The World Bank and IMF – the so-called Bretton Woods Institutions (BWIs) – were founded amid crisis nearly eight decades ago to tackle the dire challenges facing multilateralism, and indeed Western capitalism, after World War II. Faced with a grim new global context precipitated by yet another war in Europe and widespread fears of growing political and macro-instability, concerns that the BWIs as currently constituted are not up to the challenge of addressing the crises of the present day came to the fore during this year’s World Bank and IMF Spring Meetings.
The meetings concluded last week in Washington DC with frantic calls for stronger multilateralism, but few advances were made on key issues such as resolving debt crises across the developing world and scaling up Covid-19 vaccine delivery in the Global South.
Geopolitical fragmentation within the G20 – already a feature of recent Spring and Annual Meetings since the pandemic started – boiled over as Western government delegates and allies staged walkouts when Russia’s representative began to speak at the G20 meeting of finance ministers and central bank governors on 20 April and the Development Committee’s meeting on 22 April, in protest at Russia’s invasion of Ukraine.
The invasion has already created severe economic spillovers that are adding fuel to the fire of the existing Covid-19, debt, inequality and climate crises – namely through rising fuel and food prices globally, supply-chain disruptions and loss of investor confidence.
The G20’s failure to agree a communiqué – or progress on issues of urgent importance, including strengthening its Common Framework to address the debt crisis – left a gaping hole in the Spring Meetings agenda. The communiqué of the International Monetary and Finance Committee (the key decision-making body of the IMF) was replaced by a chair’s statement on 21 April after Russia prevented the adoption of language condemning its military aggression in Ukraine. The Development Committee also failed to issue a Spring Meetings communiqué.
The G7 issued a statement saying it regretted “participation by Russia in international fora, including G20, IMF and World Bank meetings this week,” according to a 22 April article by the Financial Times. “The future of multilateralism is at risk at a time when we need it most,” Mohamed El-Erian, a former deputy managing director at the IMF, told The Guardian in an article published on 21 April – reflecting on the chaos that descended on the G20, a bloc which since the global financial crisis in 2008 has been arguably the most influential decision-making forum for global economic matters. “The G20 is too divided, and lacks continuity. It’s always been a puzzle to me why it doesn’t have a secretariat. …The G7 is too narrow in terms of membership.” Instead, he suggested “a reformed and revamped IMF and World Bank” as more adequate fora to respond to the present global challenges.
Just as worrying, however, was that amidst this open war of words among key shareholders of the BWIs, the Bank and Fund seemingly lacked the ability to advance policy proposals that matched the scale of the current global challenges.
Global instability set to rise: Ukraine conflict feeds fuel and food price rises, as debt crises begin to materialise
Discussion of food and fuel prices shocks were one of the dominant themes of the Spring Meetings, highlighted by IMF Managing Director Kristalina Georgieva during her opening speech and the IMF’s April 2022 Fiscal Monitor update, among many others, with the prospect of deepening inequality and political unrest a very real possibility in many places.
With Ukraine and Russia together representing a quarter to half of the world’s trade in wheat, barley, and sunflower oil, the war is exacerbating a surge in commodity prices and food insecurity in many developing countries. According to a UNCTAD rapid assessment released on 16 March, 18 African and Middle Eastern countries source over 50 per cent of their wheat from these countries. The latest World Bank data show energy prices doubled over the past year, while non-energy commodity prices rose over 30 per cent. With last year’s UNCTAD Commodity Dependence Report showing that two-thirds of developing countries remain commodity dependent with little change over the past decade, such fluctuations will have major ripple effects. Caroline Delgado of Stockholm International Peace Research Institute noted in her 1 April blog that, “History is rife with examples of how increasing food insecurity has contributed to the emergence and duration of violent conflict, from the French and Russian revolutions to the Arab Spring” – a parallel also drawn by other civil society observers.
In response to these challenges, the World Bank announced on 19 April that “over the coming weeks it will be discussing with its Governors and Board of Executive Directors a 15-month crisis response financing package of around $170 billion to help countries address multiple overlapping crises.” This shift appears to involve the leveraging of existing World Bank resources – with the potential for a further capital request from World Bank shareholders on the horizon.
The IMF Fiscal Monitor’s policy recommendations for dealing with the fall-out from these evolving shocks, meanwhile, included targeted transfers via social safety net systems. However, on the eve of the Spring Meetings, Human Rights Watch (HRW) criticised this approach in a 14 April article. “One of Covid-19’s many painful lessons is that targeted social safety nets leave large segments of the population vulnerable to hunger, homelessness, and other problems,” said Lena Simet of HRW, “yet the IMF and World Bank appear to be doubling down on this second-rate approach to social protection” (see Observer Spring 2018).
After two years of pandemic, fiscal space to cushion these shocks has run dry in vulnerable countries, a situation made worse by spiralling debt. The debt crisis, brewing over the pandemic years, is now imminent: about 60 per cent of low-income countries are in debt distress or at high risk of it, and debt servicing – including punitive surcharge payments to the IMF (see Observer Spring 2022) – is draining away resources that are now even more urgently needed. Meanwhile, inflation, coupled with quantitative tightening and interest rate rises in higher-income countries, is predictably leading to capital flight from the Global South and possibly another global recession. Sri Lanka’s recent debt default may be the first in a wave of defaults of the world’s poorest countries. Although leading IMF figures have rung the alarm bell and called for “decisive cooperation” and a step-up of the G20 Common Framework (CF), the Spring Meetings brought little progress on improving the CF or developing alternatives for debt relief. The fact that after over a year of stalled progress and only three countries applying – China joining Zambia’s creditor committee was hailed as a big success while Georgieva desperately insisted at the IMFC press briefing that “we have to make [the CF] work” – betrayed the woeful inadequacy of existing mechanisms and lack of political will for alternatives (see Dispatch Springs 2022). While she noted efforts to “close loopholes for vulture funds and others to prevent debt resolution,” a more comprehensive debt workout mechanism, as proposed by civil society, was absent from the agenda.
Despite progress on gender mainstreaming, calls for an end to austerity and support for progressive taxation still seem to fall on deaf ears
Just as the official meetings began, Oxfam published an updated dataset of IMF loans and surveillance documents as well as a poverty report, demonstrating that despite its rhetoric, the IMF continues to push for austerity while the global economic and health crisis is far from abating and over a quarter billion people could fall into extreme poverty this year. According to the data, between 85-87 per cent of IMF Covid-19 loans of the past two years required developing countries to adopt new austerity measures, which was mirrored by IMF Article IV reports for Africa, where all except one encouraged fiscal consolidation. The report stressed that these expenditure cuts mean chances of achieving the SDGs will “disappear” in many African countries.
Austerity was a common theme at several panels of the Civil Society Policy Forum (CSPF), highlighting the impacts on women as crisis “shock absorbers”. For example, in Malawi, Ecuador and Pakistan, budget cuts to the public health sector have led to increases in consumer debt and in unpaid care labour, according to recent research from Third World Network. Meanwhile, “the great majority of Covid relief went to corporate stimulus, while only a fifth went to social welfare,” according to Stella Agara of Uganda-based CSO Akina Mama Wa Afrika. Familiar defences from IMF executive directors, leadership, and staff such as Fiscal Affairs Deputy Division Chief Mauricio Soto emphasising that the IMF “has called for more spending and did not recommend cuts to poor countries during the pandemic”, held little water against the data painstakingly collected by civil society, demonstrating that the “spend, spend, spend” rhetoric really only applied to high-income countries (see Dispatch Springs 2021).
Discussions on the upcoming IMF gender strategy and the gendered impacts of surcharges emphasised that current efforts are “necessary, but not sufficient given the scope of what we are talking about. A gender-equal economy is not about fixing gaps, but about transforming the system,” as highlighted by feminist economist Mariama Williams during a CSPF event on the IMF’s new gender strategy. Although the IMF has repeatedly denied that human rights are part of its direct mandate, a 4 February letter from Georgieva emphasised that creating the necessary macroeconomic preconditions for them is. Putting this ambition into practice could not be more urgent.
One solution to escaping conflicting pressures between calls to adapt its mandate and others decrying the IMF turning into an aid agency, as well as to break the Groundhog Day of austerity measures on the heels of a global crisis, would be for the Fund to throw its full weight behind a progressive taxation agenda. Yet, despite encouraging recent publications such as the 2021 Fiscal Monitor and research on gendered taxes, high-level officials and country teams seemed hesitant to endorse this agenda, continuing to defend regressive value-added taxes as “a fantastic way of collecting revenues” and requiring or recommending regressive tax measures in most pandemic-period loan documents, often to tax essential items. Nadia Daar of Oxfam pointed out during the CSPF that, “The IMF carries responsibility for social unrest in countries, if you continue to allow tax evasion while pushing the burden on poor people. We need to see the IMF fundamentally thinking about the distributional impacts of its policies” (see Observer Spring 2022).
The RST is born: A continuation of the BWIs’ undue influence over countries’ policy space?
The IMF’s new Resilience and Sustainability Trust was approved by the executive board on the eve of the meetings on 13 April. The stated focus of the RST will initially be on addressing prospective long-term balance of payments issues stemming from climate change and pandemic preparedness.
Despite concerns raised by civil society and indeed by climate vulnerable countries – who are the intended recipients of the RST’s finance – about serious flaws in its proposed design, which was first revealed in February (see Observer Spring 2022), the RST was approved with few meaningful tweaks to its approach.
Georgieva subsequently announced at the IMFC press briefing on 21 April that 12 countries have committed “close to” $40 billion to the RST through on-lending of their Special Drawing Rights (SDRs), following last August’s $650 billion SDRs allocation (see Observer Autumn 2021). The RST’s initial list of supporters, according to Georgieva, includes China, Japan, South Korea, Italy, France, Germany, Saudi Arabia, the Netherlands, Canada, the UK, Switzerland and Spain.
The US, which as the IMF’s largest shareholder received some $113 billion worth of SDRs in August’s allocation, has yet to commit to supporting the RST, after a spending bill passed in March by the US Congress failed to heed the Biden Administration’s request to reallocate its SDRs, including to the RST.
In order to access financing from the RST, low-income and vulnerable middle-income countries will need to undertake qualifying reforms (i.e., conditionality) and have an existing IMF (financial or non-financial) programme in place. The RST will provide concessional loan financing – rather than grants – with grace periods of up to 10 ½ years.
A board paper covering the RST proposal published by the IMF on 19 April, gives some indicative examples of what the RST’s ‘climate conditionality’ could look like, ranging from assessing the climate-related risks of development strategies to support for adaptation and mitigation strategies in a way that accounts for their macro-economic dimensions. The board paper makes clear that the BWIs will collaborate closely on the climate-related policy reforms that will emerge via the RST, with the World Bank’s new Country Climate and Development Report diagnostic highlighted as a “critical input” in countries where it is available.
However, this policy agenda has been shaped with little input from climate vulnerable countries themselves, and it was telling that the V20 Group of Finance Ministers’ communiqué published during the Spring Meetings called for the RST to avoid the use of “prohibitive conditionality” (see Dispatch Springs 2022).
At a CSPF event on 11 April, participants noted that while the SDRs allocation itself had provided many low- and middle-income countries with a vital source of conditionality- and debt-free liquidity to help them tackle the Covid-19 crisis, the reallocation of better-off countries’ SDRs via the RST will provide neither debt-relief nor financial support without strings attached (Dispatch Springs 2022).
With the amount countries can borrow from the RST capped at 1 billion SDRs or 150 per cent of their IMF quota – whichever is lower – the RST’s impact could be muted, despite much rhetoric by the Fund to the contrary. As Lara Merling of Boston University’s Global Development Policy Center stated in a New Republic article published on 20 April, “It’s not enough money to actually meet adaptation needs or mitigation needs…but using it means the IMF could shape your policy agenda.”
Given the gravity of the current global context, such half measures are unlikely to avert the potential catastrophes that loom perilously on the horizon.