2013 may herald the beginning of an era of more institutional competition at the international level, with BRICS (Brazil, Russia, India, China and South Africa) promising the creation of their own institutions for development finance (BRICS Bank) and reserves pooling (Contingent Reserve Arrangement). Facing this competition, the World Bank’s president Jim Yong Kim launched an ambitious strategic change and restructuring process that looks set to rework all of the mechanisms of the Bank’s business. Meanwhile, the IMF seems stuck in stasis, unable to modernise its governance nor resolve the eurozone’s internal contradictions.
World Bank strategy
The year opened with Kim reorganising the Bank’s management, signalling a year of change in terms of the Bank’s internal structures. In spring the Bank’s governors endorsed two specific goals for the Bank: reducing the number of people in extreme poverty and promoting the income growth of the bottom 40 per cent of the population in every country. With the UN’s post-2015 process on replacing the Millennium Development Goals in process, much attention was paid to inequalities. Yet the strategy’s second goal was heavily criticised for ignoring income inequality. The strategy was also panned for failing to have a top-level goal on sustainability.
By the summer, the Bank’s internal restructuring was in full swing, along with a culling of two of the senior managers that Kim had promoted to lead the process at the beginning of the year. At the annual meetings in October governors endorsed the strategy document, which described the Bank’s plans to bolster collaboration across different arms of the World Bank Group, rework the process by which Bank country strategies are agreed with its members, and do away with matrix management in favour of 14 global practices for which vice presidents were still being recruited at year end.
The Bank’s 2012 World Development Report on gender was supposed to come with an action plan on how the Bank would tackle gender-related inequality, but by 2013 it was criticised as unambitious and the Bank was found not to be showing leadership on gender issues. The International Development Association (IDA) replenishment found progress so insufficient that gender issues had to be held over as a special IDA theme for another three years.
The Bank also made it clear in 2013 that it was going to return to prioritising large infrastructure projects, including a push for public-private partnerships, natural gas infrastructure and a proposal for a global infrastructure facility. An energy directions paper agreed in the summer introduced a limit on funding coal power projects to “rare circumstances”, but coal projects already agreed by the Bank would not be affected. With a vocal campaign against it, the IFC-funded Tata Mundra coal power plant in India stirred further controversy when the Bank essentially disregarded the findings of its own accountability mechanism to push ahead with the project at the end of the year. Campaigners are seeing a future decision on funding for a new coal power plant in Kosovo as the key litmus test of whether the Bank takes its commitment to mitigate climate change seriously. Additionally, opposition to the new mega projects is ramping up, including against a massive hydropower project in Chile.
Climate change rhetoric was prominent throughout the year with the Bank launching a second report in its Turn down the heat series and Kim personally raising the issue in numerous interviews and speeches. However, the Bank continued to emphasise its technocratic solution of carbon markets and carbon trading, despite their failures, and ‘climate-smart agriculture’. Critics argued that climate finance should be kept away from the institution because it has a history of not addressing social and environmental risks appropriately. Early in the year the Bank’s internal evaluation body concluded that the Bank’s forest projects have failed to benefit the poor or manage forests sustainably, but the Bank’s board refused to reinstate a ban on logging projects in tropical moist forest countries. The Bank’s social and environmental safeguards review was delayed by the strategy process.
That the Bank would embrace a more holistic vision of health care delivery has been expected since Kim, a doctor and health advocate, took over the presidency. Finally in May, he positioned universal health coverage as a critical part of the Bank’s strategy, but stopped short of calling for free health care or public health systems in all cases. He committed extra IDA funding to help push achievement of international goals on maternal and girls’ health. Kim also backed education for all initiatives in 2013, but the Bank was roundly criticised over its increased support to low-fee private schools, particularly in Pakistan. The International Finance Corporation, the Bank’s private sector arm, provided support to an elite private school in Kenya, which didn’t help the Bank’s image.
Private sector and IFC
2013 could be said to be the year of both increased prominence and increased pressure on the IFC. The year started with a scathing feature article on how IFC projects “rarely touch the poor”, proceeded to exposés of funding of more 5-star hotels, and ended with projects for online TV guides and long-shelf-life vanilla-crème-filled croissants. The emphasis on the IFC was clear in the Bank’s strategy but questions remain about how it will address its many failings.
A critical area has been the IFC’s funding of financial intermediaries, now over half its annual commitments. After an accountability report in February slammed the IFC for being oblivious to the impacts of its investment in the financial sector, NGOs demanded action because the IFC response to the audit “failed to acknowledge the gravity of the findings”. The IFC was forced to come up with an Action Plan to address the gaps, but this was rejected by the civil society groups as too weak. Through these financial intermediaries, the IFC was accused of being complicit in land grabs in Laos, Cambodia and Honduras.
Complaints over IFC investment in Honduras have been the harshest after accusations emerged that the IFC has been complicit in human rights violations, which included extrajudicial killings of peasant farmers. Accusations of human rights violations and adverse social impacts have also followed World Bank projects in Ethiopia and IFC investments in Albania. The IFC’s investments in mining were repeatedly in the news in 2013, with criticisms emerging over projects in Mongolia, Guatemala, Colombia, Guinea, Dominican Republic, Peru and South Africa.
Perhaps the thorniest controversy of the year was over the IFC’s flagship publication, the Doing Business Report. Early in the year India formally joined the chorus of objections to the report. As free-market-oriented researchers and think tanks in Washington mobilised, claiming that keeping the report intact would be a sign of Kim’s commitment to economic growth, NGOs rejected their interpretation. Civil society groups called Kim’s reaction to an independent panel review of the report a test of his leadership, and urged him to scrap the country rankings and restructure the report entirely. It also emerged that internal battles within the Bank showed significant opposition to the report. Ultimately, Kim failed to publish a clear response to the independent review, and pre-emptively rejected one of its recommendations, leaving the future of the report unclear.
IDA and fragile states
2013 was the year for IDA’s 17th replenishment negotiations, the process for the Bank to convince donors to contribute money for the next three-year IDA concessional loans and grants window. It was a trying task to convince donors, many of whom were implementing austerity policies at home, to contribute more money. In the end Kim was able to announce a headline size of $52 billion, a nominal increase but at best flat in real terms when compared to IDA 16. Over the course of the negotiations, the Bank tried to include more space for financing “transformational” regional infrastructure, but this was generally rebuffed by donors.
A key theme for IDA and for the Bank’s overall strategy was fragile states. Despite lacking a clear definition of the term, the Bank sought to bolster its work on countries emerging from conflict, or those who faced significant natural disasters. The Bank’s reengagement with Burma was a controversial move, while Kim went out of his way to appear to be working more closely with the UN, including through joint trips with UN secretary general Ban Ki-Moon to Africa. By year end criticism emerged of loans, adding to debt burdens, being issued to Philippines to address the damage of typhoon Haiyan and to Jordan to deal with the cost of an influx of refugees from war-torn Syria.
One issue that bedevilled the IMF throughout 2013 was its failure to make progress in modernising its own governance. With the October 2012 deadline for implementing a 2010 agreed reform long passed, the US continued to be recalcitrant. The January deadline for agreeing a new quota formula passed without an agreement, and by year end it was clear that many developing countries did not even want to negotiate the next round until the US made good on past commitments. To top it off, a mid-year transparency review was faulted for making no progress.
Progress was not much better on the IMF’s largest entanglement – the continuing sovereign debt crisis in the eurozone. Rifts continually opened between the IMF and its Troika partners, the European Commission and European Central Bank, particularly over how to deal with Greece. By June, the IMF was publicly admitting failures in the Greek loan programme. The March loan to Cyprus, the fifth eurozone loan, was widely faulted as a kind of blackmail imposed by the Troika on Cypriot people. Critically, the IMF provided analytical and institutional support to controversial loan conditions that sought to dismantle labour market protections, despite an April IMF policy paper that provided some rhetorical support to labour policies that seek to counter inequality. By the end of 2013 the IMF was declaring victory with Ireland exiting from its lending programme with the Troika, although austerity continues. On the surface, over the course of 2013 the IMF lightened up on austerity rhetoric, but was found to continue tightening screws in borrowing countries. Particularly worrying was that it produced good research on inequality in 2013, but then ignored it when it came to borrowers.
In the summer much of the talk was about a large IMF loan to Egypt. Negotiations had been on-going since 2012, but were both branded as undemocratic and held up by disagreement over subsidy reforms. Ultimately a military coup in Egypt suspended negotiations. However, the IMF did manage to conclude loan agreements with Jamaica and Pakistan. A number of zero interest loan agreements were also signed with low-income countries, which are to be part-financed by windfall profits from IMF gold sales, which donors finally agreed to release to the Fund in October.
The year ended with much speculation about the role the IMF would play in any changes to the global financial architecture. While it consolidated its guidance on capital flows in the spring, it refused to get involved in talk of “currency wars”. Renewed currency volatility in the autumn, much of it due to hot money movements in the wake of US monetary policy changes, surprised the Fund and led to claims the IMF is failing to learn lessons. Throughout the year the Fund has been debating ways to deal with messy sovereign debt defaults, and by November word had seeped out about internal divisions within the Fund over new proposals.