CAMBRIDGE: As usual, the IMF and World Bank congratulated themselves at their annual meeting in Washington, just concluded. Beneath the self-congratulation, however, was the widespread feeling that both institutions are failing badly, and need fundamental reform.
Some reforms – if only partial – are already in sight. Poor countries received a commitment for much deeper debt cancellation. President Clinton, indeed, announced 100% cancellation of debts owed to the U.S. by the poorest countries. The IMF also promised it would care more about poverty (!). And rich countries agreed to meet more regularly with the poorer countries in a new group called the G-20: which includes eight rich countries, ten developing countries (mainly the big ones, such as Brazil, China, India, and South Africa), plus a representative of the IMF/World Bank and one from the European Union.
The main order of business of the G-20, which will meet at the level of finance ministers in Berlin in December, should be the fundamental repair of international institutions. Most of these institutions are doing the wrong job, and all of them need fixing.
Take the IMF. It mangled and mishandled Russia very badly. It has performed poorly in Africa for twenty years (admitted, in effect, by its "new" willingness to focus on poverty). It failed to stop financial crises in world markets, which have been worse than ever in the past three years.
Moreover, though it takes credit for "recovery" in East Asia, the truth is that Asia's collapse in 1997 had a great deal to do with IMF mismanagement in the first place, since the IMF helped to stoke financial panic. The IMF should be given little credit for renewed economic growth in East Asia, since East Asia grew for decades without much IMF help!
The real lesson about the IMF is simple. The IMF is trying to run much of the world, and of course it can't do that effectively. It has programs in more than 60 countries, and virtually dictates economic policies (or tries to) in these countries. This is an impossible and foolish task.
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The IMF has no special expertise in the transition societies of the former communist world, or in African economic development. It has failed miserably in those places. It is time that the IMF returns to its basic and needed function: monitoring the international monetary system, and perhaps making a few emergency loans. There should be five IMF programs per year, not fifty.
The situation with the World Bank is no better. It, too, is trying to run the world, or at least the poorest part of the world. It, too, is remarkably overextended. No single institution can hope to define the "right" strategy for economic development. Yes, all countries need vigorous private-sector led growth as well as social programs, but there are many ways to reach those goals. And much of World Bank project lending can be done by the private sector.
The World Bank should be cut back sharply – to focus on the generation of systematic data; to support new scientific efforts directed at poor-country problems (like the development of vaccines for malaria); and to study long-term global issues, like man-made climate change. Perhaps the country lending activities of the World Bank should be almost completely eliminated, with the private sector, and the regional development banks such as the Asian Development Bank and Inter-American Development Bank, picking up the slack.
Other institutions, to the contrary, need a boost in their budgets and their international roles. This applies to institutions charged with international public health – like the World Health Organization, UNICEF, and the United Nations AIDS Program. Similarly, the United Nations Development Program, which monitors basic human development conditions around the world, needs an increased mandate.
In any event, these are the kinds of issues that the G-20 should urgently explore. When the G-20 meets later this Fall, it should therefore demand an independent and thorough review of the IMF and the World Bank, as well as other international agencies. The review should be led by independent experts from developing and developed countries. This review panel should be encouraged to make very bold recommendations. We need international institutions that work. Without a fundamental fix-up of the IMF and World Bank and other key institutions, the cause of international development will continue to suffer.
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The escalating war in the Middle East must be understood in a broader context. The fact that the Iranian regime felt emboldened to risk a direct strike on Israel attests to a changing world order in which Western power is increasingly open to challenge.
considers the implications of Iran’s unprecedented decision to launch a direct strike on Israeli territory.
CAMBRIDGE: As usual, the IMF and World Bank congratulated themselves at their annual meeting in Washington, just concluded. Beneath the self-congratulation, however, was the widespread feeling that both institutions are failing badly, and need fundamental reform.
Some reforms – if only partial – are already in sight. Poor countries received a commitment for much deeper debt cancellation. President Clinton, indeed, announced 100% cancellation of debts owed to the U.S. by the poorest countries. The IMF also promised it would care more about poverty (!). And rich countries agreed to meet more regularly with the poorer countries in a new group called the G-20: which includes eight rich countries, ten developing countries (mainly the big ones, such as Brazil, China, India, and South Africa), plus a representative of the IMF/World Bank and one from the European Union.
The main order of business of the G-20, which will meet at the level of finance ministers in Berlin in December, should be the fundamental repair of international institutions. Most of these institutions are doing the wrong job, and all of them need fixing.
Take the IMF. It mangled and mishandled Russia very badly. It has performed poorly in Africa for twenty years (admitted, in effect, by its "new" willingness to focus on poverty). It failed to stop financial crises in world markets, which have been worse than ever in the past three years.
Moreover, though it takes credit for "recovery" in East Asia, the truth is that Asia's collapse in 1997 had a great deal to do with IMF mismanagement in the first place, since the IMF helped to stoke financial panic. The IMF should be given little credit for renewed economic growth in East Asia, since East Asia grew for decades without much IMF help!
The real lesson about the IMF is simple. The IMF is trying to run much of the world, and of course it can't do that effectively. It has programs in more than 60 countries, and virtually dictates economic policies (or tries to) in these countries. This is an impossible and foolish task.
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Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
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The IMF has no special expertise in the transition societies of the former communist world, or in African economic development. It has failed miserably in those places. It is time that the IMF returns to its basic and needed function: monitoring the international monetary system, and perhaps making a few emergency loans. There should be five IMF programs per year, not fifty.
The situation with the World Bank is no better. It, too, is trying to run the world, or at least the poorest part of the world. It, too, is remarkably overextended. No single institution can hope to define the "right" strategy for economic development. Yes, all countries need vigorous private-sector led growth as well as social programs, but there are many ways to reach those goals. And much of World Bank project lending can be done by the private sector.
The World Bank should be cut back sharply – to focus on the generation of systematic data; to support new scientific efforts directed at poor-country problems (like the development of vaccines for malaria); and to study long-term global issues, like man-made climate change. Perhaps the country lending activities of the World Bank should be almost completely eliminated, with the private sector, and the regional development banks such as the Asian Development Bank and Inter-American Development Bank, picking up the slack.
Other institutions, to the contrary, need a boost in their budgets and their international roles. This applies to institutions charged with international public health – like the World Health Organization, UNICEF, and the United Nations AIDS Program. Similarly, the United Nations Development Program, which monitors basic human development conditions around the world, needs an increased mandate.
In any event, these are the kinds of issues that the G-20 should urgently explore. When the G-20 meets later this Fall, it should therefore demand an independent and thorough review of the IMF and the World Bank, as well as other international agencies. The review should be led by independent experts from developing and developed countries. This review panel should be encouraged to make very bold recommendations. We need international institutions that work. Without a fundamental fix-up of the IMF and World Bank and other key institutions, the cause of international development will continue to suffer.