The role of Bretton Woods Institutions and COVID-19

By Ambassador Modest Jonathan Mero

Bretton Woods Institutions (BWIs) - the World Bank and the IMF - were established in 1944, in the context of a shattered post-war economy. The architects had the vision to establish an economic order based on consensual decision-making and cooperation in the realm of international trade and economic relations, based on the assumption that such cooperation was necessary to maintain international peace and security.61

Since their establishment, and particularly from the 1960s to date, BWIs have provided support to countries through grants (IDA), concession loans (IBRD and IMF) and commercial loans (IFC). In the medium term, these institutions have been very helpful to the developing world, particular through the provision of economic and social policy advice and financial support.62 Countries have been receiving grants and loans to fill the gap of their budgets and address fiscal challenges including, inter alia, meeting the targets of their planned development goals.

The challenge of financing countries for development through Loans, be it concessional or commercial loans, has always been riddled with debts particularly in least developing countries (LDCs) and Middle-Income Countries (MICs). Efforts to develop appropriate social economic policies, particularly appropriate fiscal and trade policies, have always pre-occupied governments in the developing world. Unfettered market forces meant that developing countries could not address inequalities that result from policy failures, and the outcome of such interventions are yet to yield positive results. The Economic and Financial Crisis of 2008 threatened to bring the world economy to a halt, despite various efforts by governments, multilateral organizations like the United Nations, BWIs and others.

BWIs: during and post pandemic

The challenge of COVID-19 emerged in the late 2019 with far reaching impact at global level. So far, many countries have been affected by number of lives lost and lockdowns that have slowed down the global economy. While waiting for a vaccine to be developed, financial resources are also crucially needed to mitigate the spread of the virus through effective CO VID-19 testing and tracing systems. The responsibility to help each country to achieve low infection rates remains an extremely cheap alternative to the costly lockdown measures which have destroyed so many livelihoods.

The sudden fall in income and sharp increase in public spending has vastly compressed the fiscal space for economies. Economies that had a high risk of over-indebtedness before COVID-19 will probably worsen, and debt service obligations could fall in defaults. A reorganization of fiscal policies will be fundamental.63 The G20 recently responded swiftly by implementing the Debt Service Suspension Initiative (DSSI), the IMF by raising lending to the poorest countries, and the World Bank and regional development banks by increasing financial resources available to developing economies. While undoubtedly steps in the right direction, these measures were regarded as insufficient in light of the depth of the debt crisis.64

To address global liquidity problems, experts have proposed a new issuance of Special Drawing Rights (SDR), which are an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.65 These would include more flexible disbursement requirements and the extension of central bank swap lines, as well as a fund to provide financing concessional finance and investments to developing economies from multilateral development banks.66

The pandemic has demonstrated a fact that has been discussed for several years: that each group of countries, and even each economy, faces unique challenges. Regarding debt, it is essential to involve private sector creditors in debt standstills that take these singularities into account and to promote policies that could help maintain market access for countries.67 In the very short term, policies must be adopted to free up liquidity and potentially restore access to credit markets — including an extension of the DSSI at least until the end of 2021.68

Global coordination and cooperation mechanism are called for to address the reverse in private financial flows, remittances and ODA, and to promote joint trade and investment for recovery and reconstruction. Remittance services could be declared essential for the short term, while seeking further reduction in remittance transfer costs (e.g. by subsidizing transactions or providing relief/ support to businesses in exchange for them offering reduced/no fees), and mobilizing underutilized diaspora investments.6’ Likewise, developed economies must protect current ODA levels given its crucial role, particularly in least developed countries and other vulnerable countries.

As discussed by Mr. Viera in this Chapter, political will is needed need to stop illicit financial flows globally. With adequate definition and commitment, this could free up much needed resources, especially in the context of the pandemic where emergency policies have freed up large amounts of resources and increased the risk of misappropriation of funds. It is fundamental to apply transparent responses to aid disbursement, protection of stimulus measures, financial inclusion, public procurement and fraud.7"

On the basis of the foregoing, the impact of COVID-19 requires interventions of financing for development, investments and trade in order to support the ailing global economy. The global priority should be:

  • • Creating strong, resilient and inclusive health systems, underpinned by Universal Health Coverage;
  • • Building environmentally sustainable, inclusive and dynamic economies, including the promotion of sustainable consumption and production patterns;
  • • Investing in digital technologies, with a focus on open, inclusive, affordable and secure access and developing digital literacy and skills for all;
  • • Prioritizing accountable, inclusive, transparent and resilient institutions;
  • • Creating fairer, more equal societies, especially for women and girls, children, people with disabilities and marginalized and crisis affected groups; and
  • • Expanding support for the most vulnerable, including through social and financial protection, and education and health systems, to ensure that no-one is left behind.

Notes

  • 1 Brinkman, Henk-Jan (2005). International Economic Diplomacy at the United Nations. Multilateral Diplomacy and the United Nations Today. Westview Press, p. 118.
  • 2 Reinhart, Carmen (2017). Eight Years Later: Post-Crisis Recovery and Deleveraging. The Clearing House.
  • 3 BBC (2020). Coronavirus y la economía: 3 diferencias clave entre la Gran Recesión de 2008 y la actual crisis causada por la pandemia. Accessed on 1 September 2020 at: www.bbc.com/mundo/noticias-52987816.
  • 4 United Nations (2009). Los gobiernos se reúnen esta semana en una Conferencia de las Naciones Unidas para adoptar a un acuerdo sobre medidas dirigidas a enfrentar la crisis económica. Accessed on 1 August 2020 at: www.un.org/es/ga/econcri-sissummit/docs/Press_Release_Spanish24.pdf.
  • 5 United Nations (2009). Outcome of the Conference on the World Financial and Economic Crisis and Its Impact on Development. Resolution A/RES/63/303 of July 2009.
  • 6 United Nations (2015). Outcome document adopted at the Third International Conference on Financing for Development. Resolution A/RES/69/313 ofjuly 2015.
  • 7 United Nations (2020). Financing for Sustainable Development Report 2020. Interagency Task Force on Financing for Development. Accessed on 3 September 2020 at: https://developmentfinance.un.oig/sites/developmentfinance.un.oig/files/FSDR_2020. pdf.
  • 8 United Nations (2020). Financing for Sustainable Development Report 2020. Interagency Task Force on Financing for Development. Accessed on 3 September 2020 at: https://developmentfinance.un.org/sites/developmentfmance.un.oig/files/FSDR_2020. pdf.
  • 9 World Bank (2020). Projected poverty impacts of COVID-19 (coronavirus). Accessed on 10 September 2020 at: www.worldbank.org/en/topic/poverty/brief/ projected-poverty-impacts-of-COVlD-19.
  • 10 Rahman, Mahfuzur (2002). World Economic Issue at the United Nations: Haifa Century of Debate, p. xii.

Brinkman, Henk-Jan (2005). International Economic Diplomacy at the United Nations.

Multilateral Diplomacy and the United Nations Today. Westview Press, p. 118.

Ibid. p. 118.

World Bank (2020). COVID-19 to Plunge Global Economy into Worst Recession since World War II. Accessed on 10 July 2020 at: www.worldbank.org/en/news/ press-release/2020/06/08/covid-19-to-plunge-global-economy-into-worst-recession-since-wprld-war-ii.

Jordá, Oscar, Singh, Sanjay R. and Tylor, Alan M. (2020). La larga resaca económica de la pandemia. International Monetary Fund. Accessed on 10 August 2020 at: www.imf.org/external/pubs/ft/fandd/spa/2020/06/pdf/impacto-economico-a-largo-plazo-de-la-pandemia-jorda.pdf.

World Bank (2020). Global Economic Prospect. World Bank Group.

Garofali, Alejandro (2020). International economic Outlook in times of COVID-19 — A SWOT analysis - The World before and after COVID-19. European Institute of International Studies Press. Accessed on 10 September 2020 at: www.ieeiweb.eu/wp-content/uploads/2020/06/Full_book_FIN AL_EN2.0-UNlDO.pdf.

Salazar, Andrés and Viera, Jonathan (2020). COVID-19 y los mercados bursátiles: ¿Quiénes ganan? y ¿Quiénes pierden?. Ekos. Accessed on 2 October 2020 at: www. ekosnegocios.com/articulo/covid-19-y-los-mercados-bursatiles-quienes-ganan-y-qu ienes-pierden.

World Bank (2020). Perspectivas económicas mundiales: América Latina y el Caribe. Accessed on 8 October 2020 at: http://pubdocs.worldbank.org/en/ 657071588788309322/Global-Economic-Prospects-June-2020-Regional-Overview-LAC-SP.pdf.

Goodman, Peter S., Politi, Daniel, Raj, Suhasini, Chutel, Lynsey and Dahir, Abdi Latif (2020). El preocupante efecto del coronavirus en las economías más vulnerables del mundo. New York Times. Accessed on 8 October 2020 at: www.nytimes.com/ es/2020/03/26/espanol/negocios/economia-coronavirus.html.

Garofali, Alejandro (2020). International economic Outlook in times of COVID-19 — A SWOT analysis -. The World before and after COVID-19. European Institute of International Studies Press. Accessed on 10 September 2020 at: www.ieeiweb.eu/wp-content/uploads/2020/06/Full_book_FIN AL_EN2.0-UNIDO.pdf.

Toro, Sergio (2020). Medidas comerciales y Covid-19: identificación de tendencias. Paper.

CEPAL (2020). América Latina y el Caribe ante la pandemia del COVID-19.

Accessed on 8 October 2020 at: https://repositorio.cepal.org/bitstream/handle/ 11362/45337/4/S2000264_es.pdf.

World Trade Organization (2020). Trade falls steeply in first half of 2020. Accessed on 18 September 2020 at: www.wto.org/english/news_e/pres20_e/pr858_e.pdf Blenkinsop, Philip (2020). WTO says record trade plunge could have been worse.

Reuters. Accessed on 2 July 2020 at: www.reuters.com/article/us-trade-wto/wto-says-record-trade-plunge-could-have-been-worse-idUSKBN23U125.

United Nations (2020). Follow-up to and implementation of the outcomes of the International Conferences on Financing for Development. Report of the Secretary -General. Document A/75/146.

International Monetary Fund (2020). Fiscal Monitor April 2020. Accessed onl8 September 2020 at: www.imf.org/en/Publications/FM/Issues/2020/04/06/fiscal-monitor-april-2020.

United Nations. (2020). Debt and COVID-19: A Global Response in Solidarity.

Accessed on 18 September 2020 at: www.un.org/en/coronavirus/UN-response.

United Nations Department of Economic and Social Affairs (2020). CO VID-19 and sovereign debt. Accessed onl8 September 2020 at: www.un.org/development/ desa/dpad/publication/un-desa-policy-brief-72-covid-19-and-sovereign-debt/.

Institute of International Finance (2020). Capital Flows Report April 2020: Sudden Stop in Emerging Markets.

The Economist (2020). After the disease, the debt. Accessed on 5 May 2020 at: www.iif.com/Portals/0/Files/content/2_IIF2020_April_CFR.pdf.

United Nations (2020). COVID-19: impact could cause equivalent of 195 million job losses, says ILO chief. Accessed onl8 September 2020 at: https://news.un.org/ en/story/2020/04/1061322.

Organización Internacional del Trabajo (2020). COVID-19: Repercusiones ¿En qué medida va a afectar el COV1D-19 al mundo del trabajo? Accessed on 15 August 2020 at: www.ilo.org/global/topics/coronavirus/iinpacts-and-responses/WCMS_739398/ lang-es/index.htm.

OECD (2019). OECD Employment Outlook 2020: Worker Security and the COVID-19 Crisis. OECD Publishing. Accessed on 5 May 2020 at: https://dx.doi. org/10.1787/9ee00155-en.

Observatorio de la OIT (2020). La COVID-19 y el mundo del trabajo. Accessed on 5

May 2020 at: www.ilo.org/wcmsp5/groups/public/@dgreports/@dcomm/docu-ments/briefingnote/wcms_749470.pdf.

De Neve, Jan-Emmanuel and Ward, George (2017). Does Work Make You Happy? Evidence from the World Happiness Report. Harvard Business Review. Accessed on 5 May 2020 at: https://hbr.org/2017/03/does-work-make-you-happy-evidence-from-the-world-happiness-report.

International Labour Organization (2020). The COVID-19 Response: Getting Gender Equality Right for a Better Future for Women at Work. Accessed on 15 May 2020 at: www.ilo.org/global/topics/coronavirus/WCMS_744685/lang-en/ index.htm.

Madgavkar A., White, O., Krishnan M„ Mahajan,D., and Azcue X. (2020). COVID-19 and gender equality: Countering the regressive effects. McKinsey Global Institute. Accessed on 5 October 2020 at: www.mckinsey.com/featured-insights/fiiture-of-work/covid-19-and-gender-equality-countering-the-regressive-effects#.

United Nations (2020). Summary by the President of the Economic and Social Council of the forum on financing for development follow-up. Document A/75/ 93-E/2020/64.

United Nations (2020). Initiative on Financing for Development in the Era of COVID-19 and Beyond. Accessed on 5 October 2020 at: www.un.org/en/cor-onavirus/financing-development.

Naciones Unidas (2020). Respuesta Integral del Sistema de las Naciones Unidas a la COVID-19: Salvar Vidas, Proteger a las Sociedades, Lograr la Recuperación y mejorar el Mundo. Accessed on 5 May 2020 at: www.un.org/sites/un2.un.org/ files/un-comprehensive-response-covid-19-exec-summary-spanish-translation.pdf.

World Health Organization (2020). 2019 Novel Coronavirus (2019-nCoV): Strategic Preparedness and Response Plan. Accessed on 8 May 2020 at: www.who.int/publica-tions-detail-redirect/strategic-preparedness-and-response-plan-for-the-new-coronavirus. United Nations (2020). Global Humanitarian Response Plan COVID-19. Accessed on 5 May 2020 at: www.unocha.org/sites/unocha/files/Global-Humanitarian-Response-Plan-COV1D-I9.pdf.

United Nations (2020). The Secretary-General’s UN COVID-19 Response and Recovery Fund. Accessed on 5 May 2020 at: https://unsdg.un.org/resources/ secretary-generals-un-covid-19-response-and-recovery-fi.md.

World Bank (2020). En medio de múltiples crisis, el Grupo Banco Mundial reorienta programas e incrementa el financiamiento. Accessed on 7 August 2020 at: www.bancomundial.org/es/news/press-release/2020/07/10/amid-miiltiple-crises-world-bank-group-refocuses-programs-and-increases-fmancing-to-74-billion-in-fiscal-y ear-2020.

International Monetary Fund (2020). COVID-19 Financial Assistance and Debt Service Relief. Accessed on 5 October 2020 at: www.imf.org/en/Topics/imf-and-covid 19/COVID-Lending-Tracker.

United Nations (2020). Follow-up to and implementation of the outcomes of the International Conferences on Financing for Development. Report of the Secretary-General. Document A/75/146.

South Center (2020). Action at the WTO is needed to accelerate research, development, manufacturing and supply of medical products to combat Covid-19. Southnews.

United Nations (2020). Follow-up to and implementation of the outcomes of the International Conferences on Financing for Development. Report of the Secretary-General. Document A/75/146.

United Nations (2020). Debt and COVID-19: A Global Response in Solidarity. Accessed on 18 September 2020 at: www.un.org/en/coronavirus/UN-response.

United Nations Department of Economic and Social Affairs (2020). COVID-19 and sovereign debt. Accessed onl8 September 2020 at: www.un.org/development/ desa/dpad/publication/un-desa-policy-brief-72-covid-19-and-sovereign-debt/.

Ibid.

Ibid.

United Nations (2015). Addis Ababa Action Agenda of the Third International Conference on Financing for Development. Resolution A/69/313.

According to the International Labour Organization, 2 billion people work informally, most of them in emerging and developing countries. The majority' lack social protection, rights at work and decent working conditions.

The World Economic Forum (2018). The Future of Jobs Report 2018. Accessed onl8 April 2020 at: www3.weforum.org/docs/WEF_Future_ofJobs_2018.pdf.

Informe de la Organización Internacional del Trabajo (2018). Perspectivas sociales y del empleo en el mundo 2018: ecologizar con empleos. Accessed onl8 April 2020 at: www. ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/—publ/documents/publication /wcms_638150.pdf.

United Nations (2015). Addis Ababa Action Agenda of the Third International Conference on Financing for Development. Resolution A/69/313.

General Assembly Resolution (A/RES/74/199).

United Nations (2020). Financing for Sustainable Development Report 2020. Interagency Task Force on Financing for Development. Accessed on 3 September 2020 at: https://developmentfinance.un.org/sites/developmentfinance.un.org/files/FSDR_2020. pdf.

UN-Habitat (2020). OPINION: COVID-19 demonstrates urgent need for cities to prepare for pandemics. Accessed on 3 September 2020 at: https://unhabitat.org/ opinion-covid-19-demonstrates-urgent-need-for-cities-to-prepare-for-pandemics.

Bretton Woods Project (2020). What are the Bretton Woods Institutions? Accessed on 26 September 2020 at: www.brettonwoodsproject.org/2019/01/art-320747/.

Driscoll, David (2020). The IMF and the World Bank How Do They Differ? International Monetary' Fund. Accessed on 26 September 2020 at: www.imf.org/ external/pubs/ft/exrp/differ/differ.htm.

United Nations (2020). Financing for Development in the Era of COVID-19 and Beyond Menu of Options for the Considerations of Ministers of Finance Part I. Accessed on 26 September 2020 at: www.un.org/sites/un2.un.org/files/part_i_ex-ecutive_summary_menu_of_options_financing_for_development_covidl9.pdf.

G20 (2020). Communiqué G20 Finance Ministers & Central Bank Governors Meeting. Accessed on 26 September 2020 at: https://g20.org/en/media/Docu-ments/FMCBG%20Communiqu%C3%A9_Engl ish_140ctober2020_700pm.pdf.

According to the IMF Website, so far SDR 204.2 billion (equivalent to about US $281 billion) have been allocated to members, including SDR 182.6 billion

Future of economic diplomacy and financing 83 allocated in 2009 in the wake of the global financial crisis. The value of the SDK is based on a basket of five currencies - the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. Accessed on 10 September 2020 at: www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/ Special-Drawing-Kight-SDR.

  • 66 United Nations (2020). Financing for Development in the Era of COVID-19 and Beyond Menu of Options for the Considerations of Ministers of Finance Part 1. Accessed on 26 September 2020 at: www.un.org/sites/un2.un.org/files/part_i_ex-ecutive_summary_menu_of_options_financing_for_development_covidl9.pdf.
  • 67 United Nations (2020). Financing for Development in the Era of COVID-19 and Beyond Menu of Options for the Considerations of Ministers of Finance Part 11. Accessed on 26 September 2020 at: www.un.org/sites/un2.un.org/files/part_ii-_detailed_menu_of_options_financing_for_development_covidl9.pdf.
  • 68 Ibid.
  • 69 United Nations (2020). Financing for Development in the Era of COVID-19 and Beyond Menu of Options for the Considerations of Ministers of Finance Part 1. Accessed on 26 September 2020 at: www.un.org/sites/un2.un.org/files/part_i_ex-ecutive_summary_menu_of_options_financing_for_development_covidl9.pdf.
  • 70 United Nations (2020). Financing for Development in the Era of COVID-19 and Beyond Menu of Options for the Considerations of Ministers of Finance Part I. Accessed on 26 September 2020 at: www.un.org/sites/un2.un.org/files/part_i_ex-ecutive_summary_menu_of_options_financing_for_development_covidl9.pdf.
 
Source
< Prev   CONTENTS   Source   Next >