ANALYSIS-Finance leaders stumble on Israel-Gaza war shock as IMF, World Bank advance reforms

The inability to respond extended to chair's statements issued by the IMF and World Bank steering committees, once again unable to issue joint communiques amid deepening geopolitical tensions, most recently over Russia's invasion of Ukraine, but also disputes between the United States and China. The Group of 20 major economies did reach consensus on an official communique but omitted any mention of the Israel-Hamas war.

Global finance leaders' paralysis in coming to grips with 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 Oct. 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, 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 IMF and World Bank steering committees, once again unable to issue joint communiques amid deepening geopolitical tensions, most recently over Russia's invasion of Ukraine, but also disputes between the United States and China.

The Group of 20 major economies did reach consensus on an official communique but omitted any mention of the Israel-Hamas war. 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.

"The Israeli-Palestinian conflict is even more controversial - almost impossible to reach consensus," the official said. A senior U.S. Treasury official said the human tragedy was in the foreground at the moment, not the economic consequences, and Russia's war remained the primary driver of geopolitical instability in the global arena. "First and foremost this is a human tragedy," 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.

"Without peace, it's hard for people to get stability, growth, look after their children, get jobs," he said. Senior World Bank Group officials were more pointed in a statement to staff, saying they were "shocked and appalled by the unprecedented escalation of violence in Israel and Gaza."

"We condemn terrorism in all forms, including the abhorrent targeting of innocent civilians and kidnapping," the leaders of the World Bank, the International Finance Corp and the Multilateral Investment Guarantee Agency, said in an internal statement seen by Reuters. 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."

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