- BRICS statement (22 September): analysis, original document
- G24 communiqué (22 September): analysis, original document
- G20 finance ministers’ communiqué (22 September): analysis, original document
- G20 development ministers’ communiqué (23 September): analysis, original document
- IMFC communiqué (24 September): analysis, original document
- Development Committee communiqué (24 September): analysis, original document
The BRICS includes Brazil, Russia, India, China and South Africa. This grouping, in some ways a counterweight to the old developed economy G7, has been holding sporadic meetings since 2009. As the leading emerging economies from each continent they are having increasing weight in global discussions, though past meetings have failed to see them present coherent and united proposals, largely because they have quite divergent interests because of their varied development statuses and economies.
This time they issued a joint statement early on Thursday before the G24 meeting. It notes that “growth prospects of all our countries have been dampened by global market instability” and goes on to repeat long-standing criticisms of the policies of western countries. It says: “In advanced countries, the build up of sovereign debt and concerns regarding medium to long-term plans of fiscal adjustment are creating an uncertain environment for global growth”, and blames “excessive liquidity from aggressive policy actions taken by central banks” – a reference to low interest rates and quantitative easing in advanced countries – for “fostering excessive volatility in capital and commodity markets.”
The text contains a carefully worded reference to recent suggestions by IMF managing director Christine Lagarde that the IMF may not have the resources to cope with current sovereign debt problems, saying the BRICS would be “open to consider, if necessary, providing support through the IMF or other international financial institutions in order to address the present challenges to financial stability”. Immediately after the BRICS say they are “concerned by the slow pace of quota and governance reforms at the IMF” – highlighting that any increase in resources for the IMF from their governments would have to be tied to reducing the over-representation of rich countries in the IMF’s governance arrangements.
No such dangling of potential extra resources for the multilateral development banks who were recapitalised in 2010. Instead the text urges them to find “ways of expanding their lending capacity.” The news articles make it clear that at the ensuing press conference the central bankers and finance ministers from the countries were open about their desire to be responsible global leaders but they had not agreed a joint strategy for how they would respond to the European sovereign debt crisis and that their countries’ contributions would depend on their individual circumstances.
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 grouping of developing countries at the IMF and World Bank focussed their communiqué on the “heightened threats to the global recovery” and the measures that need to be taken, particularly in Europe, to counter these threats. They “underscored the need for urgent, concerted and coordinated actions to tackle the crisis of confidence in advanced economies.” Perhaps because of their memories of IFI-enforced structural adjustment policies for their own countries, the G24 countries are not urging more structural adjustment and austerity for advanced economies like Italy, Greece, Portugal and Spain. Instead, understanding the problems from their past experience with cutting spending in a recession, the G24 argues that “policies need to give priority to supporting the fragile recovery, while ensuring credible medium-term fiscal consolidation.” In a statement about IMF policy, the G24 reiterated their long-standing call for more “even-handedness” in IMF surveillance, which reflects their feeling s that the IMF has not treated developing countries fairly in the past and should spend more time focussing on the economic policies of rich countries, particularly where they impact on developing countries. The G24 “believe[s] that ongoing efforts to strengthen the effectiveness of IMF surveillance are often undermined by inappropriate and weak implementation framework and practices. We called therefore for further enhancements to improve the even-handedness of surveillance and its effectiveness and traction, in particular with [advanced economies].”
On the development agenda the statement addressed a number of themes, including food price volatility, energy and climate financing. On food and commodities, the G24 called for “urgent actions to deal with the consequences of volatile commodity prices and long-term impediments to food and energy security, especially with respect to the most vulnerable countries and populations,” but failed to make any statement on the causes of the volatility. A debate has brewed between the IFIs and private financial interests on one side, and the UN Conference on Trade and Development (UNCTAD) and NGOs on the other side about whether the high prices and volatility is driven by supply and demand issues or whether it is caused by speculative investments and unregulated financial markets. The G24 either chose not to or could not agree what they view as the cause, leaving only a vague statement on the need to deal with the consequences. On energy, an area where agreement on a new strategy at the Bank has been elusive, the G24 statement may hearten climate campaigners. They accepted that “meeting the energy needs of our populations and addressing climate change will require profound structural changes to forms of energy production,” perhaps opening the way for agreement on phasing out World Bank support for fossil fuel. However on climate financing the G24 came out with a very strong statement about “the growing gap between the scale of climate finance needs and the delivery of resources that [advanced economies] had committed to provide, including the initial fast track commitments.” The G24 finance ministers, who have largely supported the World Bank’s involvement in climate finance which developing country environment ministers have opposed it, are expecting more resources but are not willing to accept that they come only from so-called innovative sources such as financial transaction taxes and auctioning of carbon credits. They said: “while welcoming all efforts to identify possible sources of financing, we stressed that such financing must be additional and in compliance with the agreements reached under the United Nations Framework Convention on Climate Change.” The G24 also welcomed the Bank’s work on gender without much comment, but specifically noted that the next World Development Report on jobs would be very important.
While discussions on capital flows and capital controls hadn’t promised to feature on the agenda of these meetings as strong as they had in the spring, the G24 made sure to “reiterat[e] the need for the IMF to adopt an open-minded and even-handed approach to the management of capital flows. Governments must continue to have the flexibility and discretion to adopt policies they consider appropriate to mitigate risks from volatile capital flows.” Many discussions on capital flows have moved to the G20 working group on the international monetary system, but ultimately will come back on to the IMF agenda in the months and years ahead.
Finally a lengthy section on governance of the IFIs failed to take issue with the selection process for the head and other senior management of the IMF. Several members of the G24 were very vocal in opposing continued European dominance of the managing director post back in the summer. China, who was also uncharacteristically vocal, ended up with being placated with the grant of a deputy managing director post to a Chinese national, made without any open, merit-based or transparent selection process as had been promised. China is only a “special invitee” at the G24, not a full member, so the failure to complain about the process is a bit mystifying. Instead they focussed on voting changes at the Fund, repeating their calls for “an increase in the calculated and actual quota shares of dynamic [emerging market and developing countries] in line with their relative positions in the world economy”, and that this “must not come at the expense of other [emerging market and developing countries]”. They also “reiterated [their] support for measures to protect the voice and representation of the IMF’s poorest members.”
The G20 is a grouping of some of the largest countries in the world. Since 2009 it has met more frequently, and in 2011 the G20 finance ministers plan to meet four times, including meetings in Washington. The official G20 communiqué has become very important because agreements at the G20 carry enough weight to be pushed through the agendas of the IFI policy setting bodies. It appears that there are two separate meetings for the G20 planned. On Thursday the 22 September the G20 finance ministers and central bankers met in the evening.
Unusually, because of the panic in financial markets on Thursday after negative comments by IMF head Christine Lagarde, the G20 finance ministers and central bankers issued their communique after their Thursday dinner meeting and without a press conference. This was probably an attempt to calm nerves in the financial and currency markets which had seen dramatic volatility on Wednesday and Thursday, as the previous week G20 sources had said that there would be no communiqué.
The G20 finance ministers and central bank governors statement of 22 September focussed on measures being taken in each region, with the aims of “supporting growth, implementing credible fiscal consolidation plans, and ensuring strong, sustainable and balanced growth.” However the statement includes no new measures or plans and merely reiterates what the countries are already doing, which could end up disappointing observers and markets. “In Europe, the euro area countries have taken major actions to ensure the sustainability of public finances, and are implementing the decisions taken by euro area Leaders on 21 July 2011. Specifically, the euro area will have implemented by the time of our next meeting the necessary actions to increase the flexibility of the [European Financial Stability Fund] and to maximize its impact in order to address contagion. This reference to the July agreements on new measures for Greece, Ireland and Portugal does not say much as the agreement is still wending a tortuous path through national parliaments around Europe and running into still opposition in places like Slovakia and Finland.
For other regions similar restatement of policy are made. US president Barack Obama’s job creation proposal is mentioned as is Japan’s post-tsunami reconstruction spending. And “the contribution of the emerging market economies to global growth will increase as these economies as a whole move toward more domestic-led growth, including through structural reforms and enhanced exchange rate flexibility to reflect economic fundamentals. We reiterate that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.” This last statement is important as it was made on the same day that Brazil, previously fighting excessive currency appreciated, had to intervene in the currency markets to prevent a massive devaluation. The Brazilian real dropped about 10% as capital flocked out of Brazil when investors took fright this week over global economic prospects.
In an ominous statement they said they were “commit[ed] to take all necessary actions to preserve the stability of banking systems and financial markets as required,” possibly heralding more bailouts of the banking systems, particularly in Europe. This would be politically unpopular unless at the same time bankers and bank shareholders are seen to be paying for their mistakes. Past practice has not show that governments have successfully rescued banks while punishing bad management or tackling excessive pay for bankers. Finally the statement committed that “central banks will continue to stand ready to provide liquidity to banks as required. Monetary policies will maintain price stability and continue to support economic recovery.” These monetary policies, with very low interest rates and printing of money in the US and Europe have been at the centre of rows between Brazil and the developed economies over the impact of their policies on other countries. Brazil blames these monetary policies for causing floods of financial flows to enter into the Brazilian market, driving up the exchange rate and increasing risks of a financial crisis when the capital floods out again. The Brazilian president wrote in the Financial Times on Thursday that Brazil was resolutely committed to fighting against these flows, saying “we will not succumb to inflationary pressures coming from outside.”
On Friday the G20 finance ministers met again in conjunction with the G20 development ministers for a meeting focussed on the development agenda, specifically the so-called Seoul Development Consensus and the Multi-Year Action Plan. The resulting statement from the 23 September meeting is short on new proposals or ideas for development, but includes lots of rhetorical commitment to the development agenda. It focussed on two main areas food insecurity and infrastructure; but lacked any specific mention of a financial transaction tax – the one item that many development campaigners had been looking forward to.
The development ministers basically just reviewed the progress of the official-level development working group, noting what had been done and what they were looking forward to presenting to the G20 leaders at the end of November. On the food price volatility topic, the focus was on boosting agricultural production, but the statement ignored the causes of volatility, probably because of a failure of countries to agree what the causes are. “We aim at improving global food security through a set of concrete actions, prepared on the basis of the work of international organizations which was coordinated by FAO and OECD.” The list of actions includes research and investment mobilisation, with a specific mention of the private sector. A laundry list of other initiatives by many different international actors includes: “improving protection for the most vulnerable against excessive price volatility through risk management strategies, tools and instruments, drawing on the work of the MDBs, enhancing nutrition and access to humanitarian food supply in the framework of country and region-led initiatives”.
On the infrastructure side the communiqué does little more than welcome the existing work that has already been announced and is in process. The ministers were supposed to have a briefing from the head of the High Level Panel on Infrastructure Investment, Mr. Tidjane Thiam of insurance multinational Prudential. The ministers pressed the World Bank to bring forward recommendations on “quality of data available to investors, incentive to support regional projects, improved assistance for public-private partnerships, transparency in the construction sector, efficiency of project preparation and harmonization of MDBs procurement rules and practices” for the G20 leaders in November.
There was also brief mention of social protection, but again no new initiatives. The G0 ministers recognised that “there is a growing need to develop mechanisms to offer better protection and ensure a more inclusive growth path. In that perspective, we welcome proposals to implement and expand national social protection floors defined by the countries themselves according to their individual circumstances.” The World Bank is in the midst of defining a new social protection strategy now, but the G20 development working group has been more about sharing notes across countries rather that joint plans. The main missing mention was of the financial transaction tax. The G20 ministers had a presentation from Bill Gates on financing for development. The Gates report broke new ground by recommending that puiblic goods and development finance be funded by a small tax on financial transactions, but the G20 studiously avoided mention of this specific proposal only saying “we recognize the importance of … the appropriate mobilisation of domestic, external and innovative sources of finance”.
The IMFC is the direction-setting body of finance ministers for the IMF. The communiqué of the IMFC usually sets out the consensus position about the direction of the Fund and reform.
Despite claiming that they “agreed to act decisively to tackle the dangers confronting the global economy“, the IMFC communiqué is devoid of specific actions or agreements, confirming the sense of drift that has pervaded the annual meetings this year. Adopting an approach of displaying perhaps unwarranted confidence in the face of rising economic crises, the text claims that “the advanced economies are at the core of an effective resolution of current global stresses.”
Unsurprisingly, many of the themes of the G20 communique are repeated. The fact that eurozone governments are likely to be forced to change their policy of refusing debt write-downs to Greece and other countries in trouble, while insisting on spending cuts is hinted at – the text says that governments will “do whatever is necessary to resolve the euro-area sovereign debt crisis”. Further support for the banking sector is also alluded to – “advanced economies will ensure that banks have strong capital positions and access to adequate funding” – and continuation of the “accommodative monetary policies” (of low interest rates and possible future quantitative easing) is promised.
The managing director’s previous warning that the scale of the crisis threatens to overwhelm the IMF’s relatively small lending capacity is met with a promise to conduct a “review of the adequacy of Fund resources.” There was also a promise to ensure “adequate policy advice and financing to support low-income countries, including to address volatile food and fuel prices.” The IMFC also brought forward a review of the IMF crisis facilities, when it called for an “early assessment of current financing tools and enhancements to the global financial safety net”. The IMF had planned a review of low-income country facilities in 2012, but that may not be expanded to again review the framework for providing large-scale financing to middle- and high-income countries. These facilities were subject to review in 2010, but with the European crisis looming, there is a worry
This meeting showed that governments from emerging market countries are gaining more weight in setting IMFC agreements. While the usual statements were made to “welcome” IMF progress and efforts, notably the IMFC sent a strong message that the IMF work so far was not good enough on improving surveillance and analysing cross-border financial flows, asking for further reports on these issues at the next meeting. The emerging markets also seem to have succeed in getting the commitment that nothing is finished on the Fund’s capital flows framework. A framework with guidelines on when capital controls were warranted had been presented as a fait-accompli at the spring meetings 6 months ago, but after loud complaints from Brazil as well as India, South Korea, and South Africa the policy space seems to have re-opened. Now the IMFC expects the Fund to focus on “further work on a comprehensive, flexible, and balanced approach for the management of capital flows, drawing on country experiences.”
Development Committee communiqué (24 September)
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 Development Committee communiqué name-checks various critical issues, but is almost completely devoid of concrete agreements or actions. Job creation, economic instability, agriculture all get mentions, but no new proposals or agreements are detailed. Instead, the role of the private sector is highlighted several times, implying that solutions will need to be found outside of government action. For example while noting that “We must put agriculture and food security at the top of our development priorities,” the solution is “to harness the creativity and resources of the private sector.”
The only new announcement had been made by the Bank prior to the Development Committee – an increase in its lending to the Horn of Africa. However the details of how much of this is new money were not entirely clear – the Bank pledged $1.88 billion in lending and assistance, but only $288 million this fiscal year (ending June 2012) with the rest delivered by 2014 or later. $250 million is an allocation from the crisis response window established during the IDA replenishment last year.
The World Development Report on Gender Equality and Development and the Bank’s implementation plan is endorsed, but the “clear message” of the report is “that equality between women and men is smart economics” highlighting concerns that the varied analysis within the report is being reduced to a simple reiteration of the Bank’s focus on only economic reasons why gender equality is important.
The Bank finally released its ‘corporate scorecard’ which is designed to track progress against objectives at the Bank, and the Development Committee welcomed this. As it has been developed internally, there has as yet been no independent analysis of whether the approach will work, or if the Bank has adopted sensible indicators.
Notably missing were any mention of efforts to unblock stalled reforms at the Bank, including the energy strategy and the review of safeguards across the whole World Bank Group.