Reform The IMF And World Bank To Re-build Better From COVID-19
To build a stronger and resilient world from the economic, health and social devastation of COVID-19 and the crises of inequality and climate change which preceded it, the World Bank and International Monetary Fund must move beyond structural reforms driven by market fundamentalism. Two new reports catalogue decades of failed policies that weakened the social contract and left countries vulnerable to the pandemic and economic crisis.
In an unprecedented global crisis, millions of people are losing their jobs and being pushed into poverty. This comes on the heels of a fragile and incomplete recovery from the 2008-2009 global financial crisis, in which a rapid shift from stimulus to austerity and attacks on working people fatally undermined initial progress. “The IMF’s renewed supply-side push: Four decades of structural adjustment and austerity conditionality” traces the central role of the Fund in these destructive decisions following the global financial crisis as part of a longer arc of failed policies.
“After a crisis in 2008 caused by the financial sector and bailouts for those responsible, working people became the target of an all-out attack on collective bargaining, labour rights and public services. As we plan economic recovery plans from the damage caused by COVID-19, we cannot repeat the same mistakes of prematurely ending stimulus and pursuing harsh spending cuts that undermine growth” said Sharan Burrow, ITUC General Secretary.
In 2015, the UN Sustainable Development Goals presented an opportunity to turn the page with a universal agenda for decent work, gender equality, social protection and more. However, energy has been redirected to promoting the interests of private investors as the only way to finance sustainable development. The World Bank has been at the forefront as detailed in “Market fundamentalism and the World Bank Group: from Structural Adjustment Programmes to Maximizing Finance for Development and beyond”. The Maximizing Finance for Development approach adopted by the Bank shifts the institution away from catalytic investments and towards policy reforms to benefit private foreign investors, or even financial engineering to protect their investments.
More than $100 billion has left emerging market countries since the onset of COVID-19, in the largest and most rapid case of capital flight in history. These two reports describe how World Bank and IMF policy recommendations on capital markets and financing for development contributed to fragility, financialization and inflows of speculative private capital. Simultaneously, the institutions have frustrated the creation of quality employment, public services, and policies to raise wages.
Left unchecked, the ravages of the current crisis will compound three decades of lost progress on development. The reports document a shift at the World Bank and IMF in the 1980s, when the Reagan administration pursued ideological agenda that changed the operations of the international financial institutions. This shift initiated the era of structural adjustment programmes that imposed a strict set of deregulatory supply-side policies labelled the Washington Consensus. Although this straitjacket was abandoned in the early 2000s, the reports document that since then the international financial institutions have continued to be guided by market fundamentalism, with many changes being cosmetic rather than substantive reforms to the institutions.
“Massive capital flight, severe debt burdens and the effects of failed policies are dragging down developing countries at a time when they need to prepare inclusive stimulus and reconstruction plans. Now is the time to commit to an extension of debt relief for two years with an end to austerity measures as conditionality and an alignment with investment in SDGs and put an end to loan conditions and policy advice promoting failed approaches. This is especially necessary in World Bank Development Policy Loans and the standard IMF loan agreements that will follow the current round of emergency response financing. International financial institutions need to change more than just their rhetoric by aligning their operations with international labour standards, evidence-based policies for growth with shared prosperity, and the Sustainable Development Goals,”
“Multilateralism will need reform to ensure global coordination for economic recovery plans that deliver global social protection funds for poorer countries, realigns debt relief with conditionality for SDGs, provides investment not austerity, rebalance trade rules with fundamental labour rights and environmental standards, see a treaty on business and human rights that mandate due diligence and reforms taxation rules to eliminate tax havens. The IMF and World Bank must not be a barrier to the New Social Contract on which recovery must be built,” said Sharan Burrow.