by Nicola Bullard*
James Wolfensohn seemed relaxed during this year's Spring meetings of the IMF and World Bank, and with good reason.
First, there were no pesky protestors to impede the smooth progress of business, although delegates were inconvenienced by the street barricades and 1,500 police deployed to deal with "criminal anarchists." While the Washington DC authorities' over-preparation looked ridiculous in contrast to the 400 happy activists who rallied outside the Bank on a sunny Sunday, anyone who felt the mood and listened to the speeches would have no doubt that they will be back again in September, not in hundreds, but in "tens of hundreds."
But the real reason for Wolfensohn's sanguine mood was the Bush administration's "coming out" in support of the World Bank and the IMF.
In a speech to the Bretton Woods Committee - a group of "prominent Americans in favour of strong US involvement in the international institutions" - US Secretary of State Colin Powell said that the US was "committed to providing strong leadership to the vital multilateral institutions as they help shape the 21st century."
Powell went on to say that the "Bretton Woods institutions are "doing a wonderful job today" going so far as to call them the "instruments for securing the blessings of prosperity."
Realopolitik rules
Treasury Secretary Paul O'Neill, who in the past has criticised the IMF's
role in large-scale bailouts, was more ambiguous. Replying to questions on
US involvement in the $10 billion bailout for Turkey, O'Neill said, "these
institutions are very important for future growth and development" but
added, "we all need to work harder than before to reduce the occasions
when these institutions are linked with failures."
Turkey's financial crisis was a tough first test for the Bush administration. The Republican's general hostility to the international financial institutions and their obvious isolationist stance was weighed against the political and strategic importance of keeping a lid on Turkey's escalating social and political crisis. Strategic interests won the day, and with it a lesson for the isolationist faction that the US gets a lots of "bang for its buck" out of the IFIs.
As Powell said, "strong United Stated leadership in the IMF, the World Bank and the WTO is crucial to America's future and the world's future." But Powell also signaled that there are limits to Republican support for publicly funded bail-outs, calling on the private sector to "become more involved in financial workout because, increasingly, they are the main source for financing."
Europe resists interest rate pressure
The meetings threatened to be overshadowed by the standoff over interest rate
policy when the US, backed by the IMF, publicly pressured the European Central
Bank to lower its rates in an attempt to boost growth. Regardless of the merits
of the argument, the ECB reacted badly to being told what to do - especially
by IMF officials -- and dug in, insisting that it knew more about economic
conditions in Europe than either the US or the IMF.
Unfortunately the fun of watching the EU defend its sovereignty in the face of IMF policy advice - surely a rare experience for IMF technocrats - was short-lived. The pressure eased following the release of US growth figures that were not quite as dire as expected but this still leaves the ECB with a hard choice. While lower interest rates would kick things along in Europe, the risk is that inflation would over-shoot the sacred target zones which to date have been used a stick to "discipline" member states who step out of line. The policy rigidity imposed by target zones is being tested and it will be interesting to see how the hard-liners in the ECB react. Maybe the neo-liberals will be forced to get over their inflation fixation, opening the space for more flexible and non-dogmatic economic policies. This would be a good thing for everyone.
Imperial expansion unchecked
President Wolfensohn was at pains to re-assure the press that morale at the
Bank was on an up swing and that he had no intention of resigning. He placed
the blame for low morale on funding, saying that the Bank did not have the
budget to cope with the ever-increasing demands being placed on it.
But financial constraints did not President Wolfensohn from announcing a slew of new initiatives, ranging from placing itself at the centre of a global trust fund for communicable diseases, capacity building to help developing countries "access global markets" and the incorporation of trade issues into national poverty reduction strategy papers (PRSP) to combating money laundering and training on "debt management."
Two issues in particular received a great deal of attention: trade liberalisation and policy coherence.
On the first, the World Bank swung firmly behind the WTO in proclaiming trade liberalisation as the solution to poverty, emphasising market access to the North and building domestic capacity to tap into global markets. It was obvious however that the shift to trade issues aims to draw attention away from the manifest failure of HIPC as Wolfensohn's standard response to questions on HIPC was that "debt relief is only half the story. We have to give developing countries access to global markets..." and so on.
Policy coherence and untying aid have also become linked with the Bank promoting the adoption of a common framework between the multilaterals and bilaterals to "reduce the burden on developing countries."
Once again, the Bank is co-opting and repackaging the demands of recipient governments and NGOs -- who have called for aid to be de-linked from donor conditionalities to allow greater policy and financial choices at the national level -- to suit its own policy objectives. The issue was first picked up by the OECD's Development Assistance Committee (DAC) and has now re-surfaced in the World Bank. In the transition, however, the original arguments have been turned around and put in the context of efficiency and coherence with the result that the Poverty Reduction Strategy Papers (PRSP) and Country Assistance Strategies (CAS) might end up being the "cookie-cutter" for all aid flows.
The World Bank and the IMF however are living under the cloud of US isolationism and the ever-growing opposition to the kinds of economic policies and interests they promote. Mr Wolfensohn should enjoy this respite while he can, because it won't last for long.
* Nicola Bullard works with Focus on the Global South, a policy research and advocacy NGO based in Bangkok, Thailand.