Translated material
Club scandals
Everything is stable in the world economy, but not in the IMF and World Bank
The International Monetary Fund yesterday released its latest World Economic Outlook report, a comprehensive study of economic trends and issues that tends to provide important signals to global financial markets. The publication of the report is timed to coincide with a traditional event - the spring session of the governing bodies of the IMF and the World Bank in Washington, as well as the meeting of the Financial Seven.The IMF report does not contain sensational conclusions or forecasts. A common thread is the idea that troubles in the US economy (such as problems in the mortgage sector or the auto industry) are purely local in nature. And although growth in the American economy will slow, this should not affect the rest of the world. The old adage “if the United States sneezes, the rest of the world catches a cold” remains true, the report says, but “the importance of economic growth spillovers should not be overestimated.”
The soothing tone of the report contrasts sharply with the scandals against which the financiers' meetings take place. In recent days, signs of an unknown illness have been appearing in the financial “seven”. First, it was announced in Berlin that German Finance Minister Peer Steinbrück would not go to Washington events: he had been planning a family vacation in the form of an African safari for this time “for a long time.” Considering that Germany is presiding over the G8 this year, it is difficult to interpret such a vacation as anything other than a demarche. The minister's press secretary told reporters that the trip to Namibia was "not a weekend on the Baltic Sea that could easily be rescheduled" and expressed regret that the press would give the minister's action a scandalous hue.
Nevertheless, it was the Germans who announced the second scandalous failure to appear at the meeting of the G7 financiers. Traditionally, representatives of other countries are invited to part of the discussion; in particular, Russia was such an invitee for quite a long time. Recently, the G7 has been inviting representatives of China to discuss current problems of the world economy. Which is understandable and logical, given the role and weight of China on the world economic arena. They did the same this time. However, as a representative of the German Ministry of Finance announced, China rejected the invitation. Beijing did not comment on this, only noting that the delegation was flying to a session of the IMF and the World Bank. Apparently, the demarche of Chinese representatives has a clear reason, namely Washington’s intention to initiate claims within the WTO against Beijing over the distribution of counterfeit products .
Be that as it may, everything that is happening is a serious call, reflecting questions that a number of countries have about the legitimacy of traditional international forums. The G7-G8 mandate is clear: from the point of view of most countries, this is a club of rich people who control the world economy. The rapid growth of China shows that without the Middle Kingdom this club is incomplete. Hence the desire of the “seven” to somehow tame Beijing, to attract it to the club, but as a “trainee”.
For a long time, Russia tried to move from “trainees” to full-fledged members of the club, but in the end it abandoned its attempts to turn the financial “seven” into an “eight”. Moscow's current position: we know our worth, and we are ready to participate in the financial club on the principles of mutual interest. Chinese officials, tired of listening to lectures at G7 meetings on how to manage the exchange rate, simply decided to ignore it this time. After all, for them, most of the members of this club are small, inconspicuous economies. No match.
A clear indication of problems with legitimacy is the ongoing discussion at the IMF about revising the quotas for participants in this organization . The IMF quota is supposed to reflect a country's voting rights based on its economic weight. However, over the years the reality has changed and many countries have felt “underrepresented”. In fact, now 30 countries (primarily the USA and Europe) have about 60% of the votes in the fund. The booming countries of Asia and South America are understandably unhappy about this. IMF head Rodrigo de Rato last year decided to begin work on revising quotas, but to date there has been no acceptable solution. America will retain its large share (currently more than 17%) in any case, and Europe is not ready to share its votes with anyone. Discussion of the redistribution of quotas is on the agenda for Saturday's meeting at the IMF, and, in all likelihood, the conflict will only escalate.
The World Bank also “prepared” for the session. For the first time, minutes of meetings of the World Bank's board of directors were leaked to the press, as a result of which an investigation was launched. And the head of the bank, Paul Wolfowitz, who regularly finds himself in awkward situations, is again at the center of a scandal. He, an anti-corruption fighter, is accused of employing his “romantic girlfriend” in the US State Department with a phenomenal salary increase. And the trade union of WB employees accuses him of this.
The shareholders of the IMF and the World Bank need to work hard to strengthen the reputation of these organizations.
According to the IMF forecast, the growth rate of the world economy in 2007-2008 may decrease by 0.5 percentage points compared to 2006 - to 4.9%. The US economic growth rate will slow to 2.2% in 2007, down from 3.3% in 2006. Economic growth in Russia in 2007 will be 6.4%, and next year it will slow down to 5.9%. In general, the IMF calls on Russia and other CIS countries to “diversify sources of growth” and “move away from reliance on the export of raw materials.”