Philippines urges review of World Bank, IMF lending policies

MANILA, Philippines - The Philippines has urged five-decade-old Bretton Woods institutions – the World Bank and the International Monetary Fund (IMF) – to revisit their lending policies at a time the global economy is swamped with cheap credit readily available to countries without strings attached.

“The relevance of the Bretton Woods is put into question with the emergence of a low rate environment and division of labor with major country creditors and new development banks with different governance structures,” Finance Secretary Cesar Purisima said in a speech last Oct. 9.

“In this context, it is timely to conduct a re-think of the Bank’s and the Fund’s core mandates and (make) necessary adjustments to have proper instruments at their disposal,” he said.

The speech, a copy of which was sent to reporters yesterday, was delivered during the World Bank-IMF meetings in Lima, Peru. Purisima serves as the country’s governor at the World Bank.

Established in 1946, World Bank and the IMF were put up shortly after the World War II and were tasked, among others, to finance reconstruction and rehabilitation activities as well as fix the global financial system.

The two lending institutions have since survived to fight poverty and maintain a stable global economy by providing funds mostly to developing countries. However, funds were usually given with conditions to adopt certain reforms.

Purisima said the World Bank and the IMF are losing their relevance with the evolution of other financing mechanisms. The low interest environment prevailing from US to China reinforces this as member-countries try to avoid multilateral lenders from dictating local affairs.

“The paradigm of development financing and international financial architecture is evolving to provide greater added value grounded on pragmatic approaches based on country circumstances,” he explained.

The Philippines itself was an IMF debtor during the Asian financial crisis in 1997. During the time, the country was forced to adopt specific policies and measures the IMF dictated in exchange for its money.

The country finished paying all its debts to the IMF in 2006.

The IMF and the World Bank have justified conditions tied to their loans as an insurance that debts will be paid. But Purisima said such “safeguard policies” can be “excessive” and be “unduly implemented” to the country’s detriment.

He said some conditions “may not always be consistent with borrowing countries’ policies” and thus “result in significant implementation delays.”

In addition, Purisima has called the World Bank to consider reviewing how it computes for the members’ contributions and thus, their borrowing authorities. Member-countries contributions to the World Bank and the IMF also signify their say on governing the institutions.

“We add our voice to the call for a shareholding review and the development of a dynamic formula to achieve meaningful and balanced alignment of member representation in the Bank,” Purisima said.

The IMF, for its part, has sought members’ approval of a re-computation of its quota system, which governs the lending and borrowing shares as well as the say of member-nations in the Fund.

A key stumbling block however is the US Congress’ unwillingness to ratify the revisions, which would give emerging economies, particularly China, more power in the IMF.
Developed nations have ruled the IMF and the World Bank since their inception. The Bank’s president has always been an American, while the IMF chief has always been a European.