IMF and World Bank seek renewal after 75 years

The World Bank and the IMF must continue their reinvention to overcome new crises, such as "climate migrants", and adapt to phenomena such as the emergence of virtual currencies.

The two financial institutions were born during the Second World War, to avoid a new crisis like that of 1929. Image: AFP
The two financial institutions were born during the Second World War, to avoid a new crisis like that of 1929. Image: AFP

The two financial institutions were born during the Second World War, on July 22, 1944, at the initiative of 44 countries to avoid a new crisis such as that of 1929.

After 75 years of its foundation in the Bretton Woods hotel complex in the northeastern United States, both institutions face criticism for having failed to prevent crises and for worsening the situations of the people they should have helped.

Although it can be said that these criticisms are not entirely true, both the IMF and the World Bank have tried to forge a new image for themselves in recent years, emphasizing that when their programs are implemented, the most vulnerable will be protected.

But more than a better communication strategy is going to be needed at a time when the rejection of globalization and technological transformation is growing.

Both organizations also face the challenge of helping Africa in a transition that requires substantial investment in infrastructure and job creation to cope with population growth in the region.

The challenge "is enormous," said World Bank President David Malpass in an interview with AFP.

The International Monetary Fund aims to ensure global financial stability, while the World Bank works for reconstruction and development, to which poverty reduction was eventually added.

"The original concept of reconstruction and development (...) was clarified to include poverty reduction as the bank grew," Malpass said.

A gloomy balance sheet

At first glance, the balance sheet, especially that of the IMF, seems bleak, with the last three decades marked by serious crises: Latin America's debt crisis in the 1980s, the turbulence in Asia and Russia in 1990 and the global financial crisis of 2007, which originated the Great Recession that still affects the world economy.

In each of the episodes, the crisis lasted a decade or more and the IMF was blamed for having inflicted more pain with its demands and its policies, many times more oriented to the interests of rich countries than to poor countries, according to its hardest critics.

At the same time, there are 1 billion fewer people in the world living in extreme poverty than in the 1990s.

"In the history of the world, there has never been as much progress in improving the lives of people as we have seen in the past 75 years," said Masood Ahmed, who served as an IMF or World Bank official for nearly half the history of these organizations.

Both institutions overlooked development issues

The world "was doing well in macro terms, and there were a lot of people coming out of poverty, but we ignore the fact that there were a lot of people who were getting more and more uncomfortable with the pace of change and I think we're paying a bit of the price for that now," said Ahmed, who now heads the Center for Global Development, a poverty research organization.

Malpass does not dismiss the doctrine of the "Washington Consensus," a formula imposed on developing countries that consisted of privatizations and spending cuts, as opposed to the classic economic theory of increasing spending during a recession.

Malpass, on the other hand, wants to focus World Bank programs on what is best for each country.

"I want it to be more and more effective in helping countries find the path to growth and good results for the people of these countries," he said.

One example is the current IMF credit to Argentina, which sets spending parameters for the poorest.

Greater representativeness

Agustin Carstens, former head of Mexico's Central Bank and director of the IMF's Financial Committee, argues that the organization avoided "many other crises" thanks to supervision and political advice.

The problem is that when they call the IMF it is because the economy is already the "most difficult" moment when all other sources of financing are closed and there are no good options.

The official is concerned that the institution has failed to adapt to the changing global economy at a time when countries like China and India are gaining weight.

IMF Managing Director Christine Lagarde, who is about to become president of the European Central Bank, announced that she will leave office on September 12.

It is expected that the tradition of another European will continue, by virtue of an unwritten rule by which the Old Continent keeps the Fund and the United States appoints the President of the World Bank.

Carstens, a finalist in the race won by Lagarde to head the IMF in 2011, said the reform is increasingly "urgent" to "give more legitimacy to the advice the Fund gives."

Source: AFP

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