The short message: reform, scale up or perish. Yellen and Singh want the World Bank-IMF to reboot and reimagine themselves, even harness private capital. Handling today’s overlapping crises requires a wider framework, not one based on bailing out individual countries. For starters, they want the Bank to change its business model, increase its risk appetite, and motivate private investors to step in.
The call for private capital to play a role was more than intriguing. It should be seen in the context of the global savings glut of the ultra-rich. Yellen and Singh want to put those trillions to use. But what would be the terms for ‘harnessing’ private capital? Will the rich make yet more money in interest payments from the World Bank? And would the Bank-IMF then raise the rates at which they lend to developing countries? Yellen forgot to elaborate.
The IMF’s April 2022
World Economic Outlook highlights how the savings glut has coincided with rising inequality in the US and other countries. The richest 1% across the world, including India, has done fantastically well, taking 38% of wealth gains since the mid-1990s. While private share of national wealth increased, public wealth declined making governments poorer. Are treasury officials and central bankers finally waking up to the stark reality?
As Russia’s war grinds on and inflation rises and growth rates slow down, no prizes for guessing who will hurt more. The poor will riot while the rich buy more ports and airports, not government bonds. IMF’s chief economist Pierre-Olivier Gourinchas had a straight answer: ‘The most immediate priority is to end the war.’
But Yellen and Singh aren’t tasked with ending the war – their job is to increase Russia’s pain and manage the fallout. Meanwhile, the US aims have expanded from punishing Russia to debilitating it. Defence secretary Lloyd Austin said so clearly on Monday, ‘We want to see Russia weakened to the degree that it can’t do the kinds of things that it has done in invading Ukraine.’ The US and its European allies are flooding Ukraine with so many weapons that the weapons are showing up in the black market.
The war will continue, because Washington betrays no inclination towards peace-making. Now that the French elections are over, US officials will likely push for further tightening of sanctions against Russia. Commodity and energy prices will skyrocket, foodgrain shortages will become acute, and the danger of social unrest will grow.
This was the background to Nirmala Sitharaman’s visit to attend the World Bank-IMF meetings and pitch India as a centre of stability. She seemed pleased with the recognition and praise. IMF’s projection that India will grow at 8.2% in 2022 was music to the pandemic- and war-damaged ears. Even though the earlier forecast for India was downgraded from 9%, the figure of 8.2% was still impressive. If sustained, India would be the fastest-growing major economy in the world.
China is expected to grow at only half that, or 4.4%, which makes India’s performance even more noticeable. IMF officials praised India’s macroeconomic management during the pandemic because it put the country in a better place to face the latest crisis. IMF managing director Kristalina Georgieva said it was not just ‘healthy for India’ but also a positive in a world struck by a slowdown.
Sitharaman seemed to enjoy giving a fulsome account of government policies and recounting success stories of targeted delivery and leapfrogging rural India into the digital age. Speaking at the Atlantic Council (a curious choice for a finance minister), she declared that 2030 would be a ‘very robust decade’ for India mainly because of structural reforms GoI began before the pandemic and sustained despite severe disruptions. The goods and services tax (GST) rollout, massive digitisation and financial inclusion programmes were key to India’s steadiness to say nothing of rural India’s enthusiastic embrace of fintech – villagers are talking in QR codes.
But a protracted war will pose challenges graver than the pandemic. Suffering in the developing world will intensify and Indian policies will be tested again. But there’s always that savings glut of the ultra-rich.
