The outbreak of war in Gaza threatens to deal a new blow to the global economy. Another one. In just three years, geopolitical conflicts and climate change crises, from droughts and floods to a pandemic, have weakened economic activity worldwide. “Severe shocks are the new normal,” International Monetary Fund (IMF) Managing Director Kristalina Georgieva said this week. Countries, especially the poorest, need more resources to protect themselves and change course when debt pushes their finances to the limit. This gray horizon has led the IMF and the World Bank to arm themselves and seek more resources so as not to lose their status as global financial anchors in the face of China’s growing influence in Africa, Asia or Latin America.
The debt crisis experienced by Sri Lanka and Zambia has highlighted the rise of China in several regions of the world. Beijing has so far failed to gain influence within the IMF, but is trying to compete with that organization with loans and trade aid. Washington sees the institutions created at Bretton Woods as counterweights to China, but also as the only ones with the clout necessary to lead the fight against climate change, which is already affecting economic growth, and to provide stability to the international monetary system in the face of it Spread of civil conflicts. “The global challenges we all face make it even more difficult to achieve sustainable progress. But we have a way out: make bold reforms in the international financial architecture and then take full advantage of it,” US Treasury Secretary Janet Yellen said at the start of the IMF and World Bank meetings in Marrakesh this week.
World Bank governors gave the green light to the first of these reforms on Thursday. The Ajay Banga-led institution will clearly take on the task of financing the fight against climate change. “We cannot make enough progress in public health while rising temperatures are changing patterns of infectious diseases and triggering pandemics,” Banga recalled as he announced the new dimension of the bank during the conclave. It was not just the United States that drove this transformation of the Washington-based organization. Last September, G-20 leaders already called for an extension of this mandate in view of the new phase that began with the arrival of Banga. His predecessor David Malpass, appointed at the suggestion of Donald Trump, rejected this step. “I’m not a scientist,” he said when asked if he believed in climate change.
A group of experts for the G-20 estimates that the world will need around four trillion dollars (3.8 trillion euros) annually by 2030 to combat climate change. For now, the World Bank has taken action to mobilize another 157 billion over a decade, entering into what it described as a “historic” agreement with nine regional multilateral banks to reach another 400,000. “World leaders agree that reforming international financial institutions is critical to achieving development and climate goals. This drive to revitalize them also comes from the recognition that these institutions are the best capital multiplier force that exists in the international system,” says Rishikesh Ram Bhandary of the Center for Global Development Policy at Boston University.
Kenneth Rogoff, a professor of economics at Harvard University, is not convinced that the World Bank is responsible for leading this policy. “The aim is laudable, but to be effective it requires direct grants and not loans, especially now that interest rates have risen significantly. In my opinion, the World Bank is not ready to take the lead here, it is too broad and does not have the necessary focus or experience. I propose the creation of a world carbon bank,” he says.
Agreement without information on installment payments
The other major institution born in Bretton Woods, the IMF, is also justifying itself in the face of a world that has already come to terms with the chain shocks and is still suffering from the consequences of the Gaza war. The tensions of the war in Ukraine also shook the organization internally, so that it was unable to find the necessary consensus to issue a joint statement on the meetings. “We did everything we could, but it was not possible,” lamented this Saturday the president of the organization’s International Monetary and Financial Committee (IMFC), Nadia Calviño. Spain’s acting First Vice President claims that many of the participants identified “war and conflict” as the main cause of instability. “Updating and improving our global financial safety net is more important than ever,” he added.
The IMF and the World Bank continue to encounter strong resistance to the adjustment programs to which they have linked their financial aid to crisis countries. The Marrakech meetings were no exception, and there was criticism of the organizations both inside the venue – where numerous billboards were visible in the meeting and press rooms – and outside, where social organizations even held a counter-summit. However, the organization needs more resources to continue to respond to the needs of countries in conflict such as Ukraine and to be prepared for the next debt crises. “It is precisely because of the anchor role that the IMF plays that it is important that the institution has the necessary resources,” believes Bhandary.
The IMF calculates that the world will end this decade with debt equivalent to 100% of gross domestic product (GDP). These commitments will particularly stifle low-income countries, which will suffer from rising debt costs. In fact, 60% of these countries are already at risk of over-indebtedness. And the IMF has identified 26 companies at risk of bankruptcy. These needs could once again open the door for new global lenders such as China or India to increase their influence. However, the West sees this development as a threat to the global system, which it believes is less institutionalized and less transparent.
The Fund is demanding more resources, in particular through an increase in membership fees, which have not been reviewed since 2010 and already represent less than 50% of the institution’s resources. These contributions have been frozen in part because Beijing is struggling to maintain a weight in the fund that is more consistent with its participation in the global economy. Now it has a voting share of 6.09%, while its weight in the global economy is 18%. But Washington is curbing these efforts with a stake in the fund that gives it veto power. However, Calviño announced this Saturday that they had agreed on a “significant increase” in fees, but in proportion to the current distribution. That is, without moving current balances. There were no further details.
IMF Managing Director Kristalina Georgieva confirmed that she had managed to get 40 countries, including Spain, to pay a total of $3 billion into the anti-poverty trust fund. Since the beginning of the pandemic, this instrument has mobilized 30 billion for low-income countries. “This ensures that financing can continue to be provided at zero interest rates,” said Georgieva.
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