UN Chief Antonio Guterres Speaks Out Against International Financial System, Urges Reforms

UN Secretary-General Antonio Guterres has done some plain speaking about the western-dominated international financial system and hoped India would play its part in reforming these institutions. The UN chief’s blunt talk is appreciated by India and all other developing nations.

The UN chief is on a three-day visit to India. He was speaking in Mumbai at the Gujar. From Mumbai,  he will fly to Gujarat, where he is scheduled to meet Prime Minister Narendra Modi and foreign minister Subramanyam Jaishankar.

Guterres used strong language to express his unhappiness saying  “The international financial system is morally bankrupt. It was devised by the rich to serve the interests of the rich. It is the moment to change it.”

The International Monetary Fund is always headed by a European, while the World Bank chief is an American. India and other developing countries including China have long called for reforms of the international financial institutions so that they reflect the reality of today’s world and give the developing nations their due. Despite these moves, not much has changed and the rich nations continue to call the shots.

As the world recovers from the economic downturn triggered by the Covid-19 pandemic, the developing countries that needed support but received very little assistance from these global institutions. Developing nations are wary of the IMF, thanks to the stringent conditions that governments have to follow when they borrow. This is one reason that Sri Lanka’s former president Gotabaya Rajapaksa did not initially go to the IMF. Today Sri Lanka, Bangladesh and Pakistan have no choice but to take the bitter pill offered by the Fund. The conditions imposed by the IMF, lead to great pain for the general public and make the government unpopular.

Economist Biswajit Dhar of JNU points out that the IMF and World Bank mantra for developing countries has been for smaller governments to cut down on unnecessary expenditures. But when nations face financial crises, government intervention becomes pivotal. While preaching against freebies to borrowers,  the US and the UK doled out massive funds to their own citizens after the pandemic.    

At one time, the BRICS group, consisting of Brazil, Russia, India, China and South Africa, were at the forefront of the move to create an alternative financial system. The BRICS bank was set up initially for helping developing nations.

However global headwinds and the strained relations between India and China as well as the downturn in the economy ensured that this did not make much of an impact. Under the current circumstances, not much can be expected from the BRICS bank.

Guterres urged India to mobilise the support of G20 nations to help struggling nations saddled with huge debt financing recover through financial assistance from world monetary institutions.  

"I count on India’s support in mobilising G20 countries around debt relief," Guterres said in his address. "Many developing countries are at or near debt distress and require multilateral action, including the expansion and extension of the G20 Debt Service Suspension Initiative." The Debt service suspension was initiated in 2020 to help nations defer the return of loans as they struggled to keep their economies afloat.

India is taking over the presidency of the G20 on December 1 for a year,  from Indonesia the current chair. A G20 summit will be held in September  2023. "…I also encourage India's engagement in deep reform of the global financial architecture which favours those that conceived it, and it is terribly detrimental to the interests of the developing countries, especially the least developed countries," he said.

Guterres noted that the G-20 presidency for the next few years will be with emerging economies. Indonesia will make way for India. Next, it will be Brazil, followed by South Africa. All these countries could help in the reform of the financial institutions.