G7 finance ministers in July reiterated their commitment to enforce their agenda without a commitment to address the needs of the poorest countries. The statement again focuses on codes and standards which require developing countries to take action at the national level but fails to address key gaps in the international architecture such as a standstill mechanism to ensure private sector participation or measures to protect the poorest countries which cannot borrow from non-concessional sources. Nor does it include any proposals to control volatility of flows from the source countries. The bias in the proposals demonstrates the failure to include developing countries in the architecture discussions.
A major focus of the report is reform of the IMF. Proposed measures include:
- strengthening the IMF‘s surveillance function, including surveillance of national financial systems and exchange rate regimes, publishing indicators of national liquidity and balance sheet risks, and promoting application of the Special Data Dissemination Standard;
- increasing the IMF‘s ability to coordinate compliance with and assessment of countries’ observance of international standards and codes, through Reports on the Observance of Standards and Codes and Financial System Stability Assessments, and working with the World Bank on Financial Sector Assessment Programmes and action plans;
- reforming the IMF‘s lending facilities including streamlining facilities, introducing new prices for non-concessional facilities, and better incentives for joining the Contingency Credit Line;
- refocusing conditions on “issues of macroeconomic relevance”; and
- increasing the transparency and accountability of the IMF by, amongst other things, briefing the IMF Board earlier in the programme formulation process, establishing a permanent independent evaluation office, and reviewing the quota formula.
The paper reiterates the primary focus of the MDBs should be poverty reduction, including for the emerging and middle income countries. It called for a series of steps including greater selectivity, more support for capacity building and structural and institutional reform and exploring the possibility of separating lending from non-lending services.
Its not clear how the G7‘s IMF proposals will link with those set out by IMF MD Horst Köhler. Köhler suggested in July that “at its meeting last month, [the IMF Committee] set us a very full program – so full and so sophisticated, for example in the area of standards and codes, that I worry a bit about the practicality of implementation in many developing countries.”