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Indonesia reiterates call to reform global financial system

Jakarta Post - September 25, 2023

Yvette Tanamal and A. Muh. Ibnu Aqil, Jakarta – As wealthy nations were held to their unfulfilled promises during a dialogue on Wednesday at the 78th United Nations General Assembly (UNGA) in New York, Indonesian delegates reiterated their support for reforming the international financial architecture, describing the current system as long outdated and unsuitable.

Indonesia voiced its support amid louder and wider calls from developing nations for a revamp of some of the world's most important financial institutions and their governance as the gap between developed and developing nations continues to deepen.

The quadrennial High-Level Dialogue on Financing for Development was held on Wednesday as one of the most important sideline events, where nations worldwide discussed financing flows, including funding for sustainable development.

Among the hot topics at the dialogue were financing gaps, rectifying the vulnerability of developing nations to getting caught in debt crises and a "new Bretton Woods moment", as described by UN Secretary-General Antonio Guterres.

The Bretton Woods monetary management system was established after World War II in 1944 to bring stability to the international currency exchange rate via its institutions, most prominently the World Bank, the International Monetary Fund (IMF) and the World Trade Organization (WTO).

While the system reportedly dissolved between 1968 and 1973, according to the IMF website, it was criticized over the decades for its perceived bias favoring select countries, and its impact continues to linger today.

"The current global economic order [is] a remnant of a post-war architecture which benefits mostly industrialized countries. [...] Bretton Woods institutions should be reformed," Foreign Minister Retno LP Marsudi told Wednesday's dialogue.

The minister said it was only by "rectifying" the situation and creating a "conducive" environment that the Global South could develop and advance the Sustainable Development Goals (SDGs), which had made sluggish progress thus far.

"We need breakthroughs to fix the global economy to be more representative of the voice and the interests of developing countries," Retno said.

Through the hundreds of meetings taking place at the UN headquarters this week, the Indonesian delegation has tirelessly campaigned for the Global South's "right to develop", the right to downstream industries and an end to "trade discrimination".

Jakarta is currently appealing a WTO decision over its nickel export ban earlier this year that ruled in favor of the European Union, which Indonesian officials have described as a form of economic imperialism meant to stifle the growth of developing nations.

Indonesia's frustration toward the global financial system is strongly shared by other developing nations like Cuba, this year's rotating chair of the Group of 77 (G77) developing nations, which has been under trade sanctions from the United States for the past 61 years.

Unpaid dues

Debts and unfulfilled pledges were also in focus on Wednesday, with developing countries demanding their wealthier counterparts to fulfill their financing commitments and pushing for global debt restructuring. A proposed US$500 billion annual stimulus package for sustainable development was another highly discussed subject.

Guterres said on two different occasions at Wednesday's dialogue that "developed countries must make good on their finance commitments to developing countries, including on climate", and that climate finance "is an obligation and part of reparations for historical and continuing harms and injustices".

While the US and the EU have pledged billions of dollars in climate financing for developing countries to transition away from fossil fuels and other environmentally harmful practices, little to none of these pledges have been met. This includes the $20 billion Just Energy Transition Partnership (JETP) that developed countries promised to Indonesia last year.

In May, Jakarta's top officials vented their frustration over the situation, with Coordinating Maritime and Investment Minister Luhut Binsar Pandjaitan asking "where the money is", in a snub against the US.

Proposed solutions

Indonesia, which tends to not overly rely on aid from wealthier nations for development financing, highlighted the need for "innovative financing" in which public-private partnerships played a more significant role.

Among its suggestions was "blended finance" composed of various instruments, including green sukuk, or sharia-compliant bonds, and SDG bonds.

"Governments, the private sector and international institutions must join hands in promoting partnership for the SDGs," Retno said.

Indonesia should try to come up with more concrete ideas, as other countries might try to steer the reform to suit their own interest, to make sure the changes to be more inclusive, according to Center for Strategic and International Studies executive director Yose Rizal Damuri.

The reform would be a tough task; it is therefore necessary for rich and developing countries to work together to realize it, Josua Pardede, chief economist at publicly listed lender Bank Permata, said.

"Developing countries should use their diplomacy to harness regional partnerships, build strategic alliances and become involved in multilateral dialogues to push for their interests," he continued.

Yet the idea of issuing bonds to deal with climate change or advancing the SDGs could prove unpopular with other developing nations, as some are demanding that wealthier nations, which they say are collectively responsible for the majority of global emissions, be held accountable for their actions.

"No country should have to pick between fighting global warming or fighting poverty or hunger," Brazilian Environment and Climate Change Minister Marina Silva said at the Climate Ambition Summit on the same day. "This is a false dilemma."

Source: https://asianews.network/indonesia-reiterates-call-to-reform-global-financial-system