Fourth International Conference on Financing for Development exposes continued lack of commitment to address systemic issues
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Article summary
- Watered down consensus reflects lowest common denominator of multilateralism in times of tense geopolitics
- Power imbalances within the IFIs, particularly IMF and WBG, makes it clear they are the wrong place for the necessary changes
- Civil society, grass root organisations, labour unions, academics and states from the Global South must continue to use its follow up processes to promote an agreement on an UN-led intergovernmental process
“The current international financial architecture is not working for the vast majority of the countries.” This was the verdict of Gambia’s Minister of Finance and Economic Affairs, Seedy K.M. Keita, when co-chairing the roundtable ‘Reforming the international financial architecture and addressing systemic issues’, at the Fourth International Conference on Financing for Development (FfD4). His view was shared by many countries from the Global South during the Conference in Seville. As Keita flagged in the closing plenary of the Conference, “participants [of the systemic issues roundtable] called for a more just, fair and democratic international financial architecture that reflects the reality of today and meets the needs of developing countries.”
This pressing call for reform goes to the core of the UN-led Financing for Development Process, which was never about finding money to finance the Sustainable Development Goals (SDGs), a premise that goes against the way that mainstream media reported the Conference. Indeed, the FfD agenda has always been about addressing interconnected issues that make finance, and the global architecture that governs it, the enabler – or disabler – of sustainable development.
As Africa Kiiza, of UK-based civil society organisation Christian Aid, emphasised, “let’s not forget that Monterrey [the first FfD conference in 2002] got one thing fundamentally right: that international financial rules cannot be left to a handful of countries or opaque clubs. We need democratic global governance and the UN is where that must happen.”
An outcome far too low of Global South’s expectations
Negotiations on the outcome document of the conference started with ambitious language on sovereign debt architecture, credit rating agencies, international development cooperation and development finance more broadly, which would potentially end the dominance of Global North governments over the global financial architecture. However, this was not in line with the priorities of Global North countries themselves, who were more keen on an outcome on which to anchor the incremental reform agenda of the international financial institutions and the G20, and wrote off proposals to increase the role of the UN in economic governance as “duplicative“.
In the end, what was meant to be a milestone in addressing global economic governance was turned into a watered-down consensus, reflecting the lowest common denominator of multilateralism in times of tense geopolitics. In practice, as the concluding Preparatory Committee meeting to agree on the draft outcome on 17 June showed, negotiations were conducted under challenging conditions, as negotiators felt that they were being called upon to “save multilateralism”.
This came at a price. To salvage an outcome that was considered to still have the “potential to advance the global financing for development agenda” negotiators from the G77 and China bloc of Global South countries had to accept weakened language across the outcome document. Their statements during the Conference revealed that their expectations were higher than the results of the outcome document, particularly relating to their concerns about the undemocratic structure of the international financial architecture. They also raised the need to regulate credit rating agencies, as their unchecked influence unduly raises the cost of capital for developing countries and thus deprives them of critical sustainable development finance.
The Bretton Woods Institutions’ problematic position and the way forward
The outcome of the Conference, entitled Compromiso de Sevilla, upholds a problem-ridden international financial architecture. Its predominant focus on private investment reinforces the Wall Street Consensus, the ideological framework for the Bretton Woods Institutions (BWIs) – i.e. the World Bank and the IMF – which was reflected in their positions for the Conference (see IMF and World Bank Group’s contribution to FfD4).
The Compromiso de Sevilla calls on the executive boards of the International Monetary Fund and the World Bank Group to act on voice and representation within these institutions (see paragraph 53), where progress on this issue has been glacial. Additionally, the Compromiso de Sevilla provides watered down language on credit rating agencies and does not respond to the bias and pro-cyclicality of their ratings, market concentration of the dominant actors, their conflicts of interest, and penalisation of debt, climate and social vulnerabilities. Nor does the outcome document address the inadequacy of credit rating agencies’ methodologies and biased implementation, which undermine Global South countries’ access to capital markets and increase their borrowing costs by inflating risk premia.
Yet, there are opportunities for follow-up that must be seized upon to advance the agenda of international financial architecture reform in the coming years. Notable among these is the call on the IMF to design a Special Drawing Rights (SDRs) playbook “that provides operational guidance and strengthens the role of SDRs during crises and shocks, in line with the IMF Articles of Agreement,” and encouragement to the IMF “to continue to review the role of SDRs and their place in the international monetary system.”
The Financing for Development process has always been and should continue to be the space for civil society to call for decisive action to democratise the global economic governance. It is clear that power imbalances within the IFIs, particularly the IMF and the WBG – where countries from the Global South have been historically underrepresented – make them the wrong place for the necessary changes.
While the Seville Conference was a missed opportunity, civil society, grass root organisations, labour unions, academics and states from the Global South must continue to use its follow up processes to promote an agreement on an UN-led intergovernmental process that undertakes a comprehensive review of the governance structures, mandates and roles of international financial institutions and multilateral development banks, with an ecosystem approach, including how they interact with regional and national development banks. The objective is to build institutions that are democratic, inclusive, transparent, accountable and oriented to deliver sustainable development outcomes in the Global South.
