BWI Annual Meetings 2021: Political games while the world burns (2)
Business as usual prevailed over the need for genuine reform during the Annual Meetings of the Bretton Woods Institutions earlier this month. This is the second of a three-blog series dealing with the Doing Business Report scandal, allocation of rich countries unused Special Drawing Rights and the debt crisis.
What about a boost to developing countries' fiscal space? Not yet...
The fact that rich countries are exploring ways to channel their unused Special Drawing Rights (SDRs) to countries that need them the most is a welcome step. However, there are still many risks that the way SDRs will be reallocated will not result in positive outcomes in sectors and for people who need them the most.
To start with, this year’s Annual Meetings saw that this conversation is taking place without the adequate level of urgency, creativity and ambition required. Country-specific commitments on rechanneling are still few and vague and some donors are signaling that they may count the SDRs they re-allocate as part of their Official Development Assistance and Climate finance commitments, which puts into question the real donors' efforts.
The use of the Poverty Reduction and Growth Trust (PRGT) as preferred modality of channeling means that SDRs will ultimately create more debt, often accompanied by austerity conditionality, while at the same time being inaccessible to middle-income countries in need.
The agreement to create a new Resilience and Sustainability Trust (RST) could support climate action and pandemic response by providing concessional finance. Or it could turn into yet another instrument to constrain the policy space of developing countries and lock them into multiple conditionalities, including spending cuts that have a negative impact on countries’ ability to deliver high quality public services. The words delivered by Janet Yellen, Secretary of the United States’ Treasury at the Development Committee meeting were not very encouraging in this regard: “To make the RST effective, the IMF will need to work closely with the World Bank to leverage the Bank’s subject matter expertise when designing health and climate policy conditionality.”
To avoid this, the IMF should open its design to direct consultation with countries in the global south and civil society, and be guided by the six principles on SDR channeling laid out by 280 CSOs released earlier in October. Two of these principles are: provide debt-free financing and refrain from tying transfers to policy conditionality (directly or indirectly).
Importantly, the creation of the RST flags a big shift in the interpretation of the mandate of the IMF to encompass medium-long term development challenges. This seems to be a very risky move. Eurodad is planning to actively engage members and allies to assess the implications of this going forward - stay tuned!