This year’s annual meetings of the International Monetary Fund (IMF) and World Bank currently taking place in Lima, Peru, are not short of fireworks.
And this should be expected, looking at developments in the world economy – a full plate of issues such as the transformation in China’s economy, the fall in commodity prices, which is related to China, and the impending normalisation of United States of America (USA) monetary policy and its implications on the global economy.
However, for developing countries such as Ghana, they have a different, pricklier agenda. They want a bigger say in the running of the IMF and the World Bank.
IMF’s moral authority questioned
The IMF’s moral authority has been undermined over the past few decades.
Wounds over its counter-productive austerity policies during the Asian crisis still fester, the botched Greek bailouts exposed the IMF’s pro-European bias, while the US House of Representatives has failed to ratify the 2010 agreement to boost the representation of emerging markets in the Bretton Woods system.
Meanwhile, to critics, the World Bank remains excessively bureaucratic, risk-averse and hopelessly unrepresentative.
Developing countries have long sought a greater voice in running the IMF and the World Bank. The rise of rival development banks gives them more options – and more leverage. It is a contentious issue, one that could alter the face of the two multilateral institutions.
So far, efforts to reform the fund and the World Bank have stalled, creating dismay to some developing countries.
A lot depends on the US legislators which may be bad news for countries seeking greater influence from the two multilaterals. The legislators have been blocking reforms already on the table.
Two rival organisations
But with the advent of two rival organisations – the Asian Infrastructural Investment Bank and the New Development Bank (Brics) – those countries have a great deal of more leverage in the discussions.
This subject has been on the table for a while but with the two new banks, it is going to be at the front and centre. Demand for more voting rights will be the hue and cry of developing countries.
With new competitors, the raison d’etre of the two multilateral institutions could be called into question. Countries in the developing world will look at the financial assistance offered by the IMF as opposed to the new ones and seek better terms.
Oddly, though China is championing the cause of developing nations at the annual meetings, it has its own issues.
Trend decline
The Chinese economy has experienced economic slowdown. After years of high demand resulting in high prices of commodities and high investment in commodity-producing sectors, China’s slow start earlier in this decade has led to a trend in decline which has accelerated in recent weeks.
The economic slowdown has hurt developing countries and contributed to the plunge in commodities prices. In Latin America, countries such as Brazil are dealing with the sudden end of a decade long bull-run.
In all of this, sub-Saharan African countries are confronted with the challenge of sustaining growth and weak global conditions. The World Bank predicts that growth will slow in 2015 to 3.9 per cent from 4.6 per cent in 2014, reaching the lowest growth rate since its drop in 2009.
Sharp drops in the price of oil and other commodities have brought on the recent weaknesses in growth.
Other external factors such as China’s economic slowdown and tightening global financial conditions weigh on Africa’s economic performance.
Source: Graphic