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ECONOMY: Recovery Will Be Jobless
Analysis by Jacques N. Couvas
ISTANBUL, Oct 8, 2009 (IPS) - The annual meetings of the World Bank and the International Monetary Fund
(IMF) ended Wednesday in Istanbul in a climate of cautious hope for the
economy and with a mixed bag of opportunities and challenges for the two
institutions.
Throughout the event, which lasted one week, including plenary sessions,
committee meetings and side conferences, the mantra, first pronounced by
World Bank president Robert Zoellick, that "it is too early to declare success",
resounded in the halls of the Istanbul Congress Centre.
The IMF revised before the meeting its forecast on the future of the
worldwide economy to 1.1 percent shrinkage this year and 3.1 percent
growth next year. Its July forecast had been 0.3 and 0.6 percentage points
lower respectively.
But growth will not be equally shared by all countries. China and emerging
Asian economies are likely to expand by 9.2 and 7.8 percent respectively by
the fourth quarter of 2010, while high-income nations are forecast to achieve
1.7 percent expansion only.
Although 1.6 billion people, living quasi exclusively in poorer countries, are
directly exposed, emerging economies seem to be less vulnerable to the
crisis than developed ones, in relative terms.
In spite of positive outlooks, the number of people reaching levels of poverty
is bound to increase by 90 million next year, while at least 59 million workers
are estimated to join the ranks of the unemployed, according to Zoellick, in
his speech opening the World Bank's annual meeting.
"The post-crisis era is on the horizon, but the recovery will be a jobless one,"
Philippe Le Houerou, World Bank vice-president for Europe and Central Asia
told media.
The Central Asian region looks particularly weak in this respect. The
impoverished population - those earning less than 2.50 dollars a day, will
rise to 35 million, and the vulnerable population, earning less than five
dollars a day, will jump to 150 million by the end of this year.
Job losses seem to affect more the middle-income households than the
poorer ones. Unemployment in Turkey has doubled in 2009 in comparison
with 2008, according to the Bank's data.
The Turkish government's statistics are less pessimistic on the subject,
putting current unemployment at 14.8 percent, as compared with 11 percent
nine months ago. Opposition parties, however, estimate that actual jobless
rates in the country are closer to 18 or even 20 percent.
This uncertainty about the future of the economy and the nature of the true
dangers has raised questions about the role of the Brentwood institutions -
the World Bank and the IMF. But the tide is changing. From initial criticism, at
the outbreak of the crisis in September 2008, for the institutions' failure to
foresee and prevent the downturn, both the World Bank and the IMF have
emerged as the potential saviours of humanity from future economic
disasters.
Dominique Straus-Kahn, IMF managing director, better known in the
financial and political circles as DSK, has been quick to seize the opportunity
for the Fund to play a broader role in coordinating and influencing the
international economy.
In preparation this week for the annual meeting of the Fund's 186 members,
the International Monetary and Financial Committee (IMFC), which acts as the
IMF's policy steering committee, asked for the delegates to address four key
reform areas for the institution: the IMF's mandate, its financing role,
multilateral surveillance, and governance.
"These 'Istanbul decisions' will be a focal point of our activities for the
coming year", Straus-Kahn said at the conclusion of the annual meeting.
The decisions include a plan to review IMF's mandate to allow the body to be
more active in formulating and monitoring macro-economic and financial
sector policies that affect global stability. They are also aimed at boosting the
success of the Flexible Credit Line programme. IMF's ambition is to become
the leading provider of insurance to countries and the "lender of last resort".
One of the main challenges for Straus-Kahn in his drive to give the IMF new
clout and aura will be convincing countries, which self-insure themselves by
building up large reserves, to rely on the Fund for their protection, recovery
and growth needs. Reserves accumulation creates imbalances among
economies.
But the Fund will have to work hard to secure acceptance by members of its
legitimacy in the role it contemplates. The Group of the 20 largest economies
(G20) at its recent meeting at Pittsburgh expressed its intention to exert
stricter control over IMF's expanded role. It also requested a wide range of
reforms in respect to the governance of the Fund, in order to create a more
equitable influence between the developed and developing economies on
decision-making.
Straus-Kahn applauded on several occasions in Istanbul the expansion of the
G7 into G20, and took the opportunity to say that the Fund's membership
was composed of 186 countries, representing all levels of the world's
economy. This is actually where the contention between the central
management of the IMF and its constituency lies. The smaller and poorer
states among the latter are unhappy with the extent of power of the former.
With an aim by the G20 of one trillion dollars to be granted to the IMF in 2010
in order for it to create a central fund in view of balancing the economy, the
least developed countries are eager to have access to decision-making and
overseeing of the distribution of the money.
This has led to a movement among emerging economies to demand greater
voting power on the Washington-based institution's board, which is at
present dominated by well developed, mostly western, economies. As an
example, Germany has 5.9 percent of the votes at the IMF, while China has
3.7 percent, although its GDP is approximately 20 percent higher than
Germany's.
This has prompted the G20 and the IMFC to recommend that the Fund revise
its governance rules and convince its more developed members to transfer 5
percent of their quotas, in terms of voting rights, to emerging economies.
Both the issues of reserves reduction and power-transfer are likely to be met
with resistance from members.
Opposition to reserves reduction comes from developing, rather than
developed economies. Brazilian central bank governor Henrique Meilelles said
this week that "self insurance works better."
China and India are also likely to have concerns over relinquishing their rights
to currency reserves. Nearly 60 percent of the growth of global GDP was
attributed to these countries alone, even before the crisis. This year almost
the entire growth will come from developing markets.
Such sustained relative growth in the emerging economies has raised the
expectations for a better balance of controls among south and north. U.S.
President Barack Obama is favourable to empowering developing nations in
the Fund's governance, but many of his G20 partners have so far displayed
skepticism. Mexican central bank governor Guillermo Ortiz said Monday in
Istanbul he was concerned that "(IMF) legitimacy is not likely to happen
anytime soon."
"The IMF is accountable to its shareholders and that is going to be an issue
(for Strauss-Kahn)," Nobel Prize winning economist Joseph Stiglitz told the
media Monday in Istanbul. "Some countries will want to return to business as
usual as the crisis passes." While Strauss-Khan is doing a very good job, he
said, "it will be hard for him to take charge of such a complex institution and
navigate it through change."
(END)
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