World Bank-IMF Annual Meetings Call For Tackling Inequality, Supporting Trade
The Annual Meetings of the World Bank Group and International Monetary Fund (IMF) drew to a close on Sunday, following a weekend of intense discussions on how to tackle the challenge of inequality and address a growing distrust in many countries of globalisation, particularly in a context of persistently slow growth.
The 7-9 October meetings came as prospects for the global economy appear increasingly gloomy, with the IMF downgrading its global growth outlook to 3.1 percent for this year, with growth in 2017 expected to show a modest improvement to 3.4 percent.
Officials in Washington last week warned that this sluggish growth trend – and worryingly slow growth in trade – can have ramifications that deeply affect people’s lives and outlooks, suggesting that this could be a factor in the growing tendency of some politicians and public actors to call for more inward-focused policies that many experts say could actually exacerbate such problems.
“The global economy has benefited tremendously from globalisation and technological change. However, the outlook is increasingly threatened by inward-looking policies, including protectionism, and stalled reforms,” said the International Monetary and Finance Committee (IMFC) in their communiqué.
The IMFC, which is the Fund’s policy steering committee, is made up of 24 members who are central bank governors or finance ministers, chosen out of the organisation’s 189 members. They provide advice to the organisation’s Board of Governors, with the communiqués from their bi-annual gatherings helping guide the institution’s work for the next six months.
Top-ranking officials also gave specific country-level examples of where uncertainty and distrust have already taken their toll, with Mauricio Cárdenas, Chairman of the Boards of Governors, citing as an example the recent rejection in Colombia of a peace deal aimed at bringing the decades-long conflict with the FARC to a close.
Cárdenas is also Governor of the IMF and the World Bank Group for Colombia.
“Fear and uncertainty temporarily defeated hope and opportunity,” said Cárdenas in his opening address, referring to the outcome of the Colombia referendum. “These are symptoms of a wider global trend: fear of working with outsiders, the perception that integration hasn’t worked and will not work – at least not for everyone – and a profound distrust in the capacity of the political system to deal with these issues.”
Making the case for trade
As part of the public backlash against globalisation, international and domestic policymakers have been grappling over how to make a clearer case for the benefits of trade, while also answering concerns over where trade has – in some cases – led to negative ramifications in terms of job losses.
The debate often comes again to the broader subject of deepening inequality, within a rapidly changing world that is also struggling to adapt to a digital revolution where many of the jobs of the future will become increasingly automated – requiring sectors to adapt and evolve accordingly.
“Inequality remains too high in too many countries. Conflict and migration exert a terrible toll. Trade has become a political football. And supporters of economic integration – and cooperation – are on the defensive,” said IMF Managing Director Christine Lagarde in her opening address last weekend.
WTO Director-General Roberto Azevêdo was among the top-ranking trade officials on hand in Washington last week to discuss the subject with policymakers, including through a joint seminar with the World Bank and IMF chiefs on “How to Make Trade an Engine of Growth for All.”
“It seems that ill-informed anti-trade arguments have encouraged more people to speak up for trade,” said the WTO chief, while also noting that trade is “imperfect.”
“We cannot ignore that, and we all have a responsibility to reflect on it and respond,” he said, calling for the benefits of trade to be better shared and explained.
Azevêdo also warned against the dangers of protectionism, suggesting that closing borders to trade flows could slash purchasing power between 28 percent to 63 percent, depending on whether the person already has a high or low income. In other words, the poorest would be hit the hardest, with their incomes being able to buy less than previously.
The global trade body has warned that trade growth will hit only 1.7 percent in 2016, and could lie anywhere between 1.8 and 3.1 percent in 2017, crediting these stark predictions partly to increasing trade restrictions among some members. (See Bridges Weekly, 29 September 2016)
IMFC: Policy actions needed across all fronts
The IMFC in its communiqué issued a series of commitments and recommendations aimed at addressing the “subdued” global economic outlook and trade and investment slowdown. Among these was using all policy tools available, ranging from structural to fiscal and monetary, both at the country-level and jointly.
“We are strengthening policies to bolster confidence and resilience, safeguard financial stability, and ensure that all members of society have the opportunity to benefit from globalisation and technological change,” said the committee.
They also reiterated past pledges to avoid “competitive devaluations” and other actions that would alter exchange rates for competitive reasons – a long-standing concern over whether monetary policies might be used in a way that makes a country’s exports artificially more competitive relative to their counterparts.
Furthermore, they repeated past commitments to “resist all forms of protectionism,” adding that they would “redouble our commitments to maintain economic openness and reinvigorate global trade as a critical means to boost global growth.”
Within their section on policy responses, they called for implementing fiscal policy in a flexible manner that would support growth, including through investment, along with continuing efforts to adopt growth-oriented monetary policy, so long as this is paired with “other supportive policies.”
Structural reforms adapted to country needs are also essential for boosting productivity and responding to technological changes in the global economy. Improving financial sector policies and generally making sure countries are taking ever greater steps to cooperate on the global stage – whether on supporting trade or fighting corruption and illicit financial flows – were also flagged as essential.
The IMF itself has also been directed to follow a series of steps aimed at supporting the above policy mix, including policy advice, surveillance, and capacity-building, along with taking on additional studies to better understand how globalisation and an increasingly digitalised world are affecting countries, and the root factors underlying inequality.
Development Committee: challenges abound
The joint IMF-World Bank Development Committee, for its part, noted that the world is not only evolving in the present, but is also expected to see more radical changes in the future – requiring the international development and financial community to adapt in anticipation.
This committee includes finance and/or development ministers from 25 members, and makes recommendations to the World Bank Group and IMF Boards of Governors on specific development challenges.
“During the next 15 years, the development landscape will face critical shifts, including climate change; natural disasters; pandemics; fragility; conflict and violence; migration and forced displacement; urbanisation; and demographic changes,” said the Development Committee in its communiqué.
The committee called specifically for the World Bank Group and IMF to take steps aimed at tackling illicit financial activities; address the underlying factors of “fragility” that lead to conflict and large migration flows; and support steps aimed at boosting small countries’ access to climate finance that will help both in mitigating and adapting to climate and disaster risk.
It also called on the Bank to take on additional work in putting its strategy on promoting gender equity and women’s economic productive potential, particularly given the benefits for growth at both national and international scales. The committee also made specific calls for the World Bank Group to continue supporting climate-specific work on investing in greener infrastructure and sustainable cities, among other related recommendations.
Given this rapidly changing landscape, World Bank Group President Jim Yong Kim told participants that the organisation is “fit for purpose.”
However, he cautioned, countries will need to increase their cooperation and ambition, act on a sense of urgency, make growth more inclusive and sustainable, increase their resilience to shocks, and demonstrate a deep dedication to addressing environmental and social concerns – including in Bank-financed development work. Doing so will be essential for ensuring that the twin goals of ending extreme poverty by 2030 and promoting shared prosperity are indeed met.
“We have the same ambitions, we all want progress, we all want to end extreme poverty in our lifetime. And we all know it’s possible,” said Kim in his address to the Annual Meetings.
“As we push toward our shared goals, the job will become tougher and tougher, because those remaining in extreme poverty will become harder and harder to reach,” he added.