The meetings took place amid a bleak global economic outlook, sluggish growth, rising trade tensions and a new debt crisis engulfing developing nations. While the world is in great need of improved global economic governance that is compatible with the challenges of the 21st century, the best that both institutions have been able to come up with is an updated version of the Washington Consensus.

A worrying rise in debt intensifies calls for a debt workout mechanism

The IMF sees few bright spots in the global economy right now. Nevertheless, the Fund draws some respite from the renewed use of loose monetary policies (quantitative easing amid low interest rates) in richer countries to buffer the headwinds blowing across the world. Yet, while the Fund stresses the need for sustainable and inclusive growth and warns of a rise in public and private debt, the irony remains that such policies in the global north are fuelling the opposite of development-friendly growth – namely financial speculation and credit creation – in the global south, as well as ramping up debt vulnerabilities.

Warnings about this new debt crisis were widespread throughout the Annuals, not least with the shadow of crises in Ecuador and Argentina looming large over the proceedings. Both the Development Committee and the International Monetary and Financial Committee (IMFC) highlighted the worsening debt landscape in their communiqués, pointing to the welcome work being done by the BWIs to help improve debt data transparency and national-level debt management capacities – primarily to prevent over-indebtedness. But as with many of the week’s high-level policy events on debt, the committees were largely silent on what can and should be done to strengthen the international framework for resolving debt crises once they occur.

Civil society organisations (CSOs), however, raised the need for a revised IMF approach to debt restructurings. This should include reforms to how the Fund adheres to its own policies regarding lending into unsustainable debt situations, as well as an approach to better defining and assessing sustainability – for example, through the systematic integration of gender-sensitive human rights impact assessments and development priorities into its debt sustainability frameworks. Such reforms would go some way to addressing the tensions weighing on developing countries to finance the SDGs while maintaining debt sustainability – starkly highlighted by UNCTAD in its latest Trade and Development report. There is a growing sense that the international community is sleepwalking towards an inevitable SDG-related debt relief initiative of some sort and the Francophone African Finance Ministers made an explicit call for such a move in Washington.

During a civil society side event on the new debt crisis, representatives from Least Developed Countries and CSOs went further, emphasising the need for systemic reform of the international architecture to deal with crisis resolution. This would take the form of a multilateral debt workout mechanism, based on principles recently put forward by Eurodad and 35 CSO partners. While such bold reforms remain off the official agenda for now, there were positive developments regarding Somalia’s progress towards debt relief under the ‘Heavily indebted poor countries initiative’.

The role of the IMF: still problematic

In spite of public statements that seem to be more accommodating to counter-cyclical fiscal policy than in the recent past, practice is still at odds with the rhetoric and the needs of people on the ground. In its World Economic Outlook, the IMF called for structural reforms focussing on liberalisation and deregulation, particularly in low-income countries, to spur economic growth. Recent Eurodad research pointed out that such reforms included in loan conditionality are increasing, often on the back of austerity measures. As well as threatening to delay economic recovery and stall development, these place the burden on the shoulders of citizens, workers and small businesses. New research by the Initiative for Policy Dialogue and others, estimated that austerity measures will affect three quarters of the world’s population by 2021. During the Annual Meetings, over 60 CSOs from across the world issued a statement raising concerns on the socio-economic impacts of austerity-focused IMF-programmes, particularly in Argentina, Ecuador, and Haiti.

Alongside the damning human costs, the crisis in Argentina also illustrates countries’ vulnerability to volatile financial flows in the absence of capital controls, an ever-greater risk given the speed with which public debt stocks have been growing in the global south. Controls were eventually implemented in Argentina, and then endorsed by the IMF. However, questions still remain as to why no request was made earlier to prevent the huge capital outflows, which were largely predictable. There is a clear need for the Fund to revisit its ‘institutional view’ on the use of capital controls. Hopefully its ongoing work on an ‘Integrated Policy Framework,’ along with the reputational damage of the Argentina programme, will spur reform. In their communiqué, the G24 – the group of major developing countries and emerging economies – indicated the need developing countries have for IMF support in this regard.

Furthermore, there were also encouraging signs that the IMF is inching closer to reforming the way in which its work can better support developing countries meet climate and development needs. The new IMF Managing Director noted that the Fund is now working on building climate risks into its surveillance work. It will be important, however, to monitor how the Fund puts its new strategy on social spending into action, particularly with supportive noises from the IMFC for its continuing work on gender and income inequality, including gender budgeting.

The World Bank promotes a Wall Street-centred consensus

Countries confronted with limited fiscal space – due to debt burdens and/or austerity measures – are consistently advised to turn to ‘private sector solutions’ to deliver on the Sustainable Development Goals, such as those related to infrastructure and healthcare, among others. Since the adoption of the Maximising Finance for Development (MFD) approach in 2017 the World Bank Group (WBG) is actively pushing to financialise development lending. Several authors have termed this the ‘Wall Street Consensus,’ as development projects, including in rights-based services like health and education, are being transformed into asset classes of tradeable securities. This is a risky strategy as it relies on unregulated shadow-banking, unbridled promotion of expensive public-private partnerships (PPPs) and the commercialisation of public services, including in low-income countries. The current WBG strategy in low income (IDA) countries implies a strong focus on market creation, which risks diverting scarce concessional resources to de-risking private investors as profitable opportunities are not easy to find.

To implement this approach, the World Bank uses a wide variety of instruments including Development Policy Operations, which condition their disbursement to the creation of an enabling environment for increased private sector investment. Last week CSOs restated concerns regarding the adverse development impacts of this instrument on women, calling for a commitment to embed thorough fiscal, environmental and human rights impact assessments, including gender impact assessments, in all Bank activities and programmes.

Additionally, CSOs were active on issues related to infrastructure, education and health, among others. On infrastructure, concerns were raised regarding reliance on PPPs to deliver infrastructure projects, calling for sustainable and fiscally responsible projects, at the service of local communities and with high transparency and accountability standards. On education, more than 170 organisations sent a letter to the World Bank and its donors in support of development aid for free, quality public education, and called on the World Bank to publicly commit to stop funding for-profit schools. While on health, CSOs raised concerns over donors’ support to private sector actors in the health sector, including through PPPs, as a way to deliver on Universal Health Coverage (UHC). Eurodad and LATINDADD published a briefing that looks critically at the rise of PPPs in the health sector in Latin America, drawing on global evidence on health PPPs.

Continued calls for governance reform

The governance structures of the Bretton Wood Institutions reflect an outdated global order. Institutional power is held by a minority of shareholders from the global north, with the US continuing to enjoy a de facto veto. While so-called ‘quota reviews’ are intended to update voting shares to reflect the respective positions of countries in the world economy, the US administration is threatening to block the 15th review, fearing a shift that would finally give a greater say to the world’s second largest economy, China. The G24 has raised concerns on this front for many years and this time noted their dismay at the failure to address the legacy imbalances in decision-making power. It seems that the Fund’s 75th anniversary will be yet another missed opportunity, with the issue kicked into the long grass for the 16th review, which is not scheduled to be wrapped up until 2023.

Similarly, the process to select the heads of the IMF and World Bank is still based on a 75 year old gentleman’s agreement whereby the US selects the President of the World Bank and Europe, the IMF’s Managing Director. That neither institution departed from this practice and institute a transparent selection process based on more current norms – such as merit, diversity, gender equity etc – demonstrates the extent to which these institutions are trapped in a time-warp. These Annual meetings heralded changes at the head of both institutions and yet the package of policy prescriptions remains intact.

A necessary call for rethinking global financial architecture

During last week Meetings UNCTAD called once again for a Global Green New Deal, which implies rebuilding “the rules of the global economy toward goals of coordinated stability, shared prosperity, and environmental sustainability, while deliberately respecting the space for national policy sovereignty.” This is critical, if the world is to meet the Sustainable Development Goals and the climate targets of the Paris Agreement.

CSOs and academics took up the challenge and gathered to discuss the Bretton Woods Institutions at 75 and the crisis of multilateralism in a dedicated conference. However, at the official level the occasion has not been used to rethink the role of the global financial architecture to equip multilateral institutions with the necessary tools to confront the development and climate challenges of the 21st century.