The global financial crisis turned what is normally solid but dull political theatre into a complete farce at the weekend’s World Bank/IMF Annual Meetings.
The star performers were the head honchos of the two institutions, American Robert Zoellick, President of the World Bank, and Frenchman Dominique Strauss-Khan, or DSK as he is affectionately known, Managing Director of the IMF.
These meetings are traditionally a time when critical voices come to Washington DC to tell anyone who will listen that the Bank and the Fund are corrupted institutions that have usurped their mandates and come to represent everything that is wrong with the global economy generally and international development specifically. It was, then, a somewhat serendipitous piece of timing that this year a tremendous stock market plunge should occur just as the capital of the free world played host to the year’s most concentrated annual gathering of global justice advocates — many of whom had been predicting this kind of calamity for eons.
The current leaders of the Bank and the Fund, however, the two institutions most responsible for expanding and entrenching our oh-so-superior economic system in the developing world — and consequently impoverishing much of it — not only talk as if they have had nothing to do with bringing this crisis about; even more perversely, they claim that are the ones who are best equipped to help their own victims.
The growth to power of the Bretton Woods Institutions, as they are collectively known, has itself mirrored the rise of the free market economic philosophy in recent decades. Nixon’s introduction of floating exchange rates in the early 70s was the first step towards the deregulation of the financial markets which in turn led to the out-of-control "casino capitalism." With petrodollars flooding into Western banks, a glut of lending to developing countries took place and the McNamara-led World Bank grew in power. Many scholars argue that the private banks’ irresponsible lending was only possible because McNamara and the World Bank led the way.
Three assumptions underwrote this lending: that commodity prices would continue to rise; that interest rates would stay low; and that the development model proposed by the Bank and others was sound. None of these assumptions proved to be correct.
The resulting debt crisis provided the means by which the Bretton Woods Institutions could further entrench themselves as the implementation agents of the globalisation process. The US Government chose to empower the institutions to lend to the indebted countries that desperately needed capital in order to remain financially solvent; but in order for countries to access these loans, the countries were required to implement the so-called "Washington Consensus" policy prescriptions: trade liberalisation, privatisation of the public services, deregulation of economic management and economic austerity measures. In this way, the institutions were authorised to become the managers of a crisis that they had helped to create.
In today’s general atmosphere of doubt and indecision, one would expect the bosses to be a little humble, especially as the credibility of the World Bank and the IMF in their client countries plummets. The IMF has been losing clients at a rate of knots: many Latin American and Asian countries are paying off their loans early and sending the institution packing. The World Bank is only slightly less on the nose, although such is their ability to access resources for loans, greedy governments are less quick to openly attack it.
Around the halls of the Bank and Fund buildings in DC this year, small signs of vulnerability and defeat were perceptible. A senior World Bank official acknowledged anonymously to the New York Times that the Washington Consensus was dead. Recent IMF predictions suggest that India and China — the two most notable examples of countries that have rejected the Fund’s policy prescriptions — will probably best escape the current crisis. And the developing country seen to be most vulnerable? Mexico, the poster child for faithful implementation of their advice.
Ever since the World Bank and IMF created the Civil Society Forum to run alongside the Annual Meetings proper, the event has traditionally been an occasion for political opponents to talk across each other without any serious meaningful engagement. NGO representatives ask difficult questions of Bank and Fund staff, who defensively pretend to answer them.
Having been to this event three times now, I understand the cynicism circulating in the NGO community. On Saturday morning, at a small and relatively insignificant session about IMF policy and "fiscal space", one of the IMF’s more earnest-looking economic experts admitted, somewhat contritely, that the IMF had not been particularly successful at predicting what would lead to growth for poor countries.
The mounting evidence that the ability of economic models to approximate the complexity of the real world might not be all-powerful — especially if the models have been compromised by the distortions of a pervasive ideology — seems finally to be hitting some of these folks.
While the expression of doubt might have been permitted to lesser mortals, Zoellick and DSK are made of sterner stuff. Fronting up to the annual town hall-style meeting between the Bank and Fund heads and a hundred or so civil society representatives, the two ageing prizefighters demonstrated what it takes to make it to the top of the big league. There was no insecurity on display.
This was, Zoellick and DSK reminded us, a great opportunity. Does not the onset of adversity bring fresh possibilities?
The Fund has been losing clients recently, but all of a sudden, with banks no longer lending, they might be back in the game. So, said DSK sombrely, in these serious times, poor countries who might be experiencing problems at this time of crisis can always turn to the Fund for help.
Zoellick’s performance was even more impressive. He calmly and reasonably explained that he and his institution were willing and able to help get the world through this troubled time. He again reminded us that this so-called food crisis was actually a wonderful opportunity. Now, he argued, was the chance to push further for the commercialisation of agriculture, in order that all those peasants in poor countries might be brought once and for all into the welcoming arms of the global market.
One should not be surprised that these seasoned professionals should have been able to dig up such brilliant diversionary tactics. The Bank in particular has been adept at positioning itself as the saviour for problems it has helped to create. Debt crisis? Why, let us manage that one! Even if we did help create it. Credibility affected by our role in environmental disasters? Well then, we’ll just become the Green Bank and start telling everyone else how to be environmentalists.
Ben Bernancke and Henry Paulson; the harassed and benighted Fed Chairman and Treasury Secretary, have been looking like tired, haggard men lately. They are showing signs of the intense behind-closed-doors pressure to which they have been subjected. In contrast, DSK and Zoellick, whose institutions should carry just as much blame as the Treasury and the Fed for all the crises we face as a world community, looked as fresh as daisies. Then again, the Bank and the Fund have prospered not only because of the power that they wield, but also because a distracted public lacks both knowledge of their activities.
The stock market has rallied this week in response to newly released bailout plans. Many, however, still believe a global recession is inevitable and a depression possible. The long term impacts will seriously threaten our ability to respond to climate change and to the food crisis. Meanwhile, the show must go on. As everyone knows, in a time of crisis there is nothing more reassuring to have steady hands take the helm and assume command.
Consummate performers, Zoellick and DSK showed both boldness and high level of technical skill and know-how; their greatness should be acknowledged, as should their breathtaking audacity.
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