The war in Ukraine also shares the world economic order

It was, according to those present, an ‘unpleasant’ meeting. On Thursday, the World Bank held a round table in Washington on aid to war-torn Ukraine.

Everyone who represented something in that circuit was there: finance ministers, central bankers, director Kristalina Georgieva of the International Monetary Fund, and President David Malpass. The latter started by saying that he was “deeply shocked by the Russian invasion of Ukraine, the atrocities committed against the people and the loss of human life and livelihood”.

The Russian delegation was also present. For Russia has been a member of the IMF and the World Bank since 1992, which this week held their spring meeting in the US capital Washington. Ukraine, also a member and part of the Dutch-Belgian electoral group of countries voting together, was also present. And things became very unpleasant when the tireless Ukrainian President Zelensky spoke to the audience via video link.

Cracks in the construction

This showed in a nutshell the bigger problem facing the world in 2022. The IMF and the World Bank are two symbols of the multilateral network of events that hold the world together. From the World Trade Organization (WTO) to the World Health Organization (WHO) and all other UN special agencies.

But the entire post-war edifice is also unmistakably the domain of the world power of the time, the United States. The financial and economic group of the IMF and the World Bank is headquartered in Washington. The political UN is based in New York. In the UN, power is still divided between the great powers, with vetoes for permanent members of the Security Council, including China and Russia. But with the IMF, the United States alone has a blocking voice for decisions that do not suit them. And despite protests that have lasted for decades, Europe and the United States still share the IMF’s board positions and the World Bank presidency.

Will the current structure survive now that the cracks in the foundation are bursting? Keep talking is usually the motto even when the bombs and grenades fall. But it did not always work. On Wednesday, the G20, an unofficial group of the twenty most important countries for the world economy, met since the credit crunch in 2009. Russia attended the meeting. The United States, Britain and Canada went out demonstratively.

Likewise, the incumbent world power and allies do not seem at all costs to be willing to maintain the network that has stretched the world since 1945, from common technical standards to flexible trading rules, trading in the financial markets or health standards. Or investigation via Interpol or prosecution at the International Criminal Court in The Hague.

war crimes

The US Senate has blocked membership of the ICC, while there are now votes to support the ICC’s investigation into war crimes committed by Russia in Ukraine – without, after all, joining it. That duality also applies, as it was mentioned this week in Financial Times reminded, for the law of the sea. China is expanding rapidly in the South China Sea, amid strong protests from neighboring countries such as the Philippines, which claim that there is no Chinese right to these waters at all. The United States is patrolling there to emphasize that anyone can sail there and that Chinese claims are illegal. But America itself has never ratified the UN Convention on the Law of the Sea – even though it complies with the customary law that has emerged and which it reinforces with these patrols.

How robust is rule-based (rule based) international order yet? It sounds solid, but now that the global economy is taking beat after blow, it is being tested hard. The recession of the Covid pandemic has only just ended, and the war in Ukraine and the associated rising prices of energy, metals and food are creating a new crisis. The IMF scaled down its forecast for global economic growth this week from 4.4 percent to 3.6 percent. And that while this should have been the year when many countries after a severe recession in 2020 and a major recovery in 2021 would finally make up for the enormous damage of the pandemic. High energy and food prices are driving higher inflation everywhere, which was already rising due to problems in international transport. For many people in low-income countries, especially in the Middle East and Africa, rising grain prices are a direct threat to their livelihoods.

Many Western countries and their companies are considering greater economic autonomy, making them less dependent on international production chains and energy supplies. Offshoring and outsourcing make room for onshore and insourcing: we prefer more production on our own land, if nothing else, to become less dependent on political whims abroad.

Yet this week showed how necessary international cooperation is. The turbulent round table discussion at the World Bank focused on how to help Ukraine not only militarily but also economically and economically. The IMF estimates that the country now needs $ 5 billion (4.5 billion euros) a month to survive socially. The forecasts for the cost of reconstruction are not yet available: The damage to the Ukrainian economy, which will collapse by 35 percent this year, and society is still rising sharply every day. According to Finance Minister Marchenko, Ukraine has already received 3 billion euros in financial assistance and hopes for another 4 billion soon.

The IMF itself has already disbursed more than 1.4 billion euros and has opened a special account where countries can make donations, which will then be made available to Ukraine. Canada has invested more than 700 million euros in this. Bilaterally, the amounts are much larger, especially from the EU and the US – although military, financial and humanitarian aid is not always easy to distinguish. If you want to keep track of how much support Ukraine receives from different countries, you can contact the special Ukraine Support Tracker from the German Kiel Institut für Weltwirtschaft.

But other countries are also being supported, including countries suffering from high food prices and countries in the immediate vicinity of Ukraine. One of the ways also used during the Covid pandemic is to transfer extra reserves from rich countries to the IMF, which they themselves do not need. Last year, the IMF created such new ‘special drawing rights’ for almost 600 billion euros.

Also read: The economic blow to Ukraine is enormous – and it is without the physical damage

Objection from Russia

However united it may be, support for Ukraine remains largely a Western affair. This does not mean that the international community would not appreciate the international community’s network that made the global economy what it is today. But Russia’s objection made this week unique: For the first time, the biannual meeting between finance ministers and central bankers from IMF member countries did not publish a joint communiqué. The stumbling block was a reference to the Russian invasion of Ukraine. The outside world had to settle for a statement from the President, the Spanish Minister of Finance Nadia Calvino, which contained a more than implicit critique: “In these dark times, multilateralism is more important than ever.”

It underlines how fragile the rule-based international order is at the moment. Can he go bankrupt? Ernest Hemingway late in his classic The sun also rises give one of its protagonists a now famous answer to the question of how it went bankrupt. “In two ways,” was his reply. “Gradually. And then suddenly.”

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