October 14, 2009
Some impressions from the World Bank-IMF meetings, held last week in Istanbul, where the views of the mosques are magnificent and the traffic is truly terrible!
First off, congratulations to Liliana Rojas-Suárez, her co-chairs and members of the CGD Task Force on Principles for Expanding Access to Finance on the policy momentum their new report has achieved within just a few days of its release. Announcing a new Dutch-funded IMF initiative to gather national data on access to financial services, Her Royal Highness Princess Maxima of the Netherlands, an international activist for development, praised the task force report predicting it would be “widely used when setting up national strategies” to improve financial service access. The Princess noted that more than two billion people across the world do not have access to basic financial services and only 20% of the world’s population has a formal savings account. The Dutch-funded IMF initiative will help to address this problem by regularly collecting country data on access to loans, deposits, debt securities and insurance. With all the talk of tightening up financial regulation around the world to improve stability, it’s heartening that access is on the agenda even at the IMF. As Liliana and her colleagues emphasize, there is no tradeoff between stability and access – indeed as the collapse in mortgage financing for low-income households in the U.S. shows the wrong approach can undermine both.Second, the optimism of Wall Street this last week looks like a mini-bubble thinking back to the contained pessimism among seminar participants in Istanbul, which was more along this line: The panic of one year ago is gone, but a global economic recovery is far from assured. It could have been far worse, and the coordinated G-20-led policy response made all the difference. But the global economy is not out of the woods and political will and fiscal realities may undo the necessary continuing application of adequate countercyclical spending in the U.S. and Europe.What about the developing countries where the crisis is still unfolding? What about the low-income countries that don’t have adequate and timely access to external financing to help them cope for the next 12 months, particularly given that the financial crisis hit them on top of the 2008 food and fuel crises? IMF managing director Dominique Strauss-Kahn said in his recent CGD speech that an additional $50 billion is needed for these countries both this year and next for crisis coping. It’s a problem. New cheap IMF financing and frontloading of IDA and other multilateral bank concessional funding are not sufficient to meet the needs (more on that in another post soon), and aid from bilateral donors is unlikely to rise above 2008 levels. (And aid could even decline in 2011 and 2012, as rich countries feel the need to cut back their spending in the wake of their massive stimulus push.)Third, World Bank President Robert Zoellick called for a big replenishment of the concessional IDA window at the World Bank, and there was in the corridors and seminars much talk of big capital increases for all the multilateral development banks to allow for more lending to middle-income emerging markets. These increases are politically attractive in such a situation, since only a tiny portion of the pledged capital is actually paid in—high-income countries offer guarantees which in practice have never been called. Thus the Asian Development Bank has secured approval of a $100 billion capital increase. The European Bank for Reconstruction and Development, set up to ease post-Cold War transitions in the former Soviet Bloc, is asking for Euros 10 billion – presumably to allow new lending to beleaguered Eastern European countries. President Robert Zoellick of the World Bank is asking to increase paid-in capital by $3-5 billion, which would allow for another $100 billion of lending; otherwise projected lending of a record $30 billion this year and $40 billion in the next 12 months will deplete completely its resources. President Donald Kaberuka of the African Development Bank is still seeking approval of a capital increase and predicts that without new capital the AfDB will be forced to cut back on lending next year—despite rising demand.Fourth, while the global financial crisis is the proximate cause of the MDB’s need for increased capital, there are deeper underlying trends at work. As Kemal Dervis explained in this year’s Per Jacobsson Lecture, delivered in Istanbul, the multilateral development banks would need new capital going forward even without the crisis, in order to subsidize developing countries’ investments in global public goods, especially in clean energy. The finance ministers are worrying about the financing side of any climate change agreement – and are hearing that big numbers are needed: upwards of $200 billion annually by 2020.Kemal’s excellent talk, and the IMF access to finance project aside, the focus here has been resolutely on the short-to-medium term resolution of the current crisis. That’s understandable but, as I argued in a speech last month, it’s also important that the international community begin to prepare now for The Crisis Next Time, by providing better mechanisms to help developing countries manage risk, and clarifying the roles of international institutions, including in the implementation of an eventual agreement on addressing rapid climate change.Finally, there was of course the usual discussion of the need to improve the governance of the World Bank and the IMF. Oddly, the Zedillo Commission report on reforming governance at the World Bank has yet to be released—although it is said to be complete. President Zoellick announced the creation of the commission in a speech one year ago at the Peterson Institute for International Economics, and he has evidently received the report. My guess is there is something about it that disappoints him, perhaps regarding the role of the Bank’s Board – or something sufficiently controversial he didn’t want it crowding out his calls for more IDA funding and a capital increase?Meanwhile, the world keeps changing in ways that make the governance at the MDBs ever more anachronistic. Rio was awarded the 2016 Olympics on Oct. 2, on the eve of the World Bank-IMF meetings, and Brazilian officials have been more insistent than ever about the need for real change in governance at the World Bank. Chinese officials, too. Time for the international financial institutions to take a lesson from the International Olympic Committee?
First off, congratulations to Liliana Rojas-Suárez, her co-chairs and members of the CGD Task Force on Principles for Expanding Access to Finance on the policy momentum their new report has achieved within just a few days of its release. Announcing a new Dutch-funded IMF initiative to gather national data on access to financial services, Her Royal Highness Princess Maxima of the Netherlands, an international activist for development, praised the task force report predicting it would be “widely used when setting up national strategies” to improve financial service access. The Princess noted that more than two billion people across the world do not have access to basic financial services and only 20% of the world’s population has a formal savings account. The Dutch-funded IMF initiative will help to address this problem by regularly collecting country data on access to loans, deposits, debt securities and insurance. With all the talk of tightening up financial regulation around the world to improve stability, it’s heartening that access is on the agenda even at the IMF. As Liliana and her colleagues emphasize, there is no tradeoff between stability and access – indeed as the collapse in mortgage financing for low-income households in the U.S. shows the wrong approach can undermine both.Second, the optimism of Wall Street this last week looks like a mini-bubble thinking back to the contained pessimism among seminar participants in Istanbul, which was more along this line: The panic of one year ago is gone, but a global economic recovery is far from assured. It could have been far worse, and the coordinated G-20-led policy response made all the difference. But the global economy is not out of the woods and political will and fiscal realities may undo the necessary continuing application of adequate countercyclical spending in the U.S. and Europe.What about the developing countries where the crisis is still unfolding? What about the low-income countries that don’t have adequate and timely access to external financing to help them cope for the next 12 months, particularly given that the financial crisis hit them on top of the 2008 food and fuel crises? IMF managing director Dominique Strauss-Kahn said in his recent CGD speech that an additional $50 billion is needed for these countries both this year and next for crisis coping. It’s a problem. New cheap IMF financing and frontloading of IDA and other multilateral bank concessional funding are not sufficient to meet the needs (more on that in another post soon), and aid from bilateral donors is unlikely to rise above 2008 levels. (And aid could even decline in 2011 and 2012, as rich countries feel the need to cut back their spending in the wake of their massive stimulus push.)Third, World Bank President Robert Zoellick called for a big replenishment of the concessional IDA window at the World Bank, and there was in the corridors and seminars much talk of big capital increases for all the multilateral development banks to allow for more lending to middle-income emerging markets. These increases are politically attractive in such a situation, since only a tiny portion of the pledged capital is actually paid in—high-income countries offer guarantees which in practice have never been called. Thus the Asian Development Bank has secured approval of a $100 billion capital increase. The European Bank for Reconstruction and Development, set up to ease post-Cold War transitions in the former Soviet Bloc, is asking for Euros 10 billion – presumably to allow new lending to beleaguered Eastern European countries. President Robert Zoellick of the World Bank is asking to increase paid-in capital by $3-5 billion, which would allow for another $100 billion of lending; otherwise projected lending of a record $30 billion this year and $40 billion in the next 12 months will deplete completely its resources. President Donald Kaberuka of the African Development Bank is still seeking approval of a capital increase and predicts that without new capital the AfDB will be forced to cut back on lending next year—despite rising demand.Fourth, while the global financial crisis is the proximate cause of the MDB’s need for increased capital, there are deeper underlying trends at work. As Kemal Dervis explained in this year’s Per Jacobsson Lecture, delivered in Istanbul, the multilateral development banks would need new capital going forward even without the crisis, in order to subsidize developing countries’ investments in global public goods, especially in clean energy. The finance ministers are worrying about the financing side of any climate change agreement – and are hearing that big numbers are needed: upwards of $200 billion annually by 2020.Kemal’s excellent talk, and the IMF access to finance project aside, the focus here has been resolutely on the short-to-medium term resolution of the current crisis. That’s understandable but, as I argued in a speech last month, it’s also important that the international community begin to prepare now for The Crisis Next Time, by providing better mechanisms to help developing countries manage risk, and clarifying the roles of international institutions, including in the implementation of an eventual agreement on addressing rapid climate change.Finally, there was of course the usual discussion of the need to improve the governance of the World Bank and the IMF. Oddly, the Zedillo Commission report on reforming governance at the World Bank has yet to be released—although it is said to be complete. President Zoellick announced the creation of the commission in a speech one year ago at the Peterson Institute for International Economics, and he has evidently received the report. My guess is there is something about it that disappoints him, perhaps regarding the role of the Bank’s Board – or something sufficiently controversial he didn’t want it crowding out his calls for more IDA funding and a capital increase?Meanwhile, the world keeps changing in ways that make the governance at the MDBs ever more anachronistic. Rio was awarded the 2016 Olympics on Oct. 2, on the eve of the World Bank-IMF meetings, and Brazilian officials have been more insistent than ever about the need for real change in governance at the World Bank. Chinese officials, too. Time for the international financial institutions to take a lesson from the International Olympic Committee?Disclaimer
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
