Can the IMF and the World Bank really be changed?

[Celerity]

Those with seats at the table of the international financial institutions, Jayati Ghosh writes, cling to their power.

https://www.socialeurope.eu/can-the-imf-and-the-world-bank-really-be-changed

That was then: a commemorative plaque in the Mount Washington Hotel, Bretton Woods

As the Bretton Woods institutions complete 80 years of existence—since they were agreed upon at an allies’ conference on a postwar financial and monetary order in the New Hampshire town—some stocktaking is inevitable. This is however a rather depressing exercise. The international financial institutions, the International Monetary Fund and what came to be known as the World Bank, were created in a buzz of optimism about the potential for international economic co-operation as the second world war was coming to a close. But their functioning has fallen far short of what the architects of the system then would have hoped. In their first decade, both institutions were heavily focused on lending for reconstruction. Thereafter, when lower-income countries did start receiving funds, the conditionalities associated with the loans—heavily oriented towards ‘fiscal discipline’, expressed as austerity and privatisation of public goods and services—became highly controversial and very often did not deliver the desired outcomes. Through the debt crises of the developing world in the 1980s and 90s, the IMF effectively became the debt collector, enforcing programmes designed to benefit (or even save) the creditor banks based in the global north.

So well-known was this pattern that by the early part of this century, most lower-income countries had opted for self-insurance, holding excess foreign-exchange reserves to avoid having to approach the IMF. The institution was in decline, with few client countries, and increasingly irrelevant. It was, ironically, saved by the Global Financial Crisis, when G20 countries decided to use the IMF as the conduit for rescue funds. Thereafter, the eurozone crisis became yet another opportunity for the IMF to provide very large (and controversial) loans—and since then it has been very much back in business. The underlying politics of the choice of recipients and the varying amounts of loans offered have unfortunately become even more evident. A record loan of (ultimately) $57 billion was offered in 2018 to the then president of Argentina, Mauricio Macri, because of his closeness to the United States president, Donald Trump, and his willingness to engage in blatantly neoliberal policies. That loan was so poorly designed that it was associated with massive outflows of private capital, so that in a few years Argentina was back in a debt crisis, with Macri’s successor having to clean up the mess.

Fit for purpose?

The deeply geopolitical nature of the operations and the problems with the programmes are not the only reasons why the revival of the IMF as the supposed financial stabiliser of the global economy is problematic. There is a real question about whether the IMF and the World Bank are fit for purpose in a global economy which has changed dramatically. During those eight decades, there has been a transformation in the relative sizes and significance of national economies while, among other trends, private financial flows have risen markedly. The institutions now betray major inadequacies in their organisation and functioning. The sharply increasing economic and ecological inequalities across the world are thereby accentuated, creating social and political tensions and geopolitical conflicts which are ever more intense. Humanity faces common challenges which require global public investment on a large scale. But the IMF and the World Bank are too slow, unwieldy and (let’s admit) miserly in their responses, exacerbating rather than assuaging these problems.

Some of this is because of the outdated governance of both institutions. Quotas and voting rights are skewed heavily in favour of a few rich economies with a small minority of the world’s people. This is now even more difficult to justify, given those states’ diminished shares of global output and world trade, which obviously affects their credibility and legitimacy. The ‘gentlemen’s conventions’ on the leadership of these institutions—an American at the head of the World Bank, a European at the head of the IMF—can no longer be justified at all. More open, transparent and democratic processes must be introduced for choosing the leadership. The IMF’s executive board should be expanded to ensure more representation from global-majority countries, especially from Africa. For important decisions, a double-majority voting mechanism would ensure that decisions had the support of principal shareholders as well as the majority. There should also be a general increase in quotas and shares to reflect the changed contours of the global economy.

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[Goddessartist]

1. Thank you

for this. My son in law works for the World Bank - chose that offer over the Federal Reserve - his family is from Argentina - and he wants to do good for poorer countries. I'll watch this a bit later today, and we'll also send the link to him.

[malaise]

2. No. - Read Chapter Three

Last edited Mon Jan 29, 2024, 09:48 AM - Edit history (1)

https://ies.princeton.edu/pdf/E192.pdf
Keynes v the US Banks

Sorry wrong link posted originally

[Celerity]

4. Keynes is innocent: the toxic spawn of Bretton Woods was no plan of his

The economist's dream was blocked for an IMF serving the rich. Reforms proposed by G20 leaders are too little, too late

https://www.theguardian.com/commentisfree/2008/nov/18/lord-keynes-international-monetary-fund

Tue 18 Nov 2008 01.01 CET

Poor old Lord Keynes. The world's press has spent the past week blackening his name. Not intentionally: most of the dunderheads reporting the G20 summit that took place over the weekend really do believe that he proposed and founded the International Monetary Fund. It's one of those stories that passes unchecked from one journalist to another. The truth is more interesting. At the UN's Bretton Woods conference in 1944, John Maynard Keynes put forward a much better idea. After it was thrown out, Geoffrey Crowther - then the editor of the Economist magazine - warned that "Lord Keynes was right ... the world will bitterly regret the fact that his arguments were rejected." But the world does not regret it, for almost everyone - the Economist included - has forgotten what he proposed. One of the reasons for financial crises is the imbalance of trade between nations. Countries accumulate debt partly as a result of sustaining a trade deficit. They can easily become trapped in a vicious spiral: the bigger their debt, the harder it is to generate a trade surplus. International debt wrecks people's development, trashes the environment and threatens the global system with periodic crises.

As Keynes recognised, there is not much the debtor nations can do. Only the countries that maintain a trade surplus have real agency, so it is they who must be obliged to change their policies. His solution was an ingenious system for persuading the creditor nations to spend their surplus money back into the economies of the debtor nations. He proposed a global bank, which he called the International Clearing Union. The bank would issue its own currency - the bancor - which was exchangeable with national currencies at fixed rates of exchange. The bancor would become the unit of account between nations, which means it would be used to measure a country's trade deficit or trade surplus. Every country would have an overdraft facility in its bancor account at the International Clearing Union, equivalent to half the average value of its trade over a five-year period. To make the system work, the members of the union would need a powerful incentive to clear their bancor accounts by the end of the year: to end up with neither a trade deficit nor a trade surplus. But what would the incentive be?

Keynes proposed that any country racking up a large trade deficit (equating to more than half of its bancor overdraft allowance) would be charged interest on its account. It would also be obliged to reduce the value of its currency and to prevent the export of capital. But - and this was the key to his system - he insisted that the nations with a trade surplus would be subject to similar pressures. Any country with a bancor credit balance that was more than half the size of its overdraft facility would be charged interest, at a rate of 10%. It would also be obliged to increase the value of its currency and to permit the export of capital. If, by the end of the year, its credit balance exceeded the total value of its permitted overdraft, the surplus would be confiscated. The nations with a surplus would have a powerful incentive to get rid of it. In doing so, they would automatically clear other nations' deficits. When Keynes began to explain his idea, in papers published in 1942 and 1943, it detonated in the minds of all who read it. The British economist Lionel Robbins reported that "it would be difficult to exaggerate the electrifying effect on thought throughout the whole relevant apparatus of government ... nothing so imaginative and so ambitious had ever been discussed". Economists all over the world saw that Keynes had cracked it. As the Allies prepared for the Bretton Woods conference, Britain adopted Keynes's solution as its official negotiating position.

But there was one country - at the time the world's biggest creditor - in which his proposal was less welcome. The head of the American delegation at Bretton Woods, Harry Dexter White, responded to Keynes's idea thus: "We have been perfectly adamant on that point. We have taken the position of absolutely no." Instead he proposed an International Stabilisation Fund, which would place the entire burden of maintaining the balance of trade on the deficit nations. It would impose no limits on the surplus that successful exporters could accumulate. He also suggested an International Bank for Reconstruction and Development, which would provide capital for economic reconstruction after the war. White, backed by the financial clout of the US treasury, prevailed. The International Stabilisation Fund became the International Monetary Fund. The International Bank for Reconstruction and Development remains the principal lending arm of the World Bank. The consequences, especially for the poorest indebted countries, have been catastrophic. Acting on behalf of the rich, imposing conditions that no free country would tolerate, the IMF has bled them dry. As Joseph Stiglitz has shown, the fund compounds existing economic crises and creates crises where none existed before. It has destabilised exchange rates, exacerbated balance of payments problems, forced countries into debt and recession, wrecked public services and destroyed the jobs and incomes of tens of millions of people.

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[malaise]

5. Absolutely correct

[malaise]

3. Fixed link LOL