If not now, then when? The Bretton Woods Institutions’ response to Covid-19

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Last week the Annual Meetings of the International Monetary Fund (IMF) and the World Bank (WB) took place (virtually), against the backdrop of the Covid-19 pandemic. The stake could not be higher for citizens of developing countries, as the virus has triggered a crisis of unprecedented proportions. Yet despite stirring rhetoric from G20, IMF and WB leaders, the results fall short of ambition and carry forward the same neoliberal model that has prevailed over recent decades.  

The World Bank President, David Malpass, repeated constantly throughout the week that this is a ‘once-in-a-century’ crisis that is especially impacting on the poorest. The World Bank’s latest poverty projections suggest that, by 2021, an additional 110 to 150 million people will have fallen into extreme poverty, living on less than US$1.90 per day. And, according to IMF Managing Director, Kristalina Georgieva, the crisis has ‘driven the economy into reverse, causing sharply higher unemployment, rising poverty, and the risk of “a lost generation” in low-income countries.’ These words are aligned with the report that the UN Conference on Trade and Development (UNCTAD) released in September, which argued that ‘there is a very serious danger that the shortfall will drag developing countries into another lost decade ending any hope of realizing the ambition of the 2030 Agenda for Sustainable Development.’

The devastating impacts of the Covid-19 pandemic have resulted in calls for ambitious responses, both in terms of scale and policy, under the broad headline of ‘building back better’, while G20 leaders committed, as early as March 2020, ‘to do whatever it takes to overcome the pandemic’ along with international organisations. However, concrete actions have not necessarily matched this level of ambition.

g20, world bank group, covid
Boris Johnson in G20 video conference, March 2020. Photograph: No.10/Flickr

The crisis has exposed the unequal capacity that different countries have to protect their citizens. As IMF’s Managing Director put it, ‘some were able to do more than others. For advanced economies, it is whatever it takes. Poorer nations strive for whatever is possible.’ And research by Stubbs et al. (2020) released earlier this year argues that ‘the need for rapid financial support in developing countries is far greater than the amounts available’, with IMF loans as the main channel of this support. Despite IMF rhetoric in favour of increasing public spending, research by both Eurodad and Oxfam has recently shown that the IMF is still attached to a model that favours stabilising debt levels and meeting debt service obligations, with negative implications for developing countries’ policy space.

According to Eurodad’s figures, 72 out of the 80 countries that have received IMF financing are projected to begin a process of fiscal consolidation as early as 2021. This would put the achievement of the Sustainable Development Goals (SDGs) and the Paris climate agreement in jeopardy. This issue has mobilised scholars and civil society from around the world. A letter signed by more than 500 civil society organisations and academics was sent to the IMF before the annual meetings, calling on the institution to stop promoting austerity.  

At the same time, the World Bank Group response to the current crisis has been far from bold and, in fact, is indicative of a persistent strategy that embeds the private sector across core public service provisioning. This can be seen as part of the implementation of the Wall Street Consensus, as described by Professor Daniela Gabor, which seeks to reorganise development interventions around selling development finance to the market. Recent research by SOAS Economics and Eurodad argues that the World Bank Group’s plan to respond to the crisis aims to ‘build back better’ by accelerating and scaling-up support for private sector solutions.

In particular, almost 60 per cent of the World Bank Group fast-track response has been channelled through its private sector arm, the International Finance Corporation (IFC), with a large part of this dedicated to support the private commercial financial sector and large companies. While it is true that private sector companies need support to navigate the crisis, this strategy raises questions regarding whether the countries, sectors and companies that need public support the most are actually being reached. 

Worryingly, the World Bank Group’s strategy organised around the core objective of ‘market creation’ seems to receive the backing of major economies. G20 Finance Ministers called last week on the WBG ‘to scale up its work and deploy instruments in new ways to mobilize private financing to low income developing countries’. This has proceeded despite well-documented evidence regarding the multiple risks and implications of relying on private finance to deliver sustainable development, including the high cost, fiscal risks, questionable effectiveness and equity implications.

Indeed, a group of United Nations experts – former and current UN Special Rapporteurs – emphasised in an article released before an online event happening earlier this week that ‘global markets have failed to provide people with basic needs like housing and water’. As they put it, ‘by continuing to opt for contracting out public goods and services, governments are paying lip service to their human rights obligations’. 

On top of this, last week, the group of major economies failed to strengthen the Debt Service Suspension Initiative (DSSI) and only committed to a six-month extension and a future common framework for debt restructuring, which lacked any detail. The G20 seems to be addressing a mounting debt crisis in developing countries with a policy framework from a bygone era, causing countries in debt distress to be caught between creditor disputes, with heavy economic and social costs. David Malpass talks about this as a ‘debtor’s prison‘. 

The unprecedented crisis that the world is living through calls for a re-think of the approach of world leaders and the Bretton Woods institutions. Without a meaningful change in course, the current response risks deepening inequalities and amplifying the economic and social fallout of Covid-19. The time is now for ambitious responses, both in terms of scale and policies. This should allow national governments to have the necessary fiscal and policy space to deliver for the world’s poorest communities. 

María José Romero is a third 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).

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