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Bretton Woods Observer Spring 2023
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. Democratic deficit in World Bank presidential appointment: Where
is the evolution?
2. A different 'evolution roadmap': Havana conference calls for
changes in world order hierarchy
3. Civil society calls on World Bank and IMF to safeguard civic space
and prevent retaliation around Marrakesh Annual Meetings
Guest comment by Shereen Talaat, Arab Watch Coalition
4. Between a rock and a hard place: How can IMF provide support
amidst debt restructure deadlock?
5. Oligarchs and corporations are expanding control over Ukraine's
agricultural land with help from the IMF and the World Bank
6. Lagging behind: World Bank and IMF rank poorly against other IFIs
as their approach to macro is still gender-blind despite reform
promises
7. MIGA's support for gas projects raises concerns about its climate
credential
8. World Bank's financial inclusion agenda blind to growing gendered
over-indebtedness
9. Civil society calls to move away from PPPs grow, while World Bank
doubles down on private finance-led approach
10. Against regressive taxes and austerity: IMF and World Bank must
pivot tax policies to support a just and green transition
Guest analysis by Klelia Guerrero, LATINDADD & Matti Kohonen,
Financial Transparency Coalition
11. Resilience and Sustainability Trust's first loans promote climate
PPPs, raising concerns they may create fiscal risks

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IFI GOVERNANCE/analysis

Democratic deficit in World Bank presidential appointment: Where is
the evolution? by the Steering Committee of the Coalition for Human
Rights in Development

SUMMARY
World Bank must ensure selection process of its next president
addresses democratic and legitimacy deficits
Process will shed light on progress toward urgently needed reforms
discussed in evolution roadmap
Action on roadmap must be led by a president with demonstrated
commitment to human rights and development

The lack of democratic governance and accountability in the World
Bank Group is a key problem in global governance and the financial
architecture. Yet, it remains unaddressed. US President Joe Biden's
nomination of Ajay Banga for World Bank president - two days after
the public resignation of Trump-appointee, David Malpass - has
resurfaced these critiques. The Bank's board will likely approve
Banga's appointment without heeding calls for a democratic,
transparent and merit-based process.
The selection process for the Bank's president is one cause and
symptom of the institution's malaise (see Background, What is the
'gentleman's agreement'), but it is far from the only one. Wealthy
governments from the Global North have significantly more
decision-making power (see Inside the Institutions, IMF and World
Bank decision-making and governance). Civil society is not a part of
the Bank's governance. The Bank also maintains that it does not need
to uphold international human rights obligations and therefore cannot
be held accountable in national courts.
The Bank recently released its "evolution roadmap" - opening the door
to change its vision, mission and ways of working - while many are
questioning if the international financial architecture is equipped
to deal with the current polycrisis of inequality, ecological
breakdown, climate change, pandemics, etc. The appointment process of
the new president comes at this crucial moment and could signal the
political will for the Bank to engage in real reforms.
The World Bank acts like a shadow government in the global governance
system
The Bank says it is an apolitical economic development agency, but in
practice it is a key geopolitical actor, setting global standards and
shaping law, policy, and fiscal and civic space at the national
level, particularly in middle- and low-income countries. The Bank
advances a top-down, neoliberal model of development that is not
politically neutral. Without the participation of affected
communities and civil society groups, Bank-supported activities are
fueling human rights abuses and increasing inequality.
The Bank has long focused on advancing privatisation. The use of
debt-based financing and policy conditionality - pushing for
deregulation in the name of creating an enabling environment for the
private sector (see Observer Winter 2021) - have further eroded state
capacity. The Bank has even been accused of having supported private
clients to evade taxes in countries hosting projects by depositing
funds in tax havens.
The Bank is also contributing - directly and indirectly - to
exacerbating civic space restrictions and reprisals against people
speaking out against activities it supports. Many economic and
governing elites are using Bank-supported projects to further advance
authoritarianism and corporate capture, maintain the democratic
deficit and power imbalances in their own countries, and silence
dissent using smear tactics, threats and violence.
Unless there is a profound transformation, the Bank's new roadmap
will lead nowhere for communities in the Global South. An open,
merit-based and transparent selection process for the next president
could be a small, but important, step towards this larger
transformation. Unfortunately, the nomination of Ajay Banga - former
MasterCard CEO and investment banker, without demonstrable
development or human rights expertise - signals more of the same:
Redirecting public resources to generate private profit without
transparency, accountability or participation.
More money will not directly result in better development outcomes
One thing is clear: Merely giving the World Bank more funds won't fix
any global crisis. The types of interventions the Bank adopts will
determine if they help people and the planet, and support states to
meet their international human rights obligations.
The Bank has a potentially important role in mobilising crucial
resources that communities in the Global South could use to respond
to the current polycrisis. But these crises are not just resource
issues, they are ethical and distributional issues rooted in
questions of justice, equity and planetary stewardship. How these
crises are framed, as well as what responses are chosen, will
determine the quantity and type of resource gaps states must bridge
to meet their international human rights obligations and respond to
the needs of their citizens and the planet.
Democratic governance and accountability are crucial for the Bank to
remain relevant
Many are questioning if the World Bank, with its democratic deficit,
is the appropriate institution to identify and fill the gap. The
Bridgetown Initiative, which calls for reform of the Bank and the
International Monetary Fund - spearheaded by Prime Minister of
Barbados, Mia Mottley - is receiving increasing support.
The Bank's evolution roadmap provides an opportunity to undertake
reforms that go beyond a slightly better resourced but largely
unchanged institution. It must include steps to increase democratic
governance and accountability, and reshape the Bank's mission, vision
and model to advance human rights-based and community-led
development. The fact that it recognises the need for more
grant-based mechanisms over debt is welcome. However, we need to work
towards a transformational approach with greater participation of
directly affected people in the Bank's governance and its operations.
The Bank must use 2023 - the 75th anniversary of the Universal
Declaration of Human Rights - to develop a human rights policy in
consultation with grassroots communities and their allies. The policy
should include a plan to adopt development indicators for human
rights-based and community-led development, human rights due
diligence for all project investments and policy interventions, and
an effective remedy framework for when communities are harmed.
The Bank's shareholders should revise its governance system to be
more equitable, looking at existing models and adapting them to be
better fit for purpose. For example, the United Nations General
Assembly follows the system of one country, one vote. Additionally,
the Green Climate Fund, a funding partner of the Bank, includes
non-voting civil society observers on its board. The Bank should work
consultatively with grassroots communities and their allies to
explore similar and more representative structures that factor in
carbon emissions (see Observer Winter 2022), the level of climate
related risks, historic wealth transfers due to colonisation,
population levels, etc. This would enable people most affected by the
Bank's activities to have a say in its governance, and equip the Bank
to address the challenges outlined in the roadmap.
The United States, which is currently the Bank's largest shareholder,
should lead by example in sharing and devolving decision-making
power. It should take the first step by walking away from the
gentleman's agreement that has shaped the leadership of the Bank and
IMF since their inception. This would signal the US government's
seriousness about tackling climate change in a just and sustainable
way through the evolution roadmap process, and beyond.
bit.ly/RoadmapEvolution

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In this issue

Civil society calls on World Bank and IMF to safeguard civic space
and prevent retaliation around Marrakesh Annual Meetings by Shereen
Talaat
Between a rock and a hard place: How can IMF provide support amidst
debt restructure deadlock?
Against regressive taxes and austerity: IMF and World Bank must pivot
tax policies to support a just and green transition by Klelia
Guerrero and Matti Kohonen

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FINANCE/news

A different 'evolution roadmap': Havana conference calls for changes
in world order hierarchy

On 27 January, 50 delegates from 26 countries comprised of
parliamentarians, diplomats, academics and policymakers convened in
Havana, Cuba, to discuss the reinvigoration of the 1974 UN General
Assembly's resolution on the Declaration of a New International
Economic Order (NIEO). The Congress was organised by Progressive
International, a coalition of progressive thinkers, academics and
policy makers, as part of its wider efforts to raise awareness about
the NIEO and "update it for the 21st century," in advance of its 50th
anniversary next year.
The Congress issued a declaration stressing that "hunger, disease,
and war once again overwhelm the world and [there is a risk] of the
extinction of humanity at large," while celebrating victories brought
about by "combining a program of sovereign development...culminating
in the adoption [of] the...(NIEO)."

As the World Bank discusses its 'evolution roadmap' (see Observer
Spring 2023) and with the IMF's quota reform likely to fall victim to
geopolitics, the Declaration stressed that, "Northern powers...seek 
to preserve their position in the hierarchy of the world system,"
and called for a renewed non-aligned movement, a renovation of the
NIEO, an assertion of Southern power, support of Cuba in the G77 and 
the building of a "new planetary bloc."
bit.ly/HavanaNIEO

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RIGHTS/analysis

Civil society calls on World Bank and IMF to safeguard civic space
and prevent retaliation around Marrakesh Annual Meetings
Guest analysis by Shereen Talaat, Arab Watch Coalition

SUMMARY
World Bank and IMF Annual Meetings in Morocco this year raise fears
of another civil society crackdown without proactive prevention
measures
Early engagement with MENA civil society and Moroccan authorities key
to safeguard space and prevent reprisals

Civil society organisations (CSOs) look forward to enriching
discussions and critical debate during the International Monetary
Fund (IMF) and World Bank Annual Meetings in Marrakesh, Morocco, this
October. Yet, this constructive engagement will only be possible if
the Bretton Woods Institutions (BWIs) proactively work with the host
country to ensure it publicly guarantees that the gross mistreatment
meted out to civil society during the Annual Meetings in Bali,
Indonesia, in 2018 - when authorities used force to silence activists
and critical voices - will not take place in Marrakesh.
In Bali, a parallel event and later strategy meeting sought to
peacefully express criticism about and make recommendations regarding
Bank and Fund policies but were disrupted repeatedly by Indonesian
authorities using tactics ranging from blocking access to the venue
to using excessive force and arbitrarily detaining activists (see
Dispatch Annuals 2018). This cannot be allowed to happen again.
While IMF and World Bank representatives intervened with authorities
after arrests had already been made, the BWIs could have done much
more to prevent this crackdown by throwing their full weight behind
their commitment to accountability and open debate ahead of time. A
look into restrictions of civil society space in the wider MENA
region already raises serious concerns - dozens of activists were
arrested and harassed in Egypt during last year's COP27 and the UN
High Commissioner for Human Rights is raising the alarm on civil
society arrests in Tunisia, while civic space and freedom of speech
are increasingly undermined in Morocco itself. Another "Bali" is on
the horizon, unless the Bank and Fund act now.
Civic space is fragile in the region, the World Bank and IMF must act
to protect it
In organising the Marrakesh meetings, the IMF and World Bank must
draw lessons from the experience in Bali to uphold and safeguard
engagement with civil society, beyond the space available within
official venues. This can only be achieved by attaching utmost
importance to human rights, free speech and the right of assembly,
and incorporating these rights into all the BWIs' policies -
especially in a region beset with instability and authoritarianism.
CSOs are calling upon the Bank and Fund to engage proactively with
the Moroccan authorities on issues such as facilitating visa
applications and offering a space conducive to free speech to help
activists safely engage in constructive dialogue, including holding
their own parallel events to freely express their critical views and
recommendations. The IMF and Bank should get in touch with regional
civil society organisations early, to take stock of their very real
safety concerns and priorities regarding the region's macroeconomic
situation and the impacts of BWI policies.
The BWIs must ensure information about the Annual Meetings' agenda,
schedule and logistics as well as policies and procedures relating to
participation, such as visa processing and approval criteria, is
accessible. It is the duty of these institutions to provide a
platform and a free space for CSOs, to make sure the meetings are
fully equipped and conducive to constructive discussions.
Steps should be taken to protect civil society activists against
retaliation and reprisals during and after the event for the views
they express at the Annual Meetings. These include protection against
harassment, intimidation and arbitrary detention by authorities.
To promote positive engagement beyond preventing harm, IMF and World
Bank representatives could also act as facilitators of dialogue
between different civil society organisations in the MENA region,
government representatives and private sector stakeholders, to
support a constructive exchange on economic development policies.
Finally, special attention should be given to fostering inclusive
representation and diversity by promoting the participation of
marginalised and under-represented groups such as women, the youth,
the disabled and indigenous communities at the Annual Meetings' Civil
Society Policy Forum and official 'flagship' events.
By taking these steps, the BWIs can turn the page on the mistreatment
of activists that marred their Annual Meetings in Bali. They can make
Marrakesh a new start for a proactive engagement with MENA-based
civil society that puts human rights and democracy at the core of
their economic and financial development policies in a way that is
conducive to creating stable, prosperous and equitable societies in
the region.
bit.ly/AnnualsMorocco

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FINANCE/news

Between a rock and a hard place: How can IMF provide support amidst
debt restructure deadlock?

SUMMARY
Deadlock in talks leads to unprecedented delays in IMF lending,
hurting countries' capacity to respond to urgent needs
IMF lending into arrears policy could help address the lack of
alignment between official and private creditors

The IMF's ability to adequately respond to crises remains in question
as the institution faces unprecedented delays in providing financial
support to countries in debt distress. Chad, Zambia and Suriname are
among the countries that received IMF loans almost a year after
reaching staff level agreements. Continuing this trend, Sri Lanka,
Tunisia and Ghana signed staff level agreements last year but are
still waiting on IMF board sign-off due to clashes between China and
Western economies over debt relief (see Observer Winter 2022).
The IMF is proving ineffective both in supporting countries on the
brink of default as well as in their debt restructuring processes
(see Observer Autumn 2022). Pakistan - amongst the top five IMF
debtors - is at risk of default as the country's foreign exchange
reserves sank to less than the equivalent of a month's imports. As
the country wrestles with a deepening financial crisis, it is
struggling to receive a second IMF loan tranche due to the lack of
progress on fiscal consolidation required by the Fund (see Observer
Summer 2022, Spring 2022, Winter 2021). Indeed, the IMF's harsh
austerity conditionality requires Pakistan to raise VAT to 25 per
cent, liberalise exchange rates and increase electricity tariffs,
raising concerns about the impact of such policies on the most
vulnerable (see Observer Winter 2022).
Sri Lanka and Ghana are expecting IMF loans of $2.9 and $3 billion
respectively, but since they announced defaults on their debt in
2022, their bailout package will be signed off only after they
undergo debt restructuring - which has proven difficult under the G20
Common Framework (see Observer Winter 2020). The rift between China
and the Paris Club is further widening as China remains reluctant to
offer debt relief, demanding that multilateral development banks and
private creditors also participate in debt restructuring. Indeed, in
Africa alone, governments owe three times more debt to private
lenders than to China.
Breaking the creditor deadlock
As private lending becomes a much bigger component of national debt,
the IMF should consider using its lending into arrears policy (LIA).
The policy can be applied when lending to a country in default on
obligations to its commercial creditors and official bilateral
creditors. While a big step forward in lending without being
constrained by uncooperative creditors, the policy cannot be applied
to official bilateral creditors if it has a negative effect on the
Fund's ability to mobilise official financing packages in the future.
Moreover, given that private creditors are by-and-large not
participating in debt restructuring (see Observer Winter 2021), even
if accumulating arrears, countries are still expected to repay this
debt, effectively using IMF resources to pay off private creditors.
In the end, applying LIA involves weighing one risk against another:
Giving a creditor veto power over IMF financing, using IMF resources
to bailout private lenders, or risking the Fund's future ability to
finance its programmes.
bit.ly/DebtRoundup

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LAND/analysis

Oligarchs and corporations are expanding control over Ukraine's
agricultural land with help from the IMF and the World Bank

Since Russia's invasion, Ukraine's external debt has soared as it has
relied on financial support from the West. Western aid - particularly
through International Financial Institutions (IFIs) - is conditioned
on drastic structural adjustment programmes, including cuts in social
safety nets and the privatisation of economic sectors, according to a
new report from the Oakland Institute.
One key structural adjustment initiated by IFIs in Ukraine was the
creation of a land market and deregulation of the agricultural sector
(see Observer Summer 2022). The
report found that as a consequence, 28 per cent of the country's
arable land was acquired by oligarchs and large agribusinesses, with
the largest landholders controlled by foreign actors. This continues
the trend of grain trade concentration, with a few companies
controlling about 70-90 per cent of the global grain trade (see
Observer Summer 2022). In Ukraine, most landholders are indebted to
the World Bank and the European Bank for Reconstruction and
Development, giving them financial stakes in agribusinesses and
raising legal questions considering Ukraine's ban on foreign
ownership of land.
bit.ly/LandUkraine

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GENDER/news

Lagging behind: World Bank and IMF rank poorly against other IFIs as
their approach to macro is still gender-blind despite reform promises

SUMMARY
World Bank and IMF come last in newly released ranking report on IFI
gender and climate policies
Report reflects mounting frustration with the gender-blindness of the
Bank's promised reform

A newly released report by civil society organisations (CSOs) Gender
Action, Friends of the Earth and Urgewald shines a light on the
inadequacy of the World Bank and IMF's gender and climate policies.
The paper ranks 13 major International Financial Institutions (IFIs)
based on the strength of their gender policy goals, mandate,
staffing, operations, monitoring and integration of multiple aspects
of gender inequality, such as care work and gender-based violence,
into their operations. On safeguarding frameworks, it investigates
the inclusion of gender as a cross-cutting topic of analysis in
social risk assessments, debt and accountability.
Both the IMF and World Bank scored poorly, especially the Bank's
"nearly gender-blind" 2018 Environmental and Social Framework (ESF).
Civil society has long criticised the fact that the Bank's ESF (see
Observer Winter 2018), which sets out environmental and social
safeguards of Bank-financed projects, does not apply to its loan
operations through Development Policy Financing (DPF) (see Observer
Summer 2020). DPF loans without targeted gender goals lack systematic
assessments of their gendered social impacts, making a large share of
the Bank's lending operations effectively gender-blind (see Briefing,
The World Bank and Gender Equality: Development Policy Financing).
Co-author Elaine Zuckerman of US-based Gender Action stated that
BWIs' approaches are "mired in an instrumentalist economic growth
framework that benefits corporations over livelihoods and basic
needs, especially women's," with gender and climate strategies that
"neglect the Bretton Woods Institutions's persistent overarching
neoliberal policy requirements that indebt borrower countries, and
austerity mania that shrinks and privatises public sectors and
services."
World Bank's wider 'evolution' agenda largely gender blind
The new research comes as all eyes are on the World Bank to make a
transformative effort on gender equality and climate in line with
recent promises of reform. With the early resignation of current
President David Malpass, diverse voices are calling for a feminist
president, and an end to the regressive 'gentleman's agreement' (see
Observer Spring 2023; Background, What is the 'gentleman's
agreement'?).
Meanwhile, the Bank's Evolution Roadmap, launched as a response to
requests from shareholders to explore reforms, lacks a focus on
gender and safeguards. This furthers concerns that the upcoming World
Bank Gender Strategy Update will see the Bank continue its outdated
'Smart Economics' approach to addressing gender inequality (see
Inside the Institutions, The World Bank's approach to gender
mainstreaming) instead of acknowledging and addressing the
demonstrably harmful gendered effects of its macroeconomic policy
(see Briefing, Learning lessons from the Covid-19 pandemic: The World
Bank's macroeconomic policies and women's rights). This was also
highlighted in an open letter signed by over 50 CSOs in December
2022.
As the World Bank's promised reforms take centre stage at the Spring
Meetings in Washington DC in April, the IMF prepares to implement its
own controversial gender strategy - which women's rights groups
recently rejected as "pinkwashing" and illegitimate "mission creep"
(see Observer Winter 2022, Spring 2022) - and the world celebrates
the 75th anniversary of the Universal Declaration of Human Rights
this year, the BWIs must commit to taking a more critical approach to
their existing gender and climate promises.
bit.ly/IFIsGender

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INFRASTRUCTURE/news

MIGA's support for gas projects raises concerns about its climate
credentials

As the World Bank Group prepares to begin aligning its investments
with the Paris Agreement from 1 July, the Multilateral Investment
Guarantee Agency (MIGA), the bank's commercial insurance arm, is
coming under scrutiny for a series of recent guarantees supporting
gas power projects (see Inside the Institutions, Multilateral
Investment Guarantee Agency; Observer Winter 2022).
MIGA provided $407 million worth of guarantees to cover the
acquisition and refinancing of the Bhola-2 220-Megawatt gas power
station in Bangladesh in June 2022, a controversial project that was
opposed by local communities over claims of land-grabbing.
"The World Bank's finance for the Bhola power plant is yet another
example of the World Bank's failure to act seriously on the climate
crisis," said Claire O'Manique of international civil society
organisation Oil Change International.
MIGA also provided recent guarantees for two controversial gas
projects in Mozambique - including $186.35 million to cover the
acquisition of the Central Térmica de Ressano Garcia gas power plant
in May 2022, and $251.3 million for the construction of the Central
Térmica de Temane gas power plant in December 2021.
bit.ly/MigaGas

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FINANCE/news

World Bank's financial inclusion agenda blind to growing gendered
over-indebtedness

SUMMARY
World Bank's financial inclusion programme celebrates latest banking
data, papering over issues of over-indebtedness and moral hazard as
banks post record profits
Cost of living crisis, financialisation and austerity create perfect
storm as women sink deeper into debt trap to sustain their households
and livelihoods

The World Bank released its latest Global Findex data on financial
inclusion last year, celebrating a worldwide rise in account
ownership from 51 to 76 per cent since 2011, fuelled by digitisation,
mobile money and increasing female banking rates. However, research
by Third World Network and Universidade Federal do Rio de Janeiro's
professor Lena Lavinas on Ecuador, Pakistan, Brazil and South Africa
points to another concerning trend: Growing household
over-indebtedness, much of which is shouldered by women. In Ecuador,
massive cuts to the public health care system as a result of World
Bank and IMF loan conditions led to women taking on growing debt to
cover healthcare and household expenses (see Observer Summer 2020;
Briefing, Learning lessons from the Covid-19 pandemic: The World
Bank's macroeconomic policies and women's rights). In Brazil,
financial inclusion of the poor coupled with widespread
financialisation and constitutionally-enshrined austerity mean that
over half the adult population is now indebted and a third of
household income is used to service debt alone, most of which is
consumer credit (see Dispatch Annuals 2022; Observer Spring 2018).
These dynamics show that rather than facilitating women's economic
empowerment, in the context of social spending cuts and privatisation
of public services, 'financial inclusion' of the poor may in fact
lead to new gendered layers of deprivation and dependence (see
Observer Winter 2017).
Consumer protection is not enough to counter financialisation impacts
The World Bank tackles these issues mainly from the perspective of
consumer protection, suggesting better financial literacy education
and consumer safeguards - although what incentives banks and
microfinance institutions have for moving away from their
profit-driven model, which the Bank itself has helped promote,
remains unclear. The Bank's assertion that when financial inclusion
doesn't yield the desired effects it is because "the financial sector
doesn't always work correctly" (see Dispatch Annuals 2022)
conveniently overlooks the fact that information asymmetry, rent
seeking and moral hazard are common features of the financial sector
almost everywhere. "The development banks promoted this personal
profit-making version" asserted microfinance pioneer Muhammad Yunus
in a 2022 Bloomberg report, which calculated that since 2011, the
International Finance Corporation (IFC) - the Bank's private sector
arm - invested $5.3 billion in microfinance institutions, including
in Cambodia, where lenders seized over-indebted borrowers' lands
while posting record profits during the pandemic years. Other
examples abound in the same article, from debtors' prisons in Jordan
to suicides in Sri Lanka. Kenyan mobile money provider M-Pesa, once
championed as an anti-poverty solution, has since been discredited
for predatory lending and consumer data exploitation, causing even
CGAP, the Bank-affiliated financial inclusion think tank, to call for
caution.
Yet, the Bank still fails to systematically make the connection
between its own Findex findings that two-thirds of adults in
developing countries face significant financial worries to meet their
basic needs, the rapid growth of accessible commercial financial
products, commercial banks' primary profit motive, and growing
consumer over-indebtedness. Findex authors admitted that "while
access to finance is growing globally, financial health and
well-being are stagnating or even declining." Academic research has
also shown that the evidence for financial inclusion facilitating
broader development outcomes, poverty alleviation and "good business"
is far from convincing.
Unfortunately, the expected appointment of former Mastercard CEO and
financial inclusion champion Ajay Banga as World Bank president will
likely mean doubling down on this agenda (see Observer Spring 2023).
However, without a critical investigation of these dynamics, the Bank
runs the risk of continuing to champion development "solutions" that
ultimately fail and trap the poor in cycles of debt without
meaningful productivity gains, let alone empowerment.
bit.ly/FinancialInclusionWBG

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SOCIAL SERVICES/news

Civil society calls to move away from PPPs grow, while World Bank
doubles down on private finance-led approach

Momentum has picked up on civil society's calls to move away from
much-criticised public-private partnerships (PPPs). Following the
'Our Future is Public' conference in Chile in December 2022, a
'Santiago Declaration for Public Services', endorsed by over 200
organisations, was published on 26 January, advocating for "bold
collective national action for ambitious, gender-transformative and
progressive fiscal and economic reforms, to massively expand
financing of universal public services."
The declaration emphasised the role of the IMF and World Bank in the
stripping away of crucial public services, highlighting austerity
cuts in public sector budgets and wage bills promoted by the IMF,
which further dependency and unsustainable debt (see Observer Autumn
2022).
Despite evidence that private finance is more expensive than
government borrowing - as governments take a 'derisker' role for the
private sector - less efficient and creates opaque systems often
exempt from regulations, the Bank appears committed to promoting this
approach. This seems to be reinforced by the US nomination of former
Mastercard CEO Ajay Banga as the next World Bank president, which
likely signals a potentially deepening of the Bank's private sector
bias (see Observer Spring 2023).
bit.ly/PPPsWBG

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FINANCE/news

Against regressive taxes and austerity: IMF and World Bank must pivot
tax policies to support a just and green transition
Guest analysis by Klelia Guerrero, LATINDADD & Matti Kohonen,
Financial Transparency

SUMMARY
The one-size-fits-all austerity approach has proven unfair and
ineffective in tackling current crises and demands
Green taxes should correct producers' externalities rather than
making essentials more expensive by cutting fuel subsidies
UN-led tax governance is crucial to achieve taxes' full potential,
ensure equity and promote participation

This year, 85 per cent of the world's population is expected to live
under austerity measures, likely further widening inequality.
Citizens are told that there is no money, even if during the pandemic
38 per cent of intervention funds benefitted large companies instead
of financing social protection and supporting informal workers.
Countries effectively bailed out affected companies, while failing to
tax the ones which made excess profits.
Despite widespread economic volatility in recent years, the world's
largest 1,000 companies recorded excess profits of $1.15 trillion in
2020 and 2021, a 68.5 per cent increase from the pre-pandemic period.
Taxing corporate windfall profits, especially from fossil fuel
companies, and imposing taxes on wealthy individuals would have
enabled greater recovery spending, which only averaged 2.4 per cent
of GDP in 21 Global South countries in 2020-2021.
Instead, the IMF Fiscal Monitor from October 2022 warned that "one
needs to weigh carefully whether taxes on windfall profits from fuel
extraction are appropiate", citing concerns they could reduce
investments into the energy sector in the long term.
Countries in the Global South that consider taxing windfall profits
also face other obstacles. As Guyana's Vice President noted, "In
Guyana's oil contract agreement, it would be a breach to impose the
tax on the massive returns being enjoyed by the companies." Here, the
World Bank should assist countries in navigating out of such legal
threats rather than reinforce them (see Observer Summer 2021).
Change of course needed in BWIs' approach
An example of the consequences of the Bretton Woods Institutions'
(BWIs) policies can be seen in Ecuador, where an IMF loan led to
fiscal consolidation, deregulation and health care cuts combined with
regressive value-added taxes (VAT), contributing to one of the
highest rates of excess mortality from the pandemic (see Observer
Summer 2020). This contrasts, for instance, with Chile's introduction
of higher mining royalties to finance its crisis response aiming to
increase tax collection by 3.6 per cent of GDP, or about $10 billion
annually.
Making matters worse, the IMF estimates that the 2021 Organisation
for Economic Cooperation and Development (OECD)/G20-led Global
Minimum Tax proposal of 15 per cent on multinational companies will
not help countries in the Global South. It calculates the additional
revenue collected from this tax at below 0.2 per cent of global GDP,
while claiming that domestic tax reforms in low-income countries
could increase revenue by 8 per cent. This not only implicitly
assumes that the Global Tax Deal cannot be improved but also puts the
onus on developing countries. As the IMF's advice to Kenya shows,
this means dismantling innovative progressive taxes, including
removing domestic digital services taxes without offering alternative
sources of income.
This comes against the backdrop of a resolution at the United Nations
General Assembly in November 2022 that will bolster the role of the
UN in tax governance, possibly leading to a UN Tax Commission. It
remains uncertain whether this proposal will succeed despite its
importance, as ongoing negotiations at the OECD - supported by the
IMF - may hamper progress.
For its part, the World Bank has made public statements linking
progressive taxation to tackling inequality. However, in practice,
their rankings of business environments - whether the old Doing
Business Report (that gave points for low taxes and less social
protection) or the new Business Enabling Environment Project (where
lower taxes are recorded as part of measures, but no longer part of
the ranking) - reward the contrary. Its advice continues to maintain
that lower taxes bring about growth and investment.
The World Bank's Development Policy Financing (DPF) also tends to
suggest regressive VAT taxes, while supporting actions to tackle tax
avoidance and evasion. However, loan conditions rarely support wealth
or windfall taxes (see Background, What is World Bank Development
Policy Financing?). There is another incoherence: If the Bank truly
aimed for a green and sustainable tax agenda, its advice to countries
should be to reduce tax incentives to extractive industries and not
the opposite.
One pertinent example comes from Brazil, where one of the largest
bauxite mines, Mineração do Rio Norte, received a 75 per cent
corporate income tax exemption costing $76 million between 2020-2021,
more than the combined revenues raised by the regional municipality
through local taxes, fees and charges over the same period. Doing
away with such exemptions, while potentially provoking Investor State
Dispute Settlement (ISDS) cases (see Observer Summer 2020), would be
highly progressive ways to raise public revenues.
Regressive taxes and austerity are already the default option for
constrained countries, a dangerous trend made worse by IMF and World
Bank policies. While poor and marginalised populations are not able
to mobilise their causes effectively in political or judicial arenas,
corporations and the wealthy are - and have historically done so.
Progressive tax policies are a must in order to equitably address the
current crisis and multilateral organisations should encourage their
incorporation in the local and global spheres instead of posing
obstacles to their implementation or labelling them as undesirable or
technically unfeasible.
bit.ly/GreenTaxes

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ENVIRONMENT/news

Resilience and Sustainability Trust's first loans promote climate
PPPs, raising concerns they may create fiscal risks

SUMMARY
Initial financing for Costa Rica, Barbados, Rwanda, Bangladesh and
Jamaica tied to efforts to 'green' PPP frameworks
IMF's own 2022 research cautioned against dangers of overreliance on
private climate finance, due to potential contingent liabilities

The first series of loan agreements from the IMF's new Resilience and
Sustainability Trust (RST), which became operational in October (see
Dispatch Annuals 2022), has doubled down on the Bretton Woods
Institutions' support for crowding in private finance, an agenda also
strongly supported by their Group of Seven (G7) shareholders and a
key pillar of the World Bank's emerging 'evolution roadmap' process
(see Observer Spring 2023).
The RST, a new trust capitalised by on-lent Special Drawing Rights
from better-off IMF member countries, is designed to support policy
changes which address potential future balance of payments issues
related to climate change (see Inside the Institutions, What are
Special Drawing Rights (SDRs)?). The IMF's board has now approved
five financing packages since November for Costa Rica, Barbados,
Rwanda, Bangladesh and Jamaica, respectively - topping $3.3 billion
in total.
Lending programmes from the RST require countries to have another IMF
funding programme in place, meaning that countries accessing the
trust need to negotiate a wider set of macroeconomic conditionalities
with the Fund, which are typically based on fiscal consolidation -
potentially limiting their fiscal and policy space to address their
vulnerability to climate impacts (see Observer Summer 2022, Spring
2022).
Climate PPPs: Opening fiscal space, or fool's gold?
The conditionality agreed between the IMF and member countries to
secure RST financing thus far strongly favours the expanded use of
public-private partnerships (PPPs) for climate action. This raises
questions about whether the RST's policy reforms are fit for the
purpose of helping states mitigate potential balance of payments
issues related to climate change, given the risks associated with the
PPPs financing model, which have been repeatedly highlighted by civil
society in recent years (see Observer Autumn 2022, Spring 2019,
Winter 2017-2018).
For instance, Bangladesh's $1.4 billion in RST financing, approved by
the IMF's board on 30 January, is premised on helping "leverage
private sector climate finance," including a plan to "update the PPP
policy and framework to reflect climate risks." Similarly, Rwanda's
RST 'qualifying reforms' - linked to $319 million in financing -
include efforts to increase 'fiscal space' via PPPs, while Barbados'
$189 million RST programme notes the country will seek to
"significantly scale up private climate financing in the next three
years," including through reforms to its power sector licensing
system to allow renewable energy PPPs. In Costa Rica's $710
million RST programme - the first approved under the trust - agreed
reforms include, "simplifying administrative procedures for private
participation in power generation from renewables."
Jamaica's $764 million RST financing package, approved by the IMF's
board on 2 March, likewise notes, "the PPP framework will be further
amended to include climate requirements in PPP agreements from
project identification to contract management."
In contrast to the recent spate of RST loan conditionality, an IMF
staff note released in August warned, "public-private partnership
investment implies potentially large public debt increases through
the crystallization of contingent liabilities" (see Observer Autumn
2022). "No evidence supports the RST rationale that an 'enabling
environment' can close the gap in climate finance through volatile
private funding," said Federico Sjaba of Netherlands-based CSO
Recourse. "The IMF should guarantee more conditionality-free SDRs for
debt-stricken Global South countries to address the balance of
payment issues that arise from just transitions."
bit.ly/RSTppps

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