Context:

Recently, a report has been published by the Bretton Woods Committee’s Multilateral Reform Working Group (MRWG) on strengthening the Bretton Woods Institutions in order to address the 21st-century global challenges.

More on News:

• This year of 2024 marks the 80th anniversary of the International Monetary Fund and the World Bank. 
• Both these institutions were born of the Bretton Woods conference, held in 1944 as allied nations sought to regulate the international financial order after World War II.

• The spring meetings of the World Bank and the International Monetary Fund (IMF) are being held from April 15-20 in Washington, DC to discuss the progress on issues of international development, debt, economic recovery and climate. 
• The IMF’s mandate is maintaining global economic stability, while the World Bank’s evolved mission is to “create a world free from poverty on a liveable planet”. 

Crucial Insights of the Bretton Woods Committee’s Multilateral Reform Working Group Report:

• Need of Multilateralism: Over the last 80 years, multilateralism led by the international financial institutions (IFIs) has helped in achieving high growth supported by the expansion of globalization in goods, services, information flows, and people-to people exchanges and have benefited large parts of the global population.

• Raised Concerns: 
  • Crises in the Global Commons: These have dominated and had a profoundly negative effect on the world economy. 
    • The effective management of the global commons represents the most significant and pressing challenge facing both national governments and the multilateral institutions.
  • Slow Progress on Challenges Addressal: Despite the agreement that action is needed urgently, substantive progress in addressing these challenges has been slow.
    • Of all the global challenges, climate change is most concerning. 
    • However, technical advances over the past few decades have improved and made more rapid progress to improve the economics of reducing carbon emissions. 
  • Existence of Gaps: There are following substantive gaps that exist in both the public and the private sectors, particularly with respect to climate change:

• Significance of Multilateralism: The World Bank and the IMF, given their global membership, shareholding model, and weighted voting structures are best placed to fill the global leadership role to make progress.
  • Recent global proposals such as the Bridgetown Initiative, G20 multilateral development bank (MDB) reports, and World Bank Evolution Roadmap are evidence that BWIs as well-suited vehicles to address global commons issues. Financial Framework: The World Bank can help with financing adaptation efforts, designing energy strategies, and introducing 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.

Way Forward:

• Coordinated & Timely Action: The focus needs to shift toward coordinating actions that will help set priorities for mitigation and adaptation, and mobilize the requisite financial resources. 
  • There are also various levels of cooperation with other institutions in the system which are working in their areas of comparative advantage—like the OECD, FSB, IEA, UNFCCC, UN-DESA, FATF and others.
  • Timeliness is of the essence, as delays will lead to a bigger rise in global temperatures, more volatile weather, and greater negative social, environmental, and economic consequences.
• Taking a Gap-Based Approach: It can be usefully applied to challenges of the global commons. 
  • The substantive gaps that exist must be addressed.
  • Filling gaps in the private sector’s current approach will require mandatory global disclosure standards (along the lines of what the International Sustainability Standards Board has proposed) to ensure accurate measures of private entities’ carbon footprints, net-zero goals, and corresponding asset allocations. 
• Strengthening the Roles of the Bank and Fund: There is a need to strengthen these institutions, as themselves they have already made determined progress in integrating climate into their missions (e.g., the World Bank’s new mission statement) and operations (e.g., the IMF’s nascent Resilience and Sustainability Trust and its comprehensive climate strategy).
  • The IMF’s two existing ministerial bodies, the International Monetary and Financial Committee and the Development Committee, are currently advisory; but they could transition to a decision-making role. 
• Public-Private Collaboration: Recognizing that the bulk of financing must come from the private sector, these institutions are also best positioned to help governments bring the private sector together around common standards, practices, and instruments to ensure their alignment with global goals. 
  • Example: Corporate actors have demonstrated commitment through the Glasgow Financial Alliance for Net Zero (GFANZ) but could be made more effective by being aligned with a global agenda. 
  • To do so effectively, the BWIs’ institutional mandates need to be augmented, not supplanted, and they need strengthened governance structures, operating models, and financial firepower.
• Creation of the Ministerial-level Decision-making Councils: The new councils would be more inclusive, giving more voice to middle- and low-income countries (MLICs). 
  • Member states would vote proportionally according to their quota share, but they would do so individually, rather than by constituency. This would also enable “coalitions of the willing” to form around specific issues.
  • The BWIs must be empowered to support MLICs as they work toward national goals such as expanding green energy, phasing out coal, accelerating climate-adaptation programs, and protecting forests.
• Adequate Financial Framework: The IMF can help shape and assess the fiscal and financial frameworks according to which green policies and investments are adopted and implemented in advanced and developing economies. 
• More Surveillance: The IMF could further incorporate monitoring in its surveillance work. 
  • It can offer objective assessments of the global macroeconomic and trade implications of cross-border carbon-adjustment taxes, the potential international sharing of their proceeds, and how such taxes can complement global carbon markets. 
  • Moreover, together with the World Bank, the IMF can develop tools to help MLICs respond to these regimes.
• Measurement of Accountability: The IMF and the World Bank’s existing evaluation arms start conducting systematic reviews of climate financing and implementation plans.