IMF/World Bank Meetings: Was It Different in Lima?

I was surprised: development issues figured prominently at the IMF/World Bank meetings in Lima last weekend. Normally, when global growth is low and weakening; uncertainty is high (China, US interest rates, implications of commodity price declines); and Larry Summers in the Financial Times is pleading for attention to the risk of a global deflation – well, those “macro” issues naturally dominate the talk in the seminars and in the corridors.

But not this time. Even before Angus Deaton won the Nobel for his work on measuring poverty and called inequality a rising threat at this press conference, “micro” development issues suffused the agenda. Poverty and inequality were most notable among them – or, to use the appropriate parlance, “inclusion” or “shared prosperity” (not the same but in the same spirit).

Why? What was different this year? Perhaps for one or more of these six explanations:

1. Inequality and inclusion are now everyone’s problem everywhere, including in the OECD countries. The inequality debate and its relation to growth in developing countries goes back at least to the early 1990s in the development community (dozens of pre-2000 readings on inequality in the developing world are here).  But now inequality in the rich countries is getting plenty of attention, as the plight of a beleaguered middle class in Europe and the United States (where the median wage has hardly moved in the last 30 years) raises the question of whether lack of consumer-led demand is contributing to weak growth (for the moment despite the benefits of cheap oil for consumers’ wallets), and the doubts about enough high-wage middle class jobs in the oncoming age of robots. And of course the hype around Piketty’s 2014 book reinforced already growing attention to the economics of inequality in prosperous capitalist markets.
2. Climate and environmental sustainability are now everyone’s problem too. The upcoming Paris summit on climate meant that the ministers of finance who convened in Lima attended still another meeting on the looming question of “climate finance” – domestic spending and commitments, and for the rich countries the effort to say how and from where will come the $100 billion of public and private transfers to developing countries that was agreed in 2009 in Copenhagen. (This new OECD publication claims that transfers in 2014 were at $62 billion; that deserves scrutiny!)
3. In contrast to the benign lack of engagement in the Millennium Development Goals in the early 2000s by the international financial institutions in Washington (they seemed to be mostly about “aid” not “international finance”), the Sustainable Development Goals movement led by the United Nations picked up considerable steam in discussions in New York just weeks ago, at least at the level of influencing global norms and values. Plus “sustainable” in the SDGs means not just environmentally sustainable but socially and politically sustainable, and thus “inclusive” as in #1 above.
4. The idea of building resilience is in the air too – most obviously in the context of the adaptation to the risks that climate change is already creating (#2 above), and currently given the economic and financial risks of volatile commodity prices in a globally interconnected economy.
5. An infrastructure movement has brought welcome attention to the traditional role of the multilateral development banks (the World Bank and its sibling regional development banks) in financing lumpy public investments in the developing world. China gave the movement lots of traction with the creation of the Asian Infrastructure Investment Bank, and now the World Bank is looking to increase its capital (following a parsimonious recapitalization, the first in decades, in 2010). To the extent that new infrastructure is “green”, infrastructure gets attention because it advances the SDGs the way that health and education investments got attention because they supported progress on the MDGs. (Take a look at CGD’s work on the MDBs here).
6. Finally the IMF has expanded its horizons – under Christine Lagarde no longer hewing to a narrow vision of what matters for financial stability and growth. Now the IMF is attending to the redistributive role of the state; the risks that climate change poses to financial stability; the role of cash transfers in helping countries reduce their fuel subsidies, and in a new 2015 book, the details of fiscal policies to deal with inequality .

Sometimes it’s good to be surprised, even when, as in Lima this year, the reasons why the meetings were different should be no surprise to anyone.