Can the multilateral institutions rise to the economic moment?by Barry Eichengreen / October 14, 2020 / Leave a comment
The annual meetings of the International Monetary Fund and the World Bank, taking place this week, are for the global monetary and financial system what the Davos World Economic Forum is for business—that is to say, heavy on show and light on substance. It’s unlikely that a major initiative addressing the monetary and financial consequences of the Covid-19 crisis will emerge from the week. Still, the meetings provide an indication of how international monetary leaders see the challenges facing the global economy. And they are a window onto how the Bank and the Fund are themselves evolving in response to events.
Most remarkable, perhaps, is how the two institutions have escaped the ire of Donald Trump. They have done so by taking ownership of problems that otherwise might have landed on the administration’s doorstep, the World Bank by addressing the problems of poor countries in neighboring Central America and the Caribbean, the Fund by addressing financial crises in Ukraine and Argentina. It helps that the Bank and Fund have studiously avoided doing anything that might be seen as favouring China over the US.
The World Bank has largely stuck to its knitting, focusing on problems of poverty, inclusion and economic underdevelopment, although there has been controversy about whether the country rankings in its annual “Doing Business” report have been irregular.
In contrast, signs of change at the IMF are extensive. The Fund was long thought to be dominated by stern fiscal and financial disciplinarians. Its warm and fuzzy website now features sections on gender gaps, climate change, income inequality, civil society and sustainable development. To some extent this may be marketing, but it surely reflects real change in how IMF management and staff see the world and the task before them.
For example, the IMF learned the hard way that adjustment programmes involving harsh fiscal austerity won’t work if they fail to protect essential social services and the poor. Absent this, budget cuts will provoke a political backlash and precipitate the abandonment of adjustment efforts. Even if budget cuts are needed to restore economic and financial stability, they must be implemented in ways that protect the most vulnerable. Hence the Fund’s attention to the poorest, and its recent focus on income distribution.
Similarly, the Fund’s “new institutional view” of capital controls, which dates to…