News reports indicate that the G-20 pledged an additional $1.1 trillion in financing for the International Monetary Fund, the World Bank and other global institutions so that they can help countries cope with the global economic crisis. The details of the proposal are virtually non-existent, i.e. exactly who will be responsible for what portion of the pledge, what exactly the money is supposed to be used for, and when it will be delivered. It’s clear that much of the money was already in the pipeline in one form or another. Most of it appears to be in the form of loans, raising the specter of a possible new Third World debt crisis, and most of it is about increasing leverage in the international financial system, injecting exactly the same kind of risk back into the system that market forces are in the process of scrubbing out.
One thing is sure, however: It is a spectacularly bad and high risk idea to pour vast new sums through failed or failing institutions. And that is what the IMF and World Bank are. Both have a woeful record of meeting their chief missions of, respectively, spurring economic development and encouraging responsible economic policies by recipient governments and seeing them through financial crises.
In the case of the World Bank, the preponderance of economic studies indicate that foreign assistance whether provided by the Bank or some other source, is not a key contributor to economic growth and development. That is particularly the case for the world’s poorest region, sub-Saharan Africa, which has yet to have a significant aid recipient escape poverty despite hundreds of billions in assistance from the Bank and other sources over the past five decades. Even leaving aside the Bank’s propensity for ignoring corruption in its own programs, there is little cause to plus up its funds.
The IMF has staggered from financial crisis to financial crisis over the past few decades earning ever poorer marks. Few recipients of IMF assistance have had kind words for the organization after receiving IMF help. True, countries often ignore sound advice from the IMF, but being ineffective and ignored by recipient countries is not a convincing reason to give the organization hundreds of billions of new dollars.
The G-20 announcement isn’t a surprise – these types of meetings demand an outcome statement of action. Over time we will see how much of the promised funds actually materialize in the world economy. Often statements by world leaders in high profile meetings fade into obscurity within hours. Hopefully, the G-20 pledge will follow suit.
Terry Miller writes for The Heritage Foundation.
Read more informative articles at Heritage – The Foundry.