Finance ministers and central bank governors from around the world have gathered in Washington DC for the annual meetings of the World Bank and the International Monetary Fund (IMF), to discuss the global economy. These international financial organizations bring together more than 180 countries in the hope of facilitating global economic stability, monetary cooperation, and international trade by promoting foreign and capital investments that spur economic growth, intended theoretically to tackle unemployment and reduce poverty. Both organizations were created by the US and UK in 1944 at the Bretton Woods Conference near the end of the Second World War.
The IMF was initially created to manage the international payments system, and to formalize global financial and economic cooperation. The IMF’s main goal is to oversee exchange-rate agreements and help governments with advice and loans to manage exchange rates in a way that prioritized economic growth. The World Bank, on the other hand, offers more targeted assistance, such as advice, grants and loans for infrastructure projects — particularly in transport, energy, and communications in the hope that these areas will stimulate economic development and reduce poverty levels. Over the years, however, the World Bank’s role has expanded into making loans available to fund improvements and policy reforms in, and access to, social services and other sectors, including health, environmental protection and governance.
The agenda for their meetings this weekend includes the US-China trade war, rising global debt — at $233 trillion, an all-time high — Brexit, the new financial technologies, and the issue of losing trust in governments. Organization for Economic Cooperation and Development (OECD) data reflect a troubling decline in public trust in governments, which will probably hamper efforts at poverty eradication, investments in critical infrastructure, unemployment reduction, literacy, better health care, welfare, and improvement of overall economic and social conditions.
The real question, however, facing the international community — which owns the World Bank and the IMF despite US and European dominance — is whether these institutions are still relevant, and can they effectively contribute to global political and economic stability and reducing global poverty? How is their political agenda, despite their mandate not to interfere, affecting global governance and the stability of member countries in the face of increasing state fragility? Is their near total Western economic-development paradigm, despite their global membership, the best and most effective way to effect development in countries that don’t share Western values or systems?
The real question, however, facing the international community — which owns the World Bank and the IMF despite US and European dominance — is whether these institutions are still relevant, and can they effectively contribute to global political and economic stability and reducing global poverty?
Hafed Al-Ghwell
The short answer to these questions is not positive for two main reasons; global socio-economic and political realities have changed dramatically over the past few decades, and these institutions, despite some cosmetic reforms, are still operating more or less as US-European fiefdoms. This stretched band between reality and the very structure and nature of these institutions will eventually snap.
An internal joke between staff at these institutions about their mandate to eradicate global poverty illustrates part of the problem: “Yes, we are committed to fighting poverty, but we really mean one staff member at a time.” This encapsulates 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.
The results of decades of World Bank and IMF policies and loans speak for themselves. As a Clinton administration task force put it in its report: “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.”
From a political point of view, however, these institutions were created by the US and Western Europe as part of an international order meant to be a tool in the Cold War to defeat the rising tide of communism at that time. Many countries were not allowed to be members of these institutions, or their requests were “delayed,”until they changed their policies and received US and European approval. This political agenda also extended, and still does, to helping only countries and governments the West deems to be friendly and open to its way of thinking and political interests.
From their membership and the structure of shareholding to how they scandalously choose their leadership and their chiefdoms without any real oversight; to the exclusive recruitment of Western-educated staff despite the diversity of nationalities; to the distorted incentive mix which is an obstacle to the staff actually achieving real results; to how their boards of directors employ political horse-trading behind closed doors to decide on membership, loans, and appointments; to the low level of the board’s members’ capabilities and their almost total uselessness in being a rubber-stamp board sitting in Washington DC — these institutions are in far worse shape than most know or would like to believe.
These two institutions, like many others, in my view after almost 16 years of working in them, have deep, internal structural problems and are no longer really able to address the new global realities. The world needs and deserves better, newer, and more robust international institutions that truly reflect the diversity of our world, not ones created and still dominated by the Western powers of yesterday who still think that the only model for development is one made exclusively in the image of the West.
- Hafed Al-Ghwell is a former adviser to the board of directors at the World Bank Group. Twitter: @HafedAlGhwell