The international financial architecture has failed in its mission to provide a global safety net for developing countries and requires a number of important reforms, said the UN Secretary-General in Paris on Thursday during the summit convened by the President of France, Emmanuel Macron, for a new global financing agreement.
António Guterres attributed the failure of this structure to the time of its construction after World War II, as it reflects political and economic power dynamics far removed from current reality.
“Nearly 80 years later, the global financial architecture is outdated, dysfunctional and unfair.. It is no longer able to meet the needs of the 21st century world: A multipolar world characterized by deeply integrated economies and financial markets. But also shaped by geopolitical tensions and growing systemic risks,” he said.
The UN chief added that the current international financial institutions are “too small and limited” when it comes to fulfilling their mandate and serving everyone, especially the most vulnerable countries.
A system that promotes inequality
However, the Secretary General not only referred to the size of the international financial system, but also broadened his criticism and accused it of exacerbating inequalities.
“In 2021, the International Monetary Fund allocated more than $650 billion in Special Drawing Rights and we welcome this decision. The countries of the European Union, including my own, received $160 billion. African countries: 34 million,” he explained.
While acknowledging that this distribution was in accordance with applicable law, he called it “immoral”.
“A financial architecture that does not represent today’s world risks leading to its own fragmentation in a world where geopolitics itself is a factor of fragmentation‘ he clarified.
Are you paying the debt or the needs of the population?
The financial system crisis is affecting the organization itself and has been exacerbated by the COVID-19 pandemic and the Russian invasion of Ukraine.
“Halfway to the 2030 deadline, The Sustainable Development Goals are getting farther and farther away every day. Even the most basic goals to fight hunger and poverty have receded after decades of progress. Yes, by 2023 more than 750 million people will not have enough to eat. And tens of millions more are on the brink of extreme poverty.”
Regarding the pandemic and Russian aggression, he recalled that while rich countries could print money to restart their economies, developing countries have been unable to do so and are currently facing exorbitant borrowing costs, which are up to eight times higher than those of developed countries.
“Many leaders face a nagging dilemma: pay their debts or meet the needs of their people. Many African countries spend more on debt servicing than on health care. (…) Currently 52 countries are in default or are dangerously close to default.”
World Bank/Jonathan Ernst
The renovation work can start immediately
To solve this crisis, Guterres proposed the implementation of “serious reforms”, such as declaring a new “Bretton Woods moment” (similar to the first model of a fully negotiated monetary regime to regulate monetary relations between independent states) or activation its new policy report, which contains a detailed blueprint for reshaping the global financial architecture.
“But as we work on the deep reforms needed, we can take urgent action today to meet the urgent needs of developing and emerging economies. That’s why I proposed a recovery plan for the Sustainable Development Goals that would invest $500 billion a year in sustainable development and climate action.”
The Secretary-General emphasized that there is no need to wait for the necessary deep reform of the international financial system to change course because if world leaders take action and implement it immediately, “Great steps towards global justice” could be taken.