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An Inconvenient Truth for Latin America

Otaviano Canuto's picture

The causes and effects of climate change are better known today than ever before. Whether it is world leaders meeting to discuss climate policy in Cancun or Copenhagen, Al Gore reminding movie-goers of an “Inconvenient Truth,” or private companies offering an ever-growing array of “green” products, the issue of climate change has permeated our global consciousness.

However, what may be less well understood are the negative welfare effects that climate variability and change can have, particularly in the developing world. While everyone is impacted by climbing temperatures, rising water levels, and increased incidence of flooding and drought, it is the poor who suffer the most, and whose natural, physical, financial, human, social, and cultural livelihood assets are most impacted. To make matters worse, the effects of climate change are exacerbated by a myriad of other issues, from land scarcity, to poor health, to lack of education—all factors which undermine a person’s ability to cope and adapt to a changing climate.

As argued by Dorte Verner in the newest edition of the World Bank’s Economic Premise research series, climate change is taking place and gathering speed in Latin America and the Caribbean—and this can have huge consequences for the region’s poor. From the Andes to the Amazon, from Panama to Patagonia, the region as a whole may soon suffer from increasing temperatures, rising sea levels, higher incidence of drought and flooding, and more intense extreme weather events such as hurricanes. Although the region is only responsible for a mere 12% of the world’s greenhouse gas emissions, communities across the continent are already suffering the negative consequences of increased climate variability and change.

The existence and increasing intensity of these climatic events underscores the need for world leaders to incorporate climate change into their development strategies. Just last week—five years after the release of the now famous Stern Review—Lord Nicholas Stern addressed a packed auditorium of development practitioners at the World Bank, and highlighted the relationship between climate change and development policy. “Overcoming climate change will help to overcome poverty,” Stern said. “If we fail on one, we fail on the other.”

Accordingly, I agree with the recommendations offered by Dorte Verner in “Social Implications of Climate Change in Latin America and the Caribbean,” as a means for leaders to integrate climate change into development policy. Verner rightly argues, “An optimal national strategy would employ both mitigation and adaptation efforts and should embody good governance and include public voice, representation, and social accountability.” Indeed, addressing climate change in the context of development policy will require leaders to look at more than just rising temperatures; it will take a holistic, integrated, and far-sighted approach to devise and implement a successful strategy to beat the heat.


We have bank regulations that establish that the higher the ex-ante risk of default of the borrower is, the higher the capital requirement for the bank and vice-versa. This is in itself dumb because the higher that perceived risk, is the less will the banks anyhow lend to those borrowers, and the higher will the risk-premiums banks charge and which go into capital be. But, and in reference to this very important post… what would have happened if the capital requirements of banks had instead been based on the purpose of the loans, like the creation of jobs, and like the reduction of environmental threats? Such a regulatory interference, much the same as like the current regulatory interference does, would certainly have created distortions that would have resulted in another type of bank and financial crisis… but yet, the following question lingers. Would we all not have been better off with a bank crisis that resulted from the banks trying to achieve some good purpose, than with the banks only trying to avert defaults and thereby drowning themselves, and us, in debt of overextended sovereigns and in debt of triple-A rated borrowers being downgraded? If there is one institution that should be searching for the answer of the previous question, that is the World Bank… unfortunately it has not yet been willing to do so.

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