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Bretton Woods policies lead to 'wider' global inequalities, high debt levels

By Maju Varghese* 

The Spring Meeting of the World Bank and IMF, held from April 15-20, marks the commencement of celebrations for the 80th anniversary of the Bretton Woods Conference, aimed at rebuilding the world in the aftermath of world wars and the Great Depression. While the vision and mission of the World Bank and IMF, commonly known as Bretton Woods Institutions, have evolved from wartime reconstruction to eradicating poverty, achieving shared prosperity, and now addressing the imperative of a liveable planet, the institutions have failed to bring about substantial reforms, including governance reforms and rectifying the existence of unbalanced shareholder systems.
Eight decades after the establishment of the international economic order, the world still faces deep crises marked by widening inequality and high debt levels, with policies prescribed by the Bretton Woods institutions failing to foster shared prosperity. The institutions themselves remain stuck in their past, with no substantial reforms in their governance structure despite ‘high-level reports’ with a lack of political will to adapt to changing realities.
Talks of reform appear to be primarily stuck in superficial changes in language and peripheral reforms prompting the Intergovernmental Group of Twenty-Four (G24), consisting of middle and emerging economies, emphasizing the need to address the underrepresentation of emerging markets and developing economies in the IMF's governance structure, which continues to undermine the organizations' legitimacy and credibility.
Despite paying lip service to reforming the institutions, they persist in prescribing the same recipes of liberalization and austerity measures instead of addressing structural problems. An analysis by Oxfam International revealed that 60% of countries receiving loans or grants from the IMF and World Bank are experiencing high or increasing income inequality. This is partly due to policies propagated by these institutions, which exacerbate the gap between the rich and the poor. 
The World Bank's own report acknowledges a historical reversal of development, with half of the world's 75 poorest countries experiencing widening income gaps with the wealthiest economies for the first time this century. The disparity between per capita income growth in the poorest countries and the richest has widened over the past five years. The World Bank itself views this as a very serious structural regression, sounding alarm bells for the world.
According to the Global Sovereign Debt Monitor, the global debt situation is critical. In 130 of the 152 countries surveyed in the Global South, the debt situation is at least slightly critical; in 24 of these countries, it is very critical. Overall, 55% of the countries surveyed are critically or very critically indebted -- contrasting with only 37% before the COVID-19 pandemic. 
The countries in the Global South will have to make more debt service payments to their external creditors than ever before—a 10% increase compared to the previous record in 2022. For 45 countries, more than 15% of government revenue is being spent on servicing their debt.
According to the World Bank Chief Economist, the G20 Common Framework for Debt Treatment, designed to assist with debt restructuring beyond the Debt Service Suspension Initiative, failed to provide a single dollar of new money. More than half of the 75 countries were ineligible for concessional finance from the World Bank and are in distress or close to it. The World Bank and IMF have failed to cancel debt from poor countries. 
60% of countries receiving loans or grants from the IMF and World Bank are experiencing high or increasing income inequality
In fact, the IMF imposes significant surcharges, akin to penalty charges imposed by banks, on countries with large borrowings from the IMF that are not repaid within a relatively short time. IMF surcharges have become the Fund’s largest source of revenue, accounting for almost half of revenues from the beginning of the COVID-19 crisis through the end of 2022. The IMF estimates that borrowing countries will pay over $4 billion in extra surcharges on top of interest payments and fees.
Lawrence Summers and NK Singh, co-conveners of the Independent Expert Group constituted by the G20, discuss a different transfer—the transfer of resources from the Global South to the Global North through escalating interest payments and repayments of bonds and loans. According to them, nearly $200 billion flowed out of developing countries to private creditors in 2023, eclipsing the increased financing from international financial institutions. 
Summers and Singh state, "Billions to trillions," the catchphrase for the World Bank’s plan to mobilize private sector money for development, has become "millions in, billions out." According to, global net financial transfers to developing countries have fallen to their lowest level since the Global Financial Crisis. Debt service repayments to official and private lenders have surpassed external inflows to governments. 
It is estimated that financial transfers to developing countries have fallen from their peak of US$225 billion in 2014 to US$51 billion in 2022, and it is projected to decrease by over US$100 billion in the next two years. This means that US$50 billion will flow out of developing countries in 2024 alone.
The global financial architecture, crafted and enforced by the Bretton Woods institutions in collaboration with their primary shareholder nations, has exacerbated inequality and led to massive debts, while also facilitating the transfer of resources from the Global South. It is imperative to re-examine this framework, including the roles played by multilateral development banks. 
These institutions cannot be trusted to address new challenges, including the climate crisis engulfing the world. A new roadmap is needed to view finance as a public good and to be managed democratically by public institutions. The approach of prioritizing private finance and the "gentleman's agreement" of power-sharing between the US and Europe has run its course. Eighty years is a lifetime; now is the time to bid farewell.
*Director Programs and Operations, 
Centre for Financial Accountability (CFA)



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