The World Bank and IMF wish you a (bumpy) global economic recovery at the Spring Meetings

On the side of the World Bank, the DC Communiqué does not address shifts in World Bank Group (WBG) policies in the wake of the global crisis, policies that reflect increasing donor emphasis on (short-term) development results to show value for their development monies. Neither does it address the silent shift of the World Bank Group towards raising funds in the capital markets to graduate from dependence on their shareholders.

On the other side of 19th street, the IMF – the rising IFI star in the wake of the global crisis – took account of key challenges in global financial stability and capital flows threatening the recovery, but failed to address fundamental concerns for developing countries.

Missing from the official Communiqués

Prominent on the agenda of civil society groups was the WB’s International Finance Corporation (IFC) increasing use of financial intermediaries (FIs) as vehicles for development. The primary issue is their opaque investment portfolios and lack of sufficient or in some cases any oversight mechanisms to ensure sustainable development practices and impacts. The IFC’s intention to launch an initiative to ensure alignment of its portfolio to International Development Goals (IDGs) is welcome, but civil society organisations (CSOs) are concerned about its delayed implementation. The lack of clarity around operational details raises questions on whether IDGs will play more than a token role.

The WBG was also not clear on its future investment strategy with some members suggesting a turn to the private sector and others indicating otherwise. To civil society the shift is quite clearly in favour of private sector interests which are seen by the Bank as mechanisms of leveraging finance to combat the effects of the financial crises.

Other concerns lay in the role the World Bank would play in the Green Climate Fund, as well as compromises made in coal usage in the World Bank energy strategy.

With regards to the IMF, civil society groups pushed for the use of windfall profits from the IMF gold sales to be used for debt relief for low-income countries. Unfortunately, some IMF Executive Directors seemed to think that these funds would be better off if parked in the IMF precautionary reserves to cover potential increased risks of default resulting from IMF increased lending. However, given the Fund’s preferred creditor status, default is very unlikely, so parking excess profit from gold sales in the IMF precautionary accounts seems unwarranted and comes with a high opportunity cost for the world’s poorest countries recurrently hit by climate, food and financial crises.

What did ministers say (and not say)?

The Development Committee Communiqué addresses several overarching themes. Of primary thematic importance are the democratic revolutions in North Africa, rising commodity prices, and the World Development Report (WDR) on conflict and fragile states. Missing from the agenda are direct references to energy price volatility, the shift to private sector investment, and any meaningful reform of the WBG policies and practices. While the Dev Com noted the plight of the Japanese people, no mention was made of a new policy on nuclear energy.

Interestingly, the Communiqué praises the evidence of recovery from the economic crises but notes the destabilising effects of energy and food price volatility. Yet energy price volatility is not followed up on in the rest of the document after a token reference. In terms of food price volatility, impetus is placed upon increasing small scale domestic capacity through supporting smallholder farms to ensure the availability of food at the local level. While increasing domestic capacity is a crucial development goal, this approach completely ignores the effect of international commodity speculation that artificially raises the real values of commodities. Without strong international regulatory bodies on speculative practices, food and energy prices will not be able to be stabilised and predictable. Small holder farms would still be subject to the effects of climate change and cyclical droughts which would require them to depend on the international commodity market.

The IMFC Communiqué adds to the optimism of the Development Committee by stating that “the global recovery is gaining strength,” but is cautious enough to make clear that underlying vulnerabilities remain a challenge. Interesting is the mention of the need to move towards a “comprehensive and balanced approach for the management of capital flows,” including “both policies that give rise to outward capital flows and the management of inflows.” Although the recent IMF rethink on the need for active management of capital accounts is welcome, civil society remains concerned about the still narrow approach of the IMF to these issues and the possible scale up of their advisory role on capital account management- also an issue of concern for developing countries. Furthermore, some Executive Directors were overly prudent and said the recent IMF paper, “Recent experiences in managing capital inflows,” should not be interpreted as an unqualified embrace of capital account management measures.

The Communiqué also supported the continued IMF support “to help Lower Income Countries overcome their balance of payments problems.” Unfortunately, this has not yet been translated into bold measures to use the windfall profits of IMF gold sales for low-income countries. A final decision will be taken at the Annual Meetings towards the end of this year: civil society groups will be watching.