An immediate call for a second Bretton Woods

The world is facing an existential threat in the shape of climate change crisis, with one of the main outcomes in the shape of a likely Pandemicene crisis – where Covid pandemic unfortunately may just be the first of more pandemics to follow.

While this requires a truly global effort, with a unified policy response that encompasses an economic, environmental, and epidemiology aspects all working together, four decades of neoliberal policy working in most countries of the world, and in the policy inclination of the Bretton Woods institutions – International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO) – resulted in wide cracks in policy in terms of providing economies that were resilient enough to effectively deal with existential threats – for instance serious lack of preparedness to deal with vaccine related issues when Covid hit – and also were significantly oriented towards inclusivity, more equitable income distribution, and greener growth.

The Bretton Woods institutions, sadly, have become more of a problem than providing solutions and finances. Since, Regan-Thatcher neoliberal policy emphasis led to limiting the role of government, and reducing regulations over markets, and later on under WTO’s over-protection of private interest – especially of rich, advanced countries through bringing into effect unnecessarily high intellectual property rights walls, even when most research in development of information technology or pharmaceutical industry came from public funds, that is from taxpayers’ money – all resulted in diminishing influences of weaker countries at the multilateral level, and of mostly everyone who did not belong to the high income groups at the country-level, on multilateral- and public-policy respectively.

When the Global Financial Crisis of 2007-08 hit, and the reason why it hit, which was basically short-term profit motive directing banks to make risky loans, and the combination of socializing the risks, and bailing out the ‘too-big-to-fail’ private interests by governments, while austerity was imposed that fueled economic misery for the most in the economies. At the multilateral level, institutions like IMF, World Bank, and WTO remained persistent with the same ‘Washington Consensus’, neoliberal-styled pro-cyclical, austerity policies.

Hence, not only did inequality increase in the ensuing decade, economies became increasingly less resilient, which became all the more evident in the lack of commitment shown by rich countries and multilateral institutions, including World Bank, in emphasizing upon the high level of effort needed to fight climate change effectively.

Later on, when the Covid pandemic hit – which happened also as a major consequence of climate change, and years of neglect of public health policy, including lack of it at the level of World Health Organization (WHO) to adequately respond to the rather oft-appearing coronavirus epidemics since early 2000s – public health systems, and financial architecture – especially in terms of effectively producing Covid vaccines, and providing them equitably to countries, and in terms of up-to-date debt relief/restructuring frameworks, and adequate availability of finance/special drawing rights (SDRs) for the global South – were too inadequate to properly safeguard life and livelihood.

Sadly, as the pandemic recedes, and as climate change crisis enters a critical stage, whereby the window of opportunity to effectively deal with it is fast-closing, the Bretton Woods institutions have not really come to show any meaningful reflection, and a sense of purpose for change.

A recently published note by the Boston University’s Global Development Policy Center on a report ‘The International Monetary Fund, climate change and development: a preliminary assessment’ assessed the approach of IMF with regard to climate change and development, and pointed out: ‘However, the report finds that, while modest progress has been made, the IMF must show greater leadership on climate change and development in three key areas: 1. Multilateral surveillance activities have adopted a “one-size-fits-all” approach with carbon pricing as a panacea for climate action. 2. Bilateral surveillance activities are underestimating the macroeconomic implications of financing climate transitions in a financially stable manner. 3. The IMF lending toolkit lacks appropriate scale and overemphasizes short-term fiscal consolidation over long-run resource mobilization.’

Moreover, with regard to a lack of financial support provided by IMF, for instance, a recent Guardian published article ‘IMF calls for “another Gleneagles moment” on debt relief and aid pointed out: ‘At the Gleneagles summit 18 years ago, the G8 group on industrialised countries agreed to double aid to Africa and announced a comprehensive package of debt relief. Selassie said something similar was now required.

The IMF official said that even before the pandemic it looked like a “tall order” for low-income countries in Africa to meet the UN’s 2030 sustainable development goals. Now recent shocks – Covid 19, higher inflation and the war in Ukraine – had made the situation “very difficult”.’

Indeed, a similar situation of constraint in a number of other countries in the global South facing constrained fiscal space, and difficulties with regard to increasing level of debt, a difficult balance of payments situation, and climate finance needs – especially for net oil importers, and highly climate vulnerable countries like Pakistan –all require ample finance, including for instance special drawing rights, and climate finance, and highly considerate debt restructuring/relief policy.

An April 13, Guardian published article ‘Wealthy west has little excuse after finally waking up to global debt crisis’ pointed out: ‘After a decade or more in which they have been obsessed with their own problems, countries in the wealthy west are starting to wake up to the risk of a looming debt crisis in poorer parts of the world.

The managing director of the IMF, Kristalina Georgieva, has been particularly keen to stress the need to assist struggling countries while there is still time. “I would like to make a double plea on their behalf: help them handle the burden of debt, which was made so much harder by the shocks of the past years; and secondly, help ensure that the IMF continues to be in a position to support them in the years ahead,” she said in a speech before this week’s gathering [at IMF/World Bank Spring Meetings in Washington].’

Unfortunately, however, there is a yawning gap between words and actions from rich, advanced countries, and multilateral institutions. The same article pointed out: ‘At the start of the pandemic, there were initiatives to help the most vulnerable countries.

Debt repayments were temporarily suspended, the IMF announced a $650bn (£520bn) allocation of special drawing rights (SDR) – effectively a global form of quantitative easing – and a common framework to provide speedier debt relief was set up.

Debt payments have resumed, while most of the SDR allocation went to wealthy countries that had no need of it. Meanwhile, the common framework has failed to live up to its promise, with only one country – Chad – so far receiving any debt relief.’

World Bank, on the other hand, has also come under serious criticism, particularly in recent times due to a lackluster attitude of its outgoing president, given his remarks indicating a lack of link between fossil fuel and climate change, and overall due to a weak emphasis of World Bank lending towards green projects.

But the slow progress towards both a much-improved spirit of multilateralism, and needed reform in the Bretton Woods institutions has led important global voices like that of the PM of Barbados, Mia Mottley, and of noted economists like Kevin P. Gallagher to actively move for change in this regard.

Indeed, the moment for another Bretton Woods has been overdue for a number of years now, and given the fast-unfolding climate change, and the increasing likelihood of Pandemicene crisis, it is highly important that it is initiated at the earliest possible.

Copyright Business Recorder, 2023