The World Bank and IMF Annual Meetings began steeped in rancour, with the IMF’s executive board conducting an investigation on the eve of the meetings to decide the future of its Managing Director Kristalina Georgieva, after she was implicated in the World Bank’s Doing Business scandal (see Observer Autumn 2021).
A report by law firm WilmerHale, commissioned by the Bank and released on 16 September, had accused Georgieva – the Bank’s chief executive officer (CEO) at the time – and former Bank president Jim Yong Kim of intervening to improve China’s ranking in the 2018 Doing Business Report.
After a flurry of IMF Board meetings, which included Georgieva and WilmerHale attorneys being summoned to answer questions on multiple occasions, the IMF’s board issued a statement on 11 October reaffirming “its full confidence” in Georgieva. This was despite it being reported by the Financial Times days earlier that the Fund’s two largest shareholders – the US and Japan – wanted her out, while she retained the backing of European powers France, the United Kingdom, Germany, Italy, as well as China, Russia and Sub-Saharan African countries. Per the BWIs’ gentleman’s agreement, European countries have selected one of their own nationals as the Fund’s managing director since the BWIs’ inception 77 years ago (see What is the gentleman’s agreement?)
As Devesh Kapur and Arvind Subramanian wrote in the Indian Express as the scandal simmered, the episode was symptomatic of a deeper rot at the Bretton Woods Institutions and other international organisations, which has greatly undermined their effectiveness: “The backroom deals that characterise the process of selecting leaders to [international organisations] has been long-standing. That is one reason why most continue to hobble along as countries place their nationals to head these institutions, both for prestige and to pursue their national interests.”
While Georgieva survived to fight another day, the episode revealed what economic historian Adam Tooze described as “a toxic hangover of the Washington Consensus,” characterised in particular by the ongoing tensions between the US and China, with the BWIs being one proxy front in this regard. These tensions were heightened by the DBR scandal – with US Republicans viewing Georgieva’s alleged data manipulation as evidence of China’s negative impact on the Bretton Woods system’s legitimacy (while conveniently ignoring that charges of undue US and European influence at the BWIs have a very long and well-substantiated history).
The affair raises the stakes for the IMF’s forthcoming quota review, to be completed by the end of 2023, after the US quashed the last review largely to prevent China from increasing its quota share in the Fund (see Observer Summer 2019). In its communiqué released on 11 October, the Intergovernmental Group of 24 (G24), a bloc of influential emerging economies, stated, “we…call for an early consensus on a new quota formula and a meaningful shift in quota shares from advanced economies to EMDEs [Emerging Markets and Developing Economies], while protecting the shares of the poorest countries” (see Dispatch Annuals 2021).
Meanwhile, civil society remained steadfast in its calls to meaningfully reform the governance of the BWIs following the IMF Board’s decision to back Georgieva. A statement released on 12 October and signed by over 130 organisations and academics called the Doing Business scandal “the tip of the iceberg”, and urged the BWIs to scrap the gentleman’s agreement, address their internal accountability deficit, abandon ideological bias in policy advice and conditionality, and take steps to ensure that their policies do not undermine human rights.
With Doing Business dead but not forgotten, attention turns to ‘greening’ Maximizing Finance for Development
Although the Bank’s Doing Business Report was discontinued in the wake of the scandal, World Bank President David Malpass made clear that the Bank would still heavily promote pro-business regulatory reforms through its country engagement, both in his positioning speech ahead of the Annual Meetings (see Dispatch Annuals 2021), and in appearances throughout the meetings. This included the civil society townhall on 12 October, when he indicated that this remained one of the central focal points of the Bank’s systematic country diagnostics.
Despite the failure of the Bank’s Maximizing Finance for Development (MFD) approach, also known as the Cascade (see Observer Summer 2017), to deliver on its promised alchemy of turning billions to trillions in development finance by crowding in the private sector, support for the agenda remains undimmed. MFD is a key pillar of the Bank’s proposed 20th replenishment for its International Development Association (IDA), the Bank’s low-income country lending arm. This includes – inter alia – IDA’s Private Sector Window, which subsidises private sector projects supported by the International Finance Corporation (IFC), the Bank’s private investment arm, and the Multilateral Investment Guarantee Agency (MIGA), the Bank’s private risk insurance arm, in IDA countries (see Dispatch Annuals 2021).
Furthermore, the Bank’s new Green, Resilient and Inclusive Development (GRID) approach has this rationale at its core, as evidenced by a paper on GRID finance submitted by the Bank to its Development Committee (see Dispatch Annuals 2021) for discussion at the meetings, which called for “scaled-up private co-financing and private capital mobilization (PCM) through investment platforms under the Cascade approach.”
The Bank’s climate work is a key fulcrum in this regard. At the Bank’s official Voices for Climate event on 14 October, former Bank of England governor Mark Carney enthused in discussion with Malpass that the World Bank’s new Country Climate and Development Reports – in-depth diagnostics introduced as a part of its new Climate Change Action Plan – could play a catalytic role in developing country platforms that ESG investors can flock to. Malpass subsequently met BlackRock CEO Larry Fink to discuss “financing for development and climate projects that reduce greenhouse gas emissions.” In a guest editorial in the New York Times on the eve of the meetings, Fink argued that, “stimulating $1 trillion per year of public and private investment to reduce emissions will require closer to $100 billion in grants or subsidies from countries that can afford it.”
The agenda clearly has the support of the US, with Treasury Secretary Janet Yellen calling on the Bank and other MDBs to come up with a plan to double their mobilised private climate finance by 2025 in her statement to the Development Committee.
As Prof Daniela Gabor notes, a core problem with this approach is that it relies on public finance and developing states to de-risk private finance’s profits, typically with new user costs passed on to the poor (see Observer Summer 2021).
BWIs silent on People’s Vaccine and G20 fails to address debt crisis as unequal recovery widens
Despite the G24’s call for a patent waiver for Covid-19 vaccines (see Dispatch Annuals 2021), the BWIs seem content to work within the current system, with multiple attempts by civil society to ask Bank and Fund officials about their institutions’ position on the suspension of intellectual property rights for Covid-19 vaccines during the meetings met with vague answers and general confusion.
The communiqué for the IMFC – the Fund’s direction setting body – noted, “To help advance toward the global goals of vaccinating at least 40 percent of the population in all countries by the end of 2021 and 70 percent by mid-2022, we will take steps to help boost the supply of vaccines and essential medical products and inputs in developing countries and remove relevant supply and financing constraints.” Similarly, the G20 communiqué, issued on 13 October, merely stated that the G20, “will strive to help address the bottlenecks and shortages of COVID-19 tools in low- and middle-income countries over the coming months, reaffirming our commitment to ensuring a safe, equitable and affordable access to vaccines, therapeutics and diagnostics.” These calls failed to address the elephant in the room: That a handful of countries have blocked the call for a People’s Vaccine, via a TRIPS waiver at the World Trade Organisation, that would temporarily remove intellectual property rights protection on Covid-19 vaccines and other treatments to help facilitate a quicker end to the pandemic in low- and middle-income countries – despite support for this measure by over 100 of the Bank and Fund’s member countries, including the United States (see Observer Summer 2021).
The effects of this lack of solidarity are most apparent in Africa, where just 4.4 per cent of the population was fully vaccinated at the end of September, and only 15 countries have succeeded in vaccinating more than 10 per cent of their populations, according to data from the World Health Organization.
Soberingly, new research by the Bank and Fund suggests that in 52 low- and middle-income countries, health spending is expected to decrease by 10 per cent by 2026 relative to pre-pandemic levels, as part of reduced per capita government spending in these countries, which could further impede their ability to effectively fight Covid-19. The research comes as a new report from ActionAid International released on 12 October showed that the IMF continues to recommend public sector wage bill cuts and freezes as one of its core policy prescriptions in many countries – advice that has already had a devastating impact on health and education sectors in recent years (see Observer Autumn 2021).
This situation will not be helped by the G20’s failure to address the debt crisis – which pre-dated, but has been greatly exacerbated by, the Covid-19 pandemic, and has witnessed private creditors continue to profit from states in deep distress. New research released by UK-based civil society organisation Jubilee Debt Campaign (JDC) on 12 October showed that the G20’s Debt Service Suspension Initiative (see Observer Winter 2020) had resulted in the suspension of just a quarter of the loans in debt-stricken countries that had applied for the scheme. It noted, “that 46 lower income countries that applied for the scheme still paid out $36.4 billion in debt payments. This is compared to $10.3bn of debt payments that were suspended and $0.6bn cancelled.” JDC stressed that, “Private creditors suspended just 0.2% of debt payments and were paid $14.9 billion during the pandemic, as they were not compelled to take part in debt suspension.” Despite the deeply unhelpful role played by private creditors in response to the current debt crisis – which is contributing to needless deaths from the pandemic in many countries – as noted above, both the Bank and Fund refuse to take a firm stance on their apathy.
These dynamics could be further exacerbated by the prospect of inflation in high-income economies leading to further tightening of fiscal conditions in LICs, as highlighted by the Fund in the latest edition of its World Economic Outlook, released in early October.
G20 ‘orders’ IMF & Bank to work together on Resilience and Sustainability Trust
In the face of acute financing needs in low- and middle-income countries dealing with debt distress and struggling to respond to the pandemic, discussions around ‘re-channeling’ of rich countries’ Special Drawing Rights captured the attention of civil society and foundations alike in the run-up to and during the meetings (see Dispatch Annuals 2021, Observer Autumn 2021). This culminated in the G20’s communiqué calling on “the IMF to establish a new Resilience and Sustainability Trust (RST) – in line with its mandate – to provide affordable long-term financing to help low-income countries, small developing states, and vulnerable middle-income countries to reduce risks to prospective balance of payment stability, including those stemming from pandemics and climate change.” The G20 added, “We call upon the IMF and World Bank (WB) to collaborate closely to develop and implement financing under the RST.”
All eyes will now turn to the design of the RST. While the G24-backed Taskforce on Climate, Development and the IMF has called for the new trust to avoid “onerous conditionality”, Yellen’s statement to the Development Committee revealed that the Fund’s largest shareholder has quite a different vision for it. The Treasury Secretary opined that, “To make the RST effective, the IMF will need to work closely with the World Bank to leverage the Bank’s subject matter expertise when designing health and climate policy conditionality.”
Meanwhile, plenty of observers questioned the need for the RST in the first place, with the new fund along with the existing IMF Poverty Reduction and Growth Trust seemingly poised to absorb much of the ‘re-channelled’ SDRs provided by wealthy countries from August’s $650 billion allocation. Among them was Hannah Ryder, CEO of Development Reimagined, who noted in a piece for the Africa Report, “for climate change there are already existing, cash-strapped climate funds. The Green Climate Fund (GCF) in particular, has been in place for over ten years and has a hard-won, equal developing and developed country decision-making structure. It also has the World Bank as an arms-length trustee, which means SDRs can also be channelled into it.” As Martin Muehleisen, former head of the IMF strategy division argued, the creation of the RST signals “a fundamental reorientation” of the IMF’s agenda, likely leading to overlap between its work and that of the Bank.
Will the IMF’s wealthy shareholders agree to conditionality-free use of SDRs, whether re-channelled through the RST, GCF or elsewhere – perhaps as a goodwill gesture of solidarity given the Global North’s enormous ‘climate debt’ owed to developing countries for historic greenhouse gas emissions that have resulted in increasingly worsening climate change impacts?
Based on the evidence on show at this year’s Annual Meetings, don’t bank on it (see Dispatch Annuals 2021).