UNITED NATIONS (AP) – From the ashes of World War II, three institutions were created as linchpins of a new global order. Now, in an unusual move, the top official in one – the secretary-general of the United Nations (UN) – is pressing for major changes in the other two.
Antonio Guterres said the International Monetary Fund (IMF) has benefited rich countries instead of poor ones. And he describes the IMF and World Bank’s response to the COVID-19 pandemic as a “glaring failure” that left dozens of countries deeply indebted.
Guterres’ criticism, in a recent paper, isn’t the first time he’s called for overhauling global financial institutions. But it is his most in-depth analysis of their problems, cast in light of their response to the pandemic, which he called a “stress test” for the organisations.
His comments were issued ahead of meetings called by French President Emmanuel Macron in Paris on Thursday and Friday to address reforms of the multilateral development banks and other issues.
Neither the IMF nor the World Bank would comment directly on the secretary-general’s criticisms and proposals. But Guterres’ comments echo those of outside critics, who see the IMF and World Bank’s leadership limited by the powerful nations that control them – a situation similar to that of the United Nations, which has faced its own calls for reform.
Professor of public policy at George Mason University Maurice Kugler told The Associated Press that the institutions’ failure to help the neediest countries “reflects the persistence of a top-down approach in which the World Bank president is a United States (US) national appointed by the US president and the IMF managing director is a European Union national appointed by the European Commission.”
International Crisis Group’s UN director Richard Gowan said there is a lot of frustration with the US and its European allies dominating decision-making, leaving African countries with only “a sliver of voting rights.” Developing countries also complain that the bank’s lending rules are weighted against them, he said.
“In fairness, the bank has been trying to update its funding procedures to address these concerns, but it has not gone far enough to satisfy countries in the Global South,” Gowan said.
Guterres said it’s time for the boards of the IMF and the World Bank to right what he called the historic wrongs and “bias and injustice built into the current international financial architecture.”
That “architecture” was established when many developing countries were still under colonial rule.
The IMF and what is now known as the World Bank Group were created at a conference in Bretton Woods, New Hampshire, in July 1944 to be key institutions of a postwar international monetary system. The IMF was to monitor exchange rates and lend reserve currencies to countries with balance of payment deficits. The World Bank would provide financial assistance for postwar reconstruction and for building the economies of less developed countries.
Guterres said the institutions haven’t kept pace with global growth. He said the World Bank has USD22 billion in paid capital, the money used for low-interest loans and grants for government development programmes. As a percentage of global gross domestic product, that’s less than one-fifth of the 1960 funding level.
At the same time, many developing countries are in a deep financial crisis, exacerbated by inflation, rising interest rates and a standstill in debt relief.
“Some governments are being forced to choose between making debt repayments or defaulting in order to pay public sector workers – possibly ruining their credit rating for years to come,” Guterres said, adding that “Africa now spends more on debt service costs than on healthcare.”
The IMF’s rules unfairly favour wealthy nations, he said. During the pandemic, the wealthy Group of Seven nations, with a population of 772 million, received the equivalent of USD280 billion from the IMF while the least developed countries, with a population of 1.1 billion, were allocated just over USD8 billion.
“This was done according to the rules,” Guterres said. This is “morally wrong.”
He called for major reforms that would strengthen the representation of developing countries on the boards of the IMF and World Bank, help countries restructure debts, change IMF quotas, and revamp the use of IMF funds. He also called for scaling up financing for economic development and tackling the impact of climate change.
IMF spokesperson Julie Kozack, asked about Guterres’ proposals at a June 8 news conference, said “I’m not in a position to comment on any of the specifics.”
She added that a review of IMF quotas is a priority and is expected to be completed by December 15.
In a written response to a query from the AP, the IMF said it has mounted “an unprecedented” response to the largest-ever request from countries for help dealing with recent shocks.
After the pandemic hit, the IMF approved USD306 billion in financing for 96 countries, including below-market rate loans to 57 low-income countries. It also increased interest-free lending fourfold to USD24 billion and provided around USD964 million in grants to 31 of its most vulnerable nations between April 2020 and 2022 so they could service their debts.
The World Bank Group said in January that its shareholders have initiated a process “to better address the scale of development”.
The bank’s development committee said in a March report that the bank “must evolve in response to the unprecedented confluence of global crises that has upended development progress and threatens people and the planet”.
Guterres’ push for reforming the IMF and World Bank comes as the UN also faces demands for an overhaul of its structure, which still reflects the post-World War II global order.
Gowan said many UN ambassadors think it might be “marginally easier” and more helpful to developing countries to overhaul the IMF and World Bank than to reform the UN Security Council, which has been debated for more than 40 years.
While Guterres and UN ambassadors talk about reforming the financial institutions, any changes are up to their boards. Gowan noted that when the Obama administration engineered a reform of IMF voting rights in 2010, “Congress took five years to ratify the deal – and Congress is even more divided and dysfunctional now”.
“But Western governments are aware that China is an increasingly dominant lender in many developing countries,” Gowan said, “so they have an interest in reforming the IMF and World Bank in ways that keep poorer states from relying on Beijing for loans”.
Beyond the Paris meeting, the debate over IMF and World Bank reforms will continue in September at a summit of leaders of the Group of 20 in New Delhi, and at the annual gathering of world leaders at the UN.
US climate chief John Kerry said in an Associated Press interview on Wednesday that he will be attending the Paris summit along with IMF and World Bank officials.
“Hopefully, new avenues of finance will be more defined than they have been,” he said. “I think it’s really important.”
