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architecture

The international financial architecture comprises institutions and treaties or agreements that disburse and regulate global finance. While their actions have a significant influence on developing countries and on the well-being of their populations, most of these institutions are dominated by the world’s major economic powers of the global north. There are also major power imbalances between creditors and debtors. Creditor-dominated institutions are the rule.

In most cases, civil society is not directly involved in decision-making, but it can often influence decisions in one way or another. Some institutions conduct regular consultations or even run multi-stakeholder processes in which civil society organisations (CSOs) such as Eurodad have a seat at the table. CSOs also influence their policy actions through direct advocacy, or by creating public pressure through campaigns. 

Eurodad and its national member organisations in Europe aim to make the international financial architecture work for social justice and equitable development. The means to this end include direct interactions with institutions such as the United Nations, the International Monetary Fund (IMF) and World Bank, and the G8/G20 processes. But Eurodad also puts pressure on national governments that can influence international institutions as their formal members that are endowed with voting rights and represented in their governance bodies.

The United Nations (UN) is a key forum for debate and policy-making for all issues related to development finance. The UN is a global body with nearly universal membership, currently comprising 193 member states. This makes the UN a more legitimate forum to address global issues in comparison to other international institutions. The UN’s ‘one state – one vote’ principle facilitates a relatively strong role for developing countries in decision-making terms.

The UN is hosting the Financing for Development process that led to important international agreements, in particular the 2002 Monterrey Consensus and the 2008 Doha Declaration. These agreements pursue a holistic approach to development finance, comprising domestic resources, private capital flows, export revenue, external debt, official development assistance and the international financial and trade architecture.

Relatively new and ongoing is the Post-2015 process, which aims to develop a successor to the Millennium Development Goals, including the financial goals of the Global Partnership for Development (MDG 8).

Many special organisations of the large UN family deal with development finance. For example:

  • The United Nations Conference on Trade and Development (UNCTAD) develops principles for responsible finance and sovereign debt restructuring
  • The United Nations Development Programme (UNDP) advises developing countries on aid management and development effectiveness
  • The UN Tax Committee is a forum for dialogue on global tax cooperation.  

Eurodad monitors the work of these institutions and often participates in their activities.            

International financial institutions (IFIs) sit at the heart of the global development finance architecture. The World Bank and other multilateral development banks (MDBs) are major sources of finance for developing countries. The International Monetary Fund (IMF) has a crucial function ‘signaling’ which countries receive more funding from both official and private sources. Both tend to attach harmful economic policy conditionalities to the loans they provide.  The IFIs are also advocates of controversial economic policies in developing countries, and they are major providers of technical assistance in areas such as debt management, public procurement or tax systems. These roles yield incredible power for these institutions, which have spread their wings well beyond their original mandates. Governance of the World Bank and the IMF is based on the ‘one dollar – one vote’ principle. This means it is severely skewed towards richer countries that dominate decision-making in these institutions. Eurodad watches the IFI’s policies and lending practices. By organising regular meetings of European NGOs and IFI staff and the European executive directors at the IFIs, Eurodad is a key interlocutor between European development NGOs and the IFIs.

The G8 and G20 processes are key policy- and decision-making forums for issues related to development finance, for financial regulation and for reforming the international financial architecture. The older forum, the G8, was criticised for a long time for being the rich men’s club as it used to comprise the world’s largest economic powers, including the European nations Germany, France, Italy, Russia and the United Kingdom.

Since the beginning of the global financial crisis in 2007, the G20 increasingly replaced the G8 as a major global policy-making forum for financial affairs. The G20 includes emerging economies such as Brazil, Russia, India and China, but it still lacks developing country representation. Low-income countries do not have a say in the G20 process.  

The G8/G20 do not make laws or budgets. However, they are a key place to debate and prepare reform processes that are later implemented by international financial institutions, the UN or at a national level.

Eurodad monitors the G8/G20 processes and interacts with these forums when development finance topics such as aid, private finance, debt or taxes are on the agenda.     

The European Union (EU) provides financial assistance to developing countries in the form of grants and loans. While the European Commission (EuropeAid) is the main grant donor, loans are provided by the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB).

The EBRD lends to countries in Central and Eastern Europe and Central Asia. An expansion to the Southern Mediterranean region is currently being discussed. The EIB is the world’s largest multilateral lender. Its external lending mandates permit operations in basically all developing countries. However, less than 10 per cent of loans go to countries outside Europe.

Both banks have a strong focus on infrastructure financing and increasingly on supporting the financial sector. Their future relevance is expected to increase as the EU’s development cooperation strategy “Agenda for Change” shifts towards providing more finance to developing countries in the form of loans, or to ‘blend’ grants and loans.

The EBRD is owned by its member states, which includes those developing countries where it operates. However, their voting rights are marginal.

Developing countries have no say in the decision-making bodies of the EIB, which is fully owned by the EU member states. This makes it all the more important that civil society organisations watch their operations closely. Together with its partners, Eurodad critically monitors and tries to influence the work of these institutions.