‘Nature And What It Brings With It Was Our Greatest Threat'
Bloomberg Markets|April - May 2020
‘Nature And What It Brings With It Was Our Greatest Threat'
Growing up in Barbados, MIA MOTTLEY lived through the effects of climate change. As prime minister, she’s devising ways of shielding the island’s finances from weather-related ruin
By Ezra Fieser

Mia Mottley’s gravelly voice rang with urgency. Standing at the podium at the United Nations, the prime minister of Barbados was warning of the dangers her island faced as storms swollen by warmer oceans tore through the Caribbean. “This is a matter of life or death for us,” she said.

It was late September 2018—hurricane season—and Barbados was flooding. A tropical storm threatened neighboring St. Lucia. On the other side of the globe, a typhoon took aim at Japan. The confluence of disasters was almost unthinkable. Almost. “This is not a science fiction movie,” Mottley said. “This is not a cartoon. And if I ever thought that it was a fantasy, what transpired in the last 24 hours across the different poles of the world has reminded me that it is not.”

Mottley had won office only four months earlier, becoming her nation’s first woman leader. This was her inaugural address to the UN, but she spoke with conviction, her words charged by decades of pent-up concern about a changing climate. She had seen for herself how flying fish, a once plentiful delicacy, were avoiding warming coastal waters, how rising seas were eating away at the wide white-sand beaches she’d known growing up, and how droughts were drying up aquifers that provide the islanders’ drinking water.

Financially shaky Barbados had escaped the wrath of disastrous hurricanes, but for how much longer? “We cannot plan our affairs or that of our people on the basis of luck,” she said. “It must be on the basis of policy and decisive action, but above all else on the basis of caring and empathy. I ask the world to pause, pause, and just get this one right.”

In front of her in the UN’s vast General Assembly hall, half the seats were empty. Some in the audience of dignitaries slumped in their seat. Others milled about. The signs were clear: Mottley was on her own. She returned to Barbados that day to work on a plan to protect the island, a plan of her own.

With wildfires ripping through Australia and the Amazon and along the U.S. West Coast, rising seas threatening small islands, and supercharged storms killing thousands and costing billions of dollars, markets and public officials are grappling with how to respond. There’s little that the prime minister of a country of some 290,000 people can do on her own to cool the world. But she can prepare her island nation for the inevitable crisis and its financial impact.

Now 54, Mottley has become a champion of what are known in sovereign debt contracts as natural-disaster clauses, measures that give the government a break from principal and interest payments in the event calamity strikes. Over the course of a year and a half of contentious negotiations to restructure Barbados’s sovereign debt, Mottley was finally able to persuade creditors to accept the clauses last October. She also needed to win the support of Bajans, as the people of Barbados are called, many of whom lost money when the government defaulted on its Treasury notes.

But in the process, Mottley says, Barbados has developed a model for how countries can protect their finances from climate change, especially neighboring Caribbean islands, which have been prone to default. “You’re not walking away from the liabilities, but you are walking away from the immediacy of the payments to create the cash flow that you need,” she says, seated at the head of a conference table at government headquarters in Bridgetown.

Under the deal the government and its creditors finalized in October, Barbados would get a two-year payment moratorium in the event of a disaster severe enough to trigger a payout from the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Co., a risk pool that provides coverage for calamities. The Mottley clauses, which now cover about 80% of the country’s outstanding debt, would free up as much as $700 million to spend on rebuilding if weather events cause the government to enact them in the next five years. That’s equivalent to almost 15% of the economy that otherwise would go to debt payments. After the moratorium, payments would resume, including on accrued interest.

That sort of breathing space could preserve the ability of Barbados and other tiny nations to respond to ever-more-frequent disasters. Hurricanes have caused more than $212 billion in losses and damages in the Caribbean since 1980, according to the Center for Disaster Management and Risk Reduction Technology in Karlsruhe, Germany.

The region is strewn with examples of the link between disaster and debt. The Bahamas, 1,400 miles northwest of Barbados, is borrowing as much as $300 million to deal with 2019’s Hurricane Dorian, the worst in its history. In 2017, Hurricane Maria crippled Puerto Rico’s ability to pay down the more than $70 billion in debt owed by the U.S. commonwealth at the time. Again and again, natural disasters have held back economic growth and, coupled with fiscal mismanagement, pushed countries into untenable situations.

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April - May 2020