiency of navigation.”
Paraguayan President Santiago Peña (L) is greeted by his Argentine counterpart Alberto Fernández on Aug. 15, when he took office in Asunción. Relations between the two countries later deteriorated over navigation rights in the Paraná River basin. CREDIT: Presidency of Argentina
From Mato Grosso to the sea
The Paraná River, together with its tributary, the Paraguay River, form a waterway stretching almost 3,500 kilometers from Mato Grosso in west-central Brazil to its mouth in the Río de la Plata, which in turn flows into the Atlantic. The basin covers almost 20 percent of South America’s territory, and has an enormous biodiversity and a remarkable productive capacity.
The lower section, from the central Argentine city of Rosario to the mouth of the river, has been dredged to allow trans-oceanic vessels to pass through, carrying millions of tons of agricultural products for export each year. In total, some 100 million tons of goods are transported through the waterway every year.
The work began in 1995, when Argentina granted its section under concession to a consortium formed by the Belgian maritime infrastructure giant Jan de Nul and the Argentine Grupo Emepa, to be in charge of dredging and signaling. Thus, the river was deepened from its natural 22 feet to 34 feet from Rosario – the country’s main agro-industrial center – to the mouth.
Further north, the waterway is only 12 feet deep, which only allows the navigation of barges, with which Paraguay and Bolivia export a major part of their soybean production, which is transferred to larger ships in Rosario.
The following year, the Argentine Ministry of Agriculture authorized the cultivation of transgenic soybeans, which would lead to a major expansion of the agricultural frontier and great pressure from agribusiness to deepen the dredging of the Paraná, which crosses the most productive area of Argentina, so that larger ships could enter.
Map of the Paraguay-Parana waterway. CREDIT: Afip
Low cost transportation
“The Paraná was transformed into a waterway that began to fulfill a function analogous to the one played by the railroad until the first third of the 20th century: to facilitate the expansion of the productive frontier and to be a low-cost transit route,” wrote geographer Álvaro Álvarez, vice-director of the Geographic Research Center of the public Universidad Nacional del Centro.
Álvarez maintains that the Paraná today is “a key infrastructure in the insertion of the region as a supplier of commodities into the international economy, a process through which industrial agriculture, mega-mining and hydrocarbon exploitation have been degrading ecosystems for decades, expelling populations from territories and affecting the health of communities.”
One of the main questions about the waterway is that there are no studies of the environmental impact generated by the modification of the river and the constant traffic of large vessels.
“The State presented a 30-year-old environmental impact study in the file. Since then there has been and there continues to be removal of thousands of tons of sediment from the riverbed, which in many areas is contaminated with agro-toxins from industrial agriculture, and it is not known how that impacts the contamination and the dynamics of the river,” Lucas Micheloud, a member of the Association, told IPS.
“It is not a matter of adapting the river to the size of the ships, but of the ships adapting to the river,” said Ariel Ocantos, a graduate in International Relations and member of the Ecologist Workshop of Rosario, one of the environmental organizations demanding greater citizen participation in the interventions carried out in the Paraná River.
“We made several requests for information to the government because we want to know if they are conducting environmental impact studies. There is very little information and we are demanding citizen participation, which is absolutely necessary,” he said.
The state-owned Petróleos Mexicanos (Pemex) oil company is completing its seventh refinery on a 600-hectare site at Dos Bocas in the municipality of Paraíso, in the southeastern state of Tabasco. The plant will process some 290,000 barrels of fuels per day when it reaches full capacity. CREDIT: Erik Contreras-Gerardo Morales / IPS
But the monument lacks another element that has been vital to the region: oil, which has damaged the other three symbols through pollution. Marine animals have been affected by the oil and the mangroves have almost been cut down in a territory that had ample reserves of crude oil.
Despite the fading bonanza, the Mexican government decided to build the Olmeca refinery in the industrial port of Dos Bocas, in Paraíso, to refine some 290,000 barrels per day of oil from the Gulf of Mexico and thus reduce gasoline imports.
It will be the seventh installation of the National Refining System in the country, in a port area that already has a crude oil shipping and export center of the state-owned oil giant Petróleos Mexicanos (Pemex), which controls the exploitation, refining, distribution and commercialization of hydrocarbons in the country.
Construction of the new infrastructure on an area of 600 hectares began in 2019, and although it was officially opened in 2022, the work has not been completed and it is expected to be fully operational in 2024.
But the plant has already provided revenue for the local economy, in the form of rents, transportation and food. However, there are also fears about its impact on a city of more than 96,000 inhabitants.
Genaro, a cab driver who preferred not to give his last name and is married with three children, said there is a sensation of risk. “We know what has happened in other places where there are refineries, with all the pollution. Besides, accidents occur,” he told IPS.
Near the plant is the Lázaro Cárdenas neighborhood, home to hundreds of people and named after the president who nationalized the oil and electric industry in 1936.
There is an uneasy feeling among the local population. Irasema Lozano, a 36-year-old teacher who is a married mother of two, is one of the residents who is apprehensive about “the newcomer” to the city.
“Look around, there are houses, schools, stores. The government says it is a modern plant and that there is no danger, but we don’t feel safe with this huge plant,” she said.
Cab driver Genaro owns a house in the area, which he rents out. But he is now seriously thinking of selling it.
Construction of the plant has altered the life of the sprawling city around Dos Bocas. The “orange people”, referring to the color of the uniforms worn by everyone who works at the facility, are a permanent reminder of the changes as they move around town.
Talking about oil in Tabasco is a delicate matter, since the state is used to living with the exploitation of a light, low-sulfur, cheap and easy-to-extract hydrocarbon. It is also the home state of President Andrés Manuel López Obrador, a staunch defender of fossil fuels.
Pemex has financed the Olmeca megaproject with public funds, through its subsidiary Pemex Transformación Industrial. Its subsidiary PTI Infraestructura y Desarrollo has overseen construction.
The project has already had a high cost overrun, as the initial investment was estimated at seven billion dollars, a figure that has climbed to 18 billion dollars, according to the latest available data.
On this occasion, PTI ID has not turned to the international market to finance the work, according to the response to a public information access request from IPS.
The Olmeca refinery has a cost overrun, escalating from a planned initial investment of seven billion dollars to 18 billion dollars. The Mexican government expects the plant, located in Dos Bocas, in the southeastern municipality of Paraíso, to be fully operational by 2024. CREDIT: Erik Contreras-Gerardo Morales / IPS
The support of international banks
Traditionally, Pemex has depended on financial flows from international private banks. Between 2016 and 2022, 17 institutions gave nearly 61.5 billion dollars to the state-owned oil company, according to annual reports under the heading of “Banking on Climate Chaos” produced by a group of NGOs.
The British bank HSBC was the main financial backer of Pemex during this period, contributing 7.6 billion dollars, followed by the U.S.-based Citi (6.9 billion) and JP Morgan Chase (6.0 billion).
Pemex’s data gives a broader picture, as it shows more players in its lending field. Through direct loans, bond issuance, revolving credits (with automatic renewals) and project financing, 16 financial institutions have granted it 78.9 billion dollars since 2015.
In doing so, the international markets allow Pemex to obtain money for its operations and development, but in exchange they have turned it into the oil company with the highest debt in the world, some 100 billion dollars, which poses a great threat to Pemex and, by extension, to the country.
The main mechanism used is the insurance coverage or underwriting of Pemex’s financial operations by charging a commission.
Maaike Beenes, leader of banking and climate campaigns at the non-governmental BankTrack, told IPS that the large flow of financing means that banks feel confident that Pemex can repay the debt.
“Apparently it is because they think there are guarantees because it is a state-owned company. There is a lot of financing for the expansion of fossil fuel activities,” she said from the Dutch city of Amsterdam.
In 2020, Mexico was the 13th largest oil producer in the world and 19th largest gas producer. In terms of proven crude oil reserves, it ranked 20th and 41st respectively, according to Pemex data.
Two flares burn gas in the Nuevo Torno Largo neighborhood, in the municipality of Paraíso, in the vicinity of the Olmeca refinery. The southeastern state of Tabasco, on the coast of the Gulf of Mexico, has suffered the effects of pollution generated by oil production for more than 50 years through spills, contaminating gases, and water, air and soil pollution. CREDIT: Erik Contreras-Gerardo Morales / IPS
Fueling the crisis
By raising Pemex’s debt rating, the international banks risk their own voluntary climate targets for greenhouse gas (GHG) emission reductions, since the Mexican company’s GHG emission reduction targets are low.
For example, HSBC aims to achieve zero net emissions – where neutralized emissions equal those released into the atmosphere – in its operations and supply chain by 2030 and in its financing portfolio by 2050.
The bank says it is working with its clients to help them reduce their emissions. Its energy policy states that it will not finance new oil and gas fields.
But HSBC’s net zero goal has some gaps. According to the international Net Zero Tracker platform, its strategy lacks a detailed plan to achieve it, and has no reference on equity investment and no specification on formal accountability for monitoring progress, even though it covers Scope 1 (A1), 2 and 3 emissions.
A1 emissions come directly from sources under the polluter’s control, A2 emissions are indirect emissions from purchased energy, and A3 emissions are those originating in the final use of energy, not covered in A1 and A2, according to the Greenhouse Gas Protocol standard, the most widely used in the world.
By 2022, Citi committed to achieving a 29 percent absolute reduction in emissions for the power sector and a 63 percent reduction in the intensity of its portfolio pollution for the electricity sector by 2030, addressing A1, A2 and A3 levels.
In this regard, Net Zero Tracker says the bank does not have a complete detailed plan for these decreases and makes no reference to investment in fossil fuel companies.
Another major player, JP Morgan Chase, has a target of a 69 percent reduction in the carbon intensity of power generation, which accounts for most of the sector’s climate impact, by 2030.
In the oil and gas segment, the company aims for a 35 percent decrease in operational carbon intensity, as well as a 15 percent drop in end-use energy carbon intensity for the same year.
But its net zero targets are in doubt, as Net Zero Tracker points out that they have shortcomings, such as a complete detailed plan, and no reference to equity investment and only partial coverage of A3.
Louis-Maxence Delaporte, fossil-free finance campaigner at the non-governmental Reclaim Finance, said that international financing for companies like Pemex is problematic as it is not aligned with the 2015 Paris climate change agreement, which sets out to keep global warming below 1.5°C.
“By not meeting these targets there is only greenwashing, like net zero. Their commitments are not credible. It is said there is no room for new fossil fuel projects, but the banks continue to support oil companies, like Pemex,” she told IPS from Paris.
“In Mexico there are perverse incentives because the country depends on extractive activities. There is a vicious circle, as these activities demand a greater share of the public budget and the banks channel money into them,” she told IPS from London.
A photo taken at the entrance to the Olmeca refinery, which the Mexican government expects to start up by the end of the year and to be fully operational in 2024. The plant is located next to the Lázaro Cárdenas neighborhood which is home to hundreds of people, in the Paraíso municipality of the southeastern state of Tabasco. CREDIT: Emilio Godoy / IPS
Dirty money
Pollution from Pemex’s activities has grown since 2018, a reality to which its financiers turn a blind eye.
In 2019, the Mexican oil company released 48 million tons of carbon dioxide (CO2) equivalent into the atmosphere, an increase of 3.3 percent, compared to 2018 levels, according to the report that Pemex sent to the Securities and Exchange Commission, a requirement for the company to sell bonds in the U.S. market.
In 2020, that pollution increased to 54 million tons, a rise of 12.5 percent, and the following year, to 70.5 million, an increase of 7.1 percent.
The main drivers of these increases have been the expansion of exploration, production and refining activities, plus drilling and flaring.
As of October 2022, Pemex was not in compliance with the 10-point framework of Climate Action + 100, a platform dedicated to measuring companies’ approach to the Paris Agreement goals. These aspects are related to short- and long-term reduction targets (2025 and 2050), decarbonization strategy and climate policies.
Therefore, the oil company, the eighth-largest global polluter as of 2017, according to the ranking of the non-governmental U.S. Climate Accountability Institute, is in breach of the Paris Agreement, adopted in 2015 and in force since 2021.
This also makes Mexico a country in non-compliance, as Pemex accounts for 10 percent of its GHG emissions.
Pemex has projected the reduction of pollution from its oil and gas production and extraction from 22.9 tons per 1000 barrels of crude oil equivalent in 2021 to 21.5 in 2025. For oil refining, the target is 39.6 tons per 1000 barrels in 2035, compared to just under 45.2 tons in 2021.
Delaporte criticized these targets as weak and insufficient, as they address only exploration and production (A1) emissions and leave out A2 and A3, the latter being the most polluting.
The Olmeca refinery is located in a coastal area of southeastern Mexico prone to flooding and exposed to rising sea levels due to increasing temperatures, one of the consequences of burning fossil fuels. CREDIT: Erik Contreras-Gerardo Morales / IPS
The national buttress
Another facet of the financial movement is related to national development banks, which have been pushing fossil fuel expansion without respecting their own social and environmental safeguards.
Since 2019, Bancomext has delivered 895 million dollars to the oil and gas industry, including Pemex, although the specific amount that went to the company itself is not public knowledge.
Banobras has been a great support for the oil company. In 2021, it provided over 1.1 billion dollars for the total acquisition of the Deer Park refinery in the U.S. state of Texas, of which Pemex already owned half and Shell the other 50 percent.
In addition, the bank shelled out 299 million dollars for the renovation of the Miguel Hidalgo refinery in the central state of Hidalgo.
Nafin lent Pemex 200 million dollars to upgrade the plant in 2021.
One phenomenon is the participation of the National Infrastructure Fund (Fonadin), which until now had never financed the fossil fuel sector. Last year, the fund contributed 346 million dollars for the renovation of diesel and gasoline processing technology at the Hidalgo refinery and at the Antonio M. Amor refinery, located in the central state of Guanajuato.
The latest operation involves 2.5 billion dollars in financing for the acquisition of the 13 production plants owned in the country by the Spanish company Iberdrola, 12 gas plants and one wind farm, in what has been described as part of “a new nationalization process.”
This maneuver also shows that international banks are still interested in financing fossil fuels, as the Spanish banks BBVA and Santander, as well as the U.S. Bank of America, have expressed a willingness to provide financing for the already agreed acquisition.
Climate activists stress that Mexican development banks have had social and environmental standards in place since 2017, but argue that they have been reluctant to apply them when it comes to Pemex.
Banobras has no safeguards assessments with respect to oil and gas projects, according to responses to information requests submitted by IPS. The same applied to Nafin, which did not carry them out in 2022 and 2023. The bank conducted one in 2021, classified as a bank secret. Bancomext also keeps information on this matter classified.
In the municipality of Paraíso, when the refinery begins to fully operate sometime in 2024, the pace will slow down, contrary to what the government wants. “We hope it will be profitable because it has cost a lot. And we hope nothing serious happens,” said Lozano, the teacher.
Beenes said Mexican and foreign banks should respect the Paris Agreement and abandon fossil fuels.
“State-owned banks can offer guarantees or insurance for credits. That is worrying, it is a problem for the transition. We are asking them to support the transition with specific investment conditions. It is in their best interest to stay away from fossil fuels, because they run the risk of having stranded assets in their portfolios,” she said.
The expert believes that banks are aware of the need for change, but the question is how fast they can do it.
Delaporte said development banks should finance green and non-oil companies.
“The change must be global, including commercial banks, development banks and hedge funds. Shareholders should ask Pemex not to build more facilities. If it refuses, they should divest and put the money into renewable companies,” she said.
Guzman, for her part, warned that if the current trend continues, it will be difficult for Mexico not only to meet its own climate targets, but also its contribution to the overall goal of keeping the global climate increase down to 1.5 degrees Celsius.
“There is talk of the need to continue mobilizing financing through national development banks for climate change. They should take advantage of this to allow the channeling and mobilization of funds” for the energy transition, she said.
Jamaat-i-Islami party stage protest in Peshawar against price-hikes. Credit: Ashfaq Yusufzai/IPS
by Ashfaq Yusufzai (peshawar, pakistan)
Inter Press Service
PESHAWAR, PAKISTAN, Sep 26 (IPS) – “We are under extreme stress about skyrocketing prices of essential edible commodities and the cost of gas and electricity. The situation is becoming worse because every day. We must pay more for wheat flour, sugar, tea, milk, oil, etc.,” Azizullah Khan, a civil servant, says.
Khan draws a monthly salary of 30,000 rupees (USD100), but the cost of living is increasing daily, making it hard for his family of eight to survive.
The electricity bill for August was 20,000 rupees (USD67), and two-thirds of his salary went into paying that, while the remaining 10,000 rupees (USD33) is meant to pay for gas and other family expenses, which, he says, is next to impossible.
“Now, we are seriously thinking of selling the small house we inherited from our parents because we have to repay loans to the shopkeepers and pay the school fees of three children,” says Khan, 30. He lives on the outskirts of Peshawar, the provincial capital of Khyber Pakhtunkhwa, one of Pakistan’s four provinces.
Pakistan’s leading economy and business analyst, Khurram Hussain, told IPS that the country has been seeing relentless and unending pressure on the exchange rate and price levels for more than two and a half years.
“The present bout of exchange rate volatility began in May 2021 and has continued unabated since then,” Hussain says. The dollar had from around 150 rupees to the dollar to about 300 to the dollar, he says.
Quoted in Dawn, a newspaper in Pakistan, he noted: “It took ten years for the dollar to double in value from 75 to 150 rupees, from 2008 till 2019. It took less than two and a half years to double again from May 2021 till today.
At the same time, inflation, as measured by the Consumer Price Index, started to skyrocket a few months after May 2021 and has risen relentlessly until now, with a few interruptions.
Muhammad Raees, 28, a daily wager, is severely hit by the cost of living.
“One year back, the price of 20 kg wheat four was Rs1300, which has now increased to Rs3000. I don’t find work every day because the construction activities have nosedived due to cement, iron, marble, and tile prices, and most of the contractors have stopped work,” Raees, a father of two, says.
“Many times, I have thought of committing suicide, but then I think of my children and wife,” he says.
At least ten people have committed suicide in the past two months.
“They were unable to pay electricity bills. Now, the government is mulling about jacking up the gas price by 50 percent. The poor population is the worst hit,” he says.
Javid Shah, a vegetable seller in Nowshera city adjacent to Peshawar, is fed up with life. “Cost of transportation has increased, and so the prices of vegetables and, as a result, sales have declined. Many who bought 1 kg of tomatoes, lady fingers, and potatoes daily are now taking half a kg,” he says. “I have to discard rotten vegetables daily for lack of sales.”
Akram Ali, a fruit seller in a tiny shop, also constantly complains of high inflation and devaluation of rupees. Ali says his business has reached a standstill as people no longer buy fruits due to high prices.
“As a result, I am going to close shop and start the business in a hand pushcart to save on rent.”
“My two sons are going to school, but the last one and half years have been tough, and I cannot pay their fees. Both have quit schools and sit at home,” he complained.
Saleem Ahmed, a local economist, tells IPS that pulses, considered poor men’s diet, are so expensive they are out of reach of many.
“All pulses are imported in dollars, so their prices have increased. The people are struck by inflation, and they cannot buy items, like pulses, which used to be cheap,” he said.
Prices were stable until former Prime Minister Imran Khan was removed in April 2022 in a no-confidence vote at the National Assembly.
“People have been running from pillar to post for two square meals. As if inflation wasn’t enough, huge smuggling of sugar, wheat flour, pulses, oil, etc. to neighboring Afghanistan have hammered the last nail in the coffin of the poverty-stricken masses,” he said.
Ahmed says the government is taking loans from the IMF, the World Bank, and other lenders with high interest rates, impacting the cost of living.
In such a scenario, Afghan refugees living in Pakistan are jubilant over the rising Afghan economy under the Taliban, and many are weighing options to return to their country.
“In Pakistan, the US dollar is equal to 300 rupees while it is traded for 75 Afghani back home,” Muhammad Mustafa, an Afghan with a sanitary business in Peshawar, says.
Mustafa says he had sent his elder son to Kabul to search for the rented shop so he could shift his business there.
“All my family live in Kabul, and we want to be there. The time is ripe for us to shift (back) there,” he says.
Petrol is being sold at 312 rupees (USD1.5) per liter in Pakistan, while its rate was 80 Afghani (USD1.02) in Kabul.
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