4th CADTM South Asia Workshop - 9 December 2010 [email protected] THE IMF & WORLD BANK in the...

4th CADTM South Asia Workshop - 9 December 2010

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THE IMF & WORLD BANK in the aftermath of the global crisis

The Bretton Woods Institutions to the forefront again


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The IMF in bad shape in the early 21st century

• Crisis of legitimacy: IMF policies challenged all over the world,

both by social movements and governments, particularly after the Asian and Argentinian crises

Resignation of three managing directors before the end of their mandate: Michel Camdessus in 2000 (following the South-East Asian crisis), Horst Köhler in 2004 and Rodrigo de Rato in 2007


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• Decline in IMF’s resources due to: Lack of new clients (context of high prices of raw

materials) Anticipated payments by countries which want to be

free from IMF’s prescriptions: nine early repayments in FY2007 only (Bulgaria, the Central African Republic, Ecuador,Haiti, Indonesia, Malawi, the Philippines, Serbia, and Uruguay)

> IMF portfolio shrank dramatically, putting a strain on its budget


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The global crisis gives the IMF a new start

• Although the financial crisis that erupted in 2007-2008 has given further evidence of the failure of neo-liberal model and IMF’s policies, the IMF is put at the centre of the crisis management by G8/G20 leaders and a review/expansion of its mandate is being considered


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• Self-satisfaction of the managing director DSK in the 2010 annual report: ‘I believe our efforts helped soften the blow of the

crisis’;

‘the economic policy collaboration that served the world so well during the crisis must be sustained’;

‘I am proud of the IMF’s accomplishments over the past year’


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• As Eric Toussaint and Damien Millet wrote it : ‘During the 1970s, following Nixon’s decision to effectively end the Bretton Woods agreements by suspending the convertibility of the dollar into gold, the IMF was profoundly destabilized and only recovered thanks to the debt crisis that hit the countries of the South in the 1980s. In a different context, the international crisis of 2007 has again given the IMF a prominent role’.

In Debt, the IMF and the World Bank. 60 Questions, 60 Answers, New York: Monthly Review Press, September 2010


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Dramatic increase in IMF’s lending resources

• In April 2009, G20 leaders agreed to triple the IMF’s resources up to US$ 750 bn, through: Immediate resources (US$ 270 bn) 1)Bilateral borrowing agreements. First

agreement with Japan signed in FY2009, 15 agreements signed in 2010

2) Bilateral agreements of IMF note purchase signed with 3 countries: China, Brazil, India


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• In April 2009, G20 leaders agreed to triple the IMF’s lending resources up to US$ 750 bn, through: Longer term resources:

New Arrangement to Borrow expanded to SDR 367.5 bn (US$ 550 bn), now comprised 13 more countries - including emerging market economies, and Greece and Ireland (!)


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• For instance, concessional lending capacity doubled, and expected to increase to US$ 17 bn through 2014

• These increases go hand in hand with a review of financial instruments: Non concessional lending: Flexible Credit Line set up

in 2009 Concessional lending: revision of eligibility criteria (Sri

Lanka, Pakistan and India excluded from concessional financing through PRGT)


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Abundant IMF credit • Record high in lending commitments: US$ 175 bn • Non concessional financing in FY2010

14 arrangements approved, totaling SDR 72.2 bn (US$109 bn)

Increasing of previously approved arrangements> Total amount committed in FY2010: SDR 77.6 bn (US$

117 bn) Purchases from the General Resources Account: SDR

21.1 bn (US$ 32 bn)

• Concessional financing for FY2010 Loan commitments: SDR 2.2 bn (US$ 3.3 bn)


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Abundant IMF credit


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IMF portfolio on the rise


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Increased scope of intervention, neo-liberal agenda reinforced

• Besides intervention in the Southern countries, IMF very active in Europe since 2008: Central and Eastern European countries (EU and non EU members), and even recently the euro-zone, with its support loans to Greece and Ireland

• Structural adjustment policies go on virtually unchanged: privatizations, cuts in social spendings, reduction in salaries, pensions, and social benefits etc.


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The crisis: an opportunity to push neo-liberal agenda

• After having welcomed bailouts of banks and fiscal stimulus, IMF is now insisting on fiscal tightening in the most industrialized countries:

‘the balance of Fund policy advice has shifted towards fiscal consolidation and away from fiscal stimulus’

• In February 2010, during an Executive board meeting, the Managing Directors ‘saw the crisis as an opportunity to advance needed reforms, including in the areas of age-related entitlements and privatisation’ (quotes from the 2010 IMF annual report)


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The World Bank in a deep crisis of legitimacy

• World Bank also widely criticized for its neo-liberal policies, its support to projects damaging nature and destroying people’s livelihood (mining, forest exploitation, dams etc.), even for its unrealistic statistics about poverty


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World Bank increased lending commitments since the crisis

• FY2010: record high of US$ 72.9 bn commitments in loans, grants, equity investments and guarantess IBRD: US$ 44.2 bn (up from 32.9 bn in

FY2009, i.e. 38% increase) IDA: US$ 14.5 bn, including 2.7bn in grants

(3.6% increase) IFC: US$ 12.7 bn (14.3 % increase) MIGA: US$ 1.5bn (up from 1.4 bn)


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Destination of WB funding


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Actual disbursements: a slightly different picture

There is a gap between commitments and amounts actually disbursed, but the upward trend is still significant, especially for IRBD

IBRD and IDA lending 2006-2010 (in million US dollars)

05000

100001500020000250003000035000400004500050000

FY2006

FY2007

FY2008

FY2009

FY2010

IBRDcommitments

IBRD grossdisbursements

IDAcommitments

IDA grossdisbursements


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Proposed increase in World Bank’s capital

• Spring meeting 2010: member countries endorsed the proposed capital increase package US$ 58.4 bn general capital increase (with

3.5bn in paid-in capital) US$ 27.8 bn selective capital increase

associated with voice reform (1.6 bn in paid-in capital)


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World Bank’s attempt at greenwashing

• World Bank clearly wants to take the lead in climate finance: channeling money for adaptation and mitigation projects, managing carbon trade, shaping supranational and national policies

• It faces the opposition of a wide movement which demands that WB, given its poor ecological record, is kept out of climate talks and climate finance


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World Bank exposed

In 2010 alone, the World Bank financed a record high $6.3 billion to fossil fuel projects, a 138% increase over the previous year


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Final remarks

• The crises have been seen as an opportunity for IFIs to regain part of their lost legitimacy and expand their activities

• Despite a rhetoric of change (less conditionality, more democratic and representative etc.) the same ideological mindset is guiding their operations worldwide

• Social discontent and opposition to IFIs likely to be growing; need for an international coordination and solidarity between struggles

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