This year’s annual World Bank/IMF spring meetings come at an unusual moment. Development banks have become front-page news; finance ministers, who dominate the meetings, are starting to focus for the first time on important commitments they have to make at the Third Finance for Development conference in Addis Ababa in July; and the Obama administration is starting to think about its legacy on international development.
The Asian Infrastructure Investment Bank is one of the most talked about topics. It is the first large new global financial institution to be formed without U.S. leadership since World War II. Some, like Larry Summers, lament that the U.S. lacks a vision for the future of the global finance system. Yet perhaps the most surprising aspect of the situation is the speed with which the AIIB has been set up. It was first mooted in October 2013 and received prominence in April 2014 when it was included in a speech by Premier Li Keqiang. As of last month, 30 Asian countries and the majority of the G-7 (except for the U.S., Canada and Japan) have signed up as founding members. The AIIB could be operational by the end of this calendar year. Capitalized at $100 billion, it will be large enough to potentially challenge the dominance of the World Bank and the Asian Development Bank in Asia.
Nor can the U.S. afford to sit on the sidelines of the discussions on the financing for development conference to support the implementation of the sustainable development goals. Addis should provide an opportunity to turn ambitious objectives—such as ending poverty, fostering conditions for business and entrepreneurship to flourish, and conserving the Earth’s resources for future generations—into action. While the U.S. could play a leading role in reinvigorating development financing, it has shown little appetite for doing so. The U.S. has failed to move forward on a range of issues, from official development assistance to IMF reform.
One promising area for U.S. leadership is to unleash the potential of the multilateral development banks (MDBs). But because Congress exercises influence over MDB policy through its control over authorizations and appropriations and through oversight, and the administration and Congress are at loggerheads, domestic politics makes it difficult to secure breakthroughs in this regard. At the very least, the U.S. could signal support for reforms and greater alignment. For example, all international institutions (old and new) could pledge to incorporate the SDGs into their vision statements, strategies, and monitoring and evaluation frameworks. This would be an important step towards integrating social, environmental, and governance objectives at the global level.
Another issue that will be discussed at Addis where the U.S. could play a key role is helping countries stand on their own feet. Bolstering domestic resource mobilization comprises two main political components: one, reforms at the domestic level to build capacity for more effective, efficient, and less corrupt tax systems; and two, ensuring supportive global policies so that developing countries are able to benefit from materials, goods, and services extracted or produced within their borders. In other words, the international community “needs to put its own house in order: to implement a swift reduction in corruption, illicit financial flows, money-laundering, tax evasion, and hidden ownership of assets.”
But this is easier said than done. Though the U.S. has made important progress, including the passage of Dodd-Frank Wall Street Reform and Consumer Protection Act, it has thus far failed to engage in the global conversation on how to define, monitor, and share information on illicit finance.
Finally, given President Obama’s pledge to eradicate extreme poverty, investing in people, particularly girls’ education, and ending hunger should be areas for U.S. leadership. The zero draft of the Finance for development outcome document includes a proposal for a compact in which countries pledge to spend 10 percent of their GNI or $300 per person on basic social services, whichever is higher. Traditionally the U.S. has opposed this kind of measurable commitment in development finance frameworks. Will it change its tune this time?
The draft also highlights the importance of investments in rural development and sustainable agriculture. The U.S. has a draft Global Food Security Act of 2015 that would coordinate agriculture, nutrition, and resilience-building programs in its international Feed the Future signature program. Passage of the Act would be a significant step towards institutionalizing global leadership on food security.
For an administration that has left its domestic legacy in creating economic opportunity, ensuring equal rights, and proactive environmental and climate action, it would be a shame to miss out on an opportunity to embed these themes at the global level. With three months to Addis, time is short.