What the IMF will be discussing this weekend
The global diplomatic circus that so recently met at the G20 summit in London is reconvening in Washington for the IMF and World Bank spring meetings this weekend. These are usually the lesser of the Bretton Woods Institutions’ (BWIs) two yearly jamborees (the Annual Meetings are held in September) but the momentum provided by both the G20 and the unfolding global crisis means the meetings this year will be unusually high profile. So what’s on the table?
1. Money, lots of it: The G20 trebled the IMF’s resources to $750bn (see my G20 post mortem) but a lot of the detail was missing. This weekend should help fill in the blanks, for example:
– who gets the money? The middle income countries, the low income countries or even (in the case of sales of some of the Fund’s 3,200 tonnes of gold) the IMF itself, in terms of its institutional overheads? The G20 promised that at least $50bn would flow to low income countries – we need to see that confirmed and explained.
– Will new money be loans, loans at concessional interest rates, or grants? The last thing poor countries need is to see the response to the global crisis trigger a new surge in their debt burdens.
2. What sort of conditions will it come with? The BWIs have a long and undistinguished track record of attaching shopping lists of irrelevant or downright harmful conditions to their loans. Since this crisis is most definitely not of the developing countries’ making, the case for removing all conditions other than fiduciary ones (on repayment, transparency etc) is overwhelming. However reviews of the Fund’s crisis lending in countries such as Pakistan, El Salvador and the Ukraine by CEPR and Third World Network conclude that the Fund is still imposing conditions that act, in the Guardian commentator Polly Toynbee’s evocative phrase, as a ‘Friedmanite tourniquet’ on governments just when they should be pumping fiscal stimuli into their economies. The Fund in particular needs to shed this mindset and start supporting the introduction of counter-cyclical, pro-poor fiscal stimulus packages in crisis-hit developing countries.
3. Reform of the institutions: As well as reforming its policies, the governance of the institutions needs to be overhauled, but the G20 communique left the details very vague. Will we see minor tweaks to the existing arrangements or something closer to real parity for developing and developed countries? Will the EU show leadership by announcing it will voluntarily reduce its numerous seats on the Boards of both institutions? Or the US renounce its power of veto? Yousef Boutros Ghali, Egypt’s Finance Minister who chairs the the fund’s policy steering committee is worried that the buckets of money thrown at the BWIs will sap the momentum for reform. He told the Financial Times: “Reform needs to be done in a time of crisis, but in a crisis, you want to put out the fire and not bother with plans to redecorate the living room.” The G20 tasked Gordon Brown with proposing further IMF and World Bank reforms to the next G20 summit this autumn – the Spring Meetings could show how serious that review is likely to be.
The Spring Meetings are also a happy hunting ground for number crunchers, thanks to the release of a series of high profile publications: first up was the World Economic Outlook, published on Wednesday, which revised downwards (again) forecasts for global economic output (see chart). The Outlook now predicts a global fall of 1.3% of global GDP. The emerging and developing countries will experience a slump from 8.3% growth in 2007 to just 1.6% in 2009. Using the World Bank’s rule of thumb that 1% growth raises 20m people above the poverty line, that suggests that in 2009 alone, the crash will push 135m more people into poverty than would otherwise have been the case.
By the end of the weekend we should have a much clearer idea of whether the G20-driven rebirth of the IMF will be accompanied by the essential reforms to make it part of the solution, or whether it is likely to remain part of the problem, heralding a return to the bad old days of the 1980s and 90s, when a dominant IMF imposed mistaken policies on a succession of recession-wracked developing countries.