Global Financial Governance and Development Finance in the Wake of the 2008 Financial Crisis

Abstract

This study examines three related questions. How has the global financial crisis of 2008 affected the influence that developing countries have within the International Monetary Fund (IMF)? What new policy space is available to developing countries? What alternative financial architectures will emerge as competitors or complements to the IMF? The study finds that IMF practice on capital controls has changed partly as a consequence of the crisis; that relatively autonomous developing countries are taking advantage of the policy space that has emerged; and that the global financial architecture is becoming more heterogeneous and multinodal. To date, however, developing countries have secured only modest commitments for increases in their formal influence at the IMF as a consequence of the crisis. Looking ahead, the crisis may create space for pressing an inclusive, participatory, feminist agenda in this domain.

Keywords:

• Global financial crisis
• policy space for development
• International Monetary Fund
• capital controls
• regional financial governance
• global governance

Keywords:

• E65
• F53
• O23

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Erratum to Feminist Economics papers

Acknowledgements

I am especially grateful for the very useful reactions to this research offered by George DeMartino, the referees and editors of this special issue and of the journal, and participants and discussants at conferences and seminars at UN Women, the Central Bank of the Argentine Republic, Federal University of Rio de Janeiro, the Political Economy Research Institute of the University of Massachusetts–Amherst, the New School for Social Research, the IDEAs conference in Muttukadu, India, and Cornell University. I benefited immensely from the research assistance of Stu Thomas, Jesse Golland, Ryan Economy, and Alison Lowe.

Notes

This version has been corrected. Please see Erratum (http://dx.doi.org/10.1080/13545701.2013.826893).

SBAs are the IMF's basic short-term loan agreement.

Events in and on the periphery of the European Union have contributed substantially to the IMF's resurrection because European institutions need the IMF's expertise, financial assistance, and authority (Susanne Lütz and Matthias Kranke 2013).

There is some evidence that the IMF is beginning to face competition from other institutions. For instance, Robert Wade (2010) points out that the IMF is losing new business to the World Bank outside of the European rescues. He notes that even in Europe, Turkey broke off negotiations with the IMF in early March 2010 because of the severity of its conditions. A few weeks later Turkey negotiated a US$1.3 billion loan with the World Bank.

See Ngaire Woods (2010) on the position articulated by Brazil's Finance Minister and Ilene Grabel (2011) on bargaining over this matter by China. The Russian government appears ambivalent on IMF governance reform. It has aligned itself with critics of IMF governance on many occasions, and it has been among the most outspoken critics of the US's privileged position at the institution. But Russian officials have occasionally stepped away from positions taken by fellow BRICS countries. Russia's ambivalent stance exemplifies what Robert Wade (2013) and James Mittleman (2013) rightly note is the fluid and complex nature of the relationships among the BRICS countries and between the BRICS and other developing countries.

I focus in this study on capital controls because the policy reversal in this area is particularly stark, and because it facilitates the expansion of policy space in other areas. But it should be noted that the current crisis has also witnessed the proliferation of countercyclical macro policy in developed and developing countries, which is also of enormous significance (Ocampo et al. 2012). Finally, it should also be noted that the IMF and leading economists are wrestling with the issue of macroeconomic policy. To date, this rethinking has not generated a radical reorientation away from established doctrines, except in the case of capital controls. However, there are signs of greater humility and a greater commitment to pragmatism in macroeconomic policy that encompasses, for instance, a wider range of macroeconomic targets beyond inflation (Olivier Blanchard, David Romer, Michael Spence, and Joseph Stiglitz 2012).

CMIM skeptics note that the swaps available under CMIM have yet to be activated. In addition, William Grimes (2011) and especially Wade (2013) are pessimistic on the prospects of breaking the CMIM–IMF link. See Grabel (2012) for an alternative view.

Thanks to implicit guarantees by the US and other rich countries, the World Bank and the IADB are better able to respond with a larger volume of loans in times of crisis. CAF loan approvals were US$7.9 billion in 2008, US$9.1 billion in 2009, and US$10.5 billion in 2010. By contrast, the World Bank approved loans to Latin America of US$4.6 billion, US$14 billion, and US$13.9 billion, and the IADB approved loans of US$11.2 billion, US$15.5 billion, and US$12.4 billion in 2008, 2009, and 2010, respectively (Ocampo and Titelman 2012).

The only exception is that the RMB can be used in cross-border trade with China's immediate neighbors or the special administrative regions of Hong Kong and Macao.