The international financial architecture has failed in its mission to provide a global safety net for developing countries and requires a series of major reforms, the General secretary of the UN in Paris during the Summit for a New Global Financing Pact, called by the president of France, Emmanuel Macron.
António Guterres attributed the failure of this structure to the time it was built, after the Second World War, since it reflects political and economic power dynamics far removed from current reality.
“Almost 80 years later, the global financial architecture is outdated, dysfunctional and unfair..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 marked by geopolitical tensions and growing systemic risks,” he said.
The head of the UN 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 fosters inequality
But the Secretary General not only alluded to the size of the international financial system, but also extended his criticisms, accusing it of aggravating inequalities.
“In 2021, the International Monetary Fund allocated more than $650 billion in Special Drawing Rights and we applaud this decision. The countries of the European Union, including my own, received 160 billion dollars. African countries: 34 million,” he explained.
Despite acknowledging that this distribution was made in accordance with current laws, he described it as “immoral”.
“A financial architecture that does not represent today’s world runs the risk of leading to its own fragmentation in a world where geopolitics is itself a factor of fragmentation”, he clarified.
Pay the debt or the needs of the population?
The financial system crisis affects the Organization itself and was aggravated by the COVID-19 pandemic and the Russian invasion of Ukraine.
“Halfway to the 2030 deadline, The Sustainable Development Goals are getting further away every day. Even the most fundamental targets on hunger and poverty have regressed after decades of progress. Yes, in 2023, more than 750 million people do not have enough to eat. And tens of millions more teeter on the brink of extreme poverty.”
Regarding the pandemic and the Russian aggression, he recalled that while rich countries were able to print money to reactivate their economies, developing countries were unable to take this measure and are currently facing exorbitant borrowing costs, up to eight times higher than the of developed countries.
“Many leaders face an agonizing dilemma: pay their debt or meet the needs of their populations. Many African countries spend more on debt service than on healthcare. (…) Currently, 52 countries are in default or dangerously close to it.”
Renovations can start immediately
To try to solve this crisis, Guterres proposed implementing “serious reforms” such as calling a new “Bretton Woods moment” (in reference to the first model of a fully negotiated monetary order to regulate monetary relations between independent States), or activating his new political report that includes a detailed blueprint for redesigning the global financial architecture.
“But while we work on the deep reforms that are needed, we can take urgent action today to meet the urgent needs of developing and emerging economies. That is why I have proposed a stimulus plan for the Sustainable Development Goals of $500 billion a year for investments in sustainable development and climate action.”
The Secretary General stressed that to change the course it is not necessary to wait until the deep reform of the international financial system that is needed is carried out, since if world leaders take measures and apply them immediately, “Giant steps in favor of global justice” can be taken.
