UN Financing for Development: The best chance to democratise global economic governance?

The international financial architecture is in urgent need of reform to support developing economies’ progress, and the forum best placed to realise this aim is the United Nations’ Financing for Development process.

Flora Sonkin and Iolanda Fresnillo

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THE Bretton Woods institutions (BWIs) – the World Bank and the International Monetary Fund (IMF) – are historically known for their lack of democratic governance and accountability. Their shareholder structure skews decision-making power towards Global North countries, their leadership selection is based on an arbitrary gentleman’s agreement between the US and Europe, and they deny international human rights obligations as binding to their operations. Despite their neocolonial structures, the BWIs continue to play an outsized role in shaping the international debt and financial architecture, by being major creditors, global norm setters and policy prescribers to the Global South.

Yet, there is a forum mandated to address global economic governance where each country has an equal say: the United Nations. In particular, the UN Financing for Development (FfD) process constitutes the only inclusive and truly democratic space to advance on the systemic reforms needed to redesign a skewed and dysfunctional international financial architecture towards supporting human rights-centred sustainable development.

Surprisingly enough, both the IMF and the World Bank were constituted as specialised agencies of the UN, but have historically drifted apart from the UN system. They differ on membership and governance, and in contrast to the BWIs, climate change, inequality and human rights are at the core of the UN’s mission.

FfD needs to be made the space for equitable global economic governance

The FfD process has its historical roots in the active discontent of Global South countries about the systemic shortcomings of the international financial architecture and the historical inequalities that define it. The first International Conference on Financing for Development took place in Monterrey, Mexico, in 2002, in the aftermath of the Asian financial crisis. It was an attempt to recover the UN’s voice within the global economic and financial system and resulted in the ‘Monterrey Consensus’, which initiated a process towards coherent, rights-based norms and actions to create policy space for Global South countries to sustainably finance their own development.

Although debt, domestic resource mobilisation and other international economic governance issues are at the core of the FfD agenda, this and other UN processes dealing with global economic reform have been systematically marginalised in favour of the BWIs. For instance, attempts to advance reforms on the debt architecture and financial markets regulation under UN auspices have been blocked by Global North countries. Nevertheless, the democratisation of global economic governance has remained at the heart of the FfD process since the Monterrey Consensus. Civil society organisations (CSOs) and the private sector are recognised as partners in the process, making the FfD a uniquely inclusive space for discussing global economic issues in all their systemic dimensions.

On sovereign debt resolution, for instance, while FfD could offer an inclusive process where borrowing countries have equal voice under the ‘one country one vote’ system and CSOs participate, the IMF and the World Bank push for discussions at creditor-dominated fora such as the G20 or the recent Global Sovereign Debt Roundtable. This is precisely why civil society has been calling for an intergovernmental process to discuss the reform of the international financial architecture and the establishment of a multilateral sovereign debt resolution framework under UN auspices.

Momentum is building on international cooperation to face multiple crises

In recent months, the UN FfD process has regained steam due to two major steps forward: the approval by consensus of a resolution tabled by the Africa Group for an intergovernmental process on tax cooperation at the United Nations, and the momentum building towards the fourth Financing for Development Conference, which seems likely to occur in 2025.

Tax dodging and illicit financial flows, issues which have been raised by developing countries since the inception of the FfD process, cost governments around the world hundreds of billions of dollars in lost tax income every year. It is one of the main structural impediments to Global South countries’ socioeconomic transformation and remains a political choice, with multilateral progress undermined by decades of resistance from the developed OECD economies. The recent resolution offers a concrete opportunity to move towards action on much-needed reforms to the international tax system.

As the BWIs fail to deliver their own transformation in response to the pressing challenges we face today, a fourth FfD Conference has never been more urgent, given the need for structural reform and financing in the context of the COVID-19 pandemic aftermath, 19th-century levels of inequality, increasing social and political instability, and the accelerating climate emergency.

While Global North countries attempt to create separate fora – such as the Finance in Common Summit or the Summit for a New Global Financing Pact – where they can set the agenda and steer the outcomes, the UN FfD process remains uniquely placed to foster policy cohesion on global economic governance and to ensure all countries have a place at the decision-making table in shaping a more just and sustainable global economy.                                 

Flora Sonkin is with the Society for International Development, and Iolanda Fresnillo is with Eurodad (European Network on Debt and Development). This article first appeared in the Bretton Woods Observer (Summer 2023, https://www.brettonwoodsproject.org/publications/summer-2023/) published by the Bretton Woods Project.

*Third World Resurgence No. 356, 2023, pp 14-15