IFI governance

News

Spring meetings 2009: communiqués coverage

23 April 2009

  1. G24 communiqué (24 April): analysis, original document
  2. G7 communiqué (24 April): analysis, original document
  3. IMFC communiqué (25 April): analysis, original document
  4. Development Committee communiqué (26 April): analysis, original document

G24 communiqué (24 April)

The G24 is a grouping of some of the most important developing countries in the World Bank and IMF. It includes India, Argentina, Brazil, Mexico, and South Africa, all of whom are also in the G20. The G24 Communiqué is the first off the block, coming in earlier than the G7. It addressed the global economy first and foremost, but also looked at the other pending issues from the G20 summit – SDR allocations, IMF gold sales, IMF lending reviews, IMF governance reforms, and more money for trade finance through the World Bank.

In the end the G24 statement did not add much above what was already agreed in London at the G20 level. It did however include some important and interesting demands that should be taken note of. First, while rich countries seem comfortable with the G20 as a locus for discussions about the financial crisis, the G24 stated “the global crisis requires global solutions with the participation of all countries and with due consideration of the impact of actions on developing countries.” This might hint at a role for the UN in some discussions, and the group explicitly “welcomed the decision of the UN General Assembly to convene a conference on the World Financial and Economic Crisis” in June. The G24 is probably hoping that more discussions can take place at the UN level where developing countries outnumber the rich, and can force issues onto the table.

On IMF resources, the G24 welcomed the agreement to treble resources, but also threw in an interesting element that NGOs have been calling for – redistribution of SDRs after an allocation. “Ministers strongly supported and called for early implementation of a new general SDR allocation of at least $250 billion to meet global needs and boost members’ reserves through unconditional resources. They called for the consideration of an appropriate mechanism for ex post reallocation to enhance the benefits for developing countries, especially the poorest.” SDR allocations are done according to IMF quotas which would mean that rich countries, who have little use for SDRS, get two-thirds of them. Of the promised $250 billion only about $17 billion would go to low-income countries, so many have called for the SDRs to be redistributed but in a way that does not automatically generate interest charges for the developing countries.

On low-income-country lending specifically, the G24 group, continued their strong support of the IMF playing a key role. Despite past harmful conditionality, he G24 has always been supportive of the IMF being involved, but has called for changes to conditionality. This pattern has continued with them calling “on the donor community to provide the subsidy resources needed to augment the IMF’s concessional lending capacity” and “encourag[ing] the IMF to apply in its LIC lending the same flexibility and streamlined and review-based conditionality as agreed for other lending facilities.” They want a lending window like the new Flexible Credit Line, which has no conditionality for use, but does have pre-qualification criteria. Some civil society organisations would support such a move, though others might still be wary of the IMF’s policy advice and the soft power this might hand to IMF staff.

In oblique fashion, the G24 also brought up the issue of reserve currencies – namely the Chinese proposal that the SDR be used as an international reserve currency instead of the dollar. China does have observer status at the G24. The G4 ministers “supported an early review of the role of the IMF in the international monetary system in light of the lessons of the crisis, including with respect to the major reserve currencies.” It is unknown what will come of this or how much the Chinese will push this issue onto the agenda in the coming months.

On the World Bank side, not much new was said, though the G24 did “welcom[e] the initiatives announced by the Bank to protect the most vulnerable from the effects of the crisis including the establishment of the Vulnerability Financing Facility.” More interestingly they agreed wih front-loading IDA resources, which has been controversial as it would mean less money in later years. To counter this problem “they also called for additional replenishments of IDA to maintain financing levels in the outer years.” Donors have expressed no interest in this idea, especially right now when many countries, such as Italy and Ireland, are outright cutting their aid budgets,

Finally, on governance, the G24 continued most of their standard positions. One interesting result was the agreement that “a substantial increase and realignment of quotas in the IMF … be completed no later than January 2011.” This mimics the G20 finance ministers and leaders agreements, but is expressly against the recommendations of the IMF eminent persons committee on governance, chaired by Trevor Manuel. That committee recommended a package of governance reforms to be agreed by April 2010. Trevor Manuel also sits on the G24, as he is the South African finance minister. Clearly he was unable to convince his colleagues on the G24 of the utility of pressing for a quicker conclusion to the discussions.


G7 communiqué (24 April)

If you have read the G20 London Summit communiqué then you really don’t need to bother to look at the G7 communiqué. The group of 7 of the richest economies’ are all members of the G20, and their communiqué shows just how little progress has been made since the 2 April G20 meeting. Many of the agreements of that meeting are reiterated, but there is already evidence of some backsliding – the IMF is now only promised “up to $500billion.” IMF sources indicate that so far only $360 billion of this has been pledged so far.


IMFC communiqué (25 April)

The International Monetary and Finance Committee (IMFC) is the direction setting body of finance ministers and central bank governors for the IMF. The Egyptian finance minister Yousef Boutrous-Ghali was selected to head the committee last year. However the IMFC has been targeted by the IMF Independent Evaluation Office (IEO) and an eminent persons committee chaired by Trevor Manuel for elimination in favour of a body that has formal authority to direct the IMF. This may have been one of the last IMFC meetings.

One of the most eye-catching things at the start of the IMFC communiqué is something that appeared in neither the G7 or G24 statements: it “call[ed] for urgently concluding an ambitious and balanced Doha Development Round.” This sort of language has been hotly resisted by civil society organisations, who have complained that the trade talks have been unbalanced since the start and threaten developing countries’ interests.

On the important topic of IMF resources, the IMFC for the first times seems to have fully incorporated the developing country perspective: “While an expanded NAB is an important backstop for Fund resources, we recognize that it is not a substitute for a quota increase.” This refers to the method by which the IMF resources are increased. The New Agreements to Borrow (NAB) is a temporary method, but developing countries, including the G24 ministers on the previous day, have long called for IMF resources to be increased through a general quota increase – a permanent expansion. As the rich world is hoping that much of the increases will be contributed by reserve rich countries such as China, South Korea and Saudi Arabia, it must have been necessary to bow to their wishes on this point. We also finally were given detail of who is actually putting money into the pot. NAB loans were finalised for Japan, Canada, members of the European Union, Norway, Switzerland, and the United States.

However, the IMFC did not support some of the G24 language on low-income country programmes at the IMF. Specifically there was no mention of SDR reallocation, or extending an-FCL type no-conditionality facility to low-income countries. The language supported the recent board decision to double access limits and the un-resourced idea from the G20 to double the amount of concessional resources available. It did also mentioned the use of IMF gold sales proceeds being used to for putting money into the low-income country lending pot. This idea, first proposed at the G20, is controversial because some countries oppose gold sales, some want all the money to go to the IMF’s endowment, while others worry that the money should not go to creating more debt for low-income countries but should be used for debt relief.

On surveillance, not much interesting was said – the usual exhortations for ebtter srveillance, better analysis of macro-financial linkages, and for IMF members to better follow Fund advice. Finally, on IMF governance, it was a foregone conclusion that the IMFC would ask for the next quota review to be completed by January 2011 rather than the earlier date of April 2010 pushed by South African finance minister Trevor Manuel. The IMFC did ask for a prompt start to the negotiations anyway, saying that it “looks forward to further work by the Executive Board on elements of the new quota formula that can be improved before the formula is used again. This work should start before the 2009 Annual Meetings.” It also gave a bit of a rebuke to the executive board for not considering the Manuel committee’s report on IMF governance reform. Because the board had not had a discussion on the topic, protocal is such that the IMFC is not supposed to discuss it either. The IMFC stated that such broader reforms “should be promptly considered”.

Interestingly the IMFC left out any mention of the Chinese central bank governor’s paper about the global reserve currency system, despite the attendance of Zhou Xiaochuan himself at the IMFC. This is one of the big questions facing the IMF over the next 1-2 years: Will or how quickly will China press for a full discussion of this topic? A move to eliminate the use of the US dollar as the global reserve currency will likely be strongly resisted by the US, as the system grants them privileges that no other country can enjoy – the right to print as much currency as desired to finance its own fiscal and current account deficits. But China, as the coming global economic superpower chafes at this system and may have grander ambitions for its own currency in the medium- to long-term. It also worries about the value of its massive US dollar-denominated foreign reserves, estimates at over $1.5 trillion. Such a fundamental restructuring of the global financial architecture will not be an easy subject to discuss, and it must have felt like the Elephant in the Room, especially when it came to the turn of Mr. Zhou to speak.


Development committee communiqué (26 April)

In keeping with the overall ‘no progress’ theme of this year’s spring meetings, the World Bank’s development committee issued a two page communique which had little to add to the agreements made at the April G20 summit.

The rhetoric on aid commitments is ramped up from the G20 London Summit, with donors urged to “accelerate delivery of commitments to increase aid” and “to consider going beyond existing commitments.” Concrete pledges, however, are conspicuously absent.

Existing World Bank crisis initiatives are reiterated, but the possibility of increased funding for the Bank is placed on the table, with the Bank asked to “review the financial capacity, including the capital adequacy, of IBRD and IFC, and the adequacy of the concessional resources going to IDA countries, for our further consideration at the 2009 Annual Meetings.”

The G20 commitment to an accelerated timetable for Bank governance reform – to be completed by spring 2010 – is confirmed, and a “transparent, consultative and inclusive process” called for, though whether this also means outreach to civil society and other stakeholders is not mentioned.