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Bretton Woods Observer Autumn 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. Tout change et rien change pas: Global power and IMF leadership,
Guest commentary by Oscar Ugarteche, Universidad Nacional Autónoma de
México (IFI GOVERNANCE/commentary)
2. Tunisia Commission seeks reparations for human rights violations
from IMF and World Bank (RIGHTS/news)
3. Follow BWP’s World Bank and IMF 2019 Annual Meetings Dispatch
4. IMF Ecuador agreement undermines workers’ rights, Guest analysis
by David Suárez – Centro de Derechos Económicos y Sociales
(CONDITIONALITY/analysis)
5. Guinean communities’ CAO complaint enters dispute resolution
(ENVIRONMENT/news)
6. World Bank China project raises ‘crimes against humanity’ concerns
(RIGHTS/news)
7. Board decision could signal “vote of no confidence” in Inspection
Panel (ACCOUNTABILITY/news)
8. Shut out of IDA19, civil society organisations disappointed with
proposals (FINANCE/analysis)
9. Links between Amazon deforestation and World Bank exposed (LAND/
news)
10. Civil unrest in Zimbabwe amid IMF Staff Monitored Programme
(CONDITIONALITY/news)
11. Critical reflections on World Bank’s draft Fragility, Conflict
and Violence Strategy, Guest analysis by Erin McCandless – University
of Witwatersrand, South Africa (ACCOUNTABILITY/analysis)
12. Why did the IMF fail to take pre-emptive measures in Argentina?
(FINANCE/news)
13. New director of Bank’s climate work (ENVIRONMENT/news)
14. Bretton Woods Project publishes critical essay series on 75 years
of Bank and Fund
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IFI GOVERNANCE/commentary

Tout change et rien change pas: Global power and IMF leadership,
Guest commentary by Oscar Ugarteche, Universidad Nacional Autónoma de
México

Summary:
- IMF leadership ‘contest’ far from fair, transparent and merit-based
- Process sheds light on persistent imbalances in governance
structures of Fund and Bank

Since their creation in 1944, dominant global powers at the World
Bank and IMF, also known as the Bretton Woods Institutions (BWIs),
have established a ‘gentleman’s agreement’, which stipulates that a
European citizen leads the IMF and a US-citizen heads the World Bank
(see Inside the Institutions, What is the gentleman’s agreement?).
After Christine Lagarde submitted her resignation as IMF Managing
Director on 16 July (see Observer Summer 2019), that ‘agreement’
seems to have been upheld yet again with Bulgarian national
Kristalina Georgieva, formerly  the World Bank chief executive,
nominated as the sole candidate for the position. This is despite
over 100 civil society organisations (CSOs) submitting an open letter
to the executive directors and governors at the Fund, calling for a
fair, open and democratic selection process.
The Fund and Bank continue to undermine their legitimacy by adhering
to this arrangement. While the world’s economic balance of power has
shifted dramatically since the inception of the BWIs, their internal
voting mechanisms and power structures nevertheless remain largely
intact (see Observer Spring 2019).

The struggle for Western dominance
In 1990, when the Berlin Wall fell and the Soviet Union imploded, the
economic weight of Western Europe was roughly similar to that of
Asian countries, as well as the block comprised of the United States
(US), Canada, Australia and New Zealand. The US, Australia and Canada
had a joint output of $6.6 billion, while Asia, including China,
added $6.3 billion, and Western Europe $6.0 billion to the world
economy.
At the start of the 21st century, however, economic power changed
swiftly from West to East and the economies of Australia, Canada, New
Zealand and the US were 40 per cent smaller than Asian countries in
terms of total GDP by 2015. The world had changed for good.
Considering that the G7 states today contribute to less than 50 per
cent of global GDP and current quota shares of non-G7 states comprise
over 50 per cent of the Fund’s quota-based resources, it is clear
that under the current system, a minority of countries with a
minority of economic weight choose what is best for the majority,
making the institution a parody of itself and a neocolonial policy
weapon. What remains is the struggle for leadership between the West
and the East, as aptly illustrated by the recent so-called trade war
between China and the United States.
In spite of these developments, imbalanced IMF vote shares remain
intact, the veto power of the United States is still in place, and
the influence of the US Congress on IMF policies remains a
cornerstone.
The choice of leadership candidate is made by European countries with
support of other G7 countries and ignores the rest of the world.  In
2009, after the London Summit of the G20, the IMF agreed to “adopt an
open, merit-based and transparent process for the selection of IMF
management.” Clearly, they did not mean it, nor did the Northern
governments, as is evident from the IMF’s leadership selection
process.
Is it impossible to adopt an open, merit-based and transparent
process for the selection of IMF management, even if the voting
rights are skewed in favour of the few and rich? Must Europe be over-
represented? Must the selection process remain undemocratic, opaque
and illegitimate in the name of supposedly pro-democracy, ‘non-
interventionist’ economic policies? Or is the clearly flawed process
maintained as an economic foreign policy tool by the Global North
and, as such, an instrument of international economic domination?
One way in which the IMF could try to claw back legitimacy is by
radically redistributing the vote shares of member states.
Regrettably – adding weight behind demands to reform the governance
structures and challenge US dominance – a recent US Treasury proposal
quashed the scheduled 15th Review of Quotas (see Observer Summer
2019). The IMF could have a leadership selection process to redeem
itself somewhat by encouraging all member states to put forth
candidates or by opening the process to self or non-state
nominations. The ‘argument’ that other candidates might challenge the
Fund’s free market economics underlines the ideologically-driven
nature of the current system.
G7 countries are struggling to grow as other Southern countries are
growing at a fast pace. Meanwhile others face mounting debt problems
yet again as a result of declining commodity prices (see Dispatch
Spring 2019) and concerns about an impending global recession.  The
current dominant powers have no moral ground to lead the IMF if it is
to fufill its original, intended purpose: Keep a stable world economy
and prevent a crisis like that of the 1930s. It did not do so in 2008
and it is not doing so now.
bit.ly/OscarIMF

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In this issue

- IMF Ecuador agreement undermines workers’ rights, by David Suárez
- Board decision could signal “vote of no confidence” in Inspection
Panel
- Shut out of IDA19, civil society organisations disappointed with
proposals
- Links between Amazon deforestation and World Bank exposed
- Critical reflections on World Bank’s draft Fragility, Conflict and
Violence Strategy by Erin McCandless

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RIGHTS/news

Tunisia Commission seeks reparations for human rights violations from
IMF and World Bank

Summary:
-Tunisia loan programmes found to be at the root of serious rights
violations
-UN report makes legal case for IFI “complicity” in violating human
rights

On 16 July, Tunisia’s Truth and Dignity Commission sent memoranda to
the World Bank and the IMF, as well as to France, seeking reparations
for Tunisian victims of human rights violations. The Commission
claimed that the IMF and World Bank bear “a share of responsibility”
for social unrest linked to structural adjustment policies. The
Commission was established in 2013 by then-President Moncef Marzouki
following the Tunisian Revolution of 2011, with the purpose of
investigating gross human rights violations committed by the Tunisian
State since 1955 and to provide compensation and rehabilitation to
victims.
The memorandum to the IMF and World Bank referred to the period from
the 1970s to 2011, and claimed both institutions pushed the Tunisian
government to freeze wages and recruitment in the civil service, and
reduce subsidies on basic consumer goods, which, it maintained, led
to various social crises and conflicts (see BWP briefing, Lessons
unlearnt). This included the 1983 bread riots, which were a series of
violent demonstrations triggered by a rise in the price of bread that
occurred due to subsidy cuts that were conditions of an IMF loan
programme. In relation to the riots, the Commission received 1,230
individual complaints, relating to 85 murders, 213 gunshot wounds,
932 arrests and imprisonments with systematic use of torture, as well
as several rapes of minors, including in prison.
The Commission found that, not only was the Tunisian state
responsible for these serious human rights violations, but also the
World Bank and IMF, which, “through loan conditions and structural
adjustment plans imposed inappropriate policies that were at the root
of the serious violations that followed the popular uprisings.” The
Commission called for three acts of reparation: apology, financial
compensation to victims, and cancellation of Tunisia’s multilateral
debt to these institutions. Tunisia is currently close to closing its
four-year $2.8 billion IMF loan programme agreed in 2016, which once
again has been accused of imposing generic recommendations, “without
considering the consequences on social stability and cohesion” (see
Observer Spring 2019, Spring 2018).
The Commission’s attempts to hold the IMF and World Bank accountable
were strengthened by a September report of the UN independent expert
on foreign debt and human rights, Juan Pablo Bohoslavsky, which
argued that international financial institutions can be held
responsible in international law for complicity with economic reforms
that violate human rights. Focusing on IMF-mandated austerity, the
report argued that there is a solid legal basis on which to say that,
“in principle, austerity policies during times of recession are
incompatible with obligations to guarantee the enjoyment of human
rights.”
bit.ly/TunisiaTruth

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

World Bank and IMF governors will meet during the 2019 Annuals
Meetings in Washington DC from 17-20 October. The Civil Society
Policy Forum (CSPF) will take place from 15-18 October. The Bretton
Woods Project will provide analysis of the meetings’ communiqués,
notes from CSPF seminars and more on BWP’s dedicated Dispatch page.
Key themes to be discussed include IMF leadership and quota reform,
International Development Association replenishment, fears of a
looming global recession amidst continued trade tensions, and the
state of multilateral cooperation after 75 years of the Bretton Woods
Institutions.

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CONDITIONALITY/analysis

IMF Ecuador agreement undermines workers’ rights
Guest analysis by David Suárez – Centro de Derechos Económicos y
Sociales

Summary:
- IMF programme sidesteps Ecuador National Assembly
- Conditionality includes wage bill cuts and labour deregulation
- Human rights organisations take legal action

On 1 March, Ecuador’s economy and finance minister, together with the
central bank manager, submitted a letter of intent to the IMF
requesting $4.2 billion support via a three-year Extended Fund
Facility agreement. The resulting IMF loan agreement not only
structurally undermines labour protections for the most vulnerable
workers in Ecuador (see Observer Spring 2017), but also side-lines
our democratic and participatory institutions constitutionally
mandated to deal with these crises.
In July, the IMF completed its first compliance review of Ecuador’s
finance and development policies with the Extended Facility
agreement, making previously confidential elements public for the
first time. This included details made public by the release of the
Article IV review of the commitments made by Ecuador relating to the
loan agreement with the Fund, which was first developed in 2016 and
updated in March 2019.  The conditions of the loan involve
commitments that constitute international obligations by Ecuador,
which, according to Article 2.1 of the Vienna Convention, gives the
agreement the status of an international treaty. My organisation’s
and others’ reading of Article 84 of Ecuador’s Constitution gives
rise to the conclusion that the agreement should have been considered
and approved by the National Assembly, in order to ratify its
validity and bring it into force. Despite this, the government has
kept secret the fundamental details of the agreement, resulting in
legal action by human rights organisations in Ecuador to request
deferment of the agreement and that the question of its legality be
referred to the Constitutional Court.
A first element to be considered are the commitments adopted under
the theme of “adjustment of the public wage bill”, in which Ecuador
is advised to address a public wage restriction through dismissal of
public sector employees with temporary contracts and to “harmonize
the wages of newly hired public employees with those in the private
sector, which are currently generally lower than public sector
wages.” The Article IV details the way in which the reduction would
be made with the aim of “moderating the increase in labour costs in
the private sector”, reducing the public wage bill and through the
reduction of the minimum wage in the private sector. Annex IV
stipulates that the reduction could be made by revising the payment
of contingency funds – a benefit to which all salaried workers are
entitled – or by reducing the percentage of profit-sharing that
Ecuadorian law provides to workers in the private sector.
A second element that demonstrates the regressive character of the
labour policies adopted by the state as a result of its commitments
under the agreement is the inclusion of references to flexibilisation
of the labour market, or, as mentioned in the letter of intent, of
“adapting to market and social conditions, carefully rolling back the
current constraints that result in less opportunities for the
unemployed.”  The Article IV report describes the proposed labour
market reforms as “essential”, despite them including methods that
are presently prohibited by Ecuador’s labour laws, as a result of
labour becoming extremely precarious in the 1990s and 2000s. The
Article IV also notes that Ecuador should change its legislation
relating to labour market stability, seeking to reduce the costs of
redundancies, supposedly to enable the free contracting and promotion
of workers. Subsequently, the government revealed that it is
preparing an adjustment to the law to promote productivity, the
contents of which adhere to IMF conditionality relating to the
changes in contracting arrangements.
Within less than 15 days from the announcement of the reforms, the
National Wage Council was tasked with implementing the changes to the
labour contracts – an act that would require the reform of secondary
legislation – in at least three substantive areas; first, the
flexibilisation of the work day, after allowing work days exceeding
12 hours, if agreed with by employee and employer, without changing
the 40-hour work week; second, approval of contracts that extend the
probation period from three months to three years for new contracts;
and third, modification of Article 17 of the Employment Code by
removing the clause that stipulates that labourers contracted as
casual labour would receive a wage increase of up to 35 per cent of
the value of the hourly minimum wage.
All these changes amount to a retrogression in the present labour
standards provided for in the constitution and labour legislation,
which are being applied without any oversight from the National
Assembly and excludes the participation of civil society and unions
in the implementation of the agreement with the IMF.
bit.ly/EcuadorIMF

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ENVIRONMENT/news

Guinean communities’ CAO complaint enters dispute resolution

Thirteen Guinean communities have entered a dispute resolution
process to try to agree settlement in relation to alleged land
grabbing resulting from a bauxite mine supported by the International
Finance Corporation (IFC), the World Bank’s private sector arm. The
dispute resolution process will be convened by the IFC’s Compliance
Advisor Ombudsman (CAO), its independent accountability mechanism.
In February, the communities filed a complaint with the CAO related
to the mine run by Compagnie des Bauxites de Guinée (CBG), which,
according to a March article by US-based civil society organisation
Inclusive Development International (IDI), received a “$200 million
loan to expand the venture’s mining operations” in 2016. In its
August assessment report, the CAO noted that complainants raised,
“concerns about land grabbing, land rehabilitation and land return,
and the environment that have had major consequences on the
Complainants’ livelihoods.”
“The lands on which we and our ancestors have lived and farmed for
centuries have been almost totally consumed by CBG,” said Mamadou
Lamarana Bah, one of the complainants, in IDI’s article.
bit.ly/GuineaIFC

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RIGHTS/news

World Bank China project raises ‘crimes against humanity’ concerns

In August, the World Bank issued a statement that it had received a
number of inquiries regarding its 2015 $50 million education project
in Xinjian, China, announcing that it is “actively looking into the
questions raised”. The investigation was prompted by a letter from US
lawmakers in August alleging that the Chinese government is interning
over a million Uyghurs, Kazakhs, and other Turkic Muslims in mass
internment camps. The letter raised concerns about whether funds from
the project loan could have been used “in the mass internment system
or for the involuntary internment of ethnic minorities for
‘vocational education’.”
Following the letter, Foreign Policy magazine reported that schools
benefiting from the Bank project had bought $30,000 worth of “barbed
wire, gas launchers, and body armor”, noting it was unclear on the
source of that funding, and that in July, a Bank employee raised
numerous red flags that “went unheeded”. James Millward of Georgetown
University commented to UK newspaper The Independent that, “The
likelihood of any World Bank-funded project being associated with the
concentration camps, or entities directly running the camps, is
high.”
bit.ly/Chinaletter

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ACCOUNTABILITY/news

Board decision could signal “vote of no confidence” in Inspection
Panel

The World Bank’s executive board is expected to make a decision on
proposed reforms to the Inspection Panel (IPN), the Bank’s
independent accountability mechanism (IAM), ahead of the World Bank
and IMF Annual Meetings in Washington DC in October. In 2017, a
working group of the World Bank board’s Committee on Development
Effectiveness (CODE) was tasked with updating and modernising the IPN
in light of the Bank’s new Environmental and Social Framework (see
Observer Winter 2018).
However, the review,  due to be completed in October 2018, has been
long-delayed. In an article on development news site Devex, German
executive director to the Bank, Jürgen Zattler, hinted that
disagreement between Board members is behind the slow progress,
commenting that, “Finding a solution is very difficult…There is some
willingness to move forward but it needs…compromise from all sides.”
Stephanie Amoako of US-based civil society organisation (CSO)
Accountability Counsel commented that the board must make a decision
“in a way that results in an improved process that delivers
accountability and meaningful remedy to affected communities. We are
concerned that some of the options being considered by the board
right now do not meet this threshold.”
Responsibility for oversight of the implementation of action plans
developed in response to IPN recommendations is led by Bank
management. CSOs have argued that this creates a conflict of interest
in which management is responsible for oversight of its own adherence
to the action plan. The IPN is the only IAM of a major international
financial institution that does not have an independent monitoring
function (see Observer Summer 2017). In January, 67 CSOs issued a
statement to the Bank’s board, calling for, at a minimum, measures
around the IPN’s role in monitoring Bank management action plans,
implementing an independent dispute resolution function, and
extending the time limit on eligibility for communities to file
complaints to at least two years after project completion.
Kristen Genovese, from Netherlands-based CSO SOMO reflected, “The
board seems to be going out of its way to give monitoring and dispute
resolution to anyone except the IPN, considering proposals that defy
logic and efficiency. Any decision that does not grant the IPN the
authority to monitor its findings or offer dispute resolution
services will be tantamount to a vote of no confidence in the IPN.”
bit.ly/IPNreview

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FINANCE/analysis

Shut out of IDA19, civil society organisations disappointed with
proposals

Summary:
- Bank’s IDA19 replenishment criticised for excluding civil society
- Policy commitments deemed unambitious
- Concerns raised over continuation of Private Sector Window

During the October World Bank and IMF Annual Meetings, donors and
borrowers will meet to continue negotiations around the 19th
replenishment of the International Development Association (IDA19),
the World Bank’s low-income country arm. Every three years, donors
replenish IDA resources and review its policy framework in ‘deputy
meetings’ with borrowers and Bank management. The IDA19
replenishment, set to conclude this December, will cover the fiscal
package from 2021-2023. During the IDA18 replenishment, $75 billion
of funding was agreed for 2017 to 2020 (see Observer Winter 2017).
In a summary of the second replenishment deputies meeting in Addis
Ababa in June, donors and borrowers stated that, although $86 billion
was needed for IDA19 to maintain the level of per capita support
achieved in IDA18, several donors felt this target was “unrealistic”.
Instead, a “base” target of $80 billion was touted as “appropriate”
by some, with others raising concerns over low levels of non-
concessional financing in this scenario.

Lacking ambition on ‘Special Themes’
The proposed policy commitments from the June deputies meeting
maintained the five ‘Special Themes’ established in IDA18: Jobs and
Economic Transformation (JET); Fragility, Conflict and Violence
(FCV); Gender; Governance and Institutions; and Climate Change.
However, many civil society organisations (CSOs) were unconvinced by
the proposed policy commitments. For instance, Jolie Schwarz, of US-
based CSO Bank Information Center expressed disappointment “with the
lack of ambition in the policy commitments presented in Addis”,
adding “[we] hope that the draft IDA agreement discussed at the next
meeting…in October reflects the feedback the Bank has received from
civil society, and that it sets more ambitious targets in these
priority areas.”
Responding to commitments in the JET ‘Special Theme’, Leo Baunach of
the International Trade Union Confederation suggested that IDA19
should track the contribution of lending to quality jobs and shared
prosperity to ensure “coherence with international labour standards.”
In a letter to the UK’s Department for International Development, UK-
based CSOs working on climate and environmental issues called for
more robust policy commitments to “assist IDA countries to pursue
development pathways that are both low carbon, pro-poor and
responsive to a rapidly changing climate,” including an increased
focus on energy access via off-grid and mini-grid investments in IDA
countries where electricity access rates are low.
Meanwhile, the proposed IDA19 policy package around the gender
‘Special Theme’ focused on implementing the World Bank’s 2016-2023
Gender Strategy, an approach that has been much-criticised by
feminist academics and women’s rights organisations (see Observer
Spring 2016, Autumn 2018).

Private Sector Window causes concerns
Donors at the Addis Ababa meeting emphasised the role of IDA
financing to “facilitate leveraging of resources from others,
including the private sector,” through the Private Sector Window
(PSW), which uses IDA resources to finance the International Finance
Corporation (IFC), the Bank’s private sector arm, and the
Multilateral Investment Guarantee Agency (MIGA), the Bank’s guarantee
arm, in IDA countries. This renewed commitment comes after US Rep.
Maxine Waters, chair of the House Financial Services Committee,
stated in April that, “The PSW is likely to prioritize financial
returns over positive development impacts, which will be difficult to
monitor” (see Observer Summer 2019, Summer 2017).
This year’s reports by UK-based think tank the Overseas Development
Institute in April and CSO Stamp Out Poverty in March challenged the
Bank’s assertion that blended finance will catalyse trillions of
dollars in low-income countries, echoing long-standing concerns over
the IFC’s track record on development outcomes, particularly in FCV
states (see Observer Autumn 2019, Autumn 2018).
Nadia Daar, with Oxfam International’s Washington DC office,
commented, “We remain deeply concerned about the IFC’s increased
support for commercial for-profit schools and hope IDA’s private
sector window will exclude such options.”

Ad-hoc civil society engagement
The IDA19 replenishment process has also been heavily criticised for
not including a formal consultation in the review of its policy
framework, leaving CSOs to rely on providing ad hoc input.
“There is definitely scope for the Bank and its donors to make the
IDA replenishment process more transparent and participatory,” Daar
reflected. She added, “While…the IDA Forum is a good step forward,
IDA documents are not released in a timely way, and civil society has
always been shut out of the formal IDA Deputy meetings.”
Schwarz emphasised that, “Civil society in IDA countries in
particular should be sought out and included in the replenishment
process – both to provide feedback on the progress made as a result
of policy commitments and targets set during past replenishment
negotiations, as well as to guide IDA’s agenda for the future.”
bit.ly/IDA19

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LAND/news

Links between Amazon deforestation and World Bank exposed

Summary:
- IFC equity investment linked to accelerated deforestation in
Brazilian Amazon
- Deforestation caused by Bank projects a long-standing civil society
concern

In late August, with forest fires raging on a historic scale in the
Brazilian Amazon, the gap between the rhetoric and reality of the
World Bank Group’s (WBG) approach to forests was exposed in little
over 24 hours.
Tweeting from the Group of Seven (G7) Summit in Biarritz, France, on
26 August, WBG President David Malpass noted, “I was…glad to see that
the Amazon fires are a key priority for @G7 attendees & I share in
their concerns. The @WorldBank Group is ready to work with our
partner governments at all levels to scale up activities to protect
forests & support sustainable development.”
Then, on 27 August, online news site The Intercept published a story
linking major donors to US President Donald Trump to accelerated
deforestation in the Amazon and exposing the role that the
International Finance Corporation (IFC), the World Bank’s private
sector investment arm, is playing in this process.
In 2015, IFC made a $30 million equity investment in Hidrovias do
Brasil, a company which – The Intercept article noted – operates a
“shipping terminal at Miritituba, deep in… the Brazilian state of
Pará”. This port is a critical cog of a wider transport corridor in
the Brazilian Amazon that has been recently developed to export
soybeans. The article added that the IFC’s own Environment and Social
Review had identified deforestation as a risk of the investment: “the
construction of the Miritituba port, close to still-intact areas of
the Amazon forest, is likely to… accelerate conversion of natural
habitats into agricultural areas, particularly for soy production.”
The Amazon fires – many of which were set by farmers to clear land
for farming and ranching – unfolded in the wake of the publication of
the Intergovernmental Panel on Climate Change’s (IPCC) Special Report
on Climate Change and Land on 8 August. The report laid bare the
importance of the Amazon and other forests in the fight against
climate change – and in preserving vital natural ecosystems more
generally. As noted by online news site Carbon Brief’s summary of the
IPCC report’s findings, “The largest source of CO22 losses
[associated with land] from 2007-16 was tropical deforestation.”

World Bank lending: A history of forest failures
IFC’s investment in Hidrovias do Brasil is not an outlier. As lawyer
and writer Bruce Rich pointed out in his 2013 critique, Foreclosing
the Future: The World Bank and the Politics of Environmental
Destruction, despite the continued evolution of the Bank’s
environmental and social standards, the net impact of many Bank
projects continues to be the destruction of biodiversity hotpots.
Rich highlighted a 2011 report from the Bank’s Independent Evaluation
Group, which was commissioned to investigate the impact of 20 World
Bank projects between 1994-2004 on tiger habitats in Asian countries,
following the Bank’s support for a high-profile ‘tiger summit’ in St
Petersburg in 2010. Rich writes, “The… study found that three-
quarters of the projects…directly threatened tiger habitats; and two-
thirds also created, or were exposed to, indirect threats.”
A recent op-ed by Ladd Connell from US-based civil society
organisation (CSO) Bank Information Center in development news site
Devex showed that little has changed: Despite the creation of the
Bank’s Forest Action Plan, which covers 2016-2020, “Current projects
in Indonesia, Democratic Republic of the Congo, Liberia, and Brazil
seem poised to drive deforestation.”
A letter signed by 77 CSOs in November 2017 called for the Bank to
take steps to better prioritise forests and the rights of forest
peoples in its lending, and to make its country Forest Notes – which
are supposed to articulate the nexus between Bank lending and
borrower countries’ forest resources – open to consultation (see
Observer Winter 2017-2018).
bit.ly/IFCAmazon

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CONDITIONALITY/news

In August, amid an IMF Staff Monitored Programme (SMP) – an informal
agreement between country authorities and IMF staff to monitor the
implementation of an economic programme – the opposition party in
Zimbabwe called for strikes, as the government imposed austerity
measures and tried to launch a new currency.
Union leader Obert Masaraure told UK newspaper The Guardian in
August, “They are celebrating budget surpluses but they are not
paying workers.” The SMP May report stressed that “spending
pressures” on wages and social support could “jeopardize fiscal
goals.”
In July, online news site ZimLive quoted the deputy minister of
defence Victor Matemadanda as saying that the constitution allowed
the government to deploy the army to confront protesters and warned
that soldiers are trained to kill. Grave concerns have been raised
about the current administration’s human rights record. The
developments are the latest in a long line of concerns around the
potentially destabilising role of IMF programmes (see Observer Summer
2018, Autumn 2019).
bit.ly/ZimIMF

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ACCOUNTABILITY/analysis

Critical reflections on World Bank’s draft Fragility, Conflict and
Violence Strategy
by Erin McCandless – University of Witwatersrand, South Africa

Summary:
- World Bank launches FCV strategy for consultation
- Strategy fails to reflect on negative impact of neoliberal policies
on drivers of conflict and fragility

By 2030, more than half of the world’s poor will live in fragile and
conflict-affected settings (FCAS). Recognising this worsening
fragility, conflict and violence (FCV) landscape, the World Bank has
doubled its lending and grants to FCAS to $14 billion from 2014 to
2018. As the World Bank is now eliciting feedback on its 2020-2025
Strategy for Fragility, Conflict and Violence, this piece critically
appraises the proposed FCV agenda.
In its strategy, the Bank proposes a diversified approach to address
“the drivers, or underlying causes, of FCV and the dynamics that keep
countries or sub-regions trapped in fragility.” Adopting analysis
from the 2018 United Nations-World Bank Pathways for Peace report,
drivers involve (problematic) structures, (weak) institutions, and
(bad) behaviours of a variety of actors who breed and fuel fragility
through “mutually reinforcing incentive structures and vested
interests.” The challenge then, involves positively changing
incentives and influencing behaviours.
Amidst wide ranging proposals, the Bank suggests this requires
careful prioritisation and sequencing of initiatives with multi-
stakeholder commitment, transformational methodologies and
coordinated public and private sector-driven development solutions.
It involves building state institutions, promoting private
enterprise, and mitigating FCV impacts on the most vulnerable. All
levels – community, sub-national, state, regional – must be engaged.

Is the analysis solid?
The Bank’s analysis of FCV trends, drawing on expansive evidence-
based research from many reputable institutions, is hard to dispute.
The conclusions of what drives fragility, that development in FCV
contexts requires different approaches, and that FCV context analysis
must inform strategy, are profoundly important, but not new insights.
The global policy dialogue with its New Deal for Engagement in
Fragile States promulgated similar messages over the last decade.
A key problem running across the Bank’s FCV analysis – and even that
of the United Nations – is the continuing absence of reflection upon
the impacts and implications of neoliberal economic policies on these
very drivers of conflict and fragility. Well-documented adverse
impacts include increased inequality and poverty, lowering of human
development indicators and even growth – the Bank’s principal
objective – all of which are now increasingly reasons for uprisings
in many parts of the world.
While this is consistent with analyses and proposals of scholars,
practitioners and activists, critical issues are left wanting.
Promoting conflict sensitivity and requiring corporate social
responsibility are vital. But to what extent will such efforts
genuinely transform power asymmetries that multinational companies
wield in relation to vulnerable communities and weak governments? How
will the economic drivers of fragility, such as macro-economic
shocks, inequalities and unemployment, be tackled? This will require
engaging the deep structures of underdevelopment. While the Bank’s
increased financing suggests a system-wide, embracing of FCV, how
will it transform its own orthodox development theory and economic
policy directives rooted in financially driven incentives to bring
needed changes to structures, institutions and behaviours in FCV
countries? How consistent is the Maximizing Finance for Development
flagship programme with such goals (see Observer Autumn 2018)? How
will it address the fact that it is remains an important financier of
fossil fuels (see Observer Spring 2018)?
Critically, the concept note is silent on what the Pathways for Peace
report recognised as a core driver of conflict and its developmental
results in FCV contexts – horizontal inequalities (actual and
perceived) between groups. This is a deeply political issue, and the
Bank’s mandate disallows its engagement in politics. Yet, we know
that development, and therefore the Bank’s programmes and activities,
cannot be separated from politics.

Is the Bank best suited to play these proposed roles?
The strategy “requires an expanded [Bank] footprint, one that ensures
the right skills are in the right place at the right time.” This is
concerning firstly because we need international community
commitments to national ownership in peacebuilding, state-building
and development honoured. Rather than creating new international
structures and capacities in and through the Bank to work on FCV, why
not 1) invest resources in promoting inclusive, democratic national
leadership to tackle the issues, and 2) acknowledge the strong UN and
international non-governmental organisation presence in most FCV
settings, step back and support these? A critical role that is
appropriate for the Bank is in ensuring conflict- and fragility-
sensitive economic policy is delivered through its loans and grants.
In closing, the Bank’s strategy proposals offer important avenues to
address elements of FCV. Analysis suggests that they do not go far
enough however, to address systemic challenges within the global
development system itself. Critically, more innovation is needed to
address the interconnected challenges of FCV, and it is likely to lie
in efforts that foster transformation, engage endogenous diversities
in societies, and forge inclusive, resilient social contracts.
bit.ly/FCASreview

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FINANCE/news

Why did the IMF fail to take pre-emptive measures in Argentina?

Summary:
- Argentina deemed to be in technical default
- Questions raised about why IMF did not take steps to avoid crisis

In August, Standard and Poor’s Global Ratings and Fitch Ratings
issued a “selective default” rating to Argentina, after the
government began restructuring $101 billion of its debts, including
plans to delay repayment of $44 billion of IMF loans. As noted by UK-
based civil society organisation Jubilee Debt Campaign UK (JDC),
Argentina’s borrowing was triggered by vulture fund debts and a
subsequent flood of foreign lending.
After having agreed a $50 billion loan in June 2018 following lender
speculation that they would not be repaid, the IMF increased this to
$57 billion three months later, making it its largest ever loan (see
Observer Winter 2018). The programme’s design and scale has come
under scrutiny (see Observer Summer 2018), and questions are being
raised about why Argentina has been locked in a cyclical debt trap
with the IMF.
Since the IMF programme began, turbulence has increased as a currency
crisis unfolded, bond yields spiked, inflation remained elevated,
protests erupted and poverty levels soared to more than 30 per cent
of the population.
According to its own rules, the Fund may only lend if debt is
assessed to be sustainable in the medium term. Should this not be the
case, it should support debt restructuring or concessional lending.
However, as noted by JDC, the IMF does not define what sustainable
debt is for upper-middle and high-income countries like Argentina,
and its debt indicators for Argentina were well above limits the IMF
sets for sustainability for low- and lower-middle income countries.
The IMF’s own programme review in October 2018 assessed Argentina’s
debt as sustainable, “but not with a high probability”, reigniting
demand for the creation of an independent debt workout mechanism (see
Observer Summer 2018).
In a surprising turn, President Macri restored capital controls on 1
September, after the Argentine peso dropped by more than 30 per cent
against the US dollar in August.
The IMF Articles of Agreement states, “the Fund may request a member
to exercise controls” to prevent its general resources being used to
meet a large or sustained outflow. Moreover, the Fund’s 2012
‘institutional view’ on capital controls, which was presented as a
shift from its historically rigid opposition, stated that “there is
no presumption that full liberalisation is an appropriate goal for
all countries at all times”, thus begging questions as to why this
was not considered as a pre-emptive option for Argentina (see
Observer Spring 2016). Civil society has argued that  the
‘institutional view’ fails to mitigate the wider bias towards capital
liberalisation (see Update 83). The IMF’s reaction to Argentina’s
decision remains to be seen.
Opposition presidential candidate Alberto Fernández, who is on track
to beat Macri in the October election, issued a statement blaming the
IMF programme for driving capital flight, noting that since the IMF
disbursed $44.5 billion, some $36.6 billion has left through capital
flight by both local and foreign investors. Claudio Loser, who worked
for the IMF during the 2001 debt crisis, told the Financial Times in
May that a failed programme would lead to a “loss of credibility” for
the Fund.
bit.ly/CCsArg

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ENVIRONMENT/news

New director of Bank’s climate work

Juergen Voegele was appointed Global Director of the World Bank’s
Climate Change Group on 1 July, replacing John Roome. Voegele was
previously the Bank’s Senior Director of Food and Agriculture Global
Practice. He will oversee the implementation of the Bank’s 2025
climate targets as well as its ongoing participation in the
Multilateral Development Banks’ joint approach to the Paris Agreement
(see Observer Spring 2019).
“At a time of climate emergency, challenges are manifold for the
incoming Climate Director,” said Nezir Sinani of Belgium-based civil
society organisation Bank Information Center Europe. “The most
obvious one is laying out a comprehensive and transparent process to
align the World Bank Group’s overall portfolio with the Paris
Agreement.”
bit.ly/

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Bretton Woods Project publishes critical essay series on 75 years of
Bank and Fund

This year marks the 75th anniversary of the founding of the World
Bank and the IMF, which were established at the Bretton Woods
Conference in 1944. To mark the diamond jubilee, the Bretton Woods
Project will publish a series of collected contributions from
academics and activists, exploring the legacy of the Bank and Fund.
The series aims to stimulate fresh debate about the role the Bretton
Woods Institutions have played in creating the current ‘crisis of
multilateralism’ and highlight the movements and voices that have
resisted their influence throughout their history.

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The Observer is available in pdf, on the web, and by email.
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www.brettonwoodsproject.org/observer/
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The Bretton Woods Project is an ActionAid-hosted project, UK
registered charity no. 274467, England and Wales charity no. 274467,
Scottish charity no. SC045476. This publication is supported by a
network of UK ngos, the c.S. Mott Foundation and the William and
Flora
Hewlett Foundation.

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ISSN 2053-7522
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