Temperatures have risen over the past week, both in the sunny streets of Washington DC and at IMF and World Bank headquarters. The World Bank and IMF Spring Meetings took place from 10-16 April with a calendar full of high-level and bilateral meetings, Civil Society Policy Forum events and protests. The credibility gap of the Bretton Woods Institutions (BWIs) and their powerful country shareholders’ role in solving global problems was ever more palpable, despite lofty rhetoric. As advanced economies are slowly emerging from the inflationary dynamics that hampered their economies in 2022, the interest rate increases implemented by their central banks in response are wreaking havoc in low- and middle-income countries (LMICs) – a growing problem not receiving enough attention due to geopolitical tensions.
Hopes for genuine reform were tied to one of Spring Meetings’ main characters, the World Bank’s Evolution Roadmap, driven by G7 calls for the Bank to scale up finance to expand its ability to respond to climate change and other crises reversing development gains. However, the second iteration of the roadmap focused heavily on financialisation and de-risking to crowd in private capital, while failing to acknowledge the importance of governance reforms and protection of human rights. At the Spring Meetings there were few signs of shareholders moving towards a more adequately financed World Bank, with developed countries either failing to mention a capital increase or outright rejecting it, to avoid the possibility of their shares at the Bank being reduced in China’s favour. Instead, Western nations sought to squeeze more capacity out of existing resources by lowering the Bank’s equity-to-loan ratio. Despite annual external financing needs of $1 trillion by 2030 to address climate needs and reach sustainable development goals (SDGs) for LMICs other than China, the World Bank would be stretching its balance sheet to deliver a projected additional lending of $50 billion over the next decade under reforms discussed in the first phase of the roadmap, with none of these reforms resulting in a larger pool of concessional and grant financing. Despite growing acknowledgement amongst staff and high-level officials during the meetings that the ‘Billions to Trillions’ approach has thus far failed to mobilise private finance for development at scale, the Bank remains committed to catalysing the private sector, promoting the same trickle-down economics that so far hasn’t delivered economic transformation.
Calls for stepping up financing have also been growing at the IMF as demand for financing reaches acute levels. Almost 40 countries have expressed interest in the IMF’s Resilience and Sustainability Trust – a reflection in part of the large number of countries likely to require new loan programmes from the Fund in the face of continued spill-over effects from 2022’s inflationary dynamics in the Global South (see Observer Spring 2023). The demand for the Fund’s Poverty Reduction and Growth Trust (PGRT) is also anticipated to remain high post pandemic, amounting to a need of about 12.5 billion Special Drawing Rights (SDRs) until 2024. During the Spring Meetings, IMF Managing Director Kristalina Georgieva called on shareholders to pledge $4.7 billion to close the loan resource gap to restore access to concessional financing for PRGT.
While such efforts are certainly welcomed, they will do little to improve the precarious economic condition many developing countries find themselves in. The impact of inflation and food insecurity exacerbated by Russia’s war in Ukraine (see Observer Summer 2022) is adding strain on public debt, with 60 per cent of low-income countries (LICs) already at high risk of or in debt distress, according to the IMF. While the current debt dynamics have not reached pre-HIPC levels, the world is dangerously close to a debt crisis. To address this growing challenge, some IMF representatives are calling on Western countries to provide a relief and aid package matching that of the landmark 2005 Gleneagles Summit deal, which would entail doubling the aid to Africa and developing a comprehensive package of debt relief to address the severe funding crunch affecting African countries. These calls are aligned with UN Secretary General Antonio Guterres, who has repeatedly demanded that Western countries increase their overseas development aid to support the implementation of SDGs.
While both the Bank and the Fund are declaratively committed to supporting SDGs within the scope of their mandate, they are outright rejecting that their work has any human rights implications, choosing instead to look at issues from a corporate investment perspective in terms of economic growth opportunities and debt repayment certainty, even at the expense of decreasing social protection. The IMF, for example, has long been ignoring the UN letter of allegation outlining concerns about the impact of IMF surcharge policy on human rights and it seems that only now there is some growing momentum amongst shareholders to revise the policy (see Observer Spring 2023). The lack of a human rights focus can be further exemplified in the International Finance Corporation’s – the World Bank’s private investment arm – draft policy on remedy and responsible exit, which failed to acknowledge that the institution has a human rights obligation to remedy harms to which they have contributed and fell short of providing a comprehensive plan for delivering remedy to affected communities. In response, civil society organisations (CSOs) are calling on the World Bank to use the opportunity provided by the roadmap to align its operations with human rights development indicators to connect external financial sustainability, public-sector financial sustainability and the realisation of specific fundamental human rights.
World Bank gender strategy update: Human capital over human rights
Following confirmation that the Bank’s gender strategy update process is now delayed by six months, CSOs entered the Spring Meetings conscious that discussions about it would be overshadowed by the roadmap. Though a concept note is yet to be released, the Bank’s gender team maintained an enthusiastic front, reassuring civil society that the Bank remains committed to addressing the mass reversals in gender equality of recent years. While there was cautious optimism regarding Bank commitments to consult with heterodox feminist economists and expand gender commitments across Country Partnership Frameworks, the overall focus currently reflects more of what came before: Micro-level programme work focused on gender-based violence, increasing labour force participation and job creation, and ‘empowerment’ of women into leadership positions.
CSOs criticised the Bank’s continued use of private sector jargon, which reduces women to untapped sources of income. Such an approach will inevitably line the pockets of private corporations attracted to Bank-promoted ‘business enabling environments’ in return for precarious work, low wages and inadequate social protection, all of which disproportionally impact women (see Observer Spring 2022). The dehumanising approach to gender at the Bank reflects wider civil society discontent with the Bank’s failure to include a human rights framing on grounds of the ‘political’ nature of such wording. On the 75th anniversary of the Universal Declaration of Human Rights, it’s crucial that the World Bank acknowledges that SDGs cannot be achieved without upholding human rights, and that anticipating the effect of loans and policy recommendations on human rights does not create inefficiency; rather, inefficiency is a consequence of the failure to meet basic human rights needs that would benefit the citizens of developing countries.
Democratic deficit continues, reaffirming need for a governance reform
Despite ambitious calls for reform at both BWIs, addressing their antiquated governance structures remains off-the-table for powerful shareholders. The gentleman’s agreement – forged at the Bank’s founding, when many of its current borrower countries had yet to gain independence from colonial rule – is alive and well, as US nominee Ajay Banga received support from Western countries before the nomination period for candidates to replace outgoing President David Malpass even ended (see Observer Spring 2023). While some voices within the Bank maintain that Banga’s nomination should have failed due to his lack of experience in development – the first criterium in the job description – there is nonetheless limited opposition to the appointment of yet another president hand-picked by the US.
Hopes for governance reform at the Fund also appear muted as the ambitions for the ongoing 16th Review of Quotas are constrained by the Fund’s antiquated power structure, which heavily favours the US, Europe, Japan and Australia. While the International Monetary and Financial Committee (IMFC) expressed a commitment to revise the quota formula and ensure the primary role of quotas in IMF resources, those ambitions now seem to be lowered to a simple equi-proportional increase in quotas, in which most shareholders would maintain their existing voting shares while increasing their financial contributions to the Fund, with perhaps some ad hoc reallocation of shares to emerging markets determined in closed-door negotiations. Alternative proposals, such as updating the formula variables with recent data for a more accurate reflection of the changes in the global economy or increasing the proportion of basic votes for a more equal representation of countries, seem to be unlikely to happen, as that would involve multilateral negotiations among shareholders with a low probability of consensus amidst growing geopolitical tensions. In the absence of a more transformative review, some shareholders expressed an appetite to add a third Sub-Saharan Africa chair to the IMF’s executive board, to increase the representation of the Global South
Indeed, geopolitical tensions were often invoked during the Spring Meetings as the main reason for the lack of progress on important issues and for reducing ambitions. The strained relationship with Russia was often framed as the main reason for limited discussions on a new allocation of SDRs to respond to the global need for liquidity exacerbated by the effects of the current polycrisis. Similarly, China was used as a scapegoat for the deadlock in debt restructuring within the G20 Common Framework (see Observer Winter 2020), with high-income countries failing to acknowledge more nuanced dynamics involving the growing diversity of the creditor basket and the need to involve the private sector and – potentially – multilateral development banks in debt restructuring efforts.
In such a difficult geopolitical context, the lack of leadership on the global stage is painfully visible. The US is largely taking a reactionary approach, blocking efforts for real reform which would involve a more equal power distribution within the World Bank and the IMF and, instead, is using these institutions to further its short-sighted geopolitical interests, with the most recent example being the approval of a $15 billion IMF loan to Ukraine under a new Extended Fund Facility Arrangement, as part of an overall support package of $115 billion. This support was available only after the Fund changed its rules to allow loan programmes for countries facing “exceptionally high uncertainty” – and marks the first time the Fund has lent to a country involved in active military conflict. While supporting Ukraine is undeniably necessary, other countries in urgent need of financing are unfortunately receiving far less consideration. Such a narrow short-term approach towards addressing the current crises risks exacerbating social tensions, fragility and violence, further endangering the social fabric in many countries.
As geopolitical tensions and lack of leadership continue to paralyse the BWIs, alternative multilateral financial institutions with a competing mandate such as the New Development Bank or the BRICS Contingent Reserve Arrangement may grow in regional influence, further widening the fragmentation that is undermining multilateral consensus. In response, CSOs have mobilised, calling for governance reform at the World Bank and IMF to meet the challenges of the 21st century, including by organising a dedicated event on the side-lines of the Spring Meetings, bringing together concerned organisations and individuals from around the globe to discuss concrete proposals for action to ensure a more just distribution of resources and power at the Fund and the Bank.
Concerns over shrinking civil society space and waning BWI staff CSPF enthusiasm
Such events will likely become more popular as civil society activists have seen their space shrinking considerably in recent years (see Observer Spring 2020). Further flags were raised during these Spring Meetings about last minute no-shows from IMF and World Bank representatives on CSPF panels, a frustrating experience when many have travelled across the globe solely for airtime with official representatives. Moreover, Southern civil society colleagues are cognisant of issues they may face at the upcoming Annual Meetings in October in Marrakech and have urged the BWIs to be proactive in ensuring there is open civil society space, free from detention or reprisals, particularly for CSOs from the MENA region (see Observer Spring 2023). Despite Bank and Fund assurances that visas and registration will not be an issue, concerns about delays and passport privilege filtering out Southern participants remain.
While the global outlook looks grim, hopes remain that a transformative reform of the global financial architecture is possible. After all, global change needs only a few key things: The context of a crisis, anger and mobilisation by citizens and a tipping point to drive governments into action. It remains to be seen whether the Bank and Fund – given their imbalanced governance structures that over-privilege creditor countries – have a leading role to play in driving the change.