IMF, World Bank grapple with fallout from Israel-Gaza war as reforms edge forward

Global finance leaders' paralysis in addressing the fallout from the Hamas attack and Israel's response last week exposed deep geopolitical divisions hampering the International Monetary Fund and World Bank, even as they advanced new funding plans aimed at easing more-frequent economic shocks.

Hamas launched its unprecedented attack on Israel on October 7, just as top finance officials arrived in Morocco for the IMF and World Bank annual meetings, upending the gathering's carefully crafted script calling for new resources and steps to revive flagging global growth.

IMF Managing Director Kristalina Georgieva did not mention the new conflict at opening events. Later, as Israel's retaliatory strikes mounted, she struggled to address it, initially describing it as a human tragedy but a vague source of economic uncertainty.

In private conversations at the meetings, the Israel-Gaza conflict's implications were front and center, from a new refugee crisis to trade impacts and the threat of fighting in Lebanon and the West Bank, participants from finance groups to non-profits told Reuters.

"In the face of a major global shock like this that's human created, that's not a climate shock, these institutions are impotent to do anything about it, which is why they're not even talking about it," said Rachel Nadelman, a senior research fellow at American University's Accountability Research Center, who attended civil society and official events at the meetings.

The inability to respond extended to chair's statements issued by the Group of 20 major economies and the IMF and World Bank steering committees, which failed to mention the conflict.

These bodies were again unable to issue joint communiques, reflecting deepening geopolitical tensions, most recently over Russia's invasion of Ukraine, but also disputes between the United States and China, which have long sparred over communique language.

A G20 official said that body has been riven for two years by the Ukraine war, with a communique only possible after a meeting of U.S. President Joe Biden and China's Xi Jinping in Bali last year.

"The Israeli-Palestinian conflict is even more controversial - almost impossible to reach consensus," the official said.

ACCOMPLISHMENTS OVERSHADOWED

World Bank President Ajay Banga acknowledged on Sunday that the Israel-Gaza conflict, along with the Ukraine war and fighting in Africa, were "casting long shadows" over the meeting's accomplishments and adding to economic challenges.

"You know, without peace, it's hard for people to get stability, growth, look after their children, get jobs," he said.

The World Bank's governing body approved a new vision statement "to create a world free of poverty on a livable planet" to incorporate its new mission to fight climate change, pandemics and fragile states, along with new steps to expand lending.

The IMF's steering committee agreed to boost quota funding by year-end, leaving the door open to doing so without adjusting its shareholding structure to give China more votes, while a $3 billion fundraising goal for its poor-country trust fund was met.

But conflicts remain the biggest challenge to the global economy, said Josh Lipsky, a former IMF official who directs the Atlantic Council's GeoEconomics Center.

"If these institutions are going to be legitimate and fit-for-purpose for the coming decade, they're going to have to respond to geopolitical crises in close to real time," he told Reuters.

"Geopolitical shocks are economic shocks now and economic shocks are geopolitical shocks - and they're trying to detach the two."