Remarks by Rumu SarkarFootnote *

It is an honor to be a member of this distinguished panel. I would like to address three aspects of the questions that the panel has posed with respect to the tectonic changes that are underway in the International Financial Architecture.

First, as we have already noted, momentous changes to the International Financial Architecture have been going on for several decades at this point. The creation of alternate systems and institutions of global finance with the advent of the Brazil, Russia, India, China and South Africa (BRICS) organization and the New Development Bank (or BRICS Bank) are two examples of these structural changes. The genesis of the BRICS organization began in the 1990s in the aftermath of the Global South’s displeasure with the refusal to change the composition and relative strength of the member countries in the International Monetary Fund (IMF) and the World Bank (WB).

The IMF creates Special Drawing Rights (SDRs), a basket of hard currencies used to determine the relative economic strength of member countries. This, in turn, determines their “quota,” which establishes their voting and borrowing rights. These quotas remained static from the levels put in place from 1944 at the founding of these two institutions, and did not reflect the growing economic power of China, India, and other member countries for decades. Moreover, only a fraction of the SDRs were accessible by developing and emerging economies. Although certain reforms were finally agreed to by the IMF in 2015, the BRICS had already announced their creation of the New Development Bank and the Contingent Reserve Arrangement on July 15, 2014.Footnote ¹

The creation of the BRICS organization and the BRICS Bank, along with the creation of the Asian Infrastructure Investment Bank (AIIB), and China’s Belt & Road Initiative (BRI), are all indicators of significant changes in both the institutions and the institutional approaches led by the Global South. There was a stark movement away from the so-called “Washington consensus” where developing countries were urged to follow the pattern of industrial development of advanced nations in Europe and the United States. This approach along with other prescriptions for development were called into question or abandoned altogether.

It is not surprising that the Global South forged their own institutions, membership requirements, and pathways forward leading (hopefully) toward sustainable and meaningful development results. The advent of South-South financing that was designed to be more responsive to the infrastructure needs of its member countries is significant. This was especially true as the BRICS membership expanded well beyond the original members of BRICS, namely, Brazil, Russia, China, India, and, later, South Africa, to include newer members such as Egypt, Ethiopia, Iran, United Arab Emirates who joined in 2024, and Indonesia who joined in 2025.

Despite these new measures and approaches, with respect to the BRI, China is ending up in the same place as the World Bank in terms of being unable to collect repayments on its infrastructure-related loans. In fact, now China is more of a debt collector rather than a lender, and has been forced to “forgive” a substantial amount of its BRI loans.Footnote ² This may indicate a more serious, and more deeply embedded, flaw in the international financial architecture where simply changing the parties and the terms of underlying loans may not yield the bargained-for development results.

There are other South-South financing initiatives to consider as well. For example, there is a steady movement away from multilateral development bank (MDB) financing sourced from the World Bank and other regional MDBs such as the Asian Development Bank. The reasons for this are complex and lie outside the parameters of this discussion. There is, however, an increased use of public or national development banks which take a bottom-up approach. These financial institutions often lend in local currencies to better serve underserved communities.

For example, the Finance in Common Summit (FiCS) is an organization that is spearheading this effort by exploring the possibility of mobilizing over 536 public development banks (PDBs) in over 155 countries, representing 10 percent of annual global investment. This effort is designed to help achieve climate and development objectives. Thus, PDBs may act as a bridge to facilitate investments on a local level using local capital to create sustainable, locally based economic growth.

Second, the other major change in the international financial structure has been the ongoing shift away from Official Development Assistance (ODA) which includes multilateral as well as bilateral financing of broad-based international development projects—and toward the increased reliance on development finance agencies such as the U.S. International Development Finance Corporation (DFC), and the UK’s Foreign, Commonwealth and Development Office (FCDO) which take a narrower, and more private sector focused approach to development. Nevertheless, the catalytic impact of ODA financing as a credit enhancement measure or as a risk mitigation strategy is uneven, and cannot make up for the shortfall in traditional development assistance programs.

Moreover, the catastrophic dismantling of the U.S. Agency for International Development (USAID) cannot be underestimated in this context. The full impact of the demise of USAID is still being measured in deaths due to food shortages, lack of access to medical care and vaccinations, and many other aspects of human life that are too numerous to list or discuss here. Perhaps most importantly, USAID’s catalytic impact in funding projects that may have brought about a significant reduction in global poverty has been lost forever.

In hindsight, ODA has used many techniques in the past with mixed success, such as cash transfers, pay for results, public-private partnerships (PPPs), blending finance with philanthropic capital, and social enterprise investment—all of which are laudable. But, in the end, these measures were not sufficient to address two existential crises that are being faced head on by countries in the Global South.

The first existential crisis is the debt overhang that is impeding the achievement of actual development results. In 2014, for example, about $225 billion was invested in foreign aid worldwide. In 2022, it had slipped to $50.5 billion. However, debt servicing of existing and past debt now means that the countries in the Global South are expected to pay out $50.1 billion per year which exceeds the amounts they receive as new investments. In fact, the World Bank has already dubbed this decade as yet another “lost decade for development.”

The Global South is already taking steps to address the debt overhang in innovative ways. For example, the African Leaders Debt Relief Initiative released the Cape Town Declaration in February 2025, that calls for the comprehensive debt restructuring of highly indebted countries and make capital more accessible to middle income countries.

The second existential crisis is the climate crisis. The investment needed for a change from a fossil fuel-based world economy to renewable energy sources is woefully behind. It is very doubtful that lowered emission goals will be achieved in a timely way which leaves the earth and all that inhabit it in a very precarious position, especially in the Global South. There must be a renewed commitment to dealing with these two existential crises, and frankly, in this political climate, that prospect seems dim for now. Although ODA has been far outdistanced by the investment of private capital for several decades at this point, even these increased levels of private investment are not sufficient to create sustainable development results.

Finally, we should be asking ourselves, “What is next?” A fascinating idea was recently proposed whereby a project-to-project blended financing approach would be replaced with a “capital stack.” This is basically blended financing on steroids and designed to bring about transformational change.

What would that actually look like? Instead of focusing on projects and short-terms fixes for endemic issues of global poverty, this “capital stack” mode of financing will look at achieving “transformational change.” The examples of this that come to my mind are USAID’s Power Africa approach to providing electricity to sub-Saharan countries. The Green Wall of Africa to prevent further desertification of the Sahara Desert in North Africa is another example. The Eternal Mongolia project of safeguarding its grasslands, forests, deserts, wetlands, and rivers, and the wildlife contained therein, is yet another groundbreaking example.Footnote ³ And there will be others. So, let us continue to hope and advocate for constructive change in the very near future.