Webinar Summary – Are We Out of the (Bretton) Woods Yet? The International Financial Architecture 80 Years On
By Samantha Igo
On Tuesday, July 30, the Boston University Global Development Policy Center (GDP Center) hosted a webinar titled, “Are We Out of the (Bretton) Woods Yet? The International Financial Architecture 80 Years On.” The discussion reflected on 80 years of the Bretton Woods institutions, citing a new flagship report that synthesizes 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 with the Global Economic Governance Initiative (GEGI), moderated the event, and the panel consisted of Rishikesh Ram Bhandary, Assistant Director of GEGI, Rachel Thrasher, GEGI Researcher and Marina Zucker-Marques, GEGI Senior Academic Researcher.
In introducing the discussion, Hirschel-Burns notes that July 2024 marks the 80th anniversary of the Bretton Woods Agreement that established the post-World War II multilateral economic order. This included the International Monetary Fund (IMF) – today the only multilateral institution charged with maintaining global financial stability for long-term growth – and an initial component of the World Bank. It also provided the early contours for an international trade regime, ultimately leading to the creation of the World Trade Organization (WTO) in 1995.
Hirschel-Burns goes on to highlight how much the global context has changed since these institutions were established in the wake of two World Wars and the Great Depression – notably that that at the time, many countries were still colonized. The 80th anniversary and the emergence of modern-day crises, from climate change to the COVID-19 pandemic, underscore the need for urgent reforms of these institutions.
To start, Zucker-Marques, lead of GEGI’s Financial Stability workstream, highlights why the IMF is so key for global stability: it is the only global institution where all members can have coverage during a financial crisis. Today, the IMF represents about one-third of the Global Financial Safety Net (GFSN), or the network of institutions and mechanisms that provide insurance against crises and financing to mitigate their impacts. The IMF is particularly important for low-income and lower middle-income countries, who face systemic bias in accessing other parts of the GFSN, like central bank currency swaps or regional financial arrangements.
Next, Zucker-Marques highlights two ways the IMF has shown adaptability: first, its historic 2021 allocation of $650 billion worth of Special Drawing Rights (SDRs), or the Fund’s reserve asset, to further support countries following COVID-19, and second, its attention to integrating climate change into its operations. This, Zucker-Marques argues, illustrates the IMF’s capacity for change but more needs to be done.
First, with regards to the ‘bigger’ pillar, she discusses how the IMF’s growth has not kept pace with the evolution of the global economy, and therefore, its resources are not adequate for responding to today’s crises. While the IMF did equiproportionally increase quotas for member countries in the recent 16th General Review of Quotas, its overall firepower did not change because the IMF will scale back borrowed resources. Research suggests that IMF quotas of low- and middle-income countries would need to at least double to address structural gaps in the GFSN, and that realigning the IMF’s quota system is key to the Fund maintaining its legitimacy.
Second, for a ‘better’ IMF, it is critical that the Fund reviews its procyclical conditionalities associated with 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 wages, which don’t stimulate growth. Zucker-Marques also calls for the IMF to eliminate surcharges, which is an additional fee for borrowing countries, and reform of the IMF’s debt sustainability tool to include climate change, as this is the tool that helps identify which countries need debt relief and how much.
Finally, for a ‘more inclusive’ IMF, Zucker-Marques makes the case for more voice and representation of developing countries within the institution. Climate vulnerable countries, for instance, represent a third of the Fund’s membership but hold only 5.6 percent of voting power.
Next, Bhandary, research lead of GEGI’s Climate and Development Finance workstream, discusses bigger, better and more inclusive reforms as they relate to the realm of development finance. He opens by outlining the important role of multilateral development banks (MDBs) in offering low-cost, long-term finance to developing countries that may not be able to access or borrow at market rates otherwise. This makes MDB lending attractive, particularly in a context where emerging market and developing economies (EMDEs) excluding China will need to mobilize $3 trillion a year by 2030 to meet shared climate and development goals, and indicators for the United Nations 2030 Sustainable Development Goals (SDGs) have stagnated or in some cases, even regressed.
While the World Bank has been undergoing an evolution roadmap process which has led to important changes in its mission, vision and operations, the evolution has not gone far enough, argues Bhandary, and to that end, he advances three recommendations, which build on the reform proposals that developing countries have long been putting forward.
First, the World Bank should be ‘right-sized.’ This means equipping the Bank with the resources that are directly commensurate with addressing the needs of EMDEs. Second, there should be a conceptual shift in how lending processes are considered. Lending should shift away from a siloed, project-specific approach, he says, and instead focus on structural transformation, including development strategies and policy frameworks that will help shift the economic structure of EMDEs toward development and climate goals. Third, the World Bank must also significantly rebalance its voting power, and this must be complemented by other governance reform measures to ensure the voice of EMDEs is effectively reflected.
The last panelist is Thrasher, research lead of GEGI’s Trade and Investment Rules workstream. Thrasher notes that the WTO, on its own terms, has not lived up to its promises of global, rules-based integration. This is exemplified, she says, in the most recent 13th Ministerial Conference (MC13), which took place earlier this year and resulted in no substantive areas of agreement.
Thrasher goes on to highlight that trade and investment rules more broadly have made it more difficult for countries to maintain financial stability, maintain and expand fiscal space, and introduce industrial policy in line with developmental priorities. Ultimately, countries are facing a shrinking of critical policy space through trade and investment treaty commitments.
In response to this and other obstacles presented by the network of rules governing the trade and investment regime, she outlines three policy recommendations.
First, she argues for more trade that facilitates the energy and economic transition toward a low-carbon global economy. Second, more trade requires a better trade system. The research shows, Thrasher says, that not all trade is good trade, and not all investment is good investment. Trade rules must be designed in such a way that they facilitate critical tools for climate mitigation and adaptation making their way to the countries that need them most, which requires – third – an inclusive multilateral system to re-negotiate these rules in such a way that recognizes the economic and social impacts of Global North policymaking and ensures that all countries experience the same flexible policy space to meet the needs of the moment.
Hirschel-Burns then moderates a guided discussion and audience Q&A. Questions ranged from whether alternatives to the Bretton Woods institutions would arise should they not engage in the reforms necessary to make them fit-for-purpose in the 21st century, tackling the root causes of underdevelopment and which of the three reforms – bigger, better and more inclusive – is the most attainable and which is the most resistant to change.
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