The World Bank and IMF Annual Meetings will take place in Marrakech, Morocco, against a backdrop of evolving crisis, in the aftermath of an earthquake that cost almost 3,000 lives. It is clear the disruption the pandemic inflicted on the global economy merely exacerbated long-standing structural problems. This fundamental inequity must be addressed if the world is to have a chance of successfully pursuing green economic transformation, achieving the Sustainable Development Goals (SDGs), and living up to the obligations and promises of the international human rights system established 75 years ago. As the World Bank moves toward finalising its ‘Evolution Roadmap’, and IMF shareholders struggle to agree on an outcome to the 16th Review of Quotas, the stakes in Morocco are high. In its July A New Agenda for Peace briefing, the UN warned that “unless States can manage their competition and move beyond their current divisions to find pragmatic solutions to global problems, human suffering will worsen.”
The Bank and the Fund agreed to go ahead with the meetings in Marrakech following a 6.8 magnitude earthquake on 8 September, after an assessment indicated they would “not disrupt vital relief and reconstruction efforts.” Together with the catastrophic flooding in Libya, the earthquake highlighted in stark terms the human cost of social inequality in the built environment, and the divergent development paths of the Global North and South, embodied in the trajectory of the African continent itself, where the meetings are being held for the first time in 50 years.
This is also the first Annual Meetings with new World Bank President Ajay Banga at the helm. Serious concerns have been raised about his corporate finance background at Mastercard, his lack of experience in international development, and his vocal support for public-private partnerships and financial inclusion to address poverty, and their possible negative impacts on gender equality (see Observer Summer 2023, Spring 2023). Mere months into his tenure as president, Bank shareholders face critical decisions over the future of the institution, embodied in its Evolution Roadmap, with the Bank’s next gender strategy (2024-2030) due to be finalised by early next year (see Observer Autumn 2023). These decisions will resonate far beyond World Bank’s headquarters, as it promises to live up to its new mission of ending extreme poverty and boosting shared prosperity on a liveable planet, as noted in a paper prepared for discussion by its Development Committee at the Annual Meetings.
Unless States can manage their competition and move beyond their current divisions to find pragmatic solutions to global problems, human suffering will worsenA New Agenda for Peace briefing, UN
As the Bank takes tentative steps towards reform, the Marrakech meetings have focused attention on the disastrous legacy of the Bretton Woods Institutions (BWIs) – the World Bank and IMF – on the African continent. The failure of the current international development paradigm is widely recognised, at least outside of the corridors of global power. None of the recent initiatives from the BWIs, the G20 or the much-hyped Paris Summit for a New Global Financial Pact will counter the fundamental inequities of the international economic system, or centred solutions on human rights, including the right to development. Civil society, in contrast, has articulated well evidenced alternatives and pathways for reform. The End Austerity Activism Festival in Marrakech on 7 October will counter the narrative that austerity is necessary and point to the damage it does to economies and societies, while the Reclaim Our Future conference, on 8-9 October, will highlight the role of the IMF and WBG in harming the peoples they have ostensibly been trying to help. On 9 October, a Workers’ Town Hall will bring together workers from across the MENA region and the African continent, and a Global Counter-Summit of Social Movements will run from 12-15 October, uniting social and climate movements, trade unions, women’s, small farmers’ and indigenous peoples’ organisations, and civil society.
Geopolitics and the IMF quota review
The IMF’s 16th Review of Quotas is due to be completed by 15 December, but remains mired in geopolitics. IMF Managing Director Kristalina Georgieva said the review of members’ quotas was important to ensure the Fund secured resources to support its members, and that a positive outcome was important to reflect “the current economic weights of member countries, including China” (see Observer Autumn 2022).
However, on 7 September, US Under Secretary for International Affairs Jay Shambaugh suggested the Biden administration favoured an equiproportional increase to IMF quotas, which would be allocated to all members in proportion to their existing quota share; the next hurdle will be agreeing on the size of the increase. In a veiled swipe at China, Shambaugh said the US would “continue to advocate for changes to the quota formula to make it more reflective of the global economy, including by giving more weight to dynamic emerging market economies,” but conditioned that on countries that would see a quota increase – like China – “respecting the roles and norms of the IMF and working to strengthen the international monetary system.” An IMF quota reallocation would also require US Congressional approval (see Observer Winter 2019), and a deal that increased China’s influence in the IMF could be a stumbling block. With European countries having the most to lose in a real realignment based on economic weight, it is difficult to see much space for a more equal redistribution of power.
Meanwhile, the African Union’s (AU) inaugural Africa Climate Summit, held from 4-6 September in Nairobi, Kenya, called for the redirection of at least $100 billion IMF Special Drawing Rights (SDRs) to Africa, funnelled through institutions like the African Development Bank (see Observer Summer 2023, Winter 2021). The AU also called on the IMF to issue at least $650 billion in new SDRs, equaling the historic 2021 issuance during the Covid-19 pandemic. An August IMF report concluded that the 2021 issuance helped IMF member countries meet their liquidity needs and reduced sovereign risk in Global South economies hit hard by the pandemic, while not contributing to inflation. However, the report also noted that a significant number of low-and middle-income countries (LMICs) felt the allocation was insufficient to meet their needs (see Observer Autumn 2023).
The BWIs and the crisis of development
In many ways, Africa is at the centre of what the World Bank itself recognises as a broader crisis of development. The Bank and Fund are deeply implicated in and morally compromised by the “malgovernance” of Africa’s economic development (see Observer Autumn 2023). Since the 1980s, they have been instrumental in the restructuring of African states in the interests of international business and finance, and ultimately in the perpetuation of the continent’s poverty and ‘underdevelopment’, as the lack of developmental transformation is normally described. Many African economies are dependent on commodity exports, heavily indebted, structurally vulnerable to economic shocks that have fuelled balance of payment crises and increased food insecurity across the continent, and are struggling to manage the growing challenges imposed by climate change. Recent civil unrest in Kenya may be a sign of worse to come (see Briefing, Assessing the Bretton Woods Institutions legacy: Critical views from the MENA region and Sub-Saharan Africa), as high levels of debt, economic malaise and IMF-backed austerity put pressure on livelihoods across the Global South and fuel social discontent and political instability. African leaders have been frank in expressing their concerns at the lack of progress in reforming the international economic architecture.
We are now halfway to the 2030 finish line set in 2015 for achieving the SDGs, but lag far behind in their realisation (see Observer Winter 2022). The problem, according to Rebeca Grynspan, Secretary-General of the UN Conference on Trade and Development, is a lack of political will. Powerful states and institutions like the Bank, Fund and the G20 at the heart of the global economy recognise that the world is facing serious challenges. But their solution is to double down on policies that have contributed to the crisis, or at the very least hobbled states’ ability to respond effectively to it (see Briefing, Learning lessons from the Covid-19 pandemic: The World Bank’s macroeconomic policies and women’s rights).
BWIs’ solutions reinforce problems with status quo rather than addressing them
The World Bank’s Evolution Roadmap envisages highly problematic, large-scale de-risking to mobilise development funding, and re-endorses the Bank’s Cascade approach, which enshrines a preference for private over public funding. It fails to acknowledge that the type of projects designed to attract profit-seeking private investors and generate quick returns are unlikely to match the public interest and national or local priorities, or support sustainable economic transformation (see Observer Summer 2023). The recent G20 New Delhi Leaders’ Declaration, issued after the 9-10 September leaders’ summit, endorsed the G20 Independent Review of Multilateral Development Banks’ (MDBs) Capital Adequacy Frameworks, which included proposals for balance sheet optimisation reforms to increase lending, facilitate the channelling of SDRs to MDBs, and explore the potential of hybrid capital. The declaration also stressed the “critical role” of the private sector in driving sustainable economic transformations and the need to “devise pipelines of investible projects in developing countries”, calling on MDBs to “leverage private capital through innovative financing models and new partnerships.” This included using public finance as “an important enabler of climate actions, such as leveraging much-needed private finance through blended financial instruments, mechanisms and risk-sharing facilities.” The June report of the G20 Independent Experts Group identified MDBs’ engagement with the private sector as “one of the greatest opportunities for transformation.”
However, research from academics and leading think tanks suggests the notion that public sector investment can ‘crowd in’ large scale private development finance at the required volumes is unrealistic. Previous attempts to do so have fallen far short of the Bank’s ambitions. A 2020 report commissioned by the European Parliament concluded that private funds are insufficient to plug the funding gap to realise the SDGs. However, if Global North countries met their overseas development aid commitment of 0.7 per cent of GDP, formalised in a 1970 UN resolution, Oxfam estimates that would have contributed an additional $6.5 trillion by 2021. Global North commitments made in 2009 to mobilise $100 billion in additional funding a year by 2020 for developing countries’ climate change adaptation and mitigation efforts have also fallen short.
Another strategy to mobilise resources that the IMF now endorses is strengthening domestic resource mobilisation, meaning taxation. Increasing tax revenue could allow states to fund at least part of their own development, provide universal social protection systems for their citizens and lessen their dependence on the whims of short-term highly mobile speculative capital (see Dispatch Annuals 2022). The IMF however favours regressive taxes, because they are allegedly less distortionary and easier to administer, but they fall more heavily on the poorest (see Observer Autumn 2023). A globally agreed standard of taxation within the UN, whose negotiation the UN General Assembly mandated in a historic 23 November 2022 resolution, would go a long way toward addressing the issue of unfair international taxation standards that cost Global South states hundreds of billions of dollars in tax avoidance every year (see Observer Spring 2023).
The world needs development finance that benefits the world’s poorest people and countries, not rich investors and the powerful countries that currently dominate the world economy. Whether BWIs reforms agreed in Marrakech will seek to address this imbalance in a meaningful sense is in real doubt.