The recent crises in the world have exposed fundamental weaknesses in the global order that has been in place since the end of the Second World War. That, in essence, was the thesis behind this year’s Babacar Ndiaye lecture, which was held on the sidelines of the International Monetary Fund and World Bank meetings in Washington in October.
The lecture, an initiative of the African Export-Import Bank (Afreximbank), was held under the heading “The Developing World in a Turbulent Global Financial Architecture”.
This year’s guest lecturer was Mia Mottley, prime minister of Barbados, a superstar of development causes and great advocate and supporter of the global South. She called for the global financial architecture to be reconfigured completely to reflect the needs and participation of countries in the Global South.
The cycle of aggressive interest rate increases by systemically important central banks in response to surging inflation has aggravated macroeconomic management challenges, dramatically increasing debt-servicing costs and raising the spectre of a debt crisis in the global South.
The combination of crises – or “poly-crises” as Mottley called them – is set to hit the poorest people in the world most. While the World Bank predicts that 97m people will be pushed into extreme poverty, Oxfam estimates that the figure could rise to 263m.
International system disadvantages Africa and Caribbean
The current system operates to the disadvantage of Caribbean and African nations, said Mottley. Their unique circumstances are not accounted for in the decision-making of major financial institutions, but they are nevertheless affected drastically by those decisions.
“The global financial architecture was never designed for us. It was designed when we were still colonies… we were not seen, we were not heard, we were not felt,” she said.
These structures must be reoriented as a matter of fairness and to reflect the growing role that countries in the Global South play in the world economy, she argued.
She said global institutions must be reminded of their founding mandates – and seek to fulfil their original purpose in a way that benefits lower- and middle-income countries, which are currently facing severe challenges.
She outlined a set of recommendations for reforming the existing international financial system to better reflect the challenges of our time while concurrently creating the conditions for a process of globalisation that serves all.
Among some of the recommendations, many of which are part of her Bridgetown Initiative, she called for a suspension of temporary surcharges by the IMF on its loans, which further raise the debt burden at a time when rising interest rates are exacerbating the fiscal incidence of sovereign debt.
The prime minister also called for a reallocation of unused special drawing rights (SDRs) issued by the IMF, to ease liquidity constraints in the Global South; the development of new financial mechanisms and facilities for food and agriculture, clean energy, and climate change adaptation in response to emerging global challenges; and the capping of debt-service payments to a certain percentage of exports.
Increasing long-term financing and longer-maturity loans to support economic development and structural transformation in low-income countries was also necessary, she argued.
Benefits of long-term financing
To underscore the benefits of long-term financing, the prime minister highlighted examples from Britain and Germany in the 20th century.
“No one was told then – certainly not Britain – that they could not issue long-term bonds. In recognition of the fact that they could not, on their own admission, afford to fight the war with debt and to reconstruct the country with debt, in 1914, Britain issued bonds to fight the war.
“It issued them again in 1917. And when it realised that it would be unable to rebuild the country, it then determined to issue a single bond in perpetuity in 1922 which it was only able to repay in 2014.
“These are the things that we must be talking to one another about and sharing with our population. And if you thought that was a singular episode, you ask yourself: how did Germany receive the compassion and the space to be able to rebuild its country after World War II? By being given the opportunity to cap its debt service at, I believe, 5% of its exports.”
Building bridges between Africa and the Caribbean
She also tasked countries in Africa and the Caribbean with expanding their own capacity, through creative linkages that will enable them to fund and execute projects. In that context, she praised Afreximbank for recently convening the inaugural AfriCaribbean Trade and Investment Forum, which she said provided an opportunity to build these bridges.
“The presence of Caribbean banks in Africa and African banks in the Caribbean is one example of how economic bonds can be built and cemented,” she said.
Mottley highlighted the benefits associated with the emergence of digitalisation and new technologies, encouraging leaders in Africa and the Caribbean to prepare young Africans for rising development challenges by investing in artificial intelligence, information technology and cybersecurity.
She also spoke of Barbados’ will to establish a presence in more African countries. “At the moment technology offers us the opportunity to have greater presence in each other’s countries. We must not just rebuild the air and sea bridges, not just reclaim our Atlantic destiny – there are practical ways in which we can work together,” she said.
She ended with a clarion call for unity: “I ask us tonight that the one way out of turbulence is to hold hands and to support each other – hold hands in justice and hold hands in solidarity.”