The United Nations Secretary-General, Antonio Guterres, has called for substantial changes in the International Monetary Fund and World Bank, which were two of the three institutions created after World War II to serve as pillars of a new global order.
This move by the top official of the UN is considered to be unprecedented. Guterres claims that the International Monetary Fund has helped wealthy nations rather than poor ones; he further criticizes the IMF and World Bank’s response to the COVID-19 pandemic, which he describes as a “conspicuous failure,” resulting in numerous countries being heavily in debt.
The UN Secretary-General, Antonio Guterres, has urged significant alterations in the operations and functions of the International Monetary Fund (IMF) and World Bank, both of which were established as key constituents of a new global order following WWII.
This move by the top official of the UN is deemed to be unprecedented. Guterres believes that the IMF has assisted affluent countries rather than underprivileged ones. Additionally, he condemns the COVID-19 relief response of IMF and World Bank, which he describes as a “striking failure,” leading to high levels of debt incurred by multiple countries.
The IMF and World Bank chose not to comment directly on the criticisms and proposals expressed by the Secretary-General.
However, Guterres’ remarks concur with those of external critics who perceive these institutions’ administration to be limited by the influential nations in control.
This situation is comparable to that of the United Nations, which has been the subject of its own calls for reform.
Maurice Kugler, a professor of public policy at George Mason University, divulged to The Associated Press that the institutions’ inability to assist the most deprived nations “is due to the continuation of a top-down approach whereby the World Bank president is an American appointed by the American president, and the IMF managing director is a European Union national appointed by the European Commission.”
Richard Gowan, the U.N. director of the International Crisis Group, has stated that many are dissatisfied with the dominance of the United States and its European allies in decision-making processes, leading to African nations receiving only a “fraction of voting rights.”
Additionally, developing countries argue that the lending regulations of the bank are biased against them. Although the bank has attempted to renew its financing policies to address these frustrations, it has not progressed far enough to satisfy the Global South, according to Gowan.
Guterres stated that it is time for the boards of the IMF and World Bank to rectify the historical wrongdoings and “partiality and inequity embedded in the present global financial structure.”
This financial system was initially set up during a period when several developing nations were still under colonial control.
The IMF, along with the World Bank Group, came into being at a conference in Bretton Woods, New Hampshire, in July 1944, with the goal of being key organizations within the international monetary system following World War II.
The IMF’s obligation was to regulate exchange rates and lend reserve monies to nations having balance of payment shortages, whereas the World Bank would offer financial aid for renovating post-war structures and establishing the economies of less prosperous nations.
Guterres claims that these organizations have not kept up with global expansion. Guterres further revealed that the World Bank has paid $22 billion in capital, which needs to be utilized for low-interest loans and subsidies for government development plans. In terms of global GDP, this is less than one-fifth of the funding provided in 1960.
Meanwhile, many developing countries are facing deep financial crises, which have been triggered by inflation, rising interest rates, and a halt in debt relief.
Guterres explained that “some governments are in a position where they must choose between repaying their debts or defaulting to pay their workers in the public sector, which can destroy their credit rating for several years.” Furthermore, “Africa nowadays spends more on debt service expenses than on healthcare.”
Guterres argues that the IMF’s regulations unfairly favor prosperous nations. During the pandemic, the wealthy Group of Seven nations, consisting of a population of 772 million, earned the equivalent of $280 billion from the IMF, while less developed nations, with a population of 1.1 billion, were given just over $8 billion.
The United Nations Secretary-General António Guterres has criticized the International Monetary Fund (IMF) and World Bank for their handling of the Covid-19 pandemic, calling their actions “morally wrong.”
Guterres has urged for major reforms including strengthening the representation of developing countries on the banks’ boards, helping countries restructure debts, changing IMF quotas and revamping the use of IMF funds. He also emphasized the need for scaling up financing for economic development and tackling the impact of climate change.
IMF spokesperson Julie Kozack did not provide any specific comments on Guterres’ proposals at a June 8 news conference. However, she added that a review of IMF quotas is underway and is expected to be completed by Dec. 15.
In response to AP’s query, the IMF said that it has provided unprecedented financing to deal with recent shocks, including $306 billion in financing to 96 countries, below-market rate loans to 57 low-income countries, interest-free lending increased fourfold to $24 billion, and grants of $964 million to 31 vulnerable nations for debt service. The World Bank Group has also initiated a process to address development on a larger scale, according to their shareholders.
The World Bank’s Development Committee indicated in a report in March that the bank needs to evolve in response to the global crises that have disrupted development progress and threatened people and the planet.
While the demand for UN structural reform is increasing, especially since it still reflects the post-World War II global order, Guterres has made a push for reforming the IMF and World Bank. Many UN ambassadors, according to Gowan, believe that overhauling the IMF and World Bank might be marginally easier and more helpful to developing countries than reforming the UN Security Council, which has been under discussion for over 40 years.
Despite the discussions at the UN, any changes in the financial institutions will be decided solely by their respective boards, not the efforts of Guterres and UN ambassadors.
Gowan noted that when Obama pushed for IMF voting rights reform in 2010, it was not ratified for five years, and this situation is compounded now by Congress being even more divided and dysfunctional.
According to Gowan, Western governments are aware that China has become a dominant lender in many developing countries. Therefore, they have an interest in reforming the IMF and World Bank to reduce the reliance of poorer states on Beijing for loans.
The debate on IMF and World Bank reforms will continue at the G20 summit in September in New Delhi and the annual gathering of world leaders at the United Nations. John Kerry, the US climate chief, will attend the Paris summit with IMF and World Bank officials.
He hopes that more defined avenues of finance will emerge, which he finds crucial.