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The global financial architecture needs to change as the current one is outdated, dysfunctional and unfair, United Nations Secretary-General Antonio Guterres said at a press conference in Hiroshima, Japan May 21, 2023. The Bretton Woods system and the UN Security Council reflect the power relations of 1945, he added.
“In the face of the economic shocks from the Covid-19 pandemic and the Russian invasion of Ukraine, it [UN Security Council] has failed to fulfil its core function as a global safety net,” Guterres said.
The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states.
It was forged by delegates from 44 nations in Bretton Woods, New Hampshire, in July 1944 as the Second World War raged. Delegates to the conference agreed to establish the International Monetary Fund (IMF) and what became the World Bank Group.
Guterres’s remarks strongly endorsed reforming the 15-nation powerful UN organ. Developing countries are facing problems in three dimensions: Moral, power-related, and practical. There is a growing need to redistribute power with the realities of contemporary times, he added.
Rich countries cannot ignore the fact that more than half the world or a vast majority of countries are suffering through a deep financial crisis, the UN chief said in his speech.
“The crushing economic impact of the COVID-19 pandemic, the climate crisis, Russia’s invasion of Ukraine, unsustainable levels of debt, rising interest rates and inflation are devastating developing and emerging economies. Poverty and hunger are rising; development is sinking,” he said.
A systemic and unjust bias in global economic and financial frameworks in favour of rich countries is generating great frustration in the developing world, said the secretary-general.
“The IMF allocated $650 billion in Special Drawing Rights or SDRs during the pandemic. The G7 countries, with a population of 772 million people, received $280 billion. The African continent, with 1.3 billion people, received only $34 billion,” Guterres pointed out.
More can and must be done to support developing economies, the UN chief said, proposing an UN-mandated sustainable development goals stimulus that would provide an effective mechanism for debt relief and scale up long-term and contingency funding.
Multilateral Development Banks working together and changing their business models and approach to risk would also help in effective climate action.
“G7 countries are also central to climate action. Innovative financial tools could enable swaps that convert debt into investments in climate adaptation to build resilience in vulnerable communities around the world,” Guterres added.