The Quiet Revolution on 19th Street

Though you’re not likely to see the sort of large-scale protests that have marked such occasions in the past, the annual meetings of the International Monetary Fund and the World Bank — which begin Friday amid continued anxiety about the state of the global economy — could be the two institutions’ most consequential gatherings in years.

At the top of the agenda will be attempting to bolster the fragile worldwide recovery. The IMF warned this week that "progress toward global financial stability has suffered a setback over the past six months — the financial system remains the Achilles ‘ heel of the economic recovery." The Obama administration will press the case for continuing economic stimulus. Treasury Secretary Tim Geithner worried recently that European austerity packages, in particular, may constitute a "premature shift to restraint."

The world financial crisis that began in September 2008 produced many losers but also a few winners, and the IMF certainly falls into the latter category. The fund was marginalized and shedding staff in 2006-2007. Its lending was at the lowest level in decades, and many wondered whether it was sliding into irrelevance.

No longer. The fund has played a critical role in crafting rescue packages for several countries, including last year’s spectacular bailout of Greece. In April, the G-20 pledged to increase its lending resources by $750 billion, and the institution has recovered its status as the cornerstone of the international financial architecture. The Obama administration is pushing the IMF to play an even more central role, particularly on the question of managing exchange rates. Geithner emphasized on Wednesday that managing currencies is an "inherently multilateral" enterprise — a none-too-subtle hint that the United States hopes to employ the IMF in its push for a revaluation of the yuan.

The World Bank — with its stated mission of reducing poverty, rather than ensuring macroeconomic stability — has played a quiet second fiddle to the IMF during the financial crisis. Recently, it has struggled to get its cash-strapped donor countries to commit the new resources it would like. Perhaps for that reason, the bank has showed a bit more leg than usual in the run-up to this year’s meetings, calling on Hollywood stars to headline seminars and unveiling a contest for the best App related to international development. Senior bank officials realize that donors may wish to control their scarce development funds directly, rather than funneling them through the bank, and they appear determined to polish the institution’s image.

One key issue for this week’s bank meetings will be the ongoing recapitalization of the International Development Association, the arm of the bank focused on lending to the poorest countries. The behavior of emerging economies including China, Brazil, Russia, and India will be important signals. These countries may now be economic giants, but when it comes to contributing to the poorest, they have often emphasized the persistent domestic poverty they themselves face. India is still the largest IDA borrower, and China, Brazil and Russia together contribute less than one percent of the institution’s funding.

For all their differences, the Bank and the Fund both face a common challenge: how to integrate these newly powerful emerging economies more effectively into their activities. In April, the World Bank agreed to increase the voting share of these economies, and China vaulted past Germany, Britain and France. The Bank’s chief economist is now Chinese. These changes have been widely applauded, but the new influence of these countries may soon produce clashes over lending priorities, with the emerging nations emphasizing development and high-income donors pointing to environmental concerns, and climate change in particular. Last year’s fight over bank funding for a coal-fueled power plant in South Africa may be a sign of things to come.

The IMF is in the midst of its own struggle to reflect the new power of the emerging economies, and several European countries are likely to give up their executive board seats to achieve a more balanced governance structure. Lurking in the background is the question of whether the bank and the fund should soon have leaders from outside the United States and Western Europe. "It certainly would not surprise me if the pressure from the shareholders was such that we didn’t automatically have a European and an American," former Bank president James Wolfensohn told me this week.

Many of these critical governance issues won’t be resolved until the November G-20 summit at the earliest. The heavy load of routine institutional work and the absence of heads of state make the annual meetings an unwieldy forum to strike a grand bargain. But the bilateral and multilateral conversations this week will help set the stage for that important event, and for the reshaping of the world’s economic and financial architecture. The protests may have dwindled, but there’s a quiet revolution underway on 19th Street.