False spring

A MOOD OF unwarranted optimism prevailed in Washington D.C. during this year's Spring Meetings of the World Bank and the International Monetary Fund. This conference, which is usually not as important as the Annual Meetings, were significant this year because they were held in the shadow of a slowdown in the global economy and were the first after the new administration took office in the U.S., the largest shareholder and therefore the country with the most influence in the two institutions. But the finance ministers who gathered in Washington were content to express their faith in a quick recovery in the world's industrialised economies, and the U.S., despite earlier expressing its intentions to re-focus the approach of the IMF, did not in the end have any major re-structuring plans to offer.

There has been a marked change in fortunes of the world economy since the governors of the IMF and World Bank last met in Prague in September 2000. Where the prospects for the global economy were then described as the best in a decade, the outlook now is of a substantial deceleration in almost all the economies - developed and developing - in the world. One possible option to prevent this turning into a full-fledged recession is for the European Union to take the place of the slowing U.S. as the engine of the world economy. However, the European Central Bank has once again firmly refused to consider a call to lower interest rates, this time made by the IMF staff report, the World Economic Outlook. The International Monetary and Finance Committee, the main policy-making committee of the IMF, did not see this a cause for concern. It instead premised its ``forward- looking'' approach on the assumption that a turnaround would take place in 2001 itself. The new mantra at the IMF is crisis prevention, which is as it should be because while the IMF has poured billions of dollars into rescue packages in the past decade there is no evidence that it has ever prevented the eruption of a financial or liquidity crisis in any country. Yet even as the IMF considers making crisis prevention a central component of its surveillance activities, it is engaged in formulating two (new) multi-billion dollar rescue packages for Argentina and Turkey, countries which even late last year were not on any list of fragile economies.

India and China received special mention at the meetings for being centres of stability during the current slowdown, but that did not prevent the IMF from marking down the 2001 growth projections for both economies. More ominously, the World Bank tried to draw the attention of the global community by announcing that unless urgent international action was taken it was unlikely that the world would meet the United Nations development goals of halving global poverty and sending all children to school by 2015. The population living on less than a dollar a day - the World Bank benchmark of poverty - has declined imperceptibly from 1.3 billion in 1990 to 1.2 billion in 1998 and 113 million children still do not go to primary school. The one concrete step that was taken during the Spring Meetings was that the World Bank said it was ready to administer a global health fund to fight AIDS, malaria and tuberculosis and also make a contribution of up to $1 billion to such a fund. The proposal which has been talked about for months now received a push recently when the U.N. Secretary-General, Mr. Kofi Annan, put a figure of $7 billion to $10 billion on such a fund. The idea is to finance it with a mixture of contributions from governments, multilateral organisations and private trusts. While there is widespread support for such a fund to fight the three scourges blighting a number of countries in Africa and Asia, the U.S. as usual has expressed some reservations about the proposal.

Send this article to Friends by E-Mail

Section  : Opinion
Previous : The Ayodhya reprieve
Next     : For community grain banks