World order under stress
This week’s spring sessions of the iMF/World Bank take place against a backdrop of ‘crisis upon crisis’, to use the phrase coined by Fund managing director Kristalina Georgieva.
The pandemic, followed by the barbaric invasion of Ukraine by Vladimir Putin’s Russia, has laid bare fundamental weaknesses in the way in which core institutions of international finance work.
Belief in the ability of central banks to control the cost of living has been badly shaken by the post-Covid-experience.
Central bankers totally misjudged the inflation surge. in the UK, group think inside the Bank of England and unsteady leadership from governor Andrew Bailey has seen the country scrambling to catch up with events with disastrous consequences for ordinary citizens.
in the Us the Fed chairman Jay Powell has been so focused on jobs and growth that low interest rates and monetary largesse continued for far too long. in Frankfurt the German tradition of monetary discipline at the European Central Bank has been polluted by the pro-growth tendencies of eurozone members and president Christine Lagarde. All the major central banks are reaching for a reverse gear.
Layered on top of the fallout from coronavirus (which is still wreaking havoc in China) there is the Ukraine shock. For the last three decades, since the break-up of the old soviet Union empire, the West pursued a policy of opening up its institutions to the world’s autocracies through membership of the iMF and World Bank, and the World Trade Organisation.
Trusting autocracies to behave in a responsible way looks to be a colossal error. Russia clearly has no right to be anywhere near the G20. Arguably China, in spite of its status as the world’s second largest economy, can no longer be regarded as a reliable partner.
PREsidEnT Xi Jinping’s security clampdown in hong Kong has strangled human rights and brought the shutters down on the unfettered capitalism. The military intimidation of Taiwan, semiconductor powerhouses of the Pacific, endangers Western economies. China’s refusal to join in the sanctions regime against Russia means it can no longer be relied upon as an economic ally.
This creates huge difficulties for the iMF and World Bank. Anyone attending iMF/ World Bank gatherings in recent times will know how the Bretton Woods institutions have accommodated China. At press briefings, questions from the state-dominated Chinese media have been given huge priority. indeed, Georgieva is accused of putting ‘undue pressure’ on officials in her previous job at the World Bank so as to push China up the rankings on countries which are a good place to do business.
it is just as well from her point of view that as a result of Covid, this week’s meetings will once again largely be online.
Former Fed chief and now Us Treasury secretary Janet Yellen made no secret of her scepticism about the governance of the world economic order in a pre-iMF address at the Atlantic Council last week.
After Ukraine it can no longer be satisfactory to let market forces alone dominate trade and the global economy. Other factors such as respect for sovereignty, security and adherence to labour standards need to be part of trade policy. The world needs to move to ‘friend-shoring’ as she called it. Russia’s actions in Ukraine mean the institutions designed to guarantee global economic prosperity and stability need a total rethink.