The G20 leaders have met three times, giving the IMF $1 trillion of new resources with which to fight the fires of the global financial crisis. The World Bank has also been put on the job – to respond to what the World Bank and IMF have called a “development emergency”.
How well are the institutions doing? The G20 have done pretty well preventing their own economies from seizing up. But the scorecard is not great when one looks at managing the impact of the crisis on the rest of the world, and on Africa in particular. The IMF and the World Bank have themselves documented the magnitude of the crisis. In early September I presented to the European Parliament a report examining their response: more than 80% of the IMF’s new lending had gone to countries in Europe, while less than 2% had gone to Africa. The World Bank, with no significant new resources, is front-loading existing loans. The result is that many countries, whose futures are at risk because of the crisis, are left out. Those who are getting early access to already-promised money (front-loading) will face severe funding gaps down the road. (I’ll be presenting updated figures on all this at the GEG seminar – Friday 30th October, 2pm, University College).
The bottom-line is that the G20 are not acting collectively on their statement of April 2009: “We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential.”
What are they doing instead? First, the new $1 trillion of resources for the IMF is almost all credit-lines being extended to the IMF so that it can stave off financial crises in emerging economies, particularly on the borders of Europe (where European banks are at risk). The IMF management and staff are working hard to use the tools they have. But the crisis underscores the need for deeper governance reform. Second, instead of providing new resources to the World Bank for a multilateral solution which could ensure distribution to the most needy (although to do this speedily the World Bank needs to reform its governance – see next week’s blog), individual countries are each doing their own thing, and some are retrenching even existing aid promises (a recent IMF paper on the impact of the crisis on Sub-Saharan Africa highlights these risks).
