As the World Bank and IMF celebrate their 80th anniversary in 2024, on 10th July the Bretton Woods Project, together with the SOAS Centre for Sustainable Finance, were joined by a distinguished group of panellists to critically analyse the opportunities for, and challenges to, reforms of the BWIs and the international financial architecture more broadly.
Panelists include Professor Naila Kabeer (LSE), Professor Uli Volz (SOAS), Emma Burguisser (Christian Aid) and Farwa Sial (Eurodad). They covered pivotal issues such as the evolving debt crisis, the contentious issue of ‘green conditionalities’ and related market-solutions to the climate crisis, gender inequality, the financialisation of international development, and the reform of multilateral development banks to contextualise wider debates about the future of the BWIs.
Minutes from the event
Setting the scene
Prof Naila Kabeer: In the beginning, the BWIs managed state-governed regimes. It was expected that states would guide countries towards development. Suddenly, we had a very intrusive presence of the Bretton Woods Institutions – the International Monetary Fund (IMF) and the World Bank Group (WBG) interfering everywhere, and countries finding themselves in debt through no fault of their own. The BWIs have been very much a part of my life both professionally and politically. When we had structural adjustment – for us it is that, for many people it is everyday life.
I think things have got worse. There was some semblance of interest in industrialising countries. Now, it is about where can finance make its largest project. How can we turn everything into a tradable opportunity? We are now seeing the financialisation of everything we need to lead a decent life. The wealth is being concentrated obscenely at the top. The BWIs have played a huge role in making this happen. In the name of competitiveness, balancing budgets, and flexibilising. The BWIs say they are not there to be normative.
Why did President Banga not say that it is a human right to have food? Why electricity? They are promoting freedom of the market as the most efficient way to allocate resources. If that means people now cannot know if the farm that belongs to them may not be theirs in a few years, then so be it. The Bank has combined hegemony of knowledge production with control over finances.
Panel Discussion
Luiz Vieira (BWP): We could have chosen a variety of topics to interrogate. We’ve chosen to explore the evolving debt crisis, the contentious issue of market-solutions to the climate crisis, persistent gender inequality, the financialisation of international development, and the reform of multilateral development banks.
Uli Volz (SOAS): I am a Professor of Economics here at SOAS. I will give a brief overview of climate finance. Following up on Professor Kabeer, solutions to climate finance the BWIs have been pushing for – the ‘Billions to Trillions’ agenda is not working. Saying we need to incentivise the private sector to pour trillions into developing countries to push for climate action and SDG agenda. This has not been working. Saying the public sector should provide subsidies to incentivise private investments – the ‘trillions’ are nowhere to be seen. The total amount of blended finance was $16 billion last year. Private finance will not save us. Question is: what will? To answer this, we need to recognise the problem. The financial system is biased against developing countries – for developing countries, it is inherently pro-cyclical. External finance tends to be very expensive and in foreign currency. Developing countries have to pay high interest rates and face currency risks. This is exposing them to enormous risks.
The result is we’ve seen repeatedly the developing and emerging countries building up enormous external debt. The problem is even worse because the climate crisis is creating higher risk – high cost of capital is getting even higher. We’ve been describing this as a vicious circle. Countries are vulnerable, high cost of debt, little fiscal space…and this is a cycle. We’re now in a situation with 50-60 countries with severe debt but we have no solutions. In Washington, they are still talking about blended finance, Billions to Trillions, and private capital to solve the problem. We’re stuck in this discussion.
How can we get away from this? On climate finance, we need much more including international climate finance and we need less debt finance. Taking on more finance to shield themselves from climate issues only creates higher debt. We need to talk about grants. We know developing countries have contributed very little to climate change but are disproportionately affected. There is clearly a moral case for more grants.
Secondly, we need to get away from foreign exchange financing. When you have low interest rates in advanced countries, you have lots of capital flowing into developing countries searching for yield, then interest rates lower and it leads to devaluation of markets. We need to strengthen local currency financing. Multilateral Development Bank (MDB) lending is mostly in US dollars. They are contributing to this very problem. I’ve been promoting the idea that MDBs should work more with national development banks to empower them to mobilise domestic savings for domestic investment in local currency.
Germany’s KfW has been issuing local currency bonds, raising capital for low interest rates, and funding. Guarantees can help with good governance. We have a study coming out relevant to this. On debt problems: we have repeated situations where countries have sovereign debt and there is no mechanism to fix it. We need a sovereign debt restructuring mechanism. The BWIs have not been progressive on that so far. Countries that are indebted cannot mobilise public or private finance, domestic or international. BWIs must play a more constructive role.
Farwa Sial (Eurodad): The BWIs are always in the background. If you come from the Global South, debt is pro-cyclical. You see high prices of bread, etc. I am going to talk about the context, then talk about the solutions – they are simple but political will to address them is missing.
The context of global warming: 130 global South countries are in critical debt, the scale of debt refinancing increased by 150 per cent from 2023. In Kenya, Pakistan, Zambia, Sri Lanka protests reverberate across these countries in many ways. Pakistan 24th IMF programme – a lot of countries are serial creditors. The original role of the BWIs was to be providers of public goods in the multilateral system – many countries in Africa were not a part of this consensus, which was in the context of World War II. Colonial powers were left in charge of setting up this new world order. Narrowing down to the role of the WBG: the Bank as a knowledge bank, policy bank, and now it is moving towards financialisation.
The set of policies that these institutions roll out: the Bank is presenting an idea of reform without looking at the policies it promotes. The role of private instruments but also debt swaps, guarantees, etc. They were designed to mobilise private finance but are failing to do time and time again. The second result is market creation: a source of investment for Global North investors. Global South countries are simply unable to compete with Global North economies. Climate solutions from the Bank and IMF: JETPs in Indonesia, Vietnam, South Africa. Embedded conditionalities, for example, in South Africa it comes with conditions that Eskom is unbundled. Indonesia contravenes Article 33 which states that Indonesia should be controlled by the state. We are talking about the exacerbation of the sovereign debt crisis.
Solutions: when we talk about climate finance we are talking about the responsibility of Global North countries in response to Global South countries. Climate finance disclosure shows that most of the climate finance is loans – this is just more debt, the Global North needs to meet their commitments. Revise the role of public banks – we do not need to rely on MDBs – how are MDBs going to help public banks? They need to maintain their public mandate. For MDBs to go back to the original framework of providing public goods, we need to strengthen public services, health systems etc.
We are talking about debt cancellation, rethinking how things are done – it’s a matter of how Global South countries will come to the arena and contest BWIs as it exists.
Emma Burgisser (Christian Aid): I will focus on the governance of institutions. Their governance structures are at the root of all the problems – they are working very well for their shareholders. We are here in the UK: Global North governance issues are behind, but in the Global South they are front and centre.
Proposals for governance reforms, a lot are not new at all. 1) Strengthening representation of developing countries – IMF board of governors repeat in their communiqué to increase representation of developed countries. IMF quota reform: changing formulas with a lot of proposals, for instance, counting populations, counting carbon emissions, etc. In addition, long-standing proposals to have equal voting: double majority voting, for instance. Also board representation: there are a lot of different ways to think about changing the make-up of the executive board of these institutions. There is a lot of work there. This is focused on formal voting powers. But also the gentleman’s agreement: an unspoken rule to have the WBG led by a US citizen, and the IMF by a EU citizen. The IMF should have an accountability mechanism also.
There have been broader demands: calls to shut down these institutions. For instance, the 50 years is enough campaign: shifting functions towards the UN to take away their power – if they are not going to change their governance, then let’s take away their power. SDRs remind everyone how the IMF quota system works: decoupling 3 core functions of the quota system – does it make sense to have a system where everything is decided at the same time. Those questions are being had now for the first time.
While those proposals have been there for a long time, what is new is this moment we are in: global architecture reform has not been this high for a very long time. Many opportunities over this next year to push these reforms this time. The IMF has shifted a bit – emerging economies have gotten more of the vote. The US would not keep its position if it kept the IMF quota formula and would lose its veto.
G20: IMF quota reform is top of the agenda. UN Secretary General: global governance reform is top of the agenda – Summit of the Future in September, where the whole points are for leaders to make new commitments.
When you think of proposals to shift power away, it is more positive when you think of the tax system. Tax discussions are now moved to the UN which is much more democratic. Can also get that for instance with the UN debt workout mechanism. As these quotas and shareholder reviews are coming up, also 4th Financing for Development conference – space that has the mandate for governments to make priorities on these problems, including aid, tax, governance issues – all countries have an equal vote. We can expect much better outcomes.
Luiz: The common thread in my mind is the extent to which the Bank and Fund have hindered space for industrial policy. What is going to prevent us from debt overhanging now – we will find ourselves here in 20 years. A lot of literature on the path to industrialisation is used by rich shareholders and is exactly the type of industrial policies that was slashed through IMF and WBG (and their rich shareholders).
Also think about the geopolitics: we live in a different geopolitical environment than we did 20 years ago – how do you see this influencing these discussions? Has the new development bank chartered a new path for MDBs? Has the IADB done that? In terms of architecture reform: state-led governance reforms, but the sovereign also benefits from this system. What do we do about that? Solutions are apparent – but what do we do about the lack of political will? Particularly in the UK?
We are not progressing because of lack of evidence – this is a problem of political will.
Answer to Luiz’s questions:
Farwa: In terms of industrial policy, it’s at the heart of BWIs operation. If you look at the policies, you ask if it is a consequence or by design. Since the 90s, the focus has been on these institutions and aid on the ‘social’ sector (education, health, etc.) but through privatisation – and then nothing on investment, building your industries, infrastructure etc. They were discarded. Early in the 2000s, we had an IMF paper on the return of industrial policy. There is a fetish in academia harping on industrial policy – but we have a high protectionism especially on climate in the Global North. Now we don’t need industrial policy. Green new deals in Europe operate on the idea that if Europe becomes completely green through hydrogen extraction in the GS. So, what kind of industrial policy?
You have real problems like migration. If Europe is dismantled, everyone will migrate.
Secondly, in terms of multipolarity, we have to see how the new Banks create new patterns. I would also include UAE countries who have increased development funding in new terms. The EU is no longer committing money – it is about mobilising and then committing finance.
On Southern elites – it has always been the case that there are certain classes that benefit from capital. With geopolitical fragmentation, I think it changes the world order. It is not unipolar. It creates bargaining opportunities for the GS.
Luiz: The BRICS countries – we can veto decisions which we have never used.
Emma: Why we’re seeing more opportunity now is because power has shifted. BRICS could threaten to put something on a G20 agenda now. Especially after Covid, there is clarity that this is not working for low-income countries especially. On Special Drawing Rights (SDR) allocation: first it was held up for more than a year because of one country not agreeing to it, then only a tiny part went to those who needed it most, commitments to rechannel went overwhelmingly through mechanisms that made them tied to loans and fiscal consolidation.
You still need buy-in from the Global North to change governance. People need to be okay with not having a bigger say when you put in more – we need those people. The strategic interests of Europe might be changing to build trust with the Global South and maybe not relying on the US so much. Building support here in the UK for global solidarity. You can see in the UK election these issues were barely talked about.
Uli: About Heavily Indebted Poor Countries Initiative (HIPC), this belief we’ve had a big debt relief initiative. HIPC probably did work quite well, but what didn’t happen was that it didn’t address structural problems. Countries still have been exposed to high-cost finance in foreign currency. It is then only a matter of time until you run into trouble again. The poly-crisis has not helped. The climate crisis also has not helped. It’s costing several percentage points of GDP per annum – major disasters can wreck an economy.
When we talk about the international debt system, there’s been a fair share of bad governance, corruption etc., but there are always two to tango. There is a responsibility for lenders – if you’re taking high risk margins, you’re taking risk so you have to price that in.
On industrial policy, I agree that if you want successful developmental policies, how you do it is important. Kicking away the ladder. There is a lot of that still going on. There has been notable change in the discussion about public development banks. The WBG is a public development bank but has not itself been positive about public development banking. In the last three years, we’ve seen a major shift in thinking. A growing acceptance of the fact that private finance is not going to save us. We need private institutions and capital, but there is a lot of stuff in the broader SDG space where commercial interest alone will not deliver. Most climate adaptation is not going to generate cash flows, or high enough returns for investors. Level of public subsidies had to be put in would be a lot.
I am part of a high-level expert group that the Brazilian G20 presidency has set up on climate finance. The nexus between industrial policy and climate finance is at the heart of that. We will put public development banks within our recommendations.
Luiz: There is an argument that a moderately resourced IMF is not a bad thing. But then, larger countries can act bilaterally with currency swaps. The lender of the last resort is not the IMF, it is the US Treasury.
Blackrock have on their management three times the yearly GDP of the UK. The Bank is reacting to the power of finance. They are speaking to the markets. We need to problematise this relationship.
Emma: What the UK does for the WBG and IMF. Very small group of dedicated people who track those things so getting the word out at home is super important.
Uli: There aren’t bad intentions. Not thinking about how we can subjugate the developing world, etc. southern debt crisis is really getting bad – the narrative is that it’s bad. There are a lot of countries where public finance is in great trouble. These countries are going to fail – going to make everything worse. Our economic interest is also endangered through this debt crisis: we need to push for debt relief mechanisms. Most of the cost will have to be borne by the private sector – UK has particular influence – most debt issued in London so legislation on debt can have huge repercussions.
Farwa: Labour government in the UK – not fair in terms of the Global South. Movements on the streets are the way forward. In Kenya, the reversal of the finance bill shows the power of the people. We see protests in Pakistan, Egypt, and elsewhere. Look at what Pakistan and Malawi are doing in nationalising their key industries. The role of the US, BWIs, etc. US imperialism and the centrality and the contradiction it presents to the world order. We need to centre back to what colonialism and imperialism really mean and how we can find critical points of juncture. It is a critical time for the world order. We are at the brink of a new world war – various attempts at deterring it – BWIs becoming the lender of last resort is a major problem.
QUESTIONS:
Tariq: I was campaigning on the Sri Lankan debt problem. I notice the levels of poverty in the UK – are we really expecting these governments to solve debt issues abroad when they don’t care about their own people? This new government has a made-up fiscal rule which will continue austerity. We need to put enormous pressure on individual government ministers. They have to listen to people.
Marianna (Christian Aid): Looking at the BWIs and their mantra, Wall St. climate consensus. How do you think we could bring back reclaiming the role of public finance? The UK’s large climate debt from the North to the South. We’ve tried as much as possibly to advocate. What else would be useful?
Sandra Martinstone (Bond): For Uli, to what extent are these ideas we discuss here common in academia? I started this stuff 15 years ago and it was marginalised. The other question, the fundamentals about how we understand the moment? What do we want to be done in the long term to have the GS not dependent on the MDBs at all?
Jon (BWP): I’m surprised we haven’t mentioned the impending second Trump presidency. One proposal is that the US would withdraw from the IMF and WBG. What do you think a progressive JETP would look like, and is there any role for unreformed BWIs within that?
ANSWERS:
Farwa: On the question of poverty in the UK and development, they have always been interdependent. I was just reading about the Black Panthers and how the US dealt with them. What has been really bad for the UK has been the reversal of education. Youth are unable to afford university. When people are worried about migration but not international development – it is rooted in how policy is shaped in a country.
We are always struggling between producing more evidence and mobilising. Nationalisation of railways, reclaiming of public health systems, bringing back MDBs.
On JETP: it is a financing model with private investors and BWIs. If we say private finance is necessary, we simply put a cap on how much they can make. We could understand it wouldn’t be a wholesale privatisation but would produce finance. It’s putting regulation back into capitalism.
Uli: On the UK government not caring about others, the optimist I am, I hope the new government cares a little bit more. It is also about strategic interest. Having dozens of countries in the African continent in deep trouble is not in our interest. Having Russia and China step in, it is not in our interest. Where do we get critical minerals for climate transition? Prosperity and stability would also benefit us. It’s about how you frame it. If you explain linkages between global financial architecture reform and our own economic interest, it is more promising. I have conversations with policy makers, and I think they do understand that.
On attitude in academia, it’s fair to say that what we do at SOAS economics is not the entire mainstream, but we are kind of beyond the divide between mainstream and heterodox. I see a lot of interest in ideas that people are putting forward.
What does development matter? My idea would be the MDBs role is to get themselves out of the job. They should help countries strengthen domestic finance resource mobilisation. There is not a single developed country that has not mobilised DRM.
Emma: I agree we should pressure individual policy makers. Lammy has talked about wanting to rebuild trust with Africa – what does that look like? Conversation has to start with not being hypocritical. We need to look at UK debt legislation. 90 per cent of debt contracts between Southern governments and private creditors are done between either UK or NY legislation.
In terms of money not materialising, it’s effective with policy makers arguing it’s not working. The SDG deadline is coming up. Right now they’re on track to meet 15 per cent. FFD is technically the last moment to get it right. It’s not happening because of policy decisions.
