UNITED NATIONS (AP) — Out of the ashes of World War II, three institutions were created as the pillars of a new world order. Now, in an unusual move, the top official in one – the UN secretary-general – is pushing for major changes in the other two.
Antonio Guterres claims that the International Monetary Fund has benefited rich countries rather than poor countries. And he describes the IMF and World Bank’s response to the COVID-19 pandemic as a “flagrant failure” that has left dozens of countries deeply in debt.
Guterres’ criticism, in a recent article, is not the first time he has been called upon to overhaul global financial institutions. But it’s his most in-depth analysis of their problems, in light of their response to the pandemic, which he called a “stress test” for organizations.
His comments were released ahead of meetings called by French President Emmanuel Macron in Paris on Thursday and Friday to discuss multilateral development bank reforms 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 leadership of the IMF and World Bank limited by the powerful nations that control them – a situation similar to that of the United Nations, which has faced its own challenges. own calls for reform.
Maurice Kugler, a professor of public policy at George Mason University, told The Associated Press that the failure of institutions to help countries most in need “reflects the persistence of a top-down approach in which the President of the Bank is a US national appointed by the The US President and Managing Director of the IMF is a European Union national appointed by the European Commission.
Richard Gowan, director of the International Crisis Group at the UN, said there was a lot of frustration that the United States and its European allies were dominating decision-making, leaving African countries only ‘”a small part of the right to vote”. Developing countries also complain that the bank’s lending rules work against them, he said.
“In all fairness, the bank has tried to update its funding procedures to address these concerns, but it hasn’t gone far enough to satisfy southern countries,” Gowan said.
Guterres said it was time for the executive boards of the IMF and World Bank to right what he called historical wrongs and “the biases and injustice embedded in the current international financial architecture.”
This “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 the key institutions of a post-war international monetary system. war. The IMF was to monitor exchange rates and lend reserve currency to countries with balance of payments deficits. The World Bank would provide financial assistance for post-war reconstruction and for building the economies of less developed countries.
Guterres said institutions have not kept pace with global growth. He said the World Bank has $22 billion in paid-up capital, the money used for low-interest loans and grants for government development programs. As a percentage of global GDP, this is less than a fifth of the level of funding in 1960.
At the same time, many developing countries are going through a deep financial crisis, exacerbated by inflation, rising interest rates and the end of debt relief.
“Some governments are forced to choose between repaying their debts or defaulting on paying public sector workers, which could ruin their credit rating for years to come,” said António Guterres, adding that “Africa is now spending more for servicing the debt than for health”. care.”
IMF rules unfairly favor rich countries, he said. During the pandemic, the rich countries of the Group of Seven, with a population of 772 million inhabitants, received the equivalent of $280 billion from the IMF while the least developed countries, with a population of 1.1 billion of inhabitants, received just over $8 billion.
“It was done according to the rules,” said António Guterres. It is “morally wrong”.
He called for major reforms that would strengthen the representation of developing countries on the boards of the IMF and the World Bank, help countries restructure their debts, change IMF quotas and reorganize the use of funds. of the IMF. He also called for increased funding for economic development and to tackle the impact of climate change.
IMF spokeswoman Julie Kozack, asked about Guterres’ proposals at a June 8 press conference, said, “I am not in a position to comment on the specifics.”
She added that a review of IMF quotas is a priority and should be completed by December 15.
In a written response to a question from the AP, the IMF said it had staged an “unprecedented” response to countries’ greater demand for help to deal with recent shocks.
After the pandemic hit, the IMF approved $306 billion in financing for 96 countries, including loans at below-market rates to 57 low-income countries. It has also quadrupled interest-free loans to $24 billion and provided about $964 million in grants to 31 of its most vulnerable countries between April 2020 and 2022 so they can repay their debts.
The World Bank Group said in January that its shareholders had launched 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 have upended development progress and threatens people and the planet.”
Guterres’ push to reform the IMF and World Bank comes as the United Nations also faces demands to overhaul its structure, which still reflects the post-World War II world order.
Gowan said many UN ambassadors believe it might be “slightly easier” and more helpful for 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 financial institutions, any change is up to their boards. Gowan noted that when the Obama administration engineered IMF voting rights reform 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 to many developing countries,” Gowan said, “so they have an interest in reforming the IMF and World Bank in ways that prevent states from poorest to depend on Beijing for loans”.
Beyond the Paris meeting, the debate on IMF and World Bank reforms will continue in September at a summit of G20 leaders in New Delhi, and at the annual gathering of world leaders at the United Nations.
US climate chief John Kerry said in an interview with The Associated Press on Wednesday that he would attend the Paris summit with officials from the IMF and World Bank.
“Hopefully the new funding streams will be better defined than they have been,” he said. “I think it’s really important.”