Beyond the Communiqués
Brett House on why the IMF-World Bank meetings currently underway in Washington are just one way the international community collaborates on the economy.
Deputy chief economist, Scotiabank
The annual meetings of the International Monetary Fund and World Bank are under way in Washington. More than a few Canadians are likely rolling their eyes at the thought of another international economic gabfest so close on the heels of September’s G20 summit.
The St. Petersburg G20 summit, whose agenda became dominated by the Syrian crisis, was roundly dismissed as a non-event on the economic front. That wasn’t fair – a lot of good work to bolster the health and resilience of the global economy was accomplished in Russia.
But the quick burial of the St. Petersburg summit in the news cycle set the scene for a cynical response to the convening of the world’s macroeconomic mandarins in Washington. If heads of state couldn’t get anything done in Russia, why should a bunch of finance ministers and central bank governors be any more effective – especially when not 20 countries, but nearly every country in the world, has a seat at the table?
Over the weekend, international commentators already began declaring these meetings a failure. Writing in the Financial Times, Mohammed El Erian judged that there was zero chance the IMF-World Bank meetings would produce progress on any of the world’s most pressing economic issues.
In the face of such skepticism, it’s become reflexive for policy makers and committed internationalists to counter that such meetings “matter more than ever.” This isn’t just banal, it’s counterproductive. Raising the rhetorical stakes doesn’t increase political pressure for collective action, it just makes people more blasé if international meetings fail to deliver on their ambitious agendas.
At least four things need to change in our approach to international economic policy making.
First, it’s not about the meetings. Sure, it’s interesting to see the big names of global finance all together. But real change happens in the months of negotiations that lead up to these gatherings, during the dogged discussions that have public servants shuttling between capitals for months on end. At the meetings themselves, the really game-changing conversations are happening in the parallel conferences and that sprout around DC.
Second, we need to set expectations realistically. Not every set of meetings can set a landmark in history. Investors need long lead times and to carefully co-ordinate the signalling of policy changes; it would be a disaster for markets if every time global leaders gathered, they produced a major pivot in policy.
It’s manifestly not the case that each meeting is more important than the last. Nor should it be. It takes time to move economic and financial policy forward. It takes hard analysis to figure out what needs to be done. And democratic legitimacy requires careful deliberations.
We know that when the world really is about to end, and significant change is required, our public officials find ways to work together. The 2008 IMF-World Bank annual meetings took place right after Lehman Brothers’ collapse. They spawned intense collaboration that led to a series of G20 summits in 2008 and 2009 that produced real action to prop up the global economy: co-ordinated stimulus, more firepower for the IMF, aid to developing countries side-swiped by the crisis, and fresh trade credits to keep markets moving.
As financial leaders gather at the IMF and World Bank this week, no one thinks the world economy is on the edge of a precipice (unless the U.S. Congress puts it there). Banking systems have been stabilized. The euro zone’s existential threats have been temporarily tamed. Abenomics is reinvigorating Japan. China’s feared hard landing hasn’t materialized.
Which leads to a third major change in mindset that ought to happen in our approach to international economic policy making: We all need to be much clearer about where the real bottlenecks to progress are – and aren’t. Take, for instance, the issue of fundamental reform of the IMF.
For years, there has been broad agreement that the IMF needs more financial firepower, that emerging economies should be given more prominent representation on the IMF board, and that these countries should have a greater share of voting power in return for contributing more capital. The IMF’s shareholders – that is, nearly all of the world’s major countries – reached a landmark agreement a few years ago to move ahead with these changes. Such cornerstone revisions to the IMF’s Articles of Agreement require endorsement by 85 per cent of the IMF shareholders’ voting power; the United States has just shy of 17 per cent, making its participation essential. The agreement has to be ratified, however, by Congress.
Events this week make it clear that it’s painful for the U.S. to pass its own budget and raise its debt ceiling. It’s nearly impossible to contemplate a scenario where a House of Representatives, held hostage by isolationist Republican representatives, would consider devoting more money to an international institution while simultaneously ceding some of America’s power within it – especially in the case of the IMF, which skeptics hold up as an example of global governance run amok.
In short, the fact that we can’t reform the IMF isn’t a failure of the international system. It’s a result of extreme gerrymandering in U.S. congressional districts.
Finally, we need to recognize successes when they’re achieved. Five years ago the global economy was on the edge of tipping into a repeat of the 1929’s crash and drawn-out recession of the 1930s. International policy makers came together and took innovative and decisive action. Five years later, the global economy may still be on life support, but it’s still alive. In 2008 when we gathered in Washington, no one thought that was a certainty.