IMF recognition that it has dramatically underestimated the impacts of austerity policies strengthened calls for reform of IMF conditionality, and the World Bank’s jobs report undermined its own Doing Business rankings, but the IMF/World Bank annual meetings ended this weekend with little concrete agreed. Meanwhile, the meetings witnessed a reinvigorated campaign by civil society organisations, supported by some governments, and echoed by the United Nations, to develop fair and transparent debt workout mechanisms.
Media coverage at the recently concluded World Bank and IMF annual meetings in Tokyo focused on a spat between Germany and the IMF, when the IMF issued a mea culpa recognition that it – and governments around the world – have been dramatically underestimating the negative effects of austerity policies. The IMF’s World Economic Outlook estimated that forecasts for the multiplier effects of austerity cuts and stimulus packages have been dramatically too low – meaning austerity has hurt growth far more than expected. Here is the report’s summary (from page 41):
“The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.”
This is an extraordinary admission by the IMF and will add to growing calls for the Fund to radically alter the conditionalities it attaches to its loans, which consistently promote austerity.
However, the official communiqués contained no mention of this, nor did they highlight the recently concluded review of IMF conditionality. The review, while containing a few useful recommendations was limited in scope and did not examine IMF loans to Europe – the vast majority of IMF lending, leading analysts to question its relevance. The higher level of conditionality attached to European loans creates real concern that the slow but important trend towards less conditionality at the IMF may be reversed. The region that is likely to be in the forefront of battles to remove damaging IMF conditionality is the Middle East and North Africa, with Egypt close to agreeing a $4.8 billion IMF loan. With the IMF also announcing that it would use its windfall profits from selling its gold to boost lending to low-income countries, we can expect conditionality to be a major issue across the world as the IMF continues to expand its lending.
The release of the World Bank’s 2013 World Development Report on jobs, has strengthened campaigns against the World Bank’s controversial Doing Business rankings.
As trade unions pointed out, the WDR’s review of the literature debunks the idea, propagated by the rankings, that deregulating labour markets to make it easier to fire workers is always a good idea. Though the Bank suspended the Doing Business indicator on employing workers in 2008, unions point out that “it continues to collect the raw data for calculating the indicator and the Doing Business team has not hidden its desire to reincorporate it.” The World Bank is currently reviewing Doing Business, and this will add force to the campaign by many civil society organisations, supported by Eurodad, to discontinue the rankings.
While the official meetings dawdled to their limited conclusions, there was a reinvigorated push by civil society organisations and the United Nations to put the need for fair and transparent debt workout mechanisms back on the political agenda. An international coalition of civil society organisations, including Eurodad, issued a statement calling for “a lasting solution to the sovereign debt crisis and the establishment of a fair and independent international debt workout mechanism” and made concrete proposals. A high level panel in Tokyo saw Ministers from Norway and Argentina echo these calls, and the United Nations (UNDESA) weighed in with its own high level panel on timely debt resolution. This renewed push to stop the chaotic, lengthy, unfair and damaging way debts – of both developed and developing countries – are currently dealt with builds on the recent announcement by the Norwegian government that it will be auditing all its debts to see which are illegitimate.
Meanwhile, the IMFC communiqué notes that “the potential impact from large and volatile cross-border capital flows should be closely monitored” but says nothing about the IMF’s upcoming ‘institutional view’ on capital controls. Critics fear that the Fund’s slow acceptance of the need for governments to regulate finance flowing in and out of their countries will continue to emphasise problems rather than potential for these techniques to benefit stability and development. Nor does the communiqué mention the continued scandal of huge illicit financial flows that aid tax evasion on a massive scale, an issue Eurodad has campaigned on for a long time.
Finally, while the development committee communiqué says that “the private sector generates most jobs, but the public sector also has an important role to play” it goes on to emphasise importance of “innovative initiatives” by the World Bank’s private sector arms. Eurodad research has highlighted significant problems with the Bank’s approach, finding, for example that the Bank’s private sector lending has focused on supporting firms from rich countries and is often routed through tax havens