This year’s World Bank/IMF annual meetings took place in the Peruvian capital of Lima during the week of 5-11 October. Lima is one of the most vibrant metropolises in the whole of Latin America, with its glitzy promenades, luscious boulevards and inviting restaurants and cafés. Peru is an up and coming emerging economy, a rich mélange and melting pot of European, Andean, African and Asian civilisations. An estimated 13,000 participants came to this annual jamboree which alternates between two years in Washington and the third in a member country of the Bretton Woods institutions. I have often been a participant in these conferences which tend to be colourful, noisy and generally agreeable. I recall with nostalgia Singapore 2006 and Tokyo 2012. Although I did not make it this time around, I followed the proceedings with keen interest. If you don’t mind some of the posturing and grandstanding and the occasional nauseating soundbites and development-speak, the annual meetings offer the best opportunities I know of – barring the annual jamboree at Davos, Switzerland – to meet the high and mighty of world finance, investments and business.
Lima, as expected, was not a disappointment. They came, as they usually do, from all the corners of the world: overfed Arab sheikhs, eager Indian businessmen, starry-eyed African tycoons, calculating Chinese moneybags, cautious Japanese financiers and old-world European bankers. They came to listen, to share and to network. The entire orchestra was put together by a Secretariat staffed by overworked IMF and World Bank officials.
The entire proceedings took place against an atmosphere of sober realism. The world economy, we are told, is growing more slowly than was initially thought. The IMF has had to cut back on its earlier forecast from 3.4 percent to 3.1 percent for year’s end 2015. The slowdown and rebalancing in China and the slow recovery in Europe means that the world economy is yet to be truly out of the woods. The United States and Britain have shown remarkable agility, which offers good reason for guarded optimism.
The two most important decision-making bodies in the annual meetings are the International Monetary Finance Committee (IMFC) and the Development Committee (DC). While the former deliberates on world monetary and financial issues, the latter makes decisions on international development challenges. The official communiqués by the two bodies provide guidance and direction for coordinated global action with regards to global development policy and international monetary and financial governance.
In its official communiqué, the IMFC cautioned that although the world economy is undergoing a slow but sure recovery, we still face major risks. Financial volatility occasioned by gyrations in global commodity prices poses major challenges especially for developing countries. Although many of these countries now have better financial buffers in terms of external reserves and sovereign wealth funds, many of such buffers are being depleted and several authorities now face more dire financial circumstances. A good number of countries are already experiencing several debt exposures.
The IMFC recommend a number of critical policy actions. Among these are: bold action to galvanize more rapid and sustainable growth; greater resolve to tackle unemployment, particularly among the younger segments of the population; coordinated global action to reduce financial volatility; commitment to investing in resilience to tackle non-performing loans in commercial banks while ensuring market liquidity and exchange rate flexibility; stronger commitment to structural reforms in such sectors as energy, infrastructures and institutions of economic and political governance; and commitment to deepening trade liberalization and for finalizing multilateral negotiations such as those centred on the Trans-Pacific Partnership (TPP). The TPP is an ambitious plan to integrate North America, Europe and a large chunk of Asia into a single trading block.
The Development Committee, on its part, was preoccupied with issues relating to poverty and the conclusion of the Millennium Development Goals 2015 and their successor, the Sustainable Development Goals (SDGs covering the years up to 2030. Drawing on the lessons of the past, it was understood that the successful implementation of the SDGs will call for greater coordinated global action not only between the World Bank and the IMF but also between the two and international agencies such as the United Nations, the Multilateral Development Banks (MDBs) and the World Trade Organisation (WTO). There is also a better appreciation of the critical role that the private sector can play in mobilizing financial resources and in building the momentum for collective global action to tackle global challenges such as poverty, climate change, communicable diseases and insecurity. The gender dimensions of global poverty, climate change and global governance were also emphasized. Surely, a world that continually overlooks the role of women in the development process cannot be a just, equitable or peaceful world.
While the deliberations were ongoing in Lima, the world was witnessing a deluge of desperate refugees from Syria and Iraq trying to make it into Europe. It has been a humanitarian tragedy of enormous proportions. While it was not occasion for trading blames, it was implicitly understood that the imperial follies of the West – the pernicious doctrine of regime change – had its role in unleashing the wars and extremist ideologies and their ensuing turmoil that have resulted in such an avalanche of desperate refugees. Tackling these problems will require not only building the foundations for a just and lasting peace in the Middle East and North Africa (MENA); it entails building humanitarian corridors in the neighbouring countries to assist these desperate refugees and to lessen the pressures on EU countries such as Germany, Italy, Spain and France.
The Lima meetings reached the sobering conclusion that the world is in dire need of “transformative development solutions”. Solutions that take account of the lessons of world development during the preceding half-century – based on local wisdom and the specificity of national conditions and experiences – and that accord with the dictates of prudence, democracy and international social justice.
Christine Lagarde, the urbane and highly effective French Managing Director of the IMF, lamented the fact that the reform of the iniquitous quota system within the Bretton Woods institutions is yet to make much progress. She regretted the fact that the U.S. Congress is yet to ratify the reform agreements that were reached back in 2010 to enhance the voice of the poorest countries while rebalancing the egregious marginalization of emerging economic powers such as China, India and Brazil.
It is a truism that during 1944, when the allied powers met in the holiday resort of Bretton Woods, New Hampshire, to hammer out the institutions for post-war global economic governance, Asia and Africa were not on the table as participants. America and Britain were the two main dramatis personae. The ensuing Bretton Woods international financial architecture was reflective of their dominant needs, interests and world-historic power ambitions. America’s GDP was 49 person of the world total.
In the changed international economic environment in which we live – where American share of global GDP has gone down to 16.58 percent, it could not be business as usual. In the emerging international economic order in which we live, it is clear that the existing quota system in the Bretton Woods institutions do not reflect the new anatomy of world economic and geostrategic power. For example, America still controls 17 percent of the voting power within the IMF and the World Bank while France controls 4.21 percent. The whole of the EU controls almost 16 percent of the total quotas as contrasted with a mere 3.81 percent for China and 3.34 percent for the whole of Africa south of the Sahara.
To make matters worse, America still insists on holding on to the presidency of the World Bank while Europe remains insistent that the headship of the IMF is their exclusive prerogative by right. Africa has never been fully represented at the decision-making level of these institutions. And to my recollection, no Nigerian has ever been appointed a Director of a Department at the IMF. Beyond the token appointments at various subaltern levels, the African voice is highly muted in the council chambers of the Bretton Woods institutions. Add to this the fact that in the past the Washington institutions often behaved in the manner of colonial Roman proconsuls with regard to issues of African development and you get a bleak picture as far as the legitimacy of these institutions in African eyes is concerned.
For the emerging economic powers, it would no longer do to keep them as marginal players within these highly influential agencies. This is perhaps one of the factors that is pushing China and the other BRICS to seek to create an alternative financial institution to rival the World Bank. The attitude of the United States and the dominant Western countries is fast eroding whatever is left of the legitimacy of the Bretton Woods institutions.
In times such as these, I miss the wisdom of the twentieth century’s greatest economist, John Maynard Keynes. In the famous debate that he had with John Montgomery White, the chief American negotiator at Bretton Woods, Keynes argued for the design of truly representative international institutions led by the best economists in the world. Keynes boasted that the Americans had the money but the British had the brains. Not surprisingly, the Americans called his bluff. But it is clear that, at least on this, Keynes had the higher wisdom.
Obadiah Mailafia
