+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Bretton Woods Observer Winter 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

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

1. A proposal for Ajay: No evolution without remedy, Guest comment by
Margaux Day and David Pred
2. Significant IDA21 replenishment required as need for concessional
finance grows
3. What is the IMF Resilience and Sustainability Trust?
4. Decolonising the global economic architecture: The prerequisite
for a just transition
Guest analysis by Prof Fadhel Kaboub
5. New data show Global South is in worst debt crisis ever, with
another lost decade looming
6. World Bank and IMF promoting private finance and fiscal
consolidation despite mounting evidence of harmful impacts
7. Morocco and IMF Resilience and Sustainability Trust: Balancing
debt, privatisation and neocolonial dynamics
8. Selection of World Bank to host new Loss and Damage Fund draws ire
of developing countries and civil society advocates
9. Laure-Alizée Le Lannou joins the Bretton Woods Project as new
Environment Project Officer
10. UN Secretary General’s New Agenda for Peace calls for urgent
financial architecture and policy reform
11. The rise of bilateral currency swaps – a threat to the IMF?
12. Civil society urges governments to agree on a UN tax body as a
high priority
13. IFC trade finance continues to invest in fossil fuels, with no
board oversight
14. IMFBoss blog coming soon

=====================================================================

ACCOUNTABILITY/analysis

A proposal for Ajay: No evolution without remedy
Guest comment by Margaux Day and David Pred

SUMMARY
Evolution of World Bank must include the addition of remedy into its
Playbook
Recent scandal of alleged child sexual abuse and cover up relating to
IFC’s investment in Bridge
Civil society call for IFC to contribute to a remedy fund for Bridge
Academies survivors of child sexual abuse

At this October’s World Bank and IMF Annual Meetings in Marrakech, we
heard from the Bank’s President Ajay Banga, who prefers to be
addressed by his first name, that the World Bank needs to evolve into
a “better” and “bigger” Bank that operates at greater speed and
scale. This raised concerns among civil society organisations (CSOs),
like the two we represent, that have repeatedly witnessed
environmental and social harms caused by World Bank projects, and
experienced how difficult it is for affected people to secure redress
for those harms. Despite our well-founded fears that a bigger Bank
functioning at a quicker pace will cause more harm, we are prepared
to offer Ajay a deal.
So, Ajay, here is the proposal: We can accept that the Bank must
evolve and that “ending poverty on a livable planet” requires bold
actions. In return, we ask that the Bank accept and bear the risks of
those actions.
In other words, the Bank needs to add remedy to its Evolution
Playbook.
Put simply, “remedy” means taking action to ensure that adverse human
rights impacts caused by development projects are addressed and
rectified. Absent a commitment to remedy, even with the best of
intent, the Bank will fund projects that externalise costs to
project-affected people and the environment. Adding remedy to its
Playbook need not slow the Bank or make it more risk averse. On the
contrary, embracing remedy will enable it to move more quickly on
bolder initiatives, secure in the knowledge that it has the tools to
course correct if things go wrong (see Observer Summer 2022).
Yet, we’ve seen intense resistance from the Bank. Earlier this year,
the International Finance Corporation (IFC), the Bank’s private
sector arm, opened a public consultation on a proposed approach to
remedy. In 2020, an independent expert review, led by former IFC CEO
Peter Woicke, made pointed recommendations regarding the need for a
remedy framework. Rather than addressing Woicke’s recommendations,
however, the IFC threw up a smokescreen, proposing a pilot of
undefined measures seemingly designed to distract from its
unwillingness to remediate harms caused by its projects. Global civil
society gave the paper a resounding fail, urging the IFC to go back
to the drawing board and draft an approach that accords with
international standards.
Per the United Nations Guiding Principles on Business and Human
Rights (UNGPs), if a project’s financier contributes to harm, it must
also contribute to remedy. A financier contributes to harm if it: (a)
has knowledge of, or should have known of, potential or actual
adverse human rights impacts caused by a client or investee; and (b)
fails to take reasonable steps to prevent or mitigate such impacts
through its due diligence and supervision processes.
Bridge Academies scandal points to acute need for IFC remedy fund
Shocking news of child sexual abuse by teachers at schools run by an
IFC client, Bridge International Academies, provides an opportunity
for the World Bank Group to show that it understands its
responsibility to contribute to remedy when it has contributed to
harm. The IFC invested in Bridge in 2013 to help it scale up a chain
of for-profit private schools in Kenya and beyond. But according to a
leaked investigation by IFC’s internal watchdog, the Compliance
Advisor Ombudsman (CAO), the IFC failed to identify or mitigate the
obvious child protection risks that emerged from its client’s
cost-cutting business model. Worse, it is reported that when evidence
of sexual abuse at Bridge schools emerged, the IFC ignored it,
instead hatching a plan to “neutralise” CAO’s lead investigator and
delay revelation of the abuse, lest the news “spook investors”. In
March 2022, the IFC exited the investment without taking any steps to
ensure that the Bridge child sexual abuse survivors received remedy
(see Observer Summer 2022). This is a clearcut example of the IFC
contributing to egregious harm.
That’s why we join US Senators Elizabeth Warren and Peter Welch and
civil society groups around the world in calling on IFC to contribute
to a remedy fund for Bridge child sexual abuse survivors. The IFC
should do this together with Bridge and its other investors, which
include an array of other development finance institutions from the
UK’s Commonwealth Development Corporation to the US’s Development
Finance Corporation. In November, the IFC responded to our letter
saying that it had already “worked with Bridge to address
gender-based and child safety issues” and claiming that its exit from
Bridge was “responsible”, but did not commit to remediating the harm.
We’ve heard skeptics say that it would create a “moral hazard” for
financiers to contribute to remedy. This is backward thinking. Moral
hazard exists where a company takes on excess risk because it knows
someone else will pay the price. Following this definition, it is the
ability to externalise environmental and social costs onto
project-affected communities that creates a moral hazard, as this
incentivises financiers and their clients to take on projects without
fully accounting for – and indeed being accountable for – their
impacts. Sure, hypothetically financiers could create a moral hazard
for their clients if they were to regularly accept too much
responsibility for remedy. But they can avoid this exposure by
ensuring that investment agreements require clients to address
environmental and social harm and incorporate sanctions if they fail
to do so.
Embracing a new remedy approach in line with the UNGPs will support
the Bank to tackle the crises of our time without externalising risk
onto the poor communities it is committed to serve. The alternative
is grim: A bigger Bank, externalisng the costs of development on the
poor, with greater speed and at greater scale than ever. That is why
we say there can be no evolution without remedy and ask Ajay to
accept our proposal.
tinyurl.com/EvolutionRemedy

=====================================================================

In this issue

Decolonising the global economic architecture: The prerequisite for a
just transition by Prof. Fadhel Kaboub
World Bank and IMF promoting private finance and fiscal consolidation
despite mounting evidence of harmful impacts
Selection of World Bank to host new Loss and Damage Fund draws ire of
developing countries and civil society advocates
UN Secretary General’s New Agenda for Peace calls for urgent
financial architecture and policy reform

=====================================================================

FINANCE/news

Significant IDA21 replenishment required as need for concessional
finance grows

Rich country donors are under pressure to ensure that the upcoming
21st replenishment of the World Bank’s International Development
Association (IDA21), which starts early next year and runs until
December, sees a significant increase in funding. IDA provides
concessional financing and grants for low-income countries, which are
in desperate need of financing to deal with a series of compounding
crises, in addition to suffering from a liquidity crunch that has
pushed at least half of IDA’s members into debt distress or high risk
of debt distress.
Given the critical need, many have called for a significant increase
in IDA funding. In their World Bank and IMF Annual Meetings 2023
communiqué, the V20, a grouping of countries systematically
vulnerable to climate change, stated they expect “an ambitious IDA21
replenishment”, and backed calls for contributions to be tripled by
2030 (see Dispatch Annuals 2023). While civil society recognises the
need for additional grant and concessional finance, it has
nonetheless questioned the value of IDA’s Private Sector Window (see
Observer Summer 2021), arguing that the $2.5 billion allocated to the
window under IDA20 to subsidise private sector investments would be
better spent on core IDA projects.
Meanwhile, IDA is seeking to avoid a ‘fiscal cliff’ in the remaining
18 months of IDA20, which runs to mid-2025, through a combination of
cancelling and recommitting unused committed funding, new donor
contributions to two crisis windows and new bond issuances (see
Dispatch Annuals 2023). This shortfall was the result of the $93
billion IDA20 replenishment being front-loaded to help countries with
the economic fallout from Russia’s invasion of Ukraine, which left
IDA $7.8 billion dollars short for the last two years of its current
three-year IDA20 funding cycle.
tinyurl.com/IDAFiscalCliff

=====================================================================
ENVIRONMENT/background

What is the IMF Resilience and Sustainability Trust?

New Inside the Institutions explores the Resilience and
Sustainability Trust (RST), an IMF facility providing concessional
long-term financing to support low- and middle-income countries in
addressing climate-related balance of payments challenges. The
article assesses the RST’s impact on the ability of low- and
middle-income countries to achieve their development and climate
goals. It focuses on the RST’s strict eligibility criteria, 75 per
cent IMF quota access cap, ‘green conditions’ linked to austerity,
and its extension of credit to nations already in debt distress.
tinyurl.com/InsideRST

=====================================================================

FINANCE/analysis

Decolonising the global economic architecture: The prerequisite for a
just transition
Guest analysis by Prof Fadhel Kaboub

SUMMARY
Global South faces severe structural deficiencies that weaken its
economic sovereignty, putting it at mercy of neo-colonial global
financial architecture
World Bank and IMF have no vision for decolonising African economies
or addressing the roots of external debt problems
Global South’s response to 21st century polycrisis requires
structural transformation that ensures – inter alia – food and energy
sovereignty

The World Bank Group and International Monetary Fund (WBG and IMF)
were created in 1944 when most of Africa was still colonised. No
fundamental changes were made to these institutions when they first
held their Annual Meetings on the African continent in Nairobi 50
years ago, and no such changes were announced at the second
Africa-based Annual Meetings in Marrakech, Morocco, in October 2023
that would lead to a decolonised global financial architecture any
time soon (see Dispatch Annuals 2023).
The Global South faces severe structural economic deficiencies that
weaken its economic sovereignty and put it at the mercy of a
neo-colonial international trade, finance and investment
architecture, as discussed in the May report titled Just Transition:
A Climate, Energy and Development Vision for Africa, which I
co-authored as part of the Independent Expert Group on Just
Transition and Development. This is illustrated with one simple
statistic: The global economic architecture annually extracts $2
trillion of net financial flows from the Global South to the Global
North.
These negative net financial flows are the direct result of the role
that was historically imposed on the Global South as the place: 1)
where the industrialised world can acquire cheap raw materials; 2)
where industrial output from the Global North can be dumped in a
large consumer market; 3) for low-cost tourist destinations; and 4)
for outsourcing obsolete technologies, and low-tech, low labour-cost,
assembly-line manufacturing in the name of “development” and
“cooperation”, guaranteeing the Global South remains locked at the
bottom of the global value chain.
New Global South-led development paradigm sorely needed
If the Global South does not articulate a forward-looking vision for
a just, equitable and sustainable 21st century, this will ensure that
we fall prey to the strategic vision of other major economic powers
that are comfortable seeing us play the same role we played in the
past (see Observer Spring 2023). The good news is that this
polycrisis is a reminder that neither the Global South nor the Global
North can afford to ignore these major imbalances in terms of
financial, social and ecological stability.
The Global South’s response to the 21st century polycrisis requires
structural transformation to repair three major economic
deficiencies: 1) food sovereignty; 2) energy sovereignty; and 3)
excessive reliance on low value-added manufacturing and purely
extractive industries. These deficiencies amount to structural trade
deficits, depreciating Global South currencies, and increasing costs
for critical imports such as food, fuel and medicine. These force
Global South governments to increase food and fuel subsidies to
protect their most vulnerable and borrow dollars in a desperate
attempt to artificially stabilise their exchange rate. This dynamic
brings the Global South into the vicious circle of growing external
debt that culminates in sovereign debt crises, reducing fiscal
capacities to invest in national priorities, strengthening the grip
of global financial institutions, and further weakening economic
sovereignty (see Observer Winter 2023).
While the focus on the external debt crisis is important, it is
crucial that we recognise it as a symptom of the three economic
deficiencies outlined. So when we speak of debt restructuring,
concessional finance and even debt cancellation, we must acknowledge
that without addressing the root causes of external debt, we
guarantee that new sovereign debt crises will continue to emerge and
global imbalances will persist.
The Global South must continue to demand a just global financial
architecture, for new Special Drawing Rights (SDRs) allocations to go
to developing countries (see Briefing, Reconceptualising Special
Drawing Rights as a tool for development finance), for the $100
billion in climate finance pledged to
be fulfilled, for more favourable terms of finance, for scaling up
funding for the Green Climate Fund, and for immediate financing at
scale for the Loss and Damage Fund. However, none of this can replace
the need for the strategic structural transformation of the Global
South. The Global South has the opportunity to put forward a united
front with an unbreakable commitment to collective action on debt,
climate finance, financial architecture negotiations, and, most
importantly, on access and use of strategic minerals that are under
the sovereign control of Southern nations. These should be leveraged
for South-South industrial policies rather than exported as raw
materials to secure the economic hegemony of the Global North.
Finally, it is vital that the Global South rejects false solutions
that have been imposed on us. Policies that encourage exports end up
leading to more imports of fuel, capital equipment and intermediate
inputs. Policies that promote foreign direct investment end up
increasing imports of fuel for energy production and transportation.
Policies that promote the liberalisation of financial services end up
hurting domestic investors and inviting speculative attacks from
abroad. All of these policies masquerade as solutions, when they are
in fact structural traps.
After decades of “leadership” by international financial institutions
via development finance, loans, and technical “assistance” and
“cooperation”, the fact that the Global South is stuck in a vicious
debt cycle means one of two things: a) incompetence, or b)
intentional entrapment. The WBG and IMF have no vision for
decolonising African economies or addressing the roots of our
external debt problems. This should galvanise efforts across the
Global South to build alternative financial institutions that would
challenge the hegemony of the global trade, investment, finance, and
taxation architectures, and would render the World Bank and IMF
redundant institutions that must either be radically transformed or
dismantled.
tinyurl.com/AfricanGreenTransition

=====================================================================

FINANCE /news

New data show Global South is in worst debt crisis ever, with another
lost decade looming

SUMMARY
- As Zambia deal unravels, IMF continues to insist situation is not
“systemic”
- Civil society alliances call to prioritise sustainability of life
and climate action over debt, while UN calls debt crisis a “systemic
failure”

A month after Zambia’s “landmark” debt restructuring deal with
bondholders was announced, and three excruciating years post-default,
the deal now faces derailment over disagreements between commercial
and official creditors on “comparability of treatment”, questioning
the equity of the haircut terms for each. While the Global Sovereign
Debt Roundtable – a forum meant to find common ground between Paris
Club and non-Paris Club bilateral creditors, private sector lenders
and borrowing countries, chaired by the IMF, World Bank and former
G20 presidency India – had just praised the “positive momentum” from
Zambia’s agreement, the deal’s rejection is now sending ripple
effects to other countries in debt distress, once more challenging
the already barely functioning Common Framework (see Observer Spring
2023, Winter 2020).
Meanwhile, despite the Fund’s acknowledgement that poor countries
need urgent debt relief to tackle the climate crisis and
encouragement of “pre-emptive restructuring” in the latest Global
Financial Stability Report, at the October Annual Meetings senior IMF
staff continued to emphasise that “we are still far from where we
stood before the HIPC [Heavily Indebted Poor Country] initiative in
the 1990s” and have refused to call the current situation a debt
crisis. Following reports from UNDP, UNCTAD, the UN Independent
Expert on Debt and Human Rights, and various civil society
organisations (CSOs) demonstrating the staggering impacts of
debt-induced austerity on human rights, poverty and inequality (see
Observer Autumn 2023), the refusal to call a spade a spade because it
is not “systemic” feels like tone-deaf semantics to people in the
Global South. The UN Secretary General’s 12 July remarks made clear
that “because most of these unsustainable debts are concentrated in
poor countries, they are not judged to pose a systemic risk to the
global financial system. This is a mirage. 3.3 billion people is more
than a systemic risk. It is a systemic failure.”
Indeed, a new database by Development Finance International shows
that “citizens of the Global South now face the worst debt crisis
since global records began,” with an average of 38 per cent of
government revenue absorbed by debt servicing, rising to 54 per cent
in Africa. “These figures are more than twice the levels faced by
low-income countries before HIPC,” emphasised author Matthew Martin,
where “debt service equals combined total spending on education,
health, social protection and climate, and exceeds it by 50% in
Africa.” Already two years ago, lower income countries were spending
five times more on external debt payments than on tackling climate
change (see Observer Winter 2021). This ratio has now risen to 12
times.
Civil society urge decision-makers to cancel debt and prioritise
sustainability of life
Civil society’s decades-long calls for a new approach to debt
sustainability are growing again, fuelled by the escalating climate
catastrophe that traps many vulnerable countries in a vicious cycle
of climate shocks, debt and fossil extraction. Chad, another Common
Framework applicant, exemplified this: Its 2022 restructuring deal
granted no debt relief as temporarily higher oil prices made its
oil-backed loans from commercial
creditor Glencore suddenly repayable, effectively forcing Chad to
keep maximising oil extraction (see Observer Winter 2022). And while
the Fund continues to base debt sustainability assumptions on
over-optimistic fossil revenue predictions like in Mozambique (see
Observer Summer 2022), fiscal needs for climate and development
spending remain un-accounted in these analyses (see Observer Autumn
2023, Autumn 2022).
In September, the Bogota Declaration united experts from across the
Global South demanding “unconditional cancellation of all
unsustainable and illegitimate debts from all creditors, for all
Southern countries” and stressing that “the heaviest impacts are
borne by millions of working people, particularly women.” An open
letter from the Global Week of Action for Debt, Climate and Economic
Justice with 600 signatories including leading economists Thomas
Picketty, Jayati Ghosh and Jason Hickel, highlighted in November that
advanced economies continue to skirt their climate finance
obligations. “They owe us reparations for the massive ecological and
climate debt incurred from the historical exploitation and
dispossession of the human and environmental resources of the South,”
stressed letter co-coordinator Lidy Nacpil from the Asian People’s
Movement on Debt and Development.
tinyurl.com/GSDebtCrisis

=====================================================================

CONDITIONALITY / analysis

World Bank and IMF promoting private finance and fiscal consolidation
despite mounting evidence of harmful impacts

SUMMARY
World Bank determined to capitalise on global austerity sweep with
private finance push, despite evidence of harm
IMF continues to impose austerity measures through lending
Oxfam International’s Sick Development report and analysis by Social
Justice in Global Development add more damning evidence of harm

As global cost of living, inflation and inequality spike, austerity
measures are sweeping across the world at record levels and public
services face cutbacks, with dire consequences. In this context,
pre-existing concerns are growing about the World Bank and IMF’s
focus on market-based solutions, including its impact on
accountability at the World Bank.
October’s World Bank and IMF Annual Meetings in Morocco were an
opportunity for the Bretton Woods Institutions (BWIs), the World Bank
and the IMF, to respond to warnings from civil society organisations
(CSOs) and other critics about the impact of austerity measures on
the provision of essential basic public services to billions of
people. Despite evidence, testimonies and viable alternatives being
offered, World Bank President Ajay Banga and IMF Managing Director
Kristalina Georgieva remained adamant during the meetings that
private finance is essential to bridge what they stress is a
significant financing gap (see Dispatch Annuals 2023). Solutions such
as increases in public finance, tax reform and tackling illicit
financial flows, donor compliance with Official Development
Assistance targets, climate finance and debt cancellation were
glossed over, with the BWIs instead focusing on ‘crowding in’ private
finance with the likes of a Private Sector Investment Lab at the
Bank.
Privatised public services fraught with equity and quality challenges
The International Finance Corporation (IFC), the World Bank’s private
sector arm, faces particular scrutiny as evidence of harmful
practices under IFC-funded projects mounts, including the recent
Bridge International Academies scandal (see Observer Winter 2023).
The 2023 Annual Meetings offered fresh evidence of IFC-backed harm,
in this case to healthcare services, following a damning June report
by Oxfam International titled Sick Development. The report maps
financing flows between development finance institutions (DFIs),
including the World Bank, to for-profit private healthcare providers
in the Global South. Illustrated by in-depth case studies in India
and Kenya, Oxfam found that DFI promises to advance universal health
coverage and protect rights were not fulfilled. Instead, taxpayers’
money earmarked for fighting poverty and achieving development goals,
given DFIs are publicly financed, is being used to back expensive,
for-profit private hospitals that deny service to, bankrupt, or even
detain patients who cannot pay. Noting that the Bank has a mandate to
help deliver the Sustainable Development Goals, reduce poverty and
support inclusive growth, the report exposes serious harm to patients
in IFC-funded hospitals, a lack of transparency of investments,
questionable flows of taxpayer money into tax havens, and the
ultimate failure of IFC healthcare investments to provide adequate
support to those who need it most, i.e. the poorest and most
vulnerable.
The report noted that the “IFC has been at the vanguard of the drive
to use public funds to maximize the role of both private finance and
commercial providers in healthcare systems in the Global South,”
adding, “what is lacking is a clear and evidenced theory of change as
to how DFI investments in for-profit private healthcare providers
will succeed in advancing pro-poor and gender-equitable access to
quality healthcare without financial hardship.”
In a Civil Society Policy Forum (CSPF) event at this year’s Annual
Meetings titled Development finance to for-profit private healthcare:
What implications for uhc, human rights and gender equality?, IFC
representative Charles Dalton responded to a presentation from the
report’s lead author, Anna Marriott of Oxfam, by noting the IFC
accepts such findings are unacceptable and will investigate them
fully. Yet, he stressed, a solution to healthcare needs must be found
and unfortunately fiscal consolidation is an inevitability. Dalton
responded that he was “personally upset and annoyed by the stories”
and admitted that the “could do better. The private sector doesn’t
have all the solutions and IFC doesn’t say this. But the demand to
supply is so big and we have to think outside the box.”
Yet, leading global institutions disagree that private finance is the
missing piece in healthcare and other public services. The World
Health Organisation (WHO) guidance on achieving universal healthcare,
for instance, states that “countries should reduce their reliance on
private financing and instead progress towards primarily publicly
funded healthcare, because it leads to better efficiency,
effectiveness and equity.”
Fiscal consolidation, austerity’s partner in crime
Human Rights Watch has also published other critical research
exploring the IMF’s approach to tackling inequality. A September
paper, Bandage on a Bullet Wound, analysed 39 IMF loan programmes
from the beginning of the Covid-19 pandemic to March 2023 to assess
the Fund’s response to crises through a human rights lens. It found
an overwhelming preference for fiscal consolidation and stressed that
this is the case despite the fact that the IMF’s own 2023 World
Economic Outlook concluded that, “On average, fiscal consolidations
do not reduce debt-to-GDP ratios.”
An Autumn 2023 paper by Barry Herman of Germany-based CSO Social
Justice in Global Development, titled IMF has a new policy on social
spending: How should the Fund implement it?, analysed how the IMF
offers advice and determines policy requirements for IMF loans under
its new social spending strategy. The paper noted “recent country
programs and recent advice in Article IV consultations still embody
an unwarranted degree of austerity, negatively impacting the poor and
vulnerable citizens in affected countries.” Herman noted that the
Fund identifies key criteria for assessing social spending
programmes: Adequacy, efficiency and fiscal sustainability. Herman
commented, “Good, and now the Fund should hear civil society calls
for universal support of mothers and children, the disabled and the
elderly, funded through sufficient progressive taxation, supplemented
with international assistance in the poorest countries and during
catastrophes.”
Amid ongoing discussions about global governance and increasing
concerns about peace and stability (see Observer Winter 2023), the
reports foretell a harsh future for borrowing countries: Crumbling
public services and state capacity and related loss of trust in
public institutions, little debt reduction and negative human rights
impacts on billions.
tinyurl.com/SickDevelopment

=====================================================================

ENVIRONMENT/news

Morocco and IMF Resilience and Sustainability Trust: Balancing debt,
privatisation and neocolonial dynamics

SUMMARY
- Morocco secured a $1.32 billion loan from the Resilience and
Sustainability Trust (RST), subject to ‘green conditions’
- RST’s ‘green conditions’ may trigger European-led hydrogen rush in
the country, at expense of national climate and development goals

In late October, Morocco obtained a $1.32 billion loan from the IMF’s
Resilience and Sustainability Trust (RST). Established in 2022, the
RST uses rechanneled Special Drawing Rights for concessional
long-term financing, and is intended to help low- and middle-income
countries address future balance of payments challenges related to
climate change (see Inside the Institutions, What is the Resilience
and Sustainability Trust?).
The Moroccan RST programme mandates 16 reforms across six pillars.
Pillar 2 targets electricity market reform, including the unbundling
of Morocco’s publicly-owned electricity and water company, the Office
National de l’Électricité et de l’Eau Potable (ONEE). The RST
justifies separating generation, transmission and distribution by
stating that it would allow for greater competition, boost investment
in renewable energy, and eventually lead to lower electricity prices.
These reforms align with the RST’s operational guidance note,
including employing climate-related public-private partnerships
(PPPs; see Observer Spring 2023, Spring 2019). This approach raises
concerns because unbundling state-owned enterprises can conflict with
climate goals, undermining just transition principles (see Observer
Summer 2022, Spring 2022). Although, in the short term, PPPs may free
up public funds, in the longer term, the risks of public debt from
contingent liabilities that may materialise can drain fiscal
resources for climate action and privatise gains, exposing countries
to Investor-State Dispute Settlement tribunals known for corporate
bias and lack of democratic accountability (see Observer Spring 2023,
Summer 2020).
This PPPs approach also imposes costs on citizens. Concerningly, the
RST’s strategy in Morocco is linked to taxation reforms, raising
carbon prices to motivate “behavioural changes” in accordance with
climate objectives, all the while saving public resources for debt
repayment. Consequently, the public bears the cost of de-risking
climate projects for private profit, facing higher energy costs
without corresponding public support.
Who wins? The role of the RST in the international grab for green
hydrogen
Concluding the IMF board discussion on Morocco’s RST programme in
September 2023, IMF Deputy Managing Director Kenji Okamura, asserted,
“Morocco is well-placed to reap the benefits of the global
decarbonisation agenda.” But who will really benefit from this
agenda?
RST reforms might help drive a hydrogen rush in Morocco, fueled by
the EU’s interest as outlined in the EU’s 2020 Hydrogen Strategy.
Netherlands-based think tank the Transnational Institute warns the
push “for green hydrogen might serve Europe’s energy transition, but
in North Africa it will translate into a proliferation of sacrifice
zones in the region.”
The impact of the EU’s strategy on shaping Morocco’s RST reforms is
apparent from their alignment with the World Bank’s 2022 Country
Climate and Development Report (CCDR) for Morocco. The CCDR focuses
on easing the entry of European investors into Morocco’s renewable
energy sector, by, for example, unbundling ONEE and enhancing the
legal and regulatory framework for EU market compatibility.
Consequently, the focus seems to be on utilising Morocco’s renewable
energy resources for the benefit of Europe. This dynamic can be
exemplified in projects like the Tan-Tan solar and wind project,
managed by the British company Xlinks, which aims to meet 8 per cent
of the UK’s electricity needs by 2030. Other examples include a
French project covering 170,000 hectares of state-owned land, and the
Australian company CWP Global contemplating a $20 billion deal with
Morocco for a mega green hydrogen and green ammonia project.
Shereen Talaat of Morocco-based CSO MENAFem Movement For Economic,
Development and Ecological Justice said, “Moroccan civil society
expresses concern over the perceived neocolonial impact of the RST on
Morocco, seeing it as a tool favouring foreign interests at the
expense of our nation’s well-being. The emphasis on green hydrogen
projects, influenced by external entities like the EU Global Gateway,
raises fears of exploitation and the creation of sacrifice zones.
There is apprehension that our renewable energy resources might be
used for the benefit of the Global North, echoing historical patterns
of resource extraction and colonisation that prioritise profit over
our citizens’ needs.”
tinyurl.com/RSTMorocco

=====================================================================

ENVIRONMENT / news

Selection of World Bank to host new Loss and Damage Fund draws ire of
developing countries and civil society advocates

SUMMARY
Developing countries insist on list of conditions as Bank is named
interim host of new Loss and Damage Fund
Failure to invoke ‘sunset clause’ at the Bank-hosted Climate
Investment Funds in 2016 viewed as cautionary tale

In early November, after tense negotiations, the Transitional
Committee on Loss and Damage (TC) adopted a package of proposals to
operationalise a new Loss and Damage Fund (LDF), including an
agreement that it will be hosted by the World Bank for four years on
an interim basis.
The agreement of the TC’s proposals, which were formally approved at
COP28 in Dubai, United Arab Emirates, on 30 November, followed stark
divisions emerging between developed country and low- and
middle-income country representatives during negotiations, as the
option of creating a standalone fund was discarded in favour of a
US-led proposal for a World Bank-hosted fund.
The LDF, whose establishment was agreed at COP27 in 2022 (see
Observer Spring 2023), with the TC given a one-year mandate to
clarify how it would be operationalised, is intended to help
countries address growing loss and damage from climate change. As
Barbados representative Avinash Persaud noted at the November TC
meeting, this already amounts to nearly $200 billion per year in
climate vulnerable countries.
However, the negotiations resulted only in language on voluntary
rather than mandatory contributions based on developed countries’
historical responsibility for climate change. Initial pledges to the
LDF upon its approval at COP28 amounted to $650 million.
Civil society voices reject World Bank’s selection as Fund host
As the Bank emerged as the likely host of the LDF in November,
developing countries put forward a wide-ranging list of demands
required for them to agree to the proposal, including autonomy of the
Fund’s board to select its executive director and to “establish and
utilize its eligibility criteria, based on guidance from the [UNFCCC
and the Paris Agreement], including in cases where it differs from
the criteria of the World Bank.”
Civil society advocates also voiced strong concerns about the Bank
being selected as the host. “The World Bank, as the interim host of
the new Loss and Damage Fund, embodies a deeply flawed approach,”
said Harjeet Singh of Climate Action Network International. “Rooted
in neoliberal policies, its governance structure has long favoured
wealthy nations, often to the detriment of developing countries. The
Loss and Damage Fund must be independent, equitable, and truly
attuned to the needs of vulnerable communities. It cannot be under
the control of an institution with a history of inequitable and
environmentally detrimental practices,” (see Briefing, The World Bank
and the
environment: A legacy of negligence, reform, and dysfunction).
Although the LDF will be under its own governance structure – rather
than under the control of the Bank’s board of directors where the US
retains de facto veto power over key decisions – there are other
reasons to be concerned about the hosting arrangement.
In an op-ed for online news outlet Climate Home on 3 November, David
Archer of ActionAid International, who is a civil society
representative at the Global Partnership for Education (GPE) – one of
26 financial intermediary funds currently hosted by the World Bank –
commented on the increasing administrative fees charged by the Bank
in recent years: “A few years ago, this went up to 17% [from 12% of
the Secretariat’s costs] and then the bank tried to increase it to
24%. This provoked outrage from the GPE board who negotiated it down
to 20.5%.”
The notion of the Bank being an ‘interim’ host of the LDF was also
greeted with incredulity by civil society observers, after the
long-running saga of the World Bank-hosted Climate Investment Funds
(CIFs). When the CIFs were created in 2008, a ‘sunset clause’ was
included, with the understanding that the CIFs would later close to
make way for a UN-based climate fund. Despite the subsequent creation
of the UN-based Green Climate Fund, the decision to invoke the sunset
clause was delayed in 2016 and suspended indefinitely in 2019 (see
Observer Summer 2019).
tinyurl.com/LossAndDamageFund

=====================================================================

ENVIRONMENT / background

Laure-Alizée Le Lannou joins the Bretton Woods Project as new
Environment Project Officer

The Bretton Woods Project is happy to welcome Laure-Alizée Le Lannou
as our new Environment Project Officer. In her role, Laure-Alizée
will support BWP’s work on environmental and climate advocacy
targeting the World Bank. Her responsibilities will include
conducting research on the Bank’s climate and energy policies.
Additionally, she will assist in the development of a campaign to
reform IMF Special Drawing Rights to better serve developing
countries’ climate and development financing needs.
Before joining, Laure-Alizée worked with the ZOE Institute-for Future
fit Economies, where she conducted research on socio-ecological
transformation within the European Union. At ZOE, her work included
green industrial policy in the EU and creating an Economic Resilience
Index for guiding economies towards well-being within planetary
boundaries. Laure-Alizée is passionate about new economic thinking,
focusing on why our current system leads to ecological collapse and
rising inequalities, and exploring ways to transform it for climate
and economic justice.
She holds a Master’s in Development Studies from the University of
Cambridge, where she studied the impact of the Washington Consensus
on development experiences, and an undergraduate degree in Economics
and International Relations from the University of St Andrews.
tinyurl.com/StaffChangesBWP

=====================================================================
FINANCE/analysis

UN Secretary General’s New Agenda for Peace calls for urgent
financial architecture and policy reform

SUMMARY
UN Secretary General’s report identifies reforms in financial
architecture as essential to address mounting threats to peace and
stability
World Bank and IMF strategies fail to engage with broader drivers of
fragility, conflict and violence
Lack of support for governance and policy reforms at IMF and World
Bank pose a significant challenge to peace and stability

In July, on the eve of the 75th anniversary of the Universal
Declaration of Human Rights (see Observer Summer 2023, Spring 2023),
the UN Secretary General, António Guterres, released a report titled
A New Agenda for Peace (NAP) calling for immediate actions to address
growing threats to peace and stability. The report argues that
challenges to peace and the multilateral order, more broadly, are
rooted in questions of trust, cooperation and solidarity among and
within nations, and go beyond the dynamics in individual situations
of fragility, conflict and violence (FCV). The NAP is an important
addition to calls for a ‘new multilateralism’, as it stresses the
implications for peace and security of the current unjust
international system, of which the Bretton Woods Institutions (BWIs)
– the World Bank and the IMF – are key components. The report gives
important prominence to longstanding civil society calls for the
establishment of a more just and environmentally sustainable economic
order that enhances the social contract (see Observer Summer 2022).
Many trees, not a forest in sight:
BWI’s myopic view ignores austerity and privatisation’s impacts on
fragility
The IMF and the World Bank have long been concerned with the negative
consequences of FCV. In March 2022, the IMF released its Strategy for
Fragile and Conflict-Affected States (see Observer Autumn 2022),
which followed the 2019 launch of the World Bank’s Strategy for
Fragility, Conflict, and Violence 2020 – 2025 (see Observer Autumn
2019). The strategies are welcome adaptations to the approaches of
both institutions in fragile and conflict-affected situations (FCS).
They rightly detail the negative impacts of FCV on poverty, food
insecurity and the attainment of the Sustainable Development Goals
(SDGs), recognise their damaging spill-over effects, and note that
weak governance and administrative capacity, lack of trust in
institutions and weak human resource development contribute to FCV.
However, both strategies are limited to interventions in FCS and
treat them as if they existed in a political and historical vacuum,
disregarding the relationship between the position of FCS in an
unequal global economy and the local drivers of FCV. They fail to
consider the extent to which the BWIs have contributed to what the
World Bank acknowledges is a ‘crisis of development’ and what the
Fund recognises is a rise in social unrest (see Observer Winter 2022)
through, inter alia, their support of austerity, privatisation of
social services, and cuts in public sector wage bills, including for
the provision of health and education (see Observer Spring 2022,
Autumn 2019). Indeed, these policies act as drivers of FCV by
contributing to the erosion of the social contract and distrust of
public institutions locally and globally.
Failure of governance and policy reforms at Bank and Fund threatens
peace and stability
In contrast to the narrow scope of the Bank and Fund’s approach to
FCV, the NAP identifies reforms to the global order as essential to
peace and security. It asserts that, “redressing the pervasive
historical imbalances that characterize the international system –
from the legacies of colonialism and slavery to the deeply unjust
global financial architecture and anachronistic peace and security
structures of today – must be a priority.” The document makes a clear
link between the unequal distribution of gains from the current
system and increasing distrust in institutions, domestically and
globally.
Challenging the financing gap narrative of key Bank and Fund
shareholders and management, the NAP stresses that adequately
financing the SDGs is not charity, but “eminently fair to redress
past and current injustices, in particular those in international
trade and the global financial system.” It notes the impact of debt
on states’ capacity to finance development needs, the high cost of
capital for developing states and unequal distribution of IMF Special
Drawing Rights (SDRs; see Briefing, Reconceptualising Special Drawing
Rights as a tool for development finance) and the unequal global tax
system. The report stresses, “It is in the interest of all developed
and developing countries to reform the international financial
architecture in order to rebuild trust in the system and prevent a
further drifting apart and eventual fragmentation of inter-national
financial and economic relations.”
Alas, recent developments at the BWIs are inauspicious. The failure
to agree a long-delayed quota realignment in the IMF’s 16th quota
review, coupled with the unwillingness to act on the UN Secretary
General’s call for a SDR-based SDGs stimulus and continued use of its
counter-productive and unnecessary surcharges policy (see Observer
Spring 2023), point to an unwillingness of the IMF’s key shareholders
to grasp the nature of the threats outlined in the NAP.
Similarly, the Bank’s resistance to use the Evolution Roadmap process
to evaluate its contribution to the ‘crisis of development’ it
rightly identifies is highly problematic, particularly given concerns
about the negative impact of its private sector-led approach on
inequality, the equitable delivery of essential social services (see
Observer Winter 2023), erosion of labour rights, and fiscal impacts
of public-private partnerships (see Observer Spring 2023).
To a significant degree, the effectiveness of the New Agenda for
Peace rests on the willingness of BWIs’ management and key
shareholders to broaden their understanding of fragility, and to
actively support the NAP’s recommendations to reform their outdated
and unjust governance structures and counter-productive policies. As
Professor Erin McCandless of the University of Witswatersrand
stresses, “this will require acknowledging the varying root causes of
fragility – some of which arise in the making and execution of
Bretton Woods policy approaches. Transformative measures towards
greater peace in the world will need to start here, and are unlikely
to take root with business as usual reforms.”
tinyurl.com/Agenda4Peace

=====================================================================

FINANCE/news

The rise of bilateral currency swaps – a threat to the IMF?

SUMMARY
Argentina’s swap agreement with China highlights important flaws in
IMF’s role in global financial safety net
Bilateral currency swaps undermine multilateral lending standards and
predictability of access to crisis finance
A new issuance and reconceptualisation of SDRs would be important
first steps to strengthen the system

Argentina – the IMF’s largest debtor with a total outstanding debt of
$46 billion – has recently used $2.8 billion equivalent of Yuan from
a bilateral currency swap with China, to cover just over half of two
repayments outstanding from a 2018 IMF loan, in order to avoid a
default to the Fund. While the move will help unlock further IMF
finance, it highlights a fundamental flaw with the Global Financial
Safety Net (GFSN) system.
The IMF’s capacity to ensure financial stability and manage global
financial crises is increasingly undermined due to its growing
inability to boost its resource capacity and reform its governance
system. This exposes significant gaps in the GFSN and is forcing
countries to rely on currency swaps that entrench asymmetrical power
relations and perpetuate the status quo. Indeed, the Covid-19 crisis
has shown the IMF fell short of providing the necessary $2.5 trillion
liquidity estimated by the UN. Not only did the $650 billion Special
Drawing Rights (SDRs) allocation prove insufficient, it was also
unequally distributed, with countries with the most pressing needs
receiving the lowest allocation.
Absence of IMF governance reform – breeding ground for alternatives
sources of finance
Boston University’ GFSN tracker reveals that the IMF is no longer the
single most important crisis prevention and backstop source for all
income groups, with an increased preference for bilateral central
bank currency swaps by those countries that can access them. For
example, during the 2008 global financial crisis, US swap agreements
rose to $850 billion, four times the IMF’s gross assets. On 19 March
2020, the Federal Reserve reactivated the swap lines with nine
central banks and doubled their swap limits.
While central bank swap lines are meant to relieve external funding
pressures, their access is mostly determined by geopolitical and
economic interests. Countries are known to use them as political
tools to internationalise their currency – as in the case of China –
or maintain currency hierarchy and dominate the status of
international lender of last resort – as in the case of the US (see
Observer Autumn 2022).
The danger with accessing central bank currency swaps in contrast to
IMF finance is that access to currency swaps are not predictable and
not based on multilaterally agreed rules. This potentially undermines
key elements of the GFSN, such as multilateral lending standards and
predictability of access to crisis finance. In addition to the
geopolitical contingent nature of currency swaps, they exclude a vast
majority of low- and middle-income countries and thus further
reinforce the existing asymmetries of the international financial
system.
The only way to solve this systemic issue is to make SDRs the main
source of counter-cyclical finance and reform the IMF governance
system, by decoupling SDRs from the quota system and ensuring a
fairer representation of countries in the Fund’s decision-making
process (see Observer Autumn 2023). While IMF shareholders remain
cautious about using SDRs as an instrument of the GFSN, civil society
organisations have called for years for fresh SDR allocations to
boost reserves and stabilise economies after the pandemic, and for a
fairer distribution based on countries financing needs instead of the
quota system. IMF’s urgent governance reform remains the single most
viable solution for a well-functioning GFSN to ensure the stability
of the multilateral system in a time of increasing instability.
tinyurl.com/DebtSwaps

====================================================================

FINANCES / news

Civil society urges governments to agree on a UN tax body as a high
priority

On 22 November, UN members voted in favour of the African Group at
the UN’s proposal for a comprehensive UN tax convention. The vote
followed a 7 November open letter, signed by over 200 organisations
and trade unions from around the world, calling on governments to
support the proposal.
The UN body resulting from the convention would move decision-making
away from the OECD, a largely rich-nation club, which has been
criticised – including by UN Secretary General António Guterres – for
enabling wealthy countries to have an outsized influence over tax
rules while ignoring the needs of developing countries. The letter
also raised the importance of ensuring key issues are not left aside
in the negotiations, including: Keeping a holistic scope as well as
flexibility and resilience to ensure equitable results, establishing
clear links between the new tax body and other UN agendas, and
ensuring there is effective civil society participation throughout
the process.
The historic decision to start negotiations for a UN tax convention
took place in November 2022, by unanimous consensus, and was widely
welcomed by civil society groups, which have for more than two
decades called for an international tax body that allows all
countries to participate equally.
In an open letter the day before the vote, the Independent Commission
for the Reform of International Corporate Taxation (ICRICT), which
includes renowned economists such as Jayati Gosh and José Antonio
Ocampo, also expressed support for a UN tax body, urging rich
countries not to block the vote. However, the voted passed without
the support of EU members, the UK and the US, among others.
tinyurl.com/TaxConventionUN

====================================================================

ENVIRONMENT / news

IFC trade finance continues to invest in fossil fuels, with no board
oversight

New research produced by Germany-based civil society organisation
Urgewald in September found the World Bank Group invested an
estimated $3.7 billion in oil and gas developments in 2022 via trade
finance. Despite claims it is refocusing on the low-carbon
transition, the Bank’s private sector arm, the International Finance
Corporation (IFC), is still making climate-wrecking investments –
including in oil, gas and coal projects (see Observer Winter 2022).
The research focused on trade finance provided by IFC, an opaque
indirect financing instrument that involves complex financial
products such as bonds, stocks and guarantees used by banks and other
institutions to guarantee payments or provide short-term capital to
governments or businesses.
Since 2019, the IFC has doubled the amount of trade finance it
offers, accounting now for over 60 per cent of its annual funding
commitments, but there is still a lack of transparency around how the
funds are spent, with over 70 per cent of IFC trade finance given out
in secrecy. “The easiest way for an oil company or coal operation to
hide public funding is through complex, opaque trade finance. It
represents a huge loophole that must be closed by the World Bank
Board by requiring public disclosure of trade finance transactions
and by finally adding coal, oil and gas to IFC’s exclusion list for
both direct and indirect finance,” highlights Heike Mainhardt of
Urgewald. As long as this lack of transparency continues, the World
Bank will be a long way from its stated commitment to align with the
Paris Agreement (see Observer Summer 2023, Winter 2021).
tinyurl.com/IFCTrade

====================================================================

IMFBoss blog coming soon

As Kristalina Georgieva’s five-year term comes to an end in October
2024, we, and civil society in general, are very much looking forward
to the upcoming “open, democratic and merit-based” selection process
for the next IMF managing director, and with it the reopening of the
IMFBoss blog. Watch this space or subscribe to get updates on civil
society campaigns and other advocacy actions in the lead up to the
leadership race.
imfboss.wordpress.com

====================================================================
The Observer is available in pdf, on the web, and by email.
Observer
www.brettonwoodsproject.org/observer/
Spanish:
www.brettonwoodsproject.org/es/observador
Subscriptions:
www.brettonwoodsproject.org/subs

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, the William and Flora
Hewlett Foundation and the Wellspring Philanthropic Fund.

No permission needed to reproduce
ISSN 2053-7522
Design by Base Eleven