Read about the IMF, the World Bank, and the G-20
This month, the IMF and World Bank host their spring meetings in Washington, DC, which are scheduled on the “heels” of a G-20 meeting of Finance Ministers and Central Bank Governors. Click on the following links for short articles on
Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank spring meetings in Washingon, D.C. Post your questions at Ask a TripleCrisis Economist.
A project of Tufts University’s Global Development and Environment (GDAE) Program, Economic Research Foundation, and the Heinrich Boell Foundation, the Triple Crisis blog conducts integrated analysis of the three simultaneous crises in finance, development, and the environment.
Global decision-making is generally made by unelected officials in relatively unaccountable ways. By inviting participation on the blog, a broader debate and resolutions to the inter-locking crises are sought.
As the 24-25 April meetings of the IMF and World Bank approach, large questions about global governance loom. With regard to the Boards of Governors and Boards of Executive Directors of the IMF and World Bank, how much voting power will the industrialized countries shift to developing countries? Will the World Bank take a larger role in managing climate funds and/or share power more equally with the UN Framework Convention on Climate Change (UNFCCC)?
In the aftermath of the global financial crisis, people are asking: It was the job of the IMF (and the Bank to a lesser extent) to warn the world of the crisis. Why did they fail? Poor countries, in particular, are reeling from multiple food, fuel and financial crises. Eastern Europe was brutally hit by the financial crisis. Are these countries being adequately assisted? Do the IMF and World Bank still rely on the “Washington Consensus” – privatization and liberalization in the context of excessively strict budget discipline?
Another set of questions is: How will the G-20 affect the governance of the IMF and World Bank? The G-20 Finance Ministers and Central Bank Governors will meet in Washington on 22-23 April, right before the IMF and World Bank meetings. While the G-20 inaugural meeting was held in Berlin, Germany in 1999, the status of the group rose to that of a premier forum for our international economic development during the global financial crisis.
How much clout is the G-20 having on the reforms of the IMF and World Bank? Already, the IMF has responded to the pressure of developing country members of the G-20 by reforming its business model. However, the World Bank is just beginning to roll out significant reforms in response to the G-20, which are aimed at streamlining its operations. It remains to be seen whether the Bank will uphold environmental and social safeguard policies in the process of streamlining.
On 15-16 April, a small but powerful subset of G-20 countries -- Brazil, Russia, India and China (BRIC) -- will hold a Summit that will call for reforms of IMF and WB. Brazilian President Luiz Inacio Lula da Silva is demanding that the international bodies dispose of "their obsolete dogmas and adverse conditions" to ensure a "democratic and balanced global governance" for the economic recovery of developing countries. (IMF Morning Press, 04-08-10) The message of these governments will be taken into the G-20 meetings that are occurring back-to-back with the IMF-World Bank meetings in April.
Who are the members of the G20? The members of the G7: Canada, Japan, U.S., Germany, France, UK, Italy, and Australia, plus: The European Union, China, India, Indonesia, Mexico, Brazil, Argentina, Russia, Saudi Arabia, Australia, South Korea, Turkey, and South Africa. This is an unrepresentative group is many ways. For instance, South Africa is the only African country.
In addition to these 20 members, the following forums and institutions, as represented by their respective chief executive officers, participate in meetings of the G-20:
- the Managing Director of the International Monetary Fund
- the Chairman of the International Monetary Fund
- the President of the World Bank
- International Monetary and Financial Committee
- the Chairman of the Development Committee
What will be accomplished at the April 22-23 meeting of the G-20 Finance Ministers and Central Bank Governors? The meeting will discuss a broad set of issues and set the priorities for the meetings of G-20 heads of state in Toronto, Canada on June 26 and 27 and, subsequently, in Seoul, Korea on November 11-12.
Some of the issues on the agenda include:
-The development of a Framework for Strong, Sustainable and Balanced Growth
This framework is intended to address world dilemmas, such as the need for “green” growth, massive job creations, adjustment of major current account imbalances (e.g., the U.S. and China), rapidly aging populations with inadequate pensions, high levels of inequality, and environmental crises, such as climate change, among other things. As the framework is developed, each country will be expected to make commitments to implementing it.
- regulatory challenges in the financial sector, including
- financial sector taxation to recoup losses incurred in bail-outs and protect against future collapses,
- imposition of special requirements on systemically important institutions,
- regulation of risky instruments such as derivatives,
- greater independence of credit rating agencies from the institutions they rate
- treatment of proprietary trading
Regrettably, the G-20 may not consider the financial transaction tax (FTT), since - among other things - the IMF opposes it. However, citizens’ groups must continue to champion the tax which could both reduce the volume of speculation in financial markets and provide substantial revenue for either important public purposes, such as curbing global warming. Financial transactions taxes could be an important part of a reform package that seeks to remake the financial sector so that it better serves the larger economy.
Looking Ahead to the Korean Summit. At the November Summit in South Korea, at least two agenda items will be featured:
- financial safety nets to protect economies from a world of volatile capital flows; and
- international development, in particular, how to build on development successes and help those countries falling behind. The Northern countries that are most engaged with the development agenda are the U.S., Canada, the U.K. and Germany. Germany is heavily focused on the modalities for dealing with international debt.
It is critical that the G-20 put its own governance on the agenda. It is an unelected and unrepresentative body that should not only adopt high standards of transparency, participation and accountability for itself, but also promote such standards for the IMF and World Bank.
Some sources of information about the G-20
The World Bank’s governance is changing as power shifts to developing countries. This shift has been expedited by a global financial crisis triggered by the Bank largest shareholder, the U.S.; the rise of the G-20 has premier global governance institution; failures of the World Bank, as well as the IMF, to anticipate the global collapse; and failures to appropriately assist many countries affected by the crisis.
The G-20 is much happier with the IMF than with the World Bank, which is viewed as operating at a low-level equilibrium. According to the calculations of one developing country official, the World Bank extended only $18 billion in net flows to developing countries in the 10 years prior to the crisis. In contrast, there were some $4.7 trillion in private capital flows to developing countries in that decade. In other words, the World Bank is a minor actor on the world stage, but it is more significant in low-income countries which do not attract significant levels of private capital flows.
Many developing country governments would like to see the Bank operate with a much larger capital base and extend resources with fewer strings attached. Some believe that, if the Bank does not move in this direction, the part of the Bank that lends to middle-income countries (the International Bank for Reconstruction and Development (IBRD)) could become extinct because their clientele would seek external resources from other sources.
The G-20 has bargained for a larger voice for developing countries in the Bank. Developed countries are expected to shift a meager 3% to 5% of their voting power to developing countries. This is viewed as a woefully inadequate shift by most developing countries, however, the U.S. is unwilling to relinquish its veto power on the Board and the Europeans – who occupy a third of the 24 seats on the World Bank’s Board – are unwilling to cede power.
Some developing country officials want to see the World Bank operate more like the European Investment Bank (EIB) which has one-tenth the lending costs of the World Bank. Although the World Bank could usefully lower its lending costs, the EIB is not a model for it to emulate since the institution is notable for its lack of transparency and accountability.
The World Bank is responding to G-20 pressure by seeking greater partnership with its borrowers. The Bank wants to shed its “top-down” ways of business (an emphasis on supervision of operations and compliance with standards) and shift much of its responsibility for implementing and enforcing policies to borrowing countries.
Partnership is important, but so is supervision and compliance. In 2009, the Bank's Independent Evaluation Group (IEG) found the Bank to be in material breach of its obligations under its Articles of Agreement due to its non-compliance with fraud and corruption policies. This is a time when much more emphasis on supervision and compliance are needed.
In addition, as a public institution, the World Bank should be a pace-setter with regard to environmental and social, including gender, standards and policies. However, pressure from the G-20 countries could undermine of the Bank's standards.
As it is, the Bank is unable to determine the impacts of most of its operations due to poor monitoring and evaluation (M&E). There is a significant and positive association between sound M&E and project outcomes. However, in reviewing projects that closed in fiscal 2007 and 2008, IEG found that only 37% of projects exiting the portfolio received ratings of high or substantial M&E systems, while the remaining 63% were rated modest or negligible.
With regard to climate, the G-20 has issued vague messages, such as "Public and private financial resources to support mitigation and adaptation in developing countries need to be scaled up urgently and substantially." (Pittsburgh Summit Statement) What role the World Bank will play in managing climate funds remains unclear. This will continue to be a hot topic for debate. Mexico, the host of the 16th Conference of Parties (COP 16) from November 29 to December 10, 2010 favors a larger role for the Bank. But most developing countries favor an expanded UN mandate to reduce carbon emissions.
The outcome of the debate over which institutions should manage climate funds should hinge significantly on criteria such as the level of voice and vote of developing countries as well as the nature and quality of:
- transparency and information disclosure;
- fiduciary standards;
- environmental and social, including gender, standards; and
- monitoring and evaluation systems