The World Bank has long proclaimed its dream of "a world free from poverty" and the IMF may arguably desire "a world free from financial crisis." These are crucial and daunting objectives, but they are too narrow for the 21st century.
To remain relevant, the institutions must fully adapt to the needs of the world's rapidly emerging countries, and they can begin that process at this spring's IMF-World Bank meetings in Washington.
As many now acknowledge, the fund should look beyond managing financial crises and start addressing non-cooperative economic behaviors -- notably in the monetary field. The international community would gain from the IMF's becoming a center of joint-monitoring and permanent dialogue among the world's rich, poor and emerging nations. But for that to happen, the latter two need a greater say.
Fortunately, such reform is at last on the agenda. Last autumn's IMF-World Bank meetings approved an increase in voting quotas for some of the most under-represented emerging economies: China, Mexico, South Korea, and Turkey.
A second round of adjustment will need to involve other fast-paced economies without crushing the voice of the poorest.
As for the World Bank, it does not need to "reposition" itself so much as to root itself in emerging countries, as does the development aid industry in general. The international community must resist shortsighted calls to withdraw from middle-income nations on the ground that they can now "go it alone."
When it comes to global governance, communicable diseases, climate change or threats to biodiversity, these countries are very important. They account for 44 percent of people living with HIV/AIDS, 47 percent of global carbon dioxide emissions and 52 percent of the planet's protected natural areas. The international community simply cannot leave them to their own devices on such crucial issues without jeopardizing its own future.
Fighting poverty is a non-negotiable objective, but it cannot be the sole purpose of international aid, nor of the World Bank. In fact, a genuine commitment to poverty reduction implies working with the middle-income countries. They are home to 70 percent of the world's population that live on less than US$2 a day and face massive unemployment, gross inequalities, lack of infrastructure, regional imbalances and a litany of other challenges.
Some critics argue that lending public money to middle-income countries is no longer necessary because of their access to financial markets. True, private capital flows have surged in the wake of global liberalization and national privatization schemes. But private capital flows have proven to be volatile and prone to sudden interruptions, as exemplified by the Asian and Russian financial crises of the late 1990s and more recently as investors pulled out from infrastructure sectors.
Another line of suspicion against public lending is that it crowds out private investment. However, an increasing body of evidence documents the positive impact of public investment on productivity and economic growth. It suggests that public lending compliments private lending, rather than substitutes for it.
Detractors ultimately fall back on the argument that multilateral lending to middle-income countries is waning along with demand. But, while loan volumes have decreased by a third since the last financial crisis, this is only a return to normalcy.
After an all-time high because of emergency aid to countries like South Korea or Argentina, lending is back to its normal volume of around US$25 billion a year. While lending by the World Bank did fall below its mid-1990s level, it is growing again, reflecting the expansion of regional multilateral banks and a policy pendulum that is swinging back to publicly financed infrastructure projects.
This does not mean that business as usual should be good enough for the World Bank. Its products need to be adapted. With decentralization taking place in many emerging economies, sub-national authorities are taking on more responsibilities. The bank should be able to work with them in the absence of sovereign guarantees and increase its loan offerings in local currencies, since these partners cannot afford currency risk.
To further boost the private sector, insurance and guarantees can help. Beyond this, more financial engineering is needed to draw upon the creativity of financial markets.
Finally, as David de Ferranti -- a former World Bank vice-president -- has pointed out, the bank should expand its intellectual partnerships and engage with the highly trained professionals, consulting firms and research institutions that emerging countries now boast. The bank must be open to local invention if it is to be accepted by and relevant to middle-income nations.
In terms of purchasing power parity, per capita income in middle-income countries is still about 15 percent of that of developed nations. The time has not yet come for global financial organizations to shake hands and part company with these countries.
Convergence is on the way, but minimizing its global costs requires redesigning the IMF and World Bank to meet the mounting challenges faced by emerging countries.
Jean-Michel Severino is a former World Bank vice president and the head of France's international development agency.
Copyright: Project Syndicate
With its passing of Hong Kong’s new National Security Law, the People’s Republic of China (PRC) continues to tighten its noose on Hong Kong. Gone is the broken 1997 promise that Hong Kong would have free, democratic elections by 2017. Gone also is any semblance that the Chinese Communist Party (CCP) plays the long game. All the CCP had to do was hold the fort until 2047, when the “one country, two systems” framework would end and Hong Kong would rejoin the “motherland.” It would be a “demonstration-free” event. Instead, with the seemingly benevolent velvet glove off, the CCP has revealed its true iron
At the end of last month, Paraguayan Ambassador to Taiwan Marcial Bobadilla Guillen told a group of Chinese Nationalist Party (KMT) legislators that his president had decided to maintain diplomatic ties with Taiwan, despite pressure from the Chinese government and local businesses who would like to see a switch to Beijing. This followed the Paraguayan Senate earlier this year voting against a proposal to establish ties with China in exchange for medical supplies. This constituted a double rebuke of the Chinese Communist Party’s (CCP) diplomatic agenda in a six-month span from Taiwan’s only diplomatic ally in South America. Last year, Tuvalu rejected an
US President Donald Trump’s administration on Friday last week announced it would impose sanctions on the Xinjiang Production and Construction Corps, a vast paramilitary organization that is directly controlled by the Chinese Communist Party (CCP) and has been linked to human rights violations against Uighurs and other ethnic minorities in Xinjiang. The sanctions follow US travel bans against other Xinjiang officials and the passage of the US Hong Kong Autonomy Act, which authorizes targeted sanctions against mainland Chinese and Hong Kong officials, in response to Beijing’s imposition of national security legislation on the territory. The sanctions against the corps would be implemented
US President Donald Trump on Thursday issued executive orders barring Americans from conducting business with WeChat owner Tencent Holdings and ByteDance, the Beijing-based owner of popular video-sharing app TikTok. The orders are to take effect 45 days after they were signed, which is Sept. 20. The orders accuse WeChat of helping the Chinese Communist Party (CCP) review and remove content that it considers to be politically sensitive, and of using fabricated news to benefit itself. The White House has accused TikTok of collecting users’ information, location data and browsing histories, which could be used by the Chinese government, and pose