Rethinking Bretton Woods | Wed, Apr 20, 2005
An Exercise in Stalemate?
Last weekend the World Bank and International Monetary Fund (IMF) held their Spring Meetings. A short assessment of the results of the meetings reveals a decision-making machinery in crises. A number of major agenda issues that require rapid action continue to face stalemate at the highest levels in these institutions. The lack of action is all the more evident in contrast with the greater momentum that was expected this year, a year of stocktaking on the MDGs and review of the Financing for Development follow-up process.
Probably the greatest disappointment came in the area of debt relief. While much was expected, the movement towards a debt relief agreement among the G7 nations was almost tantamount to nothing.
The G7 communiquÃƒÂ© could hardly disguise this, as it restated a vague agreement to provide ""as much as 100 % cancellation"", ""on a case-by-case basis"" that had already been achieved in February. The then contentious issue of how to pay for the agreed debt relief continues to be unresolved. (Get an at length explanation of the different debt proposals on the table. )
For instance, the IMF released a study right before the meetings that showed the technical feasibility of IMF gold sales to finance debt relief. The paper demonstrated that IMF gold sales would not necessarily affect in a negative way gold prices (a major concern of gold-producing countries and of the gold industry). The paper, expected to pave the way to the use of IMF gold among the mix of sources to pay for debt relief, was coldly acknowledged in one line of the G7 statement. While the UK Finance Minister, one of the supporters of the measure, stated at a press conference that gold sales were not off the table, his US counterpart pointed to the lack of consensus on this particular topic (it is known that the US Treasury, given its opposition to the sale of gold and its power to veto it, is the most significant obstacle to using this source).
In fact, the alarming prospect of a step backwards is raised by the fact that, while the February statement referred to all multilateral debt, the latest one specifies IDA and African Development Bank debt, while omitting debts owed to the IMF. The slight hope that this could have been an oversight in drafting vanished quickly. The US Secretary of Treasury in its statement to the policy-making committee of the IMF not only rejected the sales of gold but also reversed its position in favor of 100 % multilateral debt cancellation by stating no relief of IMF debt was necessary. While it is true that debt to the IMF tends to be small compared with that owed to the World Bank, due to the IMF debt lower concessionality levels the US position translates, in practice, into debt relief in other areas subsidizing repayments to the IMF.
The US Treasury also gave clear signs that the US expects to push ahead with plans to establish a policy of what are, in essence, ""programs without financing"" at the IMF. The mechanism (called ""policy monitoring arrangement"") would pave the way for further strengthening the role of the IMF as a gatekeeper of all types of financial assistance to developing countries, even in the absence of financial flows from the IMF itself.
An interesting note was set by the G7 CommuniquÃƒÂ© when it said that ""rapid progress can be made to improve IMF surveillance, including through independence of debt sustainability analysis from lending decisions."" The independence of Debt Sustainability Assessments and lending functions had been long called for by critics. The call was a reaction to the discretionality and lack of safeguards in the obscure and secretive methodologies used by the international financial institutions to determine debt sustainability in the past. However, it remains to be seen whether this mandate will be made fully operational, or will amount to the cosmetic step of separating the different departments of the institutions that carry out these functions.
Innovative Sources of Finance:
Stalemate was also reached on the issue of innovative sources of finance. Assessing the same proposals that it has already studied for a number of years, the Development Committee could not do more than give its blessing to the already ongoing pilot of the International Financial Facility for Immunization and ""encourage"" donors to go ahead with the International Financial Facility itself. .
As for global taxes to finance development, the Development Committee stated that potential participants believed they ""may be feasible and desirable, while other members do not."" Again, action by interested countries Ã¢â‚¬" as opposed to multilateral action Ã¢â‚¬" was encouraged.
Governance of International Financial Institutions:
Three years have gone by since the Monterrey Consensus mandated an increase in the participation of developing and transition countries in the governing structure of the World Bank and the IMF. This year, a second assessment of progress at the General Assembly level scheduled for June will find the institutions with almost nothing to show in terms of progress. In spite of the flurry of ""Issues"", ""Options"" and ""Decision"" papers that have been requested and prepared on the subject in the last three years, the Development Committee communiquÃƒÂ© merely stated that the issue remains ""a continuing concern.""
Also according to the communiquÃƒÂ©, ""Progress can only be made through broad consensus at the political level."" Against the context of three years of debate on this issue at the Boards of the Bank and Fund this language seems to suggest the Bank and Fund are not the right venues to try to achieve that consensus. The statement is certain to confuse those who followed the Monterrey Conference process and know how many times industrialized country delegations raised the point that the UN (a political forum by essence) was precluded from discussing exactly these same issues under the argument that they should be left to the governing bodies of the Fund and Bank.
As far as trade issues are concerned, the communiquÃƒÂ©s from the weekend generally referred to the Doha framework (the interim deal reached by countries at the WTO last July) and called for further progress in a package that should be ""successful"", ""ambitious"" and ""comprehensive."" While this is not a matter to be decided within the Bretton Woods Institutions themselves, reports reveal that these trade negotiations are very close to stalemate. WTO member countries are trying to reach some measure of agreement by July of this year that can conjure away the phantom of another Cancun-type confrontation in December. But the truth is that negotiations on agriculture, non-agricultural market access, services and others continue to be the subject of deep divisions in Geneva and little progress has been made beyond the fragile consensus achieved last July.
Committees of both the Bank and the IMF called for further staff work on how to support greater trade liberalization commitments by the borrowers. The measure raises the worrying prospect that the promises of assistance made by the World Bank and IMF, though highly inefficient to judge by past efforts, will be used to both buy the consent of borrowing countries to a disadvantageous and imbalanced trade policy package and to undermine their leverage in such negotiations.
Read official documents from the meetings
- Group of 7 Finance Ministers
- Group of 24 (.pdf document)
- Development Committee (.pdf document)
- International Monetary and Financial Committee