In a compelling appeal issued last Thursday, UN expert George Katrougalos urged for sweeping reforms in the global financial system to promote a more democratic and equitable international order and to uphold fundamental human rights. Katrougalos, who focuses on fostering an equitable international system, highlighted the urgent need for a financial architecture grounded in human rights principles, as stipulated by the UN Charter.

In his detailed report, Katrougalos criticized the dominant influence of high-income nations in shaping the policies of the Bretton Woods Institutions – the International Monetary Fund (IMF) and the World Bank. He argued that their approach often sidelines the needs of developing countries by prioritizing market liberalization and fiscal discipline over social equity and human rights. This has led to an increased dependency of poorer nations on debt repayments rather than allowing them to invest in domestic growth, thereby widening the economic disparity between the global North and South.

The governance structures of these financial institutions, according to Katrougalos, contribute to global inequality due to their voting systems which favor developed countries. Despite representing a minor fraction of the global population, developed nations control a disproportionate share of the voting power, while populous, lower-income countries have significantly less influence.

Moreover, Katrougalos pointed out the negligence of human rights implications in the operational decisions of the IMF and World Bank. He emphasized that these institutions operate under the UN legal framework and are, therefore, obligated to adhere to international human rights laws.

The report concludes with a call for the IMF and World Bank to realign with UN principles and to enhance cooperation with UN human rights mechanisms. Katrougalos also recommended a restructuring of voting rights within these institutions to better represent developing nations and suggested measures to curb illicit financial flows and tax excess profits of multinational corporations and financial speculators.

The global community has expressed growing concerns about the compatibility of the current financial system with UN human rights standards amidst increasing corruption and inadequate financial resources for developing countries to tackle pressing issues like climate change.

In response to these challenges, the UN has advocated for increased adaptation funding and the implementation of strategies that ensure climate finance reaches the most vulnerable communities. Additionally, the UN Environment Programme Finance Initiative developed a Human Rights Toolkit to help financial institutions meet international human rights standards and integrate these considerations into their decision-making processes.

This call for reform echoes the sentiments of a coalition of finance and foreign ministers who, in July 2024, demanded urgent changes to the global financial architecture to foster sustainable development financing, particularly in African nations.