IMF and World Bank take steps to contain pandemic and reduce debt burdens, but fall short of an equitable plan for reconstruction

photo: IMF - Flickr CC

Decisions at the Spring Meetings of the international financial institutions help low-income countries put lives before debt payments and encourage global action to stop COVID-19. Facing the worst economic downturn since the Great Depression, the institutions and governments must go further and create a coordinated reconstruction plan to uplift lives and livelihoods.

Ahead of the virtual Spring Meetings, the global labour movement called for coordinated action on public health and economic stimulus, and united with the International Chamber of Commerce on emergency debt relief. This included full funding for the IMF Catastrophe Containment and Relief Trust, which received additional donor pledges and was used by the Fund to cancel six months of loan repayments from 25 low-income countries. The G20 countries agreed to suspend debt payments from low-income countries facing emergencies. The World Bank and multilateral development banks declined to participate in a suspension without additional resources.

“We thank the institutions and governments for swift action on debt. The international financial institutions should continue advocacy for private creditors to join the G20 suspension, and also call on credit rating agencies to not downgrade countries that restructure debt. Life-saving relief has been provided to low-income countries, but lower-middle income countries and economies dependent on commodity exports are facing similar barriers to an effective response. We need new mechanisms for international cooperation to protect lives and livelihoods,” said ITUC General Secretary Sharan Burrow.

The ITUC is promoting a Global Fund for Universal Social Protection, a new debt relief process guided by the Sustainable Development Goals and paired with a binding sovereign debt workout mechanism, and the issuance of IMF Special Drawing Rights. Due to the opposition of the United States, the Spring Meetings failed to agree on new Special Drawing Rights. This would give emerging and developing countries a powerful tool to stop currency, employment, and economic collapse. A more limited IMF liquidity line with barriers to access was created instead.

Response loans from the World Bank are supporting preparedness and public health, including personal protective equipment for health workers. The IMF is disbursing rapid response loans and advocating for countries to spend what is necessary to stop COVID-19 and preserve employment. However, the Bank is already discussing means-tested social protection and structural reform, and the Fund is advising developing countries to prepare for austerity as soon as next year.

“The world needs an ambitious plan that provides developing countries with the resources for immediate measures to protect health and jobs, and to conduct fiscal stimulus for an inclusive recovery. The backing of the IMF and World Bank for doing everything necessary to contain the pandemic is welcome and should be converted into further coordination. Once COVID-19 has abated, a return to austerity and deregulatory structural reform would be disastrous. This pandemic shows that our fates are deeply intertwined. A global reconstruction plan should reflect the need for complete solidarity to rebuild a sustainable world with quality jobs, universal social protection and strong public health systems,” said Burrow.