Mohammed Soliman is someone who knows the International Monetary Fund and World Bank well. A senior fellow at the Middle East Institute, he has been attending the organisations’ spring meetings for more than a decade. So, when he told The National this week in Washington that the main theme of this year’s IMF-World Bank Group gatherings is how “uncertainty is certain”, he articulated a general anxiety about a global economic crisis with far-reaching implications.
The effect that the US-Israeli war on Iran has had on energy supplies is undeniable. With Tehran disrupting and attempting to blockade the Strait of Hormuz, 20 per cent of the world’s oil and gas flow has been reduced to a trickle.
This is fuelling trade upsets, rising inflation and the risk of recession – possibly the worst one for a generation. Washington's response has been to impose further constraints, without a clear way to ease the pressure. These financial and economic consequences put the war and its fallout firmly within the IMF and World Bank’s purview.
Right now, policymakers, investors and development leaders are seeking reassurance. The IMF and World Bank are well placed to provide it. Both bodies are based in Washington, possess formidable economic tools and are invested in preserving worldwide financial stability. These factors have made them influential actors and adept at warning the international community about the economic challenges it faces. This capacity now needs to turn from highlighting problems and warning of risks to offering solutions.
The IMF is particularly well placed to help low-income and energy-importing nations facing the sharp edge of the crisis unfolding around the Strait of Hormuz. Emergency finance, debt restructuring and low-interest loans could help such countries stabilise prices and pay for imports. This is not about chasing profitability but maintaining social stability.
The World Bank is in a strong position to complement such policies. Financing energy subsidies or providing cash transfers to protect households could help to boost food security, especially as the supply of chemicals for fertilisers is held up by the war and the price of many staple foodstuffs rises.
Urgency must accompany such strategies. The Iran war has been an acute shock, but its global effects are deceptively slow. The worldwide economy is now in a phase where oil price rises will soon be joined by actual shortages and broken supply chains. There is little time to wait and see if US-Iran peace talks resume.
The IMF and World Bank are sometimes characterised as being risk-averse, but now is the time to be bold, agile and fast. This is vital if both organisations are to remain relevant in an age where international bodies are increasingly accused of passivity and ineffectiveness.
