Imagine You Are a Poor Nation, Trapped by Debt and Strangled by Climate Change—What Are Your Options?

By John Feffer

Last of two parts

In 2009, countries pledged to mobilize $100 billion in climate financing annually by 2020. They finally reached their goal in 2022, raising nearly $116 billion. Of course, even the wealthiest countries now estimate that the target figure should be closer to $2.4 trillion a year. And, surprise, surprise, two-thirds of the money came from loans in 2021.

Some of that money is passing through the Green Climate Fund, which had nearly $13 billion in assets as of 2023, significantly more than the Loss and Damage Fund. It can give out grants, but it also dispenses loans. It has a private sector facility that’s supposed to “catalyze private climate finance,” which sounds suspiciously like turning the desperation of poor nations into a profit-making opportunity.

So, despite all these new instruments (or perhaps because of them), the debt of the poor nations remains astronomical. According to a 2023 database by Development Finance International, “citizens of … [poor nations] now face the worst debt crisis since global records began.” In Africa, for instance, more than half of all government revenues go to servicing debt. Meanwhile, low-income countries have to spend more and more to deal with the impacts of climate change. How can countries expect to catch up to wealthy nations under these circumstances?

Several African nations came together in February 2025 to demand “urgent debt relief” at the launch of the African Leaders Debt Relief Initiative. The former Nigerian President, Olusegun Obasanjo, stressed that the crisis facing Africa was the worst seen in 80 years.

A March 2025 article in African Business pointed out that “[n]early 60 percent of the developing economies most vulnerable to climate change are also at considerable risk of fiscal crisis.” Referring to UN and OECD data, the article stated that some initiatives funded by wealthy nations, which are responsible for high carbon emissions, are “funneling billions of dollars back to these rich countries.”

Transform the System

Remember, you’re a poor country. Let’s say you’re Indonesia, which means that you’re the 16th largest economy in the world and the 10th largest emitter of greenhouse gases, according to a 2023 World Bank report. This is thanks to your overreliance on coal-fired power plants— 254 of them, to be exact.

You also face some pretty serious effects of climate change—not in some hypothetical future but right now. Seventy percent of Indonesia’s population lives on the coasts and experiences now-routine flooding, and your capital city of Jakarta is sinking inexorably below the water line, with the World Economic Forum predicting that most of the city could be underwater by 2050. (which is why you’re spending $45 billion to build a new capital in the forests of Borneo). You desperately need money to wean yourself off fossil fuels, especially coal, of which you’re the world’s largest exporter.

Fortunately, you also have some other valuable resources to sell. Indonesia is the world’s largest producer of nickel, a valuable component in the manufacture of lithium-ion batteries for electric cars, among other uses.

You also have a lot of debt: more than $500 billion. And nearly 50 percent of the gross domestic product goes to servicing this debt. Ordinarily, you’d be caught in a familiar downward spiral. You extract nickel and sell it. You earn some foreign currency but spend half of it on servicing your debt. Meanwhile, Jakarta continues to sink beneath the waves.

But you, as Indonesia, decided to do something different. First, you banned exports of raw nickel so that you wouldn’t be caught at the bottom of the supply chain as a mere provider of unprocessed ore. Then you brought in Chinese capital to upgrade your capacity to process nickel for batteries so that you could capture more of the ore’s value. This “resource nationalism” is ultimately designed to produce batteries in Indonesia.

South Korea pursued a similar strategy to create a steel industry and become a major shipbuilder, which helped the country jump from a roughly Ghanaian GDP level in 1960 to becoming one of the top economies in the world. Except that this time around, the rich countries are not willing to open their doors to Indonesia.

The European Union filed a suit at the World Trade Organization against Indonesia’s export ban and won in 2022. Meanwhile, Indonesia’s efforts to create a nickel cartel, similar to what oil producers established with OPEC, have also stalled. With the increase in global production, the price of nickel fell by more than 40 percent in 2024.

In addition to the negative environmental impacts of nickel mining and the community opposition to nickel mines around Indonesia, this “resource nationalism” does not provide an obvious solution to the three-body problem. But that hasn’t prevented countries with other concentrations of critical minerals, such as Argentina and lithium, and Chile and copper, from dreaming of similarly flipping the script on the wealthy nations.

Even though Indonesia hasn’t quite figured out the most feasible formula, its impulse is right: to extract more value from its precious commodities, as Botswana has done with diamonds.

Governments of poor nations have devised various ways of subverting the neocolonial aspirations of richer countries. They have established South-South economic cooperation, including the famous BRICS. They have proposed organizing a kind of debtors’ cartel to form a united front to extract better terms from creditors. They have demanded looser rules for intellectual property rights, as enshrined in free trade treaties, so that they can adapt technologies prevalent in the rich world and that are profitable for helping to grow their industries.

More radical proposals come from the community level. The successful 2023 referendum in Ecuador to keep the oil underground in Yasuní National Park points to a more direct confrontation with the fossil fuel industry. Movements that reject the hyperindustrial, consumerist model of wealthy nations, which has also become prevalent in low-income countries, promote more local traditions of a good life, or buen vivir.

Such post-growth alternatives also challenge the inexhaustible demand for energy in wealthy nations that underpins both the old extractivist model connected to fossil fuels and the new extractivism generated by the “clean energy” transition.

Another source of funds that exists outside the Bretton Woods institutions, such as the World Bank and the IMF, is the money that workers (many of whom are temporarily located in rich countries) send back to their families in poor countries in the form of remittances, amounting to nearly $860 billion in 2023. Compare that to what the IMF lent in 2023, a mere $5.7 billion. That figure for annual remittances is almost identical to the total amount the World Bank has loaned between 1945 and 2023: $857.7 billion.

Is it possible to “green” remittances, for instance, by setting up a green reconstruction fund that waives the usual transfer fees if workers deposit their money into the bank and earn interest as long as families withdraw the money to use on projects that reduce carbon emissions and promote sustainability? This would be a debt-free way to transition to energy from the bottom up.

Toward a Solution to the Three-Body Problem

Debt cancellation was once a central plank of the anti-globalization movement. Then, the spread of neoliberal economics to every corner of the globe muted that message.

West Germany’s experience after World War II is instructive. In the London Debt Agreement of 1953, the United States, the UK, and France effectively canceled more than half of Germany’s external debt. It established generous repayment terms for the remaining amount.

This was done while the Marshall Plan was providing West Germany with considerable resources for its post-war reconstruction. The rationale for this ambitious plan was to ensure that West Germany would be a solid and economically successful bulwark against the Soviet Union and communism.

The main lesson is that debt cancellation is a crucial component of a global energy transition, and substantial reconstruction funds must also accompany it. What would be the overarching rationale for the cancellation? To ensure that low-income countries constitute a strong and economically successful defense against climate change. This is the ultimate solution to the three-body problem, one that guarantees a truly just energy transition, enables poor nations to catch up to the wealthy ones, and, in the end, saves the planet.

John Feffer is director of Foreign Policy In Focus and Global Just Transition at the Institute for Policy Studies. An earlier version of this article was published by Foreign Policy in Focus. This adaptation was produced for the Observatory by Earth | Food | Life, a project of the Independent Media Institute.