IMF and World Bank

IMF

The formation of the IMF was initiated in 1944 at the Bretton Woods Conference. IMF came into operation on 27th December 1945 and is today an international organization that consists of 189 member countries.

Headquartered in Washington, D.C., IMF focuses on

• Fostering global monetary cooperation,
• Securing financial stability,
• Facilitating and promoting international trade, employment, and economic growth around the world.

The IMF is a specialized agency of UN.

The International Monetary Fund (IMF) was initially formed at the Bretton Woods Conference in 1944. 45 government representatives were present at the Conference to discuss a framework for postwar international economic cooperation.

The IMF became operational on 27th December 1945 with 29 member countries that agreed to bound to this treaty. It began its financial operations on 1st March 1947. Currently, the IMF consists of 189 member countries.

The IMF is regarded as a key organisation in the international economic system which focuses on rebuilding the international capital along with maximizing the national economic sovereignty and human welfare

The functions of the International Monetary Fund can be categorized into three types:

• Regulatory functions:

IMF functions as a regulatory body and as per the rules of the Articles of Agreement, it also focuses on administering a code of conduct for exchange rate policies and restrictions on payments for current account transactions.

• Financial functions:

IMF provides financial support and resources to the member countries to meet short term and medium term Balance of Payments (BOP) disequilibrium.

• Consultative functions:

IMF is a centre for international cooperation for the member countries. It also acts as a source of counsel and technical assistance.

Objective of IMF

1. To improve and promote global monetary cooperation of the world.
2. To secure financial stability by eliminating or minimizing the exchange rate stability.
3. To facilitate a balanced international trade.
4. To promote high employment through economic assistance and sustainable economic growth.
5. To reduce poverty around the world. Governance

Board of Governors:

It consists of one governor and one alternate governor for each member country. Each member country appoints its two governors.

It is responsible for

• electing or appointing executive directors to the Executive Board.
• Approving quota increases, Special Drawing Right allocations,
• Admittance of new members, compulsory withdrawal of member,
• Amendments to the Articles of Agreement and By-Laws.

Board of Governors is advised by two ministerial committees, the International Monetary and Financial Committee (IMFC) and the Development Committee.

Boards of Governors of the IMF and the World Bank Group normally meet once a year, during the IMF–World Bank Annual Meetings, to discuss the work of their respective institutions.

Ministerial Committees: The Board of Governors is advised by two ministerial committees,

• International Monetary and Financial Committee (IMFC): IMFC has 24 members, drawn from the pool of 189 governors, and represents all member countries.
  • • It discusses the management of the international monetary and financial system.
    • It also discusses proposals by the Executive Board to amend the Articles of Agreement.
    • And any other matters of common concern affecting the global economy.

• Development Committee: is a joint committee (25 members from Board of Governors of IMF & World Bank), tasked with advising the Boards of Governors of the IMF and the World Bank on issues related to economic development in emerging market and developing countries.
  • It serves as a forum for building intergovernmental consensus on critical development issues.

Executive Board: It is 24-member Executive Board elected by the Board of Governors.

• It conducts the daily business of the IMF and exercises the powers delegated to it by the Board of Governors & powers conferred on it by the Articles of Agreement.
• It discusses all aspects of the Fund’s work, from the IMF staff’s annual health checks of member countries’ economies to policy issues relevant to the global economy.
• The Board normally makes decisions based on consensus, but sometimes formal votes are taken.
• Votes of each member equal the sum of its basic votes (equally distributed among all members) and quota-based votes. A member’s quota determines its voting power.

IMF Management:

IMF’s Managing Director is both chairman of the IMF’s Executive Board and head of IMF staff. The Managing Director is appointed by the Executive Board by voting or consensus.

IMF Members: Any other state, whether or not a member of the UN, may become a member of the IMF in accordance with IMF Articles of Agreement and terms prescribed by the Board of Governors.

Membership in the IMF is a prerequisite to membership in the IBRD.

Pay a quota subscription: On joining the IMF, each member country contributes a certain sum of money, called a quota subscription, which is based on the country’s wealth and economic performance (Quota Formula).

It is a weighted average of

• GDP (weight of 50 percent)
• Openness (30 percent),
• Economic variability (15 percent),
• International reserves (5 percent).

GDP of member country is measured through a blend of GDP—based on market exchange rates (weight of 60 percent) and on PPP exchange rates (40 percent).

Special Drawing Rights (SDRs) is the IMF’s unit of account and not a currency.

The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a SDR basket of currencies

SDR basket of currencies includes the

• S. dollar,
• Euro,
• Japanese yen,
• pound sterling and
• Chinese renminbi (included in 2016).

The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years.

Quotas are denominated (expressed) in SDRs.

SDRs represent a claim to currency held by IMF member countries for which they may be exchanged.

Members’ voting power is related directly to their quotas (the amount of money they contribute to the institution).

IMF allows each member country to choose its own method of determining the exchange value of its money. The only requirements are that the member no longer base the value of its currency on gold (which has proved to be too inflexible) and inform other members about precisely how it is determining the currency’s value.

IMF and India

International regulation by IMF in the field of money has certainly contributed towards expansion of international trade. India has, to that extent, benefitted from these fruitful results.

Post-partition period, India had serious balance of payments deficits, particularly with the dollar and other hard currency countries. It was the IMF that came to her rescue.

The Fund granted India loans to meet the financial difficulties arising out of the Indo–Pak conflict of 1965 and 1971.

From the inception of IMF up to March 31, 1971, India purchased foreign currencies of the value of Rs. 817.5 crores from the IMF, and the same have been fully repaid.

Since 1970, the assistance that India, as other member countries of the IMF, can obtain from it has been increased through the setting up of the Special Drawing Rights (SDRs created in 1969).

India had to borrow from the Fund in the wake of the steep rise in the prices of its imports, food, fuel and fertilizers.

In 1981, India was given a massive loan of about Rs. 5,000 crores to overcome foreign exchange crisis resulting from persistent deficit in balance of payments on current account.

India wanted large foreign capital for her various river projects, land reclamation schemes and for the development of communications. Since private foreign capital was not forthcoming, the only practicable method of obtaining the necessary capital was to borrow from the International Bank for Reconstruction and Development (i.e. World Bank).

India has availed of the services of specialists of the IMF for the purpose of assessing the state of the Indian economy. In this way India has had the benefit of independent scrutiny and advice.

The balance of payments position of India having gone utterly out of gear on account of the oil price escalation since October 1973, the IMF has started making available oil facility by setting up a special fund for the purpose.

Early 1990s when foreign exchange reserves – for two weeks’ imports as against the generally accepted ‘safe minimum reserves’ of three month equivalent — position were terribly unsatisfactory. Government of India’s immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of India’s gold reserves as collateral security.

India promised IMF to launch several structural reforms (like devaluation of Indian currency, reduction in budgetary and fiscal deficit, cut in government expenditure and subsidy, import liberalization, industrial policy reforms, trade policy reforms, banking reforms, financial sector reforms, privatization of public sector enterprises, etc.) in the coming years.

The foreign reserves started picking up with the onset of the liberalization policies.

India has occupied a special place in the Board of Directors of the Fund. Thus, India had played a creditable role in determining the policies of the Fund. This has increased the India’s prestige in the international circles.

Criticisms of the IMF include

• Conditions of loans

On giving loans to countries, the IMF make the loan conditional on the implementation of certain economic policies. These policies tend to involve:

• • Reducing government borrowing – Higher taxes and lower spending
  • Higher interest rates to stabilise the currency.
  • Allow failing firms to go bankrupt.
  • Structural adjustment. Privatisation, deregulation, reducing corruption and bureaucracy.

The problem is that these policies of structural adjustment and macroeconomic intervention can make difficult economic situations worse.

• • For example, in the Asian crisis of 1997, many countries such as Indonesia, Malaysia and Thailand were required by IMF to pursue tight monetary policy (higher interest rates) and tight fiscal policy to reduce the budget deficit and strengthen exchange rates. However, these policies caused a minor slowdown to turn into a serious recession with very high levels of unemployment.
  • In 2001, Argentina was forced into a similar policy of fiscal restraint. This led to a decline in investment in public services which arguably damaged the economy.

• Exchange rate reforms.

When the IMF intervened in Kenya in the 1990s, they made the Central bank remove controls overflows of capital. The consensus was that this decision made it easier for corrupt politicians to transfer money out of the economy (known as the Goldenberg scandal, BBC link). Critics argue this is another example of how the IMF failed to understand the dynamics of the country that they were dealing with – insisting on blanket reforms.

The economist Joseph Stiglitz has criticised the more monetarist approach of the IMF in recent years. He argues it is failing to take the best policy to improve the welfare of developing countries saying the IMF “was not participating in a conspiracy, but it was reflecting the interests and ideology of the Western financial community.”

• Devaluations

In earlier days, the IMF have been criticised for allowing inflationary devaluations.

• Neo-Liberal Criticisms

There is also criticism of neo-liberal policies such as privatisation. Arguably these free-market policies were not always suitable for the situation of the country. For example, privatisation can create lead to the creation of private monopolies who exploit consumers.

• Free market criticisms of IMF

As well as being criticised for implementing ‘free-market reforms’ Others criticise the IMF for being too interventionist. Believers in free markets argue that it is better to let capital markets operate without attempts at intervention. They argue attempts to influence exchange rates only make things worse – it is better to allow currencies to reach their market level.

There is also a criticism that bailing out countries with large debt creates moral hazard. Because of the possibility of getting bailed out, it encourages countries to borrow more.

• Lack of transparency and involvement

The IMF has been criticised for imposing policy with little or no consultation with the affected countries.

Jeffrey Sachs, the head of the Harvard Institute for International Development said:

“In Korea the IMF insisted that all presidential candidates immediately “endorse” an agreement which they had no part in drafting or negotiating, and no time to understand. The situation is out of hand…It defies logic to believe the small group of 1,000 economists on 19th Street in Washington should dictate the economic conditions of life to 75 developing countries with around 1.4 billion people.” 

• Supporting military dictatorships

The IMF has been criticised for supporting military dictatorships in Brazil and Argentina, such as Castello Branco in 1960s received IMF funds denied to other countries.

Positives outcomes of IMF working

• IMF has had some successes

The failures of the IMF tend to be widely publicised. But, its successes less so. Also, criticism tends to focus on short-term problems and ignores the longer-term view. IMF loans have helped many countries avoid liquidity crisis, such as Mexico in 1982 and more recently, Greece and Cyprus have received IMF loans.

• Confidence

The fact there is a lender of last resort provides an important confidence boost for investors. This is important during the current financial turmoil.

• Countries are not obliged to take an IMF loan

It is countries who approach the IMF for a loan. The fact so many take loans suggest there must be at least some benefits of the IMF.

• IMF better than previous alternatives.

J.M. Keynes who helped found principles of IMF stated  “IMF is the exact opposite of the Gold Standard. It is an attempt at an improved system of international currency.”

Reform of the International Monetary Fund (IMF) has long been recognised as overdue,  given the changes in the global economy. The most important among these is the spectacular rise of emerging markets; besides, capital movements have become the fundamental determinant of the stability of the global financial system. Between 1980 and 2007, for example, global capital flows increased more than 25-fold as compared to an eight-fold expansion in global trade[1].

These changes have implications for the IMF’s role in the global economy. They have created the need for new structures to govern the IMF and other international financial institutions, more effective financial and multilateral surveillance, and a global lender of last resort.

The recent reforms of the IMF were conceived in 2010 at the G20 Summit in Seoul.[2] However, the approval and implementation of the reforms was held up, mainly because of repeated delays in the U.S. Congress—its ratification is required to meet the 85% voting power approval for constitutional changes by the IMF. The reforms were finally ratified five years later, on January 27, 2016.

But to what extent do these reforms actually change the IMF’s governance structure? And what are their implications for the IMF’s role as a lender of last resort?

Changes in the IMF’s governance structure

Since 2010, the global economy has further transformed—therefore,  reforms of governance structures conceived can go only some distance, but not far enough. Of the changes in structure, the most important is the change in the quota subscription of each country, which determines its voting power and financial commitment to, and benefits from, the IMF.

The IMF recognised in 2010 the need for a new and more responsive formula for determining the quota of its members. This would make the institution more representative of the relative position of countries in the changing global economy. The formula used until then was outdated—in particular, the periodic quota reviews were based on complex and questionable methods for adjusting country quotas. This slowed down the process of changing the representation on the executive board (and in voting rights) to reflect new economic realities.

After the review, BRIC countries are among the IMF’s 10 largest shareholders, reflecting the overall shift towards emerging market countries.

China’s voting share, for example, has now doubled, making it the third largest member. But it is still only 6% despite its economy weighing well in excess of 10% of global GDP.

And India’s voting share is still under 3%. Overall, the total share of emerging markets in the IMF remains well below their global share of GDP.

In summary, the new reforms shift the governance structure of the IMF in the right direction, but the loss of time in moving to the 15th quota review, and in increasing the legitimacy and effectiveness of the Fund, has made further reform overdue.

Recent News

The IMF Approves Policy Reforms and Funding Package to Better Support the Recovery of Low Income Countries From the Pandemic

• The reforms approved by the IMF’s Executive Board seek to ensure that the Fund can flexibly support Low Income Countries (LICs’) financing needs during the pandemic and the recovery while continuing to provide concessional loans at zero interest rates.
• The centerpiece of the approved policy reforms is a 45 percent increase in the normal limits on access to concessional financing, coupled with the elimination of hard limits on access for the poorest countries. These higher access limits will facilitate the provision of more concessional support to LICs with strong policies and large balance of payments needs.
• The Executive Board also approved a two-stage funding strategy to cover the cost of pandemic-related concessional lending and support the sustainability of the Poverty Reduction and Growth Trust (PRGT). The first stage of the strategy aims to secure SDR

2.8 billion in subsidy resources (to support zero interest rates), and an additional SDR 12.6 billion in loan resources which could be facilitated by the “channeling” of SDRs.

 

World Trade Organization

It is an intergovernmental organization that regulates and facilitates international trade between nations. The WTO is the world’s largest international economic organization, with 164 member states representing over 96% of global trade and global GDP.

It officially commenced operations on 1 January 1995, pursuant to the 1994 Marrakesh Agreement, thus replacing the General Agreement on Tariffs and Trade (GATT) that had been established in 1948. It’s headquarters are in Geneva, Switzerland.

The WTO facilitates trade in goods, services and intellectual property among participating countries by providing a framework for negotiating trade agreements, which usually aim to reduce or eliminate tariffs, quotas, and other restrictions.

The WTO also administers independent dispute resolution for enforcing participants’ adherence to trade agreements and resolving trade-related disputes.

The organization prohibits discrimination between trading partners, but provides exceptions for environmental protection, national security, and other important goals.

Role :-

1. it operates a global system of trade rules,
2. it acts as a forum for negotiating trade agreements,
3. it settles trade disputes between its members and
4. it supports the needs of developing countries.

Decision-making –

The WTO’s top decision-making body is the Ministerial Conference.

Below this is the General Council and various other councils and committees.

 

Ministerial conferences

Ministerial conferences usually take place every two years.

General Council

The General Council is the top day-to-day decision-making body. It meets a number of times a year in Geneva.

Membership

The WTO has over 160 members representing 98 per cent of world trade. Over 20 countries are seeking to join the WTO.

To join the WTO, a government has to bring its economic and trade policies in line with WTO rules and negotiate its terms of entry with the WTO membership.

The WTO agreements are lengthy and complex because they are legal texts covering a wide range of activities. They deal with: agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, intellectual property, and much more.

But a number of simple, fundamental principles run throughout all of these documents. These principles are the foundation of the multilateral trading system.

Trade without discrimination

• Most-favoured-nation (MFN):

Treating other people equally Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.

This principle is known as most-favoured-nation (MFN) treatment.

It is so important that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods.

MFN is also a priority in the General Agreement on Trade in Services (GATS) (Article 2) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4), although in each agreement the principle is handled slightly differently.

Together, those three agreements cover all three main areas of trade handled by the WTO.

Some exceptions are allowed. For example,

1. countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside.
2. they can give developing countries special access to their markets.
3. a country can raise barriers against products that are considered to be traded unfairly from specific countries.

And in services, countries are allowed, in limited circumstances, to discriminate. But the agreements only permit these exceptions under strict conditions.

In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong.

• National treatment:

Treating foreigners and locals equally Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle of “national treatment” (giving others the same treatment as one’s own nationals) is also found in all the three main WTO agreements

• Article 3 of GATT
• Article 17 of GATS
• Article 3 of TRIPS

although once again the principle is handled slightly differently in each of these.

National treatment only applies once a product, service or item of intellectual property has entered the market.

Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.

Challenges Faced By WTO

• The dispute resolution arm of the WTO has been rendered dysfunctional as the US has blocked the process of nomination of members of the Appellate Body. The Appellate Body hears appeals on issues of law and legal interpretation arising from the findings of WTO panels constituted to resolve trade disputes among its members.

Without a functional Appellate Body, no effective legal mechanism is available for WTO members to enforce their rights and obligations.

• The second challenge is the failure of its negotiating arm to deliver substantial results.

WTO members had launched the Doha Round of multilateral trade negotiations in 2001. Almost two decades down the road, the outcome of the negotiation is extremely thin.

• To compound the woes, at the Nairobi Ministerial Conference of the WTO held in 2015, the developed countries walked off the Doha Round negotiating table.
• Countries are gradually losing respect for the rules of this organization. This has considerably eroded the multilateral trading system. Nothing illustrates this better than the protracted spat on trade issues between the US and China.
• Another dark cloud on the WTO horizon is the aggressive push by the developed countries, particularly the US, to deprive India and many other developing countries from benefitting from Special and Differential Treatment (S&DT) provisions in future negotiations. This concept recognizes that developed countries do not expect reciprocity from developing countries in trade negotiations.
• There has been attempt by about 80 countries to negotiate rules in different areas, including electronic commerce and investment facilitation. These negotiations are being undertaken without any mandate from the WTO membership. Popularly referred to as Joint Statement Initiatives (JSI), these negotiations are an attempt by the developed countries to negotiate rules in areas of their economic and commercial strengths.
• What has heightened the concerns of the developing countries is the attempt by the participants in the JSIs to get the new rules in these areas inserted into the WTO, without following the procedure laid down for it.

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World Bank

With 189 member countries, the World Bank Group is a unique global partnership: five institutions working for sustainable solutions that reduce poverty and build shared prosperity in developing countries.

The Bank Group works with country governments, the private sector, civil society organizations, regional development banks, think tanks, and other international institutions on issues ranging from climate change, conflict, and food security to education, agriculture, finance, and trade.

A Group of Institutions – 

The International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) form the World Bank, which provides financing, policy advice, and technical assistance to governments of developing countries.

While the World Bank Group consists of five development institutions.

1. International Bank for Reconstruction and Development (IBRD) provides loans, credits, and grants.
2. International Development Association (IDA) provides low- or no- interest loans to low-income countries.
3. The International Finance Corporation (IFC) provides investment, advice, and asset management to companies and governments.
4. The Multilateral Guarantee Agency (MIGA) insures lenders and investors against political risk such as war.
5. The International Centre for the Settlement of Investment Disputes (ICSID) settles investment-disputes between investors and clients.

All of these efforts support the Bank Group’s twin goals of ending extreme poverty by 2030 and boosting shared prosperity of the poorest 40% of the population in all countries.

History

The Bretton Woods Conference, officially known as the United Nations Monetary and Financial Conference, was a gathering of delegates from 44 nations that met from July 1 to 22, 1944 in Bretton Woods, New Hampshire (USA), to agree upon a series of new rules for international financial and monetary order after the conclusion of World War II.

The two major accomplishments of the conference were the creation of the

1. International Bank for Reconstruction and Development (IBRD)
2. International Monetary Fund (IMF).

Founded in 1944, the International Bank for Reconstruction and Development (IBRD) — soon called the World Bank — has expanded to a closely associated group of five development institutions. Originally, its loans helped rebuild countries devastated by World War II. In time, the focus shifted from reconstruction to development, with a heavy emphasis on infrastructure such as dams, electrical grids, irrigation systems, and roads.

With the founding of the International Finance Corporation (IFC) in 1956, the institution became able to lend to private companies and financial institutions in developing countries.

Founding of the International Development Association (IDA) in 1960 put greater emphasis on the poorest countries, part of a steady shift toward the eradication of poverty becoming the Bank Group’s primary goal.

International Centre for Settlement of Investment Disputes (ICSID) founded in 1966 settles investment disputes between investors and countries.

Multilateral Investment Guarantee Agency (MIGA) founded in 1988 insures lenders and investors against political risk such as war.

International Bank for Reconstruction and Development (IBRD) World Bank Group and India

India was one of the forty-four original signatories to the agreements reached at Bretton Woods that established the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF).

It was also one of the founding members of the IFC in 1956 and the IDA in 1960. India later became a member of the MIGA in January 1994.

India is not a member of ICSID. India claimed ICSID Convention is not fair, convention’s rules for arbitration leaned towards the developed countries. In ICSID, the Chairman of the Centre is the Chairman of the World Bank. The Chairman appoints the arbitrators. If the arbitration award is not satisfactory, then the aggrieved party would appeal to a panel, which will also be constituted by the ICSID. There is no scope for a review of the award by an Indian court, even if the award is against public interest.

IBRD lending to India commenced in 1949 with a loan to the Indian railways; the first investment by the IFC in India took place in 1959, and by IDA in 1961 (a highway construction project). During the 1950s, the IBRD was India’s sole source of World Bank borrowings. By the end of the decade, India’s mounting debt problems became an important factor in the launch of the IDA, the soft loan affiliate of the World Bank (WB) group. By the end of the 1960s, the United States, until then India’s largest source of external resources, sharply cut its bilateral aid program. Since then, the WB emerged as the most important source of official long-term finance. During the 1960s and 1970s, the IDA accounted for nearly three- fourths of all WB lending to India and, in turn, India was by far the largest recipient of IDA funds, accounting for more than two-fifths of all its lending.

The subsequent decade, with China joining the WB in 1980 and accordingly entering its own claims to limited IDA resources, the worsening economic fortunes of Africa, and India’s better performance, saw a sharp decline in India’s share in IDA. Instead, its share of IBRD lending grew sharply in the 1980s, buoyed by its improving credit-worthiness and the Indian government’s waning inhibitions with regard to non-concessional borrowing.

During the 1980s, while the WB shifted its emphasis to stress policy reforms and greater economic liberalization, it continued to lend to poorly governed public sector institutions in India and was muted in its criticism of India’s closed economy. The lending portfolio changed sharply after the 1991 macroeconomic crisis. In the immediate aftermath, India became one of the last important WB borrowers to partake of structural adjustment lending, which supported policy reforms in finance, taxation, and the investment and trade regime. India is currently classified as a “blend” country — defined as one in transition from lower middle-income to middle-income — and is creditworthy for lending from both IDA and IBRD.

India is the largest IBRD client of the World Bank. Between 2015 and 2018, the World Bank lent around $10.2 billion to India. The World Bank Group (WBG) has approved a $25-30 billion commitment plan for India for the period 2019-22.

MIGA Performance Standards are environmental and social standards which help to structure and implement sustainable projects. For Indian market, one of the options is a breach of contract insurance which MIGA would offer to investors. In case the government doesn’t perform its obligation, under the contract arrangement, then MIGA can come and cover that risk for investment.

 

World Bank Issues and Reforms

Some critics have pointed out that the World Bank really caters to the agenda of World Capitalism in the garb of its “Structural Adjustment Programme’ (SAP) and continues to be dominated by rich countries.

SAP is a set of “free market” economic policy reforms imposed on developing countries by the World Bank as a condition for receipt of loans.

It is argued SAP policies have increased the gap between rich and poor in both local and global terms.

The emerging new economic powers, particularly India and China, and some other Asian and Latin American countries of the world should be given due place and role.

The leadership succession debate should be used to create space for reflection on the purpose of the multilateral body, the substantive role it should play in the future, the need to strengthen inclusive multilateralism, and the actions needed to bolster the position of emerging economies and developing countries.

Failure of World Bank to adapt to the changing world order may see rising economies going their own way. Eg. Establishment of the Asia Infrastructure Investment Bank (AIIB) by China. Such a development would signify the emergence of multi- polarity without multilateralism, and create a climate of conflicting interests and values among a diverse group of countries.

Deep reforms of the World Bank are necessary as part of rethinking the current world order, and giving rising powers and developing countries a meaningful voice in this institution.

• Structural under-representation of the Global South

One of the central criticisms of the World Bank and IMF relates to the political power imbalances in their governance structures where, as a result of voting shares being based principally on the size and ‘openness’ of countries’ economies, poorer countries – often those receiving loans from the BWIs – are structurally under-represented in decision-making processes.

Despite the 2016 voting reforms at the Fund, which shifted voting powers somewhat (to the particular advantage of China), the distribution of voting power remains severely imbalanced in favour of the US, European countries and Japan, in particular. Importantly, the US still has veto power over an array of major decisions.

In the case of the World Bank, in addition to calls for greater representation of low-income countries on the Executive Board, civil society organisations (CSOs) have  historically demanded reforms of decision-making through the introduction of double-majority voting, where an agreement would require both shareholder and member state majorities, thus giving developing countries a larger role in these processes.

The under-representation of low- and middle-income countries on the BWIs’ Executive Boards is exacerbated by the historic ‘gentleman’s agreement’ between the United States and European countries, which has seen the Fund and Bank led by a European and US national, respectively, since their inception.

Civil society has long called for this opaque system to be replaced with a merit-based, transparent process. However, the April 2019 appointment of World Bank President David Malpass – a US national who ran unopposed for the Bank’s top job – demonstrated that the gentleman’s agreement remains alive and well despite civil society opposition.

• Undermining democratic ownership

The issue of political power imbalances is exacerbated by another long-standing critique of the Bank and Fund:

that the economic policy conditions they promote – often attached or ‘recommended’ as part of loans, projects, technical assistance, or financial surveillance – undermine the sovereignty of borrower nations, limiting their ability to make policy decisions and eroding their ownership of national development strategies. This is particularly the case for the IMF as ‘a lender of last resort’ for governments experiencing balance of payment problems.

While historically the IMF and Bank enforced conditionality primarily through SAPs, today, the IMF requires a ‘letter of intent’ from governments requesting a loan. To be approved by the IMF for a loan, the letter requires prior actions, quantitative performance criteria and structural benchmarks – the latter of which continues to contain structural macroeconomic policy reforms. Despite efforts to ‘streamline’ the number of conditions in the face of severe criticism, the IMF’s 2018 Review of Program Design and Conditionality found that the number of structural conditions is on the rise. Once again, this raises concerns about the restriction of policy space for developing countries. For the World Bank, conditionality is now most directly issued through its DPF, where loans and grants for development projects are provided to countries which adopt the required ‘prior actions’ to receive this fungible finance.

In addition to the formal conditions introduced through lending programmes, both institutions play a more nuanced role in restricting policy space through their research, publications, policy advice and training. Particularly for low-income countries that find it difficult to attract capital at affordable rates, IMF and Bank pronouncements on domestic policies can lead to important reactions by ‘the market’ (including potential lenders or investors), therefore potentially limiting (or increasing) countries’ financing options. The Bank and Fund’s bias towards fiscal consolidation, the private sector and debt servicing also restricts public policy space and the ability of governments to finance infrastructure and social services (see the ‘Human Rights’ section below). The Bank and Fund have established substantial normative power through their research, publications, pronouncements and support of ‘independent’ academic work. Their ability to position their policy prescriptions as ‘best practice’, supported by ‘robust’ theoretical and empirical work, oftentimes results in the internalisation of Bank and Fund positions by scholars, development practitioners and finance ministers.

• Biased and inconsistent decision-making

The Bank and Fund have also been heavily criticised for the role played by the political expediency of important shareholders in its decision-making and choice of interventions, including its support to dictatorships.

The IMF’s decision to break its own rules and support the highly controversial Greek loan programme, agreed in 2010, prompted Brazil’s Executive Director to the IMF to protest that, “… the program … may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bail-out of Greece’s private debt holders, mainly European financial institutions.”

In general, the transition from the Washington Consensus, underpinned by the trust in the efficiency of markets and consequently a drastically reduced role for the state, to its ‘more progressive’ post-Washington Consensus successor – which acknowledges market failures and re-inserts the state’s relevance, is often presented as a significant change in Bank and IMF thinking and their principles.  However, the Bank’s emphasis on using public resources to leverage (subsidise) private investment through its Maximising Finance for Development (MFD) approach demonstrates the state’s role has merely been reframed essentially to ‘create an enabling’ environment to allow the private sector to pursue its objectives.