Earlier this month, at their Annual Meetings, the Bretton Woods Institutions (BWIs) – the World Bank (WB) and International Monetary Fund (IMF) – marked their 75th anniversary. The meetings took place amid a bleak global economic outlook, rising trade tensions, another debt crisis threatening to engulf developing nations, and heavy reliance on private finance to deliver the Sustainable Development Goals (SDGs). Was there much cause to celebrate? Three key observations from this year’s Annuals compel a sobering assessment.
Persistently negative fallout from IMF promoted reforms
In spite of public statements that project a more accommodating stance on counter-cyclical fiscal policy than previously supported, the Fund’s practices remain at odds with its rhetoric and are dramatically ill-equipped to address realities on the ground. In its World Economic Outlook, the IMF calls for structural reforms focussing on liberalisation and deregulation, particularly in low-income countries, to spur economic growth. This is despite strong evidence of the negative impact of these measures, often pushed on the back of austerity measures. The advocated reforms threaten to delay economic recovery and stall development, and place stabilisation burdens squarely on the shoulders of citizens (Ortiz and Cummins, 2019).
During the Annual Meetings, Civil Society Organisations from across the world issued a statement raising concerns regarding the socio-economic impacts of austerity-imposing IMF-programmes, particularly in Argentina, Ecuador, and Haiti. Alongside dramatic human costs, the crisis in Argentina also illustrates countries’ vulnerability to volatile financial flows in the absence of capital controls, an ever-greater risk given the speed with which public debt stocks have been growing in the Global South. Capital controls were eventually implemented in Argentina, and subsequently endorsed by the IMF. But, questions remain as to why huge (and largely predictable) capital outflows were not prevented.
From Washington to Wall Street Consensus at the World Bank
Countries confronted with limited fiscal space – due to debt burdens and/or austerity measures – are consistently advised to turn to private finance to deliver the Sustainable Development Goals. Since the adoption of the “Maximising Finance for Development (MFD)” approach in 2017, the World Bank Group (WBG) is actively pushing to financialise development lending. This “Wall Street Consensus” – as Gabor (2019) has called it – means that development projects, including in rights-based services like healthcare and education, are being transformed into asset classes of tradeable securities.
To implement this approach, the World Bank uses a wide variety of instruments, including Development Policy Operations, which condition their disbursement on the creation of an enabling environment for increased private sector investment. It also relies on unregulated shadow-banking, unbridled promotion of expensive and risky public-private partnerships (Bayliss and Van Waeyenberge, 2018) and the commercialisation of public services, including in low-income countries, where profitable opportunities are not easy to find and state capacities to regulate in the public interest are weak.
In response to this trend, more than 170 organisations sent a letter to the World Bank and its donors advocating for development aid for free, quality public education, and called on the World Bank to stop funding for-profit schools. With regard to health, new reports raise concerns over donors’ support to private sector actors in the health sector, including through PPPs, as a way to deliver on Universal Health Coverage (UHC) (WEMOS, 2019; Romero and Gideon, 2019).
A Global Green New Deal?
During the Annual Meetings, UNCTAD presented its recent Trade and Development Report, which makes the case for rebuilding multilateralism around the idea of a Global Green New Deal (Gallagher and Kozul-wright, 2019). This would imply transforming “the rules of the global economy toward goals of coordinated stability, shared prosperity, and environmental sustainability, while deliberately respecting the space for national policy sovereignty”. UNCTAD’s Report calls for a greater role for public (development) banks – across national, regional and international spheres – given their “more diversified portfolio and broader geographic reach to under-served areas and segments of the economy” compared to private banks.
UNCTAD’s proposals are a valuable contribution to the current debate on how to overcome the threat of collapse that both the 2030 Development Agenda and the Paris Agenda face due to insufficient financing and the lack of effective means of implementation. However, it seems that the BWI‘s75th anniversary was another missed opportunity to rethink the role and tools of international financial institutions.
While the world is indeed in dramatic need of improved global governance to tackle a host of urgent challenges, the BWIs once more have failed to exercise a leadership role in support of the need of the majorities. Instead, they have aligned themselves in practice (if not necessarily in their rhetoric) with a “Wall Street Consensus”.
María José Romero is a second year Bloomsbury PhD student working with Dr Elisa Van Waeyenberge (SOAS Economics Department), Dr Jasmine Gideon (BBK) and Professor Elaine Unterhalter (UCL-IOE). She has worked for several years as Policy and Advocacy Manager for the European Network on Debt and Development (Eurodad).