Democratic deficit: the IMF, Ecuador, and central bank independence - Bretton ...
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SUMMER 2021
observer
BRETTON WOODS
A quarterly critical review of developments at the World Bank and IMF
FINANCE analysis In this issue
Democratic deficit: the IMF, Ecuador, and central 3 Economic stability
with social instability:
bank independence The IMF and austerity
protests in Colombia by
Mario Alejandro Valencia
4 World Bank must
place economic
transformation
at heart of IDA20
replenishment by Kwasi
Adu-Amankwah
5 Latest IMF gender research:
Making the economy work for
women, or women work for the
economy?
8 World Bank’s new Climate Change
Action Plan fails to deliver much-
needed transformative agenda
a board which set the bank’s monetary A January statement from academics
Ecuador approves law granting central policy and controlled its budget. The affiliated with Progressive International,
bank independence following IMF law – the decrees of which are now being a global mobilisation campaign, called
demands implemented – will ban the BCE from it an “economic absurdity” to limit the
financing government spending, buying government’s ability “to use their full range
Central bank independence has become
a staple IMF policy and a major way in public sector debt, and investing in public or of policy tools”, adding that the law would
which it shapes global monetary policy private businesses. facilitate “the outflow of capital from
Ecuadorian private financial institutions.”
Civil society organisations and academics The IMF has emphasised the central bank Jameson Mencías, an Ecuadorian economist
raise concerns over the policy in Ecuador reform, designating it as one of only two with the Latin American Network for
and globally prior actions, a type of condition required Economic and Social Justice (Latindadd),
for loan disbursement. The legislation commented that the reforms proposed in
was prepared with IMF technical support this law, “point to the protection of private
In April the Ecuadorian National Assembly claiming it will align the BCE “with banks and the liberalisation of financial
approved a law greatly increasing the best practice in areas of governance, flows, clearly confusing the defence of
independence of Ecuador’s central bank. independence, objectives, transparency, and the monetary system with defence of the
The move, which had been a point of controls.” Central bank independence (CBI) banking system.”
acute tension during Ecuador’s presidential had previously been part of the portfolio of
election earlier this year, was required by reforms proposed by the IMF for Ecuador’s It is not just in Ecuador where the IMF has
the IMF in order for Ecuador to access a $6.5 $4.2 billion loan in 2019, but was left been pushing aggressively for CBI. Over
billion loan agreed in September 2020. unimplemented as the government was recent months, it has featured prominently
met with widespread protest and political in IMF loan discussions with Ukraine,
The “law for the defence of dollarisation”
opposition (see Observer Winter 2019). the Democratic Republic of Congo, and
establishes legal and operational autonomy
Mauritius. Over the last two decades, CBI has
for the Central Bank of Ecuador (BCE), International and national civil society become a staple IMF policy and a major way
removing it from the direct authority of the organisations (CSOs) and academics have in which it shapes global monetary policy.
finance minister, who previously headed responded with anger to the new law.
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B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
The IMF and the rise of central bank authority over central banks does not make sky-high by the pandemic – but only in the
independence them free of politics, only free of democratic advanced economies. In the developed
accountability. world, they realise fully that monetary
Central banks are the institutions responsible
policy has to be closely aligned with fiscal
for managing a nation’s currency and In a 2020 working paper, the Fund asked policy, and both have to be expansionary
monetary policy – i.e. the supply of money if central banks should consider inequality to support the economic recovery and
into an economy and the interest rates when taking decisions. Their inevitable protect citizens during this major crisis. But
payable on borrowing. Contrary to popular ambiguity in answering such questions no such realisation is evident for developing
opinion, their independence is a relatively points to the core fallacy of the argument countries, where the clearly wrong policies
recent policy practice, first emerging in the that central banks can be ‘politics-free’. of fiscal austerity and so-called central
1970s. Over the last 25 years there has Even establishment voices such as Foreign bank independence are being thrust on to
been a “global rise” in CBI: academics note Policy now acknowledge that the “illusion” populations already hugely battered by
that in 2015, 81 per cent of countries had a that monetary policy is “technical, not the pandemic.” If countries like Ecuador
CBI index score over 0.5 (on a scale of 0 to political” has been completely ended by the are to respond effectively to the crisis they
1, where 1 represents full independence), pandemic response, which has shown that need more, not fewer tools to support
compared to 12 per cent in 1980. central banks “hold the reigns of the global development.
economy”.
As widely acknowledged, the IMF has
Δbit.ly/CBindependence
played a “vital role” in this global policy It has also been argued that CBI enhances
transition. Initially not a major feature of the power of the Fund, at the expense of
Photo: IMF
IMF conditionality or technical assistance, national parliaments. Economist Bernhard
since the 1990s the Fund has increasingly Reinsberg observes that, by limiting policy
called for various policies to boost CBI. options, “strengthening CBI helps the
The argument in favour of CBI is simple: IMF in nudging a government into painful
it controls inflation by taking interest rate austerity and reform measures, ultimately
management out of the hands of short- leading to greater program compliance.”
sighted politicians. As IMF staff write, “if This reduced policy space makes countries
politicians manipulate monetary policy to less developmental. According to Daniel
bolster their pre-election popularity, their Munevar with Belgium-based civil society
prioritization of short-term political gains network Eurodad, “In practice, CBI becomes
could invite long-term pain for the economy, another binding constraint on the capacity
in the form of higher inflation or even hyper- of countries to use available policy space
inflation.” to pursue developmental policies.”
Importantly, these curtailed tools – such
This “political interference” – as the IMF
as boosting employment via interest The rise of IMF technical assistance on central bank
calls it – involves governments pushing
rate adjustment or financing domestic independence.
central banks to lower interest rates. This
spending – were essential parts of the policy
makes it cheaper for businesses to borrow
programmes that today’s rich countries used
and expand, thereby creating employment.
as part of their development policies.
This boosts governments’ popularity, but
at the possible cost of inflation running out The wave of CBI of recent decades has
of control. The ‘interference’ also involves also had broader impacts. It has been
governments turning to central banks to shown that the rise of CBI directly leads
fund their public spending, thereby raising to financial deregulation, as governments
public debt to unsustainable levels. seek alternative policy tools to stimulate
their economies. This has made them more
But despite its presentation as best practice,
open to financial shocks and increases
the process of increased CBI is highly
the influence of private financial actors
contentious and can in fact be detrimental
over government policy. Relatedly, a
to development.
January World Bank working paper argues
Undemocratic, undevelopmental and that CBI increases inequality by reducing
unequal fiscal policy space (making redistribution
harder), increasing financialisation (which
Critics have argued that taking monetary benefits asset holders), and weakening the
policy out of the hands of elected politicians bargaining power of workers.
is undemocratic. As economist and former
Minister of Finance for Greece Yanis The IMF must critically reassess its central
Varoufakis argues, “so-called independent bank policies if countries are to be given
central banks are independent only of their the space to prioritise the wellbeing of For additional online content for
parliaments and the people and, thus, their citizenry over the interests of global this issue of the Observer, see
fully in the pockets of the financiers and finance. The pandemic has only exacerbated brettonwoodsproject.org/observer
the broader oligarchy.” While IMF staff this tension. Economist Jayati Ghosh
have commented that CBI is aimed at comments that, “All the myths of central Para la versión en español, visite:
“politics-free monetary policy decisions”, as bank independence have been blown brettonwoodsproject.org/es/observador
Varoufakis suggests, removing government
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B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
FINANCE analysis
Economic stability with social instability: The IMF and austerity
protests in Colombia
Guest analysis by Mario Alejandro Valencia, Latindadd
ministers, and allegations of human rights If there is no change in the productive
Massive protests in Colombia following abuses by the state. structure, with an economy able to produce
IMF proposed tax reform goods and services with medium- and high-
The origins of the discontent technological transformation, as opposed
Expected state spending cuts make
possibility of a strong recovery from the The debt crisis in Latin America in the 1980s to the extraction of natural resources, it
pandemic unlikely led to a wave of interventions from the IMF, will be impossible to correct Colombia’s
which granted loans in exchange for fiscal fundamental economic problems.
austerity measures (see Observer Summer
Colombia, according to the World Bank, is one The market, despite its supposed ability to
2019). The relative macroeconomic stability
of the five most unequal countries globally. efficiently channel investment, was unable
and control of inflation has had a high
This is partly the result of its regressive tax to direct the necessary resources towards
social cost, including increased inequality
structure, which, after 15 reforms in the the health, education, scientific research,
(see Observer Summer 2021), leading to
past 30 years, has evolved to increase the infrastructure, and access to credit needs
massive social protests across Colombia
prevalence of indirect taxes such as the of the economy, which in reality required a
since 2019. Whilst the loans flowed and the
regressive value-added tax (VAT) and reduce large level of state intervention. The solution
fiscal adjustments advanced, the Colombian
direct taxes, such as those on businesses. for Colombia is to access resources with low
state did not take the political decision to
Each reform has introduced new carve-outs interest rates or finance without debt, such
correct the systematic deficits of the current
which total more than 230 different tax as the IMF’s Special Drawing Rights (SDRs)
account – deficits caused by unbalanced
exemptions, accounting for an annual fiscal (see Observer Spring 2021). This would
globalisation supported by IMF policies.
loss of approximately $4.5 billion. allow it to invest in vital sectors such as
Colombia exports raw materials and natural agriculture and manufacturing that are able
The country has entered into an austerity resources and imports processed goods. to generate profits and employment that
trap, following the demands made by the Unsurprisingly, the country does not earn reduce the country’s commercial deficit.
IMF over multiple structural adjustment sufficient dollars on these exports to pay
programmes in exchange for loans to The country can also consider the
for its imports and, on top of that, with the
resolve its balance of payment problems. restructuring of its debt or utilising its
ambition of attracting foreign investment,
The latest loan instalment of $5.4 foreign reserves to support government
Colombia has eroded its tax base. As such,
billion took place in December 2020, expenditure. In this way, it would not
what has taken priority is the growing
and was followed in February 2021 by be necessary in the future to take up
informality of business and labour, which
recommendations from the IMF to further the non-concessional IMF loans or their
impedes the population from obtaining
increase VAT and broaden the base on policy recommendations. It would also be
sufficient income for a better quality of life.
personal income tax. possible to strengthen Colombia’s revenue
A failed model for recovery structure by stopping capital flight to global
In April, the government of President financial centres. Only a fiscal, business,
Iván Duque presented the IMF tax The pandemic worsened the situation and and productivity reform of this magnitude
recommendation, which aimed to collect Duque’s government was unable to inject will lead to the return of social stability in
some $7.5 billion in additional revenue per into the economy resources to allow for a the country and enable it to pursue a just
annum, to Congress. This revenue would be better health response and income support recovery from the pandemic.
collected principally from the middle class, during the national lockdown. On the
which has already been heavily hit by recent contrary, the state returned to the classic Δbit.ly/Colombiaanalysis
low economic growth, compounded by the and failed approach of loans in exchange
Photo: Remux
pandemic. According to the government, the for austerity: The Minister of Finance José
purpose of the tax reform is to finance social Manuel Restrepo has revealed that he
programmes for the poorest in Colombia. But expects a reduction in state spending of 7
a closer look at the reform reveals that 58 per per cent of GDP from 2021 to 2026.
cent of the new resources will be dedicated to
How could one expect an economic recovery
paying off Colombia’s national debt.
without the force of sufficient public
In response to the proposed tax reform, spending to kick-start the machinery of the
a national strike was called on 28 April by economy? The response is simple: There
trade unions and social organisations. The will not be reactivation because there has
strike has been ongoing for over sixty days, not been a single reform of the productive
with large protests across the country’s apparatus or of business policy. The highest
major cities. It has led to the withdrawal of aspiration can only be a return to the
the tax reform bill, the resignation of various unacceptable status quo of 2019.
Colombians protestors march against tax reform.
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B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
FINANCE commentary
World Bank must place economic transformation at heart of
IDA20 replenishment
Guest comment by Kwasi Adu-Amankwah, General Secretary, ITUC-Africa
the list of policy themes for IDA20. Real and Deliberate efforts are needed to promote
IDA20 must change policy framework to urgent action is needed, as described in the worker’s rights, which are essential not only
support economic transformation ITUC’s detailed proposal for the World Bank for workers, but also for the economy.
on job creation, social protection, debt relief,
Social Protection Fund is required to meet IDA-eligible countries need assistance to
current and future needs of IDA countries
and labour standards.
build or rebuild social protection systems that
As the United Nations Conference on can offer tangible protection to workers and
Labour movements demand substantive
Trade and Development noted in its families in times of need. Covid-19 has shown
consultations on all IDA20 and future IDA
processes March 2021 report, before the pandemic, the importance of installing such systems
the policy matrix of austerity (fiscal ahead of time. The World Bank is uniquely
consolidation), inflation targeting, trade placed to help establish a Global Social
The African Regional Organisation of the and investment liberalisation, innovative Protection Fund that supports and protects
International Trade Union Confederation finance (financialisation) and labour all of humanity during crises. The situation
(ITUC-Africa) welcomes the early market flexibility have only produced where rich countries bailed out and vaccinated
replenishment of the World Bank’s stark inequalities, arrested development, their citizens and poor countries looked on
International Development Association economic and financial fragility, and helplessly while their citizens suffered is a blot
(IDA), the World Bank’s low-income country unsustainable exploitation of natural on the conscience of humanity and detracts
arm. The Covid-19 pandemic has sapped the resources. More than ever, countries in significantly from notions of human progress.
resources of countries around the world, with the Global South need a break from these Only through the establishment of such a fund
the poorest countries worst affected. They counterproductive policies. Tackling the will low-income countries be able to avoid
face economic devastation and staggering climate emergency, an important theme damaging lockdowns and prolonged crises
debt which threatens to reverse what little for IDA20, requires a movement away from driven by the unequal access to vaccines and
progress they have made over the last dependence on natural resources. Trade related medical equipment (see Observer
decade. These countries urgently need help and investment liberalisation foisted on Spring 2021).
in the form of concessional loans and grants. poor countries has limited precedent in the
For most poor countries, current levels of history of countries that have successfully IDA processes must ensure adequate civil
public debt do not allow them to go to the undergone economic transformation. It is society consultations
commercial capital market for loans. We the reason African countries deindustrialised Only by benefiting from the experience
therefore consider the early replenishment in the 1980s and 1990s and have remained and expertise of civil society can IDA truly
of IDA20 concessional and grant-making in the throes of balance of payment meet its stated development objectives. We
resources essential to support recovery from challenges ever since. therefore demand qualitative consultations
the pandemic and to begin to address pre- on the IDA20 replenishment and all future
existing developmental challenges faced by Economic transformation fueled primarily by
IDA processes. After many years of organising
low-income countries. the extraction and export of commodities
workers in either public bureaucracies or
that leads to deindustrialisation is a
ITUC-Africa agrees that the proposed the private sector and in engaging in the
perverse transformation. It creates harmful
IDA20 special themes of climate change, development policy processes, ITUC-Africa,
agricultural policies which impoverish
fragility, conflict and violence, gender, jobs and the union movement in Africa more
farmers and force them to flee from the
and economic transformation, and human broadly, retain potent knowledge needed
countryside. That transformation has only
capital, are issues of special significance in to strengthen development processes. The
created low productivity, indecent jobs and
Africa where the majority of IDA-eligible current lack of consultation with civil society
increased informality. Developing countries
countries are located. and union movements makes it highly unlikely
need real transformation. IDA20 must
that the changes required to meet IDA’s
support policies that enable countries to
Economic transformation requires a new overall objectives will be made in the IDA20
improve agricultural capacity while building
policy framework replenishment process. The system in which
productive capacity in light manufacturing.
limited civil society ‘consultations’ take place
Whilst we agree on the broad policy This is the only sustainable way to create
only after IDA’s policy packages have been
themes underlying IDA20, several concerns more and better jobs.
largely agreed must be immediately changed.
remain. Principal among these is the policy
Social protection: Essential for workers The IDA20 replenishment process must
context in which IDA funding occurs.
and the economy be a starting point for IDA to become truly
In our view the policy mix proposed by
responsive to the needs of the communities
the World Bank to date does nothing to In the context of the Covid-19 and jobs crises, and countries it is mandated to support.
tackle underdevelopment, and in fact IDA20 offers an opportunity for the Bank to
institutionalises it. It is not enough for ‘jobs work with stakeholders to reverse past policies Δbit.ly/IDA20comment
and economic transformation’ to appear on that dismantled worker protection schemes.
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B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
GENDER analysis
Latest IMF gender research: Making the economy work for women,
or women work for the economy?
equality, these latest studies come after as “promoting” gender equality, failing to
New IMF research moves away from the IMF opened the door to examining acknowledge a central feminist critique that
macroeconomic drivers of gender the harmful gendered impacts of its own the bulk of the IMF’s conventional policy
inequality macroeconomic policy advice in 2018, advice undermines gender equality and
Understanding human costs of fiscal
when it published guidance for staff on women’s rights, particularly in the Global
consolidation more urgent than ever in operationalising gender issues at country- South (see BWP, Positioning women’s rights
pandemic recovery level. That guidance recognised what has and gender equality in the macroeconomic
long been established by the women’s rights policy environment).
movement, that “some macroeconomic
In March, the IMF published a summary policies recommended by IMF staff,” This approach is tone deaf to the long-
of some of its most recent gender impact such as budget cuts on subsidies, social standing work of many women’s rights
assessment work, which was part of a wider programmes and the public sector wage organisations and feminist economists. In a
IMF bilateral UK-financed research project. bill, “could exacerbate gender inequality.” 2019 letter to IMF Managing Director Kristalina
The summary paper signalled a potential The note went on to direct staff to consider Georgieva, 67 civil society organisations
shift in the IMF’s attention away from the an alternative policy mix in these instances, outlined that the impact of the IMF on
macroeconomic drivers of gender inequality laying out a potential path for IMF staff to gender equality lies first and foremost in its
and towards further instrumentalising move away from some of the most harmful historic and continued adherence to “fiscal
women for economic growth. As the IMF’s policy advice to women’s rights. consolidation, regressive taxation and labour
new senior gender advisor, Ratna Sahay, flexibilisation, [which] have exacerbated the
who was appointed to the newly created To help staff determine which policies feminisation of poverty [and pushed] women
position in April, takes up her post, women’s might exacerbate gender inequality, the into informal, low-waged work, increased
rights organisations will be watching to IMF developed a modelling framework their unpaid care burdens, and negatively
see whether the IMF will confront head-on to analyse impacts of macroeconomic impacted on their access to education, health
the ways in which its core policy advice reforms on gender inequality. The first and social protection…particularly in the
continues to undermine women’s rights. iteration of this modelling work was Global South.” These groups have consistently
conducted in Argentina in 2017, where the called for gender impact assessments of
The paper described a number of IMF IMF examined the impacts of a tax cut on macroeconomic reforms to be systematically
country studies conducted between 2018 female labour force participation and the conducted across the IMF’s work, in alignment
and 2020 as part of its surveillance work gender pay gap. While the IMF’s approach with the UN Guiding Principles on human
that aimed to measure the economic gains remained unsystematic and narrow, the rights impact assessments of economic
of closing certain gender gaps. In Sierra understanding that conventional IMF reform programmes adopted by the UN
Leone, for instance, the IMF found that macroeconomic policy advice can impact Human Rights Council in 2019 (see Observer
closing gender gaps in education could men and women differently, and that Spring 2019).
“boost GDP by an impressive…40 percent.” this difference should be measured and
In Senegal, the IMF ran a simulation in which taken into account by macroeconomic Human costs of fiscal consolidation higher
the enforcement of anti-discrimination policymakers, was a welcome development than ever
policies increased GDP by 5 per cent. Similar (see BWP, The IMF and Gender Equality: Focusing on the human costs of fiscal
exercises were conducted in Iran, Lao PDR Operationalising Change). This work was consolidation is particularly urgent in the
and Nigeria. This research focus has also cited in the 2018 IMF gender note as an context of the extremely constrained fiscal
been replicated at the World Bank, which example of how to consider differential environment of the Covid-19 recovery in the
produced a 2019 study of Niger outlining gendered impacts of a conventional Global South. The IMF’s member countries
the “economic costs” of gender inequality, macroeconomic policy reform. require robust analysis and all the policy
including consideration of women’s fertility options on the table to carefully weigh
rates, which, if reduced, the Bank found, The subsequent regression of the Fund’s
what the IMF has described as “difficult
would have “budget savings”. In concluding gender impact assessment work away from
trade-offs”. In this context, the IMF must
from this research that these gender examining the implications of the IMF’s
prioritise understanding the implications of
gaps should – somehow – be closed, the conventional macroeconomic policy advice
its continued restrictive fiscal policy advice,
IMF and World Bank ignore the structural towards closing gender gaps is therefore
which is projected to be implemented in
macroeconomic barriers to achieving gender concerning. It negates the ability of this
154 countries this year, affecting 6.6 billion
equality, which include their own continued impact assessment work to reveal how
people by next year, according to the latest
adherence to fiscally restrictive policy advice proposed IMF policy reforms could exacerbate
global austerity report by Ortiz and Cummins
and loan conditions in the Global South. gender inequality and thereby fails to offer
(see Observer Autumn 2020).
an evidence-based avenue for IMF staff to
New research direction negates move away from some of its most harmful While the IMF could, in theory, commit to
opportunity for transformative change policy advice. Even when the IMF did consider examining both the gendered impacts of
While the IMF’s gender work has, since its the gendered implications of fiscal policy in a macroeconomic policy reforms and the
inception in 2013, consistently focused 2020 staff discussion note, it chose to focus economic impacts of enhancing gender
on making the economic case for gender on fiscal interventions that are regarded equality, in practice, its resources to carry
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B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
out dedicated gender impact assessment its limited gender resources to where they
Photo: IMF
work are extremely limited. While the IMF are needed most, and, as the Fund prepares
put forward a medium-term budget in May the staff guidance note on implementing
that proposes the first increase in the IMF’s the CSR, prioritises providing unambiguous,
operational budget in a decade, it fails to detailed guidance to its staff on exactly how
make provisions for scaled up, systematic to identify and address adverse gendered
gender impact assessments across its impacts of IMF-backed macroeconomic
operations, as was also reflected in the lack policy reforms in practice. Women for Growth, the slogan of the IMF’s gender
of emphasis on assessing gender impacts work, encapsulating its instrumental approach to
Δbit.ly/IMFgenderresearch
in May’s Comprehensive Surveillance Review women’s work.
(CSR, see Observer Summer 2021). In this
context, it is imperative that the IMF directs
RIGHTS news
IFC faces critical questions over investments in gig economy
the UK-based International Transport Sally Roever from UK-based civil society
IFC increases investments in gig economy Workers’ Federation said, “We have serious organisation Women in Informal
platform companies concerns with the rise of investments in ‘gig Employment: Globalizing and Organizing
economy’ companies. Global development said, “We are concerned that the focus on
Labour unions raise workers’ rights
concerns
institutions like the IFC must carefully vet the gig economy risks skewing the analysis
their investments to ensure vulnerable of the informal economy. The rise of working
workers are not being exploited and trapped through platforms in some sectors and
The International Finance Corporation in poverty.” some countries should not obscure the fact
(IFC), the World Bank’s private sector arm, that the majority of the world’s jobs are
has invested in several transport platform Driving a race to the bottom neither formal, nor part of the gig economy.
companies in recent years that have been Though IFC has recognised gig economy Effective policies for poverty reduction
criticised by labour rights advocates for their workers as being particularly vulnerable must address the reality of two billion of
workers’ rights records. during the Covid-19 pandemic, its the world’s workers whose livelihoods are
investment in Bolt follows a growing trend of marginal and unprotected because they
Most recently, in March, IFC invested €20
the IFC financing platform companies in the work in the low-tech informal economy.”
million in Bolt, an Estonian transport platform,
transport and logistics sectors. Last June,
for it to expand services in emerging markets, The World Bank has a long history of
delivery workers in Brazil organised a strike
including South Africa, Nigeria, and Ukraine. promoting labour flexibilisation, not least
over low pay and poor working conditions
The service, which has been compared with through its controversial Doing Business
against Loggi, a motorcycle courier platform,
Uber, enables users to hire taxis via an app. Report and the 2019 World Development
which received a $5 million IFC investment
Report (see Observer Winter 2019, Winter
Bolt faced legal action in the UK in March 2020 in 2016. Over the last three years, IFC has
2018). In a 2019 White Paper on Social
over claims that it failed to pay the minimum also invested in FCS Moove, Uber’s fleet
Protection, the Bank maintained that
wage to its drivers. Earlier this year, the manager in Sub-Saharan Africa, in India-
governments should increase labour
Independent Workers’ Union of Great Britain based food logistics platform Shadowfax,
flexibilisation by limiting minimum wage
held protests over drivers’ safety following the and in Kobo360, a truck delivery platform
increases and making it easier for employers
murder of Bolt driver Gabriel Bringye. Research based in Lagos.
to hire and fire workers.
published by Oxford University in March found
IFC has touted ride-hailing platforms as
that Bolt, alongside Amazon, maintained the Δbit.ly/IFCgigeconomy
an opportunity for women’s economic
worst working conditions for gig economy
empowerment, citing the additional barriers
Photo: Luiginter
workers in the UK.
that women face in accessing the formal
In April, Bolt drivers in Lagos, Nigeria, under economy. Prominent feminist economists
an umbrella body of drivers, the Professional have argued that the reverse is true: that the
E-hailing Drivers and Private Owners gig economy promotes deregulation of the
Association, went on strike to protest poor labour market, which places women in more
working conditions and pay. They called on precarious positions and increases poverty.
Bolt, alongside other transport platforms, In a 2016 paper, researchers Radhika
to raise fares in line with inflation, and Balakrishnan, Lisa McGowan and Cassandra
provide an adequate welfare package and Waters wrote that the gig economy,
compensation for the families of drivers “automatically assigns women a higher
killed and kidnapped on the job. Last month, burden of unpaid care work, and assumes
Bolt was forced to increase its fares in Kenya that the preferential way to address this
after drivers in Nairobi threatened to strike issue is flexible schedules, not better pay,
over high fuel prices. better access to child care and other support
services, or rethinking social stereotypes.”
General Secretary Stephen Cotton from
Gig economy workers in Milan.
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B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
ENVIRONMENT news
World Bank’s oil revenue outlook for Guyana at odds with climate action
published in October 2020. In contrast to the targeted public investment to build
Bank’s Systematic Country Diagnostic Bank, IEEFA found, “that oil revenues won’t resilience. Coastal flooding is an especially
predicts huge revenue from offshore oil cover Guyana’s annual budget deficit over serious risk, as much of Guyana’s population
development for Guyana the next three years and meet its pledge to and economic activity—especially
Concerns Bank’s oil-based growth
build a Sovereign Wealth Fund. This will lead agriculture—is concentrated in low-lying
estimates are overly optimistic and at to a shortfall of $482 million in the first three areas along the Atlantic coast.”
odds with climate goals years.” Even with a predicted improvement
in the following two years, IEEFA notes, Melinda Janki, a Guyanese lawyer, noted,
“the aggregate five-year annual cash deficit “Joseph Stiglitz and Lord Stern, two former
Guyanese civil society has reacted with still is likely to be $160 million,” with the World Bank economists, say renewable
incredulity to the World Bank’s first following period looking highly uncertain: energy offers better economic returns. The
Systematic Country Diagnostic (SCD) for “the outlook for the oil and gas industry International Energy Agency says no new
Guyana, which has suggested that – despite is largely negative. New, long-term global fossil fuel projects. Yet country director
the urgent need to transition to a low- market and political forces have created a Tahseen Sayed and the World Bank team are
carbon global economy – the country will permanent oversupply of oil and gas, low pushing Guyana to transition to oil and to go
experience a substantial windfall from its prices and new competitors that will keep from a carbon sink to a 3.87gigaton carbon
new offshore oil development. According to markets unstable.” bomb disaster. The Executive Directors must
the document, the development could see stop this lunacy before the country team
Guyana’s per capita GDP rise to $16,900 by Ignoring climate risks in favour of business destroy Guyana and the entire planet.”
2030, more than 2.5 times its current size. as usual
Indeed, in response to the threats posed
This comes after research published in The World Bank’s strong support for by climate change, Guyanese citizens sued
September showed that the World Bank and oil-based growth in Guyana is also their government in a ground-breaking case
IMF have routinely over-estimated future counterproductive in light of the country’s filed in May, claiming its pursuit of offshore
revenues from new oil and gas discoveries severe vulnerability to the physical risks oil development is unconstitutional, “on the
over the past two decades, resulting in posed by climate change, even as the grounds that it exacerbates global warming
a ‘presource curse’ in many countries development pathway it endorses means and threatens human rights.” The case,
characterised by a severe mismatch these impacts will be more severe. Ironically, the first of its kind in the Caribbean, was
between policies and actual revenues. the SCD fully acknowledges these risks, filed in Guyana’s Constitutional Court and is
noting, “fiscal risks emanating from climate ongoing.
The Bank’s projection – which will frame and natural disasters could derail…growth
its engagement with Guyana over the and development efforts; necessitating Δbit.ly/Guyanaoilrevenue
next five years – flies in the face of global
Photo: David Stanley
climate goals, which the Bank is ostensibly
supporting all countries to achieve through
its newly released Climate Change Action
Plan for 2021-25 (see Observer Summer
2021). The Bank previously backed Guyana’s
offshore oil development through a
combination of development policy finance
(see Background, What is World Bank
Development Policy Finance) and technical
assistance – with both national and
international civil society being highly critical
of this support (see Observer Autumn 2020).
The Bank’s support ignores increased calls
to abandon new oil and gas extraction
projects. In its Net Zero Report released
in May, even the historically conservative
International Energy Agency noted that
limiting average global temperature increase
to 1.5°C compared to the pre-industrial
period would necessitate “no new oil and
gas being approved for development.”
The Bank’s projection is also at odds with
analysis of Guyana’s oil prospects produced
by the US-based Institute for Energy
Economics and Financial Analysis (IEEFA)
A seawall in Georgetown, Guyana. The low-lying country is highly vulnerable to flooding from sea-level rise
caused by climate change.
7
B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
ENVIRONMENT analysis
World Bank’s new Climate Change Action Plan fails to deliver much-needed
transformative agenda
Bank provided 12 per cent of all G20 and the Paris alignment of IFC and MIGA’s financial
Plan lacks detail in key areas, including multilateral development bank-related intermediary (FI) portfolios, despite the IFC’s
concrete commitments to end fossil fuels public finance for gas projects in developing FI clients frequently being linked to new coal
support countries between 2017-19. In March, over investments (see Observer Winter 2020).
Efforts to crowd in private investors
150 CSOs and academics called on the Bank
to phase out its support for fossil fuels and CCAP deepens Bank’s devotion to ‘Wall
potentially at cross-purposes with just Street Climate Consensus’
energy transition increase support for a just energy transition.
The CCAP emphasises engaging the
“The Climate Change Action Plan allows
private sector in the Bank’s climate work,
The World Bank Group (WBG) published its the WBG to continue to expose the
in line with its wider Maximizing Finance
updated Climate Change Action Plan (CCAP) countries and communities it’s mandated
for Development (MfD) agenda, which
for 2021-25 on 22 June, with the plan to support to the risks and harms of fossil
privileges the private sector and exposes
serving as its corporate strategy on climate fuel development, including increasingly
states to long-term fiscal liabilities (see
change. Despite the CCAP noting that, “Our expensive and volatile energy prices, lock-in
Observer Summer 2017). It notes that,
collective responses to climate change, of obsolete infrastructure, stranded assets,
“public sector interventions can be focused
poverty, and inequality are defining choices illness, displacement, and a delayed and
on helping countries implement policy and
of our age,” civil society organisations (CSOs) unjust transition,” said Luísa Galvão, of
regulatory reforms needed to create the
expressed disappointment at the plan’s lack Friends of the Earth US.
right incentives to crowd-in private sector
of detail in key areas. participants—including through upstream
The CCAP includes a target of 35 per
On paper, the CCAP seeks to help countries cent of the Bank’s investments between reforms—and to catalyze private sector
and private sector clients transform key 2021-25 being “climate-related” on investment, using our menu of advisory and
sectors in alignment with global climate average – a commitment blunted by a financial instruments.”
goals, including through Country Climate lack of transparency about how the Bank
There is a tension between these efforts and
and Development Reports (CCDRs), which accounts for climate finance in its projects
achieving a people-focused climate agenda
“will be used to inform, prioritize, and (see Observer Spring 2021). It affirms that
that is based on a consultative approach
sequence climate action through the the Bank will align most of its finance with
to transforming key systems, in line with
country engagement process and thus the Paris Agreement by 1 July 2023 – with
a just transition to a low-carbon future. As
implement the Action Plan.” The Bank aims further details forthcoming at COP26 in
noted by economist Daniela Gabor in a June
to conduct 25 CCDRs in the coming year, Glasgow in November – putting a deadline
op-ed in UK-based newspaper the Guardian,
but it is unclear how they will influence its on a process initially announced in 2018 at
private sector-led climate efforts, “often
investment decisions. COP24 in Katowice, Poland (see Observer
place the burden of decarbonisation on the
Spring 2019). However, the International
Furthermore, the plan notes that, “All poor,” adding that under MfD, “Government
Finance Corporation (IFC), the Bank’s private
investment in new gas infrastructure will be spending is…directed to ‘derisking’ private
sector investment arm, and the Multilateral
assessed for consistency” with countries’ infrastructure, to cover the gap between the
Investment Guarantee Agency (MIGA), the
national climate plans, but provides no fees paid by users of essential public services
Bank’s political risk insurance arm, are working
explanation of this screening process. This and the commercial rates of return expected
on a delayed timeline, with 100 per cent of
lack of disclosure is concerning, as a June by private investors.”
their “real sector operations” to be aligned by
report from the International Institute for 1 July 2025. The CCAP offers no deadline for Δbit.ly/CCAPlaunch
Sustainable Development (IISD) found the
Photo: World Bank
World Bank President David Malpass, far left, speaks at an event on the economic recovery at the World Bank and IMF Spring Meetings in April, where he highlighted that
the World Bank’s new Climate Change Action Plan was in development.
8
B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
ACCOUNTABILITY news
IMF faces wave of calls to suspend loan disbursements in Africa
During the World Bank and IMF Spring suspensions of IMF loan disbursements. In with Cameroon. Sarah Saadoun, based
Meetings in April, the IMF was confronted Cameroon, 20 women leaders sent a letter in New York with Human Rights Watch,
with a social media storm in Kenya criticising to the IMF asking for a pending loan to be who investigated the implementation of
the institution for approving a $2.34 billion halted until two IMF loans totaling $382 these measures and found that the IMF’s
loan to the East African country amidst million disbursed to Cameroon have been efforts were insufficient, commented that,
allegations of widespread corruption fully accounted for. The new loan comes “The Covid-19 corruption scandal rocking
and concerns about its high debt levels. at a time when Cameroon has already Cameroon shows the high cost of the IMF
Official virtual events of the meetings requested emergency debt relief which is treating anti-corruption and transparency as
were disrupted and a petition to suspend likely to be conditioned on its commitment tick-the-box exercises rather than a means
disbursement of the loan until a new, “to return to the fiscal consolidation path” in toward ensuring public oversight over public
more accountable Kenyan administration the recovery. In June, IMF Communications spending.”
is in office was signed by over 230,000 Director Gerry Rice noted that the Fund had
Δbit.ly/IMFaccountability
“weary Kenyan taxpayers”. The petition agreed anti-corruption measures
lamented that “Kenyans have nothing to
Photo: Phil Pasquini
show for previous IMF loans while prices
of basic commodities such as fuel are
skyrocketing.” Wangari Kinoti, a Kenyan
feminist activist and international policy
advisor with ActionAid tweeted at the time,
“All the Kenyan anti-IMF activity over the
last few days is encouraging, but I wish that
it included a wider critique of what comes
with IMF loans.” In the three-year financing
package in question, IMF staff call for further
reductions in the public wage bill and the
removal of consumption tax exemptions,
including on fuel.
In June, similar citizen initiatives were
launched in Nigeria and Uganda calling for
Illustration of the Kenyan social media storm targeting the IMF during its Spring Meetings in April.
ENVIRONMENT news
Dutch government sued at World Bank tribunal for fossil fuel phase out plan
In February, online news site Clean Energy on Multinational Corporations (SOMO), RWE than 1,000 registered ISDS cases relate to
Wire reported that German energy company “seeks €1.4 billion in compensation for fossil fuel investments”, including oil and
RWE has sued the Dutch government “for damages resulting from a new law, adopted gas extraction and transportation, gas
compensation payments in relation to the in December 2019, that prohibits the use supply and combustion, oil refining, and
country’s coal phase-out plans” at the World of coal for the production of energy as of coal extraction. These reports add further
Bank’s International Centre for Settlement 2030.” evidence of the power of the regulatory
of Investment Disputes (ICSID, see Inside chill produced by the threat of action in
the Institutions, ICSID). The article notes In a separate report, which focused on international arbitration tribunals such as
that, “in contrast to Germany’s planned Anglo-Dutch oil and gas company Royal ICSID, which threatens climate action and
coal exit, the Dutch phase-out law for Dutch Shell’s use of investor-to-state undermines state responses to the Covid-19
the fossil power source does not stipulate dispute settlement (ISDS) mechanisms pandemic (see Observer Summer 2020;
an ‘adequate compensation’ for plant to thwart state efforts to work toward a Winter 2020).
operators.” According to a March report by green and just energy transition, SOMO
stressed that “almost a fifth of the more Δbit.ly/ICSIDNLcoal
the Netherlands-based Centre for Research
9
B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
FINANCE news
Former UN Independent Expert calls for end to IMF surcharges
income for fiscal year 2020. He warned that, The April communiqué of the Group of 24
Open letter calls for IMF to end use of “these surcharges can often lead to debt major developing countries also called on
surcharges costs as much as tripling”, a grave concern the IMF to “correct the regressive and pro-
as countries struggle to respond to the cyclical character” of the policy (see Dispatch
Letter claims that surcharges may violate
international human rights law
Covid-19 pandemic amid high debt levels Spring 2021). In May, Bloomberg quoted
(see Dispatch Spring 2021). Argentina’s President Alberto Fernandez as
stating, “I expect its [surcharges] suspension
In May, former UN Independent Expert (IE) Echoing Professor Gallagher’s concerns, during the pandemic. I hope the Fund’s
on foreign debt and human rights, Juan the open letter, co-signed by the current board discuss this in its October meeting,
Pablo Bohoslavsky, wrote an open letter UN IE on debt and human rights and the and once and for all, eliminates them.” IMF
calling for an end to the use of surcharges International Trade Union Confederation, Managing Director, Kristalina Georgieva
by the IMF, as these extra charges constrain stressed that, “the same countries most responded in May that she, “took note of
the ability of countries in the Global South in need of financial assistance will have to President Fernández’s request and…will
to respond to the Covid-19 pandemic and pay more than USD$4 billion in additional consult with the membership on this issue.”
meet their international human rights surcharges on top of interest payments and Further commenting in May, IMF Director
obligations during a worsening debt crisis other fees from the beginning of the crisis of Communications, Gerry Rice, underlined
(see Dispatch Spring 2021). Since the 1997 to the end of 2022.” The letter noted that that “any review is the prerogative of the
Asian financial crisis, the IMF has sought the surcharges are procyclical, discriminate executive board”, adding that “surcharges
to “generate income to allow the Fund to among countries based on their economic are an important part of what we call our
accumulate precautionary balances” and strength and may therefore contradict risk management framework.”
to disincentivise countries from an over- international law.
Δbit.ly/IEsurcharges
reliance on IMF financing. It does this by The letter argued that surcharges may
penalising them for borrowing beyond also contravene another core principle of
Photo: Phil Pasquini
their allotted IMF quota (see Observer international human rights law, because
Winter 2019) and for maintaining loans for they prevent States from generating,
prolonged periods by charging a premium adequately allocating, and making use
on borrowing costs. These quota and of their maximum available resources
time-based surcharges have become an to move as quickly as possible towards
important source of income for the IMF. the achievement of the full realisation of
As Professor Kevin Gallagher noted in a human rights. It consequently calls on,
March article in UK newspaper, the Financial “countries in the Global North to ensure,
Times, “the IMF estimates the surcharges through their own contributions, that the
have become the Fund’s largest source IMF is adequately and equitably funded to
of revenue, accounting for almost half of undertake its mandated function.”
revenues” and contributing over $1 billion in
Protest at the 2021 IMF Spring Meetings in
Washington DC calling for debt relief.
IFI GOVERNANCE news
Civil society calls for IFC and MIGA to build upon CAO reform
On 1 July, the board of directors of the process must be transforming the IFC’s ineligible complaints not published at all.
International Finance Corporation (IFC), the commitment to providing remedy into a
World Bank’s private sector lending arm, reality for communities who have been The new policy was developed after
and the Multilateral Investment Guarantee harmed by IFC-financed development an external review of IFC and MIGA’s
Agency (MIGA), the World Bank’s political projects.” Margaux Day, of US-based CSO environmental and social accountability
risk insurance arm, announced that they had Accountability Counsel concurred: “The framework. The review, published in August
finalised the development of a new policy CAO facilitates access to remedy, but the 2020, included an assessment of the role and
for the Compliance Advisor Ombudsman IFC and MIGA ultimately need to provide effectiveness of the CAO (see Observer Winter
(CAO), the independent accountability it.” Despite the policy’s overall strength, civil 2019). In May, 24 civil society organisations
mechanism of IFC and MIGA. society organisations were concerned that CSOs who have worked with communities
it nonetheless dilutes portions of the CAO’s seeking remedy for harm caused by IFC and
Reacting to the new policy, Carla García mandate, including through a restriction MIGA, submitted comments to a draft CAO
Zendejas of US-based civil society on the CAO director general’s decision to policy published in April. The submission raised
organisation (CSO) Center for International investigate; projects pending board approval concerns about the above-mentioned dilution
Environmental Law stressed that, “while no longer being eligible for CAO review; and of the CAO’s mandate adopted in the final
the changes in operations at the CAO are eligible complaints will not be published until policy.
well received, a core objective of this reform the conclusion of the assessment phase, with Δbit.ly/NewCAOpolicy
10B RE T TO N WO O D S O B S ERVER SU MM E R 2 0 2 1
GENDER news
World Bank gender-based violence mechanism raises “serious concerns”
In November, the World Bank updated Bank’s GBV Taskforce, launched in October with the policy, stating, “The fact that
its procurement policy to include a 2016 in response to the allegations raised communities are not able to connect with
disqualification mechanism to ban in the road project (see Observer Autumn the Independent Board or take part in
contractors for two years if they are found 2017). investigations means that this mechanism is
to violate its rules on gender-based violence not accountable to those most affected by
(GBV). The mechanism, which applies to However, there are concerns that the its decisions.”
large works contracts approved after 1 mechanism could deter communities from
January 2021, aims to tackle GBV and sexual reporting GBV. Elana Berger with US-based It is also feared that because the policy
exploitation and abuse (SEA) taking place in Bank Information Center said, “There are only applies to projects that are deemed
World Bank-funded projects, after a Bank- serious concerns with this mechanism. high risk, the Bank could be disincentivised
financed Uganda road project was cancelled Communities were critical to raising original from categorising projects as such. Project
due to allegations of abuse by project issues of sexual exploitation around projects contractors and borrowers are also closely
construction workers against women and and they should be involved in all reforms.” involved in the selection of the board,
girls in 2017 (see Observer Spring 2017). raising further concerns about the board’s
She highlighted concerns with access to independence.
The mechanism was recommended by the the board which oversees compliance
Δbit.ly/GBVprocurement
SOCIAL SERVICES news
Malpass makes World Bank a pariah with opposition to TRIPS waiver
On 8 June, World Bank President David In May, US President Joe Biden voiced US
Photo: World Bank / Brandon Payne
Malpass said that the World Bank opposes support for the waiver of some aspects of
the proposal made by India and South Africa the Trade-Related Aspects of Intellectual
at the World Trade Organisation (WTO) to Property Rights (TRIPS) Agreement, which
temporarily waive intellectual property rights 100 developing countries have demanded, in
for Covid-19 vaccines in order to combat the order to increase access to Covid-19 vaccines,
pandemic. Responding to a question about drugs, and other medical technologies.
the Bank’s stance on the waiver during a
call with reporters, Malpass stated, “We The World Bank has come under fire for its
don’t support that, for the reason that it lack of action on vaccine access, particularly
would run the risk of reducing the innovation through its reliance on the COVAX initiative,
and the R&D [research and development] which has only delivered 81 million vaccine
in that sector.” However, research shows doses, falling far behind its target of making
that most R&D costs for Covid-19 vaccines two billion doses of vaccine available
have been financed by public funds, not worldwide in 2021 (see Observer Spring 2021;
pharmaceutical companies. Background). In a June video, Malaysia’s
vaccine minister Khairy Jamaluddin said that
His comments came after he issued a joint COVAX has been an “abysmal failure”, and
statement with IMF Managing Director that the “World Bank owes it to developing
Kristalina Georgieva to the G7 ahead of its countries to be a strong voice for vaccine
June summit calling for action on Covid-19 equity on the global stage.”
vaccine access through a $50 billion plan
Δbit.ly/MalpassIP
proposed by the IMF, which also did not
World Bank President David Malpass speaks at the
endorse the waiver. virtual Spring Meetings in 2021.
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