- Antonio Guterres, the UN secretary-general, is pushing for major reforms in the IMF and the World Bank.
- According to Guterres, the International Monetary Fund has profited the rich nations at the expense of the developing ones.
- Time is ripe for the IMF and the World Bank boards to remedy what he referred to as historical wrongs and “bias and injustice built into the current international financial architecture.”
Reforming the IMF and the World Bank
The United Nations (UN) has called for major reforms for two institutions considered key players in the new world order. Antonio Guterres, the UN secretary-general, is pushing for major reforms in the IMF and the World Bank.
According to Guterres, the International Monetary Fund has profited the rich nations at the expense of the developing ones. The UN secretary-general describes the response by IMF and the World Bank towards the COVID-19 pandemic as a “glaring failure” that left most developing nations significantly indebted.
In a recent paper, Guterres’ comments are not the first instance he has called for overhauling the two global financial institutions. However, the recent comprehensive analysis of the challenges in the IMF and the World Bank shed light on their pandemic responses, which he called a “stress test” for the global financial institutions.
The comments by the UN secretary-general came ahead of meetings organised by French President Emmanuel Macron in Paris. The meetings will deliberate on reforms in the multilateral development banks, among other concerns.
The IMF and the World Bank have yet to comment directly on the proposals and criticisms by Antonio Guterres. Nevertheless, Guterres’ comments resonate with those of external critics, who regard the powerful nations as limiting the leadership of the IMF and the World Bank through unwarranted control.
The top-down approach and the failure to help the neediest nations
According to Maurice Kugler, a public policy professor at George Mason University, the failure to help the neediest countries “reflects the persistence of a top-down approach in which the World Bank president is a US national appointed by the US president, and the IMF managing director is a European Union national appointed by the European Commission.”
Richard Gowan, the UN director of the International Crisis Group, observes that many people have expressed frustration with the US and its European associates dominating the UN decision-making, leaving Africa with only “a silver of voting rights.” Gowan said that developing nations have also complained that the two global financial institutions have lending rules weighted to their disadvantage.
“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,” he adds.
According to Antonio Guterres, the time is ripe for the IMF and the World Bank boards to remedy what he referred to as historical wrongs and “bias and injustice built into the current international financial architecture.” That “architecture” was established with many developing nations still under colonial rule.
The historical mandate of the IMF and the World Bank
The IMF and the World Bank Group were created in July 1994 at a Bretton Woods, New Hampshire conference. The two global financial institutions would for a significant part of the post-war international monetary system.
The IMF would monitor exchange rates and lend reserve currencies to nations with the balance of payment deficits. The World Bank would offer financial aid for post-war rebuilding and building of less developed nations’ economies.
The UN secretary-general says that global financial institutions have failed to keep pace with international developments. Guterres observes that the World Bank has $22 billion in capital payments, the funds utilised for low-interest grants and loans for governments’ development programs. As a fraction of the global GDP, that amount is less than 20 per cent of the 1960 funding level. Similarly, many developing nations have plunged deeper into financial crisis, exacerbated by rising interest rates, inflation, and a halt in debt relief.
“Some governments are being forced to choose between making debt repayments or defaulting to pay public sector workers — possibly ruining their credit rating for years to come,” the UN secretary-general said, adding, “Africa now spends more on debt service costs than on health care.”
The unfair IMF rules
According to Guterres, the IMF’s rules remain biased in favour of the rich nations. During the pandemic, the IMF gave $280 billion to the wealthy Group of Seven nations, with a combined population of 772 million. Contrastively, the least developed nations with a population of 1.1 billion received just over $8 billion from the IMF during the pandemic.
“This was done according to the rules,” Guterres said. This is “morally wrong.” He said that major reforms would strengthen the developing nations’ representation on the IMF and World Bank boards. Consequently, it would help governments restructure debts, transform IMF quotas, and overhaul the use of funds in the institution. Guterres also called for scaling up funding for economic growth and addressing the climate change impacts.
Asked about Guterres’ suggestions at a June 8 news conference, IMF spokesperson Julie Kozack said, “I am not in a position to comment on any of the specifics.” She added that reviewing the IMF quotas remains a priority, with completion expected by December 15 2023.
Helping countries deal with economic shocks
The IMF reiterated that it has mounted “an unprecedented” response to the most significant request from countries for assistance in dealing with recent economic shocks.
At the height of the pandemic, the IMF approved $306 billion in funding for 96 nations, including below-market-rate loans to 57 low-income countries. The financial institution raised interest-free loans fourfold to $24 billion and gave around $964 million in grants to 31 of the most vulnerable member nations between April 2020 and 2022 for debt servicing.
Similarly, the World Bank Group reiterated in January that its shareholders had started a process “to address the scale of development better.”
In a March report, the bank’s development committee communicated 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.”
The UN also under pressure
Antonio Guterres’ call for reforms in the IMF and the Word Bank comes when the UN faces similar demands for a structural overhaul. The UN infrastructure still reflects the post-World War II global order.
However, Gowan observes that many UN ambassadors consider it “marginally easier” and more helpful to developing nations to revamp the IMF and World Bank than to overhaul the UN Security Council, which stakeholders have debated for over 40 years.
Whereas the UN secretary-general and the ambassadors speak about overhauling the global financial institutions, any reforms are up to their boards. Gowan observed that when the Obama government initiated a reform of the 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 deliberation over the IMF and the World Bank reforms will continue in September at the Group of 20 leaders’ summit in New Delhi and the UN’s annual meeting of world leaders.
The US climate chief John Kerry has indicated that he will attend the Paris Summit with the IMF and the World Bank officials. “Hopefully, new avenues of finance will become more defined,” he said. “I think it is really important.”