As the World Bank and IMF Spring Meetings approach in Washington DC between 10 and 16 April with the arrival of cherry blossoms, the international geopolitical and economic context continues to be decidedly less pleasant. The January IMF World Economic Outlook Update’s projection of 2.9 per cent global growth for 2023 was nearly 1 per cent lower than the 2000-2019 average. In what has become the background chorus to the Spring and Annual Meetings in recent years, the report noted that, “the balance of risks remains tilted to the downside”, and this was before warnings by IMF Managing Director Kristalina Georgieva and others that recent banking failures could trigger a wider banking crisis.
In the global context of polycrisis (see Observer Autumn 2022), challenges to the current multilateral order, of which the World Bank and IMF are key pillars, are deepening. The much-discussed expansion of the BRICS (Brazil, Russia, India, China and South Africa) grouping to include the “PEAKS” countries (Pakistan, Egypt, Argentina, Kazakhstan and Saudi Arabia), and the complex dynamics evidenced in the UN General Assembly votes on the war in Ukraine – where a large number of countries, including from Sub-Saharan Africa, have abstained – are cases in point. As World Bank and IMF officials and governing bodies meet in Washington, diverse demands for reform, ranging from the G7+ led World Bank ‘evolution roadmap’ to the Bridgetown Initiative, the Summit for a New Financial Pact scheduled for Paris in June, and calls for a new non-aligned movement as outlined in the Havana Declaration in January (see Observer Spring 2023), will be centre stage. Meeting watchers will be awaiting the Development Committee and G24 communiqués with interest, especially after a February Financial Times article highlighted the G11’s concerns about the implications of the proposed reform for the Bank’s AAA credit rating and feared diversion of emphasis from its poverty reduction objectives and development needs of low-income countries (LICs).
As evidenced by a 29 March civil society open letter to the World Bank’s executive board signed by over 100 organisations and individuals calling for a merit-based, open and transparent presidential selection process, the perpetuation of the ‘gentleman’s agreement’ with the appointment of yet another US national to the post will no doubt be much discussed during the week. As if the unwillingness to do away with the anti-democratic and archaic agreement was not enough, the US’s nomination of former MasterCard CEO Ajay Banja, who lacks any development or human rights experience, has severely dampened any hopes that the roadmap will result in an urgently needed revaluation of the Bank’s development approach or commitment to human rights (see Observer Spring 2023). Against the cold reality of power politics, the adoption in November 2022 of a UN General Assembly resolution on increased global tax cooperation, raises hopes of shifting control of international tax discussions to the UN and away from the OECD. It is hoped this development will pave the way for additional global governance arrangements at the fourth Financing for Development Conference likely to take place in 2025, which could serve as a more equitable forum for global economic governance reforms.
Equitable reform and just transitions – Spring Meetings unlikely to see progress on either
The 2023 Spring Meetings will see the continuation of deliberations about how the international system can be reformed to meet the moment – a discussion which predates the Covid-19 pandemic, with former IMF Managing Director Christine Lagarde calling for a new multilateralism for the 21st century in 2014.
On the 75th anniversary of the Universal Declaration of Human Rights, those negatively impacted by IMF and World Bank policies, along with their global supporters, will look to take advantage of the moment to renew calls for the BWIs – as members of the UN system – to develop human rights policies and finally integrate a human rights framework into all aspects of their work.
With the Development Committee consultation paper released for discussion during the Spring Meetings, and the opening of a consultation process running to 31 May, the World Bank’s ‘evolution roadmap’ will be the centre of attention, with concerns raised about the lack of civil society consultation and transparency in the process. Criticisms about the process will be joined by a more substantive critique – the unwillingness to seriously question the effectiveness of the Bank’s private-sector and project-based de-risking approach to date. Those following the discussions are left to wonder how much evidence is required before the World Bank reconsiders its failed ‘billions to trillions’ agenda (see Dispatch Annuals 2020; Observer Spring 2020). Or alternatively, how much shifting of risk to the public sector and taxpayers is necessary to “maximise finance for development”, and ensure private profits.
As reported by the Financial Times in February, the largely US-driven reform agenda, principally focused on action on the G20 multilateral development banks (MDBs) Capital Adequacy Framework review’s recommendations – aimed at enabling increased lending by the Bank and other MDBs without recapitalisation – and a greater focus on climate finance and the needs of middle-income countries (MICs), is antagonising a number of LIC)s , who fear that the Bank’s ‘poverty eradication’ goals and their needs will suffer as a result of the likely reforms.
While conversations about the roadmap have been disconnected from discussions about SDRs, surcharges and the need for a reformed sovereign debt restructuring mechanism, civil society has been at pains to stress the linkages (see Observer Winter 2022). Even under the most generous assumptions, the ‘evolution’ proposed under the roadmap would result in a marginally better resourced World Bank, which would nonetheless require significant lead time to agree new country programmes and identify new ‘bankable’ projects – particularly in low-income countries. That is even before considering that a substantial portion of World Bank programmes will be based on loans and thus potentially further contribute to countries’ future debt loads, at a time when a growing number of low- and middle-income countries are in debt distress.
The evolving debt crisis will also remain a topic of discussion at the Spring Meetings, with UNCTAD General Secretary Rebeca Grynspan stressing in January that, “in 2021, developing countries paid $400bn in debt service, more than twice the amount they received in official development aid. Meanwhile, their international reserves declined by over $600bn last year, almost three times what they received in emergency support through the IMF Special Drawing Rights allocation.” Within that sombre context, civil society will continue to underscore the contradiction between discussions of MDB reform and the dysfunctional sovereign debt architecture.
Relatedly, the 16th IMF quota review, due for completion in December, will be discussed among civil society groups, if not openly by the IMF and its shareholders, during the Meetings. Given that Georgieva has admitted that a lack of progress on the 16th review would raise questions about the IMF’s legitimacy, all eyes will be on the US Treasury and the Fund’s powerful European shareholders (who have historically hand-picked the institution’s leader), as quota reform discussions based on staff calculations and scenarios of possible quota reforms take place.
As ‘smart economics’ reign supreme, the BWIs remain a ‘human rights-free zone’
As the clock ticks for the Bank to develop its gender strategy ‘update’, the issue seems to be increasingly pushed to the side amidst a 6-month delay to the consultation process and greater Bank focus on the roadmap, which is thus far completely lacking a gender lens (see Observer Spring 2023). Bank insiders have suggested that a more transformative, human rights-based approach to gender won’t get much traction with staff and that the existential threat of climate change means other issues might slide down the list of priorities, disregarding the importance of an integrated approach to ensure that a green transition does not entrench gender inequality and other forms of vulnerability. In the words of former UN poverty expert Philip Alston, the Bank remains “a human-rights free zone”.
Meanwhile, harrowing new details emerged in reporting by The Intercept about sexual abuse at for-profit school company Bridge Academies – in which IFC had invested $13.5 million before bowing to pressure to divest in March 2022 after its own ombudsman office (CAO) opened a still-ongoing investigation – demonstrating that despite institutional accountability mechanisms like the CAO, the WBG’s remedy framework remains woefully inadequate (see Observer Spring 2022). IFC’s recently published new Approach to Remedial Action was little more than a summary of existing policies, once again leaving affected communities without compensation. “IFC and MIGA have known for years that some of their investments cause environmental and social harm and that under international human rights standards, those who contribute to harm should contribute to providing remedy,” affirmed a joint civil society statement in February.
Across the street at the IMF, an independent accountability mechanism does not even exist. Building on their work at last year’s Annual Meetings, civil society groups and academics will once again advocate for clearer policies on “emerging issues” – including climate, gender and inequality – and an IMF ombudsperson, which would allow the Fund to better understand the environmental and social impacts of its policy advice (see Observer Summer 2022). Meanwhile, Georgieva continues to remain silent in response to a letter from nine UN Independent Experts and Special Rapporteurs pointing out the human rights impacts of the Fund’s surcharges policy, which levies exceptionally high interest rates on large loans from countries still struggling with the fall-out from the pandemic, food crisis, climate emergency and war (see Observer Spring 2023).
The gentleman’s agreement is alive and well as BWI reform dependent on large G7 shareholders and great power politics
Despite increased pressure from the US Treasury to develop a binding schedule for World Bank reform and – not entirely unfounded – finger-pointing at China blocking much-needed debt relief, the largest roadblock to transformative BWI reform seems to be the institutions’ biggest shareholders. At the IMF, the US welcomed the development of the Resilience and Sustainability Trust last year and urged major economies to re-channel their SDRs; yet it has not committed a single SDR to the RST itself. The Biden administration also seems to be hesitant to replenish the IMF’s CCRT and PRGT, for example through gold sales, while falling short even on its own pledges to step up international climate finance. Despite its public support for Ukraine, the US continues to oppose abolishing the IMF surcharges policy, which is estimated to have cost the war-torn country $483 million over the last two years. A much-overdue reform of the IMF quota system, in which climate vulnerable countries have negligible decision-making power, has also been held up by US refusal to lose its veto-power share in the current geopolitical deadlock.
Most blatantly, while the World Bank board superficially committed to an “open, merit-based and transparent” selection process for its next president, the Biden administration speedily nominated Banga, a Wall Street executive without development credentials, and yet another male American. In a disappointing show of eager obedience, Banga has received endorsement from a string of European governments – including Germany, who had previously boldly demanded that the next President be at least female – as well as a group of corporate CEOs and INGO leaders claiming to represent “civil society”. With Banga at the helm and a US administration reticent to pursue a more ambitious reform agenda, the Bank’s reform process risks a further entrenchment of the Wall Street Climate Consensus with public money used to de-risk “green” private investments without meaningful action on fossil fuels.
Indeed, research from civil society group The Big Shift in October last year showed that the Bank has invested $15 billion in fossil fuel projects since the 2015 Paris Agreement, and according to data from Oil Change International, remains the biggest funder of fossil fuels among the MDBs. Its just-published Paris Alignment Method for development policy financing inspires little confidence in a timely turn-around, remaining vague on how it will support country climate plans to align with the 1.5C target, and not ruling out further investments in oil and gas. This comes at the heels of the latest IPCC report delivering a final warning as the climate trajectory and ecosystem losses are now irreversible. Large shareholders like the US and fellow advanced economies should be at the forefront of the climate response, including by providing public financing for an equitable green transition, at scale.
Yet, it looks like the Spring Meetings will serve as a reminder that the geopolitics between advanced and large emerging economies remains the biggest obstacle to the modernisation of a badly outdated BWIs’ governance system and of an urgent shift away from their unsuccessful private-finance-first agenda towards green, human-rights centred fiscal and industrial policy.
To break this deadlock, a renewed commitment to multilateralism – with all the complications that implies – is sorely needed.