The World Bank and the International Monetary Fund (IMF) concluded their bi-annual meeting earlier this week, preaching ambitious change and espousing glorified rhetoric that once again warms the cockles, or raises eyebrows, depending on who you ask.
The world’s leading financiers and policymakers have once again tried their very best to conjure up a set of policies to fulfil their long and evolving list of mandates.
The 2018 Spring Meetings of the World Bank Group (WBG) and the IMF were held in Washington DC — the capital of their largest donors — bringing together central bankers, ministers of finance and development, private sector executives, representatives of civil society, and academics to discuss “issues of global concern” in the global economy.
As international organisations, the IMF and the World Bank are two ‘supranational’ entities that blur the lines of sovereignty and offer their policies to individual countries without a political mandate to do so.
The policy initiatives are presented as “advice” and the globalist attendants are required to impose the policies domestically across hundreds of nations represented.
In the present
Highly-esteemed economists, corporate chiefs, captains of industry and institutional investors have all hailed the World Bank and IMF as encouraging and more steps in the right direction towards creating sustainable development, reducing poverty and rebalancing world growth.
The World Bank’s first inaugural and heavily oversubscribed bond which raised US$1.5 billion was described as “a momentous step towards realizing that founding mission with IDA, once again, innovating on behalf of the countries which are most in need” by Barclays chief executive Jes Staley.
The World Bank’s main concessional lending arm, the International Bank for Reconstruction and Development (IBRD), yet another independent supranational entity, has also been handed a US$13 billion lending capacity boost to help the organisation fight off the challenges of climate change, refugees and pandemics.
The World Bank’s “shareholders” called the capital boost a “transformative capital package” that is “essential for us to advance our efforts to meet the aspirations of the people we serve” said World Bank Group President Jim Yong Kim, currently the most senior executive of the privately-held corporation.
One of the other key developments from this year’s meeting was the news that lending rates would be going up for the richer nations, such as China, instead of having a flat fee for all borrowers.
The Donald Trump-led US was seemingly unhappy that China was borrowing at bargain basement rates and had quickly become the World Bank’s largest borrower in recent years.
Hence the higher lending rates and associated lobbying that poorer nations would benefit.
The decision to demand higher rates for developing countries with higher incomes is rather surprising and quite contrary to the economic ideals supposedly forged by the developed world. Some critics have called the move as Marxist.
What would prospective homebuyers in Australia say if their mortgage broker told them they would be expected to pay a higher mortgage rate because they were in the top earning bracket? Most likely, there would be uproar and disgust.
But on the international stage, there was applause and “overwhelming support” and unanimous agreement that the world’s poorer countries have been given a macroeconomic leg-up that would pave the way to future riches.
According to analysts, China will probably end up borrowing less from the World Bank under the new system, which will charge higher rates of interest to wealthier countries, World Bank president Jim Yong Kim told reporters. He said the bank will increase annual lending to about US$80 billion from US$59 billion in the last financial year.
The IBRD had previously charged similar rates for all borrowers, leading US Treasury officials to complain that China and other bigger emerging markets were receiving too much in the way of loans.
The US contribution to the capital increase is, however, subject to approval by Congress. As is always the case with aspirational global initiatives most famously highlighted by environmental confabs, getting supranational initiatives past domestic policymakers can often be an insurmountable challenge.
With Donald Trump already at loggerheads with one of his biggest cheerleaders, Treasury Secretary Steven Mnuchin, and the US still comprising the lion’s share of all contributions to both the World Bank and IMF, the World Bank’s expanded capital base doesn’t have the green light just yet.
Two of many
Other similarly alphabet-soup agencies include the OECD, United Nations, International Finance Corporation, European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), International Development Association (IDA), World Trade Organisation (WTO) — and all have similarly altruistic intentions towards international development by politically-enabled and financially-sponsored means.
Their critics, however, claim that these organisations are just “chiefdoms” designed to deliver the very opposite of what they claim.
One former World Bank veteran who served as a permanent member for 16 years, Hafed Al-Ghwell, said the latest Spring meetings “encapsulate the internal dynamics and the paper-shovelling, bureaucratic nature of these institutions, as well as how their staff, of which I was a member myself, are more motivated to create work for themselves and obtain larger budgets for their departments than to actually reduce poverty around the world”.
This year’s spring meetings included more than 10,000 delegates from international financial organizations, representing 180 countries with the stated aims of facilitating global economic stability, monetary cooperation, and international trade by promoting foreign and capital investments that spur economic growth.
When all is said and done, the delegates claim to be tackling unemployment, reducing poverty and lowering inequality around the world.
There is, however, one small problem — all three of these factors have seen resilient growth in the time in which these entities were all created.
The World Bank and IMF were intertwined a bit like Siamese twins from the off. Both were created by the US and UK in 1944 at the Bretton Woods Conference in the death throes of World War 2.
The IMF was initially created to manage the international payments system and to formalise global financial and economic cooperation. Its main goal was overseeing exchange-rate agreements, advise national governments and provide loans to states deemed worthy financial assistance.
Meanwhile, the World Bank’s mandate was to rubber stamp grants and loans for infrastructure projects, particularly in transport, energy, and communications in the hope that these areas will stimulate economic development and reduce poverty levels.
The World Bank offers more targeted assistance, and over the years since 1944, its role has expanded to fund policy reforms into far-flung sectors such as social services including health and environmental protection. A pincer movement of sorts.
The goal of sustainable development
The World Bank and the IMF are both working towards achieving overarching sustainable development goals (SDGs) that are supposed to marry theoretic rhetoric with realistically practical outcomes.
The ambition is to deliver “sustainable development goals” although each one has been as elusive as finding the Loch Ness monster.
According to Cato Institute, a public policy research organisation, in its 7th edition of “Cato Handbook For Policymakers”, the think tank said that “despite decades of foreign assistance, most of Africa and parts of Latin America, Asia, and the Middle East are economically worse off today than they were 20 years ago.”
Meanwhile, the IMF is pressing Ukrainian officials to implement tough new anti-corruption reforms in order to gain access to a US$17.5 billion aid package from the fund.
The new guidelines on good governance take effect later this year in July and follow a recent review of the IMF’s 20-year-old policy.
But IMF officials said they expect the new approach will not result in more stringent conditions on loans, which go to a minority of the fund’s members and which already include anti-corruption provisions.
Quite contradictory to say the least.
One key talking point at this year’s Spring soiree was world debt.
According to the IMF, the world’s debt load has ballooned to an eye-watering US$164 trillion (A$211 trillion), a trend that could make it harder for countries to respond to the next recession and pay off debts if financing conditions tighten.
This figure still excludes the debt of financial companies like banks and financial derivatives which continue to have pricing difficulties and being accurately accounted for, or ‘marked to market’. Gross public and private non-financial debt have risen to record levels and the IMF is duly concerned.
Since the global financial crisis (GFC) the climb in overall debt has been due to rising public debt in the developed world and rising private debt in the emerging world.
The rise in developed world public debt demonstrates the effects of stimulus programs and the failure to turn budget deficits into budget surpluses post the GFC.
In the land down under
The IMF said it was concerned that several countries are too slow in paying down debt acquired since the GFC and emphasizing the urgency of utilising better economic conditions including record-high equity markets across the world to save something for a rainy day.
The IMF said that although Australia’s total government debts are low compared with many other advanced countries, they have grown more rapidly over the past decade than almost any other nation, rising from 16.7% of GDP to 41.7% this year.
Among major advanced countries, this increase is exceeded only by Japan and Spain.
The IMF also points out that debt interest burdens are low, and in many cases, still falling as more expensive long maturity older debt is replaced by lower yielding newly issued debt — but this simply replaces like for like without dealing with the root problem.
In Australia, interest payments as a share of household disposable income are at their lowest since 2003 and are down by more than a third from their 2008 high.
IMF spokesmen claim that there is no sign of significant debt servicing problems in Australia (or amongst ‘developed’ nations globally), calming fears that a debt bubble is now building at a national level following a private-sector debt bubble causing the GFC in 2007-09.
Last month, IMF Managing Director Christine Lagarde said that euro-area nations should pay 0.35% of their GDP’s into an emergency fund, to be used to stabilise the Euro bloc in case of financial difficulties.
A quick calculation suggests that would mean an annual contribution of around €11.4 billion (A$18.3 billion) for Germany, the zone’s largest economy and further burdens for all the Euro area countries, with the UK probably excluded due to Brexit.
Given the non-binding nature of any espousals or decisions made by either the World Bank or the IMF (they are privately-held corporations and not sovereign legislators after all), and the extended list of national-level approvals still required, the IMF’s expansive loan ambitions could well be cut short later this year.
Looking further out, the World Bank and IMF are expected to continue their bi-annual meetings; the next one is set for Bali in October, with the merry-go-round financing international equality continuing with a record number of delegates and a flurry of further initiatives to be announced in due course.