ONE's Reaction to Fall WB/IMF Annual Meetings

Days before the fall meetings of the World Bank and International Monetary Fund (IMF), the IMF reported that the global economy had "turned the corner" toward recovery, but substantial reforms were still needed to prevent a return to financial turmoil. Members of the World Bank and IMF development committee, who met in Istanbul this week, similarly argued the global economy had shown signs of recovery but that "some 90 million more people risk being forced into extreme poverty" by the crisis by the end of 2010 and "hard-earned progress towards the Millennium Development Goals is in danger of being reversed." To protect the poor, the development committee called for continued progress on commitments to ensure the Bank and the Fund have adequate resources to help developing countries cope with the crisis. They also called for a revival of global trade and investment, and reform of the World Bank and IMF governance and voting structures to better reflect the growing role of emerging market and developing countries in the global economy.

The commitments reaffirm those articulated at the G20 summits in London and Pittsburgh this year, including calls to shore up significant resources to help developing countries buffer the impact of the crisis and an understanding that the ability to generate more resources depends on institutional reforms at the Bank and the Fund to give greater voice and representation to emerging markets and developing countries. They also reiterated their commitments to the World Bank's investments in infrastructure, private sector growth, climate change, food security, fragile states and governance reform (including the Stolen Assets Recovery Initiative) and IMF support for financial facilities for low-income countries and streamlining IMF structural conditionality.

The Bank and the Fund's continued progress towards ensuring they have adequate resources, crisis response mechanisms and governance reform are important, positive signs that the institutions are taking the right steps to help developing countries cope with the financial crisis. More clarity is needed, however, on how sub-Saharan African countries will benefit from the new financing mechanisms and how their voice will be represented in the new governance structures.

Key Outcomes & Next Steps 

• Core spending and debt sustainability. The development committee agreed to protect core spending on health, education, social safety nets, infrastructure and agriculture in the low income countries, while maintaining debt sustainability.
• Multilateral trust fund for food security initiative. The G20 called on the Bank to do the same as a way to implement the G8's food security initiative announced at the L'Aquila Summit in Italy in July. This multilateral fund will support the set of principles championed by the U.S., UK, and other European donors to make aid for agriculture more effective, coordinated and geared towards the strategies developed by poor countries themselves. In Istanbul, the development committee called on the Bank to develop a multilateral trust fund to support the food security initiative for low income countries in coordination with other relevant multilateral institutions and initiatives.
• New crisis response mechanism for low income countries. Development committee members agreed to explore a new crisis response mechanism in the Bank's International Development Association (IDA) to help protect low income countries from crisis [counter-cyclical funding]. The mechanism will be examined as part of the IDA 15 mid-term review.
• Africa Internet Investment. The World Bank and African Development Bank announced they would invest $215 million as part of a Central African Backbone program to bring reliable, high-speed, low-cost internet access to Africa. Cameroon, Chad, and the Central African Republic will take part in the initial $26.2 million phase and Congo-Brazzaville, Equatorial Guinea, the Democratic Republic of the Congo, Gabon, Niger, Nigeria, Sao Tome and Principe and Sudan can also participate in the program.
• Increased resources to respond to the global financial crisis. The Bank and the Fund have significantly increased resource commitments to emerging markets and developing countries in response to the global financial crisis, including a tripling of commitments at the International Bank for Reconstruction and Development (IBRD) to $33 billion, increasing International Development Association (IDA) commitments to $14 billion, tripling IMF resources (through reallocations and new resources) and reforming IMF facilities specifically for low-income countries. Britain and France announced they would allocate $4 billion (roughly 20 percent of the special drawing rights-SDRs-they received recently) to the IMF's new loan facility to help countries that do not have enough money to pay for imports as a result of the economic crisis. The development committee called for review of further capital needs to be completed by spring 2010.
• New and broader IMF mandate. The Fund's 186-member nations agreed to draft a new and broader mandate for the IMF that would expand its role in the global economy. Proposals range from positioning the IMF as a global monitor of economic policies in developed and developing countries to serving as a depository for world reserves. Members will draft a proposal before the Fund's meetings in Washington in spring 2010.
• Governance reforms. The Bank and the Fund have agreed to reform their governance and voting structures to better reflect the increasing economic weight of emerging market and developing countries (which would move it away from the original post-World War II structure that gives the U.S., Europe and Japan the most decision-making power). Details are hotly contested, particularly among smaller European countries, some of whom currently hold roughly as much voting rights in the IMF as China and would stand to lose some of those voting rights in reform efforts. The World Bank recommitted to reach agreement on governance and voting changes by the spring 2010 meetings; the IMF will propose its changes by January 2011.

More Focus on Africa Needed 

While many agree that the Bank and the Fund are taking important steps in the right direction to help developing countries weather the current economic storm, there were also strong statements arguing for further, faster reforms and clarity about Africa's voice and representation in the institutions: 

1. African finance ministers call for G20 voice and more support. African finance ministers called for their countries to have a voice in the G20 to ensure it consider their long-term development needs.
2. African finance ministers call for Education for All-Fast Track Initiative replenishment. Fourteen African ministers of education sent a letter to donor countries urging a successful replenishment for the Education for All-Fast Track Initiative which faces an funding shortfall of $ 1.2 billion for 25-30 low-income countries that will seek support from FTI through the end of 2010.
3. Britain argues more World Bank aid to Africa and faster reforms needed. UK Secretary of State for International Development Douglas Alexander expressed concern that the World Bank had reduced cash disbursements to sub-Saharan Africa by $500 million in the last financial year and that lending to Rwanda, Malawi, Sierra Leone and Zambia from the International Development Association-the Bank's soft-loan arm-was down by 20 percent. Alexander called for extra cash to the low income countries, backed by fundamental reforms in Bank bureaucracy and governance.
4. Group of 30 calls for further IMF reforms. A self-styled "group of 30" leading financial figures called for more dramatic reforms at the IMF including an end to the U.S. veto, regular adjustment of voting powers to reflect changing economic weights, and a cut in the number of European directors on the board from eight to no more than four. They also recommended that IMF managing directors issue formal warnings to countries whose economies or financial systems threaten global financial stability.