Bretton Woods and UNSC

Context:

During a press conference in Hiroshima, Japan, the United Nations Secretary-General recently advocated for reforms in the United Nations Security Council (UNSC) and the Bretton Woods Institutions. The Secretary-General highlighted that the existing order of these institutions is outdated, dysfunctional, and unfair.

• He emphasized that they have been unable to effectively serve their fundamental purpose as global safety nets in the wake of economic shocks resulting from the Covid-19 pandemic and the Russia-Ukraine Conflict.

Relevance:

GS II: International Relations

Dimensions of the Article:

1. Bretton Woods System
2. United Nations Security Council
3. Issues with the United Nations Security Council (UNSC)
4. Addressing the Issues

Bretton Woods System:

• The Bretton Woods system was established in 1944 to promote stability and cooperation in international monetary affairs after World War II.
• It led to the creation of two significant organizations, the International Monetary Fund (IMF) and the World Bank.
• Although the Bretton Woods System ended in the 1970s, the IMF and World Bank (Bretton Woods institutions) continue to play essential roles in global currency exchange.

The Need for Reforming Bretton Woods Institutions:

• Recent Challenges: While the IMF and World Bank have performed well in their initial years, they have faced difficulties in more recent times due to issues like increasing inequality, financial instability, and protectionism.
• Addressing New Global Challenges: The threats posed by climate change, ecological stress, rising disasters, and an interconnected world with emerging concerns like cyber-security and pandemics require a new international financial architecture.
• Biases and Allocation Issues: There have been concerns about biases in fund allocation, as well as the lack of regulation regarding Special Drawing Rights (SDRs).
  • For example, during the pandemic, the IMF allocated $650 billion in SDRs, with G7 countries (population: 772 million) receiving $280 billion, while the African continent (population: 1.3 billion) received only $34 billion.

United Nations Security Council

• The Security Council is one of the six main organs of the United Nations.
• The Permanent Residence of UNSC in the UN Headquarters New York City, USA.
• Its primary responsibility is the maintenance of international peace and security.
• While other organs of the United Nations make recommendations to member states, only the Security Council has the power to make decisions that member states are then obligated to implement under the Charter- Hence, it is the only body of the UN with the authority to issue binding resolutions to member states.
• Resolutions of the Security Council are typically enforced by UN peacekeepers, military forces voluntarily provided by member states and funded independently of the main UN budget.

Membership

• It has 15 Members (5 as Permanent Members and 10 as Non- Permanent Members), and each Member has one vote.
• The Five permanent members are: China, France, Russian Federation, the United Kingdom, and the United States. Each of the Permanent Members has Veto Power over every decision of UNSC.
• The Ten non-permanent members are Elected for two-year terms by the General Assembly.
• Each year, the General Assembly elects five non-permanent members (out of ten in total) for a two-year term. The ten non-permanent seats are distributed on a regional basis.
• As per the rules of procedure, a retiring member is not eligible for immediate re-election and the election is held by secret ballot and there are no nominations.
• The presidency of the Council rotates monthly, going alphabetically among member states.

Functions and Powers of UNSC

Under the United Nations Charter, the functions and powers of the Security Council are:

• to maintain international peace and security in accordance with the principles and purposes of the United Nations;
• to investigate any dispute or situation which might lead to international friction;
• to recommend methods of adjusting such disputes or the terms of settlement;
• to formulate plans for the establishment of a system to regulate armaments;
• to determine the existence of a threat to the peace or act of aggression and to recommend what action should be taken;
• to call on Members to apply economic sanctions and other measures not involving the use of force to prevent or stop aggression;
• to take military action against an aggressor;
• to recommend the admission of new Members;
• to exercise the trusteeship functions of the United Nations in “strategic areas”;
• to recommend to the General Assembly the appointment of the Secretary-General and, together with the Assembly, to elect the Judges of the International Court of Justice.

Issues with the United Nations Security Council (UNSC):

• Challenges for Developing Countries: Developing countries are confronted with problems in moral, power-related, and practical dimensions within the UNSC.
• Unjust Bias in Global Frameworks: The global economic and financial frameworks exhibit a systemic and unfair bias in favor of wealthy nations. This generates significant frustration among developing nations.
• Lack of Representation: The absence of Africa, as well as countries like India, Germany, Brazil, and South Africa, from the permanent membership of the UNSC is considered a major drawback. This limitation hampers the representation of important nations and their perspectives on global issues, thereby impeding effective decision-making on complex and interconnected problems.
• Criticism of Veto Power: The five permanent members of the UNSC (P5) possess veto power, which has been criticized as anachronistic and undemocratic. The veto power restricts the Council’s ability to make crucial decisions when any of the P5 disagrees.
• Incompatibility with Current Security Landscape: Many argue that such elite decision-making structures are unsuitable for the current global security landscape and call for reforms to address these shortcomings.

Addressing the Issues:

Bretton Woods:

• Reshape and Revitalize Institutions: The IMF, World Bank Group (WBG), and World Trade Organization (WTO) should undergo reforms to enhance their effectiveness.
• IMF: Focus on macroeconomic policy and financial stability, with stricter surveillance of advanced economies and their impact on global crises.
• WBG: Prioritize sustainability, shared prosperity, and effective leveraging of private capital. Collaborate with others to address global challenges and serve as a wholesaler of finance.
• WTO: Strengthen its role in promoting fair trade, faster dispute resolution, and the ability to respond swiftly to emergencies.
• Automatic and Rule-based Financing: Implement more automatic and rule-based financing mechanisms to avoid delays and minimize political influences.
• Calibrated Measures: Introduce regular SDR issues, global pollution taxes, and financial transaction taxes to address financial and environmental challenges.
• Enhanced G-20: Develop a well-structured G-20 framework that provides comprehensive guidance to the Bretton Woods system and its interactions with other institutions.

UNSC:

• Equal Representation: Ensure equal representation for all regions, including Africa, in the UNSC. Decentralize power and authority to allow nations from all regions to voice concerns related to peace and democracy in their countries.
• Focus on Global Issues: Shift the focus of the UNSC towards addressing global issues rather than preserving the privileges of the P5 nations.
• Balance of Power: Make urgent corrections to balance power between the P5 and the rest of the world, aiming for a more democratic and legitimate governance structure for international peace and security.
• Reform the IGN Process: Revise and re-energize the Intergovernmental Negotiation (IGN) process, which discusses UNSC reform, while avoiding procedural tactics that hinder progress.

-Source: The Hindu