By Bodo Ellmers and Jeroen Kwakkenbos
The Spring Meetings of the International Monetary Fund (IMF) and the World Bank just ended in Washington DC and brought little promise of sunny days ahead for development. The different Communiqués released during the meetings contain more lip service than practical commitments, and non-binding visions where in fact immediate actions are needed. The IMF governance reform remains stalled; the World Bank’s new development targets ignore inequality; leveraging private finance remains the makeshift solution as public development finance is scarce in times of austerity; and, while the Spring Meetings signified a rhetorical shift away from the austerity dogma, there are few means to implement that shift.
IMF – all talk and no substance
Just a few days before the Spring Meetings started, the IMF’s new World Economic Outlook revised the Eurozone’s growth projections downward once again, and with them global growth projections. This implicitly acknowledges that the IMF’s policy advice back in 2010 – to move from fiscal expansion to austerity policies – was premature and inadequate. The Eurozone economy double-dipped rather than recovering, with negative spill-over effects for Europe’s trading partners, including in the South.
Statements by IMF’s Managing Director Christine Lagarde and IMF staff at the Spring Meetings encouraged those countries that can afford it to move back to less contractionary fiscal policies in order to stimulate growth. However, the diplomatic language in the International Monetary and Financial Committee’s (IMFC) Communiqué that “surplus economies must boost domestic sources of growth” indicates that they have limited willingness to comply. Furthermore, the IMF has no means besides rhetoric to pressure surplus economies that are not dependent on its loans. For the crisis countries, austerity remains the medicine of choice: “deficit countries must continue to raise national saving”, which implies a further reduction in consumption and investment.
The agreement on governance reforms contains no news. The implementation of the already agreed quota reform is stuck as it awaits approval by the US Congress. The upcoming quota formula reform is supposed to strengthen the ‘dynamic economies’, which means that the IMF will continue to be dominated by rich countries and marginalise the poor. Only the composition of these country groupings might change.
On a more positive note, the current anti-tax evasion wave has also reached the international finance institutions (IFIs) as the IMFC acknowledges that “fighting tax evasion is critical”. However, the policy advice that follows is limited to “promote transparency in the tax, anti-money laundering and counter-financing of terrorism areas”. This is insufficient, as the IMFC is still ignoring the need for progressive taxation or shutting down tax havens in order to fight poverty and drive equitable growth. The temporary extension of the zero interest rate for the IMF’s facilities for low-income countries that has been ‘noted’ by the IMFC will not fill the gap.
World Bank – full of empty promises
This situation was obviously a challenging starting point for the World Bank section of the Spring Meetings, presented under a huge ‘end poverty’ logo hanging from their headquarter’s façade. The World Bank launched its new development goals – partly pre-empting the outcome of the UN’s ongoing post-2015 process (i.e. the new commitment to reduce the share of people living in absolute poverty to 3% of the world’s population by 2030, and to increase the incomes of the bottom 40%).
However, there is no reference to reducing relative poverty, which is as culpable in promoting human misery as absolute poverty. Without support for redistributive mechanisms such as progressive taxation systems, or support for public financial management to implement such taxation schemes, there is no guarantee that this approach will address issues of inequality. Civil society groups in Washington DC argued that the new goals would benefit greatly from a clear understanding and “concrete action” on shared prosperity and reducing inequality.
The Communiqué of the World Bank development committee addressed the challenges presented by macro-economic instability, unemployment and food price volatility. Furthermore, it lauded World Bank President Jim Yong Kim’s vision paper for the future of the organisation and the focus on shared prosperity. Unfortunately, however, there were no clear solutions given to the challenges – and the principles put forward by the vision paper on shared prosperity are mired in compromise and ambiguity.
On unemployment, the World Bank lionised the private sector’s contribution to growth and job creation. The Communiqué argued that “with a proper enabling environment, adequate infrastructure, and policies that promote competition, entrepreneurship and job creation, the private sector can support shared prosperity and offer real opportunities to all citizens”. It called upon its private sector arms, the International Finance Corporation (IFC and the Multilateral Investment Guarantee Agency (MIGA), to increase their support to the private sector to achieve the objectives of inclusive growth. There was no clarity on whether funding would be scaled up to support an appropriate regulatory framework to protect workers’ rights, or to ensure that financing goes to appropriate private sector partners that can deliver on development objectives.
There seems to be a suggestion that all private actors are equal, paying no regard to the current period of jobless growth or the complicit role that many in the private sector have played in tax avoidance, effectively reducing the ability of developing countries to collect revenues that could finance many of their social and infrastructure needs. Furthermore, a recent audit of the IFC’s use of financial intermediaries by their ombudsmen determined that many of these private sector investments yielded questionable development results.
There is also no recognition that, without public guidance and oversight, economic growth can be a destroyer of jobs, as technology transfer and scaling up production reduces the need for unskilled labour. This is particularly worrying considering the call for expanding investment in infrastructure and agricultural sectors during a period of declining support for the public resources needed to manage such complex activities and mitigate their negative effects. The role and support of domestic policy other than addressing governance issues and creating an ‘enabling environment’ for business is unclear.