The World Bank and International Monetary Fund (IMF) are nearly 80 years old. As they meet in Morocco for this year’s meeting, there is talk of reform to reflect a changed economic world.Much has altered in the 12 months since the October 2022 meeting of the International Monetary Fund (IMF) and the World Bank, which took place in Washington, DC. A year ago the meeting was held fully in person for the first time since the Covid-19 lockdowns. As delegates gathered in Marrakesh, Morocco for the 2023 summit earlier this month, the pandemic was a much lower item on the agenda. Climate change, economic resilience, geopolitical tensions and a need to revive global co-operation were the dominant themes.There have been significant changes at the World Bank in the past year, with a change in president, and the publication of a roadmap for evolution of the institution. The document makes the sobering assessment that after decades of progress, growth and poverty reduction have stalled. It refers to rising debt, inflation, increasing cost of finance, and macroeconomic imbalances. The long-standing commitment of the institution to encourage prosperity and eliminate poverty has been adapted to include combating climate change, which threatens to undermine these objectives.A challenging macroeconomic situation of increased inflation and interest rates comes at a time when climate change has moved from a projected future to a disruptive reality, with catastrophic floods and record temperatures around the world in 2022 and 2023. In June, Ajay Banga began his tenure as president of the World Bank. He is an appointment from the private sector, having previously been CEO at Mastercard, and has identified as a priority raising additional capital for projects to address the climate crisis.A month after his appointment, the World Bank announced the appointment of a Private Sector Investment Lab, comprising 15 leading CEOs and chairs. The body is co-chaired by Mark Carney, UN special envoy on climate action and finance; and Shriti Vadera, chair of Prudential plc. Its primary purpose is to mobilise more private capital for World Bank programmes in emerging markets. The Lab’s initial work is on scaling transition finance for renewable energy and energy infrastructure.Separately, many experts in emerging market finance have identified ways in which the World Bank can leverage its existing resources more effectively. Former World Bank staffer Inder Sud, in a letter to the Financial Times, argued that the bank needed to broaden its range of development financing in an age where emerging markets are increasingly middle-income.Global co-operation is a priority. There have been moves towards economic nationalism in some parts of the world to subsidise strategic industries, or reflecting security concerns. Some of these policies are understandable, but the IMF warns of ‘geo-economic fragmentation’ and emphasises the need for shared endeavour to confront complex global challenges.Both the IMF and the World Bank are under pressure to be more representative of the world that they serve in their structures, with greater say for the Global South. They are post-Second World War institutions, set up in July 1944 at the Bretton Woods conference in New Hampshire, USA. In an interview with the Financial Times in early October, Kristalina Georgieva, Managing Director of the IMF, acknowledged the need to ‘constantly change to reflect how the world’s economy is changing’ and to look at representation. China has just 6% share of voting power at the IMF, but represents about three times that proportion of the global economy.As Western institutions, the IMF and the World Bank have naturally promoted Western policies. This encourages private sector development and fiscal responsibility, and discourages price subsidies and capital controls. There is much merit in these priorities, but some argue that the conditions around fiscal restraint that the IMF has imposed as part of its bail-out packages have resulted in too much austerity. Malaysia rejected IMF assistance following the 1998 Asian financial crisis, and imposed capital controls, but by some measures had better economic recovery than nations which did accept IMF loans.To be fair, both institutions have shown themselves capable of reform and adaptation, and remain powerful institutional players with a decisive role in economic development. They will need to keep on adapting. The world has changed significantly in the past 12 months, never mind the previous 80 years. The next article will address the major themes to emerge from this month’s meeting.
October 15, 2023 | 08:20 PM