Fall
Meetings of the IMF and the World Bank
17-18
November 2001
by Peter Willetts
For
the first time since the formation of the Bretton Woods Institutions,
the Joint Annual Meetings of the International Monetary Fund
and the World Bank did not take place as planned. The session
of the Boards of Governors for both institutions was cancelled.
The meetings of the International Monetary and Financial Committee
(IMFC) which “advises” the Fund and the Development
Committee (DC) which “advises” both the Fund and the
Bank were postponed from the end of September 2001 to mid-November
2001. In mid-October, when the Canadian government agreed to
host the annual meeting of the Group of 20 on November 16th,
it was decided that the IMFC should meet on November 17th and
that the DC should meet the next day in Ottawa. Some of the
normal preliminary events were held in Washington and the meeting
for finance ministers from developing countries was convened
in Paris.
The
2000 meetings in Washington and Prague attracted large anti-globalisation
demonstrations, at which there were several outbreaks of violence.
A confrontation, with up to 50,000 demonstrators was expected
for the September 2001 meetings. Although there was a commitment
to non-violence by protest groups, the Washington police were
planning a massive operation to cordon off the demonstrators.
When in mid-August it was announced that the meetings would
be severely curtailed, anti-globalisation campaigners claimed
a victory, but NGOs felt that it reduced the opportunity to
lobby policy-makers. After the terrorist attacks in New York
and Washington on September 11th, it appeared as if the Annual
Meetings were going to be abandoned altogether. During the Ottawa
meetings, demonstrations did still occur, but with just a few
thousand people, mainly from Canadian groups.
This article will highlight discussion at the IMFC and DC meetings
on the state of the global economy, measures against money-laundering
and terrorist funds, and the British finance minister’s
radical call for a new approach to poverty eradication.
The Global Economy and The Impact of
Recent Events
The terrorist attacks not only affected the convening of the
committee meetings. They also had a major impact on the global
economy. As always, a slowdown in industrialised economies had
a magnified impact on developing countries, with a fall in demand
for commodities, lower commodity prices and reductions in foreign
investment. This particular crisis had the added effect of sharp
reductions in tourism, a sector that is now crucial for many
developing countries. Overall, between October and November
2001, the IMF reduced its forecast for global growth in 2002
from 3.5% to 2.4%. The IMF Managing Director, Horst Köhler,
admitted that there is “an extraordinary degree of uncertainty”
in the global economy and that the possibility for a worse scenario
than that predicted by the IMF exists. Although 2.4% growth
seems reasonably high, at the IMF an unofficial rule of thumb
is that anything less than 2.5% constitutes a global recession.
The IMFC responded by calling for further interest rate cuts
if the situation worsened, and for the Japanese to reform their
banking system. The IMFC also stated “the advanced economies
should allow automatic stabilisers to operate”. This technical
jargon obscured a significant shift in IMF policy. Instead of
continuing to endorse balanced budgets, they were saying that
governments should neither reduce expenditure nor increase taxes
to make up for lost revenue from decreased economic activity.
The IMF now recognises that budget deficits can be a useful
stimulus for the economies of rich countries.
Measures Against Money Laundering and
Terrorist Funds
The terrorist attacks also added a major new agenda item to
the IMFC: action against financing for terrorism. According
to Security Council Resolution 1373 (2001) passed on September
28th 2001, all governments are obliged to freeze terrorist assets.
In addition, the G7 established the Financial Action Task Force
(FATF) in 1989 to counter money laundering. The IMFC took up
the question of money laundering in September 2000 and requested
IMF staff to prepare a joint paper with the Bank on their respective
roles. On April 13th, 2001, the Executive Board of the Fund
rejected the notion that the IMF had a moral obligation to prevent
transnational criminal activity. Action by governments on money
laundering should be voluntary and integrated into the Reports
on the Observance of Standards and Codes. It was agreed that
these issues could be addressed during annual IMF surveillance
of members when they might have macro-economic effects or threaten
financial stability, but not otherwise. Ironically, the US government
was criticised in July 2001 by the Board during its review of
the US economy for failing to comply with eleven FATF recommendations
covering insurance companies and bureaux de change.
After the attacks, the FATF held an emergency meeting and adopted
an action plan containing eight special recommendations against
terrorism. An IMF staff report was released on November 5th
which sought authority to intensify the IMF’s involvement.
Measures proposed included moving beyond financial supervision
principles towards legal and institutional issues, action in
the unsupervised financial sectors, more rapid completion of
the assessment of off-shore financial centres, inclusion of
new standards in the annual Article IV surveillance of members
and increased technical assistance. On November 12th, the IMF
Board endorsed action in all these areas, but modified the language
to place emphasis on voluntary co-operation. At the Ottawa meeting,
the IMFC endorsed the Board’s decision. The IMFC also called
for all countries to establish financial intelligence units
and for these units to share information. Urgency was added
by setting a February 1st 2002 deadline for the measures to
be completed.
One interpretation of the IMF measures is to see them as a system
for implementation and monitoring of the financial aspects of
the Security Council resolution. However, the IMF’s stance
that it can only employ a voluntary approach does not match
up to the overriding supranational authority claimed and exercised
by the Security Council. The IMF’s earlier insistence that
they should only deal with substantial flows of funds has been
abandoned, but the mandate has not been extended to all forms
of financial flows outside the banking system. At the Ottawa
press conference, Köhler was evasive on whether compliance
with the measures would become an additional conditionality
for receipt of IMF funds.
Call For A New Approach to Poverty and
the Global Economy
En route to Ottawa on November 16th, Gordon Brown, the British
Chancellor of the Exchequer and chair of the IMFC, made a speech
in New York to the Federal Reserve Bank. His speech was a major
initiative to seize leadership in the debate about the financial
aspects of globalisation and to promote the philosophy behind
the UK government’s White Paper, “Making Globalisation
Work for the Poor”. He proposed a new approach to poverty
and a new deal for the global economy, including the establishment
of a new international development trust fund that would provide
an extra $50 billion a year in development assistance. This
would supply the sums estimated in the Zedillo Report required
to meet the Millennium Development Goals by 2015. There were
three other major “building blocks” to Brown’s
proposal - global regulation of financial markets to prevent
crises, political processes to target foreign direct investment
towards poverty reduction and priority for development in trade
negotiations. Most striking of all, several of the proposals
would transform the role of transnational corporations in developing
countries by deterring corruption, regulating capital flows,
allowing cancellation of unsustainable debt, creating investment
forums and promoting corporate social responsibility. Few if
any of the components of the “building blocks” were
new, but their compilation within an idealistic framework was
no less than an assertion of a global agenda for social democracy.
Little of the substance of Brown’s speech was addressed
in the official communiqués that resulted from the Ottawa
meetings, but some of his ideas were clearly supported. All
countries represented at the Ottawa meeting wanted to enhance
the stability of the financial system. Köhler specifically
welcomed Brown’s proposal for IMF surveillance of economies
to be more transparent and more independent by separating the
process from the work of the Executive Board. The US Treasury
Secretary, Paul O’Neill, responded favourably to Brown’s
idea of an international procedure for countries to be declared
bankrupt. Köhler spoke in the Committee and at a press
conference in very strong terms about the “selfishness
in the advanced economies and societies and their difficulty
in speeding up their pace of structural reform” being a
major problem in the fight against poverty. He illustrated this
by pointing to subsidies on cotton production in the USA, on
sugar in the European Union and on rice in Japan. James Wolfensohn,
the Bank’s President, seemed to establish education as
one field that would be beyond the bounds of privatisation,
by saying, “our preferred choice is public education, without
payment”. The greatest division of opinion was over Brown’s
call for additional ODA. O’Neill refused to accept the
need for the doubling of ODA.
At the time of writing, it was agreed that a Global Fund for
AIDS, Tuberculosis and Malaria will be established with the
Bank playing a role as the Trustee, providing a secretariat
and financial administration. The Fund will be politically independent,
through location in Europe and by having its own policy-making
Board. The Board will include a small number of donors and developing
countries, with seats for NGOs, the private sector and foundations.
Grants will support comprehensive country plans rather than
specific projects. The plans must have “country ownership”
which will go beyond the government to include civil society.
However, funding commitments were still only at around $1.5
billion, which fell far short of Kofi Annan’s call for
$10 billion, as the Development Committee was unable to mobilise
additional funds. Like many of the items originally on the agenda,
the matter did not receive sufficient attention in the truncated
meetings dominated by the economic slowdown and the debates
on terrorism.
The International Financial Institutions
and Globalisation
Despite all the problems, there is now a growing sense that
international financial institutions operate within a wider
political context in which the anti-poverty agenda is firmly
entrenched. Links to the UN system are steadily being strengthened.
The Financing for Development conference and the setting of
hard quantitative targets for the Millennium Development Goals
have forced the beginnings of a holistic approach onto staff
thinking at the Fund and the Bank. Above all, the terrorist
attacks have promoted and legitimised the claim that economic
globalisation cannot be allowed to continue in an unregulated
world. Direct links have been made, notably by Brown and by
Wolfensohn, between the struggle against terrorism and the elimination
of poverty.
Peter Willetts is Professor of Global Politics, City University,
London
For a longer version of this article, see www.staff.city.ac.uk/p.willetts/CS-NTWKS/INDEX.HTM
Web-Sites:
The
U.K. Government’s White Paper on globalisation, The
Zedillo Report, The
International Monetary Fund, The
World Bank
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