Table of contents
- Spring Meetings 2020 in context
- Bretton Woods Institutions response: unreformed and unfit for purpose
- The IMF
- The World Bank
- Crisis exposes broken systems and urgent need for rethink
- Will Spring Meetings open a window to a new multilateralism?
Spring Meetings 2020 in context
The upcoming World Bank and IMF Spring Meetings will take place amid a global health emergency which experts estimate could result in millions of deaths, with countries unable to implement the necessary containment measures particularly at risk. The pandemic triggers an economic and financial crisis that brings to light the fatal consequences of the extreme injustices of the current global economic order. The coronavirus (COVID-19) pandemic and the consequences of responses to it underscore the precarious state of global health systems after years of privatisation, pressure on public wage bills and other fiscal consolidation measures. The crisis also makes vivid the grave consequences of prevailing policies that structurally undervalue the care economy and women’s work in it, bringing about an exacerbation of what has effectively become a ‘crisis of care’.
The pandemic has created a perfect storm for many countries in the Global South. It has greatly increased the prospect of a serious debt crisis and has resulted in more than $100 billion in capital outflows from developing economies, nearly five times the levels from 2008, a depreciation of currencies, increased borrowing costs, a fall in commodity prices (including oil) and a halt in tourism. Remittances from migrant workers are also set to suffer, depriving countries and families of an important source of income. The implications for overburdened, underfunded and understaffed health systems are becoming ever more clear, as is the precarious situation of those in the informal economy or who have been subjected to decades of deregulation of labour laws and social protections and for whom isolation and working from home are not an option.
The pandemic triggers an economic and financial crisis that brings to light the fatal consequences of the extreme injustices of the current global economic order.
Amidst these growing concerns, the World Bank and IMF will hold drastically reduced Spring Meetings, with the Civil Society Policy Forum (CSPF) and official public events cancelled, and the ministerial Development Committee and International Monetary and Financial Committee (IMFC) meetings taking place virtually. The finance ministers and central bank directors of the G20 are also meeting virtually. Flagship reports, such as the World Economic Outlook and the Global Financial Stability Report were launched on 14 April. The Fiscal Monitor is still expected to be released on schedule.
Bretton Woods Institutions response: unreformed and unfit for purpose
While the human and economic costs of the pandemic continue to mount, the size and scope of the responses required are already enormous, adding to questions about the legitimacy of the Bank and Fund. Communities affected by World Bank and IMF programmes and their supporters will be closely watching to ensure that the Bank and Fund’s COVID-19 response does not aggravate pre-existing local or international power imbalances, is conditionality-free and geared toward ensuring local solutions that target the most vulnerable and do not exacerbate the debt burden of states struggling to respond.
In March, African finance ministers called for a $100 billion stimulus package that includes a $44 billion suspension of debt service payments, according to news outlet Reuters. On 30 March, the United Nations Conference on Trade and Development (UNCTAD) called for an even larger $2.5 trillion COVID-19 crisis package for developing countries, comprised of $1 trillion made available through the issuance of the IMF’s Special Drawing Rights (SDRs), cancelation of $1 trillion of debts owed by developing countries this year, and the establishment of a $500 billion Marshall Plan fund for health recovery to be dispersed as grants.
In a joint statement to the G20 in March, the World Bank and IMF called, “with immediate effect…on all official bilateral creditors to suspend debt payments from IDA [low-income] countries that request forbearance,” offering to conduct debt sustainability analyses in such an event. According to IMF Managing Director Kristalina Georgieva in her April press conference with World Health Organization director general, Tedros Adhanom, bilateral debt suspension was on the agenda of the G20 meeting in March, where China laid out “a set of principles they would be interested to see being integrated in that process.” As the finance ministers and central bank governors of the G20 meet again during Spring Meetings, all eyes will be on their communiqués for signs that an agreement on debt suspensions has been reached. Bretton Woods Project will provide an analysis of all communiqués in its Spring Meetings Wrap Up.
The omission of multilateral debt in the Bank and Fund’s position is at odds with UNCTAD’s proposal and a letter signed by over 150 civil society organisations (CSOs) calling for debt cancellation, including by multilateral institutions such as the Bank and Fund. The statement to the G20 did not address CSO concerns that the IMF and Bank’s COVID-19 response could exacerbate the debt position of already debt-distressed countries and should therefore be comprised of grants and include debt cancelation at least for 2020 where needed. Belgium-based civil society organisation Eurodad estimated that the implementation of bilateral debt suspension proposed in the March statement would comprise approximately $15.7 billion, omitting debt held by the IMF and World Bank and other multilateral institutions, which would total approximately $3.8 billion. Eurodad also estimated that even with the cancellation of bilateral debt, low-income economies would be forced to divert an estimated $9.4 billion in emergency support to debt repayment.
Also omitted was a call for the cancellation of private sector debt, bringing about the real possibility that the instead of meeting urgent health and social protection needs, resources released by official debt forgiveness may be used to re-pay debts to private creditors. Unfortunately this is not new for the IMF and World Bank, as Eric Toussaint demonstrated in his article for the Coalition for the Elimination of Illegitimate Debt (CADTM) in August 2019. The issue of private sector debt and payment obligations is particularly important in light of the increased use of public-private partnerships (PPPs) promoted by the World Bank, as many of the dangerous contingent liabilities linked to infrastructure and health PPPs, for example, could materialise this year, putting additional pressure on state resources (see Observer Spring 2020, Summer 2019, Spring 2019).
In a damning assessment of the combined World Bank and IMF response to a global health crisis, a 9 April article in medical journal The Lancet, identified serious flaws in their response, noting, “Although adequate support must be provided to the economy to prevent bankruptcies and a longer depression, given that the pandemic is fundamentally a health problem, a ratio of 6:1000 ($6 billion for health out of $1 trillion total) cannot be appropriate.”
The IMF’s ‘first line of defence’ to provide financial support to developing countries is comprised of two types of emergency loans that can be rapidly deployed without conventional conditionality attached, the $10 billion Rapid Credit Facility (RCF) and the now $90 billion Rapid Financing Instrument (RFI), for low-income countries and emerging economies, respectively. The IMF also holds a Catastrophe Containment and Relief Trust (CCRT) of approximately $500 million that provides up-front grants to certain low-income countries for relief on IMF debt service falling due. In March, the IMF adjusted the CCRT eligibility criteria to enable earlier disbursements in the context of COVID-19-related financing needs, responding to an unprecedented 85 countries that have now either formally or informally requested some type of IMF emergency financing. On 26 March, the IMF board approved its first $120.9 million emergency finance disbursement to respond to COVID-19 to the Kyrgyz Republic, while it rejected Venezuela’s request for $5 billion to respond to the COVID-19 crisis, on the grounds that “there is no clarity” on international recognition of the country’s government. The decision was swiftly criticised by the UN independent expert on foreign debt and human rights as one that, “gravely endangers the whole of the Venezuelan population, and by extent the whole world…amounting to a gross violation of human rights [that] would require accountability.”
While IMF’s Managing Director Kristalina Georgieva has repeatedly said that the IMF stands ready to use its $1 trillion lending capacity in response to the COVID-19 crisis, in truth, the Fund’s existing capacity for new lending is actually $787 billion, according to US-based think-tank, Peterson Institute for International Economics, meaning, “the United States and other [G20] members will have to augment IMF resources for it to play a central role in the crisis.”
As the UNCTAD proposal suggested, one obvious way to do that is for the IMFC to approve an issuance of SDRs, the international reserve currency held by the IMF that can be accessed in proportion to a country’s IMF quota and exchanged for major currencies. After the 2008 global financial crisis, SDRs were expanded by roughly ten-fold, and proponents argue that doing so again would provide developing countries with the substantial liquidity needed by raising the amount that all members could borrow from the IMF. Yet, within the span of one week in March, the IMF first announced it was “exploring the option” of an SDR issuance, the following G20 leaders’ statement then made no reference to an SDR allocation, and by the end of the week a statement by Georgieva dropped the SDR reference completely. Instead, the managing director commented that the Fund needed to secure its borrowing capacity through the New Arrangements to Borrow (NAB) and bilateral borrowing arrangements – seemingly signalling an SDR allocation might be off the table (see Inside the Institutions, IMF resources: quota, NAB and GAB). Last year, the IMF was planning to increase its SDR allocation as part of its 15thquota review, but this was blocked by the US, which proposed to double the NAB instead, effectively stopping China from gaining a higher vote share on the IMF board (see Observer Winter 2019). While the US’s NAB contribution was approved in March by the US Congress as part of its $2 trillion COVID-19 stimulus package, its effectiveness is still dependent on other countries fulfilling their NAB pledges by the end of the year.
Other ways the much needed funds could be raised include the suggestion by CSOs that the IMF should use its General Resources Account to its fullest extent, including using gold reserves and other assets it holds for a ‘rainy day’, estimated at $140 billion according to Jubilee USA Network. The IMF even floated the idea of creating an “IMF swap type facility” as another way to raise liquidity.
The World Bank
In a blog from 27 March, World Bank President David Malpass outlined that the Bank’s response will initially be centred on a $14 billion Fast Track Facility, $8 billion of which will be channelled through the International Finance Corporation (IFC), the Bank’s private sector financing arm, once again raising concerns about the Bank’s privileging private sector actors (see Observer Spring 2020). As noted by US-based CSO Bank Information Center, the urgency of the COVID-19 response finally led to an agreement on the US capital increase to the IFC. The agreement by the US House Committee on Financial Services, came with “unprecedented” reforms, including greater transparency in regards to its investments through financial intermediaries. While the announcement and reforms are welcome, the degree to which they will be effectively implemented remains to be seen, particularly when the IFC is under significant pressure to act and questions remain about its client selection during the immediate response. Reacting to the announcement of support to the IFC, Global Unions stressed that IFC must ensure its resources preserve employment and are not used to bailout of private financial institutions, calling on the IFC to monitor the labour safeguard requirements on retrenchment, health and safety, and collective bargaining, social protection, paid sick leave and childcare for direct borrowers and sub-clients of intermediaries. The above-mentioned Lancet article questioned why World Bank support was channelled through the IFC rather than the Bank’s Health, Nutrition, and Population Division and cautioned that IFC’s investments in for profit health facilities might detract from effective response efforts.
In April, the World Bank board approved its first operations for $1.9 billion in COVID-19 emergency health support. While details are lacking, the Bank also announced it expects to deploy up to $160 billion over the next 15 months. Notably, these did not include disbursements of the World Bank’s Pandemic Financing Facility (PEF), a much-criticised mechanism supposedly designed to quickly raise funds for pandemic responses in low-income countries (see Observer Spring 2020). There is concern that funds being discussed consist of pre-existing resources that will be ‘merely’ reallocated and consequently become unavailable to support other essential programmes. CSOs, particularly from the Global South, have also raised significant fears about the erosion of already poor community engagement and protections as multilateral development banks rush through approval of what many consider ‘business as usual’ projects, including large infrastructure initiatives.
While resources allocated from the International Development Association (IDA), the World Bank’s low-income lending arm, allow for the provision of grant support, that is not the case for the International Bank for Development and Reconstruction (IBRD), the World Bank’s middle-income lending arm. Given that middle-income countries will also be heavily impacted by the crisis, CSOs have called on the World Bank to expand eligibility criteria for grant support. At a more fundamental level, civil society and communities struggling to respond to the pandemic and its consequences will be closely observing to see whether the Bank and Fund’s responses will reflect a change in the market-based fiscal consolidation policies that contributed to the current health, social and economic crises (see Briefing, Bretton Woods at 75, A series of critical essays). World Bank President Malpass’ statement to the G20 finance ministers on 23 March stressing that, “Countries will need to implement structural reforms to help shorten the time to recovery and create confidence that the recovery can be strong,” does not inspire a great deal of confidence that the Bank will change tact.
Crisis exposes broken systems and urgent need for rethink
In a March article on online news outlet Project Syndicate, professor Jayati Ghosh highlighted the need for a wider perspective that investigates the root causes of the current situation. She stressed that the pandemic is not the cause of the current economic crisis, but rather an exogenous ‘black swan’ event that has triggered pre-existing financial instability and imbalances. The poor condition of the global economy prior to the crisis had been extensively documented, including in the 2019 UN World Economic Situation and Prospects report, which already noted that global economic growth was at, “the lowest rate since the global financial crisis of 2008-2009”. Professor Ghosh is not alone. In an open letter to the UN, for example, the CSO Financing for Development group described the roots of the current unfolding crises as, “patterns of hyper-globalization that amplified structural disparities and ossified a global division of labour focused on the extraction of wealth and resources from the Global South…that exposes the depth of the inequalities within and between countries and the consequences of decades of de-regulation, financialization and corporate concentration.” A March blog by CADTM, entitled ‘This Changes Everything’, likewise linked the instability and economic consequences brought about by the COVID-19 pandemic to the response to the 2008 financial crisis and the decades of neoliberal reforms supported by the World Bank and IMF that preceded it (see Observer Spring 2020; Briefing, Bretton Woods at 75, A series of critical essays).
Similarly, feminists have pointed to the ways in which the invisible care economy disproportionately shouldered by women, who make up 70 per cent of health and social care workers globally, is once again expected to absorb the fall-out of depleted public health sectors without adequate protection or compensation. The Asia Pacific Forum on Women, Law and Development, a leading organisation of the women’s rights movement, expressed concern about the World Bank and IMF once again responding by indebting even more countries and called for “a global-level collective action and coordinated response to overturn the current dominant rules, and rewrite one that is feminist, based on the principles of human rights, historical responsibility, international cooperation and solidarity.” Given the impact of decades of erosion of state capacity and trust brought about by Bank and Fund policies and their obvious repercussions during the COVID-19 pandemic, Nela Porobić Isaković with women’s peace organisation WILPF, likewise highlighted the need to interrogate, “[what the] narrative of inefficiency of public institutions and their inability to deliver services has done to the ability of our public institutions to respond to the challenges we face today.”
Amid discussions of potential food shortages, Flora Sonkin with the Society for International Development considered the implications of the pandemic on a hyper-financialised global food and agriculture system that has displaced important small-scale production destined for local consumption and markets with industrial export-led production (see Observer Spring 2020). The pandemic and its consequences are also unfolding at a time of heightened awareness by the World Bank and IMF of the need for greater focus on fragile and conflict-affected states, as outlined in the Bank’s Strategy for Fragility, Conflict and Violence 2020–25 released in February, and the IMF’s Independent Evaluation Office’s 2019 report on The IMF and Fragile States. These developments make Christine Bell’s March warning in online forum Just Security, about the need for all programming in these contexts to be well-informed by conflict analysis extremely timely (see Observer Autumn 2019).
Meanwhile, the multiple, over-lapping crises unleashed by COVID-19 also pose challenges for linking the response of the BWIs to short-term climate action and a longer-term ‘just transition’ to a zero-carbon economy more generally. The COVID-19 crisis is already causing delay of diplomatic efforts around climate action, with COP26 now being postponed until 2021. The crisis is also reshaping global energy markets as we know them. Despite an 12 April agreement by OPEC to slash oil production by 9.7 million barrels per day, fuel prices failed to recover in the face of the pandemic’s economic impact. Some analysts predict that oil prices could fall to $10/barrel, causing serious revenue shortfalls in a number of oil-exporting states. Even beyond the current crisis, the outlook for the oil and gas sector looks extremely uncertain, at best. The ‘Minsky moment’ for fossil fuel assets that former Bank of England governor Mark Carney warned his central bank counterparts about in 2018 may have arrived much sooner than many anticipated. The Bank and Fund will have to rapidly adapt their approaches to the energy sector to operate effectively in this new reality (see Observer Winter 2019, Winter 2019), with civil society calling for the BWIs to adopt a ‘just recovery’ that is people-centred, and can pave the way for a ‘just transition’ to the climate crisis more generally.
Will Spring Meetings open a window to a new multilateralism?
Civil society will be closely watching the virtual April ministerial meetings to see whether the supposed apex of the multilateral development finance system will be able to adequately and justly respond to the unfolding emergency. The results of the meetings will be evaluated not only in terms of resources committed, but, crucially, on whether the COVID-19 crisis and resulting instability is bringing about a reconsideration of long-standing Bank and Fund policies beyond the immediate response, towards interventions that are designed in a sustainable way that protect the most vulnerable and avoid the inequitable distribution of benefits that resulted from responses to the 2008 financial crisis.
Even before the current COVID-19 pandemic, amid the mounting climate crisis, the rise of nationalism, increasing inequalities and economic instability, there were calls for dramatic changes to the world economic order and the straining multilateral system that underpins it, such as the proposal for a Global Green New Deal (see Briefing, Bretton Woods at 75: A series of critical essays). The current crisis, which is unparalleled in its global scope since the WWII, is testing the response capacity and legitimacy of two institutions created in the post-war period to ensure financial stability and effective multilateral responses to threats to the global economy. The focus on bilateral debt forgiveness by the Bank and Fund, seemingly targeted principally at China and the unwillingness of the US to allow increased Chinese power in the Fund through the expansion of SDRs lay bare the degree to which the Bank and Fund remain the venue for disputes among rival powers, thus further bringing their legitimacy into question. The political considerations of IMF responses are very clearly seen in IMF’s refusal to lend to Venezuela and the US’s statements about its intention to block a $5 billion IMF loan to Iran.
As the COVID-19 pandemic unfolds and those least responsible for creating the international system are failed by it yet again, civil society communities are converging in their shared resistance to ‘disaster capitalism’ and in support of joint calls for sustainable economies that put people and planet first. Calls are emerging, for example, for a UN-hosted crisis conference akin to the one that took place after the 2008 financial crisis, which would be focused on analysing the changes necessary in the multilateral system. A new solidarity-based multilateral system that addresses persistent power imbalances is necessary. Whether the Bank and Fund can help forge it remains to be seen.