Austerity may be the new reality for public employees in the developed world, whether it is pay cuts in Greece, layoffs in Germany or pension reform in Britain.
But the International Monetary Fund and the World Bank have pushed ahead with pay raises above the rate of inflation for thousands of workers -- despite opposition from major funders in the United States and Europe.
U.S. representatives on the IMF and World Bank boards abstained in the recent votes that approved raises of 4.9 percent and 3.7 percent, respectively. They were joined by European nations that felt the increases set the wrong tone when governments are being pushed to retrench. The IMF just released its "Ten Commandments for Fiscal Adjustment in Advanced Economies."
Raises at the World Bank were approved at a Wednesday board meeting, just a day after Britain released an austerity package featuring new taxes and spending cuts -- not the best timing for winning the British board member's support.
"We greatly value the hard work and expertise of bank staff," said Rob Kelly, a spokesman for Britain's Department for International Development. But "when governments worldwide are cutting public spending, increasing taxes, and reducing or freezing public-sector pay, to award an above-inflation pay rise risks making the bank appear out of touch."
The dispute mirrors some of the broader dynamics in the world economy. The United States and Europe remain the major financial backers of the IMF and World Bank, and they were recently tapped to help replenish the coffers of both institutions after the global crisis spurred record lending to support economies around the world. Salaries of top World Bank staff were frozen last year in recognition of the crisis.
At the same time, developed nations are coping with the uncomfortable new role as a source of world economic weakness. Although that status made representatives from some countries leery of approving raises at the two institutions, officials from Latin America and Asia noted that there were no such complaints when their countries went through similar periods of crisis and retrenchment, according to officials familiar with the discussions.
In the bank's case, raises for the roughly 7,000 employees at its headquarters are set by a formula based on inflation and labor-market data in the United States. Inflation is currently about 2 percent annually; the formula would have allowed raises of up to 4.3 percent, but the request was scaled back to 3.7 percent. According to bank officials, individual raises are based on job reviews, and most employees will not receive the full amount. The IMF uses a similar system; its pay raises were approved in April.
"Our board representing 187 countries approved this recognizing [the] record work by staff on behalf of clients during the crisis, and it is well below other multilateral institutions," such as the IMF and major development banks, said Hasan Tuluy, vice president for human resources at the World Bank.
The World Bank's overall budget was approved at the same meeting without abstention, and at $1.77 billion, it was essentially flat compared with the year before when adjusted for inflation, according to bank officials.
U.S. officials, speaking on the condition of anonymity because the pay discussions were private, said they are pushing for a fuller review of a compensation system that outpaces the cost of living.
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