Finance

Analysis

Our world in 2020

Covid-19 thrusts IMF and World Bank into spotlight, highlighting persistent flaws

22 April 2021

IMF Managing Director Kristalina Georgieva prepares for a Washington Post Live interview to discuss how the Fund is responding to the global crisis in June 2020. Credit: IMF.

While the word unprecedented is often overused, it certainly applies to 2020 in the context of the most significant global crisis in a century. As we outlined in last year’s Annual Report, 2020 was likely to be a pivotal year for a global economy challenged by years of rising inequality, worsening climate and debt crises, and loss of confidence in domestic and international governance systems, as evidenced by the global rise in far-right movements and increasing social instability. It was within this context that the Covid-19 pandemic wrought havoc on lives and the global economy, resulting in over two million deaths, the loss of 114 million jobs relative to 2019, a 4.3 per cent contraction in global GDP in 2020 and a potential increase of 150 million people living in extreme poverty by 2021.

Thus, the Covid-19 pandemic has exacerbated and helped reveal pre-existing injustices and structural flaws derived from the power relations that drive the global economy. The pandemic’s consequences cannot be divorced from the economic model promulgated by the World Bank and IMF that has contributed to increasing the spread of zoonotic diseases and constrained an equitable global response. The crises propelled both institutions into the spotlight as they moved swiftly to make financing available, despite concerns about the consequences of their financialised development model. Yet, in the words of UN Secretary General Antonio Guterres in December, the financing made available so far is “totally insufficient for the scale of this crisis.”

The flawed international financial response led to increased calls for international architecture reform throughout the year, with over 350 organisations signing an open letter to heads of states demanding “systemic solutions” and stressing that the current system is unable to deliver a “decolonial, feminist and just transition for people and planet.” Guterres himself called for a reformed global architecture, as countries are forced to choose between providing basic services for their people or servicing their debts. While the result of the US elections in November raised hopes of a revitalised multilateralism, the degree to which the change in US administration will result in a radical departure from a global North-centred and market-led status quo at the Bank and Fund remains to be seen.

Despite calls for reforms, the World Bank continued to pursue its much-criticised Maximising Finance for Development approach. The decision to continue to frame the private sector, and particularly private international finance, as a key ‘development partner’ in the post-pandemic recovery disregarded warnings from civil society and academics about the dire consequences of following the new ‘Wall Street Consensus’, including the constraints posed by the dependence on private creditors in the pursuit of a low carbon transition. The approach’s risks were clear in one of the key debates of the year: The role of debt relief in the Covid-19 response. While global civil society called for a new debt jubilee to enable the provision of life-saving public services in response to Covid-19, the G20 remained unmoved – choosing instead to implement a range of inadequate measures, which among other things, does not include participation of private creditors and mostly kicks the can down the road. If the mark of a good partner is their support during difficult times, private creditors seem totally undeserving of the label, as they refuse to participate in debt suspension or cancellation, thus draining essential resources from pandemic response. While the IMF used scarce official development assistance to provide debt relief to a small number of countries, both refused to use their own resources to support wider debt cancellation.

Despite positive language from IMF headquarters about ‘building back better’ and efforts to stress that its emergency Covid-19 support comes with few conditions, analysis of IMF country programmes showed that fiscal consolidation is alive and well despite the pandemic, leading over 500 organisations to sign a letter to the IMF demanding that it “turn away from the mistakes of the past and finally close the dark chapter on IMF-conditioned austerity for good”. In response to the IMF’s affirmations that it will support a green transition, alarms were raised about the impact of IMF-imposed fiscal consolidation on countries’ ability to meet their Paris Agreement commitments. Without a new issuance of Special Drawing Rights, the IMF’s reserve currency, 2020 ended with few of the steps required to ensure a just and green recovery from the Covid-19 pandemic.

As the world confronts truly unprecedented challenges, the changes required to meet the needs and rights of the most vulnerable remain a distant vision. While 2020 was an extremely challenging year, it also witnessed incredible resistance and acts of solidarity. There is no doubt that much local and international mobilisation will be required in 2021 to pressure intertwined domestic and international elites to change tack to address not only the effects of the pandemic, but also the evolving climate and inequality crises. The Bretton Woods Project will continue to work with partners to hold the World Bank and IMF accountable during these pivotal times by opening space for critical opposition to World Bank and IMF policies and programmes, strengthening local, regional, and international civil society networks and producing and disseminating well-informed analysis to counteract the norm-setting power of these institutions.