From 10-16 April, the annual Spring Meetings of the World Bank Group (WBG) and the International Monetary Fund (IMF) took place in Washington, DC. The inaugural Commonwealth Finance Ministers High-Level Working Group Meeting also took place on the margins of the WBG and IMF meetings. These meetings held out hope for genuine reform of the global financial architecture.
At both the WBG and the IMF, there have been growing calls for stepping up financing to developing countries. These countries require external financing of approximately $1 trillion
United States Dollars (USD) by 2030 to address climate needs and attain the sustainable development goals (SDGs). This is in addition to the billions or even trillions needed for other development work.
It is against this backdrop that there was some guarded optimism for reform of the global financial architecture to respond better to the needs and circumstances of the developing world. When the current system was designed, the United States (US) and Europe emerged as the major power brokers.
For instance, the US is the World Bank’s largest shareholder, with 17.25% of the Bank’s capital shares. Furthermore, since its inception, every World Bank president has been a US citizen.
Similarly, the IMF’s largest member is the US, which holds nearly 17% of the Fund’s quotas.
While Brazil, China, India and Russia are now among the Fund’s ten largest members, Japan, France, Germany, Italy and the United Kingdom (UK) also hold significant quotas. Every IMF Managing Director has also been a European.
Therefore, part of the clamour for reform relates to the governance arrangements at both the WBG and the IMF. However, with the next WBG president likely to be another US nominee and citizen, governance reforms as far as leadership is concerned, appear to be some distance away.
Beyond governance, calls have also increased for both the WBG and the IMF to scale up their financing to developing countries. For example, last November, at the United Nations Climate Change Conference in Egypt, Mia Mottley, Prime Minister of Barbados, unveiled the Bridgetown Imitative. The Initiative implores wealthier nations and global financial institutions to alter their approach to supporting poor nations adapt to climate change.
Essentially, the Bridgetown Initiative seeks to unlock financing on more favourable terms for crisis-hit countries and calls for the creation of a global mechanism that would accelerate private sector investment in climate mitigation and reconstruction. A major innovation of the Bridgetown Imitative is that it contemplates the international financial institutions playing a role as guarantors for larger, more substantial private sector funding in developing countries.
In March this year, the Vulnerable 20 Group, comprising 58 nations from Africa, the Middle East, Asia-Pacific and Latin America and the Caribbean, also called for the incoming president of the World Bank to make climate action a top priority and to “make major reforms to the world’s international financial architecture to prevent the climate crisis from overwhelming the global economy.”
Readouts from the Spring Meetings suggest that systemic reforms are not imminent. For instance, there appears to be little ambition to make major changes to the governance arrangements at both the WBG and the IMF. Without new governance arrangements which transfer more decision-making powers to developing countries, issues such as unlocking more financing may not get very far in the near term.
On a more optimistic note, some momentum seems to be building around the Bridgetown Initiative. French president Emmanuel Macron has already backed the Initiative and John Kerry, the US’ special presidential envoy for climate, has also expressed openness to Prime Minister Mottley’s ideas for multilateral finance reform.
Reform is essential since without it, developing countries will find it increasingly difficult to cope with the multiplicity of challenges facing the world. While COVID-19 is perhaps not as pressing a crisis as it was two years ago, challenges of food insecurity, interest rate hikes and a possible global financial shock could break the back of some countries.
Joel K Richards is a Vincentian national living and working in Europe in the field of international trade and development.
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