Washington washout at the IMF and World Bank’s get-together
The Spring Meetings of the Bretton Woods twins ended with more questions than answers.
Booming inequality. Huge financing gaps and dangerous debt burdens in poorer countries. Looming climate catastrophe. These depressing realities are all taken as given.
The question is, what are the richest countries going to do about it?
The answer we got at last week’s Spring Meetings of the World Bank and IMF in Washington. Not much.
Financial wizardry in numbers
A not so helping hand. Low-and middle-income countries are facing a $27.4 trillion black hole in climate and social spending between now and 2030. Despite reforms so they are less risk averse in their borrowing, commitments made last week in Washington will deliver a measly 0.1% of this spending (which would also be loans, and not grants.)
Rich countries want to rely on financial wizardry because it won’t cost them anything, but there’s nothing magic about this announcement. So, what should they have done?
Rich countries need to pay their debts. How about delivering the inequality-busting aid they have promised? Back in 1970 rich nations promised to give 0.7% of their national income in aid. Most of them have systematically failed to do this since then. We have calculated that this means rich countries owe $6.5 trillion in unpaid aid, and this aid debt is growing every year they renege on their 0.7% promise.
Then there’s the climate finance owed to the Global South. If high-income countries borrowed $11.5 trillion – less than they did in response to COVID – they could invest it in giving grants to fill loss and damage, adaptation, and mitigation financing gaps in low- and middle-income countries; instead of insisting these already debt-crippled nations borrow even more themselves to tackle a climate disaster they had little part in creating.
Magic money we can all get behind. Why not issue more Special Drawing Rights (SDRs), the international reserve asset, and increase allocations to poorer countries? As the G24 suggested last week. The benefits of the 2021 $650 billion issuance of SDRs were enormous. 98 low- and middle-income countries used these SDRs, many to procure vaccines, and fund welfare payments and wages for teachers and nurses among other things. 55 countries also used them to repay $7.6 billion worth of IMF debt. Governments should immediately agree to at least two more issuances between now and 2030- this is one element of financial wizardry we definitely support.
Rich countries aren’t broke, they’re just not willing to tax the wealthiest. The money in rich nations is increasingly in hands of very rich people, not governments. The huge transfer of public money into private hands must be reversed, to give rich country governments money to tackle their own problems and those of the rest of the world. A progressive net wealth tax of up to 5% could add around $1.1 trillion to donor country budgets every year. Not to mention the revenue windfall profit taxes and financial transaction taxes could generate.
The World Bank and IMF are missing in action on inequality. The World Bank’s evolution roadmap could finally commit to closing the gap between the richest and poorest, but they show no sign of upping their ambition on inequality. We need the World Bank and IMF to commit to the goal of helping every country to ensure that the top 10% gets no more income than the bottom 40%; this is the level of equality that is achievable and will maximise human wellbeing.
Instead, in stark contrast to recent years, IMF Chief Georgieva completely failed to mention inequality at all in her opening press briefing in Washington. Perhaps because she knows that the IMF all over the world is doubling down on forcing nations to enact inequality-fuelling austerity even though – as they have just admitted in their World Economic Outlook – austerity hasn’t actually succeeded in its primary aim, to reduce government debt.
New Oxfam research found that across 13 countries, the IMF recommended public spending cuts of $5 for every $1 of social spending they encouraged. Our Washington expert Nabil explains here.
Momentum towards a regional Tax Summit in Latin America is building. Brazil – who will chair the G20 in 2024 – have thrown their weight behind this initiative during an IMF event held last Friday.
People are mobilising to call for action on taxing the wealthiest. Add your voice to this Avaaz petition demanding G20 governments tax the mega-rich. Over half a million people from across the world have signed already.
Banning private jets. French officials are exploring curbing private plane travel. And just last week — after sustained pressure from activists — Schiphol Airport in Amsterdam announced it would ban private jets as a climate-saving measure. Sign up to Greenpeace’s petition to ban all private jets.
Some things to listen to and read
Listen to this podcast about pirates as communists. Learn about the true egalitarian, working-class history of the golden age of piracy.
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