It is a sad irony that the annual meetings of the International Monetary Fund and the World Bank take place this weekend in Washington in the midst of a shutdown of the U.S. government. The meetings, which are held in Washington two years out of every three, should be an opportunity for the world's greatest economic power to provide leadership on global issues.
From 1947 to 1999, every U.S. president from Harry Truman to Bill Clinton took advantage of this gathering to address the world's finance ministers and central bank governors, and make a case for the American vision of how to enhance global prosperity. Both George W. Bush and Barack Obama have forgone the opportunity. This year, the absence of U.S. leadership is even more obvious, and the result is more devastating.
The focus of this year's meeting – the main "deliverable," to use the current jargon – should have been completion of a package of IMF reforms. That package, which was endorsed at a summit meeting of the Group of 20 in Seoul in November, 2010, has three elements. It makes permanent the doubling of IMF resources that was cobbled together in response to the global economic crisis. It reshuffles voting power in recognition of the rapid growth of many developing countries over the past two decades. And it amends the IMF Articles of Agreement to encourage Europe to streamline its representation, so as to provide emerging and developing economies with a stronger voice.
Implementation of these reforms would go far toward halting the decline in credibility and legitimacy that has dogged the IMF for more than a decade. It also would help sustain the momentum in, and the spirit of, the G20 – the forum that provided the political drive for such reforms – at a time when the relevance of multilateral co-operation among G20 members appears to be fading.
Sadly, the political stalemate and governmental dysfunction in Washington mean that progress has stalled on these reforms. All that is required to complete the package is for the U.S. Congress to approve the relevant provisions in the Obama administration's proposed budget. Senior U.S. Treasury officials have testified repeatedly before congressional committees, to explain the rationale and ask for approval.
As a practical matter, however, there is no debate. The political stalemate in Washington has nothing to do with the IMF, and it will not be broken by the need for IMF reform. "Hopeless" would be too strong a description of the prospects for progress, because approval of the reforms would not add to the current American financial commitment to the IMF. Even so, only an inveterate optimist would venture a favourable guess for action this year or next.
What, then, is left for the assembled ministers and other officials to do? Even the parties and receptions that used to mark these occasions have been scaled back drastically in recent years. Delegates will do a lot of work quietly in small groups or bilateral meetings in the margins of the large publicized assemblies, but that is a weak excuse for such a grand meeting. A message must be delivered, and an agenda must be set for future work.
One field of focus this week is on deep-seated problems that can be dealt with only over many years of hard work. Both the World Bank and the IMF are committed to do their part in reducing and ultimately eliminating extreme poverty. Both institutions see the dangers inherent in human-made climate change and are trying to do what they can to mitigate the damage. Both are determined that their programs should help preserve and defend the natural environment. These issues will be addressed throughout the week, but one should not expect any new commitments or meaningful announcements.
More meaningfully, the meetings will try to address the challenges of turning the sluggish recovery from the Great Recession into a stronger and more sustainable pattern of economic growth. On Tuesday, the IMF released its latest outlook for the world economy, with even gloomier prospects than it projected last spring. It is a hard-hitting report that criticizes the sequestration of federal spending, the threat of fiscal default, the prolongation of extremely easy monetary conditions, and other perceived U.S. policy errors. The outlook shows just how dependent the world is on U.S. policies, and how difficult it will be to improve them.
No amount of talking or writing about these issues this weekend is going to produce a magic wand that will transform the Great Recession into a Great Recovery, or even a Great Transition. But if the outcome of these meetings includes a communiqué that identifies the culprits and calls clearly for better behaviour, it just might take us a little way toward that destination.
James Boughton is the former historian of the International Monetary Fund and a senior fellow at the Centre for International Governance Innovation (CIGI). Domenico Lombardi is director of CIGI's Global Economy program and chair of the Oxford Institute for Economic Policy.