As predicted, this year’s World Bank and IMF Annual Meetings were framed by grim economic projections, the war in Ukraine, the connection between the worsening debt and climate crises, and the related negative impact on social cohesion and political instability. The IMF’s World Economic Outlook report, launched during the meetings, highlighted that, “Global growth is forecast to slow…[to] 2.7 per cent in 2023…[the] weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic.” The UN Conference on Trade and Development (UNCTAD) Trade and Development report, released immediately before the meetings, made for alarming reading, stressing that the impact of uncoordinated interest rate increases by central banks in high-income countries (HICs) has made “the possibility of a widespread developing country debt crisis…a very real one….ending any hope of meeting the sustainable development goals (SDGs) by the end of the decade.” Civil society’s End Austerity report launched in September as part of the End Austerity Campaign underscored the implications of these trends, predicting that 85 per cent of the world’s population will live under austerity measures by 2023, with all the well-documented human rights implications. Meanwhile, a human rights angle to these issues was considered a “non-starter” in discussions on gender equality strategies at both the IMF and World Bank, revealing that the claim made by former UN special rapporteur on extreme poverty and human rights, Philip Alston, in 2015 that the World Bank is a ‘human rights-free zone’ continues to be an apt description of the Bank and Fund’s approach.
The World Bank’s Poverty and Shared Prosperity (PSP) report, titled Correcting Course adds to the list of depressing reads, remarking that, while the rate of global poverty reduction has been slowing since 2015, “COVID-19 and later the war in Ukraine produced an outright reversal in progress,” asserting that the goal of ending global extreme poverty by 2030 will not be reached. UNCTAD’s report connects these trends and stresses that, “In some countries, the economic hardship resulting from these compounding crises is already triggering social unrest that can quickly escalate into political instability and conflict.” Concerns about the multilateral system’s legitimacy and capacity to respond to more complex challenges are not new (see Observer Summer 2019; Briefing Bretton Woods at 75 and the Future of Multilateralism) and neither are calls for a new multilateralism, including from within the Bretton Woods Institutions, with former IMF Managing Director Christine Lagarde making just such a plea in 2014.
Anxieties about the fragmentation of the global economy and the multilateral order were a central theme of this year’s Annual Meetings, as noted by The Guardian on 15 October, with IMF Managing Director Kristalina Georgieva warning at her press briefing on 13 October that we may be entering a period of uncertainty and volatility and that, “fragmentation in the world economy also means that we might see shifts in supply chains that impact cost structures on a more permanent basis.” These dynamics, exacerbated by Russia’s war in Ukraine, were reflected in the absence of communiqués from the G20, the International Monetary Financial Committee and the Development Committee, as was the case at the Spring Meetings in April (see Dispatch Springs 2022).
The growing popular frustration with the failure of international governance structures – and the World Bank and IMF in particular – to respond to the worsening situation was evident from the number of protests and demonstrations during the Annual Meetings, including a World Bank Action Day, an IMF and World Bank out of the recovery event, and a people’s tribunal on the IMF and World Bank. Despite the scale of the problems, the rhetoric by the Bank and Fund about ‘correcting course’ and the mounting popular discontent, signs of long-demanded structural changes at the Bretton Woods Institutions or a change in their policy approach were not evident.
Climate emergency accelerates while BWIs remain out of touch
Alongside the war in Ukraine and inflation, climate change was the other major issue on the agenda at the Meetings. But as with the debt crisis, the disconnect between the scale of the issue and the proposed solutions became ever more apparent. Ugandan climate activist Vanessa Nakate teared up at an IMF opening event on 10 October speaking of the immense burden that communities and activists are carrying, imploring decision-makers to realise the harsh reality and urgency on the frontlines of the crisis. However, most official rhetoric from the Bretton Woods Institutions on climate during the meetings failed to even acknowledge the principle of climate justice. The World Bank tried to drone out increasingly louder calls for President David Malpass’s removal by reporting $31.7 billion of climate finance in fiscal year 2022, launching a new trust fund to provide grants for climate-related results and claiming to be “the largest multilateral funder of climate investments in developing countries”. Yet, a new report from Oxfam published ahead of the Annual Meetings found that due to unverifiable accounting practices, the Bank’s claims could be off by as much as 40 per cent – only the latest civil society publication to cast doubt on the Bank’s climate track record (see Observer Autumn 2022).
At the meetings, Germany, the US, G7, and other high-income countries amounting to half of the Bank’s shareholders proposed a series of reforms to bolster the Bank’s climate leadership, including by providing concessional finance and grants, targeted budget support for climate adaptation especially for middle-income countries that can’t usually access more concessional financing instruments, as well as expanding social protection to enhance resilience to climate shocks, as reported by Politico and the FT. Together with calls from the Global South such as Barbados Prime Minister Mia Mottley’s Bridgetown Agenda, the pressure on the Bank to seriously step up its climate ambitions from Northern shareholders was palpable, with senior officials noting that the Bank’s leadership on climate must move beyond yet another climate fund. Throughout the week, demonstrations from protesters including a large march on Friday, disruptions of official events, and other civil society actions highlighted the World Bank’s investment of $14.8 billion in fossil fuels since the Paris Agreement, and called for Malpass’s firing, as well as debt cancellation in climate vulnerable countries. These direct actions were accompanied by rich civil society discussion about climate change solutions such as implementing the “polluters pay” principle, a cap and fee system for resource extraction, and the necessary reconsideration of an extractivist growth model that threatens to absorb any efficiency gains made through a clean energy transition. While shareholders are strongly calling for the Bank to evolve its approach, and make climate more central to its work, it remains to be seen how ambitious this will be under its current leadership.
On the IMF’s side, the Resilience and Sustainability Trust (RST) was operationalised and received a first round of $20 billion in rechannelled SDRs from Australia, Canada, China, Germany, Japan, and Spain, together with a first set of staff-level agreements to access RST finance with Barbados, Costa Rica and Rwanda. While IMF leadership and shareholders widely touted the RST as a ground-breaking innovation, its problematic access conditions and provision of loans rather than grants – adding to vulnerable countries’ indebtedness – make it hardly a radical contribution to the required scale of climate finance (see Observer Autumn 2022). Calls for a fresh SDR allocation that would provide debt- and conditionality-free financing fell flat, both out of inflation fears and – although not officially – as such a new allocation would also transfer SDRs into Russia’s coffers and counteract Western sanctions.
IMF keeps head in the sand on scale of debt crisis
One clear financing solution for climate vulnerable countries was not even tabled: debt relief. A recent report from Belgium-based CSO Eurodad found that small island developing states, among the most vulnerable nations in the world to climate change, spent 18 times more in debt repayments than they received in climate finance between 2016-2020. The V20 communiqué issued on 16 October thus called for immediate reform of the sovereign debt architecture and debt relief for the purpose of climate finance, building on an earlier V20 report showing that climate change-induced economic losses had wiped out 20 per cent of their countries’ GDP in the past two decades. Indeed, even the IMF’s own research in August showed that only 7 out of 29 low-income countries have the fiscal space to realise investments necessary to protect themselves from climate impacts. In the meantime, Chad’s debt restructuring under the Common Framework was called into question by private investors due to the country’s oil wealth, demonstrating the clear trade-off between debt repayment and climate goals for commodity-dependent countries.
Meanwhile, no new ideas came from the Bank and Fund other than promoting the glaringly insufficient Common Framework (see Observer Winter 2020), while a public panel including the IMF’s deputy managing director Gita Gopinath refused to acknowledge that the world is facing a structural debt crisis, instead suggesting more debtor discipline. More radical and comprehensive solutions, from IMF gold sales to fund debt relief to a UN debt workout mechanism, were not considered – let alone an acknowledgement of the debt that the Global North’s cumulative greenhouse gas emissions have incurred to the rest of the world. Given the absence of ideas from the BWIs, a group of 20 vulnerable countries is now considering halting their debt repayments, according to the New York Times. Global civil society staged another global week of action for debt cancellation, calling for a transparent and fair debt workout mechanism, non-debt climate finance, and reparations.
Absence of adequate responses underscores the need for BWIs governance reform
While increased social tensions, the threat of political instability and fragmentation of the world economy and multilateral system were a constant theme, few concrete proposals for urgently needed governance reforms at the World Bank and IMF were discussed.
Despite calls from the G24 in its communiqué for at least a temporary suspension of IMF surcharges, strongly supported by civil society (see Observer Winter 2021), and for the 16th General Review of Quotas to include a realignment of quota shares away from high-income countries to middle- and low-income countries, there was little sign of progress on either of these fronts. While Georgieva acknowledged at her townhall meeting with civil society that a failure to complete the review would damage the institution’s credibility and encouraged those present to ‘lobby their governments’, much scepticism remains about the prospect for a quota realignment or expansion (see Observer Autumn 2021), with senior officials noting that the level of multilateral cooperation present at the last, very contentious 14h General Review of Quotas which only became effective in 2016, is absent today.
Once more, the official silence and stalemate about this key issue was contrasted by creative ideas from civil society. Former General Director of the Central Bank of Ecuador, Andrés Arauz, proposed the inclusion of a cumulative greenhouse gas emissions variable in the openness element of the IMF’s quota formula at a Civil Society Policy Forum event on the topic. Given the Global North’s overwhelming responsibility for these emissions, this proposal would radically shift the power within the institution and incentivise radical emission reduction, taking the US voting share from 16.50 per cent to 5.63 per cent, thus depriving it of its current veto, while boosting the shares of small island states that are currently particularly voiceless.
Former Brazilian executive director to the IMF and former vice-president of the New Development Bank Paulo Nogueira Batista also shared his proposal for quota reform at a side event on 15 October organised by the Bretton Woods Project and partners titled IMF policy and governance in the context of the ‘poly-crisis’: What next?, suggesting an expansion of “basic votes”, which are allocated equally to each state and currently sit at 5.5 per cent of the total. Noting that radical reform would be difficult, panellists stressed that the establishment of an additional Sub-Saharan African chair would begin to address some deficits at the IMF’s executive board, as would ending the gentleman’s agreement guaranteeing US-European leadership at the BWIs. The panellists made clear that the lack of coordination within the multilateral system is having dire effects. Arauz noted that while there is much talk by the IMF of the perils of inflation, experiences vary widely, with many middle- and low-income countries forced to raise interest rates and divert resources from the real economy not to address inflation, but in an attempt to stem the flight of foreign capital.
While the Correcting Course title of the World Bank’s latest PSP report would seem cause for hope, the trajectory of this course correction looks troubling. The Bank was under intense pressure during the Annual Meetings to take steps to “better respond to global challenges”, in the words of US Treasury Secretary Janet Yellen’s statement to the Development Committee, which largely reiterated positions she outlined in advance of the meetings (see Observer Autumn 2022). The aforementioned reform proposal from Germany and the G7+ also called for “fundamental” reforms at the World Bank, asserting that its business model “is no longer appropriate in this time of global crises.” Secretary Yellen asked Bank management “to identify gaps in the WBG’s current institutional and operational framework, and…deliver a roadmap by year-end for consideration by the…Executive Board.”
While civil society agrees the World Bank needs fundamental reform, the question remains – what type of reform and to what end? There is certainly agreement on the need to ensure additional development finance is available and that, in the absence of grant-based financing, borrowing costs should be reduced. However, concerns about the Bank’s proposed approach remain, with no debates at the Annual Meetings fundamentally questioning the model of increasing financialisation and market-led solutions, and their contribution to the fight against the multiple crises facing the globe. Civil society reiterated calls for the multilateral system, and the World Bank and IMF in particular to cancel debts owed to them, to increase concessional financing to middle- and low-income countries to ensure the viability of projects in the public interest and to strongly support public financing, through a focus on progressive taxation and increased state regulatory and administrative capacity.