The world’s finance ministers and central bankers met in Lima, Peru in October for the annual meetings of the IMF and World Bank Group. Here are the takeaways.
This year’s annual gathering of the International Monetary Fund (IMF) and World Bank Group (WBG) was different for one huge reason. Finance Ministers from around the world left Washington, DC to convene in Lima, Peru – the first time the Meetings have been organized in a Latin American country for almost 50 years.
In the five decades since the last annual meeting in the region, in Rio de Janeiro in 1967, the IMF and World Bank have changed on some policy recommendations that forced austerity on much of the western hemisphere. And many governments, such as leftists Bolivia and Ecuador that are in the so-called Washington, DC consensus, are pursuing conventional economic policies that can dramatically improve the lives of the region’s people.
However, presently, a slowdown in emerging markets is pushing the world economy into its weakest expansion since the financial crisis, as stated by the IMF, as it warned of an increasing risk of a global recession and once again downgraded its growth outlook.
On other fronts, the United States’ trade gap widened this past August, signaling trade will weigh on economic growth in the third quarter. Central banks are also selling US government bonds at a much faster pace, a very dramatic move in the $12.8 trillion Treasury market since the financial crisis.
Much of the discussions focused on countries, like Brazil, Venezuela and Greece. For example, Brazil, the region’s largest economy, recently witnessed its currency plunging to a record low and unemployment skyrocketing to a five-year peak, adding to political tensions behind mass street protests calling for President Dilma Rousseff’s resignation.
As for Venezuela, its economy is forecasted to decrease by 10% in 2015, as it deals with widespread shortages and the world’s highest inflation, around 200%.
Below are the three main takeaways the Meetings addressed:
How to address a crippling debt crisis
With the more advanced economies doing slightly better than before, it is these same economies that account for the major increases in downside risks. Therefore, the IMF faces the urgent challenge of resolving old debt and the risk of new debt.
The IMF has refused to lend additional money and demanded a substantial reduction of Greece’s debt, most of which is now due to the Troika institutions, like the European Commission, European Central Bank, in addition to the IMF.
On the other hand, the European Union continues to urge for IMF participation in the third bailout program which the Eurogroup – an informal body of ministers of the Eurozone – negotiated this past August.
Greece provides clear evidence that, with current instruments, debt restructurings cannot be conducted speedily and effectively when they are needed.
Responsive Governance
The delayed implementation of IMF governance reform has become an urgent issue for the institution, and it seems to head towards certain crisis. The World Bank proposed a shareholding review during these meetings, as a follow up of an agreement reached in 2010.
Per the 2015 shareholding review, the Development Committee, a joint committee of the boards of governors of the IMF and WBG, committed to “implementing the roadmap, including an agreement on a dynamic formula by the 2016 annual meetings”.
The aim will be to get greater engagement and participation from developing countries to counter past inequality of the decision-making process. The reforms must address a better mechanism to replenish Bank capital and implement fiscal transparency reforms.
2030 Agenda for Sustainable Development Goals (SDGs)
Finance Ministers discussed how the World Bank Group and the IMF will support the 2030 Agenda. As the global economic recovery is uncertain, the international community must concentrate on methods for funding the SDGs, otherwise these goals will not be met by 2030.
Secretary General Ban Ki Moon of the United Nations met with Mr. Jim Yong Kim, President of the WBG, to exchange views on a wide range of issues including small states, gender equality and water and sanitation, and agreed to work closely on the SDGs.
One of the questions that must be asked is, “How will the world finance its infrastructure needs?” To frame this discussion, the WBG released a background note that features infrastructure as a priority. It will be interesting to follow the continued dialogue for any concrete changes that take place in the future, as the world’s finance ministers have their work cut out for them in order to overcome persistent economic instability.
