The World Bank and IMF annual meetings – which concluded in Washington on 13 October – saw a new strategy approved for the World Bank. As Eurodad previously noted, this has problematic elements, including a failure to target inequality properly, and a controversial approach to private sector issues. The IMF meetings, meanwhile, were overshadowed by the US budget crisis, and nothing concrete was agreed on the very real problem of capital flow volatility leading to new financial stability risks in emerging markets.
World Bank: rubber stamping a controversial strategy
The communiqué from the World Bank’s Ministerial-level steering group, the Development Committee, focused on the now-approved new strategy for the World Bank Group (WBG). This has two new strategic goals. The first, on “eliminating extreme poverty” (or rather reducing the percentage of those living under $1.25 a day to 3% by 2030), might be regarded as unambitious. However, the second on promoting shared prosperity – code for reducing inequality – has proved controversial.
Civil society groups such as Eurodad member Oxfam have noted that the Bank’s proposal to use the income growth of the bottom 40% as its yardstick does not measure inequality if there is no relative assessment of the top 10% of earners, as proposed for example by the new ‘Palma’ measure of inequality. Furthermore, the World Bank’s position on inclusive growth discourages redistributive measures in favour of promoting productive sectors and market-driven growth and is explicitly only concerned with absolute poverty rather than relative poverty.
This new strategy is to be backed by a potentially radical internal restructuring of the Bank into “one World Bank Group”. The Development Committee sold this as a method for reducing costs, increasing efficiency, and mainstreaming development goals throughout the WBG. The World Bank watchdog, the Bretton Woods Project, decoded this as a clear signal of support for the World Bank President’s “efforts to shrink the size of the Bank’s staff and to try to raise revenue through either more fee-based consultancy work or attracting more donor funds to IDA [International Development Association] or Bank-hosted trust funds, on which the Bank charges administrative and management fees”.
Unsurprisingly, the push towards “One World Bank Group” implies an increased role for its rapidly growing private sector arms, the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) to promote its work with “the public and private sectors in partnership”. This includes a continued push for investment in the financial sector. However, there are still unresolved problems in terms of lack of accountability, poor transparency and problems of properly tracking development outcomes and social and environmental impacts.
The impression that the Bank is pushing its controversial perspective on the private sector forward, regardless of external critique, is confirmed by the fact that it is not planning to alter its flagship “Doing Business” report (DBR) despite strong criticism from an independent review panel in June. The panel recommended ditching the rankings – which give the false impression that the report’s indicators are the main things that matter for private sector development – and to move the DBR from the IFC to the potentially more rigorous research department. Although the panel’s report includes several concerns that have been raised by civil society organizations over many years, there is still no clear commitment on how they are going to be implemented.
IMF: An end to easy money
Although the US budget crisis overshadowed all other discussions, capital flow volatility was a dominant global issue at this year’s IMF Annual Meetings. Over the past few years, emerging markets have been struck by a tsunami of capital flows from the North due to the policy of monetary easing that started after the global financial crises. This ‘hot’ speculative money started to flow back earlier this year, as speculators anticipated rising interest rates in the US and other advanced economies, causing massive exchange rate drops in countries such as Brazil, India and South Africa.
As predicted by the intergovernmental think tank, the South Centre, the era of cheap external finance for developing countries seems to be coming to an end. The response from the IMFC Ministerial-level steering group was meagre. Their communiqué simply states that “the necessary macroeconomic policy adjustment could be supported by prudential measures”, without specifying what these measures may be. It also mentions, however, that “capital flow management measures” – capital controls – could be used, building on the IMF’s recent, but limited change of heart on this issue. Emerging market difficulties also precipitated further embarrassing readjustments of IMF’s growth forecasts, with all BRICS (Brazil, Russia, India, China and South Africa) countries being downgraded.
While the US public sector shutdown and the risk that the world’s most-indebted nation (the US) could default on its debt overshadowed all other issues in the media coverage. The weakness of the IMF as a forum for addressing the negative spillover effects of rich nations’ policies was demonstrated by the IMFC agreeing no action besides calling on the US “to take urgent action to address short-term fiscal uncertainties”.
IMF governance reform remains paralysed due to the unwillingness of the US Congress to ratify the 2010 quota reform. Nothing new was achieved at this IMFC meeting, just the old and often repeated call on “all members who have yet to ratify the 2010 reforms to do so without delay”.
Given the lack of substantive changes brought about by this annual gathering of the world’s finance ministers, it might be prudent for both institutions to set objectives that could not be achieved by email in future meetings.