- G24 communiqué (7 October): analysis, original document
- IMFC communiqué (9 October): analysis, original document
- Development Committee communiqué (9 October): analysis, original document
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, who are also in the G20. It also includes Egypt, Iran, Nigeria, Venezuela and a number of other countries. The G24 communiqué is traditionally the first statement of the meetings. The G24 set out strong positions around the current debates at the IMF with particular focus on the so-called currency wars and on IMF governance.
On the global economic issues, the G24 started by taking a strong stand against excessive fiscal austerity in the rich world, saying that “the simultaneous and broad-based fiscal consolidation that is presently underway in many advanced economies poses considerable risks of a downward spiral in global demand.” Without actually calling for more stimulus in advanced economies, the G24 has still highlighted the potential of a double-dip recession. Another downturn in the advanced economies would impact on growth in the developing world.
Developing countries in the G24 are also being seriously effected by monetary policy in the advanced world. The G24 ministers noted that the “sustained low interest rates in the advanced countries have contributed to a surge in capital flows to some emerging markets, putting upward pressures on exchange rates, creating overheating pressures, and carrying risks of increased vulnerabilities and reversals.” The talk this week of “currency wars” has arisen because of this surge in capital flows. Investors wanting more interest are fleeing rich countries, which have extraordinarily low interest rates, in favour of debt in emerging markets. These flows are pushing developing country currencies up, which is why they are intervening in markets to try to keep their currencies competitive. They have called for “strengthen[ing] the monitoring of such flows and to consider options for mitigating risks,” a reference to an upcoming IMF board discussion on capital flows. The IMF has this year been considering its role in advising on the topic of controlling capital flows, but some rich countries have resisted the IMF taking a more proactive stand on capital account management.
The G24 ministers also made a long statement on IMF governance reform, as this has been the debate creating a lot of animosity behind the closed doors of the negotiations. The IMF promised a new round of governance reform by January 2011, but negotiations have been acrimonious. Of particular concern to the G24 is the size of a shift in IMF quota (which determines IMF voting rights) to developing countries. They called for “a shift of at least 5 percentage points from advanced economies to emerging market and developing countries.” European have instead called for an overall 5 per cent shift, some of which would go to ‘under-represented’ rich countries. Also on the G24 agenda was the need to reform the formula that guides IMF quota distribution, a preservation of voting rights for low-income countries, and creating an open merit-based and transparent process for selecting the senior management at all international financial institutions. On the question of board reform, the G24 took a stance against the US efforts to shrink the size of the executive board from 24 to 20 chairs, arguing that “the current size of the Executive Board is appropriate” and stressed that more chairs should be available for developing countries, especially another one for Africa, which currently group 45 countries into just 2 seats at the board.
On the substance of what they want out of the IMF mandate review the G24 welcomes recent reforms to the IMF lending facilities but argued for “further enhancements to the financing facilities available to low-income countries.” They also reiterated their calls for “effective and even-handed surveillance of systemically important advanced countries and markets,” code words for the IMF taking a stronger stance on the policies in the United States, particularly towards the financial sector and Wall Street.
In comparison to the issues on the IMF agenda, the G24 took relatively few concrete positions on issues related to the World Bank. A key ask is that the IBRD and IFC, which lend to middle income countries and private companies respectively, get more capital so that they can lend more to emerging markets and developing countries. The G24 also called for an ambitious replenishment of IDA, the Bank’s low-income country arm which is currently in a round of soliciting cash from donor countries. Finally they called for “due flexibility in the policies and instruments of the Bank including in its financial policies and for further measures to reduce the costs associated with its lending.” This is a reference to current internal reforms at the Bank which are supposed to speed lending but bring risks according to NGOs. It may also be a reference to the ongoing environmental and social safeguards review at the IFC, where NGOs have called for more stringent policies, particularly in respect to indigenous people and human rights, but where developing country governments have often pushed back by asking for more lenient standards.
The International Monetary and Finance Committee (IMFC) is the direction setting body of finance ministers and central bank governors for the IMF. It has basically the same country composition of the executive board and meets twice a year to agree on key issues for the IMF. The 2010 IMFC annual meetings communiqué was made available at mid-day on Saturday. The IMFC communiqué said little new and mostly urged continued reform.
On the critical topic of IMF mandate reform, the most important commitment is in relationship to the international monetary system. The IMFC called for “the Fund to deepen its work in these areas, including in-depth studies to help increase the effectiveness of policies to manage capital flows.” This could be a victory for developing countries, who has long asked for the IMF to be more proactive in helping them design capital account management tools. The IMFC statement does not commit the Fund to promoting capital account management techniques, but it does bring it one step closer. However there was no commitment or direction in terms of monetary reform or tackling the more system issues of reserve systems or overall global exchange rate systems.
On the other main topic of debate – IMF governance – there was an unusual request for another update from the IMF executive board. “Given the urgency of these issues, we call on the managing director to report to the IMFC on progress on quota and governance reforms by the end of October.” It also indicates that the finance ministers that make up the IMFC are trying to take a more active role in pursuing a negotiated solution to the stand-off over how to adjust voting rights at the IMF. Otherwise the IMFC just welcomed the moves already agreed on surveillance and lending facility reforms.
The IMFC did make comments on other important global economic topics. On financial regulation the ministers welcomed the new agreement at the Basel Committee on Banking Supervision (so-called Basel III), and then mentioned the need for progress in a number of other areas. However the IMFC left out key questions related to financial markets and non-bank financial institutions. There was no mention of the ‘scope of regulation’, the code words for regulation of the shadow banking sector, meaning hedge funds, private equity vehicles, and off-balance-sheet investment vehicles. There was also no mention of derivatives regulation, which is a live issue in both the US and in Europe.
The Development Committee communiqué was made available at the end of the day on Saturday. The Development Committee is a joint committee of the boards of the International Monetary Fund (IMF) and the World Bank (Bank), which is meant to advise the Bank and the IMF on critical development issues and the resources needed to promote economic development.
The latest communiqué highlights the role the international financial institutions have played in the last two years to “head off a catastrophic economic downturn.” According to the Committee, many countries have done well in maintaining growth and output and preserving core spending on health, education and infrastructure, and there is a “nascent global recovery.” At the same time, the communiqué admits protection of vulnerable people has fallen short, especially in low-income countries. As a result, the Committee has committed to intensify efforts toward achieving the Millennium Development Goals (MDGs) in 2015, but with no details on what this means beyond “a stronger focus on results.” In this light IDA lending to poor countries by the Bank, is argued as one of the most important tools for achieving the MDGs, but little is given away on the state of play of anticipated donations during this years IDA replenishment, due to complete by December. World trade and investment are also argued as key to economic recovery.
The Committee has heralded the high levels of commitments and disbursements of resources from the IMF and Bank to support countries’ own responses to the crisis.The committee also highlighted the efforts of the World Bank Group in infrastructure and human capital investment. It also mentioned the Bank for its role in climate change and applauded undertakings such as the climate investment funds, which have been controversial. To sidestep controversy around competition with the United Nations climate negotiations, the communiqué encourages further collaboration with the UN.
The communiqué also emphasises the need for continued implementation of a strategic framework to guide the Bank and make priorities and identify trade-offs in its activities. The Board is expected to monitor and reform on all agreed reforms, which thus far have been slow to move forward.
As part of those reforms, the Bank has finally added a third Sub-Saharan African chair which is emphasised in the communiqué as being indicative of progress on governance and accountability at the Bank, despite this being two years after it was agreed. The strongest commitment yet to ending the US-European stranglehold on the top jobs at the IFIs is made with “the importance of an open, merit based and transparent process for the selection of the President” of the World Bank Group reaffirmed. Civil society groups have been more critical of reforms pointing out that governance reform has only made a small step and that the institution is still heavily dominated by wealthy countries.