COVID-19 demands global economic order rethink

This blog is part of our series, Tracking the Trillions, which takes a closer look at how the International Monetary Fund (IMF) can tackle corruption, while promoting transparency and accountability.

According to the Financial Times (FT), 2020 could be the year with the biggest decline in per capita income by country since 1870.

Even before the COVID-19 pandemic, as the world economy emerged from the Great Recession of 2008, the next cycle of debt was dangerously building.

In fact, a World Bank/International Monetary Fund (IMF) study from February this year found that half of countries with lower-income economies were either at high risk of, or were already in debt distress prior to COVID-19.

Juxtapose this with reports that in the US, just a few months after the government approved a
COVID-19 bail-out package, roughly 630 billionaires increased their net worth by an average of
US$645 million - each. Meanwhile, the economic outlook for ordinary citizens appears grim.

So much for the “success” of the lauded post-Cold War capitalist model - a model, where many millions, for sure, escaped poverty, but one which has ensured the concentration of vast wealth in the hands of a select few individuals.

The capture, corruption and associated erosion of democratic and accountable government space has led to policy-making, frequently against the public interest, that has ensured the wealthy have been able to concentrate ever-more resources in their hands, at the expense of the masses.

At the same time, an exponential consumption binge has resulted in the need for a planet at least one and half times the size of our own to sustain it.

We now face an increasingly likely mass extinction event, a climate crisis that threatens to run out of control, and to cap it all, a global pandemic that could break the camel’s back.

If ever such a cliché were true, it is surely now. But we are at an inflection point, and from desperation can come opportunity. We now have the greatest chance in generations to face up to humanity’s role in creating this mess.

We can either continue as normal with our predatory economic system ensuring further global inequality and irreparable damage to the Earth’s biosphere and life-support systems - a true dystopian horror story.

Or we can rise to this challenge, and forge a new sustainable and equitable future, where humanity learns to live within the constraints and boundaries of a finite planet.

In her candidacy statement to the International Monetary Fund (IMF) board in late 2019, Kristalina Georgieva concluded by focusing on “service of the greater public good,” presciently referencing looming threats:

A key focus on the public good is a welcome leadership development. Given its unique role as promotor of global financial stability, the IMF could play a supportive or inhibitory role in shaping a new, genuinely sustainable global economic order.

Over the past 25 years, we at Global Witness have worked well with some excellent IMF teams. Our case studies frequently involve the looting of countries and the assassination and abuse of citizens on the frontlines of exploitative extractive industry and agro-projects.

The Fund’s historical engagement with countries requiring help, has often been seen as highly problematic, with its emphasis on privatisation of national assets colliding with any notion of public good.

Although quicker than its sister agency, the World Bank, the Fund seemed slow to act on corruption, seeming to approach this as a technocratic effort. So I welcome Ms. Georgieva’s reference to the review of the Fund’s anti-corruption stance.

And I was pleased when, in response to a letter from Transparency International, Human Rights Watch and Global Witness, the IMF referred to specific measures it will require to ensure tens of billions of dollars of international COVID-19 bail-out funds end up in the right place. These efforts will help those in need in recipient countries, while ensuring the funds do not end up being looted through corrupt means.

While the IMF’s COVID-19 efforts are a good start, for the Fund to ensure it helps build a new and genuinely sustainable global economy, one which looks out for the development needs of all, and which safeguards the biosphere, the Fund must rethink its often “free-market fundamentalist” approach.

This has resulted in some countries being pushed to develop commodity-driven economies, often with a concomitant uptick in corruption, leaving many dangerously exposed in a post-carbon economic order. It is thus time for the Fund to proactively use its resources to help ensure countries diversify their economies away from fossil fuel production and dependency for income on extractive projects that destroy the planet, and which are of questionable viability.

We look forward to working with the Fund and its staff to seek a better path forward.