Last week's Annual Meetings of the World Bank and the International Monetary Fund - the Bretton Woods Institutions - was the first face-to-face gathering since the outbreak of the Covid-19 pandemic. The need for ambitious action could not be greater. The two institutions stressed that the world is facing multiple and interconnected crises - defined as a “polycrisis” by historian Adam Tooze - and outlined by the World Bank as: ‘Increased poverty. Food shortages. Energy shocks. Debt crises. Climate change. Inflation. War.’ The Bank’s forecast also predicted “the world may be edging toward a global recession in 2023”, while the IMF warned  ‘the worst is yet to come’ for the global economy. This will have dramatic consequences for already rising poverty levels and inequalities. However, there was a disconnect between the alarming messages delivered by the World Bank and IMF - and by activists on the streets of Washington DC and around the world who were calling for action  - and the underwhelming practical responses of the institutions. 

The main takeaway of the week is that the Bretton Woods Institutions have failed to deliver what is needed, proving yet again that they are unfit for purpose. The problem starts with their governance system, which simply must now be reformed. 

Designed in 1944, when power relations were driven by colonialism, the current governance structure and quota distribution, which gives the greatest power to a few countries, follows that same (neo)colonial logic. Mia Mottley, the Prime Minister of Barbados, argued in her address to the 2022 United Nations General Assembly, that the time had come “for a review of the settlement of the Bretton Woods institutions.” She said that the agreement that gave rise to the WB and the IMF “no longer serv[ing] the purpose in the 21st century that they served in the 20th century”.  This was also raised by speakers at a civil society session dedicated to IMF governance, where the need to address the unbalanced governance structure and to end the ‘gentlemen's agreement’ that guarantees the US-European leadership at the BWIs, was clear.

A first step to deliver the systemic governance reform so desperately needed in both institutions would be a major change to the quota distribution. A major opportunity to advance with this reform is the upcoming 16th review of IMF quotas (the previous review failed to introduce any meaningful reforms). During the meetings IMF Managing Director, Kristalena Georgieva, acknowledged the high cost of failing to review the IMF quota, admitting to civil society organisations (CSOs) that “it undermines the credibility of the IMF, it undermines our ability to serve our members”. 

The polycrisis reveals the true colour of IMF policies

Civil society has for years denounced the gap between IMF rhetoric in favour of government spending on public services and social protection, and its practice that continues to recommend austerity measures. This year, the gap narrowed, as the rhetoric moved closer to the practice. Georgieva made clear that tackling inflation and reducing fiscal deficits are the priority, even if we are still deep in crisis with no end in sight, and even if countries have already contracted their public spending. As the 2022 edition of Oxfam and Development Finance International’s Commitment to Reducing Inequality Index shows, during the pandemic, half of low- and lower-middle-income countries saw health spending fall; half of the countries tracked by the Index cut social protection spending; 70 per cent cut education spending; two-thirds of countries failed to increase their minimum wage in line with gross domestic product. 

The standard IMF answer to CSOs’ concerns about the new wave of austerity cuts is that countries have to intensify social protection and other support measures targeted to the poorest and most vulnerable people. As Eurodad argued previously, targeted systems have proven to be inefficient at reaching those in need, commonly excluding over half of the intended beneficiaries and reinforcing gender stereotypes, rather than challenging them. In fact, civil society attending the Annual Meetings were astonished by the limited interest of IMF staff to seriously engage with CSO concerns, despite new evidence that by next year 85 per cent of the world will be affected by austerity.  

The only two measures announced to help countries face the crises and increase their fiscal space were the  creation of a temporary Food Shock Window (FSW) for emergency lending, and the operationalisation of the Resilience and Sustainability Trust, both debt-creating tools.

The FSW might provide some short-term relief to countries struggling to pay for their food imports, but it does nothing to correct the IMF’s long held support for trade liberalisation measures, market-led land reforms and financial deregulation of agriculture, which have contributed to creating a dysfunctional and unbalanced global food system.

The operationalisation of the RST is the latest move of the so far-failed attempt to rechannel the 2021 Special Drawing Rights (SDRs) allocation to countries that need it the most. While the IMF announced that Rwanda, Barbados and Costa Rica have officially applied for the RST, no SDR has been rechanneled yet. 

At the Meetings, civil society reiterated concerns previously expressed about the RST, such as the fact that eligible countries must have a concurrent programme with the IMF, meaning they will have to withstand the Fund’s macroeconomic recommendations and definition of a stable macroeconomic environment, whether they agree with it or not. An additional concern is the emphasis placed on the hope that the RST will play a catalytic role for private capital to support climate needs, introducing reforms that will make it easier for governments to play a ‘de-risking role’ and create incentives to attract private investment in the energy transition. This sounds too much like WBG’s ‘maximising finance for development’ approach, termed by Professor Daniela Gabor the ‘Wall Street Consensus’, which has been questioned due to its focus on driving private capital into areas that should remain under the State. This is also something that may end up increasing the financial vulnerability of the Global South, serving the interest of private capital instead of those of people and the planet. None of these issues were addressed.

The RST, with its combination of macroeconomic programmes in the area of climate adaptation, energy transition and pandemic preparedness, will turn the IMF into a major actor in climate action. However, its limited expertise in the area, its unwillingness to move away from conditionality and austerity, and its unequal governance system make it ill-placed to play such a role. Climate action and climate finance should follow the principles of ‘polluters pay’ and ‘common but differentiated responsibilities’. They should include a strong element of justice and retribution, acknowledging that the most important policy issue in economics today is how to tackle climate change in an equitable, just, gender-responsive and human rights-based manner. All of these are yet to be seen in the IMF’s engagement with climate.  

The IMF should use a greater variety of instruments to help countries expand their fiscal space, such as the elimination of surcharges - a system of fees on loans from the institutions; a new allocation of Special Drawing Rights - especially if targeted to developing countries; and more focus on the need for debt restructuring. Yet none of these measures were addressed during the Meetings.

Calls for the World Bank to ‘evolve’ get louder. But what does 'evolving' mean?

The dramatic nature of the global crises meant that the activity of the World Bank came under intense scrutiny. Damning criticism came from all sides, as this time CSOs were not the only ones raising concerns about WBG policies and practices. Current and former officials from WBG’s rich shareholders - with the US and Germany in the lead - made unprecedented calls for the institution to step up its game. 

President David Malpass himself entered the Meetings under a cloud of criticism for a dismissive remark in September about human-induced climate change during a public event, which resulted in former US Vice President Al Gore accusing him of being a “climate denier”; and the fact that the WBG is having difficulties with aligning its operations to the Paris Agreement. CSOs restated their call for greater WBG action on climate at the Townhall event with Malpass. He announced a new trust fund, called Scaling Climate Action by Lowering Emissions (SCALE) - to be launched at the upcoming COP27 - to provide grants to developing countries as they deliver pre-agreed results in reducing greenhouse gas emissions, but more ambitious actions are yet to be seen.

The WBG has continuously worked to position itself as a ‘first respondent’ to the ‘polycrisis’. However, the response leans more towards maintaining the status quo, displaying a complete failure to address the situation on the crisis-footing it deserves. The July 2022 World Bank Group Global Crises Response Framework Paper ‘Navigating Multiple Crises, Staying the Course on Long-term Development” shows the approach that the Group is taking, which includes a financial package up to $170 billion through to June 2023 - not so different from the $160 that the WBG allocated to its response to the Covid-19 crisis - and a policy framework that does not includes any meaningful innovation. 

The institution emphasises its role to strengthen policies and institutions, with a focus on generating fiscal space and crowding in private sector investments. As mentioned in the Navigating Multiple Crises paper, the WBG argues that “more robust private sector investment and public-private partnerships are vital for sustainable job creation and are necessary ingredients to reach development goals”. This approach is pursued despite the evidence - including by World Bank and IMF staff - that PPPs are an expensive and risky way of financing and delivering public services, which can also result in increasing inequalities. And it does not recognise that the way in which businesses operate, often enabled by inadequate government oversight, is a big part of the problem that the world is facing today - starting with their focus on short-term profits at the expense of long-term gains for people and the environment. While millions of people around the world are facing a cost-of-living crisis due to the continuing effects of the pandemic-induced crisis, and the rapidly rising costs of essential goods and services, multinational corporations in the food, pharma, energy, and tech sectors are making huge profits.

Against this backdrop, the Development Committee, a ministerial-level forum that represents 189 member countries, requested WBG Management to work with the Board to overhaul the institution’s strategy. Specifically, they requested them to engage “in a systematic dialogue [with the Board] to enhance our shared vision for the WBG, including strategic priorities, strengths and gaps, incentives, operational approach, and financial capacity to bolster and scale the response to global challenges”. According to the Chair’s Statement, this includes WBG Management consideration of the recommendations of the July Independent Review of Multilateral Development Bank Capital Adequacy Frameworks (CAF), commissioned by the G20. This request was also voiced by the G20 Chair’s Statement, and comes loud and clear in the Statement by the US Secretary of the Treasury Janet Yellen, as she “asked WBG Management to identify gaps in the WBG’s current institutional and operational framework, and within the context of the international development finance architecture, deliver a roadmap by year-end for consideration by the World Bank Executive Board”. What is at stake is a greater use of the Group’s balance sheets to increase lending capacity, by increasing the risk appetite of WBG in its operations, at the time when rich countries are not willing to recapitalise the institution, and the needs for development finance are increasingly expanding. 

While calls for the WBG to evolve are welcome, particularly when it comes to fully embracing the sustainable development goals and the fight against climate change, there is no substantive discussion on what ‘evolution’ means for the policies and practices of an institution that has historically been driven by the interests of rich countries. The ‘stepping up’ that is requested seems to be a further financialisation of development and climate action - more lending, more risk-taking - with losses being backed by the state and public money, rather than a qualitative change in how the Bank conceives development. 

Civil society is concerned about the possibility of a greater use of the WBG for delivering on a development agenda that is designed by its major shareholders and technocrats that rely on the promises of ‘trickle down economics’. An inclusive and open discussion must take place in the coming months for this process to deliver the evolution that is needed. 

Debt crisis or not debt crisis, is that really the question? 

Debt is another area where the rhetoric and the practice very much differ. The IMF and World Bank leadership seems to acknowledge the critical situation of global south sovereign debt - David Malpass called it “a fifth wave of debt crisis facing the developing world”. However, officials from both institutions seem to have a hard time recognising the gravity of the situation. Guillaume Chabert, Deputy Director of the Strategy, Policy and Review Department at the IMF, said that we should be aware that “countries are not in a pre-HIPC situation yet”, referring to the deep debt crisis in African and Latin American countries in the 1980s and the 90s. 

That debt crisis led to a huge amount of human suffering, increased poverty and what has been known as the “lost decade for development”, precisely because of the “too little, too late” response that the international community provided. It is a “too little, too late” syndrome that has become a historical feature of debt crises response, and that is also in the present debt emergency. We hear the financial markets, Central Banks and IMF representatives highlighting how the crisis is not yet systemic - that is, not affecting global north markets. So they do not feel the pressure to act yet. 

The vision from the ground in countries in the global south is starkly different, demonstrating the human rights blind spot of the IMF’s assessments. The United Nations Development Programme (UNDP) published a report during the week titled “Avoiding ‘Too Little Too Late’ on International Debt Relief” which concludes that 54 low- and middle-income countries face severe debt problems. These problems are particularly acute for climate-vulnerable countries, as the Eurodad report “Riders on the Storm”, also published last week, shows. Four out of five small island developing states (SIDS) are facing different levels of debt distress. This is clearly leading to public spending cuts, exacerbating poverty, hunger and inequalities and, in the present climate emergency, an impossibility to build resilient futures or even to secure survival.

For now, the existing mechanisms are failing to deliver the timely, comprehensive and lasting debt cancellation and restructuring that many countries need.  The Common Framework for Debt Treatments is seen as imperfect by most officials, even leadership at the BWI. Still, World Bank Macroeconomics, Trade and Investment Global Director, Marcello Estevao described it as the ‘only game in town’, while insisting that it was ‘about debt restructuring and not development’ at a civil society event co-organised by Eurodad. Indeed, debt resolution is approached as if it had no effects on people’s wellbeing and rights. 

Meanwhile, Chad has finalised the negotiations with its creditors, with zero debt relief. Zambia might reach an agreement by the end of the year (almost two years after requesting the debt restructuring). Ethiopia, that applied to the Common Framework looking for a pre-emptive debt rescheduling, is not even mentioned anymore. Countries not eligible for the Common Framework, like Sri Lanka, face a rather chaotic and  savage negotiation process with its creditors. 

What is worse, all the blame for the present crisis is put on the shoulders of borrowing countries, and none on reckless lenders or rich countries’ monetary policies. Most of the proposals discussed at this Annual Meetings were about improving debt transparency and debt management, with a striking lack of ideas on how to improve debt crisis resolution. 

As there seem to be no clear gains for development, borrowing governments do not have any incentive to engage in debt restructuring, particularly with private creditors. They fear losing access to financial markets - which on many occasions is already lost or too expensive - and that they may come out of a long, costly and politically painful restructuring process with an IMF program full of conditionalities and without any substantial debt cancellation. Ironically, most ultimately end up getting a new IMF loan, kicking the can down the road, the perfect recipe for yet another “too little, too late” debt crisis response. 

It seems clear that we need a new international financial system, including a new framework for sovereign debt restructuring. As the BWI keep trying to improve a Common Framework, stalled in intercreditor disputes at the G20, civil society is determined to take forward the process for the creation of a multilateral sovereign debt resolution framework, under UN auspices, and to call for unconditional debt cancellation for all countries in need from all creditors. As the UNDP report states “Debt relief would be a small pill for wealthy countries to swallow, yet the cost of inaction is brutal for the world’s poorest”. 

When more than a third of the global south is in acute debt distress, we can’t wait for rich countries to decide that the crisis is 'systemic' to act. As the Global Week of Action for Justice and Debt Cancellation statement - signed by more than 400 organisations- states: “we refuse to be held hostage by the lenders and global rule-makers who are leading us down a path towards greater inequality, impoverishment, deprivation and ecocide”. 

Last week’s meetings proved yet again that without fundamental reform to how both the World Bank and IMF are governed, and how they ultimately operate, the same mistakes will be repeated again and again. And that is unacceptable.