Tejiendo alianzas para el futuro entre la Uni ó n Europea y Am é rica Latina y el Caribe

CIDOB briefings 59 from April 2024 highlights the United Nations Secretary-General's initiative for a summit to approve a 'Pact for the Future'. This is aimed at addressing three strategic topics: transformation of the international financial architecture and funding for development, digital transition, and the Declaration on the Future Generations.

1. International Financial Architecture & Development Financing Deficit: The existing global financial system has struggled to effectively address economic, financial, energy, and health crises over recent decades. The current financing mechanisms are insufficient for tackling the challenges posed by the development agenda. Many countries face record levels of debt, hindering their ability to fund economic and social policies that drive development agendas. This is largely due to vulnerability to crises. The urgent need to address immediate issues and limited fiscal space prevents funding essential political reforms. Both Latin America and the Caribbean (ALC) and the European Union (EU) are vulnerable to financial instability, facing challenges with regional alliances and tools.

   • Debate on Institutional Reforms: There is a discussion around necessary institutional reforms to address financial crises and strengthen a safety net for the most vulnerable countries. The International Monetary Fund (IMF)'s functioning, particularly its quota system, has been questioned. The 2010 reform did not significantly change voting power distribution. The next opportunity for the IMF to adjust country quotas will be in 2028. The system reinforces historical inequalities, with the majority of Special Drawing Rights (SDRs) allocated to the wealthiest countries. The Declaration from the EU-CELAC summit in 2023 acknowledged the need to strengthen collaboration in international financial institutions and increase the participation level ensuring representation for developing countries. The draft zero of the Future Pact calls for reforming the international financial architecture and modernizing it to reflect the current world reality. However, there is no concrete proposal for a coalition aiming to increase the representation of ALC countries in financial institutions similarly to African leaders' success in securing a seat in the G20 and a third seat for Sub-Saharan Africa in the IMF executive board. In 2024, during Brazil's G20 presidency, discussions will include demands for more effective and equitable representation in financial institutions. However, lack of regional cooperation means ALC proposals for reforming the financial architecture do not reach the international agenda for the Future Summit.

2. Debt Sustainability: There is international consensus on the importance of strengthening the safety net for countries most vulnerable to climate change and natural risks. The Bridgetown Initiative, proposed by Barbados, covers debt reform, liquidity support, trade, and governance. The EU-CELAC agreed to closely follow these initiatives, but given current historically high levels of debt, questions about sovereign debt management have remained absent, as countries with such issues do not generate systemic risks. Most external debt is held by private creditors, with banks acting as primary sources of resources for countries without access to credit markets. There is consensus that multilateral banks should align their policies with the realities of developing countries. The Paris Pact for People and Planet, adopted in June 2023 and supported by 35 governments from Africa, Asia, Europe, and Latin America, requested accelerated debt suspension and better coordination among multilateral development banks to mobilize low-cost loans, considering the needs of developing countries to handle financial crises.

   • Debt Reform Proposals: The draft zero of the Future Pact mentions the need for proposals to formulate concrete recommendations for debt reform. The Fourth International Conference on Financing for Development in 2025 aims to discuss this. However, some countries warn against linking development financing to governance reform inadequately. The creation of a binding, multilateral UN legal framework on debt that ensures substantial debt cancellation seems necessary to restructure current imbalances without compromising development. However, it is not part of the negotiating proposals in the Pact. It is included in the agenda for the World Summit on Development Financing planned for 2025 and should receive more concrete proposals.

The main focus is on transforming the international financial architecture to ensure sustainable development, promoting digital transitions, and protecting future generations through comprehensive strategies that address debt sustainability, equitable participation in international financial institutions, and improved governance practices.