Reforming global financial system

There is a need to enhance the multilateral system's effectiveness.

Photo credit: Fotosearch

Since early last year, calls for reform of the international financial systems have intensified. Last month, the Brookings Institution published a report, Reforms for a 21st Century Global Financial Architecture: Independent Expert Reflections on the United Nations 'Our Common Agenda.'

The report aims to address key challenges facing the international financial system and propose reforms to enhance its ability to tackle pressing global issues such as poverty, hunger, fragility, conflict, pandemics, and climate change.

The report states that reform initiatives in the global financial architecture are driven by the recognition that the current system of global economic governance, established post-World War II, is outdated, and does not align with 21st-century realities.

Concerns include unequal voting weights at institutions like the IMF and the World Bank (WB), favouring small European countries over larger Global South nations. Additionally, there is a growing sense of exclusion among key economic actors, necessitating a more inclusive global financial governance system.

Challenges such as inadequate resources, outdated governance structures, and the need to enhance the legitimacy of International Financial Institutions (IFIs) like the IMF highlight the importance of governance reforms. The intensifying global power competition and zero-sum mindset in international relations pose challenges to implementing reforms that redistribute voice and power among countries.

In essence, the need for reform in the global financial architecture stems from outdated structures, lack of inclusivity, legitimacy and effectiveness issues within IFIs, and the changing geopolitical landscape that demands a more responsive and representative international financial system. It must be noted that for years developing countries have complained that the IFIs were not serving their interests, as funds often arrived late and with burdensome debts, but their voices were not heard.

The insights and findings presented in the report offer valuable guidance for policymakers at the global level. By outlining key challenges and opportunities, the report provides a road map for policymakers to implement reforms effectively. Emphasising inclusivity and representation for countries from the Global South, the report can help policymakers create a more equitable global financial governance structure.

Insights on resource allocation and governance shortcomings can prompt policymakers to allocate resources more efficiently and enhance the legitimacy of international financial institutions.

Furthermore, understanding the impact of geopolitical tensions and zero-sum dynamics can assist policymakers in navigating complex international relations and designing feasible reform initiatives. The report's focus on medium- and long-term recommendations underscores the importance of sustained efforts in reshaping the global financial architecture.

Policymakers can leverage these insights to develop strategies that prioritise long-term stability and resilience in the international financial system, ultimately contributing to a more sustainable and responsive global financial framework.

The independent experts suggest transforming the governance of IFIs to give more voice to countries from the Global South, reflecting their growing economic importance. Additionally, they propose establishing a representative apex body to improve coherence in the international system. The experts emphasise the need to make institutions like the IMF and WB more inclusive and effective by adjusting the allocation of voice in their governing bodies to enhance their legitimacy and efficiency.

By strengthening global economic governance and implementing medium- and long-term reforms, experts aim to address current challenges and enhance the multilateral system's effectiveness in tackling global issues.

However, the report does not provide a specific, comprehensive vision of the exact structure or design of the new architecture. Policymakers and stakeholders may need to further develop and refine these recommendations. The Global South should demand to be at the table to decide the future of IFIs.

The report highlights the need for greater representation, coherence, and effectiveness of IFIs in the face of global challenges. However, it does not offer a detailed blueprint for implementing these reforms. Therefore, it is up to stakeholders, especially from developing countries, to take up the challenge and push for a more inclusive financial system.

The writer is Kenya’s Ambassador to Belgium, Mission to the European Union, Organization of African Caribbean and Pacific States and World Customs Organisation. The article is written at a personal level.

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