Quake at the Bretton Woods
How relevant are international development institutions today? To many countries, not very relevant. The Bretton Woods institutions, which were established to rebuild the post-war world and encourage global economic cooperation may have outlived their relevance.
Developed economies have taken the determination of their economic health into their own hands, charging their central banks and finance ministries with the job of ensuring economic growth. To developed economies, they are a burden as many of the highest contributors to both institutions – the United States, the United Kingdom, and Japan often do not benefit from grants by the International Monetary Fund (IMF) and World Bank.
The reverse is the case with low-income, developing economies, which still grapple with financial crises. It can be argued that these institutions are still relevant for low-income countries because they benefit the most from the development operations of the IMF and World Bank. For instance, during the pandemic, the IMF delivered emergency assistance to 100 countries. All the recipients ranked among the world’s smallest and poorest economies, which without the aid would have had greater struggles with curbing the spread of the virus and coping with the economic effects of the pandemic.
With developing nations, however, the existence of the Bretton Woods institutions is a two-edged sword. Aids and loans obtained from the IMF and World Bank have also bred a dependency syndrome in third world countries, providing an ever-sure resort for governments who thrive on the vicious cycle of obtaining loans and grants, mismanaging funds despite stringent terms and squandering the country’s resources, and finally requesting for new loans.
The relevance of these institutions was further questioned by the scandal involving the Managing Director of the IMF and former President of the World Bank, Kristalina Georgieva, who was alleged to have manipulated China’s 2018 ease of business score during her time at the World Bank. For many countries, the ease of doing business index is a yardstick used to measure the impact of government policies on businesses especially micro, small, and medium enterprises (MSMEs).
Since the first report was published 18 years ago, the details of the report informed policymaking by governments to attract foreign investment to the economy and consequently, investment decisions by foreign investors. With so much riding on the ranking, it is no wonder that countries have the incentive to influence the rankings.
Following the internal investigation by the World Bank, the ease of doing business report has been discontinued due to ethical concerns, including the conduct of former Board officials and staff. The investigation concluded that Kristalina Georgieva, who served as the Bank’s chief executive officer from 2017 to 2019 applied pressure to have China ranked more favourably.
Although the former World Bank president has denied the allegations and disagreed fundamentally with the findings of the Investigation, her credibility and that of both institutions she is affiliated with have suffered a blow. Every piece of data produced by the World Bank is now tainted with a hint of unreliability and bias in favour of the major stakeholders.
In one stroke, the data-tampering scandal has damaged the integrity of two institutions as the IMF now suffers from the contagion effect of Kristalina Georgieva’s scandal at the World Bank. The situation also highlights the problem of cycling staff among these institutions, therefore, spreading the lack of credibility of one to all.
With rapid globalization, it is becoming increasingly difficult to separate politics and other influences from the operations of these organizations which should maintain an independent status. The World Bank and the IMF face pressures from nationalistic policies. Without a doubt, global institutions have suffered a blow to their credibility. For institutions like the IMF and World Bank to remain relevant, they must address effectiveness and reliability in a world where not physical wars, but wars against pandemics, climate change, terrorism, and political bias prevail. How the IMF and other institutions would overcome the current hurdle and future challenges is crucial in determining its relevance in the new world.