See Update 65 for a full analysis of the G20 summit.
Hugh Bredenkamp (IMF) – Presentation
Crisis is affecting low income countries in its ‘third wave’ – large-scale additional financing needs. International community needs to do more – increased aid on highly concessional terms.
Commodity prices have declined and export volumes have plummeted – steepest decline in world trade on record. Main impacts on developing countries through real channels; trade, remittances, FDI and aid all affected. Outlook for LIC growth has deteriorated sharply in the past year. Crisis is causing budget impacts in developing countries, particularly for commodity exporters. Also increased spedning pressures, for example to expand social protection = higher borrowing, with implications for debt sustainability.
Also: borrowing terms have hardened for LICs; trade credit more difficult to obtain; LIC banks are likely to be affected by recessions.
IMF policy recommendations:
Fiscal policy: preserve spending; IMF has relaxed budget deficit targets for LICs, allowing increased spending. But there are limits caused by binding financial constraints and debt sustainability – need additional concessional assistance. Monetary and exchange rate policy: LICs with falling inflation may have room for monetary easing; some room for allowing exchange rates to decline.
IMF response for LICs
2008 – doubled level of concessional financing. Expecting to triple in 2009 to $3bn per year. Also adapting lending: doubled access limits; reformed structural conditionality (see Update 65); working on new emergency facility; revising debt sustainability limits; SDRs will equal $19bn for LICs (see Update 65)- may take 2 or 3 months to complete.
Called for a scaled up approach by international community and at a minimum meet Gleneagles commitments on aid.
Antoinette Sayeh (IMF) – impacts on Africa
African growth is slowing; projecting 1.5 % growth this year, up to 3.8% by 2010.Countries are affected in different ways: those countries most integrated into international financial markets are feeling immediate impact. All countries are facing mounting fiscal and balance of payment pressures.
Response of African countries: – In majority fiscal deficits widening, but fiscal space limited in some countries; monetary policy eased in a number of countries.
Reform of policies and governance (see Update 65).Scaling up resources, since mid-2008, commitments to Africa up 1/3 to $2.2bn. Stepping up technical assistance ; two new regional technical assistance centres (to a total of five).
Alan Gelb (World Bank) presentation
Not in the first instance a sovereign fiscal crisis, but will develop into one. 40% of countries highly exposed from a poverty perspective. G20 important because recognised that developing countries need assistance, but also that they can be important part of global response, including stimulus. $20bn scale up in aid needed to meet Gleneagles aid commitments. Support for $100bn increase in lending by development banks (see Update 65)
World bank response
Joint IFI action plan for Africa – coordinated response on private sector with AfDB and World Bank. Joint communique will be issued on May 11. Infrastructure crisis facility; (see Update 64)
– Cautious optimism; great deal of anger; disbelief and healthy scepticism = CSO response to G20
Good that there was some representation for poorest countries; and good that G20 group wider than in the past. But deep concern about small group of countries making decisions that affect all. Recognition that crises have shattered myth that unfettered markets are the route to global prosperity.
Disbelief and incredulity that main objective seems to be to get back to business as usual. Only silver lining to crisis is that it gives an opportunity to rethink and create new economic system. Gaps between headline numbers and actual new committed resources create a credibility gap.
Only token progress made to better regulation of markets; no move to redress macro imbalances; no move on dollar system. Very glacial progress towards better representation of poorer countries at IFI – IMF reform brought forward but still very inequitable system. Conditionalities still being used by IMF; need to have relaxation and recognition of culpability of IFIs; Yet to see evidence on merit based selection of leaders of IFIs.
– Which is the real IMF? The ‘Mr Hyde’ IMF who support increased stimulus spending, reducing interest rates etc; or the Dr Jekyll IMF who insist on spending cuts and interest rate increases to all countries who approach it for emergency assistance such as Ukraine and Pakistan.
– Where does civil society fit in in IFIs vision of response to the crisis?
– How can IMF Managing Director pretend to represent African countries when only selected by rich countries? How can LICs be part of the global response if they’re not present at the G20?
– Where is the multilateralism – Important to stem capital flight, but all we got was discussion to expand tax information agreements. Debt problems reemerging – where is discsussion of multilateral debt resolution mechanisms?
– CSOs have been advocating for reforms of IFIs for years – crisis is an opportunity to make forward steps. The rhetoric may make us think that progress has been made; not the case. Situation is analogous to post WW2 – why not a Marshall Plan for Africa to eradicate poverty. Poverty is a situation of crisis; how ready are the IFIs to support this idea?
– At grassroots people ask, will any of this ever be implemented?
– With increased funds for IFIs comes increased responsibility for reform. Need a ‘never again’ pact to change IFIs policies and governance.
– Should we be looking at unconditional transfers such as salaries for teachers?
– IMF focussses on developed and emerging economies; what about poorest countries?
– Have had pledges for $360bn of the $500bn promised to the IMF.
– Can provide evidence of streamlining of conditionality; very narrowly focussed on financial sector reforms in emerging markets. Much structural conditionality has been focussed on public expenditure management, the area where CSOs have called for conditionality.
– Fair question on Ukraine, Pakistan etc – because we are now differentiating our response: those countries that have gone to the Fund didn’t have the fiscal space to implement stimulus.
– Since Autumn IMF has provided $70bn support to middle income countries. Flexible credit Line available to those with good policies (see Update 65)
– Need to see balance, create more room for LICs to help them avoid pro-cyclical policies. But shocks for LICs come from elsewhere; on remittances, FDI etc – need therefore to get developed and middle income economies going again.
World Bank reponse
– CSO advocacy voice very important at G20. Bank has been engaged in process of engagement with CSOs for long time.
– Some representation of Africa at G20
– Categorical social protection programmes like pensions and child support can be effective – Bank is pragmatic.