UK calls for fundamental reset of global financial system for developing countries

• Foreign Secretary uses World Bank and IMF Annual Meetings in Bangkok to call for urgent reform of the international financial system for developing countries
• UK proposes action on debt facing developing countries, private investment, support for fragile states and resilience to shocks set to be intensified by El Nino
• Ed Miliband says reform is a matter of both values and national interest, helping support prosperity and protect the UK’s security

LONDON, England – On 14 October,  the UK called for a fundamental reset of the global financial system, warning that the current system is failing developing economies and holding back shared global prosperity.

Attending the World Bank and IMF annual meetings in Bangkok as the UK’s Governor to the World Bank, and to support the Chancellor John Healey’s drive for economic growth for the UK, foreign secretary Ed Miliband argued that action is needed on developing countries’ debt, to unlock private investment and help countries withstand climate, economic and security shocks set to be intensified by an El Nino forecast expected to be the strongest in living memory.

In a speech hosted by the Rockefeller Foundation, he pledged to carry the same bold ambition as the UK-hosted Gleneagles Summit in 2005, which secured the most significant action on development for a generation, while acknowledging the constraints of the national and global fiscal context. He set out four priorities for reform: action on unsustainable debt through the multilateral development banks; much greater flows of private investment; a stronger focus on resilience and preparedness; and better approaches in countries affected by conflict and instability.

Foreign Secretary Miliband said reform is a matter of both values and national interest, helping support prosperity and protect the UK’s security. Debt distress, climate shocks and instability prevent countries from investing in jobs, public services and economic growth. Their consequences cross borders, disrupting trade and supply chains, driving up costs and increasing risks to the UK’s security and prosperity.

The foreign secretary argued that far greater ambition is needed across the international system. Developing countries face historically high debt-servicing burdens, while global capital continues to flow overwhelmingly towards richer economies, despite significant investment needs and opportunities elsewhere.

The foreign secretary’s speech is available to read in full on GOV.UK.

In it, he called for:

• Action on debt, working through the MDBs to tackle high debt service pressures by providing longer repayment terms and better rates where appropriate, accelerating restructuring for those requiring deeper relief and freeing up space for governments to invest in jobs, growth and public services.
• More investment for stronger growth, by helping attract more private investment to developing economies. For example, UK support has helped the International Finance Corporation to mobilise over $1 billion of private capital into emerging markets through the London Stock Exchange.
• Better preparation for disasters, with money ready before crises hit, more resilient infrastructure and the option to pause debt repayments after major shocks. Currently only two percent of finance is pre-arranged despite 35 percent of crises being predictable. The UK is collaborating with insurers on this agenda. This year a £25 million investment through UK funding has mobilised over £150m of private finance for climate insurance in low-income countries.
• Faster action in countries affected by conflict, with international organisations working together to coordinate earlier, while simplifying their processes to cut delays.

The UK will put the priorities at the heart of its engagement with international financial institutions.

The foreign secretary stressed that reform must be shaped in genuine partnership and give the Global South a stronger voice in decisions that directly affect people’s futures.

Debt servicing costs are at a 25-year high. In Sub-Saharan Africa, over three and a half times more is spent on debt servicing than education. While many are not defaulting on their payments, they are being forced to default on the lives of future generations.