The journey from Buenos Aires to Nairobi then Colombo is almost 15,300 kilometers — but Argentina, Kenya, and Sri Lanka have more in common than you might think.
All three countries are experiencing the adverse effects of IMF-induced austerity policies on their societies. The similarities don’t stop there: their national situations are inextricably linked with the difficulties the international financial system imposes on all poor and developing countries.
Charles Abugre is the executive director of International Development Economics Associates (IDEAs), an organization that has brought together leading critical economists from Asia, Africa, and Latin America in Rio de Janeiro. He highlights the collective effort to address the challenges Global South countries face in the international financial system. Unity and solidarity, he says, are crucial in the fight for a just system.
Between a talk at the University of Rio de Janeiro and a visit to Brazil’s National Bank for Economic and Social Development, Abugre spoke to the Herald about why Global South countries must address these issues together.
What are the objectives of this year’s conference? Why Latin America?
Why Latin America? Because of the sense of hope that Lula’s second coming offers to multilateralism. There have been many more progressive governments in Latin America in recent times than in other regions of the Global South. That offers the opportunity to revive multilateralism and the sense of a growing atmosphere for collective action, especially for equitable development, social development, and care for the planet.
Brazil, in particular, is hosting the G20 presidency and is an active member of the BRICS. These countries are all at the center of thinking of new multilateralism. Therefore, the objective is to draw from the analytical perspectives and experiences of great Global South intellectuals to think about reforming the international financial system. The reform is at the heart of how countries finance development in a way that addresses social questions like equity and equality, human rights, and care for the planet: climate change, biodiversity protection, and environmental protection in general.
So, we want to focus on how that system can be reformed to deliver the objectives of living in peaceful, equitable, green, and socially harmonious wealth. And on how that financial system reform also expresses itself in the genuine multilateralism we believe is necessary.
Why discuss reforming the international financial architecture from the Global South’s perspective?
The dominant international architecture was formulated mainly by the victors of the First and Second World Wars. They shaped the institutions to deliver a system that basically fulfills the interests of the dominant victor, which is the United States and its partners.
The Bretton Woods system created an inherently inequitable system, in the sense that Global South countries were assigned a marginal role. They have become mere recipients of the implications of the system.
The world economy has changed, population and demography have changed, and technology has shifted in terms of dominance. And yet, the rules of the system, mostly reflected by the Bretton Woods institutions, are not changing. For example, the IMF’s quota system was created to define not only how much access a country can have to finance, but also their decisions about how the system works. Eighty-five percent of the vote is the minimum needed to pass a reform or decision. That means the US alone has veto power, because its quota share is 16.5%. And the US and its allies in Europe dominate the IMF. But if you put these economies together, they no longer represent the largest share of the global economy.
The global economy is now dominated by Global South countries, largely the BRICS and BRICS+ countries. The resources for new technology and for driving growth are also largely in Global South countries. Therefore, in terms of economic size, demographic shifts, and resource control, the majority is in the Global South. Yet, the IMF quota system has refused to respond to these changes. The quotas were last reformed in 2008. Sixteen years later, the global economy has fundamentally changed, but the backbone of the international financial system, the IMF, remains dominated by a minority of the global economy.
Also, enforcement of these roles, primarily by the industrial-military complexes, mainly of the US and its allies, is now struggling for technological dominance. However, the relative decline in influence is also reflected in the desperate process of maintaining this unipolar world, reflected in unnecessary wars and tensions worldwide. So, it would seem that attempts to reform the system to allow for peaceful, global, equitable progress are seeing resistance, mainly through violence. Non-violent visions of global system reform must be articulated, and this needs to be articulated from the Global South because it’s also the global majority.
Furthermore, the international trading system is no longer regulated by international law in a manner that provides fair outcomes. It is falling apart as a multilateral mechanism, and has been substituted by unilateralism, expressed through economic sanctions. And those economic sanctions would be enforced by the industrial-military complex of the U.S. and its allies. Therefore, it is important to rethink the global trading system and how it can be reformed to reflect the global economy, but also to build equitable development in all parts of the world. That thinking is best led from the Global South.
What is the role of the IMF?
One of the manifestations of the system’s failures is the growing levels of external indebtedness, which is heavily punishing poorer countries and constraining growth. The IMF is used to enforce debt restructuring, basically saving the interests of private finance and unipolar structures. We must rethink how the international debt system is managed and structured. Part of our conversation is about how you envision an international financing system that does not leave the burden on countries with deficits, such as developing countries. The burden should be shared between countries with deficits and those with surplus countries in a way that’s fair and equitable.
That would mean a system for resolving debt that allows the global economy to grow smoothly and allows poorer countries to access capital and technology to transform. This is important for Africa, where I come from. This region is more or less the last in the process of economic transformation. It needs favorable international conditions in order to grow, absorb technology, transform its economies, improve social wellbeing, and protect the environment. If the system is not reformed for fairness and equity, places like Africa have very little chance of emerging and transforming. They will simply become the victim of big power politics, militarization, sanctions, and new colonization.
What relationship do you see between the debt crises in African and Latin American countries?
There are many experiences that, for example, Argentina and some debt-ridden countries in Africa share. One is the dominance of commodities in the economy. These types of export baskets face great volatility. In the best conditions, if international commodity prices keep fluctuating and also face a circular decline in trade, as Prebisch put it, addressing current account problems becomes increasingly difficult. You constantly have to resort to capital markets to address the current account deficit. There’s no other mechanism to balance those deficits without the economy going into recession, unless you borrow.
Many African countries have entered global capital markets over the past two decades. However, in that time they have experienced the same problems as Argentina, partly because of this continuous current account crisis.
We need to rethink and reduce reliance on foreign exchange debt by poor countries. This means thinking about ways of financing development that reduce that foreign exchange dependency.
What proposals should Brazil put forward during its G20 presidency?
One is to put the global equity and equality agenda back on the table, which means some emphasis on social development and social policy. Of course, that’s not surprising, given Lula’s history in this area.
The second is this reform of the international financial system, such that it is fair, produces equitable outcomes, and does not facilitate environmentally destructive investment. So, it is closely linked to the climate change agenda.
But as you can see, Brazil’s place is not only the G20. The G20 offers a link to have this conversation with Global North countries, so, it’s an important platform. But it can have this conversation partly also because of its role in the BRICS. So, in a sense, the attempt to build consensus and take that consensus into the broad agenda where the larger economies, including China and India, can have a common position that reflects developing countries’ position, makes the conversation in a space like the G20 useful and powerful.
