ECONOMY: Struggle to Solve Crisis Moves to IMF, World Bank

• Analysis by Abid Aslam (washington)
• Friday, April 24, 2009
• Inter Press Service

Semi-annual meetings of the World Bank and International Monetary Fund (IMF) begin here Saturday with a warning from the fund that the world economy will fall this year for the first time since World War II.

'By far the deepest global recession since the Great Depression' will see an economic decline of 1.3 percent worldwide, according to the IMF. In January, it had projected negligible growth of 0.5 percent.

At the weekend talks and in separate sessions of the Group of Seven (G7) dominant countries and the Group of 20 (G20), which includes emerging economic powers, finance ministers and central bank chiefs will have a chance to flesh out a crisis-response agreement issued by G20 leaders three weeks ago - assuming they can reconcile differences glossed over at the Apr. 2 leaders' summit in London.

The atmosphere remains contentious some 18 months after the recession became apparent. Even as officials seek to assure markets and consumers that recovery plans are in hand, Washington confronts resentment over a crisis blamed on U.S. corporate chicanery and regulatory absenteeism.

Timothy Geithner, the treasury secretary, acknowledged this in remarks here Wednesday. 'We bear a substantial share of the responsibility for what has happened,' he said. 'But factors that made the crisis so acute and so difficult to contain lie in a broader set of global forces that built up in the years before the start of our current troubles.'

Washington continues to push for more government spending to stimulate demand in wealthy countries but it does so against stiff resistance from deficit-averse Europeans. France and Germany, in particular, have rebuffed U.S. goading.

Agreement to increase the IMF's finances has run up against competition for voice and voting power among the agency's shareholders. In turn, accord on enlarging the fund's role as a global economic regulator is frayed by disagreement over what specific powers of intrusion and enforcement it should be granted.

Even a G20 oath of loyalty to free trade, taken amid fanfare in November 2008 and reiterated with protestations of unanimity at the London summit earlier this month, has proven something of a joke. Earlier this year, the World Bank said that 17 of these countries had reacted to the downturn by erecting barriers to international commerce.

'Since the G20 meeting less than three weeks ago, nine G20 countries have taken or are considering 23 measures that restrict trade at the expense of other countries,' Robert Zoellick, the World Bank president, added Thursday.

Anti-poverty campaigners are joining the fray with demands that poor governments, not only rich ones, be allowed to boost spending and protect vulnerable populations.

'To address the crisis, the IMF has recommended big-spending stimulus programmes - but only for wealthy countries,' said Soren Ambrose, development finance coordinator at charity ActionAid International.

Activists, citing their own experience and a recent review of IMF lending by longtime Washington-based critic the Centre for Economic and Policy Research, add that although the fund is providing no-strings-attached financing for Mexico and other borrowers that have followed its policy advice, it has not eased up on deficit-trimming austerity measures in countries ranging from Latvia to Pakistan.

While questions of conditionality seem likely to dog the IMF for years, strain over the distribution of voting power among shareholders likely will have a more profound impact. Most immediately, it complicates the agency's financial prospects.

At London, G20 leaders pledged 1.1 trillion dollars for international lenders. Five hundred billion dollars is to be handed over to the IMF for its New Arrangements to Borrow programme. In exchange for their contributions governments will receive interest-bearing assets backed in part by the institution's gold reserves.

Major players, including China, Russia and Saudi Arabia, so far have withheld their commitments and are demanding that votes within the fund be redistributed to reflect emerging markets' economic significance. European countries that face a corresponding loss of clout have yet to be won over.

Also at stake is a proposal to sell some of the IMF's gold reserves. While emerging powers demand greater say in the institution, poor countries and aid groups want guarantees that the proceeds will be used to help regions that are reeling from twin economic and food crises and that lack access to other sources of capital.

In any case, aid groups want new money for the poor to be just that: new money, not money diverted from existing aid budgets. And they want the money doled out as grants and not as loans, which they say could pave the way for a fresh debt crisis.

'Everything must be done to ensure that poor countries are not landed with even more debt in their attempts to survive the economic crisis,' said Marita Hutjes, a policy adviser at Oxfam International.

Perceived and real imbalances of power among IMF shareholders also could play out in discussions about whether the agency should serve as a powerful new economic regulator or simply as a more robust monitor of members' economies. Smaller countries will demand equality of treatment while more powerful ones will be reluctant to relinquish what many regard as an instrument of their macroeconomic and financial orthodoxy and interests.

The G20 includes G7 members Britain, Canada, France, Germany, Italy, Japan, and the United States plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, and the European Union.

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service

Where next?

Advertisement