IFI governance

Analysis

Spring meetings 2016: communiqués coverage

6 April 2016

Credit: World Bank

Credit: World Bank

  1. G24 communiqué: analysis, original document
  2. G20 finance ministers’ communiqué: analysis, original document
  3. IMFC communiqué: analysis, original document
  4. Development Committee communiqué: analysis, original document

G24 communiqué

The G24 is a grouping of some of the most influential developing countries in the World Bank and IMF. It includes G20 countries such as India, Argentina, Brazil, Mexico, and South Africa, and also Egypt, Iran, Nigeria, Venezuela, as well as a number of other countries. The G24 communiqué is traditionally the first statement of the meetings.

The G24 presents the developing countries’ alternative view, and on the big concern of the 2016 spring meetings, the parlous state of the world economy, this poses a rather delicate problem. These countries do not want to downplay their own economic prospects; you might even say they resent the implication that a potential severe economic downturn is even worse news for developing countries than for their developed counterparts. They note tartly that though “growth is … moderating in emerging markets and developing countries” these “still account for the bulk of global growth”. Implicitly criticising the IMF’s 2015 view of a ‘dividend’ from the dropping price of oil by noting that “the sharp drop in commodity prices has not materialised in positive effects globally”, they point out that “we face weaker global demand, tighter financial conditions, more volatile capital flows and heightened security challenges”.

Only by paragraph 13 can one detect the level of the G24’s true concerns, where they demand the IMF to “step up efforts to mobilise additional resources for the Poverty Reduction and Growth Trust” and to “allow more flexibility in accessing General Resources Account” by eligible LICs. They also welcomed the Bank’s IDA 18 “innovations” to leverage more financial flows. Basically they need money, and urgently, via aid, via IMF lending, and from the private sector.

Of course, nothing could redress this financing gap more than the tax most of these countries are denied by avoidance and evasion. Hinting at their irritation at the OECD-led tax processes to date, they “strongly support the participation of developing countries on an equal footing” in the implementation of the G20/OECD BEPS (base erosion and profit shifting) project, also welcoming the IMF and Bank joint initiative. Furthermore we will shortly see the launch of a joint ‘Platform’ that will involve the OECD and UN, plus Bank and Fund, though details are not yet released and the formal announcement is expected the Tuesday 19 April following the spring meetings. This may well be the focus of much future civil society activity in future.

Still on the subject of more money, but this time to address climate change, the G24 demands that the MDB-led Climate Investment Funds (CIFs) be “urgently replenished”. This, as in multiple other aspects, is predicated on doing so through multi-lateral development banks with their supposed ability to lever-in the mythical private sector investment which otherwise is sitting on its hands.

Where developed countries rather believe the G24 wishes to have its cake and eat it, given the amount and different ways they hope to receive greater funds, is in their calls for greater developing country representation in the IFIs. We may not see it like that at all, but in the realpolitik of these environments this is how developing countries’ repeated calls for a greater voice in the IMF and the World Bank – by realigning quotas to “reflect the rapidly growing weight of [emerging and developing economies] in the global economy”- are viewed. The G24 also validly repeat their “longstanding call for a third Chair for Sub-Saharan Africa in the IMF Executive Board”. Similarly they call for a shareholding reform process at the Bank that “reflects its original and overarching goal … to enhance the voice and representation of Developing and Transition Countries”. They demand that Economic weight be the primary component of the new formula to calculate members’ shareholding.

These sentiments are of course legitimate, but perhaps less so is the call for an “implementable, simple, transparent and predictable Environmental and Social Safeguards Framework” for the World Bank. This appears to be less about demanding more money, more about removing obstacles to receiving it, but the question remains of how would they – or the affected communities – be able to cope with any environmental, social and indeed financial fallout of projects where risks have not been identified in time?


G20 finance ministers’ statement

The G20 is a grouping of some of the largest economies in the world, accounting for around 85 per cent of the gross world product. Finance ministers and central bank governors of the group meet four times a year, including during Spring and Annual 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.

The G20 communiqué released during the 2016 spring meetings sends a clear signal – the risk of economic crisis is real. The focus of the G20 is therefore growth. The carefully balanced language of previous communiqués that advocated growth-inducing measures while cautioning for fiscal rectitude in the medium term (code word for austerity) is absent. Instead, the focus is solely on growth, indicating the depth of concern due to the global crisis. They commit that “we will refrain from competitive devaluations, we will not target our exchange rates for competitive purposes [and] we will resist all forms of protectionism.”

The communiqué revealed how the Panama Papers revelations have changed the terms of debate on tax, but perhaps the G20 is not quite ready to change the terms of taxation itself. The G20 mandated the OECD “to establish objective criteria … to identify non-cooperative jurisdictions with respect to tax transparency” and indicated “defensive measures will be considered against non-cooperative jurisdictions”. The so-called ‘G5’ European members of the G20 announced earlier in the week they will be exchanging data on company beneficial ownership registers and new registers of trusts, a stance the G20 has now mimicked. Susana Ruiz of Oxfam pointed out that: “if the proposed registry of beneficial owners of companies and trusts is hidden from the public, how can we know who is hiding their profits and fortunes and trying to avoid paying their fair share?”

On climate finance, it seems the G20 just can’t help themselves from advocating mobilisation of “private capital” and attempting to fix climate change through “financial innovations, knowledge sharing and capacity building, risk analysis and international cooperation”, despite reiterating their call for the diametrically opposed “timely implementation of the Paris Agreement on Climate Change [and] the importance of monitoring and transparency of climate finance”. They also call on the Green Climate Fund to continue to “scale up its operations”. No matter how unproven the success of the approach of private investment for climate change is, and no matter how proven its major downfalls and risks are, such as the widely reported human rights abuses of financial intermediaries and the myriad of controversies surrounding public-private partnerships, the G20 firmly remains on the green profit course. Given the G24’s communiqué demands “urgent replenishment” of the MDB-led Climate Investment Funds the contradiction comes down to a debate over whether financing green investment to address climate change is about a UN-led approach, with the democratic mandate that implies, or an MDB-led approach with its emphasis on private sector leverage.

The G20 also reaffirms its commitment to increase investments in infrastructure, “both in terms of quality and quantity”, yet again emphasising the need to catalyse private sector funding. The G20 – ever mindful of the needs of MDBs – also encourages them to “carry out the action plan to optimise their balance sheets”, perhaps intending that this is achieved via non-concessional lending from the so-called IDA+. The Global Infrastructure Connectivity Alliance, announced in Shanghai in March, will benefit from a policy guidance note on promoting diversified financing instruments for infrastructure and SMEs, but the communiqué fails to indicate when that will emerge.


IMFC communiqué

The IMFC is the direction-setting body of finance ministers for the IMF. The communiqué of the IMFC sets out the consensus position about the direction of the Fund and reform. The ministerial statements to the IMFC, often revealing of the true differences of opinion amongst the IMF’s membership – are also made available online.

The IMFC communiqué does not make for exciting reading. Given who writes it, that’s no surprise. They rather drily admit that though global growth has been “subdued for a long time”, the outlook has now “weakened somewhat”. The generally chirpy tone around the Bank and Fund buildings belie an apparently much gloomier reality. Given the IMF’s own World Economic Outlook has downgraded its previous forecasts yet again: this is the 10th consecutive retrospective downgrade of an already gloomy prior forecast. Perhaps somebody – like their bosses at the IMFC – should have a quiet word with the IMF’s economists. Though as they go on to say “it is important to buttress confidence in our policies”. Quite.

Much like the G20 communiqué, the usual demand for growth-supporting policies is not accompanied by the usual demand for austerity and medium-term fiscal consolidation, e.g. the austerity hawks have been muted by the scale of concern over the economic situation. Instead they reiterate that “all policy tools” are “vital to stimulate actual and potential growth”. There “growth-friendly fiscal policy is needed in all countries”.

Alongside the usual menu of interventions including accommodative monetary policy and global cooperation, including for tax issues such as “transparency” (and some mild words of hawkish concern for the need for structural reforms, but of course), is a demand that the IMF play an active role. The emerging buzzword of the Global Financial Safety Net (GFSN) is set out as key to the needed response to reform and buttress the international monetary system. An “adequately resourced” IMF is deemed to be at the centre, if not the apex, of this GFSN which intends to incorporate the new institutions and funds operating regionally or amongst allies, such as the BRICS. The supposed decline of the IMF – sometimes assumed because of the parlous state of its sister organisation, the Bank – is now well and truly buried in favour of a resurgent and confident institution.

Much like the G24, the IMFC recognises the need for additional and “precautionary” financing to low-income countries. Ominously perhaps is their desire for discussions that review current practices in regard to blending resources between the General Resources Account and the Poverty Reduction and Growth Turst (PRGT). They note the need to boost LICs’ domestic revenue mobilization but just add simply “alongside international tax issues”.

This resurgent IMF is now firmly established and is feeling much more legitimate – they have even now ‘resolved’ the quota reform from 2010 and “call on the Executive Board to work expeditiously toward the completion of the 15th General Review of Quotas … by the 2017 annual meetings” which of course had January 2016 as their original completion deadline. Given the tiny effective changes completed and contemplated, don’t hold your breath for a radically different IMF. As the Center for Economic and Policy Research’s recent briefing asks “Voting share reform: will it make a difference?”.


Development Committee communiqué

The Development Committee is a joint committee of the boards of governors 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 sets the direction for the Bank in the coming six months. The ministerial statements will also be available online.

This year the Development Committee communiqué saw no reason to try to start on a positive note, but immediately expressed its disappointment with global growth, a trend that is not new judging from the past few year’s communiqués, but has no doubt come to the forefront during this year’s spring meetings. Listing risks, such as “persistently low oil and commodity prices”, it called on the Bank and the Fund to “monitor these risks and vulnerabilities”. It seems like the warnings about a new debt crisis has also finally hit home, as it asked the institutions to update the Debt Sustainability Framework for Low-Income Countries.

Top of the agenda, however, was the migrant crisis and the Bank and Fund’s role in addressing it. The Committee asked them to work “in partnership with humanitarian and other actors”, to tackle the crisis and welcomed the collaboration between the Bank, the Islamic Development Bank and the UN in developing a facility for the Middle East and North Africa. In what could be interpreted as a step into UN territory, it also asked the Bank “to explore options to develop a long term global crisis response platform”.

This and other initiative feed straight into the Bank’s new fundraising drive for its low-income country lending arm, the International Development Association (IDA). With the 18th replenishment round having just kicked off in March, the Bank is no doubt keen to show that it is an able and attractive institution. The Committee is onboard, and advocated for “a strong” replenishment, also hoping that new donors will join. It looked forward to an “ambitious proposal on IDA leveraging options”, referring to a paper yet to be released from the first meeting, but seems to imply further efforts for IDA to also disburse non-concessional lending.

With the need to seek new funds, it is no surprise that the future of the Bank was also on the agenda, with the Committee feeling “encouraged by progress on the Forward Look exercise”. This secretive process, which should conclude in a final report for the annual meetings, aims to “ensure that the Group remains a strong global development institution in an evolving development landscape”, but something in the interim report presented to the Committee is clearly not deemed palatable to the broader public as it has not yet been made available outside the inner circles. Only a few words was said about the shareholding review, also due to report back at the annual meetings, but the Committee hinted at some of the struggles to get an agreement stressing the need for “further work”.

Perhaps the reference for the future iteration of the Bank to be “a more effective and agile development partner”, hints at what civil society sees as a major dilution of the Bank’s environmental and social safeguards, as it moves towards a new framework that the Bank hopes will be less onerous for both staff and clients. Much controversy remains, and not just amongst CSOs, as the Board has a number of issues to seek resolution on. However, seemingly ignoring this, the Committee simply encouraged the Board to finalise the new framework by August. While gender didn’t get its own standard in the new framework, the Committee also welcomed the Bank’s renewed gender strategy, and looked forward to its implementation.

The renewed push through the G20, Financing for Development and other fora, for the MDBs to work more closely together also came through in the communiqué, in what seems like a direct endorsement of the new MDB led Global Infrastructure Forum, taking place on the same day as the Development Committee meeting, with all MDBs attending including the ‘new kids on the block’, the Asian Infrastructure Investment Bank and the New Development Bank. The Committee supported the collaboration “on developing high quality financing for sustainable and growth-oriented infrastructure investment”, though no mention on how to address the substantial social, environmental, let alone financial risks with such projects.

Moreover, it seems increasingly impossible for the MDBs and the Bank to do their jobs without the private sector, in what has by now become a somewhat tiresome mantra. The Committee called on the IFC and MIGA “to do more to catalyse sustainable economic growth”, and the whole Bank Group was urged to help countries to create an enabling environment “to support private investment and local entrepreneurs.” Again, perhaps the Committee should have paid more attention to some of the risks with this strategy, as the IFC continues to receive repeated critique from civil society, not the least through its lending through financial intermediaries.

Finally, the Committee applauded “the historic Paris Agreement” on climate change, and followed up with a mention of the Bank’s new Climate Change Action Plan. While it noted that the plan is “consistent with the UNFCCC”, in contrast to the G20 and G24 communiqués, it didn’t indicate a preference for either the UN’s Green Climate Fund or the MDB-led Climate Investment Funds, but avoided the topic of which fund future climate finance should go through.