The world is watching Multilateral Development Banks (MDBs) and they are on their "last clear chance" to make dramatic changes, former US Treasury Secretary Lawrence Summers has said. According to the President Emeritus of Harvard University, the world "is not patient" and may not tolerate failure on MDBs' part to address key issues of the day such as climate change.
Speaking in New Delhi on September 23 at a session organised by the Ministry of Finance's Department of Economic Affairs and the Confederation of Indian Industry, Summers said while the MDBs – which include the likes of the World Bank and the International Monetary Fund (IMF) – are acting urgently and have the knowledge and experience to tackle global problems that a new institution would be unable to do quickly, they must move quickly.
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"I do think that it would be my advice to the leadership and staff of the existing institutions that the world is watching and that the world is not patient. And then this is their last clear chance and that if they're not able to move and move dramatically, that direction you suggest is likely to be the direction that the world comes," Summers said.
"But I think not quite yet, would be my sense. But I think it's a fair issue," he added.
Summers was responding to a question on whether the G20 independent expert group he co-chaired with NK Singh to MDB reforms had discussed the need to set up a new multilateral institution with a different and more egalitarian governance structure to address key issues such as climate change.
The Summers-Singh expert group was constituted on March 28 after India proposed its formation at the first meeting of the G20 Finance Ministers and Central Bank Governors in Bengaluru in February. Apart from Summers and Singh, chairman of the 15th Finance Commission, the expert group comprises seven other members. The group was tasked with drawing up a roadmap for an "updated MDB ecosystem for the 21st century" so that these institutions are better equipped to finance a wide range of sustainable development goals and global challenges such as climate change and health. India, even before it assumed the presidency of the G20 in late 2022, had repeatedly called for reforming MDBs, saying they faced existential questions.
The expert group had submitted the first volume of its report in July. The second volume is expected to be submitted next month and discussed at the annual meeting of the IMF and World Bank in Marrakech, Morocco which will take place from October 9-15.
Improving MDB efficiency
When asked if there was an optimal number of MDBs the world required, Summers said "some competition and some pluralism" among these institutions "is probably desirable", although he indicated there were too many at the moment.
"I suspect that if you were starting new and you were some omniscient global planner, you probably would have fewer MDBs than the world has right now," Summers said.
However, Summers said that instead of hypothetically thinking along the lines of merging two institutions, it made more sense to focus on improving efficiencies of each of them.
"I think that the World Bank could usefully reflect on questions of internal redundancy itself. It has a bit of a tendency – if somebody comes to it with money and wants a trust fund to do something with their money – to say yes, rather than to think about how it can be integrated into the existing programme and persuade others of that. But I would start from greater efficiency and reduction of redundancy within institutions before I turned to the issue of rationalisation across institutions," he said.
8% for India
When asked to comment on the Indian economy, Summers said that while he was not in a position to assess the progress India has made over the last five years, the progress has been "immense" and that it would be reasonable for the country to set itself an ambitious goal of growing by 8 percent every year until 2050.
"If I look at the initial level of GDP in India and I look at the countries that were able to maintain very rapid growth from that initial level for periods of several decades, that gives me a sense of the possibility," he said.
The Indian economy is expected to grow by 6.5 percent in 2023-24, down from 7.2 percent in 2022-23. The central government is targeting to make India a developed economy by 2047.
However, Summers also cautioned that problems similar to what he called "issues of federalism" in the US existed in India – frictions between the national government and those at the regional level. But if they were addressed constructively, it would unlock "enormous potential".
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