The 2015 Annual Meetings of the International Monetary Fund (IMF) and World Bank had offered the opportunity to put some flesh on the bare bones of what is called the ‘Means of Implementation’ for the Sustainable Development Goals (SDGs). However, not much has been achieved in this respect. The meetings were rather overshadowed by the economic downturn in major middle-income countries and their negative spillovers for the mostly resource-based economies of other developing countries, due to falling commodity prices. Here, the Bretton Woods institutions could not present a credible response strategy either.
Old miracles and new realities
The Peruvian capital Lima was chosen as the venue for the 2015 Annual Meetings to celebrate the ‘Latin American miracle’ – Latin America’s economic boom of the past decade, which has primarily been driven by high commodity prices. The policies of mostly left-leaning governments ensured that this boom had indeed led to remarkable progress in reducing poverty rates and even inequality. The timing of the meetings was unfortunate, however, as this boom seems to be over now: The continent’s economic growth rate is negative at -0.3% this year, according to IMF projections, which had to be revised downwards just in time for the meetings.
Just a week before the meetings, Peruvian police opened fire on protestors and killed four people in a clash over Peru’s largest mining project, recently acquired by China’s Minmetals from Switzerland’s struggling giant Glencore. The protests followed the Peruvian government’s decision to relax environmental regulations in order to make life for the mining industry easier. They indicated that not everyone is happy about the chosen development path and its consequences. “Desmentiendo el milagro peruano” (Refuting the Peruvian miracle) was consequently the title chosen by the Alternative Platform of civil society organisations for the Alternative Forum. It was the first time for many years that such a forum took place parallel to and outside of the official Annual Meetings. It resulted in the Lima Declaration, a politically and intellectually welcome counterpoint when compared to the statement of the World Bank’s Development Committee and the IMF’s International Financial and Monetary Committee (IFMC).
The official meetings
Key issues for the official meetings were the IMF and World Bank role in implementing the SDGs, their contribution to climate finance ahead of the climate summit in Paris, tax-related matters, the ongoing governance crisis and infrastructure financing. Ironically, while the deteriorating world economy – falling growth rates, falling commodity prices, rising interest rates and volatile capital flows – featured strongly in the analysis that IMF and World Bank staff had prepared for the summit, it did not do so in the policy debates, indicating that policy and decision-makers may leave us badly prepared for the next crisis.
Development financing
The stakes in this area were high: it was the first meeting of international financial institutions (IFIs) and finance ministers after the SDG Summit, which agreed on the development agenda for the next 15 years, while leaving lots of unfinished business when it comes to their means of implementation. On SDG financing, however, it is obvious that the World Bank sees its role primarily in the fields of infrastructure financing and private sector development. The Development Committee’s Communiqué reads that “Private sector development is crucial to achieving the SDGs” and calls on the World Bank Group’s private sector arm“ IFC and MIGA to play a more catalytic role to mobilise private sector investment and finance for development”.
The developing country Group G24 shared the view that infrastructure development is crucial. However, on the other hand, they welcomed the arrival of new institutions, namely the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB), and voiced concerns over debt sustainability.
Consequently, the call for a replenishment of the International Development Association, the World Bank’s concessional lending arm, made it into the Communiqué too. The role of public-private partnerships (PPPs) in infrastructure financing remains controversial. While a World Bank-organised seminar was quite enthusiastic about the positive contributions that PPPs could make, a Eurodad-organised event pointed out the risks, including well backed up arguments from Eurodad’s new PPP study that was presented there.
At the later event, the IMF agreed that, from a fiscal perspective, PPPs need to be handled with care. Worryingly, according to the IMF, “in many countries investment projects have been procured as PPPs not for efficiency reasons, but to circumvent budget constraints and postpone recording the fiscal costs of providing infrastructure services. Hence, some governments ended up procuring projects that either could not be funded within their budgetary envelope, or that exposed public finances to excessive fiscal risks.”
Climate financing
The Annual Meetings represented the last chance for finance ministers to meet ahead of the COP 21 climate summit in Paris. The World Bank Group (WBG) did use the opportunity to talk about climate finance. President Kim announced that direct financing will rise to US$ 16 billion (up from US$10.3 billion at the moment), and leveraged co-financing to another US$ 13 billion annually. Such increases would mainly come from reallocations within the WBG, i.e. mainly on the costs of traditional development financing, raising the share of climate-related expenses from 21% to 28% of Bank funding. These Annual Meetings also saw the Inaugural Meeting of a new country group, the Vulnerable 20 (V20), led by the Philippines, which presented their call to action.
Governance reform
The governance reform of the IMF and World Bank remains stuck, a matter of legitimacy and effectiveness of the IMF, as IMFC statements by countries as different as Norway and India stressed. The IMF’s quota reform agreed back in 2010 still awaits ratification by the US Congress, meaning that the current governance structure does not give developing countries the voting rights they should have. Meanwhile, the parties are developing alternative proposals to avoid future haggling with the US Congress. An IMF working paper recently proposed “greater automaticity” to reflect changes in the economic weight of member states, which would make future cumbersome ratification processes unnecessary. For the time being, the IMFC called on the IMF Executive Committee “to complete its work on an interim solution that will meaningfully converge quota shares”.
Walking with open eyes into the new debt crisis…
The IMFC identifies risks coming from “tightening financing conditions, slowing capital inflows, and currency pressures amid high private sector foreign currency indebtedness”, i.e. new vulnerabilities that this time might primarily hit the until recently emerging economies, and developing countries dependent on exporting to them. The IMFC acknowledges that IMF finance has to play a counter-cyclical role, and it is adequate for members to use “capital flow management measures” (i.e. capital controls) when needed. Otherwise, it seems that decision-makers plan to walk with open eyes into the new wave of crisis, as no further action was agreed. At least this time they might see it coming.
…And no lessons learnt from the old
There was remarkably little (public) discussion about IMF problem cases such as Greece and Ukraine at these meetings. As regards Ukraine, the thus far insufficient debt relief jeopardises the success of the programme.
Moreover, huge amounts of IMF resources remain bound up in the Greek programme, which is considered a failure by all stakeholders involved, albeit for different reasons. The IMF recently refused to put more IMF money in, leaving the financing of the third programme to the EU, unless the EU grants the necessary debt reductions that could bring Greece back to debt sustainability.
Eurodad events: Stiglitz calls for debt restructuring
Events organised by Eurodad at the Annual Meetings on the IMF programmes in Central and Eastern Europe and the Euro crisis countries respectively dealt in depth with the harmful economic and social impacts that IMF/Troika programmes in Europe had and are still having today. Our experts also criticised the way that the IMF and Troika undermine democratic decision-making.
When the IMF argued that the failure of the Greek programme also came down to insufficient policy reforms due to insufficient ownership by the Greeks, US economist Joe Stiglitz, who spoke at our event responded: “If adjustment is imposed in an unfair way, of course there is no ownership. Of course you don’t get ownership of a programme that is so intrusive.” Stiglitz repeated his call that a deep restructuring for Greece was necessary in 2010, and it is necessary now. He stressed that better institutions for more effective debt restructurings are needed.
Both in Greece and Ukraine, it became evident that the IMF does not have the right instruments to ensure creditor participation in unavoidable debt restructurings. During recent debates at the UN, major IMF shareholders pointed out that the IMF was the place to debate sovereign debt restructuring frameworks, and the IMFC indeed mandated the IMF to “continue work on sovereign debt issues”.
However, people familiar with the issue also know that all relevant reform proposals face political blockades within the IMF’s Executive Board, including tiny steps such as the plan to finally get rid of the systemic exemption clause, the ‘blank bailout cheque’ for the IMF’s wealthier member states and their banks. That known and sealed, the work of the UN in this area becomes ever more important.
False start for the 2030 Agenda
All in all, however, these Annual Meetings represented business as usual. There is clearly a lot of work to do if Finance Ministers want to turn the ship around and develop an international financial architecture that could hope to meet the SDGs. The World Bank continues to prioritise private investment in infrastructure despite problems with PPPs, and the clear evidence that infrastructure is primarily a public agenda. The IMF provided new evidence that, under the current governance structure, it won’t be the place where the “coordinated policies aimed at fostering debt financing, debt relief and debt restructuring” that SDG 17 asked for will be developed.
