A Hollow Order

Development Politics in a World Beyond Multilateralism

The post-1945 development order, anchored by the Bretton Woods institutions and the UN system, was designed for global stability and reconstruction. Over time, however, rising Global South voices and geopolitical shifts strained that order. In the 1970s, newly independent states (through the Non-Aligned Movement and G77) pressed for a New International Economic Order (NIEO), demanding reforms of trade, finance, and even the Bretton Woods rules to better serve developing countries. Yet those NIEO proposals largely went unimplemented. After the Cold War, the 1990s saw a wave of market‐oriented “Washington Consensus” reforms and the Millennium/SDG agendas, but also growing impatience with slow governance change. Today, as multilateral bodies enter their eighth decade, their roles have fractured. We diagnose the breakdown of the “old order” and analyze the rise of parallel finance. Finally, we explore how multilateral development institutions might reform and cooperate amid deep geopolitical fragmentation.

The historical evolution of development institutions

The International Monetary Fund and the World Bank were born in July 1944 at Bretton Woods to establish a framework for postwar reconstruction and a more stable global economy. Originally dominated by the U.S. and its allies, they provided currency support and project loans across the developing world. During the Cold War, these institutions expanded to support both European reconstruction and development across Asia and Africa. By the 1960s–70s, however, emerging countries, through UNCTAD and the Non-Aligned Movement, argued that the system was “unjust and inequitable” and demanded a New International Economic Order. The NIEO called for debt relief, technology transfer, commodity funds, and importantly “a reform of the international monetary system” to serve development needs. While NIEO fizzled amid the East-West stalemate, it planted seeds of legitimacy challenges to legacy institutions.

After 1991, the Bretton Woods institutions remade themselves: the IMF and World Bank admitted former Soviet states, shifted their mandates to poverty reduction, and spawned new arms (e.g. IMF’s Poverty Reduction and Growth Facility, WB’s IDA for the poorest). Yet Southern critics still noted a critical lack of reforms. For instance, the IMF’s 16th quota review (in Dec. 2023) raised global quotas by 50% but “made no changes to share distributions,” prompting emerging economies to warn that governance was still “anchored in past weightings”. These debates underscore how historical underrepresentation fuels today’s fracture, with many states now looking outside the Bretton Woods sphere for more voice or faster delivery.

Why multilateralism is stuck

The first reason is political polarisation at the core. Deep divisions among major powers, particularly within the Security Council, have seeped into mandate renewals and budget negotiations across the multilateral system. Appropriations debates in New York increasingly serve as proxy fights over the very legitimacy of multilateral institutions. Proposals in Washington to cut assessed and voluntary contributions signal that even long-standing patrons are prepared to treat multilateral line items as expendable. With top-level forums gridlocked, the UN is left in a cycle of reform initiatives that rarely translate to any structural change.

The second is a credibility gap in global finance. Emerging economies increasingly regard the Bretton Woods institutions as out of step with contemporary power balances. The latest IMF quota review delivered a substantial increase in resources but left voting shares unchanged, reinforcing the perception that governance remains anchored in post-war weightings. In response, many states have turned to regional reserve arrangements, special funds, or more club-based facilities that can move faster or impose fewer political conditions. This gradual diffusion of financing channels weakens the gravitational pull of the legacy core. At the same time, attempts at coordinated sovereign debt workouts, such as the G20 Common Framework, have struggled whenever official creditors and private bondholders insist on non-comparable treatment, as the drawn-out cases of Zambia and Sri Lanka will illustrate.

The third is donor fragmentation and declining aid. After several years of expansion, official development assistance fell in 2024 for the first time in six years and is projected to contract further in 2025. Humanitarian appeals are routinely underfunded, while in-donor refugee costs absorb a growing share of reported aid. Fragmentation has deepened as donors increasingly favour earmarked contributions or create new vertical funds for specific crises. This has led to what some analysts describe as “multilateral funditis”: a proliferation of narrow trust funds and crisis facilities that compete for attention and overheads. Core, flexible funding has not kept pace. In the UN system, nearly two-thirds of resources are now voluntary, eroding the organisation’s ability to respond adequately to key challenges such as health surveillance, or baseline development finance in fragile states.

Net official development assistance (ODA) from DAC member countries, 2000–2024, in constant 2023 prices. After five years of increase, ODA fell by 7.1% in 2024, with reductions in contributions to multilateral organisations, humanitarian aid and in-donor refugee costs - Source: OECD

A fourth factor is institutional competition and the rise of new lenders. In the past decade, new multilateral banks and funds have emerged to meet unmet demand. The Asian Infrastructure Investment Bank and the BRICS New Development Bank, both created in the mid-2010s, have moved quickly from start-up phase to sizable portfolios. The AIIB co-finances frequently with the World Bank and Asian Development Bank, while the NDB has secured an investment-grade rating on the back of strong capitalisation and conservative risk management. These institutions do not position themselves as rivals to the UN or Bretton Woods, but their growth has normalised the idea that large projects can be pursued through channels outside the traditional core. Governments learn that they can shop among lenders with different norms and conditions, and over time some will favour the arrangements that best align with their strategic preferences.

AHeadquarters of the Asian Infrastructure Investment Bank (AIIB) in Beijing, the first major multilateral development bank headquartered outside the Western core. With more than 100 member states, AIIB exemplifies the shift toward a diversified global development finance architecture, one of several poles in the marketplace of offers that now defines development politics - Credits: Beijing Investment Group

Finally, there is the rise of minilateral coalitions. Narrow groups of states now shape rules in key domains, from digital trade and technology standards to maritime security and climate initiatives, outside universal bodies. These coalitions can be agile and effective in their own spheres, but their cumulative effect is to drain political energy from efforts to repair universal institutions. The price of admission, of course, is political alignment. For many governments, especially under fiscal and political stress, the path of least resistance runs through such bespoke partnerships rather than through slower, universal bargains.

None of this renders the UN, the IMF, or the World Bank obsolete. They remain the only truly universal venues for setting norms and conferring legitimacy on collective action. But the combined effect of polarisation and institutional competition has hollowed out their capacity to organise and deliver. With less political will at the centre, power and resources increasingly flow through alternative channels.

The development marketplace

What has replaced the familiar order is a competitive marketplace of offers. On one side stands China with a state-backed package that combines the balance sheets of policy banks, large scale engineering and industrial capacity, bulk procurement that lowers unit costs, and a willingness to operate on long horizons. After a pandemic lull, 2024 produced record Belt and Road engagement across construction and investment, and the first half of 2025 continued at a similar pace. On the other side, the G7’s Partnership for Global Infrastructure and Investment and the European Union’s Global Gateway seek to answer with finance tied to fair standards on environmental safeguards and labour, and with instruments designed to mobilise private capital. Take, for instance, the IFC’s B loan syndications and its Managed Co Lending Portfolio Program (MCPP), which let banks and institutional investors participate alongside IFC under its preferred creditor umbrella, lowering pricing for development projects. These offers may arrive more slowly and sometimes at a higher price of capital, especially compared to Chinese financing, but they promise interoperability with OECD rules and a degree of legal certainty many treasuries and auditors still prefer, and, for recipient governments, they remove the need of aligning with a bloc.

The Lobito Atlantic corridor railway project illustrates this logic. It is not simply an infrastructure rehabilitation project but rather a test of whether a Western proposition can deliver in a space where Chinese actors have long dominated execution. The senior loan from the United States International Development Finance Corporation, linked to the overhaul of roughly one thousand three hundred kilometres of track in Angola and to capacity improvements at the port, matters as much for its signalling effect as for its practical outcome. It advertises interoperable customs across Angola, the Democratic Republic of Congo, and Zambia, and a capital structure comprising both export credit support and private investment. A credible Lobito model would offer a template for critical minerals routes elsewhere, a key foreign foreign policy issue for Western powers. A big question mark is durability, as the corridor must withstand elections, swings in mineral prices, and the legal disputes that often accompany these large concessions. If it doesn’t, the now familiar narrative of Western delays will undoubtedly strengthen.

Route of the Lobito Corridor: a 1,300 km trans‑African railway linking the Atlantic port of Lobito (Angola) to the mining regions of the DRC and Zambia. - Source: OECD

Sovereign debt diplomacy has also migrated into this marketplace, and the first real tests of the G20 Common Framework have been sobering. Zambia, Ghana, and Sri Lanka have provided a first wave of evidence, and it is fair to say that the Framework has underdelivered relative to its coordination ambitions. In theory, it was meant to bring Paris Club creditors, new official lenders such as China, and private bondholders into a single process to streamline financing. In practice, each of the early cases has exposed the limits of coordination when key parties disagree on what “comparability of treatment” actually requires.

Zambia’s trajectory is the most illustrative. The country moved from an understanding with its official creditor committee to a later accommodation with Eurobond holders, but the path was marked by repeated revisions and public disagreements over the distribution of relief. The core difficulty lies in the asymmetry of preferences, as bilateral lenders preferred maturity extensions and interest relief, while private creditors pressed for reductions in the stock of debt. That divergence translated into long delays, repeated recalculations of net present value, and visible tension over whether one class of creditors was being asked to carry more of the adjustment. The result technically respected the Common Framework but did little to build confidence in it as a functioning mechanism. Ghana, by contrast, moved quickly, but at a high political cost. The authorities paired an agreement in principle with official creditors with a politically difficult domestic debt exchange that reprofiled local bonds, extending their maturities and lowering coupon payments. That operation absorbed a significant share of the adjustment burden at home and improved the debt dynamics enough to move external bondholder negotiations along at a faster pace. Sri Lanka, for its part, showed that bilateral arrangements with both China and India can be concluded, but only once an IMF programme anchors expectations and only with careful choreography among non-Paris Club lenders. Each of these experiences underscores that, absent clearer operational guidance on comparability, sovereign workouts will continue to rely on case-by-case bargaining in which the balance of power, rather than a shared template, determines the outcome. In the meantime, club finance and bespoke creditor coalitions will continue to fill the void, and the terms attached to that finance often carry policy conditionality that reflects the preferences of the lead sponsors rather than a multilateral consensus.

Export credit has returned to the centre of development finance for precisely this reason:it offers governments a way to move capital at scale without waiting for comprehensive debt or quota reforms. The modernisation of the OECD Arrangement on officially supported export credits extended maximum tenors for climate-aligned and other green projects and allowed greater flexibility in repayment profiles and premia. That change effectively lowered the all-in cost of capital for projects with long economic lives and high upfront costs, as is usually the case for development projects. It also widened the competitive space for OECD export credit agencies by giving them more room to match the maturities and grace periods offered by development banks elsewhere. ECAs are now frontlining significant portions of clean energy and corridor finance. However, they rarely act alone. In many of the larger transactions, ECAs work alongside multilateral development banks whose guarantees provide a stronger layer of risk management and institutional discipline. The result of this process is a convoluted web of co-financing in which the formal distinctions between the debt instruments issued matter less than the combined capacity to get a complex project over the line.

These examples show a dense co-financing ecosystem, but also a strategic tug-of-war. For many borrower governments the question is simply about access: if China offers cheaper, quicker money for a port or mine, will OECD-compatible financing win the day? The early signs are mixed. Recipient states increasingly shop for the best deal, and in key markets, like that for critical minerals, whoever can build fastest may seize the path.

Reforming multilateralism for a multipolar age

Given this state of “polycentrism,” the question is how core institutions should adapt and what a resilient multilateral order should look like in a new era of global fragmentation.

A first priority is to modernise mandates and delivery. The central idea here is interoperability. The UN’s new UN80 initiative recognises that the world now runs on a marketplace of offers, and that a universal institution will matter only if it can make those disparate systems work together. In practice, UN80 seeks to streamline mandates and accelerate execution as a follow-through to earlier reform agendas. It is also tied to the financial track often associated with the Seville agreements, which aim to normalise instruments such as guarantees and hybrid capital across institutions and to develop more coherent approaches to debt treatment. If fully implemented, these measures could reduce duplicative due diligence and frictional delays. If UN procurement rules and multilateral development bank term sheets are brought closer together, co-financing among export credit agencies, MDBs, and commercial banks becomes easier, and the UN regains functional relevance. The main scaling risk is that reform becomes another word for austerity. Political attention to efficiency can quickly slide into budget cutting. The UN’s most persistent constraint is stable financing, and the system has struggled for years with a recurring liquidity crunch linked to arrears and unpredictable contributions. If member states pursue efficiency only as a means to reduce spending, UN80 may only produce organisational reshuffles, without addressing chronic underfunding or aligning mandates with available resources.

António Guterres speaks at the opening of the 80ᵗʰ session of the United Nations General Assembly in New York, September 2025. A symbolic reminder that, even amid fragmentation, the UN remains the central forum of universal governance - Credits: The United Nations Correspondent

Secondly, governance needs some updating. The Bretton Woods institutions still reflect the distribution of economic weight at the end of the Second World War more than the present. The IMF’s quota system is anchored in that history, and reweighting it is politically difficult, but the Board has at least called for a new formula within the current review cycle. Proposals have also circulated to adjust representation at the World Bank, for example by adding permanent Board members from large emerging economies or increasing voting power for African constituencies. In parallel, regional development banks have advanced ideas to channel special drawing rights through multilateral balance sheets via hybrid capital vehicles, potentially expanding MDB lending capacity without new budget appropriations. These financial innovations could significantly increase multilateral firepower, but they are not costless, since more complex instruments can raise transaction costs and obscure risk, and they should complement rather than substitute for replenishing core concessional resources.

A further element is to embrace pluralism: a multipolar system is unlikely to reconverge on a single institutional model, but institutions can still align on basic principles for data, procurement, environmental and social safeguards, and debt transparency. Major MDBs and export credit agencies could, for example, adopt shared minimum standards on disclosure and environmental review so that, regardless of whether a loan originates in Paris, Tokyo, Beijing, or elsewhere, it meets a baseline of comparability. The World Bank’s evolving Green, Resilient, and Inclusive Development framework is one attempt at such a feat. The IMF could also deepen its integration of climate and distributional analysis into surveillance, making all lenders more aware of non-financial risks. Technical harmonisation of this kind does not eliminate competition, but it helps to ensure that it is not resolved through a race to the bottom on norms.

Strengthening universal forums also remains essential. Even in a fragmented landscape, the UN and the multilateral banks retain a unique convening role. Institutionalising standing coordination mechanisms can help them to act as system integrators rather than mere bystanders. The Financial Stability Board, which brings together G20 members and others to oversee global financial stability, offers an example in the monetary and regulatory sphere, and the emerging joint results frameworks for MDBs play a similar role on the development side. Within the UN, platforms such as the Secretary General’s SDG coordination mechanisms could be empowered to work in tandem with G20 and G7 processes rather than as separate tracks. If UN agencies and the major MDBs commit to joint country platforms, so that, for example, a government negotiating a large energy investment can discuss it in a single setting with representatives from the IMF, World Bank, AIIB, AfDB and others, that would reduce the reliance on ad hoc, case-by-case bargaining and make multilateralism more proactive and less reactive.

Toward an inclusive order

The old global financial compact is under strain, but its erosion is neither a straightforward loss nor a victory for any single country or bloc. What is emerging is a recomposition of power, with more poles and more trenches. The response cannot be a nostalgic defence of existing institutions nor a passive acceptance of fragmentation. The way forward lies in accepting that the system now has multiple power centres while insisting that they pull, at least on core issues, in the same direction. It requires hybrid solutions in development finance, more deliberate allocation of scarce resources, and, finally, political leadership and trust. Past UN reform efforts have often been episodic, associated with particular secretaries-general or crises and then superseded by the next initiative. Building lasting capacity, including institutional memory about what has and has not worked, can be politically uncomfortable because it constrains short-term discretion. Yet without a collective recommitment to the unglamorous architecture of cooperation, the universal institutions risk becoming abstract instruments incapable of leading global efforts.

Guterres is right in saying that political mistrust is feeding the fire. But mistrust does not absolve states of responsibility for the institutions they inherit. Multilateralism must evolve from a monolithic architecture to a flexible network of cooperation, underpinned by shared rules and obligations. If states are willing to undertake that effort, the global development order can be renewed rather than simply managed in decline. The alternative is a world where universalism becomes nothing more than a convenience. The bill for that world will be paid in lost coordination on global crises, and it will come due faster than expected.

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