CFR experts discuss the 2023 Annual Meetings of the World Bank Group and the International Monetary Fund, taking place this week in Marrakech, Morocco.
GOODMAN: My name is Matthew Goodman. I recently joined CFR as director of the Center for Geoeconomic Studies here.
Delighted to welcome you this morning to this event on the World Bank and International Monetary Fund annual meetings that are currently underway in Marrakesh, Morocco. This is an annual—actually, it’s really a semiannual event in practice because there’s also a set of spring meetings here in Washington every year. But this is a big event in the world of international monetary and development affairs, and we—there’s a lot at stake. Obviously, there’s going to be a lot of discussion in these meetings about global—the global economy and global growth, which is already troubled but is now facing a second major war that is going to be presumably disruptive. We’re going to talk a little about that, I think. You know, there are debt issues. There are climate change and other major transnational challenges. And then, you know, this is all against the backdrop of changes in the global order, as it were, where you’ve seen fragmentation among the different countries that are, you know, major players in the global economy.
And so I think we’ll try to explore all of this with a terrific couple of colleagues of mine whom I think are familiar to this group.
They are Benn Steil, who is a senior fellow and director of international economics here at CFR, author of a forthcoming book—am I allowed to preview that, Benn?
GOODMAN: —on Henry Wallace. But he’s written a lot about the origins of these two institutions in the—at the—towards the end of World War II. So a great person to have on this call.
And then Heid Crebo-Rediker, who is adjunct senior fellow here at CFR and also has long experience in international economic policy, including serving as chief economist at the State Department—the first chief economist at the State Department, I think. Right, Heidi?
So a couple of housekeeping notes. This event is on the record and there will be a video posted on CFR.org after the event. The run of show: We’re going to have a conversation here. I’m going to have a conversation with Benn and Heidi for about twenty-five minutes, and then I will invite questions and answers from the group. If you would like to ask a question, there should be a button at the bottom of your screen allowing you to raise your hand. And I will recognize people in the order that I see them. And I think that is all I need to say as introduction, so let’s just jump in here.
And, Benn, let me start with you and ask, kind of what do you think are going to be the big issues that will be under discussion this week in Marrakesh?
STEIL: Matt, you mentioned a dozen or so in your opening. I’m sure we can drill down into a number of those. But there are two that I would highlight that I think will dominate discussion, and they’re intimately related. The first is the resources—the financial resources that the two institutions, the IMF and the World Bank, can bring to bear. There’s broad consensus that this needs to be increased. But the second is the governance of the two institutions. And for better or for worse, those two issues are intimately related.
Without going at least initially too deeply into how the quota system works in the two institutions, it is different in some regard. Borrowing capacity, for example, is separated from quotas in the World Bank whereas it’s intimately linked within the IMF. In both institutions, quota is how much resources you put in relative to the total resources determines your voting power. And in both institutions—this is the way they were designed after World War II, predominantly, of course, by the United States—the United States currently has sole veto power when it comes to major policy decisions. It exercises that power because it is the only country with over a 15 percent voting share.
Now, to increase the resources available to the two institutions, the neatest, cleanest way to do this is to increase the total quota. And if you simply did that proportionately, you wouldn’t affect the voting shares of the individual nations so you could sidestep that particular issue. But given how small China’s voting share is right now—it’s a little over 6 percent in both institutions, which is just over a third of the U.S. share—naturally, China wants a larger voice, a larger share of the total quota.
The United States and its Western allies aren’t against that in principle. Obviously, the United States wants to maintain its veto power and wants to maintain sole veto power, but it is willing to give China, in principle, a bigger say. But there are broad concerns about the extent to which China is really dedicated to the mission of the two institutions, particularly because China has been a barrier to debt restructurings in a number of crisis-hit countries and China has not exactly been an exemplar in terms of financial transparency when it comes to its foreign-exchange holdings.
So, again, even though there is broad consensus that we should and can raise the resources available to these two institutions, going forward with that agenda will be very difficult because of the governance issue. And then we also have the political dysfunction in the U.S. right now, which will make it very difficult for the Biden administration to secure from Congress new funds for the institutions.
GOODMAN: Great. OK. Well, that’s a really important issue that maybe we can explore a little further as we—as we go forward, and there are some other issues you touched on that I want to dive in a little more deeply.
But, Heidi, is there anything else that you’re look at that you think is going to be an important subject in Marrakesh?
CREBO-REDIKER: So a couple of things.
One, I would say that the Biden administration has really put the reform of the MDBs—and particularly, you know, I guess in a sense putting the IMF back in the box a bit with the new leadership of Ajay Banga taking on really the mixture of ending poverty and on a livable planet, so the interconnected challenges of tackling poverty, development, and climate change. The IMF had really put a lot of resources into climate over the past five or six years, and so this is really, I think, a chance for the reforms—which will, you know, hopefully support significant new funding that Benn was alluding to—to be driven, appropriately, by the Bank in its capacity in its core mandate and by the Fund very, very separately, but going back to its core mandate.
The second thing I would say—and we can get—we can get into some of the details—but there’s a very significant long shadow of the geopolitical backdrop. You have—I mean, the buzzwords is fragmentation, but the U.S.-China competition issue is really—you know, it’s—it is driving a lot of the decisions on how we think about quota, as Benn alluded to—how we think about whether or not things like the Common Framework for Debt Restructuring, actually, they’re dysfunctional. And one of the big opportunities, I think, of this particular annual meeting was a new sovereign debt restructuring roundtable that was meant to be as inclusive of all different parties—Paris Club, you know, private markets, important bilateral lenders. And I—from what I heard today, the Chinese foreign minister—finance minister did not show up to these IMF meetings, and one of the challenges is to really get comparable treatment on—I mean, that’s what all of these—the framework is meant to do. And just this morning, it was announced that Sri Lanka and China’s Ex-Im Bank actually cut a side deal and basically blindsided everybody, so it basically tanked the whole concept of coming up with some kind of a—you know, a constructive multilateral framework.
Second on geopolitics, Russia’s invasion of Ukraine. It’s driven inflation, food insecurity, energy insecurity. And then a big—you know, a question for those focused on Ukraine is, really, is the U.S. going to continue to fund and anchor Ukraine’s military and budget support as an anchor to other multilateral and bilateral institutions?
And then the big news, obviously, is the terrorist attack in Israel. It’s had very little, you know, to-date impact on markets, except for a flight to quality. But as this has the potential to widen, will this have an impact on inflation, pushing commodity prices, oil, and gas prices up? And, you know, God forbid, if Iran actually gets more directly involved. Some of the grumblings that I’ve heard have been the pretty muted statement condemning the attacks coming out of the two key institutions.
So we can talk also about the big macro takes. I think there’s a lot more good news buried in the WEO this year than might be the case in the headlines, but handing it back to you.
GOODMAN: Well, let me—let me ask you about that. So, first of all, for the viewers that don’t know the vocabulary, the WEO is the World Economic Outlook, which the IMF issues around each of these meetings. And they have—they have downgraded their forecast for global growth to a little below 3 percent, I think, for next year, and well below the kind of historic average was closer to 4 (percent), I think. And so that’s sort of—and that’s against the backdrop of a lot of the things you’ve already touched on. But fundamentally, you know, it’s—you got a picture where the U.S. is about the only economy that is—that is actually doing pretty well in terms of growth, for now. Though, that’s a question about how long that’s going to last.
You know, China has been slowing and troubled by, you know, real estate-related financial issues and other challenges. Europe is not doing well. And the emerging markets are strained by all of the things that you touched on, Heidi, and some others as well. And now we’ve got, you know, the second conflict in the Middle East, after the one in Ukraine. So there’s a lot of uncertainty and disruption. You know, you just struck an optimistic note or said there’s some positive things in there. So can you just give us a couple of more hopeful, happy things to look at there? And then I’ll ask Ben the same question.
CREBO-REDIKER: Sure. So I guess, you know, the good news is that we haven’t entered a—you know, we haven’t seen the recessions that were anticipated six months ago. We’ve navigated some pretty significant shocks. And then, you know, so the U.S. has been—has been resilient, and has—you know, they’re expecting a soft—more or less, a soft landing, strong labor market. So more resilient than expected. And, you know, emerging markets—large emerging markets were sort of ahead of the game in tightening. So some of the bigger challenges that we—that we could have seen, I think, we—this has not fully played out yet, but it was better than unexpected, the emerging picture coming out of this world economic outlook.
Inflation is uncomfortably high. And I think they’re looking at a global expectation for inflation next year at 5.8 percent. But it’s very hard, you know, to put that kind of a number together, because there’s so much differentiation between different countries. And China, really, you know, that’s one of the biggest question marks. Will the property crisis get much worse? And what the—what are they going to be the spillovers into emerging markets? And that sort of weaves back into the to the geopolitical risk again.
GOODMAN: So, Ben, picking up on this sort of macro picture, and, you know, inflation and monetary policy, which you track closely, I mean, how do you see that unfolding? And what are the—you know, what are the—what does it say about the prospects for, you know, broader global economic growth? And, you know, I mean, if you want to predict what the Fed’s going to do in the next year I’m interested, because that’s going to guide a lot of the rest of the world. But how do you see that outlook?
STEIL: Well, the inflation picture, the growth picture in the United States, are better than we might have expected, say, six, nine months ago. And that’s clearly a positive. Financial conditions have obviously tightened considerably in recent months. And that’s without the Fed doing anything to add to it. That’s the market acting. And that very well may slow economic activity in the United States, which really is the driver of global growth right now, significantly. So that’s something to watch. But I think that at least on the inflation front, the picture is more optimistic than might have been drawn six, nine months ago.
GOODMAN: Yeah. And then you’ve got hanging over the U.S.—and we haven’t touched on this—but, you know, debt—a major, you know, debt challenge here in the U.S. And maybe—you know, there’s been a concern about that for many years, but now a lot more concern just given the absolute size of it and some of these other uncertainties.
STEIL: And it’s driving the tightening of financial conditions in the private markets right now. So, you know, government debt is really back on the agenda in a major way.
GOODMAN: And, you know, there’s also, as you touched on earlier, political dysfunction which raises questions about whether, you know, just in as much as a month from now or a little over a month, we’re going to be back in another—another crisis moment. So there’s a lot to worry about.
OK, let me shift, because there were some other topics I want to make sure we cover or get back into. So let’s talk about the debt situation for a second in the emerging world. Heidi, you’ve given us some breaking news about Ex-Im—China, Ex-Im, and Sri Lanka. This is contrary to a slightly more hopeful direction on Zambia, another country that had defaulted a few years ago on which China’s seem to be playing ball with others, and that it looked like, you know, this was a case where, you know, the common framework, which was this G-20-agreed approach a couple of years ago, was actually possibly going to get some life or wind behind it.
You know, what—you’ve, again, touched on it, but do you want to elaborate a little on what you—what you think is going to be the discussion in Marrakech about these issues, and whether there’s going to be any attempt or actual ability to bring, you know, the major creditors, including, by the way, the private sector, to the table? A lot of private sector in Marrakech, by the way, but there’s a lot of fringe events going on around the actual core institutional meetings. So, sorry, go ahead, Heidi.
CREBO-REDIKER: So, I mean, China is the world’s biggest bilateral lender. But I think, you know, to all of the hailing of progress and constructive conversations, particularly around Zambia, particularly the, you know, as the—as the—one of the most followed negotiations within the common framework, I have to say that I think that three years in saying that there’s victory and constructive collaboration because there’s an MOU which has not been acted upon, is quite underwhelming. And so, you know, I think it really does beg the question of whether or not we can have constructive conversations around a global multilateral table that includes the private sector, and the Paris Club, and large bilateral lenders, and try and do something for countries in debt distress that are able to put them on a better—on a better path.
So, you know, I—whereas I think that the WEO struck sort of a good news/bad news. I’m less optimistic that we’re going to see constructive negotiations, even though I think everybody’s hopeful. Three years in is really—you know, we’re still—we’re still nowhere.
GOODMAN: And you do have a number of countries beyond Sri Lanka and Zambia that are in trouble. I mean, sort of perennials like Argentina, you know, Pakistan, and others. But a number of others. And there’s one other issue, which is that this common framework is really—as applied initially—was really only for lower-income countries, right? Not for middle income. Sri Lanka is a country that, in theory, doesn’t qualify for the common framework. Is that something that’s going to be discussed as a possible change to deal with some of these other—
CREBO-REDIKER: Sure. Well, I think that was the ambition of this sovereign debt restructuring roundtable that really brought together the right parties. And I think they were planning a big launch at this annual meeting. And so, you know, the hope was that that would be the platform, that you could really see constructive negotiation. I think it is—it’s a—it’s unfortunate that the Chinese finance minister did not come to these meetings because the PBOC is not—
GOODMAN: The People’s Bank of China, the central bank.
CREBO-REDIKER: Exactly. They don’t—they don’t actually—they don’t speak for the negotiations that are happening on debt restructuring. So as constructive, you know, as remarks might come from them, it’s really the finance ministry that needs to take the lead on this.
The bigger question, I think, for—not just for debt for countries in debt distress, but more broadly, is where is all this funding going to come from? You know, it’s not just—it’s not just from additional quota and from, you know, extending balance sheets, and additional financing capacity and capital, broadening capital adequacy. So all of that is part of the, you know, the meat and potatoes of the discussions on MDB reform, but you need to get the private sector in there. And that’s been a perennial challenge.
And then at the end of the day, with some of the poorer countries, you need to have concessional funding, because you can’t just layer debt upon debt upon debt when you have high interest rates, where you have, you know, fiscal constraints that are tremendous with poor countries. And they face the biggest challenges from poverty, to climate, and adaptation, as opposed to what would be, like, a financeable type of climate transition in a in a different—a different kind of country.
GOODMAN: And the numbers we’re talking here are in the trillions. I mean, in fact, that independent experts group that Larry Summers cochaired, you know, was talking about, you know, multiple trillions over the next several—I’ve forgotten the time period—but something like 500 billion (dollars) a year of new funding needed, much of that from MDBs, but, you know, from elsewhere, as well. And there’s a real question whether those numbers are realistic. Ben, do you have thoughts on all of this? You did introduce the idea of resources. And so how do you—
STEIL: Yeah, I think the area I want to jump in is on one particular heavily indebted country that I think really nicely illustrates the growing tensions between the Bretton Woods institutions on the one hand, and China. And that’s Pakistan, which is enormously large. Now, I mean, they—you know, the World Bank and the IMF have made many mistakes over the generations. But broadly, they exist to promote financial stability, poverty alleviation, and good governance. And China has other priorities. In the case of case of Pakistan, it was clearly a major beneficiary of Chinese lending, because it’s important geostrategically to China. It is an enemy of one of China’s enemies, major enemies—India. And we don’t have, broadly speaking—“we,” United States, “we,” the West, “we,” the international community do not have much say there.
Now Pakistan has borrowed many tens of billions from China. It is—a number of those projects have gone bad. And then Pakistan, of course, turns around and comes to the IMF and says: We need help now. How do we deal with situations like that? Of course, the IMF is supposed to be there to help countries in crisis, but China was the one who created this crisis. So dealing with those growing frictions between the Bretton Woods institutions and China, which has its own geopolitical priorities is, in my view, unfortunately, only going to get more difficult in the coming—
GOODMAN: And are we likely to see—I mean, as Heidi said—fragmentation is kind of a buzz phrase or a euphemism for all this. But, I mean, let’s actually literally talk about is there a risk of fragmenting this system that’s been in place for, you know, seventy-five years, or whatever, with, you know, China setting up new—and they have set up a new multilateral development bank, the Asian Infrastructure Investment Bank. Actually, more than one, also—
STEIL: The BRICS bank, which is technically called the New Development Bank, absolutely.
GOODMAN: But they haven’t—they haven’t challenged, at least yet, the IMF centrality.
STEIL: No, but Belt and Road obviously has. We’re talking about roughly a trillion dollars in lending over the past ten years. So it’s become a major competitor to the World Bank, first in terms of developing lending. And then because so many of these loans are going bad it becomes a competitor and a conflict generator with the IMF, that’s left to clean up the problems.
GOODMAN: Yeah. And it doesn’t feel—you touched on again—more than touched on, you discussed the quota issue and the challenges there. I mean, you didn’t say quite so clearly, but it’s, I’m sure you would agree, that it seems pretty unlikely that there’s going to be a twain—sorry. (Laughs.) I just let my lights go off. I’m the newbie here, and so my office is still unfamiliar to me. I hope you can still see me.
You know, a twain between, on the one hand, China’s desire for more voice and, you know, centrality in these institutions, and specifically more shares, and on the other hand, frankly, even if you say the administrations over time have understood the need to and willingness to sort of talk about reallocating those shares, I mean, the U.S. Congress—it doesn’t seem like this U.S. Congress, at least, is going to be, in a realistic sense, considering any way that we’re going to reallocate or, you know, give China any additional benefit in the system. So it feels like this is not going to be an area for, you know, compromise, or getting global governance going again in a more concerted, coordinated way, right?
STEIL: No, I mean, I can’t see that, both from a geopolitical perspective. China is not seen any more in Congress as being a responsible player in the international financial community. And that’s a problem in terms of giving China greater voice within the two Bretton Woods institutions, because the last thing we want to see, broadly speaking, is the IMF and the World Bank turned into a global Belt and Road, pursuing China’s geostrategic gain. But then, there’s the issue that even if we can get agreement just to do a proportionate increase in quotas that wouldn’t affect the allocation of votes, Congress is just not in a cooperative mood right now. So the Biden administration is anxious to go forward with greater funding for the two institutions, but Congress is not in cooperation mode. And that undermines the ability of the United States to drive the agenda in Marrakech, because other countries say to us: Well, you can’t deliver on any of your promises. And this is a big problem.
GOODMAN: Yeah. In a couple minutes I’m going to invite questions, so if you have questions get yourself ready and prepare to—or, go ahead and raise your hand. But, first, just—I mean, the other issue that China is a critical player on is climate change. Heidi, and this, as you mentioned, is a topic that is going to be discussed in Marrakech or is being discussed in the context of multilateral development, bank reform, and specifically the Ajay Banga soundbite, in a way that you—that you mentioned. That, you know, he thinks that the World Bank can continue to—and should continue to address poverty, while also enabling a livable planet. Which is, you know, an allusion to these global public goods, starting with climate change but also, you know, healthy—a healthy planet and other global public goods.
So is that going to be—is that where the next—the conversation about climate’s going to happen? And do you expect any, any progress on that, or on any other dimension of the climate story in Marrakech?
CREBO-REDIKER: I think it’s going to be a running theme throughout the meetings, because it is it is a top challenge. And, again, sort of separating the climate finance part of financeable projects in certain more developed markets versus, you know, what role the—not just the World Bank, but the regional development banks. Because, you know, they’re part of—part of this matrix as well.
GOODMAN: Like the African Development Bank, Asian Development Bank, the Inter-American—
CREBO-REDIKER: Asian and Inter-American, exactly, and the EBRD. And so, you know, what—you know, how these institutions can actually support other types of finance for more developed emerging markets, tackling effects risk, trying to figure out what kind of insurance mechanisms, where were different existing tools can be expanded. But also a huge focus on the concessional side. I mean, how do, you know, the poorest countries in the world who don’t have the money for investment in the types of things they need to do to tackle, you know, adaptation, you know, for rising, you know, rising seas, and flooding, and try to actually build in, you know, to the—you know, to their own investment, mitigation for it. That’s going to have to come in concessional funds. And it will need to come from the development banking system because—or bilateral funding from donors—because it’s just not—it won’t—it won’t otherwise—it won’t otherwise work.
GOODMAN: Yeah. I don’t know if you want to add anything, Ben, on those.
STEIL: Just a few comments. I think there is a pretty strong consensus that the World Bank has to make climate change a significant issue, to the extent that the World Bank continues to be a major funder of infrastructure projects in the developing world. It’s important to the planet that those not contribute materially to carbon emissions. There’s a lot more dispute about the extent to which the IMF should be moving into this area. For example, former First Deputy Managing Director Anne Krueger has been quite outspoken about the need for the IMF to stay in its lane and focus on financial stability. So even if you take climate change very seriously, it is not clear that this should be a role for the IMF, whereas it’s much clearer that it has to be for the World Bank.
GOODMAN: OK. I am going to ask Hannah if you want to introduce the Q&A part, and tell us how this works.
(Gives queuing instructions.)
Thank you, Matthew.
GOODMAN: OK. I want to challenge—I know there’s some good reporters on this call. And you guys are usually not shy. So feel free to ask questions. While you’re thinking about that, let me ask—this is the first meeting on the continent of Africa, IMF, World Bank meeting, I think in fifty years, since the early ’70s. There was one in Nairobi. And I think Morocco is definitely trying to—against the backdrop of this tragic earthquake that they had not—just last month, they’re trying to present both Morocco as a stable, you know, successful country, and with leadership capabilities in the region, but also to highlight Africa as a centerpiece.
I mean, we’ve implicitly talked a lot about these issues because we’ve talked about Zambia and some of the other challenges. Many of the debt challenges are in that part of the world, a lot of the climate change issues hit Africa in particular hard—particularly hard. Health and other things as well. So does either of you have thoughts about, you know, the significance of this being a meeting in—on the African continent? And how that’s going to shape the debate?
STEIL: I’ll jump in there briefly. I mean, one thing I think that will come out of Marrakech on the governance side is African countries getting a third seat on the executive board in the World Bank. I mean, that won’t make an enormous difference in terms of governance and how funds are allocated, but I think it will be—it will be symbolic. And it will help ensure that African development issues feature somewhat more prominently as the agenda under new leadership at the World Bank goes forward.
GOODMAN: Mmm hmm. Heidi, any thoughts?
CREBO-REDIKER: So, again, we touched on a lot sort of thematically throughout our conversation, but it’s incredibly symbolic that this meeting did go forward and it is held on the African continent. A lot of the programs that that both the IMF and the World Bank undertake are on the African continent. And a lot of the technical support that both institutions provide. The potential for upgrading how domestic resources can be catalyzed as well, in many—in many African countries. Transparency. And many of the common framework countries are in Africa as well. So sort of this is—and they’re under some of the biggest climate challenges. So it’s really—I think it’s very important that this meeting was held on the African continent. And Morocco has really, from what I’ve heard—we’re not there—but has really delivered so far on providing a great platform for this annual meeting.
GOODMAN: OK. Unless—it seems, again, I’m going offer one more chance and challenge to the reporters interested in these issues to feel free to ask a question. If not, I’m going to wrap in a minute. If either of you, Ben or Heidi, think we haven’t covered something that we should have, let me know. I can, while you’re thinking about that, oh, I think I should say also that corporate members are on this call, and you’re also welcome to ask questions as well, of course. There will be a video and transcript of this conversation posted on CFR.org. And you’ll find other resources available there on these related topics and specific topics that we talked about, and others. So feel free to go there.
Any final benedictions, Ben or Heidi, here? Again, this is going to be a semiannual conversation at least, because this is going to—the spring meetings will be held sometime in probably April of next year in Washington. We’re back, it seems, to the real world and people meeting in person. So one would expect a meeting here in D.C. in April of 2024.
And with that, if no other questions, I’m just going to wrap us up by saying, again, this is on the record. Video is going to be up there. Thank you to Ben and Heidi for your time, your insights, and for this conversation. Thanks to participants for listening. Thanks to the media and members who participated. And we will wrap up there. Thank you very much.