The Bretton Woods institutions were established 80 years ago precisely to support developing countries with counter-cyclical public financing when the private sector cuts back on investment. The International Monetary Fund (IMF) was intended to help with short-term liquidity, while the World Bank was supposed to focus on funding long-term growth and facilitating structural change to prevent liquidity crunches.
It is now conventional wisdom that global capital flows to the developing world are pro-cyclical, increasing when advanced economies ease monetary policy and retreating when their interest rates rise. A case in point is the growing number of developing countries experiencing liquidity and solvency crises in the wake of the recent tightening cycle, which began in 2022.
According to the United Nations, 25 governments now spend more than one-fifth of their revenue on debt service — the highest number since the mammoth debt crisis of the 1980s and 1990s. Interest payments now exceed spending on education or health in countries where 3.3 billion people live.
