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November 2011 E-Bulletin
2011 International Council Considers Readiness for Next Financial Crisis
At a time when the global economic recovery is sputtering and policymakers are facing extremely difficult choices, the Bretton Woods Committee hosted its 2011 International Council meeting on September 23 to assess Readiness for the Next Financial Crisis.
The Council welcomed leading experts, including Christine Lagarde of the International Monetary Fund, Jean-Claude Trichet of the European Central Bank, William Dudley of the Federal Reserve Bank of New York, and Vikram Pandit of Citigroup, among other distinguished speakers. More than 270 international bankers, government and multilateral officials, and members of the Bretton Woods Committee participated in the broader discussion. Read Full Article and Watch the Speeches
Legislative Outlook for the IFIs
In FY12, President Obama requested $2.072 billion for the Multilateral Development Banks (MDBs), including replenishments for the concessional windows and $358.4 million in general capital increases (GCI) to help the MDBs return to pre-crisis capital levels. Yet, despite recent progress, support for these requests in the U.S. Congress remains uncertain.
The Senate Appropriations Committee recently supported 86% of the Administration's request, while the House Committee on Foreign Affairs supported 36%. On a positive note, on October 12, the Supporting Economic and National Security by Maintaining U.S. Leadership in Multilateral Development Banks Act was marked up by the House International Monetary Policy sub-committee with broad bi-partisan support. As of November 1, it remains unclear if the Act will proceed to the full House Financial Services Committee and at what level funding for the MDBs could be provided.
As part of a broader Congressional education effort, the Committee is acting on multiple fronts to emphasize the important role of U.S. leadership in the MDBs. On October 4, former Cabinet officials and highly respected lawmakers from both sides of the aisle joined the Committee leadership in a letter to Congress expressing strong support for the MDBs; the letter was entered into the Congressional record as part of the sub-committee hearings.
The letter was complemented by visits to Capitol Hill by Committee members Donna Alexander of BAFT-IFSA, Bill Frymoyer of Stewart and Stewart, Frank Record of MK Technology, Bill Reinsch of the National Foreign Trade Council, Committee Secretary Jim Orr, and Committee staff. Organized by Bill Frymoyer, the delegation met with Speaker Boehner's office, the Office of the Majority Whip, Representatives Robert Dold (R-IL) and Don Manzullo (R-IL), and other key staffers to thank House leaders for support of the Act and to urge them to contact appropriators about supporting the highest possible percentage of the Administration's request.
The Committee also has prepared talking points in support of the GCIs and a fact-sheet to help to explain the impact of the MDBs on U.S. global leadership, U.S. economic interests, and U.S. security. We encourage Committee members and friends to voice their support to Members of Congress for the fullest possible MDB funding and to utilize these resources in this effort.
G-20 Eyes Larger Role for IMF in Eurozone
An increase in IMF funding to Europe could be on the horizon as G-20 leaders acknowledge that Europe may not be able to bail out larger countries, such as Italy or Spain, should a continental debt crisis break out. They urged the IMF to propose ways that it could aid countries under severe market pressure in order to prevent a crisis with global repercussions.
Until now, the IMF has funded approximately one-third of the bailouts to Greece, Ireland and Portugal. Helping the eurozone to manage contagion across the system would require a broader use of resources, however, and go well beyond the Fund's traditional role of providing rescue loans to cash-strapped governments.
As part of a lending troika with the European Commission and European Central Bank, the IMF has supported European leaders' new three-pronged eurozone rescue package to ensure the economic survival of the region. While details of the package remain unsettled, private banks accepted a 50% loss on Greek bonds; the capacity of the European Financial Stability Facility - the eurozone bailout fund - will be leveraged to 4-5 times its current €440 billion ($600 billion) capacity; and, European banks will be recapitalized to €106 billion.
The G-20 also tasked the IMF with creating a list of new tools to ease risk, including short-term liquidity instruments such as precautionary credit lines. G-20 leaders are slated to review the proposed tools at their summit in Cannes, France in early November.
IMF Managing Director Christine Lagarde praised the work of European leaders to improve economic governance in the area. "I welcome the decisions to strengthen economic and fiscal coordination within the Euro area and the commitment to make the economic union commensurate with the monetary union. I can assure you that the IMF will continue to play its part in supporting the efforts made to address the challenges facing the Euro area and to restore growth to its full potential," she said. Read Details of the New Eurozone Rescue Package
Moving the U.S. Trade Agenda Forward
On July 26, the Committee hosted United States Trade Representative Ambassador Ron Kirk for a luncheon discussion on Moving the U.S. Trade Agenda Forward. The event examined how renewed progress in international trade policy can keep the U.S. economy forging ahead, thereby supporting business expansion, jobs, and U.S. competitiveness.
During the program, Ambassador Kirk estimated that the free trade agreements (FTAs) with South Korea, Colombia, and Panama - if enacted into law - could generate up to $12.5 billion in trade by spurring new export-oriented activities. It was key, he said, that certain groups, such as farmers and workers, be assured that they will not be disadvantaged as the U.S. moves forward with the FTAs. Ambassador Kirk stressed that renewal of the Trade Adjustment Assistance (TAA) program, together with the FTAs, would have great potential to advance a balanced and ambitious trade agenda that will expand exports and support U.S. jobs.
On October 12, the U.S. Congress passed the Colombia, Panama, and South Korea FTAs and renewed the TAA. The agreements are expected to cut Korean tariffs on 95% of U.S. industrial and consumer goods, including automobiles; eliminate Panamanian duties on 88% of U.S. exports; and eliminate Colombian duties on most agricultural and manufactured goods. Read Full Article
Departure: Jean-Claude Trichet
Jean-Claude Trichet, President of the European Central Bank (ECB) since 2003, stepped down from his post on October 31. Mr. Trichet - a longtime supporter of the Bretton Woods Committee - spent most of his career advancing fiscal prudence and defending the Euro. In 2004, Mr. Trichet resisted moves by European leaders to loosen rules on government borrowing, upholding the Maastricht Treaty, which he co-authored. Throughout his tenure, the ECB ensured price stability and held inflation below the official target of about 2 percent. His career was also defined by the ECB's intervention in European bond markets which resulted in the protection of banks and stabilization of interest rates. Mr. Trichet is succeeded by Mario Draghi, Governor of the Bank of Italy and Chairman of the Financial Stability Board (FSB).
Upcoming Events
On December 6 from 9:30 a.m. - 10:30 a.m., the Committee will host a discussion among IFI, NGO, and business leaders on Responses to the Global Food Crisis at Bread for the World Headquarters in Washington, DC. David Beckmann of Bread for the World will moderate. The program is open to all. To register and for more information, please visit the Committee's website.
June 2011 E-Bulletin
Feature Article: Zoellick, Lipsky & Brainard Headline BWC 2011 Annual Meeting
On May 19, 2011, the Bretton Woods Committee held its twenty-eighth Annual Meeting. The program was held at the International Monetary Fund (IMF) headquarters in Washington, DC, with the theme Risks to the Global System. Participants heard from distinguished speakers regarding development challenges, international financial risks, and the need to meet global responsibilities. Read full summary
Legislative Review: Current Outlook for MDB Legislation
There are two main components of the Administration's annual multilateral development bank (MDB) request. The largest share is comprised of $1.7 billion in appropriations for previously authorized replenishments of the World Bank's International Development Association (IDA), and the African Development Fund and Asian Development Fund. However, the more problematic part of this year's request appears to be the new capital increases for the World Bank, and the Inter-American, Asian and African Development Banks. While the total for these is only $358 million, capital increases come along infrequently and thus lie outside the baseline. The funds in these capital increases enable the development banks to borrow in commercial markets and greatly leverage small government investments. Capital contributions also determine vote shares in the institutions and thus the United States' (U.S.) leadership position.
The new capital increases must be authorized as well as appropriated, but MDB authorizing measures have not passed under regular order in the House of Representatives for decades. Instead the authorizations have been quietly packaged within Foreign Operations Appropriations bills to get around difficult Floor votes.
However, this year the House Appropriations Committee has said they will not include any MDB authorizations in their bill but would perhaps ultimately accept some authorizations if they were included in the Senate bill. The Senate Appropriations Committee has said it will only include authorizations that have been reported out by the Senate Foreign Relations Committee. Thus the key to the current strategy is to ensure Foreign Relations passes these measures. Chairman John Kerry (D-MA) is ready to introduce the necessary bills and is actively looking for a leading Republican to co-sponsor the bills.
Financial Services is the House authorizing committee and their subcommittee on International Monetary Policy and Trade organized a first hearing on the MDBs and capital increases on June 14.
Members of Bretton Woods Committee's Legislative Working Group this week called on representatives of key members of the Senate Foreign Relations and the House Financial Services Committees. Our group made the case for the multilateral piece of the Administration's request citing - among other things - their work in critical countries, their ability to leverage each tax dollar contributed into $55 in lending; and the importance of maintaining America's traditional leadership role. The message from key congressional staff was that funding is very tight due to overall budgetary pressures and lawmakers will look much more closely at all programs to ensure they can be justified. A letter of support from the Committee was also prepared and delivered to relevant lawmakers.
Our current thinking is that we should visit other lawmakers in the coming weeks. We would welcome volunteers to join us for some of these calls.
Upcoming Program: "Cross-Party Cooperation on Trade - Luncheon with Ambassador Ron Kirk", Late July 2011
This program envisions United States Trade Representative Ambassador Ron Kirk presenting his views
on where cross-party cooperation might be possible on trade. The objective is to open the way for advancing the Obama Administration's agenda on trade through frank bipartisan exchange and debate. The program also looks forward to gaining constructive feedback from business and civil society leaders, as well as other stakeholders in the trade debate and the media. Look out for updates on program details at www.brettonwoods.org
BWC Program Highlight: "Turmoil in Europe - A Wider Threat?"
On March 3, 2011, the Bretton Woods Committee hosted a program entitled Turmoil in Europe - A Wider Threat? in Washington, D.C. Annette Heuser, Executive Director, Bertelsmann Foundation, moderated discussions among the distinguished panelists: Ajai Chopra, Deputy Director, European Department, International Monetary Fund (IMF); Simon Johnson, Ronald A. Kurtz (1954) Professor of Entrepreneurship, MIT Sloan School of Management;, Gary Kleiman, Senior Partner, Kleiman International; and Carmen Reinhart, Dennis Weatherstone Senior Fellow, Peterson Institute for International Economics. The objective of the program was to assess whether the current turmoil in Europe risks altering the U.S. growth and recovery outlook. The program explored the current Eurozone economic situation, response to the crisis, and recommendations for policymakers. Read full summary
WTO: G20 Protectionist Measures on the Rise
A report by World Trade Organization (WTO) released recently concluded that there has been an increase in the number of trade restrictive measures by G20 economies between October 2010 and April 2011. Also of concern are trends indicating rising numbers of export restrictions and G20 countries generally still maintaining previously imposed trade barriers. These developments raise worries that the G20 resolve to refrain from protectionist measures may be under pressure. Restrictions on trade could further challenge not only the momentum of global economic recovery but also hurt efforts to build consensus at the national level for countries to move forward with individual liberalization plans. The Bretton Woods Committee, therefore, hopes to especially explore these issues in the United States (U.S.) context at our upcoming July program on Cross-Party Cooperation on Trade with U.S. Trade Representative Ambassador Ron Kirk.
Protectionist Trends. According to the WTO report, new restrictive measures between October 2010 and April 2011 accounted for about 0.6% of total G20 imports and constituted 0.3% increase over the preceding six months. Additionally, rising export restrictions were imposed mainly on food products and some minerals with the aim of securing domestic supply and addressing resource depletion. Of the 550 protectionist trade measures imposed by G20 countries since October 2008, only about 18% have been removed or relaxed to minimize their adverse impact on trade flows - seemingly out of step with the G20 general commitment to keep markets open and liberalize trade.
Worrying Implications. More pronounced trends in trade measures becoming restrictive can give rise to worrying implications for the broader global economy. Export bans, while for the most part outside the ambit of the WTO, can distort markets and hurt net-importing food countries at a time when the poor and developing countries are still grappling with food price volatility. They can lead to negative social and health implications beyond those on trade flows and the economy. As the WTO noted in their report, the impact of export restrictions is "not limited to the market of the restricted product, nor only the country imposing the restriction". The rise in restrictions could also risk the upward trend in global trade flows, which saw the volume of world merchandise trade growing by 14.5% in 2010 after the 12% slump in 2009.
Next steps. Trade flows will remain critical as a source of growth to support stronger recovery following the severity of the global crisis. Whether a restrictive measure is WTO compliant or not, countries should refrain from protectionist policies given continued risks, including ongoing high unemployment and sovereign debt problems threatening global expansion. Moreover, new challenges are emerging in the wake of natural disasters in Japan and social uprisings in the Middle East and North Africa region. Commitment to market opening, therefore, needs to go beyond attempts to gain concessions from trading partners through protracted multilateral negotiations. It is crucial that countries look beyond the Doha Round to work toward further liberalization for the sake of strengthening their own economy and promoting efficiency within their own markets - separately from negotiating to win concessions from trading partners. This, therefore, underscores the importance of building consensus at the national level.
IMF, World Bank Support for G8 Middle East & North Africa Plan
In late May, the Group of Eight (G8) pledged during their summit in Deauville, France, to support Middle East and North African (MENA) countries to help them build their democracies. The International Monetary Fund (IMF) and the World Bank also form part of this global initiative, the so-called "Deauville Partnership": a collaboration among countries, international agencies, and regional institutions wishing to support transition in the region. In the wake the recent social uprisings, timely support for a number of countries in the region, including Egypt and Tunisia, will be vital to aid in their struggle to establish effective institutions and restore economic stability. This welcomed support from the international community is a step in the right direction, but questions remain on what more needs to be done to sustain reforms and how regional cooperation efforts should be shaped going forward. Read full article
IMF & World Bank Support. The IMF committed to provide up to $35 billion as part of a broader international initiative supporting the MENA region. IMF Acting Managing Director John Lipsky stated that the Fund is prepared to work with the region's countries "to meet their urgent financing needs." In early June, Egypt reached agreement with the IMF on a one-year $3 billion financing plan to support the country's economic reforms. The World Bank has pledged up to $6 billion in additional financing for Egypt and Tunisia over the next two years. $4.5 billion is dedicated to supporting Egypt's budget and reserve shortfalls, and strengthening credit and investment prospects. With regards to Tunisia, the Bank could provide $1 billion to support budget and investment projects. This will be over and above an earlier $500 million Bank provision in a $1.2 billion package from the African Development Bank and European donors for a Governance and Opportunity Program.
Urgency in Providing Support. As highlighted by an IMF official, the immediate concern is to ensure prospects for emerging markets in the region will "not be derailed by the multiple pressures" they are currently facing. These pressures include sustaining social cohesion and macroeconomic stability as countries experience a downturn in confidence. The IMF, moreover, estimated that financing needs for oil importers in the region will be in excess of $160 billion over 2011-13. Other pressures noted by the World Bank included significant slowdown in new economic growth forecasts for the MENA region. The updated forecast for 2011 indicates growth to be 3.6% for the region, dropping from a earlier estimate of 5%.
The IMF and the World Bank are also working with other multilateral development banks on "an integrated approach to stabilizing and modernizing" economies in the MENA region. In line with this, the IMF has proposed a multi-year agenda that addresses four key areas: high unemployment, investment and productivity, inclusive growth, and modern and transparent institutions. Similarly, the World Bank highlighted four building blocks it sees as necessary for development in the region: strengthening governance framework, economic and social inclusion, job creation, and accelerating private sector growth.
Issues & Critical Success Factors. A number of outstanding issues persist as the region charts it path for future development. As IMF Acting Managing Director John Lipsky admitted, "more work to define goals and strategies remains." To ensure successful outcomes, Frank Wisner, former United States Ambassador to Egypt 1986-91, also warned during the Bretton Woods Committee 2011 Annual Meeting on May 19 that "political leadership, determination, and ideas would need to be decisive." This would be true not only to determine the size of financing required but how funds will be spent effectively. The current size of the pledged support under the Deauville Partnership may not yet fully account for the comprehensive reform agenda needed to underpin the region's economic and political transformation. For the moment, there is a lack of clarity on how much more needs to be done and funding support for a new growth agenda may be higher. Finally, while the move by the international community to provide support is much welcomed, many including Frank Wisner and Arabia Monitor CEO Dr. Florence Eid believe that transformation in MENA must also be accompanied by increased regional cooperation. As highlighted by the IMF, one of the critical aspects for success is the participation of regional donors and institutions, including the Gulf Cooperation Council (GCC). Supporting this notion, Qatar promoted the regional collaborative idea of establishing a Middle East Development Bank through which it sees local resources and capabilities being mobilized.
Appointment: Nemat Shafik joins the IMF as Deputy Managing Director
Effective April 11, 2011, Dr. Nemat Shafik assumed the position of Deputy Managing Director at the International Monetary Fund (IMF), taking over from Murilo Portugal who resigned on March 4, 2011. Shafik, an Egyptian-born economist, has had an illustrious and diverse career in policy-making, management and academia. She brings to the IMF extensive experience across emerging markets, international development, and the financial sector, as well as a Middle East and Africa perspective. Prior to joining the Fund, Shafik was the Permanent Secretary of the U.K. Department for International Development. She was also the youngest-ever person to be appointed to the position of Vice President at the World Bank.
Departure: A New Role for James C. Orr after 28 Years
The leadership of the Bretton Woods Committee - past and present - express their heartfelt gratitude to Jim Orr for 28 years of unwavering service to the Committee as its Co-Founder and Executive Director.
Jim's visionary idea to form both a nonpartisan forum through which the public could learn about the Bretton Woods institutions, and a powerful U.S. constituency in support of multilateral economic engagement, remains just as pertinent today as it did decades ago. Read full letter from the Committee leadership
Since the Committee's founding in 1983, Committee Members' support and constructive criticism toward the Bretton Woods institutions have been felt across every U.S. Administration and Congress. The Committee's immeasurable impact on U.S. and multilateral development, finance and trade policy has been heavily shaped through Jim's tireless and behind-the-scenes efforts.
While Jim will remain in a leadership role with the Bretton Woods Committee and his commitment will not change, his involvement will be less noticeable. He has vowed to spend more time championing other noble and innovative initiatives, including contributing on the Board of Directors at Technoserve and at Microfinance International Corporation (MFIC), a start-up company striving to bring low cost financial services to underserved populations in developing countries and in the United States. We wish Jim great success in these and other additional endeavors, and we are very pleased he will continue to offer the Committee his time, counsel and support.
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Paul Volcker |
William E. Frenzel Co-Chairman |
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| E. Gerald Corrigan Former Co-Chairman |
James D. Wolfensohn Co-Chairman |
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| Henry Owen Former Co-Chairman |
Richard A. Debs Chairman of the International Council |
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| Charls E. Walker Former Co-Chairman |
Randy S. Rodgers Executive Director |
Departure: Dominique Strauss-Kahn resigns from the IMF
Dominique Strauss-Kahn resigned from his position of Managing Director at the International Monetary Fund (IMF) on May 18, 2011. His formal letter of resignation to the IMF Board may be read here. John Lipsky currently serves as Acting Managing Director of the Fund. Lipsky delivered his first speech, Summoning the Will to Act, in this elevated role at the Bretton Woods Committee 2011 Annual Meeting on May 19. The IMF Executive Board has since initiated the selection process for the next IMF Managing Director, and is considering the nominations of Agustín Carstens and Christine Lagarde. The IMF Executive Board aims to complete the selection process by June 30, 2011. An IMF factsheet on the selection process can be found here.
BWC Members & Friends: New Appointments for Tharman, Kohn
The Bretton Woods Committee wishes to express its congratulations to Tharman Shanmugaratnam and Donald Kohn on their recent appointments. In May, Tharman was appointed to the positions Deputy Prime Minister, Minister of Manpower, and Chairman of the Monetary Authority of Singapore. He will also continue in his role of Minister of Finance, Singapore. Since March 2011, Tharman also serves as Chair of the International Monetary and Financial Committee. Also in May, Kohn was appointed to the Bank of England's new Financial Policy Committee, which was established with a view to protecting and enhancing the resilience of the United Kingdom's financial system. Kohn is a Former Vice Chairman of the Board of Governors of the Federal Reserve System and Senior Fellow at the Brookings Institution. Tharman and Kohn have played significant roles in various Committee programs in recent years, namely speaking on global financial and economic issues during the Committee's International Council programs.
March 2011 E-Bulletin
Feature Article: Food Price Volatility: Challenge for Developing Countries
Food prices hit an all time high this past January, and price relief does not look to be coming in the near future. There has been a consensus of views across the heads of Bretton Woods institutions and chair of the G20, France, that the risk of further rises in food prices remains an especially huge challenge to developing countries. The increasing food prices have been said to also be a contributing factor to the waves of social unrest, including the recent protests in Tunisia, Egypt and other countries in the Middle East. While the current and future problems with increasing commodity prices have been discussed periodically, recent developments have propelled world leaders, the World Bank, and the World Trade Organization (WTO) to bring the issue of food prices to the forefront - identifying the causes and challenges it poses and taking action to moderate the effects, as well as defining where the remaining gaps lie and the steps that need to be taken next.
Causes and challenges. There are several reasons given as to why the ongoing food crisis poses significant concerns to developing countries. When the prices of food soar, developing countries and poor people bear the brunt because food takes a larger share of their family budgets. The World Bank reports people in developing countries use up to 75% of their income for food, so they tend to have very little margin to work with when prices sharply increase. The Food Price Index of the U.N. Food and Agriculture Organization estimates that some 900 million people are currently hungry or malnourished, up from 870 million people in the lead up to the 2007/2008 crisis. Additionally, current data indicates that the price volatility is likely to continue. The World Bank has reported that while international food prices have fallen, local food prices in many countries have yet to come down. Rising food prices have also caused inflation in Asia, prompting China to sell part of its state food reserves in order cool prices. There are other contributing factors causing the volatility in food prices as well. Pascal Lamy, Director-General at the WTO, and Robert Zoellick, President of the World Bank, agree that bad weather, the growing use of biofuel, and increases in world food consumption and income levels have exacerbated the current food crisis and food insecurity. Lamy has also highlighted that trade barriers, such as tariffs and subsidies, allow market distortions to persist - thus preventing the easing of food price volatility.
Actions taken. A number of initiatives have been implemented by the World Bank to manage the current volatility of food prices. The Bank has extended the use of expedited project processing through to June 2011 under the Global Food Crisis Response Program that was created in 2008 to help countries hit hardest by food crises. The World Bank also serves as a Trustee to the Global Agriculture and Food Security Program that was set up in response to the request by the 2009 G20 Summit in Pittsburgh. The program addresses the lack of funding for agricultural and food security investment plans to boost productivity and production of agriculture. It is currently active in eight countries, including Haiti, Ethiopia, and Bangladesh. In addition, the International Finance Corporation has increased investment in the agricultural sector along the agribusiness supply chain to enhance production and distribution efficiency, as well as to increase access to credit for small farmers.
Gaps remain. On the upside, the world appears better prepared to handle the food crisis now than it was in 2008, where export bans, food riots, panic buying and emergency price controls were common. Since then, the various policy actions taken has helped to raise agriculture productivity and production, as well as increase local production of food staples in developing countries, including in regions such as sub-Saharan Africa. But gaps remain and more needs to be done to address the continuing challenge of food price volatility in 2011. For developing countries in particular, this is critical - as the intense rioting during the 2008 crisis demonstrated, threats to food security can have severe repercussions on social stability. There are also unaddressed links between food security and trade. Export restrictions can adversely affect net-food-importing countries and deprive the World Food Program of the food it needs to acquire to help others. It is equally crucial that systemically important food-exporting countries like Russia become WTO members and be governed by the same global trading rules as the majority of other countries. This will afford greater predictability and security for food and commodities in the international trading system. As we have seen, when crops failed in late 2010 in the Black Sea region of Russia and its neighboring countries, Russia imposed export controls with the intention of keeping domestic prices low and maintaining self-sufficiency. But this exacerbated soaring food prices in net-food-importing countries, many of which are developing countries.
Next steps. The WTO, the World Bank, and the G20 are all considering appropriate next steps to take to manage the challenges of the current food crisis. Under the Doha Round, Lamy has emphasized the need to examine the barriers that currently impact agricultural production and agricultural trade, with an eye towards food security. Going beyond addressing import barriers already on the Doha agenda, Lamy would like to consider exempting humanitarian food aid from export bans so that programs like the World Food Program can still operate in net-food-importing countries. Zoellick, on the other hand, has recommended the creation of targeted government aid plans for the poor to provide solutions over the short term. Meanwhile, he proposes other steps can be taken toward solutions for the long term, such as developing better information on food stocks as well as long-range weather forecasting in the developing world.
France, as the chair of the G20, will be convening the first meeting of the G20 agriculture ministers in June 2011. This will continue and deepen discussions that began at the Seoul Summit last year on intentions to increase agricultural productivity and food availability through new mechanisms and practical investment, as well as to better manage price volatility without distorting the markets. Working-level meetings on food security and food prices have also been established, and the 2011 French chair will continue to press G20 governments for greater coordination in the face of volatile commodity and food prices. Ideas that will be considered by the G20 include requesting commodity investors to trade through exchanges rather than less transparent over-the-counter transactions, and pressing for better sharing of data and crop forecasting.
However, all of these institutions must coordinate their efforts in order for their intended measures of solutions to operate effectively. The current situation has brought to light that coordinated efforts across the Bretton Woods institutions are especially key given that World Bank programs on food may not function as successfully if unresolved issues under Doha persist and market distortions remain. Looking ahead, garnering political will across countries, especially among G20 countries, is also vital in view of differences emerging on whether food price volatility should be at the forefront of key issues to be addressed.
The specter of a federal government shutdown on March 5 appears to be receding as Senate Democrats cautiously agreed to the Republican proposal to cut $4 billion in federal spending by targeting programs that President Obama has already identified as unnecessary. Nevertheless, the proposal would offer only temporary relief and avoid a government shutdown until March 18.
On February 14 President Obama released his FY2012 budget, and it was quickly rejected out of hand. Even normally sympathetic partisans faulted the effort for ducking all of the hard issues, especially the need for comprehensive entitlement reforms to slow-growing deficits. Notable in the White House budget, however, was the exemption of the international affairs budget - including spending for multilateral financial institutions - from the President's proposals for a five-year spending freeze on non-security discretionary spending.
Current year funding levels for the multilaterals are still undecided. House Republicans showing their seriousness of intent to reduce the budget whacked current year spending by $61 billion. Almost nothing in the budget was exempt. The bill brought to the floor by Republican leadership included a 19% cut to the international affairs budget and a 40% cut to the multilateral accounts.
An amendment offered by Representative Heller (R-NV) which reached debate on the House floor proposed to reduce funding to the multilateral institutions even further. It proposed reductions of $211 million in a small group of multilateral accounts that included a $136 million cut from the International Development Association (IDA), the World Bank's soft loan program aimed at the poorest countries. The World Bank, Treasury, the U.S. Chamber of Commerce and the Bretton Woods Committee (BWC) joined in the last minute effort to turn back the amendment. In a somewhat surprising outcome it went down to defeat (190-241) as Democrats teamed with moderate Republicans to oppose it. Fifty-nine Republicans, including 20 freshmen, voted against the amendment. Ten Democrats supported it.
To our minds this House vote indicated a potentially growing acceptance of the argument that Congress must protect the international affairs budget along with defense spending. During the House floor debate it was noticeable that even some Tea Party budget hawks softened their rhetoric in acknowledgement that the international affairs budget is vital to U.S. national security and other global interests.
Outlook
Analysts agree that the House-passed funding bill with its $61 billion in cuts is too draconian to serve as the basis for a House-Senate compromise, with sharp divisions remaining among lawmakers over how the government is to be financed through to September 30 .
FY2012 issues are still to be considered. Treasury has a larger than usual set of funding requests for next year. There is a need to increase World Bank capital for the first time in over a decade and a new IDA authorization along with some other multilateral programs. The jump in the size of the FY12 request will complicate passage through Congress this year. In response, the BWC's newly-formed legislative working group will make calls on key House and Senate members during March, reminding lawmakers of the importance of these programs. We have a group of BWC members targeted to help us on this project but would welcome other volunteers.
Despite the negative atmospherics of the moment, we remain optimistic that a grand budget compromise may still be possible this year. The President's budget proposes none of the entitlement reforms that will be needed, even as the White House acknowledges that the current trends are untenable. Republican leaders were quick to find fault but slow to offer any solutions of their own. In spite of the risks, a bipartisan group of moderate Senators is working quietly behind the scenes on a grand compromise based in part on the reforms advanced by the Bowels-Simpson budget commission. If their effort gains critical mass the White House is sure to come quickly on board. Again, the House of Representatives will hold the key. How the Tea Party faction of the Republican Party reacts may be decisive here as well.
Upcoming Program: "Turmoil in Europe - A Wider Threat?", March 3
This program aims to assess whether the current turmoil in Europe risks altering the U.S. and global growth and recovery outlook. Confirmed speakers are Simon Johnson of the Massachusetts Institute of Technology, Carmen Reinhart of the Peterson Institute for International Economics, Ajai Chopra of the International Monetary Fund and Gary Kleiman of Kleiman International. See event page
IMF: Stresses in Euro Area Risk Global Recovery
The Global Financial Stability and World Economic Outlook Updates released in January 2011 by the International Monetary Fund (IMF) have highlighted that downside risks remain despite global growth accelerating somewhat. Among the contributing factors to these risks are renewed challenges in the euro area periphery. These reports have outlined the reasons behind the continued stresses in Europe and recommended policy actions to reduce uncertainty and restore market confidence. As policymakers deliberate on the next steps to be taken, significant questions remain on the outlook for the euro area, and its potential implications on other countries and regions. The Bretton Woods Committee, therefore, hopes to more deeply explore these questions at its upcoming program, Turmoil in Europe - A Wider Threat?, on March 3, 2011.
Stresses in the euro area. The IMF has reported that, among others, risks to global growth arise from the possibility of tensions spilling over from the periphery to the core of Europe. It has reasoned that strong financial linkages between the periphery with countries in the core could result in a slowing of growth and demand that would adversely impact global recovery, despite the periphery accounting for a small share of the euro area's GDP and trade. Specifically, the interaction between the banking and sovereign risks are a particular cause for concern, which the IMF has identified as ‘the root of the problem in many of the countries hit by the crisis'.
Recommended next steps. In order to reassure markets, the IMF has recommended that more stringent and credible stress tests for the region's banks be conducted, followed by recapitalization of viable institutions. It was further proposed by the IMF that Euro area-wide resolution mechanisms be formulated and reinforced, and at least for the time being the European Central Bank should continue to provide liquidity to banks and help preserve financial stability through securities purchases. On the Fund's suggestion that the European Financial Stability Facility's (EFSF) effective size be raised, the European Union's finance ministers have in principle agreed in recent weeks that the permanent support mechanism for the eurozone (the European Stability Mechanism) that will succeed the EFSF in 2013 should be able to lend €500 billion, doubling the effective capacity of the existing fund.
Remaining questions. With differences in opinion persisting among European countries, including on proposals of how to resolve future crises, the policy direction going forward remains unclear despite progress being made on some fronts. Questions have repeatedly been raised on the need for more comprehensive, faster and decisive actions to secure stability and regenerate growth in the euro area. Additionally, further action has been urged to remedy and reform financial systems, including the clarification of regulatory reforms. Given the ongoing uncertainty in the policy and growth outlook for the euro area, there have been concerns of how a spreading European crisis could affect U.S.' and global economic prospects. The Committee's program on March 3, Turmoil in Europe - A Wider Threat?, addresses questions surrounding spillover effects, market confidence, and policy actions the U.S. and other regions can take to minimize potential contagion from Europe.
WTO: RTAs Continuing to Challenge the Global Trading System?
The debate continues as to whether the proliferation of regional trade agreements (RTAs) could threaten the global trading system governed by the World Trade Organization (WTO). Many have contended that one of the principal reasons behind the rise in the number of RTAs is the lack of movement in multilateral negotiations under the Doha Development Agenda - which in turn has driven countries to seek an alternative means of liberalizing trade with specific partners. While some view RTAs as parallel building blocks to a more expanded future global trading system, others fear that their spread would dilute the legitimacy of the WTO architecture. Current discussions at the WTO to review the transparency mechanism to report on RTAs, therefore, could prove significant to ensure that the multilateral system is not undermined as more and more countries engage in trade agreements that fall outside the WTO process.
Reasons for the spread of RTAs. The number of RTAs has been steadily on the rise over the last few years. The WTO has reported that there are 371 RTAs that have been signed, of which 193 are in force. This trend is likely to continue and be strengthened by the ongoing negotiations of many other RTAs. With the Doha negotiations essentially dormant, many countries have felt compelled to pursue their trade liberalization goals on a narrower basis through RTAs. As more countries move to negotiate RTAs, this leads to others doing the same lest they be left behind in competing for export market shares and growing target destinations. This has also led the U.S. to shift its outlook somewhat in recent months to finalize its outstanding bilateral trade agreements. Moreover, the growth of trade among developing countries has played a significant role as the number of RTAs among these countries is also on the rise. With rapidly expanding markets in China and India, we can expect to see more RTAs such as those signed in recent years between China and the group of ASEAN countries, and India and Malaysia.
RTAs challenging the global system? There have been times that RTAs have paved the way for wider agreements under the WTO. For example, we have observed services, intellectual property, environmental standards, investment and competition policies as issues that were raised under RTAs initially and later developed into agreements or topics of discussion at the WTO. These are instances where RTAs have complemented and served as building blocks to the WTO system. But RTAs also raise the possibility of diverting trade away from countries not within the pact. These countries are not able to compete on a level playing field as they are not extended similar trade concessions under specific RTAs. Trade diversion, however, becomes more of a risk if RTAs truly offered deep and real preferential concessions to those within the pact vis-à-vis those outside it. Nevertheless, as under multilateral negotiations, liberalization under RTAs often take an incremental approach and start with minimal concessions that will only be expanded under later rounds of negotiations.
RTAs and the WTO. Whether existing RTAs pose a real challenge to the WTO system or otherwise, it is clear that the network of RTAs will expand and become increasingly more complex, with many countries having overlapping membership in regional and bilateral agreements. Going forward, the WTO would likely need to enhance its monitoring framework on RTAs, so as to ensure predictability and security in countries continuing to comply with their WTO commitments and obligations. Ongoing discussions at the WTO to review and improve its transparency mechanism for RTAs reporting may, therefore, prove crucial in this context.
Departure: Murilo Portugal
After serving as Deputy Managing Director at the International Monetary Fund (IMF) since 2006, Murilo Portugal has stepped down from the position in light of the ongoing selection process for the next president of the Brazilian Banking Federation. As Deputy Managing Director, Mr. Portugal led the Fund's important work in technical assistance, training, statistics and data management, and he held responsibility over a portfolio of 81 member countries in the IMF's management team. He will stay on as a Special Advisor to the Managing Director until March 2011.
Departure: Youssef Boutros-Ghali
Youssef Boutros-Ghali is stepping down from his position as Chairman of the International Monetary and Financial Committee. As Chairman since 2008, Dr. Boutros-Ghali played a key role in providing guidance to help secure policy coordination following the financial crisis. Dr. Boutros-Ghali also worked to shape a better future for the International Monetary Fund, as he contributed to the modernization of surveillance, quota and governance reforms, and to the overhaul of the lending framework.
December 2010 E-Bulletin
Feature Article: 2010 International Council Meeting
On October 8, 2010, the Bretton Woods Committee held its annual International Council Meeting in Washington, DC, with the theme Integrating Global Financial and Economic Reforms. Jean-Claude Trichet, Christine Lagarde, Zhou Xiaochuan, Henrique Meirelles, Mark Carney, Dominique Strauss-Kahn, Tharman Shanmugaratnam and many others provided their perspectives on a reform path forward.
Speakers and participants discussed efforts to solve key global economic imbalances, and to ensure global and national regulators move toward common, transparent standards in measuring systemic risk and regulating banks and other systemic financial institutions. Read full article
BWC Program Highlight: Africa's Needs and the Evolving Role of Development Aid
On October 29, 2010, the Bretton Woods Committee hosted a program on Africa's Needs and the Evolving Role of Development Aid in Washington, DC. Panelists, who included prominent representatives from the World Bank, the private sector, and academia, explored the key constraints to economic growth in sub-Saharan Africa, how to make development aid more effective, and the role of the private sector in the development process. They particularly emphasized the wealth of opportunities the region presented, and drew attention to the growing realization that aid should be channeled to catalyze private sector activity to support development in the sub-Saharan African countries. Read full article
Governance Reforms Approved by IMF Board
The Bretton Woods Committee welcomes the historic governance reforms approved by the Executive Board of the International Monetary Fund (IMF) on November 5, 2010, and hopes the changes will lend towards a more legitimate, democratic, and effective global institution. The core of the changes constitute a realignment of quotas to be more reflective of the share of member countries' contribution to the global economy. The reform measures are in line with a number of proposals put forward by a group of experts following a meeting convened by the Bretton Woods Committee in February 2009 in the paper entitled Advancing the Reform Agenda: Recommendations to the G-20 on International Financial Institution Reform. Specifically, these are in relation to revising the IMF quota distribution and corresponding share of countries' voting power, providing additional resources to the IMF, and providing for a more regionally diverse and fully elected Executive Board.
IMF quotas and voting power. IMF quotas will be doubled and realigned to shift six percent of quota shares to emerging market and developing countries. Eighty percent of the shift is the result of a reduction in advanced economies' and oil producers' shares, while 20 percent of the shift comes from other emerging countries. At the same time, the quota and voting shares of the poorest developing countries are preserved. Once implemented, the measures will see Brazil, Russia, India and China (the so-called ‘BRIC' countries) among the top 10 of IMF shareholders.
Additional resources. With the doubling of quotas, the IMF's financial resources will increase by 100 percent to SDR 476.8 billion (about $755.7 billion). Nevertheless, in light of the corresponding rollback of the New Arrangements to Borrow once the quota increase becomes effective - agreed to as part of the reform package to preserve relative shares - it does appear that the overall resources available to the IMF will remain relatively unchanged. With the IMF having to mount unanticipated rescue efforts in recent times, including the package to restore the health of public finances and banks in Greece and Ireland together with European partners, some contend more effort should be made to call for a real and effective sizable increase of IMF financial resources. This might equip the Fund to more appropriately respond to crisis prevention and crisis management needs going forward.
Executive Board changes. While the total number of seats on the IMF's Executive Board will be maintained at 24, two more emerging countries will join the Executive Board of the IMF, reflecting the change in quotas once it is implemented. This will correspond with advanced European countries holding two fewer seats. Additionally, it was decided that all Executive Directors will be elected as part of the reform package. This is a shift from the current process, whereby five of the 24 Executive Directors are appointed by the countries who are the largest shareholders (the United States [U.S.], Japan, Germany, France and the United Kingdom).
Implementation. Looking ahead, the Committee hopes the IMF will continue to maintain the momentum for reform by adhering to its reform implementation schedule. This would include reforms on quota increases and realignments taking effect by October 2012, and changes to the Executive Board by late 2012, incorporating amendments to provisions under the Articles of Agreement where relevant.
World Bank Reactivates Food Fund Amid Concern Over Food Volatility
Due to concerns over world food price volatility and its impact on poor and developing countries, the World Bank's Board of Executive Directors has voted to reactivate the Global Food Crisis Response Program (GFRP), including the ability to fast-track disbursements in emergency situations. This will allow up to $760 billion to be used in a variety of ways to respond to food crises. The World Bank expects food price volatility to continue until at least 2015, making the reactivation of the GFRP necessary in order to ensure that the Bank can effectively respond to countries that need assistance.
Fast-tracking disbursements. While the extension of this program does not mean that countries will receive extra funds, the GFRP allows these funds to be fast-tracked and thus much more quickly disbursed in emergency situations. This fast-track authority had expired June 30, but this new vote reactivates this authority until June 30, 2011. (Note: Funds for this program come from provisions that are already dedicated to particular countries through the International Development Association [IDA] and the International Bank for Reconstruction and Development [IBRD]).
Use of the funds. The GFRP is designed to support social safety net programs, including food for work, conditional transfers, and school feeding programs. Program funds are also used to support food production by supplying seeds, fertilizer, and irrigation to small-scale farmers. Funds can also be used to provide budgetary support to offset tariff reductions, or in the event of unexpected costs.
To date, the GFRP through the World Bank has disbursed $1.2 billion to 35 countries, many of which are in the hardest-hit areas of Africa and Asia. External donors have provided an additional $200 million, which have been put towards GFRP support in four other countries. About 5.9 million farming households have directly benefited from this program, and it is estimated that the support of social safety net programs has affected another 5.6 million people.
Long-term solutions. The World Bank also oversees the Global Agriculture and Food Security Program, which was launched in April to implement long-term solutions to recurring food crises. The program's goal is to help poor countries increase support for agricultural production and food security. The program uses long-term food security investment plans that are country-led, civil-society inclusive, and based on demonstrated success.
Appointment: Mahmoud Mohieldin
World Bank President, Robert Zoellick, appointed Egyptian Investment Minister Mahmoud Mohieldin as Managing Director of the World Bank Group. Mr. Mohieldin, who served as the Egyptian Investment Minister since 2004, assumed the position at the Bank on October 4, 2010.
As Managing Director, Mr. Mohieldin oversees the offices leading the Bank's Knowledge Development, including Finance and Private Sector Development, and Poverty and Reduction as well as Economic Management, among others. In addition, Mr. Mohieldin intends to continue his work with the Bank's Arab World Initiative. He earned a global reputation for his effective and strategic management style while overseeing a comprehensive structural and regulator reform program in Egypt that aimed to modernize and liberalize the economy in critical areas.
Departure: Lawrence Summers
After serving for two years as National Economic Council (NEC) Director, Lawrence Summers is expected to step down from the position by the end of the year and return to his teaching post at Harvard University. As Director of the NEC, Dr. Summers has been advising President Obama on domestic and global economic policy and leading daily economic briefs. He realized before many others that the United States was on the verge of a nationwide recession and pushed for action. In the aftermath of the 2008 financial crisis, Dr. Summers helped oversee the massive economic stimulus agenda and the overhaul of U.S. financial regulation.
Before serving in the Obama administration, Dr. Summers served as President at Harvard University and was a member of the Bretton Woods Committee. He also served in previous roles as U.S. Treasury Secretary, and as the Chief Economist at the World Bank.
Departure: John Donaldson
John Donaldson is stepping down from his World Bank position as senior external affairs advisor after 15 years of service. During his tenure John was often the principal force behind the Bank's outreach efforts to Congress and the U.S. business community. He came to the World Bank from a legislative background. John worked for a Member of Congress from Michigan and as a lobbyist for the Commerce and Treasury Departments, and later for a well-regarded Washington lobbying firm. While in the administration he was instrumental in helping Congress find a way to pass the 1983 IMF quota increase legislation, and at Treasury and the World Bank he helped package a series of replenishments to International Development Association (IDA). In both his business and World Bank careers John worked with African nations and some of their leaders, and he has been a passionate advocate of that region's interests.
The Bretton Woods Committee (BWC) has been especially grateful to John for his kindness to us over the years, and for efforts to strengthen the relationship between the Committee and the World Bank. John will be rejoining the BWC as a Member, and we are pleased to be featuring him on the Committee's website as our Member of the Month for December.
September 2010 E-Bulletin
Feature Article: The IMF's Next Phase of Reform
In recent weeks, the International Monetary Fund (IMF) has outlined the specific steps it is taking to mark its next phase of reform. Such steps, in part based on mandates set by G-20 leaders at the June 2010 Toronto Summit, are intended to enable the Fund to become more responsive and adaptive to the changing needs of member countries. The objective is for the IMF to contribute to a more stable and resilient international monetary system. IMF Managing Director Dominique Strauss-Kahn emphasized that IMF reform requires clarifying and improving its role across three main fronts: governance, lending and surveillance.
Reforming Governance. Modernization of the IMF's governance structure is seen by world leaders as a critical component of their effort to improve the IMF's credibility, legitimacy, and effectiveness. At the Toronto Summit world leaders acknowledged that the IMF should maintain its quota and voting system, but that quotas must better reflect the growing importance of emerging markets and developing countries. An increase in the voice and participation of developing countries is perceived as not only enhancing the legitimacy of the IMF but also providing the IMF with $30 billion in new quota resources. For its part, the IMF has vocally advocated for a strengthening of Asia's role and voice in the global economy.
To implement governance reform, G-20 members who have yet to ratify the 2008 IMF Quota and Voice Reforms have committed to do so by the next G-20 Summit in Seoul Korea, taking place in November. Supporters of the effort are urging other IMF members to ratify the agreement within the year if they have not done so. Over and above this, the IMF has committed to a 5 percent quota shift from developed to emerging market and developing countries. Discussions over IMF membership quota revision, as well as a potential reshuffling of seats on the Fund's 24-member executive board, remain politically sensitive, particularly among U.S. and European stakeholders who hold the largest positions in the Fund. It is anticipated key stakeholders will reach a bargain over voting and quota representation by the November Summit.
Additionally, other governance reforms the IMF will undertake include developing mechanisms for greater ministerial engagement, greater emerging market and developing country representation on the Executive Board, a more open and transparent management selection process, and improved diversity among its staff to reflect the institution's global membership.
Enhancing lending tools. A set of lending reforms to further strengthen the IMF's capacity to assist countries in preventing crises was approved by its Executive Board on August 30, 2010. Specifically, the Board agreed to increase the duration and credit available under the existing Flexible Credit Line (FCL) and to establish a new Precautionary Credit Line (PCL). This decision is consistent with the call by G-20 Leaders for the IMF to make rapid progress in reviewing and reforming its lending instruments.
The IMF introduced the FCL for countries with strong fundamentals and policies, as a tool to prevent crises during the global economic slowdown. Since then, the FCL has been refined to double the duration of the credit line (up to one year, or two years with an interim review after one year). The amount of credit available under the FCL has also been increased with the removal of the implicit cap on access of 1000 percent of a member's IMF quota, which allows for decisions to be based on individual country financing needs.
The Fund recently introduced a Precautionary Credit Line (PCL) for those countries that may not qualify for the FCL, but have largely sound fundamentals and policies. The PCL still requires generally strong macroeconomic and financial sector performance, but it permits access to precautionary resources to a wider group of countries that may have moderate vulnerabilities. The features of the PCL include applying limited ex post conditionality designed to reduce identified vulnerabilities in countries utilizing this facility. On approval of the arrangement, the PCL may frontload financing access of up to 500 percent of quota. After 12 months, up to a total 1000 of quota can be made available.
The IMF is also hoping to establish a lending framework to deal with crises that stem from systemic shocks. There have been preliminary discussions by the IMF's Executive Board on possible options under a Global Stabilization Mechanism (GSM). The idea is to have a coordinated mechanism to proactively provide countries under pressure with timely liquidity so as to contain the risks of spillover contagion. Conceptually, the IMF would provide multi-country assistance simultaneously to enhance its ability to manage global instability by coordinating responses to systemic events with central banks and regional institutions, among others.
Additionally, the IMF is exploring options for collaboration with regional financing arrangements, similar to the IMF's recent collaboration with the European Union. Strauss-Kahn has urged that such enhanced lending tools would be complementary to countries' own mechanisms to prevent crises and it may also include cooperation with regional arrangements.
Finally, the IMF will explore the question of an enhanced role for the Special Drawing Rights during stable, non-crisis periods in relation to the composition of the supply of reserves.
Strengthening surveillance. To complement its existing bilateral surveillance process, the IMF has called for "a new toolkit for a new era" for surveillance, and will direct its efforts more toward macro-financial stability issues and enhancing multilateral surveillance. Prior efforts toward strengthening surveillance focused on revamping the Early Warning Exercise (EWE) that the IMF runs jointly with the Financial Stability Board. Future emphasis will be on making macro-financial stability more central to IMF surveillance - extending beyond the current EWE focus on systemic effects, tail risks and vulnerabilities. This would enable the IMF to gain a better understanding of what it deems a "complicated nexus of exposures, cross-exposures, and shifting pattern of asset and liability concentration across regions and institutions."
Additionally, the Fund will seek to improve the quality of multilateral surveillance mechanisms by more closely aligning them to the inter-linkages within the global financial system. One output of this effort will be the introduction of 'spillover reports' that predict how domestic policies in systemically-important countries could affect regional and global stability. The IMF has indicated it will produce reports on five systemic economies -- namely, China, the Euro Area, Japan, the United Kingdom, and the United States. In an ongoing effort to rekindle relations between the Fund and Asian members that many perceive to have been tarnished following the 1997-98 Asian financial crisis, Strauss-Kahn has emphasized strengthened surveillance to enhance the IMF's partnership with Asia. Specifically, the IMF hopes to make its analysis more useful and available to its Asian members, including in the area of early warning systems, cross-border spillovers, and cross-cutting themes such as macro-financial linkages.
Conclusion. With the recent refinements in the FCL and introduction of the PCL, the IMF has bolstered its arsenal of lending instruments to assist its member countries in preventing crises. It is also assessing the viability of new lending frameworks to respond to systemic shocks and vulnerabilities, and introducing an enhanced multilateral surveillance process to more aptly account for inter-linkages across the global financial system. The politically challenging reform decisions related to IMF governance and quota reform are expected to be delivered when G-20 leaders meet in Seoul in November.
Legislative Review: Congress and Foreign Assistance Funding
It is a perennial struggle to convince Congress to supply all the foreign assistance funding that administrations seek. In the current era where much of U.S. bilateral aid is targeted at countries on the national security front lines, multilateral aid has slipped to a lower priority, and the Bretton Woods Committee has devoted substantial effort to working with Congress on these issues. However, all of the aid accounts remain vulnerable both to demagoguery in debate and financial ambush whenever lawmakers need funds for more pressing priorities as recent experience demonstrates.
Over the summer when Greece faced near financial collapse and other European countries appeared precarious, a few in Congress saw political mileage in trying to block U.S. support for IMF rescues directed at European countries with high debt levels. The authors of the bill glossed over the fact that the U.S. government has treaty obligations to support the IMF. They also seemed unconcerned about the likely negative reaction in financial markets were headlines to read, "Congress Withdraws Support for IMF." Bretton Woods Committee members engaged leading lawmakers and reminded them why we support the IMF and why it serves both American and global interests to keep European countries afloat. BWC was credited with helping forestall damaging votes in both House and Senate on this controversial amendment.
In August, Congress passed a supplemental appropriations bill funding education, jobs, and Medicaid, and then needed to find additional funds. In what has become a familiar scenario, lawmakers raided several international assistance accounts, rescinding $120 million from the Millennium Challenge Corporation and another USAID initiative.
Experts predict more of this in the future, particularly as the federal budget tightens and political parties resort to populist overtures to broaden their support at the polls. The U.S. Global Leadership Coalition, which tracks aid spending and marshals support for maintaining a vigorous foreign affairs budget, notes that a startlingly high number of lawmakers who were reliable votes for foreign aid have left Congress over the last few election cycles, particularly on the Republican side. Perhaps this reflects Congress' growing polarization and the abandonment of centrist ideals.
With respect to next year's appropriations, the end of the fiscal year is fast approaching. Yet significant differences remain between House and Senate spending choices in the foreign affairs accounts, and there is little visible effort being devoted to resolving them. More than likely a continuing resolution will be passed just before October 1 extending funding at FY2010 levels until after the November election.
The Senate appropriations committee cut funding for the international financial institutions by 12% while the House lopped off a full 22%. Neither house treated the Asian Development Bank well: the lower body provided no callable capital for the new capital increase at the ADB while the upper chamber cut the appropriations for the ADB's soft loan window by two-thirds. Also hard hit were several new, special purpose funds administered by the World Bank and designed to provide clean energy, mitigate the impact of climate change, and ensure global food security. The Senate cut the administration's requests by $220 million while the House cut them by $443 million.
The World Bank: Addressing Financing Gaps in Developing Countries
The World Bank Group provided upwards of $72 billion in economic assistance during the 2010 fiscal year. This unmatched level of support played a significant role in multilateral efforts to alleviate the effects of the global economic crisis on developing countries. In order to ensure that the increased aid would have the largest possible impact on the areas in need, the Bank also explored new distribution methods and projects to support developing countries.
Increased assistance. Throughout the 2010 fiscal year, the Bank promoted 875 projects targeting a number of development challenges. Support for sub-Saharan Africa, a focal point for the bank, rose by 28 percent. Furthermore, both the International Bank for Reconstruction and Development and the International Development Association increased their commitments to record numbers.
There has also been increased demand for Bank funding to finance disaster relief efforts. The Bank has committed $900 million to support Pakistan's recovery from deadly floods that affected over 14 million people in August. Among others, funds will be used to purchase imports needed for reconstruction and rehabilitation, such as fuel, steel, cement and related goods and services. In addition, the Bank financed the rehabilitation of the Taunsa Barrage, which is an artificial obstruction to reduce the risks of tidal flooding in the Punjab Province.
Aware of its own financial limitations, the Bank took on several new initiatives in to increase its resources. The Bank's shareholders agreed to increase capital support by $5.1 billion as part of the first major capital increase in 20 years. Additionally, sovereign wealth funds from South Korea, Azerbaijan, the Netherlands and Saudi Arabia will now be providing $600 million to invest in a Bank-sponsored equity fund for less-developed countries. The Bank is expected to continue its efforts to seek enhanced financial support going forward, particularly from emerging markets that will increasingly be playing a bigger role on the multilateral front.
New distribution methods and projects. In addition to increasing international assistance and financial commitments, the Bank is working to transform the way in which aid is distributed. During the 2010 fiscal year, the Bank worked to transform its rapid social response program. Previously, the Bank only incorporated social safety nets into programs targeting wealthy nations. However, in response to the current economic crisis, the Bank recognized an increased need for enhancing social safety nets in developing countries. Hence, the Bank is hopeful that these programs will allow developing nations to invest in their own futures and successfully recover from the crisis.
Upcoming Program
The Bretton Woods Committee will be organizing a General Members; program on October 29, 2010 on “
Day at the World Bank
On May 24, 2010, the Bretton Woods Committee hosted its Multilateral Roundtable program, "A Day at the World Bank", bringing World Bank Group leaders together with Committee members to discuss evolving priorities, programs, products and partnering opportunities with the private sector. The program featured discussions with representatives of the IBRD, IFC, MIGA and more. Read more about the event here.
Luncheon Honoring Lael Brainard
On June 22, 2010, the Bretton Woods Committee hosted a luncheon to honor Lael Brainard's appointment and Senate confirmation as Undersecretary of Treasury for International Affairs. Ms. Brainard spoke about the Obama Administration's economic priorities, and the importance of a multilateral response to the current economic crisis. Read more about the event here.
The Bretton Woods Committee would like to congratulate Dr. Caroline Anstey on her appointment to the position of Vice President of External Affairs on July 1, 2010 by World Bank President Robert B. Zoellick. Dr. Anstey brings a wealth of experience in international economics and communications to this position.
Prior to her appointment as President Zoellick's Chief of Staff in 2007, Dr. Anstey was the Country Director for the Caribbean. Some of her notable accomplishments include developing donor support for Haiti's reconstruction efforts in 2004, and establishing a program to ensure Caribbean nations immediate access to economic assistance after natural disasters. Additionally Dr. Anstey has held a number of other positions at the Bank since joining in 1995, including Director of Media Relations and Chief Bank Spokesperson. Dr. Anstey is also the former Speechwriter and Assistant to Bretton Woods Committee Co-Chair and former World Bank President, James Wolfensohn.
We wish to thank Dr. Anstey for her past support of the Committee and look forward to working with her in her new role as Vice President of External Affairs at the World Bank.
