Calls for global finance system reform timely

The World Bank Group headquarters building in Washington, DC

The World Bank Group headquarters building in Washington, DC, on April 9, 2023.

Photo credit: AFP

The evolution of the world economy has brought to the fore the need to restructure our global financial architecture to be in tandem with the prevailing global economic landscape.

Indeed, many critics of the major financial institutions, such as the World Bank and the International Monetary Fund (IMF), have opined that developing economies, especially in Africa, are being failed by these lenders.

President William Ruto, for instance, recently told an international forum that there is a need to review the global finance systems and regulations and ensure that they effectively address development economies of continents such as Africa.

During a presidential dialogue in May, the president of African Development Bank, Dr Akinwumi Adesina, outlined the three core areas in which the global financial architecture is failing to effectively address Africa’s issues. These were mainly in the areas of tackling climate change, debt management and conflicts. After my analysis of several discussions on these topics, I feel that the demerits of the current global financial system boil down to lack of inclusivity and accountability.

First is the unfair representation at the Bretton Woods institutions. A widely held view is that voting at the World Bank and IMF is characterised by unfairness or inequality. Prof Jason Hickel, a Fellow of the Royal Society of Arts, posits in a write-up that there are astounding power inequalities in the world economy, the hallmark of it the manner in which the World Bank and IMF chief executives are elected. They are usually nominated by the United States and the United Kingdom, respectively. In fact, there is an agreement that the leaders of the two institutions be from the two countries.

Make more sense

It would make more sense if the institutions were led by development experts from a continent such as Africa since it domiciles most of the poor economies. In setting up the rules of international trade, these Western countries put their own interests at a vantage point compared to the developing world. It is as if these institutions were set up with a colonial mindset which still lives on in them.

Secondly, I would like to think about the structural adjustment programmes that were brought about by the IMF. Their objective was to alleviate poverty by bolstering economic growth and checking the balance of payments. However, they failed to effectively address the issues.

A case in point is Zambia, where, under President Frederick Chiluba, the government implemented a number of SAP reforms, including the privatisation of parastatals. But that only exacerbated its economic woes. Research generally shows that SAPS had a negligible effect on Africa’s economic development.

There is a need to transform global financial institutions so that they can be more inclusive, accountable and able to deal with the unjust perception that Africa has of them. Actually, the most important reform would be in their governance.

Mr Onyango is an economist. [email protected].