G20 gives U.S. until end of year on IMF reform

When finance ministers and central bankers from the G20 major economies met last week in Washington, they rapped the United States on the knuckles for its failure to ratify reforms of the International Monetary Fund. The reforms, which leaders from around the globe agreed in 2010 but which require U.S. Congressional ratification to be implemented, would increase the voice of emerging market economies on the IMF’s board and strengthen its general account (what the IMF calls “quotas”). In the G20 final communique, the global financial chiefs expressed how “deeply disappointed” they were, and fired off a stern warning, giving the U.S. until the end of the year before they request the IMF to proceed on reform (without the United States, to insert the subtext). Given that the U.S. was instrumental in founding the IMF and has always been its largest shareholder and exercised a veto over major institutional changes, the warning is serious stuff. Whether or not the IMF can actually do anything without the buy-in of its largest shareholder remains in question, but certainly the rest of the world is growing impatient with the extended delay.

In a recent analysis, I point out that the delay is undue. The IMF has traditionally enjoyed support from Democrats and Republicans, and the current proposal for reforms builds upon a process that began under the George W. Bush administration. The IMF helps to maintain global financial stability and prevent and mitigate economic crises, something both parties can get behind. The reforms strengthen the IMF’s core capabilities and improve its governance, equipping the IMF to better prevent and manage economic crises of the twenty-first century and creating a platform for constructive relations with emerging market economies such as India, Brazil and China.

And despite some claims to the contrary, the reforms do not increase U.S. financial commitments, because the new U.S. contribution to the IMF general fund would be offset by an equal reduction in its commitment to another IMF fund (the New Arrangements to Borrow). The Congressional Budget Office, Congress’ official budget scorekeeper, estimates the technical cost of implementing the quota reforms at $239 million – but also estimates that shifting the funds away from the NAB would save $693 million over the same time frame. So the reforms don’t increase US financial commitments, and the US might actually recoup money on account maintenance costs. A pretty good deal.

The case for the reforms seems obvious, so why the delay? The toxic political environment in Washington is the primary culprit. The Obama administration has not made the case for reforms as clear and compelling as it could and should, and delayed proposing them, while Congress is loath to give the Administration any kind of victory. And with the rise of tea party influence in the Republican party and an increasingly isolationist American public, Congressional blockers may actually reap political rewards. In return for ratifying IMF reforms, some Republicans are demanding a delay in the Obama administration’s proposed rules to limit political activities of non-profits. (If that seems like a a non sequitur, that’s because it is. Such is political deal-making in today’s Washington.)

All of this is bad news for the U.S., and bad news for the world. The fact is that for now and the foreseeable future, the U.S. is still the world’s preeminent power. And that power must be exercised with commensurate responsibility. As the G20 warning made clear, the rest of the world will not wait indefinitely. They are already eying a plan B if the U.S. does not ratify the IMF reforms. Whether they act without the U.S. remains to be seen, but everyone loses if the U.S. does not step up to lead the modernization of an international system that emphasizes cooperation over competition. The IMF is an early but important step in a revitalized, rules-based global order that can manage the challenges of the twenty-first century.

 

Responding to Russia

Latest of our #progressivedilemmas is on what we might expect from a future Labour Russia policy.

Britain’s political class did not distinguish itself in its immediate response to the Crimean crisis. A zoom lens outside Downing Street which captured Cabinet Office papers in the hands of an unguarded official seemed to reveal yet more evidence that the protection of the City trumps any other strategic instincts for this government. Labour, meanwhile, appeared to be more rattled by Tory Twitter jibes than by Vladimir Putin’s machinations. But the challenge posed by Moscow’s intervention in Ukraine will outlast any initial inclinations to see it through the prism of the Square Mile or the Westminster bubble. From the future of the European Union to UK defence priorities, Russia now presents a number of long-term dilemmas for progressives, regardless of how the events of the next few months play out.

IMF: To solve inequality, tax food, books and funerals

The IMF has attracted plenty of favourable attention from unfamiliar places with two ‘staff papers’ (we’re enjoined to consider them as the personal opinions of the authors, not the IMF itself, an injunction that we all merrily ignore). The first argues that inequality reduces growth, while redistribution is an effective tool for reducing it; the second explains how governments should use taxes and public expenditure to achieve this goal.

Inequality campaigners are over-the-moon to have the IMF on their side. Oxfam International hails the IMF for “mashing myths and debunking dogma in economic policy,” while the Oxfam inequality guru, Nick Galasso, is fulsome in his praise of an “ideological sea change” at the Fund (“if If it sounds like I have a crush on the IMF’s Managing Director, Christian Lagarde…”).

But what tools does the IMF think we should use to shrink inequality? Oxfam’s tweet leads to a Reuters article covering a speech by IMF deputy managing director, David Lipton. The speech is definitely worth reading in full – it’s a digestible summary of emerging IMF thinking, while the table on page 43 of the IMF report provides an overview of its suite of policy prescriptions.

Key recommendations for developed countries include substituting means-tested benefits for universal ones; raising the retirement age and making the rich work longer than the poor; charging more for university education in order to spend more on schools; and making income tax more progressive, while eliminating tax breaks.

Many of these are good policies, but let’s not pretend they’re all politically palatable. Take the last one as an example. In the United States, President Obama and the Republicans are locked into fruitless combat on eliminating a few of the most egregious pro-rich tax breaks. A recent revenue-neutral tax reform plan from a Republican has provoked a blizzard of protest from Wall Street and has been roundly condemned by his colleagues.

But the IMF is not interested in these small-bore controversies, it has the big one in its sights: the 37 million Americans who benefit to the tune of $70bn or so from tax relief on their mortgages. And that’s a political live wire. I’d speculate that any presidential candidate – Republican or Democrat – who ran for 2016 on a “tax the homeowners” platform would have as much chance of winning the nomination as I do.

This is not just an American problem. Look at the IMF’s core policy prescription for the United Kingdom – one good enough that it makes it into Lipton’s speech as well as into the report. The UK should move to a flat rate of VAT on all goods and services, Lipton argues, and use the money to increase benefits.

That would mean imposing a 20% tax on food (raising £16bn or so), and on rent and house construction (another £13bn), while increasing tax on household electricity and gas from 5% to 20% (£5bn). Tax would also go up on books, children’s clothing, tampons, condoms, stamps, charities like Oxfam, and… funerals. Yep – the IMF is proposing a burial tax.

All in all, this would give George Osborne £60bn to play with (table 4), more if he axes universal benefits in favour of greater means-testing (goodbye child benefit, winter fuel allowance etc). This would be enough to double benefits for working-age low earners and the unemployed (table 8.2).

Good news for inequality, maybe, but an act of political insanity. In the UK, we once had a manifesto that was derided as ‘the longest suicide note in history’. Flat rate VAT (for all its merits) would be the shortest. VAT on food? On books? On coffins? Just look at the disaster that befell the British government when it tried to tax Cornish pasties to see how badly this would go wrong.

There are equally obvious political bear traps when you look at the problem from the point of view of low and middle income countries. And the task ahead of them is daunting, given that inequality levels are higher in Asia and the Middle East than in the West, and much higher again in Africa and Latin America. A European minister told me that he was hoping for a post-2015 goal that would inspire the whole world to be as equal as his country by 2030. I shudder to think of the collective apoplexy this prospect would cause in the G77.

IMF Disposable Income Inequality

No-one is pretending that IMF-branded policies represent the final word on inequality. Oxfam issued a media brief this week, which proposes the UK tackles inequality by cracking down on tax dodgers, implementing a Tobin tax and a tax on land, and increasing the minimum wage.

But what the Fund’s excellent report does is underline the importance of going from high-level aspirations to detailed scrutiny of the policies we want governments to implement to bring inequality down. Only then can we understand how today’s high level debate on inequality will play out in the bruising world of retail politics. It would be good to see Oxfam’s proposals costed and their likely impact on inequality audited, so we can see what they’ll deliver and who’d foot the bill. Without that the politics remain hard to read.

A greater focus on policies and implementation, and the politics of both, is especially important for those arguing that we should stop being “belligerent” about the “unrealistic goal” of ending sub-$1.25 a day poverty and instead build a post-2015 agenda on the the more sustainable political foundations that inequality offers.

Sure, we have an ‘emerging consensus’ that something needs to be done to bring inequality down. But will that consensus hold when publics around the world, and assorted lobbyists, get a better sense of what that something looks like?

The gun-nuts ready to fight Obama’s Commie agenda need Commie ammunition

So, it turns out that all those hard-right National Rifle Association libertarians preparing for guerrilla warfare against Obama’s socialist seizure of America need to get their ammo from… Vladimir Putin.

American gun owners are gobbling up cheap Russian ammunition in huge quantities, worried that President Obama’s tussle with Vladimir Putin over Moscow’s grab for Crimea will result in new trade sanctions cutting off imports of bullets.

“We’ve seen an ammo-hoarding effect,” said Larry Hyatt, owner of Hyatt Gun Shop in Charlotte, N.C., one of the nation’s biggest gun stores. “It’s almost like milk and bread when it gets ready to snow: It’s just a mass of people running out and buying some of it, probably more than they need,” he told Secrets.

Driving the ammo binge are gun blogs warning that the supply of surplus AK-47 ammo and other cheaper bullets manufactured by Russian makers like Wolf and TulAmmo will be cut off if sanctions are expanded by the president. The two companies make the 7.62×39 ammunition used in the popular AK-47 and variations for the AR-15. They sell it for $3-$4 a box, versus the $9 charged by U.S. manufacturers.

Some websites are also warning that Putin is considering retaliating against the U.S. by cutting off the supplies. So far, none of the rumors appear true.

Like that matters.

Can Empowered Cities Save Fragile States? My article on Lagos in the NYT

Lagos,_Nigeria_57991Nigeria is arguably the worst run of the world’s seven most populated countries. Despite earning hundreds of billions of dollars in oil revenue over the past decade, it is expected by 2015, by some calculations, to have the second-most destitute people in the world after India. But its largest city, Lagos, which until recently was known as one of the world’s most difficult cities to govern, seems to have turned a corner. As I argue in a recent article in the New York Times, one of the chief reasons for this better performance is the nature of incentives that elites and politicians face: Continue reading

After Afghanistan

In the latest of our #progressivedilemmas we consider what Labour’s approach to failing states should be.

2014 is the last year of British military involvement in Afghanistan and the end of a long phase of ‘nation-building’ efforts since 9/11. While David Cameron has unconvincingly declared ‘mission accomplished’, in reality the next Labour government will wrestle with an agonising set of dilemmas about the UK’s future involvement in stabilising failed and failing states. Iraq and Afghanistan cast a long shadow.

The Post-2015 Agenda: 3 thoughts on Latin America, and 1 on the Caribbean

Late last week, New York University’s Center on International Cooperation published A Laboratory for Sustainable Development? Latin America, the Caribbean and the Post-2015 Development Agenda, a report that I co-authored with my CIC colleague, Alejandra Kubitschek-Bujones.

It was commissioned as an input to a retreat for Ambassadors from the Group of Latin American and Caribbean Countries in the United Nations, their negotiators from capitals, and representatives from the UN in the region, along with its companion piece What Happens Now? Taking the Post-2015 Agenda to the Next Stage

While Alejandra is an expert on the region, I am not. So here’s an outsider’s perspective, based on a series of interviews with people from the region who are immersed in the post-2015 agenda, and others who see it within a broader geopolitical context.

1. Latin America has exerted disproportionate influence in the early stages of the post-2015 debate and could play a decisive role over the next two years.

In the run up to Rio+20, Colombia and Guatemala published a joint proposal that put sustainable development goals on the international agenda.  This is a classic example of how countries can drive global policy by articulating ‘big picture’ concepts in a format that creates broad debate. As host of Rio+20, meanwhile, Brazil played an important role in shaping the SDGs, while the current President of the General Assembly is from the region.

Over the next two years, Latin American countries will be the swing vote on many key issues. Whether they drive progress, or hold it back, will have a significant impact on whether or not the UN agrees a worthy replacement to the MDGs.

2. Latin American countries will be most influential if they build on their experiences as ‘laboratories for sustainable development.’

We pretend it’s not – but, at its worst, the post-2015 debate, and sustainable development more generally, is mind-numbingly formulaic and abstract, a tedious litany of phrases intoned by negotiators and various hangers on.

What was striking, talking to Latin American governments, is that many of them have strongly held beliefs about how development should be done differently – in the real world, and at a scale that makes a difference to the lives of large numbers of people. Coming from Europe, where governments are fiddling around the edges and hoping things will get better in a decade’s time, it’s very refreshing to hear Latin America countries argue about which of the many models that coexist in the region has most to offer its people.

By drawing on this diverse and innovative track record, the region’s governments and leaders from civil society and business have a real chance to push the new agenda away from empty language and towards a debate about the concrete policies that are needed at a time when prevailing assumptions about how the global economy works are widely discredited.

3. But the region cannot continue trying to push critical issues to the side of the negotiations.

Most Latin American countries are engaged in a struggle to build the institutions and social structures they need if they are to meet the long-term needs of predominantly urban and increasingly prosperous populations.

But many of its citizens live in conditions of chronic insecurity. Mexico has fewer people than Japan, but while the latter has around 500 murders a year, over 27,000 Mexicans were killed in 2011. You’re ten times more likely to be murdered in Nigeria than the UK, but seventy-six times more likely to be murdered in Honduras! Human security and a broader set of questions of how to build institutions that offer citizens justice and fairness are fundamental to Latin America’s future. There is also an inescapable transboundary dimension, given the role played by organized crime in driving violence and, once again, a ‘laboratory’ of innovative responses, especially in some of the more forward thinking cities.

These issues make some of the region’s governments feel uncomfortable (though others are calling loudly for a post-2015 focus on security and governance challenges), but it’s surely better for the region as a whole to get ahead of this agenda, rather than get stuck in a defensive posture.

4. Caribbean countries could keep the world’s eyes focused on the environment.

The UN is so determined to show that sustainable development is about more than the environment that there’s a good chance the new goals will be heavily skewed away from core environmental challenges.

This is especially problematic for the island states of the Caribbean, which face existential threats from climate change. These countries, along with other small island states, have long been highly influential in the climate process, but are now gearing up to try and make sure the post-2015 framework makes a contribution to environmental sustainability that goes beyond the usual pieties. This is no easy task and will require visionary thinking about what kinds of global goal have the potential to drive change in a way that adds to what is already going on in the international system.

Many of the issues discussed in the paper, as well as the points made above, apply across the Latin American and Caribbean region. However, I believe that Caribbean countries have a unique opportunity to push for a strong – and tangible – regional position on the environment, and then to advocate for it globally. They can also help answer the question of how the post-2015 and current climate negotiations should interact, given that both these processes are intended to finally be agreed at summits for leaders at the end of the same year.

Read the whole paper here.