Multilateral Development Bank (MDB) Reforms
Context:
The G20 independent expert group has expressed disappointment over the slow and limited progress on multilateral development bank (MDB) reforms recommended during India’s G20 presidency, stating that implementation has been inadequate and lacks the urgency required.
The G20 Independent Expert Group (IEG) was established under India’s G20 Presidency to provide recommendations aimed at strengthening Multilateral Development Banks (MDBs).
More on News:
- In a report card titled “An Incomplete Grade”, the group highlighted that while MDBs have initiated some reforms, including expanded use of guarantees, major shareholders have not provided sufficient support or resources to fully meet the reform goals.
- The report noted that the mobilisation of private capital remains incremental, with only $70 billion secured last year—far below the transformation needed.
- Despite an increased mandate, MDBs have achieved only a 30% expansion in lending capacity, falling short of the necessary tripling.
- The expert group’s previous recommendations called for $3 trillion in annual spending by 2030 to meet global goals, alongside a $100 billion increase in MDB equity and tripling concessional finance for the poorest nations.
Need for Multilateral Development Bank (MDB) Reforms:
- Changing Global Context: MDBs were established in the aftermath of World War II primarily to support reconstruction and development. However, the current global landscape presents new challenges, including climate change, rising debt levels, and the need for sustainable development that these institutions were not originally designed to address.
- Inadequate Financial Resources: Current funding levels are insufficient to meet the needs of developing countries. Estimates suggest that MDBs need to significantly increase their lending capabilities—up to $300 billion annually in regular lending and $90 billion in concessional loans by 2030—to effectively support development and climate goals.
- Inefficiency in Mobilising Private Capital: MDBs currently mobilise only about $0.6 in private capital for every dollar they lend. There is a pressing need to enhance this ratio to at least $1.5 per dollar of MDB lending, which requires innovative financing mechanisms and better engagement with the private sector.
- Need for Enhanced Mandates: The scope of MDB operations should expand to address global public goods (GPGs) such as climate stability and biodiversity. This includes adopting a triple mandate that focuses on eliminating extreme poverty, enhancing sustainable lending, and creating mechanisms for flexible engagement with investors.
- Fragmented Global Financial System: The existing financial architecture is complex and fragmented, making it difficult for developing countries to access necessary resources efficiently. Reforming MDBs can help streamline processes and improve coordination among financial institutions.
New International Economic Order (NIEO)
It emerged in the 1970s as a set of proposals advocated primarily by developing countries to address the inequities of the existing global economic system, which they argued perpetuated colonialism and dependency. The NIEO sought to transform international economic relations and promote development through a more equitable and cooperative framework.
Key Principles of the NIEO:
- Sovereign Equality of States: The NIEO emphasised the sovereign equality of all nations, advocating for non-interference in internal affairs and the right of countries to determine their own economic and social systems.
- Control Over Natural Resources: It called for full sovereignty over natural resources, allowing states to manage their resources without external interference, which was seen as crucial for development.
- Equitable Trade Relationships: The NIEO sought to establish just and equitable relationships between the prices of raw materials exported by developing countries and those exported by developed countries. This included proposals for international commodity agreements to stabilise prices.
- Increased Development Assistance: There was a strong emphasis on enhancing bilateral and multilateral assistance to promote industrialisation in developing countries, including financial resources and technology transfer.
- Economic Cooperation Among Developing Countries: The NIEO encouraged greater cooperation among developing nations to foster self-reliance and collective bargaining power in international trade.
The Addis Ababa Action Agenda (AAAA), adopted during the Third International Conference on Financing for Development in July 2015, outlines a comprehensive framework aimed at addressing the financing needs for sustainable development. Key Components of the Addis Ababa Action Agenda include: Mobilisation of Domestic Resources, Private Sector Engagement, Official Development Assistance (ODA), Global Infrastructure Investment, Social Protection Systems, Combating Illicit Financial Flows, Sustainable Debt Management and International Cooperation.
Historical Context:
The NIEO was formally recognised with the adoption of the “Declaration for the Establishment of a New International Economic Order” by the United Nations General Assembly in 1974. This declaration highlighted the need for urgent measures to address economic imbalances between developed and developing nations, particularly in light of the decolonisation process that had gained momentum post-World War II.
Proposed Reforms:
- Reform of International Trade Rules: Overhauling existing trade rules, especially concerning raw materials and food, to better reflect the needs of developing nations.
- Monetary System Reform: Modifying the international monetary system to align with developmental needs, ensuring that financing mechanisms support growth in developing countries.
- Technology Transfer: Establishing incentives for technology transfer from developed to developing nations as a means to support industrialisation efforts.
- Debt Forgiveness: Advocating for debt relief for developing nations burdened by unsustainable debt levels.
Legacy and Continued Relevance:
Although many aspects of the NIEO have not been fully realised, its principles continue to resonate in discussions about global economic governance. The 2018 United Nations resolution “Towards a New International Economic Order” reaffirmed the need for an economic framework based on equity, cooperation, and solidarity among states. The ideas encapsulated within the NIEO remain relevant as developing countries continue to seek fairer terms in international trade and finance amidst ongoing global inequalities.
