The world's leading paper shovelers unite once again.
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 whom you ask.
The world’s leading financiers and policymakers have once
again tried their very best to conjure up a set of policies to fulfill 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 must 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 taking steps in the right direction toward creating sustainable
development, reducing poverty, and rebalancing world growth.
The World Bank’s first inaugural and heavily
oversubscribed bond, which raised $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 $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 increase for 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 would benefit poorer nations.
The decision to demand higher rates for developing countries
with higher incomes is somewhat 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, "overwhelming
support,” and unanimous agreement that the world’s poorer countries were given
a macroeconomic leg-up, paving 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 many 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 insurmountable.
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.
However, their critics claim that these organisations are
just “chiefdoms” designed to deliver the 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-shoveling,
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 organisations, representing 180
countries to facilitate 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 tackle
unemployment, reduce poverty, and lower inequality worldwide. However, there is
one small problem — all three of these factors have seen resilient growth since
these entities were first created.
Historic beginnings
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, advising national
governments, and providing loans to states deemed worthy of financial
assistance.
Meanwhile, the World Bank’s mandate was to rubber stamp
grants and loans for infrastructure projects, particularly in transport,
energy, and communications, hoping these areas would stimulate economic
development and reduce poverty.
The goal of sustainable development
The World Bank and the IMF are 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”.
Monetary concerns
Meanwhile, the IMF is pressing Ukrainian officials to
implement strict new anti-corruption reforms to gain access to a US$17.5
billion aid package from the fund. The new guidelines on good governance will
take effect later this year in July and will follow a recent review of the
IMF's 20-year-old policy.
However, 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 already include anti-corruption provisions.
It is quite contradictory, to say the least.
World debt
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 $US164 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), 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-GFC.
In the land down under
The IMF said it was concerned that several countries are too
slow to pay down debt acquired since the GFC. It emphasised the urgency of
utilising better economic conditions, including record-high equity markets worldwide,
to save something for a rainy day.
The IMF said that Australia’s total government debts are low
compared with many other advanced countries. However, 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.
This increase is exceeded only by Japan and Spain among
major advanced countries.
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.
European blues
Last month, IMF Managing Director Christine Lagarde
said that euro-area nations should pay 0.35% of their GDPs into an emergency fund
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.
Written by George Tchetvertakov
