UN seeks changes in IMF, World Bank

UNITED NATIONS: The secretary-general of the United Nations is pressing for major changes in the International Monetary Fund (IMF) and the World Bank.

Antonio Guterres says the International Monetary Fund has benefited rich countries instead of poor ones. And he describes the IMF and World Bank ‘s response to the Covid-19 pandemic as a “glaring failure” that left dozens of countries deeply indebted.

Guterres’ criticism is his most in-depth analysis of their problems, cast in light of their response to the pandemic, which he called a “stress test” for the organizations.

His comments echo those of outside critics, who see the IMF and World Bank’s leadership limited by the powerful nations that control them — a situation similar to that of the United Nations, which has faced its own calls for reform.

Richard Gowan, the International Crisis Group’s UN director, said there is a lot of frustration with the US and its European allies dominating decision-making, leaving African countries with only “a sliver of voting rights.”

Developing countries also complain that the bank’s lending rules are weighted against them, he said.

“In fairness, the bank has been trying to update its funding procedures to address these concerns, but it has not gone far enough to satisfy countries in the Global South,” Gowan said.

Guterres said it is time for the boards of the IMF and the World Bank to right what he called the historic wrongs and “bias and injustice built into the current international financial architecture.”

That “architecture” was established when many developing countries were still under colonial rule.

Since its creation in 1944, the IMF was to monitor exchange rates and lend reserve currencies to countries with balance of payment deficits. The World Bank would provide financial assistance for postwar reconstruction and for building the economies of less developed countries.

Guterres said the institutions have not kept pace with global growth. He said the World Bank has $22 billion in paid capital, the money used for low-interest loans and grants for government development programs. As a percentage of global GDP, that’s less than one-fifth of the 1960 funding level.

At the same time, many developing countries are in a deep financial crisis, exacerbated by inflation, rising interest rates and a standstill in debt relief.

“Some governments are being forced to choose between making debt repayments or defaulting in order to pay public sector workers — possibly ruining their credit rating for years to come,” Guterres said, adding that “Africa now spends more on debt service costs than on health care.”

The IMF’s rules unfairly favor wealthy nations, he said.

During the pandemic, the wealthy Group of Seven nations, with a population of 772 million, received the equivalent of $280 billion from the IMF while the least developed countries, with a population of 1.1 billion, were allocated just over $8 billion.

“This was done according to the rules,” Guterres said. This is “morally wrong.”

He called for major reforms that would strengthen the representation of developing countries on the boards of the IMF and World Bank, help countries restructure debts, change IMF quotas, and revamp the use of IMF funds.

He also called for scaling up financing for economic development and tackling the impact of climate change.

In a written response to a query from the AP, the IMF said it has mounted “an unprecedented” response to the largest-ever request from countries for help dealing with recent shocks.

After the pandemic hit, the IMF approved $306 billion in financing for 96 countries, including below-market rate loans to 57 low-income countries. It also increased interest-free lending fourfold to $24 billion and provided around $964 million in grants to 31 of its most vulnerable nations between April 2020 and 2022 so they could service their debts.

The World Bank Group said in January that its shareholders have initiated a process “to better address the scale of development.”

The bank’s development committee said in a March report that the bank “must evolve in response to the unprecedented confluence of global crises that has upended development progress and threatens people and the planet.”

While Guterres and UN ambassadors talk about reforming the financial institutions, any changes are up to their boards.

“But Western governments are aware that China is an increasingly dominant lender in many developing countries,” Gowan said, “so they have an interest in reforming the IMF and World Bank in ways that keep poorer states from relying on Beijing for loans.”