US Treasury Secretary has called for reforms that make multilateral development banks "better… not just bigger" and sought certain reforms before a capital hike for these institutions.
Speaking in Gandhinagar, Gujarat, on July 16 ahead of the third meeting of G20 Finance Ministers and Central Bank Governors under India's presidency, Yellen listed out a few priorities to reform multilateral developments banks such as a framework for targeted use of concessional financing for global challenges, the option for the World Bank to lend to sub-sovereign and supra-sovereign entities such as COVAX to address global challenges, and streamlining the climate finance architecture to make sure development banks and specialised funds work together to deliver maximum impact.
"I believe that we should only explore capital increases after considering the reforms that I laid out along with those in the report. We should build better banks, not just bigger ones," Yellen said, stressing that it is essential these institutions "ramp up their private capital mobilisation rates".
Yellen's comments come even as the G20 discusses the first volume of the report by an expert group led by Larry Summers and NK Singh on reforming multilateral development banks. The report of the group, constituted on March 28 after India proposed its formation at the first meeting of the finance ministers and central bank governors in Bengaluru in February, will be made public on July 18.
In her remarks on July 16, Yellen said she was pleased with the Summers-Singh report's emphasis on incorporating global public goods into the mandates of multilateral development banks and its focus on making these institutions' operating model more responsive through changes to culture, incentives, and risk appetite.
"I also share the call for much more ambitious private sector engagement and efforts to make the whole system work better together. Finally, I support the request for swift implementation of the Capital Adequacy Framework recommendations," she added.
Commenting on the steps being undertaken by the World Bank, Yellen said efficiency improvements and balance sheet reforms will "responsibly unlock" $50 billion in additional lending capacity over the next decade. Further, she said the multilateral development banks system could unlock $200 billion over the next decade from the measures already being implemented or under deliberation.
“There is potential for even more if the MDBs (multilateral development banks) undertake some of the longer-term and more complex recommendations in the G20 Capital Adequacy Framework report. This is $200 billion more in funding that we can use to advance key global priorities: spurring economic growth and reducing poverty, fighting climate change, and promoting human development," Yellen said.
China and Russia
Yellen, who was in China last week, said she told her counterparts that it was crucial the two countries work together to tackle global challenges.
"As the world's two largest economies, we have an obligation to the people in our nations and the world to cooperate on areas of mutual concern," Yellen said.
China has a key role to play in the G20's efforts to address debt vulnerabilities and distress among emerging market economies on account of it being the world's largest bilateral creditor. The Chinese government wants multilateral development banks to be included within the perimeters of debt restructuring so that the vulnerable countries can achieve debt sustainability as a large part of the debt is owed to these institutions.
Sovereign debt repayments to multilateral development banks take precedence over other creditors, resulting in their exclusion from sovereign debt restructuring.
"Over the past few years, we have seen debt vulnerabilities mount for many countries as a result of the pandemic and Russia's illegal war against Ukraine," Yellen noted, adding that she will continue to push for "full and timely participation of all bilateral official creditors on pending debt restructuring cases".
On Russia, Yellen reiterated the US' unequivocal support for Ukraine, saying that Russia's access to military equipment and technologies needed for the war will continue to be blocked.
"One of our core goals this year is to combat Russia's efforts to evade our sanctions. Our coalition is building on the actions we've taken in recent months to crack down on these efforts," she said.
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