In an explosive speech in Washington DC, the Australian Treasury chief Martin Parkinson has criticised the lagging IMF and World Bank and the lack of the US’s commitment to the G20.
“While it may be uncomfortable to acknowledge, the burden of responsibility for ensuring these institutions remain central to the global architecture is, at least initially, on advanced economies, especially advanced economy G20 members,” he said. “Australia remains committed to this, but leadership and commitment from the large global players, especially the United States, is required.”
Parkinson listed major recent challenges faced by the two institutions that included the IMF’s “damaged trust” within emerging Asia and the continent shying away from both accessing and supporting an IMF safety net as a result; and the World Bank “neglecting” the human impact of its programs, and focusing too strongly on state actors rather than the private sector.
“…the perception of heavy influence by a small number of powerful nations is, as with the IMF, undermining its credibility with other countries. Furthermore, the bureaucracy of the World Bank, and the time taken to get projects approved, can dramatically slow the pace of development and reform,” he said.
Given these challenges, Parkinson said it’s vital that the IMF and World Bank remain relevant and fit for purpose for emerging markets in today’s world by adapting and evolving their current practices, mind-sets and cultures
These Bretton Woods institutions must ensure they better represent the global economic landscape today – not how it was half a century ago – and only then will they be viewed as legitimate, balanced and effective.
“It is for this reason that Treasurer [Joe] Hockey mentioned to this gathering only a couple of days ago, his deep disappointment that the 2010 IMF quota and governance reforms have still not been implemented and that the path forward for ratification is now highly uncertain,” he said. “The failure of Congress to deliver these reforms is doubly galling to other countries given the US' strong and aggressive championing of these reforms when they were first proposed.”
The G20 and IMFC member countries see the US as the main obstacle to improving the credibility of the IMF, and continued failure on the part of Congress will see the US leadership questioned, said Parkinson.
Key emerging markets must play a more active role in putting pressure on US Congress to ratify the 2010 IMF reforms.
If these global institutions don’t start adapting soon, the costs will be felt on a worldwide scale, he said.