Context: 

• The Indian Prime Minister recently expressed concerns regarding the crisis and failure of global governance in multilateral institutions.

More about the news: 

• India recently emphasized the crucial role of the G20 in the reform of multilateral institutions(MI) with a particular focus on the United Nations.
• The climate vulnerable 20 group (V20) emphasized the need for reforms to the world’s international financial architecture to prevent the escalating climate crisis.
• The recently concluded meeting of the G20 working group on trade and investment focused on the important issue of WTO reform. 
• The G20 New Delhi Leaders’ Declaration endorsed the G20 Independent Review of multilateral development banks MDBs Capital Adequacy Frameworks (CAFs).

Need of the Multilateral Institutions:

• Challenges of global nature: Most of the challenges nations face today are global in nature and require global solutions. 
  • Pressing global issues such as conflicts, climate change, migration, macroeconomic instability, and cybersecurity can be solved collectively. 
• Pandemic disruptions: Disruptions such as the COVID-19 pandemic have reversed the social and economic progress that the global society made in the past couple of decades.
  • In 2020, the pandemic resulted in an additional 97 million people falling into poverty.

Emergence of multilateralism:

• The conclusion of the Cold War in the early 1990s set the stage for a flourishing era of multilateralism. 
  • European Union: In Europe, there was a swift progression toward extensive regional economic integration and growth, witnessed by the formation of the European Union. 
  • ASEAN: In Asia, the Association of Southeast Asian Nations played a pivotal role in enhancing regional economic and political collaboration. 

Fading Multilateral Order:

• Crisis of multilateralism: The recent East Asia Summit in Jakarta and the G20 summit display the irreversible crises within the established multilateral order. 
  • It is exemplified by the absence of the Russian President and Chinese President at these summits as well as their escalating conflicts with the rest of the world. 
• Rise in Global conflicts: Russia is entangled in a conflict with Western nations regarding Ukraine, while China faces disputes with several Asian countries, including India, Japan, the Philippines, Vietnam, and the United States.
• China angle: China represents a lasting challenge to multilateralism. 
  • China’s increasing economic strength and military capabilities, to its expansionist actions, steadfast backing of Russia has created significant challenges in Asia and Europe.

Challenges with multilateral institutions(MI): 

• Western Dominated : Most international institutions are primarily led and managed by Western countries. 
  • All presidents in the World Bank Group, from its inception in 1946 to 2023 have been U.S. citizens nominated or selected by the U.S. 
  • Traditionally, the United States has been a major contributor to the annual budgets of the international or regional organizations. 
  • Thus, the leadership of these institutions often aligns with the preferences of the US and its Atlantic allies.
• Failure to uphold principles of multilateralism: Developed nations sidestep or even boycott multilateral institutions in which they are either founding members or active participants.
  • Thus, multilateralism has not failed, rather it is the governments of nation-states that have fallen short in upholding the principles of multilateral cooperation.
• Non merit based selection of the president of the World Bank: There is no open merit-based transparent selection process to appoint the president.
  • The United States selects one of its citizens as the President of the World Bank, while Europe chooses a European to head the International Monetary Fund (IMF).
• Non democratic representation: The United States is the largest single shareholder in the World Bank/IMF, holding 16.5% of voting power. In contrast, India holds a 3.01% share, and China has 5.61%.
  • This raises questions about the democratic representation of the Global South in these MDBs, which India claims to represent. 
  • Nations with greater voting powers are given more weightage in deciding loan amount, grants, policies, projects and direction of the institutions.
• Rise of Protectionist policies: The rise of protectionist policies such as America First, Brexit, etc underscore the threat and crisis of multilateral institutions.

Challenges in reforming  multilateral institutions: 

• Change in current distribution of power: Any effort to reform multilateral institutions and systems inherently involves a shift in the existing power structure. 
• Changing the distribution of global power is a complex and sensitive process that can have significant consequences if not approached carefully.
• Multilateralism against emerging multiplex global order: Multilateralism appears to be in contrast with the emerging multipolar and decentralised global order.
  • This environment facilitates the creation of new groups, alliances, and coalitions among like-minded nations, complicating efforts to reform older institutions.

Way Forward: 

• Establishment of a clear narrative for multilateral reform: To promote this narrative on the global stage, G-20 should create a dedicated engagement group.
  • Current global challenges demand collaborative solutions, but it’s essential to recognize the limitations of traditional multilateral cooperation. 
  • Multilateral platforms often contend with conflicting interests and the dominance of powerful nations.
• Promotion of minilateral groupings: The G-20 should also promote minilateral groupings as a new approach to multilateralism and work on transforming them into multi-stakeholder partnerships. 
• Establishing networks of issue-specific minilaterals, especially concerning the governance of global shared resources, can help prevent the emergence of competitive coalitions leading to a fragmented world order. 
• Taking Cue from G-20: To overcome the trust, legitimacy and utility crises of multilateralism, the world requires a model, and the G-20 can be one. 

• • The G-20 became a world model for inclusivity and trust by providing membership to the African Union as a permanent member
• Decentralised Globalisation/Reformed multilateralism: More diversified and democratic global order with multiple centers of production.
  • The trend of vaccine nationalism, trend of supply chain disruptions with food and other resources moving towards wealthier nations exposes the threats from globalization.
• Developing a multilateral governance framework for plurilateral agreements: It should include key principles of non-discrimination, transparency, and inclusivity in incorporating the results of plurilateral negotiations in the WTO rulebook.

News Source: DTE