On the 80th anniversary of the International Monetary Fund (IMF) and the World Bank, we should reflect on what these Bretton Woods institutions have achieved since World War II. In addition to supporting unprecedented levels of global growth and poverty reduction, they have helped address and overcome myriad economic and financial crises.
We now have a responsibility to evaluate their institutional mandates and ensure they’re prepared to address the pressing challenges of the 21st century.
The challenges of global commons, such as climate change, pandemics, and migration, surpass national borders and pose significant hurdles to the current multilateral system. Urgent collective action is essential, particularly regarding climate change. Yet, progress has been too slow.
A recent report by the Bretton Woods Committee’s Multilateral Reform Working Group delves into the reasons behind this deadlock and proposes a way forward. We pinpoint “gaps” in governance, implementation, and accountability in both the public and private sectors. Our analysis underscores the necessity of a comprehensive approach to reform.
We conclude that the IMF and the World Bank are best placed to play a leadership role, owing to their global membership, financial firepower, and weighted voting structures.
The recent G20 Independent Expert Group on Multilateral Development Banks, as well as the Bridgetown Initiative, has drawn similar conclusions. The Bretton Woods institutions need to be further empowered without detracting from their existing mandates.
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In the public sector, there is a gap in governance due to the absence of a coordinating function within the global commons, especially concerning financial and economic policies to address climate change. We propose creating ministerial-level decision-making “councils” at the IMF and the World Bank to fill this gap.
With sufficient political influence, these councils would fill the gaps in the current system. The IMF’s current advisory bodies could evolve into decision-making bodies if empowered appropriately.
Inclusive governance
The proposed councils aim to be more inclusive, granting greater representation to middle- and low-income countries (MLICs). Member states would vote proportionally based on their quota share but individually rather than by constituency, as in the current model. This would facilitate the formation of “coalitions of the willing” to address specific issues.
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Another significant gap in the public sector involves implementation. Despite various ongoing efforts to tackle global challenges, their disconnected nature results in an outcome that is less effective than the sum of its parts. To address this, the Bretton Woods institutions need empowerment to assist middle- and low-income countries (MLICs) achieve national objectives, including expanding green energy, discontinuing coal usage, hastening climate adaptation initiatives, and preserving forests.
The IMF can help shape and assess the fiscal and financial frameworks for adopting and implementing green policies and investments in advanced and developing economies. The World Bank can help finance adaptation efforts, design energy strategies, and introduce financial instruments to facilitate climate-change mitigation in coordination with other multilateral bodies and the private sector. Regional multilateral development banks can expand their role by helping countries de-risk investments in climate-related projects.
The third gap revolves around accountability and impact measurement. Embracing the principle that what gets measured gets done, we propose that the IMF and the World Bank, along with their evaluation arms and partner institutions, initiate systematic reviews of climate financing and implementation plans.
The private sector is vital, as major emissions stem from publicly listed corporations and state-owned enterprises. Climate financing must mainly come from the private sector, including asset managers. The IMF and World Bank can assist governments in implementing standards, practices, and instruments, ensuring private-sector efforts align with global goals.
Filling gaps in the private sector’s current approach will require mandatory global disclosure standards (similar to the International Sustainability Standards Board has proposed) to ensure accurate measures of private entities’ carbon footprints, net-zero goals, and corresponding asset allocations. Mandatory disclosure would provide more accurate price signals to capture the true costs of fossil fuels and foster more public and private sector collaboration.
The IMF could further incorporate such monitoring in its surveillance work. Already a vocal proponent of carbon taxes, the Fund can objectively assess cross-border carbon adjustment taxes’ global macroeconomic and trade implications, the potential international sharing of their proceeds, and how such taxes can complement global carbon markets. Moreover, with the World Bank, the IMF can develop tools to help MLICs respond to these regimes.
Over 80 years, the IMF and World Bank have proven adaptable to global shifts. They must now leverage their strengths to tackle today’s complex challenges, especially climate change, where they uniquely mobilise responses at the required pace and scale.
Both institutions require more funding to meet expanded roles. By addressing governance gaps and improving implementation and accountability in both public and private sectors, they can enhance their impact and attract future capital from shareholders. We urge all 190 member states to gather for the IMF and World Bank Spring Meetings to prioritise strengthening both organisations. — © Project Syndicate, 2024
Joaquim Levy, a former finance minister of Brazil, is Co-Chair of the Bretton Woods Committee Multilateral Reform Working Group and a former chief financial officer at the World Bank Group. Axel A. Weber, Co-Chair of the Bretton Woods Committee Multilateral Reform Working Group, is a former chairman of UBS Group and president of the Deutsche Bundesbank. Siddharth Tiwari, principal author at the Bretton Woods Committee Multilateral Reform Working Group, is a former senior official at the Bank for International Settlements and the International Monetary Fund
