admin
Nick Mangwana
Government Up Close
A couple of weeks back, His Excellency President Emmerson Mnangagwa made calls for the reform of the United Nations Security Council, echoing a position that has dominated the contemporary discourse around how the global South interacts with multilateral institutions.
The system is not fair and truly representative to promote equality of nations. Whether it is by design or not, the status quo is clearly unsustainable.
The international financial architecture, as it stands today, no longer meets the needs of the global community, particularly those of developing nations.
“Our economies, which are the lifeblood of the global market, are disproportionately affected by the rigid and often inequitable policies imposed by dominant financial institutions.
The current system, steeped in historical power imbalances, has failed to provide the necessary flexibility and support required for sustainable development.
It is imperative that we reform these structures to ensure that they are more inclusive, equitable, and reflective of the diverse realities that are faced by all Member States, particularly the Global South,” said President Mnangagwa.
This year marks 80 years since the Bretton Woods Conference—held in New Hampshire, in July 1944— brought us the International Monetary Fund and the World Bank. These two institutions became known as the Bretton Woods Institutions.
While the world has changed almost beyond recognition, the international financial system established at the conference largely remains the same, reinforcing the power dynamics of an era when colonial powers ruled the world.
Just like the United Nations Security Council itself, the governance structure of the Bretton Woods Institutions is rooted in the post-World War II era.
It no longer reflects the obtaining global realities. Let us start with the voting system.
The voting powers have traditionally favoured the Western powers and to this day, have not shifted much. But economic positions have shifted with Brazil, India and China who are emerging economies of global significance, still not accorded the requisite status reflective of this new reality.
This outdated system undermines the effectiveness of the decision-making process by these institutions, particularly the IMF.
The frustration with the governance of the Bretton Woods Institutions has been the driving force behind the emergence of BRICS.
These institutions have been accused of being in cahoots with those countries that have a tendency of imposing Unilateral Coercive Measures (sanctions) against any country whose policies are not aligned to the interest of the United States and its pliant allies.
They are also notorious for imposing strict conditionalities and austerity measures on borrowing countries which has culminated in the exacerbation of poverty, inequality and suffering. Zimbabwe experienced this when the so-called Economic Structural Adjustment Programme (ESAP) was imposed on the country in the ’90s.
Many countries feel that their voices are not being heard because of the archaic and skewed structure of the Bretton Woods Institutions and this led to formation a coalition called BRICS whose aim is to promote economic development and global governance reform.
BRICS has also sought to address gaps being neglected by the Bretton Woods Institutions whose central problem is the governance structure.
Imagine that developing countries account for the majority of the world population and economic growth but have very little influence in the Bretton Woods Institutions!
An example at this point may go a long way to illustrate the point being made here. Africa has 55 countries, but it is only represented by Victoria Kwakwa and Ousmane Dione in the World Bank Executive of 25. That definitely is under-representation.
Let us now move to the politicisation of these institutions. While these institutions were created to bring global economic stability and cooperation, they have been shaped by geopolitical dynamics and the ever present power struggles. We have already mentioned in passing that the IMF has voting quotas.
Well, more elaborately, these voting quotas favour Western powers, in particular, the United States which has veto power over major decisions. And guess what?
The World Bank’s presidency has always been traditionally reserved for an American and the IMF’s managing director has typically been European.
If this is not a neo-colonial arrangement or tradition, then I do not know what is. Every time these institutions impose conditionalities on applying states, they are tinged with political flavours which serve the collective West and its interests.
It has been very apparent that loan allocations and policy advice are always influenced by political considerations.
This is why many countries have taken the position that the Bretton Woods Institutions should reform or lose out to BRICS. In 1999 Zimbabwe was denied a balance of payment loan of about US$200 million because of its involvement in the defence of the sovereignty of the Democratic Republic of Congo (DRC) following its invasion by some of its neighbours. The strange thing is that one of the countries which had invaded the DRC was granted a loan by the same institution that was denying Zimbabwe for participating in SADC’s Operation Sovereign Legitimacy. This was clearly politics being employed in global finances aligned to the Western power interests. These institutions must reform.
The World Bank has been accused of promoting hitherto discredited neoliberal economic policies, while the IMF has also been accused of imposing harsh conditionalities on countries seeking financial assistance some of which have now been proved to undermine sovereignty and some causing instability.
There are concerns that most of the conditions imposed are favourable to the interests of the United States. The World Bank has been accused of being complicit in enforcing US-imposed sanctions against Iran, Venezuela, Cuba and Zimbabwe.
Countries under US sanctions are also restricted from securing international finances and these two institutions just pliantly comply. Can one be blamed for concluding that they sometimes turn themselves into willing instruments of US foreign policy vagaries? They need to reform.
When the world faces a crisis, finance is a core consideration in the global response. Let us examine how these institutions responded during the Covid-19 pandemic.
We have already seen the legitimate concerns raised against the Bretton Woods Institutions for prioritising debt sustainability over human life.
During this pandemic there was no single-minded focus on urgent healthcare and economic recovery and yet the world was facing an existential threat.
It all started with an initial inadequate financing from both institutions.
The IMF has the Rapid Credit Facility and the World Bank had the Fast Track Covid-19 Facility and both were offering limited support.
There was a misdirected emphasis on fiscal discipline and austerity measures which any economist would tell you, aggravates an economic downturn in developing countries whose economies were almost in comatose states at this point.
The Bretton Woods Institutions’ bureaucratic processes delayed the release of critical support to where it was needed most, which left vulnerable populations badly exposed and some lives which could have been saved were lost.
These institutions were accused of adopting a “business-as-usual” approach and failing to appreciate the unprecedented nature of the pandemic and the need to adopt extraordinary measures to confront the extraordinary circumstances.
Was it because the Western world was already at an advantage in dealing with this situation and it was the Global South which was expected to experience carnage?
The IMF’s US$50 billion emergency funding was inadequate to meet the scale of the crisis at hand.
There was no prioritisation of healthcare and economic stimulus as the IMF preferred to focus on debt repayment. Is this organisation still fit for purpose, 80 years later?
Right now, the whole Southern Africa Region is experiencing a devastating El Nino-induced drought.
Countries like our own Zimbabwe have experienced debilitating shocks in the last few years such as Cyclone Idai in 2019 and the current drought.
Has the country benefited from a frozen interests payments since it has been experiencing these exogenous shocks? No. Because the country cannot benefit from any sort of debt relief as it is under sanctions, particularly ZIDERA. They claim that Zimbabwe cannot benefit from any lending programme because it is in arrears. But we are all clear that the imposition of illegal sanctions against the country caused it to default and now no money is being extended to the country because it defaulted! What a fuss. Only the reform of these institutions can make the necessary difference.
As the global economy teeters on the brink of uncertainty, the IMF and the World Bank are at a critical juncture.
They should reform or lose relevance. These institutions have outdated governance structures, they have inadequate responses to crises and impose rigid conditionalities which exacerbate global instability.
The rise of alternative financial institutions and the fervent gravitation towards multipolar alliances such as BRICS signal a shift away from the traditional Bretton Woods order. Maintaining the status quo ante is unsustainable and these institutions are risking becoming relics of a bygone era. Countries are no longer beholden to these has-been institutions when they can see the bricks are already crumbling. They should reform or topple over.
Nick Mangwana is the Permanent Secretary for Information, Publicity and Broadcasting Services
Online Reporter