Jim Cason and David Brooks on April 10, 2023
IMF – WB to meet from April 10-16 in Washington, DC photo: AFP
Washington and New York. The International Monetary Fund (IMF) and the World Bank (WB) will begin their semi-annual meetings in Washington today surrounded by criticism from almost all quarters, from developing nations, international leaders and even some of their most powerful member countries for their slowness in reforming their policies and practices to effectively address climate change and the failure of their development strategies.
In January, UN Secretary-General António Guterres condemned the “morally bankrupt global financial system… Designed to benefit the rich and powerful.”
The Sharm el-Sheikh Plan of Implementation issued at the conclusion of the COP27 climate change summit in Egypt in November called for “a rapid and comprehensive transformation of the international financial system and its structures and processes.”
Prime Minister Mia Motley of Barbados, who has become one of the most prominent international spokespersons calling for urgent action on the implications of climate change, declared in November that the world needs to change “the financial system that… is hindering us in being architects and artisans of our own destiny, rather than simply waiting on the charity of others in the global north.
At the same time, the political leadership elected in recent years in some of the major Latin American nations is directly challenging the development model that has historically been promoted by these two multilateral institutions.
These pressures for change in the system supported by these two multilateral institutions are forcing some of the largest contributors to these entities to embrace the call for a dramatic shift. After COP27, France agreed to host a conference in June called the Summit for a New Global Financial Pact, which Brazilian President Luiz Inácio Lula da Silva and Mia Motley have already confirmed their attendance.
Germany has already joined the calls for “fundamental reforms” at the World Bank. In February, U.S. Treasury Secretary Janet Yellen stated that the current multilateral model is “insufficient to address the moment.”
The Economist magazine described the IMF as an institution suffering from an “identity crisis”, and stated that the Fund “is paralyzed because it is a multilateral institution that aspires to represent the whole world, and at the same time it is a club controlled by the United States and its Western allies”.
IMF Managing Director Kristalina Georgieva, speaking at a forum last week in Washington, rejected that her institution is paralyzed. “Our members speak with their actions, and 96 of them voted to join the IMF in just these last few years… Since the war in Ukraine started, we have had 40 new programs (credit agreements),” she said. The fact that countries continue to borrow from the IMF is, he said, a vote of confidence in the system.
The WB, which has a different role from the IMF, has responded to the criticism by drawing up what it calls “an evolutionary road map” that will be presented to the institution’s governors this week.
The roadmap recognizes that “the global development system remains grossly inadequate to mitigate these crises and ensure sustainable, inclusive and resilient development. A scaled-up effort and financing will be needed from all sources, domestic and international, from both the public and private sectors”.
He adds that “the WB group has to evolve in response to the unprecedented confluence of global crises that have overturned development progress and threaten people and the planet”.
But much of the public debate in Washington has focused on short-term challenges. Some 60 percent of low-income countries are in debt distress or facing high debt vulnerability with a quarter of emerging economies rated as “high risk”.
This month the IMF projected that global growth will be less than 3 percent over the next five years, a level that Managing Director Georgieva acknowledges will make it harder to reduce poverty, heal the economic wounds of the pandemic and improve life on the planet.
Critics point to the need to dramatically raise the amounts of money available and change the development paradigm of these two institutions.
In her comments last week, Georgieva acknowledged that some estimate that up to $1 trillion in annual funding is needed to support an international transition to renewable energy. The WB estimates that $2.4 trillion annually is required for developing countries to address climate change, conflict and pandemics between 2023 and 2030. The COP27 figure is even higher, concluding that investments of at least $4-6 trillion per year are required for a low-carbon economy.
Although the IMF and WB have been able to offer billions more to developing countries for both poverty reduction and to address structural challenges related to climate change in recent years, the numbers do not come close to the $1 trillion per year figure that is supposedly needed.
One problem, comments Niranjali Amerzasinghe, executive director of ActionAid USA, is that the policy framework often conflicts with development and climate goals. “What we find, since the Paris Agreement on Climate Change was adopted, is that more than half of the countries that the IMF advises have expanded their fossil fuel infrastructure to manage their balance of payments,” some through new loans, she commented in an interview with La Jornada. He added that these countries then run the risk of that infrastructure losing value in the face of competition from clean energy producers and are left with the new debt.
“There is a wide gap between the need for reform and the gradual changes that will occur in 2023. We don’t have time for this to take 20 years,” says Kevin P. Gallagher, professor of global development policy at Boston University. In an interview with La Jornada, Gallagher says that the developing world needs to critically examine not only the projects supported by the WB, but the whole policy scheme behind them.
One question in the air as the world’s finance ministers meet at the IMF and WB meetings is whether representatives of the countries most impacted by the consequences of climate change and old development models will have the political will to insist on large-scale changes. For small and even some medium-sized countries it is dangerous to confront these powerful institutions that regulate the global financial system individually, and therefore to achieve change they will have to act collectively.
Source: La Jornada, translation Resumen Latinoamericano – US