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Bretton Woods Observer Spring 2019
A quarterly critical review of developments at the World Bank and IMF

Published by BRETTON WOODS PROJECT
Working with NGOs and researchers to monitor the World Bank and IMF


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1. World Bank president selection: ‘Gentleman’s agreement’ alive and
   well (IFI GOVERNANCE/analysis)
2. World Bank’s toxic Medupi loan leaves South Africans in the dark
   (INFRASTRUCTURE/news)
3. Follow BWP’s World Bank and IMF 2019 Spring Meetings Dispatch (IFI
   GOVERNANCE/news)
4. Strikes overturn wage bill, but IMF blindness risks ruining
   Tunisia, by Noureddine Taboubi, Tunisian General Labour Union
   (CONDITIONALITY/commentary)
5. Unsustainable? The IMF’s approach to the Sustainable Development
   Goals, by Kate Donald, Center for Economic and Social Rights
   (FINANCE/commentary)
6. US Supreme Court rules against World Bank’s claim of absolute
   immunity (ACCOUNTABILITY/news)
7. Inequality crisis worsens as World Bank and IMF persist with
   failed policies (FINANCE/news)
8. Will IMF stick its head in the sand on human rights Guiding
   Principles? (RIGHTS/news)
9. As Green Climate Fund and World Bank sign framework agreement,
   concerns about Bank’s role linger (ENVIRONMENT/news)
10. The IMF and PPPs: A master class in double-speak, by Gino
    Brunswijck and Maria José Romero, Eurodad (PRIVATE SECTOR/
    analysis)
11. Despite new 2025 climate targets, World Bank’s Paris Agreement
    alignment remains work in progress (ENVIRONMENT/news)
12. World Bank appoints Independent Evaluation Group Director and
    Inspection Panel member (IFI GOVERNANCE/news)


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IFI GOVERNANCE/analysis

World Bank president selection: ‘Gentleman’s agreement’ alive and
well

Summary
- World Bank president selection process once again limited to one US
  nominee
- Board fails to uphold commitment to an open, transparent and merit-
  based selection process
- Process remains undemocratic, opaque and illegitimate

After the unexpected resignation of World Bank President Jim Yong Kim
in January, the selection of his successor was subject to
considerable scrutiny. Over 150 civil society organisations,
academics and other individuals called on the Board to live up to its
commitment following Kim’s departure to an open, transparent and
merit-based process. The call was echoed by the demands outlined in a
January letter by the Bank’s own staff association. These demands are
not new and resonate with long-standing calls to end the so-called
‘gentleman’s agreement’, which ensures that the IMF managing director
is a European and the World Bank president a US national. They also
reflect the calls made as far back as 2012, not by civil society
activists or ‘disgruntled’ governments from the Global South, but by
senior Bank staff. Former Chief Economist Joseph Stiglitz and Senior
Vice-Presidents François Bourguignon and Nicholas Stern argued in a
2012 Financial Times article that the process is “not only
hypocritical, it also destroys the trust and spirit of collaboration
needed to manage the profound problems facing the world.”
With the nomination process running from 7 February to 14 March, the
United States nominated David Malpass, a senior Treasury official
highly critical of multilateralism. Critics highlighted his
statements that “globalism and multilateralism” had “gone
substantially too far, to the point that they are hurting US and
global growth.”  Environmental civil society organisations such as
US-based Oil Change International also criticised Malpass’ nomination
on the basis of his attitude about climate change. Stressing Malpass’
time at the now bankrupt Bear Stearns in the lead up to the global
financial crisis and his August 2007 Wall Street Journal op-ed titled
“Don’t panic about the credit market”, a March 2017 article on news
outlet Vox on his appointment to the US Treasury, commented on
Malpass’ “poor judgment about major economic issues over the past
decade — cheerleading the economy on the verge of the Great Recession
while warning of a collapse just as recovery was getting underway.”
Concerns about Malpass’ nomination were also raised by senior US
policy makers. Congresswoman Maxine Waters, Chairwoman of the House
Financial Services Committee, and Congressman Emanuel Cleaver,
Chairman of the Subcommittee on National Security, International
Development, and Monetary Policy stated in a February press release
that “It’s difficult to believe that any serious effort to find a
qualified candidate with a compelling vision for the mission of the
World Bank and a belief in the legitimacy of international
development finance would lead to the nomination of Treasury
Undersecretary for International Affairs David Malpass.” The
nomination of David Malpass also fell short of the demands of civil
society, academics and other signatories to the open letter to the
Executive Board, which stressed that “candidates must have proven
knowledge of – and experience working on – development issues and a
commitment to the public interest. This includes a demonstrated
understanding of, and experience in working to address, the
challenges to transformational change faced by developing countries.”
Lebanon’s nominee: here today…
Hope for a selection process comprising more than one candidate
received a boost when in February, the Government of Lebanon
nominated Ziad Hayek to the post. However, the legitimacy of the
process received a harsh blow shortly thereafter, when news site
Devex detailed on 4 March the withdrawal of the Lebanese nominee,
with the candidate suggesting this was due to pressure from “other
governments”. The process, particularly in light of the allegedly
forced withdrawal of the only opponent to the American nominee,
represents a radical schism between the Board’s stated commitment to
an open, transparent and merit-based process and the actual process.
The outcome mirrors that of 2016, with an American, in that case Jim
Yong Kim, running unopposed (see Observer Autumn 2016). This result
seems to confirm the fears expressed by Stiglitz and colleagues that,
“Developed countries’ control of the selection process also
discourages developing countries from putting forward a candidate who
might have broad support among them,” limiting the pool and quality
of choices available to the Board.
Convenient governance
The selection process also contrasts with the Bank’s discourse on
good governance and the need for borrowing states to adequately
represent the needs and opinions of all their citizens, particularly
those with least influence. To cite one example, in July 2018 the
Bank launched the $12 million Open Governance Partnership Multi-donor
Trust Fund, which is meant “to increase government transparency,
improve accountability, and strengthen citizen engagement as well as
government responsiveness.” The Bank’s 2014 Strategic Framework for
Streamlining Citizen Engagement in World Bank Operations also
indicates an intention to improve its own accountability to those
impacted by its programmes and activities. Yet civil society stresses
that much remains to be done, with persistent concerns about the
unwillingness of the Bank to provide adequate remedy to communities
affected by its projects, its continued lack of a human rights
policy, disregard for the adequate resettlement of populations
displaced by Bank-financed projects, and erosion of environmental and
social safeguards (see Observer Winter 2018, Autumn 2016, Spring
2015). The hypocrisy identified by Stiglitz, Bourguignon and Stern in
2012 seems an apt description of the contrast between the above-
mentioned initiatives and the process used to select the Bank’s new
president.
With partnerships like this….
As argued by UK-based Christian Aid’s January reaction to President
Kim’s resignation, the process raises significant “issues about the
global economic system and the limited role developing countries play
within institutions designed to support them.” Christian Aid stressed
that the current arrangement, which ensures that developed states
with 12 per cent of the world’s population hold 50 per cent of the
decision-making power is deeply unfair, noting that, “its policy
advice may not reflect the needs of developing countries. Instead it
risks interests from developed country investors and enterprises
creeping into the policy choices it proposes.” It also contradicts
the accepted norms of aid effectiveness, such as the Paris
Declaration, and Accra Agenda for Action and the Busan High Level
Forum on Aid Effectiveness, all of which stress that partnerships for
development can only succeed if they are led by developing countries.
The process is also contradictory to the Bank’s support for the
Sustainable Development Goals (SDGs) and SDG 16 in particular, as it
aims to “build effective, accountable institutions at all levels”
(see article 5). Persistent concerns with the lack of adequate
diversity at senior managerial levels at the Bank and Fund were also
reflected in the G24’s Spring 2018 Communiqué, which called on both
to strengthen “efforts toward addressing the severe under-
representation of some regions and countries in recruitment and
career progression, including at the managerial levels,” and
highlighted the importance of improving staff diversity (see
Dispatch, Annual Meetings 2018).
The reforms required of the selection process must now wait at least
another five years. Those interested in ending the ‘gentleman’s
agreement’ must now turn to the next IMF leadership contest.
bit.ly/WBPresident


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In this issue

- Strikes overturn wage bill, but IMF blindness risks ruining Tunisia
  by Noureddine Taboubi

- US Supreme Court rules against World Bank’s claim of absolute
  immunity

- Unsustainable? The IMF’s approach to the Sustainable Development
  Goals
  by Kate Donald

- The IMF and PPPs: A master class in double-speak
  by Gino Brunswijck and Maria José Romero


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INFRASTRUCTURE/news

World Bank’s toxic Medupi loan leaves South Africans in the dark

Summary:
- Bank’s $3.75 billion loan in 2010 has failed to deliver reliable
  energy to South African users, despite eye-watering cost overruns.

Rolling blackouts in South Africa have put the spotlight on the World
Bank’s investment in the 4800 mega-watt Medupi coal-fired power
station – the Bank’s last project investment in coal – with some
economists calling for it to be shut down.
The Bank approved a $3.75 billion loan to South Africa in 2010,
primarily to help cover the construction costs for Medupi (see
Bretton Woods Update 70), but eye-watering cost overruns have hit the
project. The Bank now estimates the cost of co-financed projects
associated with the loan at $18.4 billion – an increase from $13.86
billion at appraisal – largely due to Medupi. South African academic
Patrick Bond argued in January, “If ever some form of international
financial justice is served, the World Bank would be forced to take a
haircut on its Medupi loan, and also pay reparations for this
exceptional energy disaster.”
bit.ly/MedupiWBG


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IFI GOVERNANCE/news

Follow BWP’s World Bank and IMF 2019 Spring Meetings Dispatch

World Bank and IMF governors will meet during the 2019 Spring
Meetings in Washington D.C. from 12-14 April. The Civil Society
Policy Forum (CSPF) will take place from 8-12 April. The Bretton
Woods Project will provide analysis of
the meetings’ communiqués, notes from CSPF seminars and more on BWP’s
Dispatch page.
Key themes to be discussed include fragile states, climate change,
the global debt crisis, the implications of automation, the
implementation of Bank’s Maximising Finance for Development approach
and preparations for IDA19. It is expected that the crisis of
multilateralism and international cooperation will feature as a
cross-cutting topic within nearly all areas. Additional topics
include the US Supreme Court decision on IFC’s immunity, the
implications of PPPs and the selection process for the World Bank
president.
bit.ly/Springs2019


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CONDITIONALITY/commentary

Strikes overturn wage bill, but IMF blindness risks ruining Tunisia
by Noureddine Taboubi, Tunisian General Labour Union

Summary
- Tunisian trade union strikes overturn IMF-backed wage bill
- IMF policies ignore Tunisian’s real economic problems

In February, the Tunisian General Labour Union (UGTT) and the
Tunisian government signed an agreement that increased public sector
wages, following two successful general strikes in 2018. This
constitutes a victory for the Tunisian trade union movement against
the dictates of the IMF to reduce the public wage bill regardless of
the social costs and Tunisia’s specific transition context. In fact,
under the IMF programme, Tunisian currency has lost more than 90 per
cent of its value over the last five years, inflation reached record
levels in 2018, while employment has stagnated, and growth has been
slow to resume. All of this adds to a social climate that is
increasingly tense, as evidenced by the UGTT strikes. Such a victory
illustrates the key role that UGTT play in mobilising workers and
citizens to defend economic and social rights.
In a region that lives under the rule of dictatorships and
arbitrariness following the Arab Springs, Tunisia is the last serious
candidate remaining in the race to achieve an exemplary democratic
and economic transition, based on the universal values of human
rights and gender equality.
On the political front, the success of the National Dialogue in 2014
has allowed for a smooth transition with a successive democratic
election. As for the economic plan, a consensus has been established
on the need to break away from the rules of the game that govern the
economy, characterised by the proliferation of rentier activities
benefiting those close to power, tax fraud, a large informal economy,
and corruption that systematically undermines almost all economic
transactions.
The expectations of Tunisians amid the National Dialogue were clear:
unleash the potential of the Tunisian economy and take advantage of
its educated youth, and the natural and cultural wealth of Tunisia’s
different regions, while responding to the pressing needs of
marginalised populations, particularly unemployed youth.
The reforms needed to implement this vision required expansionary
economic policies to rapidly improve living conditions and create new
economic opportunities, while taking into account a set of binding
constraints related to the political context of the transition. These
included, in particular, the difficult regional environment –
especially for Tunisia’s Libyan neighbour – and the terrorist threats
hovering over the entire region.
Such a democratic and economic transition would have required
significant financial resources and unconventional economic policies
supported by its partners and friends. However, the authorities’
reliance on the IMF in the hope of gaining access to affordable
finance hampered Tunisians’ hopes of breaking with the old system and
putting the country on a new path of development.
Indeed, in its customary fashion, the IMF has landed in Tunisia with
generic recommendations that it tries to impose without considering
the Tunisian socio-political context, and without real consultations
with social partners. The IMF has imposed new policies based on
reducing the wage bill, depreciating the national currency, reducing
the regulatory role of the state, encouraging public-private
partnerships, and removing food and energy subsidies without
considering unforeseeable consequences on social stability and
cohesion.
The IMF has supported the government in pursuing the above policies
while turning a blind eye to the country’s real priorities of: (i)
ensuring tax justice by establishing an efficient and fair tax
system, (ii) recovering tax debts that represent more than 8 per cent
of national GDP, (iii) reforming the banking system to mobilise
sustainable resources for investment, (iv) imposing quantitative
restrictions on imports and illegal trade to protect consumers and
national enterprises, and (v) breaking definitively with inefficient
labour market policies and implementing structural policies capable
of reducing the unemployment rate, which sits at more than 15 per
cent and affects more than 30 per cent of youth.
Unfortunately, the IMF blindly supports policies that ignore the real
national problems while hiding behind the mirage of macroeconomic
stability, in the absence of a coherent vision for economic
development.
The IMF must recall that, in 2010, Tunisia was hailed as the model
student of international donors with a budget deficit of 1 per cent,
a debt of 40 per cent of GDP and inflation of 3 per cent, while more
than 20 per cent of the population was living in poverty and more
than half of workers engaged in informal work. The IMF must break its
current approach and place human rights at the heart of its
programmes, in compliance with the UN Guiding Principles on human
rights impact assessments of economic reforms (see article 7). By
pursuing its current policies, the IMF will undoubtedly contribute to
breaking the Tunisian dream and will be among those responsible for
the return of dictatorship and the clandestine migration of hopeless
young people. Tunisia and all the developing countries deserve much
better than these blind policies.
bit.ly/TunisiaIMF


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FINANCE/commentary

Unsustainable? The IMF’s approach to the Sustainable Development
Goals
by Kate Donald, Center for Economic and Social Rights

Summary
- IMF SDG branding efforts lack meaningful policy realignment
- Business-as-usual will continue to hinder SDG achievement

The IMF is increasingly claiming a role for itself as an important
player in the implementation of the Sustainable Development Goals
(SDGs). However, when it comes to the SDGs, is the IMF a help or a
hindrance?
Even before the adoption of the 2030 Agenda and SDGs in 2015, the IMF
declared itself “fully committed” to delivering the new goals.
However, in practice this commitment has been patchy at best, with
not much evidence of any meaningful realignment. Instead, now we have
a colourful new SDGs page on the IMF website that showcases how their
work supposedly supports efforts towards achieving the goals
(collating several listicle-type blog posts like “5 things you need
to know about the IMF and climate change”).
Taken at face value, it seems churlish to sneer at a declaration of
commitment to sustainable development. However, we have to ask
ourselves whether the IMF’s actions are indeed conducive to
‘Transforming Our World’, the official title of the SDG Agenda.
SDG 10, which aims to reduce inequality within and among countries
and is up for special review at the UN High-Level Political Forum in
July, is a particularly useful case study. The Fund claims it is
supporting this goal through “strong, inclusive and sustainable
growth with poverty eradication,” and, “gender equity and inclusion”
(see table). This is, at best, cherry picking. Goal 10 includes a
target to reduce inequality through social protection and fiscal and
wage policy. The Fund’s approaches to all three of these have been
subject to robust criticism, precisely for exacerbating inequalities.
Indeed, despite a recent pivot towards defining income and gender
inequality as ‘macro-critical’ issues, evidence gathered by Oxfam and
the Bretton Woods Project, among others, suggests that the IMF’s own
policy recommendations and loan conditionality have in fact been –
and continue to be – a major contributor to the inequality crisis.
For example, in many countries the Fund persists in pushing austerity
measures which have taken a heavy human rights toll on the poorest
and most disadvantaged groups, including women.
It is also worth highlighting that Goal 10 includes tackling
inequalities between countries. Conveniently, none of the IMF
materials on the SDGs seem to mention that target 10.6 is to, “Ensure
enhanced representation and voice for developing countries in
decision-making in global international economic and financial
institutions in order to deliver more effective, credible,
accountable and legitimate institutions.” What are the IMF and its
‘developed’ country members doing to meet this target, on which they
could have a very immediate and direct effect? Will it explicitly
link its upcoming quota review to this target? Certainly, the power
imbalances in global economic decision-making are a profound cause of
global inequalities; for example, the stranglehold of rich countries
over the rules of the global tax system perpetuates a situation where
billions of dollars are drained from poorer countries every year.
There are a lot of policy areas where the IMF could be doing much,
much more in this regard: preventing the ‘race to the bottom’ on
corporate tax rates rather than advocating for cutting them, and
deepening its efforts to prevent cross-border tax abuses. However,
the IMF paper on financing the SDGs almost entirely ignores
progressive, systemic tax reforms as an option, focusing instead
merely on improving tax-to-GDP ratios and spending efficiency.
The 2030 Agenda is supposed to be transformative. It is very clear
that business-as-usual policies or band-aid approaches to the worst
social problems won’t get us there. This is especially so for Goal
10, and the Agenda’s overarching commitment to ‘Leave No One Behind’.
We won’t really tackle inequality in any meaningful way if we rely on
regressive tax systems, labour market ‘flexibilisation’ and
exploitative, extractivist economic models, and then just compensate
the worst losers with pared-back, targeted ‘safety nets’ that are not
even effective in reaching those in need. If we want to really tackle
inequality, we need to hone in not just on those left (or pushed)
behind, but those who are too far ahead – it is after all the
acceleration of the 1 per cent away from the rest that has fueled the
inequality crisis.
Ultimately, what is most disappointing is that, rather than seizing a
much-needed opportunity to question and realign its practices and
priorities based on the SDGs, the IMF is instead merely using the
SDGs as a public relations exercise to justify what it is already
doing, no matter how incompatible this may be with truly equitable
sustainable development.
bit.ly/SDGsKDonald


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ACCOUNTABILITY/news

US Supreme Court rules against World Bank’s claim of absolute
immunity

Summary
- US Supreme Court rules IFC is not immune from suit in the US
- Landmark case sets precedent for more accountable IFIs

In late February, the US Supreme Court ruled against the claim by the
International Finance Corporation (IFC), the World Bank’s private
sector arm, to absolute immunity from suit in the US. The case was
brought by a community of Indian fisherfolk, represented by
EarthRights International and the Stanford Law School Supreme Court
Litigation Clinic, which sued the IFC for harm caused by the $450
million IFC-financed Tata Mundra coal-fired power plant in Gujarat,
India (see Observer Summer 2018).
The IFC claimed absolute immunity under the 1945 International
Organizations Immunities Act (IOIA), which guarantees international
organisations the same immunity as is enjoyed by foreign governments
in US courts. Foreign governments’ immunity is now determined by the
1976 Foreign Sovereign Immunities Act (FSIA), under which states’
immunity cannot be granted in cases arising from their commercial
activities.
The Supreme Court’s historic 7-1 decision stated that foreign
governments’ immunity is restricted by FSIA, and that, “The
International Finance Corporation is therefore not absolutely immune
from suit.” The IFC responded in a statement that it will “work to
ensure that this ruling does not affect our ability to deliver for
our partner countries and does not hinder our mission.”
The Compliance Advisor Ombudsman (CAO), the IFC’s independent
accountability mechanism, has a limited remit, as it has no power to
enforce IFC compliance with its recommendations (see Observer Winter
2018). In addition, the IFC lacks resources designated to address
harms caused by the projects it finances. Kindra Mohr, of US-based
civil society organisation (CSO) Accountability Counsel, noted that,
“It would be in the World Bank Group’s best interest to ensure that
these [accountability] mechanisms are fully effective,” which would
potentially avoid cases like this being brought to court.
As noted by Joe Athialy, of India-based CSO Centre for Financial
Accountability, “For communities who have been at the receiving end
of projects…this judgement is an eye opener. Not that each one of
them may drag these institutions to Court, but with the empowerment
by this judgement the power equation between the two has tilted a
little further in favour of people.”
Questions remain about whether development finance constitutes
“commercial activities” under FSIA, which will be now be tested in a
Washington DC court.
bit.ly/IFCimmunity


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FINANCE/news

Inequality crisis worsens as World Bank and IMF persist with failed
policies

Summary
- New CSO reports document inadequate Bank and Fund response to
  inequality
- Alternative policy mix needed to tackle growing crisis


In January, international civil society organisations Christian Aid
and Oxfam published their Financing Injustice and Public Good or
Private Wealth? reports, respectively. The reports stressed that
inadequate policy responses from governments and multilateral
organisations, including the World Bank and IMF, continue to
exacerbate inequality. They documented the failure of policies widely
supported by the Bank and IMF, such as the privatisation of essential
services, over-reliance on private sector investment and related
regressive tax policies and austerity, which hurt the poor, and women
and girls in particular (see Observer Winter 2018, Summer 2017,
Spring 2017) .
The reports documented a worsening inequality crisis that, in
addition to its human rights implications, imperils the attainment of
the Sustainable Development Goals, to which both the Bank and Fund
are committed (see article 5). They followed the 2018 World
Inequality Report, published by France-based World Inequality Lab,
which concluded that “policies matter in shaping inequality,” and
that the world seems to be moving “toward the high-inequality
frontier.” Additional evidence of the consequences of IMF policies
was provided by a January academic paper, which analysed the impact
of IMF structural adjustment programmes on inequality between 1980
and 2014 and found that “overall, policy reforms mandated by the IMF
increase income inequality in borrowing countries.”
More billionaires than ever
Oxfam’s report evidenced the growing inequality crisis, noting for
example that, ten years after the global financial crisis, the world
has more billionaires than ever, and that, “just 1 per cent [of the
world’s richest man’s] fortune is equivalent to the entire health
budget of Ethiopia.” Countering arguments of rapid poverty
eradication, it noted that “extreme poverty is actually increasing in
sub-Saharan Africa.” The failure of the Bank and Fund’s policy mix is
also evidenced by studies noting that up to two-thirds of global
poverty reduction during the past 25 years can be attributed to
China, which has not followed the prevailing policy recommendations
of the Bank and Fund (see Observer Winter 2017-2018).
Management of capital requires changes
The Christian Aid report underscored that rising inequality,
worsening debt distress and related austerity measures, and climate
change imply that changes are needed in the way capital is managed
and invested. The report called on the IMF to “require debt
restructuring or cancellation by previous lenders as part of its
bailout programmes, when clear assessments of debt sustainability –
that include human rights and debt legitimacy – show that debt
restructurings are required” (see page 6).
bit.ly/Inequality2019


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RIGHTS/news

Will IMF stick its head in the sand on human rights Guiding
Principles?

Summary
- UN releases Guiding Principles on impact assessments of economic
  reforms
- Principles endorsed by several countries subject to IMF programmes

In February, the UN independent expert on foreign debt and human
rights, Juan Pablo Bohoslavsky, presented new Guiding Principles
(GPs) on human rights impact assessments of economic reform
programmes to the 40th session of the UN Human Rights Council (HRC).
The GPs, which were welcomed by a range of states, are the result of
a two-year drafting process involving a wide consultation process,
including with the IMF. They provide practical guidance to assist
states, international financial institutions, such as the IMF and
World Bank, national human rights institutions and other stakeholders
in assessing macroeconomic reform policies against existing human
rights law and standards. European civil society organisations have
called on their governments and the EU to endorse and make use of the
GPs in a February joint letter; the IMF has yet to take a public
position on the GPs.
At one of the panel discussions, Greece’s representative to the UN,
Anna Korka, reflected on Greece’s experiences during its recent
financial crisis under IMF and EU loan programmes (see Observer
Autumn 2018). Citing limited policy space as “a great impediment” to
the Greek government’s ability to alleviate the suffering of the most
vulnerable groups, she noted that despite impact assessments becoming
“the norm” in an international environment where, “due diligence in
matters of human rights is evolving to be a precondition,” studying
the impacts of the loan conditions in Greece was “simply not amongst
the priorities. … Absolute priority was given to restoring business
confidence and international competitiveness.”
Despite widespread evidence that the austerity programmes that
followed the 2008 financial crisis had and continue to have a
corrosive effect on the enjoyment of human rights, this approach
remains the modus operandi of IMF programmes in particular, as
demonstrated by Belgium-based NGO Eurodad in November 2018, finding
that the bulk of IMF programmes continue to mandate fiscal
consolidation. A January analysis by Timon Forster et al., also
demonstrated that IMF loan programmes increase income inequality.
Policymakers will be looking to the World Bank and IMF in particular
for their positions on this new tool. This will be particularly
pertinent for states who have endorsed the GPs, such as Tunisia,
Egypt, Jamaica and Pakistan, that are in ongoing or potential
programme negotiations with the IMF. In those instances, the GPs
could serve to strengthen the negotiating position of member states
committed to protecting their human rights obligations in the face of
pressure from international creditors.
bit.ly/IMFGPs


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ENVIRONMENT/news

As Green Climate Fund and World Bank sign framework agreement,
concerns about Bank’s role linger

Summary
- Bank and GCF finalise framework agreement, meaning nine co-financed
  projects can go forward.

In February, the Green Climate Fund (GCF) and World Bank’s new
framework agreement – known as its Accreditation Master Agreement
(AMA) – came into force. The AMA, which was first announced at the
23rd session of the Conference of the Parties to the United Nations
Framework Convention on Climate Change (COP23) in 2017 (see Observer
Spring 2018), sets the conditions for cooperation between the two
organisations. Under the new framework agreement, nine projects co-
financed by the Bank and GCF and approved by the latter’s Board will
now go forward – starting with a co-financed project in the Marshall
Islands designed to support coastal resilience.
Liane Schalatek, of US-based civil society organisation (CSO)
Heinrich-Böll-Stiftung North America, who is an active CSO see for
developed countries at the GCF, said of the AMA: “[There is a
question of] whether the projects that the World Bank has presented
so far to the GCF are really all projects that should have been
funded by the GCF, or whether in some instances the World Bank is
asking GCF to come in with concessional money to fund ‘climate
proofing’ of some Bank projects that they should be doing
themselves.”
In October, the GCF’s Board approved the “continuation of the World
Bank as GCF trustee for a multi-year, renewable period of time,”
according to Heinrich-Böll-Stiftung North America, ending previous
speculation about whether the Bank would continue as GCF trustee (see
Observer Spring 2018).
bit.ly/WBGreenClimateFund


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PRIVATE SECTOR/analysis

The IMF and PPPs: A master class in double-speak
by Gino Brunswijck and Maria José Romero, Eurodad

Summary
- IMF warns of the fiscal risks of PPPs
- Fund-backed austerity drives countries to use PPPs
- IMF surveillance advocates PPPs

While the IMF cautions against the fiscal risks of public-private
partnerships (PPPs), the institution is simultaneously backing them
at country programme level and advocates austerity measures that push
governments towards expanding PPPs through constrained budgets.
The fiscal risks of PPPs
As far back as 2004, the IMF’s Fiscal Affairs Department (FAD)
published a paper stressing that “one particular concern is that PPPs
can be used mainly to bypass spending controls, and to move public
investment off budget and debt off the government balance sheet,
while the government still bears most of the risk involved and faces
potentially large fiscal costs.”
Concerns over the fiscal risks of PPPs have also underpinned the work
of the IMF to quantify the macro-fiscal impact of PPP projects. It
has, for example, designed tools such as the Public Investment
Management Assessment (PIMA), and the PPP Fiscal Risk Assessment
Model (P-FRAM). However, it is not clear how these tools influence
programme design at the IMF.
More recently, in October 2018, the IMF published a note on
controlling the fiscal costs of PPPs, which aimed at offering advice
to policy makers. Building on a growing body of literature including
its own economists, as well as academics and civil society
organisations, the note raises concerns over the costs, risks and
lack of proven efficiency gains of PPPs. It notes that, “while in the
short term, PPPs may appear cheaper than traditional public
investment, over time they can turn out to be more expensive and
undermine fiscal sustainability.” The same note states that “the
fiscal risks of PPPs are sizeable” as the average fiscal cost of PPP-
related contingent liabilities that materialised during 1990-2014 was
about 1.2 per cent of national GDP of countries where PPPs had been
contracted, and according to the authors, “with the increasing use of
PPPs by countries, the size of associated risks is likely to grow,
too.”
The note also raises a red flag when it comes to the inflexibility of
PPP contracts: “While spending on traditional public investments can
be scaled back if needed, spending on PPPs cannot. PPPs thus make it
harder for governments to absorb fiscal shocks, in much the same way
that government debt does.”
Saying one thing, doing another
Despite these concerns, the IMF’s preference for fiscal adjustment
measures drives countries towards PPPs. Recent Eurodad research found
that IMF programmes in 2016-2017 have predominantly pushed for
austerity in 23 out of 26 borrowing countries.
Strict budgetary requirements tend to squeeze government budgets,
limiting options for public investment. Confronted with a curtailed
capacity for public service provision, governments might well be
forced to turn to PPPs, because fresh capital can be provided by the
private sector. However, risks will be assumed by the public sector.
While the IMF recognises the fiscal risks associated with PPPs, its
policy advice and conditionality in certain countries do not allow
for increasing and improving public financing of economic and social
infrastructure and even include calls for advancing the legislative
frameworks for PPPs.
For instance, in its 2015 Article IV report for Tunisia, IMF staff
“regretted delays in the final approval of the PPP law, currently in
parliament, as the framework would mobilise significant private
resources for public infrastructure investment.” Subsequently, the
IMF loan for Tunisia in 2016 attached a specific conditionality
calling for the implementation of a comprehensive PPP law together
with a package of austerity measures. The law is intended to
encourage greater private sector participation in infrastructure
investment.
This points to the role of the IMF in the global promotion of PPPs,
which is problematic given that there is a lack of evidence that PPPs
can deliver in the public interest. All in all, the advice of the IMF
seems to lack coherence when it comes to PPPs. On the one hand the
IMF recognises the fiscal risks associated with PPPs in its policy
advice, while on the other there is a continued push for fiscal
austerity measures, which has paved the way for the introduction of
PPPs in many countries.
bit.ly/PPPsIMF


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ENVIRONMENT/news

Despite new 2025 climate targets, World Bank’s Paris Agreement
alignment remains work in progress

Summary
- Bank announces new climate commitments covering 2021-2025
- Questions arise about Bank’s future climate work amidst leadership
  change

The World Bank announced its 2025 climate targets in December 2018 at
the 24th session of the Conference of the Parties to the United
Nations Framework Convention on Climate Change (COP24) in Katowice,
Poland, laying the foundations for its 2021-2025 climate strategy.
The Bank committed to provide $133 billion in direct finance for
‘climate-related investments’ over 2021-2025, including $50 billion
for climate change adaption efforts. It will also seek to mobilise an
additional $67 billion in climate finance from other investors,
through leveraging private sector investment and de-risking. The Bank
launched a new Adaptation and Resilience Strategy in January, which
is closely related to the new 2025 climate targets’ emphasis on
adaptation finance. The Bank and eight other multilateral development
banks also announced they will be outlining the parameters of their
joint approach to Paris Agreement alignment, to be announced at COP25
in November 2019.
However, despite civil society organisations (CSOs) calling on the
Bank to introduce new measures to prevent its finance from going to
fossil fuel investments – including an emissions target covering its
lending and operations consistent with 1.5°C global temperature rise
relative to preindustrial levels – the Bank’s 2025 climate targets
remained silent on this point.
“While the World Bank’s additional finance can help to drive very low
carbon and climate-resilient development, overall, [the 2025 climate
targets announcement] provides little sense of its anticipated
overall climate impact,” said Kat Kramer of international CSO
Christian Aid.
Kim’s departure raises concerns about future of Bank’s climate work
The surprise resignation of World Bank President Jim Yong Kim – first
announced on 7 January and effective on 1 Feb – raised questions
about the future of the Bank’s climate work. Kim’s successor, US
Treasury official David Malpass, is seen as a surrogate of a US
administration that has announced its intent to withdraw from the
Paris Climate Agreement and has promoted increased export of US
fossil fuels as part of its broader ‘America First’ policy, which in
the case of the Bank has manifested itself in the US insisting on
less lending to upper-middle income countries, including China (see
Observer Spring 2019 cover story).
The World Bank introduced a series of commitments at the One Planet
Summit in December 2017, including a phaseout of the Bank’s project
lending for ‘upstream’ oil and gas after 2019, the introduction of a
shadow carbon price in the internal economic analysis of the Bank’s
projects, and the tracking of greenhouse gas emissions in ‘high
intensity’ sectors (see Observer Spring 2018). It remains to be seen
whether the next World Bank president will honour these commitments.
In response to these concerns, 31 CSOs submitted an open letter to
the World Bank’s Board of Executive Directors in mid-March, calling
for the Bank to ensure that alignment with the Paris Agreement is a
core priority of the next World Bank president.
bit.ly/ClimateTargets


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IFI GOVERNANCE/news

World Bank appoints Independent Evaluation Group Director and
Inspection Panel member

Summary
- World Bank appoints Alison Evans as new IEG Director General and
  Ramanie Kunanayagam as Inspection Panel member

In October 2018, former World Bank president Jim Yong Kim announced
the appointment of Alison Evans as Director General of the World
Bank’s Independent Evaluation Group (IEG). Before joining the Bank,
Evans was Chief Commissioner of the UK’s Independent Commission for
Aid Impact and Executive Director of the UK-based Overseas
Development Institute.Civil society will be looking at whether Evans
will ensure the IEG evaluates contentious issues, such as the Bank’s
Maximizing Finance for Development paradigm (see Observer Summer
2017).
In December 2018, Ramanie Kunanayagam joined the World Bank as a
member of the Inspection Panel (IPN), the Bank’s independent
accountability mechanism. Kunanayagam has more than 25 years of
experience across diverse environments in private, public and non-
profit sectors. As part of the ongoing IPN review process, civil
society has called on the Bank to ensure that the Panel is given an
independent monitoring function, and that the Board considers the
establishment of independent, community-led monitoring arrangements
(see Observer Winter 2018).
bit.ly/2018Appointments


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