UN: “The international financial architecture is not fit for purpose and morally bankrupt”

By Roberto Bissio*

A reform in the international financial architecture is needed and urgent. High level UN officials and civil society agreed on that proposition during the UN Summit on the Least Developed Countries.

“The international financial architecture is absolutely no longer fit for purpose. It is morally bankrupt” said UN deputy secretary general Amina Mohammed in a candid dialogue with civil society organizations at the closure of the Civil Society Forum on the last day of the Summit on the Least Developed Countries held in Doha last March 2023.

The SDGs are failing

Ms Mohammed started by remembering that “this year, we will take stock of where we are on the SDGs” (Sustainable Development Goals) and she advanced a conclusion: “The SDGS are failing, mostly in LDCs”. She outlined an ambitious agenda for this year: “We will have a stock take on the climate agenda, failing mostly in the LDCs, and we will try to address the way in which the finance institutions work or don't work. We believe that the international financial architecture needs to be transformational in its reform. We don't think that it is fit for purpose. We also are looking at the new peace architecture, because the context is one of massive insecurity.”

The Deputy Secretary General added that “why things are not working is being discussed a lot in the international space”, and commented that “there is a major concern that the partnerships that are needed on Goal 17 to respond to what countries need is absent. We've seen that in the response on COVID: there has not been the resources that we've required for that. We've seen the promises of Paris still yet to be met, and we're seeing currently a war that we never thought would happen in the middle of Europe in 2022. While the epicentre is in Ukraine, aftershocks are being felt around the world, particularly in LDCs. And there has not been a response for that either.”

She announced that a push for reforms of global finances will be taken by the UN “first, into the conference that President Macron and the G20 will put together on financing, but then again in September, where the financing for development will have a high level meeting.”

The priorities of civil society

Chee Yoke Ling, executive director of Third World Network, summarized the main concerns expressed in the Civil Society Forum: “First of all, I just want to reaffirm our collective commitment to multilateralism. And for us, multilateralism is the United Nations. So we were really pleased that the resident coordinators from over a dozen countries, came for a session with us yesterday. On the international level, what you said on the need for the international financial architecture to be massively transformed is a huge priority for us. We are living in countries of structural adjustment, austerity measures even when a lot of the resources are actually there, but there is a larger South-North flow than there is a North-South flow. This is why we are very much looking forward to working with Member States and the United Nations system to make sure that the tax convention that is going to be negotiated will be robust and really fit for purpose.”

Ms Chee added that “we have identified an absolute urgency to deal with the debt crisis. Developing countries, that have ended up borrowing from private creditors, are paying five times more than the advanced countries in servicing debt. So we need to really talk about debt relief and cancellation.”

On food systems, she said that “the major issue of agricultural production is how to unleash what's happening on the ground. Agroecology, farmers rights. Since small farmers, especially women, are feeding the world, how do we get policies at the national level and within the UN system that will create the policy space for that?”

Finally, she summarized, “many developing countries are on the verge of conflict situations. People are becoming refugees from climate impacts. How do we work with that? How do we then make sure that there is support and solidarity? The principles of equity across the board came out very, very strong.”

Barbara Adams, from Global Policy Forum, argued that “the solution of a debt crisis is to not borrow more money and get further into debt. This rolls it down the road. But the policies that we are seeing from some of the financial services, or the strong emphasis, is to use public money to leverage private sector finance. Yet private finance is procyclical, not countercyclical. And therefore much of what we need to do with regard to the Sustainable Development Goals requires, actually, public investment, not private.”

Adams observed that “we're in a trap at the moment, that somehow or other we don't respond until it becomes a crisis. And so then we are all caught up in doing short term crisis management. And it's really, really difficult to recover what the Secretary General and yourself and the agendas that come forward are saying is so essential, which is prevention, whether it's prevention with sustainable development, whether it's prevention, with respect for human rights, whether it's prevention with regard to that being the best way to deal with conflict.”

Amina Mohammed replied to these observations by summarizing an ambitious agenda: “On finances, there is the short term response, which is what we have in the SDG stimulus. We've deposited a policy document with the G20. It didn't get traction. It didn't get traction because it asks for huge amounts of money, which are necessary if we want to treat development as an emergency, which it is today, if we look at the number of people who are living in poverty.”

“It didn't get much traction -she elaborated- because we are pushing to, not just about debt relief, but about the whole debt framework and architecture. We also speak about access to credit. We cannot, in developing countries, be looking for credit at six, eight, 10 or 12% when other parts of the world are looking at one or 2%. This doesn't work. Some of the elements are going into the text of the G20, but it's not sufficient.”

Towards a new Bretton Woods?

Nevertheless, “we have a great opportunity” in the coming presidencies of the G20: “We've just had Indonesia chairing the G20, and credit to them that they kept the G20 alive. It is still the only forum, as imperfect as it may be, for us to come broader than the G7. We are on India's watch right now. And then the G20 will be chaired by Brazil and South Africa. That's a number of developing countries that really need to build a consensus within the G20 on how financing will change, to enable resources flow to, in particular, LDCs.”

On the longer term response, “what we're saying is that the international financial architecture is absolutely no longer fit for purpose. It is morally bankrupt. It cannot do it. You cannot design something in 1945 and expect it to work in 2023. There are parts of it that we are asking must be overturned, and some of that has got to do with how the IFIs are structured and representation in the IFIs. It also has got to do with SDRs: where is the trigger? When a crisis happens for which you have nothing to do with, you should be supported. Fiscal space must be there, so that we can attend to the most vulnerable. And this is not about just low income countries and middle income countries. It's about vulnerability. Overnight, a climate crisis, a war, can put you in a vulnerable state for which you have no access because there is a structure that prevents you from having it.”

Because of these vulnerabilities, “there are two indexes, two measures that we need to change. One is a multi vulnerability index, which is still a work in progress. It's not good enough, and we want to make it much more robust. The second is going beyond GDP. That's a measure that doesn't even work for climate action. Because we measure fossil fuels as a plus. And while we talk about just transitions and there will be some measure of fossil fuels in those just transitions, we still need to go to well-being, we need to go to outcomes that are much more robust in people's lives.”

See more about the LDC5 Civil Society Forum (Doha, Qatar, from 4 to 9 March 2023) here.


* This summary is based on notes and recordings. It has been edited for clarity and conciseness; subtitles emphasis and clarifications were added. Karen Judd contributed to the final editing.

Amina Mohammed (UN deputy secretary general) and organizers of the Civil Society Forum (Roberto Bissio, Social Watch; Barbara Adams, GPF New York and Chee Yoke Ling, Third World Network).