Webinar summary – Are we already out of the (Bretton) forest? The international financial architecture 80 years later
By Samantha Igo
On Tuesday, July 30, Boston University’s Global Development Policy Center (GDP Center) hosted a webinar titled “Are We Out of the (Bretton) Woods Yet? The International Financial Architecture 80 Years Later.” The discussion reflected on 80 years of Bretton Woods institutions and cited a new flagship report that summarizes the GDP Center’s work on global economic governance and calls for a fundamentally reformed system that is bigger, better, and more inclusive. Tim Hirschel-Burns, policy liaison at the Global Economic Governance Initiative (GEGI), moderated the event, and the panel included Rishikesh Ram Bhandary, GEGI deputy director, Rachel Thrasher, GEGI researcher, and Marina Zucker-Marques, senior academic researcher at GEGI.
In her introduction to the discussion, Hirschel-Burns points out that July 2024 will mark the 80th anniversary of the founding of the United States.th Anniversary of the Bretton Woods Agreement, which established the multilateral economic order after World War II. This included the International Monetary Fund (IMF) – today the only multilateral institution tasked with maintaining global financial stability for long-term growth – and an early component of the World Bank. The agreement also provided the first outlines for an international trade regime that eventually led to the establishment of the World Trade Organization (WTO) in 1995.
Hirschel-Burns further highlights how much the global context has changed since the founding of these institutions in the wake of two world wars and the Great Depression – especially that many countries were still colonized at that time. The 80th The 2020 anniversary and the emergence of modern crises – from climate change to the COVID-19 pandemic – underscore the need for urgent reforms of these institutions.
First, Zucker-Marques, head of GEGI’s Financial Stability Work Area, highlights why the IMF is so important for global stability: it is the only global institution where all members are covered in the event of a financial crisis. Today, the IMF represents about a third of the Global Financial Safety Net (GFSN), the network of institutions and mechanisms that provide insurance against crises and financing to mitigate their effects. The IMF is particularly important for low- and lower-middle-income countries, which face systemic biases when accessing other parts of the GFSN, such as central bank currency swaps or regional financial arrangements.
Next, Zucker-Marques highlights two ways in which the IMF has demonstrated adaptability: first, its historic allocation of $650 billion in Special Drawing Rights (SDRs) in 2021, the Fund’s reserve to continue supporting countries after COVID-19, and second, its attention to integrating climate change into its operations. This, Zucker-Marques said, shows the IMF’s capacity for change, but more needs to be done.
First, with regard to the “larger” pillar, she argues that the IMF’s growth has not kept pace with the development of the world economy and that its resources are therefore insufficient to respond to today’s crises. While the IMF has increased the quotas for its member countries in the same proportion over the past 16 years,th General review of quotas, its overall firepower has not changed because the IMF will be scaling back borrowed funds. Research suggests that IMF quotas for low- and middle-income countries would need to be at least doubled to address structural gaps in the GFSN and that rebalancing the IMF’s quota system is critical to maintaining its legitimacy.
Second, for a “better” IMF, it is crucial that the Fund review its pro-cyclical conditionalities related to its lending programs. Research shows that these conditionalities have regressive distributional effects in developing countries, as governments are forced to cut public services and public sector salaries, which do not boost growth. Zucker-Marques also calls on the IMF to eliminate mark-ups, which are additional fees for borrowing countries, and to reform the IMF’s debt sustainability tool to include climate change, as this is the tool that helps determine which countries need debt relief and to what extent.
Finally, Zucker-Marques calls for a more “inclusive” IMF that gives developing countries more say and representation within the institution. Climate-vulnerable countries, for example, make up a third of IMF members but only have 5.6 percent of voting rights.
Next, Bhandary, research director of GEGI’s Climate and Development Finance Work Area, discusses bigger, better and more comprehensive reforms in development finance. He begins by explaining the important role of multilateral development banks (MDBs) in providing low-cost, long-term financing to developing countries that may otherwise not have access to market rates or be unable to borrow. This makes MDB lending attractive, especially in a context where emerging market and developing countries (EMDEs), excluding China, need to mobilize $3 trillion annually by 2030 to achieve shared climate and development goals, and indicators for the United Nations’ 2030 Sustainable Development Goals (SDGs) are stagnating or, in some cases, even regressing.
Although the World Bank is undergoing an evolution that has led to important changes in its mission, vision and operations, this evolution has not progressed far enough, argues Bhandary. To this end, he puts forward three recommendations that build on the reform proposals that developing countries have long put forward.
First, the World Bank should be right-sized. This means equipping the bank with the resources directly related to meeting the needs of emerging and developing economies. Second, there should be a conceptual shift in the way lending processes are viewed. Lending should move away from an isolated, project-specific approach, he says, and instead focus on structural changes, including development strategies and policy frameworks that help transform the economic structure of emerging and developing economies toward development and climate goals. Third, the World Bank also needs to significantly rebalance its voting power, and this needs to be complemented by other governance reform measures to ensure that the voice of emerging and developing economies is effectively represented.
The final panelist is Thrasher, research director of GEGI’s Trade and Investment Rules Unit. Thrasher notes that the WTO, by its own standards, has failed to deliver on its promises of global, rules-based integration. This, she says, will be demonstrated in the last 13th Ministerial Conference (MC13), which took place earlier this year and did not lead to any substantive agreement.
Thrasher further highlights that trade and investment rules more broadly have made it harder for countries to maintain financial stability, maintain and expand their fiscal space, and pursue industrial policies that are consistent with development priorities. Ultimately, countries face a restriction of their critical policy space through trade and investment agreements.
In response to this and other obstacles posed by the trade and investment regime, it makes three policy recommendations.
First, she argues for more trade that facilitates the energy and economic transition to a low-carbon global economy. Second, more trade requires a better trading system. Research shows, Thrasher said, that not all trade is good trade and not all investment is good investment. Trade rules must be designed to enable countries to access key climate change mitigation and adaptation tools that they most urgently need. Third, this requires an inclusive multilateral system to renegotiate these rules in a way that takes into account the economic and social impacts of policymaking in the Global North and ensures that all countries have the same flexible policy space to meet current needs.
Hirschel-Burns then moderated a guided discussion and a question and answer session with the audience. The questions ranged from whether there would be alternatives to the Bretton Woods institutions if they did not carry out the necessary reforms to make them fit for the 21st century, to whether there would be alternatives to the Bretton Woods institutions,st Century by addressing the causes of underdevelopment and by clarifying which of the three reforms – bigger, better and more comprehensive – is easiest to achieve and which changes the least.
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