The World Bank and IMF Spring Meetings: New rhetoric, old reality
There was plenty of talking during the recent Spring Meetings of the World Bank and International Monetary Fund, but in the end there were few surprises. Eurodad joined other Civil Society Organisations (CSO) in once again challenging the institutions on key issues such as the implementation of the World Bank Group’s new strategy, inequality, infrastructure financing and governance. Eurodad sponsored five side events during the CSO forum, launching a new report on loan conditions and participating in four panel discussions on issues such as infrastructure financing and the investment climate.
An ‘optimised’ World Bank Group?
While the World Bank Group (WBG) currently works on the implementation phase of its new strategy, a drastic internal restructuring has fuelled discontent with Bank staff and raised questions in terms of results. However, the communique from the World Bank’s ministerial-level steering group, the Development Committee, supported Jim Kim’s plan to implement a “change agenda” with the objective of turning the Bank into a leaner and more streamlined organisation (read US$ 400 million in cuts to costs, including staff redundancies). In a search for relevance, the focus was placed on delivering “better, faster and evidence-based solutions” to work with low and middle income countries alike. Measures to increase the financial capacity of the institution were approved by the Board in February and reported to the G20 in a background paper. The Committee also encouraged the WBG to explore extending International Bank for Reconstruction and Development (IBRD) loans to the poorest countries (International Development Association (IDA)-only countries), which might have consequences in terms of debt sustainability.
The IFC and the private sector under scrutiny
The Development Committee stressed the need for “improving the enabling environment for private finance” and “emphasised the importance of the role” of the World Bank’s private sector lending arm, the International Finance Corporation (IFC) in “catalysing private financial flows and promoting the development of a dynamic private sector.” This support comes despite rising criticism over the IFC’s use of financial intermediaries, and the fact that the WBG has invested three times as much in the financial sector as in education. The IFC came under scrutiny because of a new report launched by the Bretton Woods Project which raises systemic concerns about how the IFC promotes private investment in partner countries. The report highlights the increasing reliance of the IFC on financial intermediaries and the risks associated with transparency, accountability, development impact and human rights. This comes in the context of increased evidence of the role of the Bank in supporting intermediaries involved in land grabs and human rights violations in poor and marginalised communities.
Infrastructure and PPPs – Bank continues to promote a controversial agenda
The support for the Bank’s work on enabling private finance is directly linked to the new World Bank Strategy which seeks to “increasingly promote public private partnerships (PPPs)” in public service delivery in areas such as health, education, sanitation and housing. This comes despite a lack of evidence of the additionality of PPPs in both financial and development terms. Eurodad member Oxfam has produced a recent study of a Bank-supported PPP in Lesotho’s health sector that is bankrupting the country and undermining its ability to meet the needs of its citizens. In a side event co-organised by Eurodad which addressed PPPs it was noted that, with the lack of evidence or consideration of debt sustainability and democratic ownership, it is unclear why the Bank continues to promote this agenda as opposed to supporting traditional forms of public procurement. While the Development Committee encouraged the WBG to increase investments in infrastructure – without an explicit reference to the recently launched Global Infrastructure Facility – the Group of the 24, which gathers developing countries, referenced the facility in its communiqué but stressed that: “the ultimate proposal must ensure adequate and broader participation of recipient countries and the availability of additional resources, together with sufficient flexibility to meet diverse infrastructure finance needs.”
The Doing Business Report comes under renewed criticism
There is a clear disconnect between the Development Committee communique’s call for an evidence-based approach and the direction the Bank is taking. This is particularly highlighted in the lack of progress in reforming one of the Bank’s major publications, the Doing Business Report, which assesses the “ease of doing business” in different countries. This report has come under the scrutiny of the Bank’s Internal Evaluation Group, and more recently an independent panel of experts tasked by Bank president Jim Kim to review its evidentiary rigour. In both cases the reviews came to the conclusion that the report is deeply flawed and requires immediate reform as it undermines the Bank’s credibility. Trevor Manuel, who led the Independent Panel, noted “any report that opts to demonstrate causally linked outcomes must be able to stand or fall on its evidentiary rigor, and on its policy orientation. The Doing Business Report was, as we have come to discover, lacking in both these areas.” However, in a side event co-organised by Eurodad to discuss the inability of the Bank to reform a deeply flawed yet highly influential publication, it was suggested that the barriers may be political rather than practical.
Inequality: New Rhetoric – Old reality?
Unclear however is if, and how, the IMF's new inequality rhetoric will be mainstreamed in the practical sphere of IMF operations. The new Eurodad report on IMF conditionality which was launched at the Spring Meetings, gives cause for concern. Its assessment of conditions attached to IMF loans over the past three years found more than just anecdotal evidence for IMF conditions - which are growing in number - increasing inequality, such as cuts to minimum wage levels, welfare sector reforms, and regressive tax reforms. Other civil society comments were similarly skeptical and stressed that the IMF has a long way to go.
When asked if the inequality papers are a game changer for the IMF, Deputy Managing Director Min Zhu said: "The Fund always changes consistently to meet the challenges of a changing international environment and also to meet the demand of members".
Governance: Quota and reform remain stuck
The overdue governance reform of the IMF remains stuck. In 2010, the IMF's Board of Governors approved a proposal that would increase the voting shares of emerging and developing countries by less than 3 per cent by independent estimates - mainly to the cost of the Europeans who would also lose two chairs in the Executive Board. Ironically, while the United States is hardly affected by the reforms and would maintain its de facto veto right, it is non-ratification by the US Congress that blocks the governance reform process. Many observers, including US economists in the Financial Times, are increasingly annoyed by this blockade. Trying to find new words for an ongoing issue, the G24 communiqué states that the group of developing countries “is deeply disappointed” by the lack of progress in the IMF and the limited ambition by some of its major shareholders. For the G24 “this represents a significant impediment to the credibility, legitimacy and effectiveness of the Fund.” In practice, for the BRICS countries and other emerging economies it is a dual nuisance, firstly because they would benefit most from the redistribution of voting rights and secondly because the doubling of the IMF quotas - and consequently the Fund's lending capacities - is dependent on the successful implementation of the governance reform. Many emerging economies have been simultaneously struck by capital flow volatility and other crisis risks. The IMF's current resources would be insufficient to manage a larger emerging markets crisis. In their Spring Meetings communiqué, the International Monetary and Financial Committee gave an - albeit generous - ultimatum to the US: "If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps".
Sovereign debt restructuring in slow motion
There was little progress also on the IMF's second major reform programme of its legal and policy framework for sovereign debt restructurings. The G24 communiqué points at the continuously high debt levels in many developing countries, and at the new risks from the vulture fund lawsuits against Argentina. It concludes: "Given the limited progress towards a comprehensive sovereign debt workout mechanism, EMDCs (Emerging Market and Development Countries) may have to take leadership in facilitating dialogue." The upcoming UN World Conference on Financing for Development would provide an opportunity to agree on a new debt workout mechanism outside the IMF.