IMF, World Bank need reboot, says UNDP chief

The Secretary-General recently spoke about the need for a Bretton Woods 2.0 system. Can you explain what it means?

Bretton Woods was the site where the World Bank and International Monetary Fund were established after World War II, the international financial architecture has been built around these two institutions. There is a growing feeling in our world today that these institutions need to be reinvented. You can call it Bretton Woods 2.0. We have seen the sudden post-pandemic economic shocks, world food prices, energy prices, Ukraine’s impact on capital markets, and rising interest rates creating a debt crisis for developing countries. The Secretary-General is signaling to the world that we need to return to a fundamental question: is our international financial architecture ready for the major crises that are arising? Clearly the World Bank and IMF are struggling under the current magnitude and scale of these crises. We need more liquidity, debt restructuring and restructuring as well as bringing down the cost of borrowing so that countries actually have the means to invest. Bretton Woods 2.0 is really about a 21st century approach to international financial architecture.

What are the reforms proposed by the United Nations?

First, the Secretary-General would like the world to recommit to saving the Sustainable Development Goals (SDGs). Later this year, the SDG Summit will take place in New York and will be the center-piece of the 2030 Agenda. We have a very mixed balance sheet so far. The SDGs are the only unifying agenda the world has in these turbulent times and we cannot afford to lose it. Second, the Secretary-General has focused heavily on the fact that the international financial infrastructure is not providing what it needs. He is calling for addressing short-term debt and liquidity challenges while working on greater structural restructuring that allows development finance to be made available at a higher level and at a much lower cost. It is not witchcraft, it is a matter of leveraging the balance sheets of institutions like the World Bank and creating a far greater capacity to lend at subsidized rates. This is because you can borrow from the World Bank at 4-5%, but if you are a developing country, you are penalized by the capital markets and rating agencies and you are forced to borrow at 10, 12 or 14%. are forced to do, which is totally intolerable. ,

The Secretary-General recently acknowledged that the G20 Common Framework has not been successful in addressing the debt crisis in developing countries. what went wrong?

As they say, it takes two to develop a debt crisis: those who lend and those who borrow. What we saw in recent years was very low cost of borrowing with very low interest rates and also the constant advice to developing countries to borrow money to invest in infrastructure, clean energy and other aspects of their economic development . This led to large amounts of borrowing and for the first time in history most of the debt was actually held by the private sector. During the pandemic, the inability of many countries to service debt led to the G20 initiating the Comprehensive Framework on the one hand and debt suspension on the other. However, the private sector did not come to the table. This has prompted some governments to say, “Why should we reschedule our debts only for developing governments to pay private creditors who are not even on the table?”

Secondly, the loan suspension was put on hold after the pandemic. Right now, we are in a situation where the debt crisis has become cumulative. The G20 is currently struggling to effectively address these issues quickly. During India’s G20 presidency, this will be one of the pressure points because if we are not quick enough, we could see an increasing number of countries actually reach the point of default with not only financial and economic consequences but also political instability. Has been

India is trying to position itself as a leader of the global south. How can India help drive the dialogue with its G20 Presidency towards instruments that will help the developing world?

I think the G20 chairmanship that India has presented to the world is very inclusive. India set parameters for its presidency that signaled to the world that it really wanted to invite everyone around the table. We must be careful not to divide the G20 agenda into a North-South binary. Part of what India is trying to do is identify areas of common interest such as climate finance. Another thing is digital development. Digital technology will define the paths of countries in terms of whether they are part of a digitally driven economy or left behind. India has demonstrated some revolutionary breakthroughs and innovations with Aadhaar and CoWIN. India sees itself in a unique position as a developing country that can create more opportunities for international cooperation on a global framework for a digital future.

How concerned are you about the geopolitical divide between the West on the one hand and Russia and China on the other?

As UNDP, we are deeply concerned. This is because we can measure the costs of development in the countries in which we operate. The debt problem we talked about is a direct result of the geopolitical conflict and the inability to respond to debt problems as quickly as possible. The high interest environment we live in today is punishing for developing countries. With every increase in interest rates, you are essentially cutting into the development budgets of countries investing in education, health and clean energy. The Secretary-General has also made it clear that he is deeply concerned about the growing rift in the international community and its inability to work together on issues such as climate change, poverty and building an inclusive digital economy.