IFI governance


G20 versus UN: the battle continues

22 September 2009

The future of international economic governance and financial reform continues to be debated separately at the United Nations and the G20, but little progress is being made.

The ad-hoc open-ended working group of the UN General Assembly that was established as an outcome of June’s UN summit on the financial crisis (see Update 66) held its first meeting in early September. The outgoing UN General Assembly president Manuel D’Escoto, in consultation with the incoming president Ali Treki, appointed Lazarous Kapambwe of Zambia and Morten Wetland of Norway as the co-chairs of the group.

The early September meeting, which included all the major groupings such as the G77 and EU presidency, was only viewed by the co-chairs as an input into developing a work plan. Gemma Adaba from the International Trade Union Confederation noted the tensions in the room: “the industrialised countries would limit the scope of the ad hoc working group by not providing any resources and by emphasising other areas of substantive work which it should not duplicate. The G77 wishes to adhere to the agenda agreed in the [UN conference] outcome document, without restrictions.”

masters of economic policy spin

More than 80 NGOs and civil society organisations (CSOs) sent a letter to D’Escoto, Treki, Kapambwe and Wetland urging them to “[accord] a space for active participation of our coalition of CSOs and NGOs in the follow-up activities of the working group.”

The United Nations Conference on Trade and Development (UNCTAD) issued its 2009 Trade and Development Report in early September, providing clear analysis on key ongoing issues for future reform. It incldued analyses on commodity prices, financial regulation, monetary and fiscal policy, global reserve currencies, exchange rate systems, climate change policy, and more. The report was scathing on the IMF’s conditionality: “In reality, the conditions attached to recent lending operations have remained quite similar to those of the past. Indeed, in almost all of its recent lending arrangements, the Fund has continued to impose procyclical macroeconomic tightening.” It argued that the resource provided to the IMF should have been linked to a reform of its governance structure and conditionality.

The report was also critical of the IFI’s previous pushing of financial sector and capital account liberalisation. Saying that “the contribution of [sophisticated] financial markets to social welfare is highly questionable,” it suggested that “developing countries should proceed with caution and avoid ‘big-bang’ processes of financial reform.” Highlighting concerns long expressed by developing countries and NGOs about financial liberalisation (see Update 66), it said “the IMF should more actively encourage countries to use, whenever necessary, the introduction of capital controls.”

G20 taking a different course

The media headlines around the G20 finance ministers’ meeting in London in early September and the G20 leaders’ meeting in Pittsburgh in late September focussed on the unresolved question of bankers’ bonuses. The finance ministers provided a long progress report on the more than 90 actions promised by previous G20 summits, but agreed little new. The finance ministers hailed the “significant progress in strengthening the IFIs” but also said “more needs to be done”. A briefing from Brussels-based NGO Eurodad, concluded that the G20 “has not managed to mobilise sufficient political will or finance to prevent major social impacts.”

The participants congratulated themselves for delivering the $1.1 trillion pledged in April (see Update 65), but an analysis of the numbers tells a different story.

While the $250 billion worth of special drawing rights (SDRs) were fully allocated, actual delivery, as opposed to just pledges, on the $500 billion in additional resources for the IMF has only totalled about $195 billion by mid-September. On top of these bilateral loans to the IMF, the US commitment of $100 billion has been agreed through the New Arrangements to Borrow, which requires additional measures to activate. The IMF has lent out about $173 billion overall (including loans made before the crisis), but it had about $250 billion in available capital before the G20 agreement to boost its resources. Thus, the boost in resources has not yet been used to support any developing countries.

On the promise of increasing trade finance by $250 billion, the G20 produces an unreferenced figure of $65 billion having been taken up, though the only actual programme cited is the one by the World Bank’s International Finance Corporation (see Update 66), which received commitments of just $7.75 billion. The final $100 billion was to be “additional lending by the multilateral development banks”, but the World Bank’s June Global Development Finance report estimated that the total would be $88 billion.

Consultation or mobilisation?

Former IMF chief economist Simon Johnson was cynical about the G20 strategy for reform, calling it “sophisticated delaying action … you are seeing masters of economic policy spin at work.” He outlines how important reforms with political content, such as bank bonuses or capital requirements, get sent out to technical committees because of their complexity. This takes years, by which point they become watered down and there is little political will for implementation. “There will be some minor changes, and these will be much trumpeted. But what will really change in or around the power structure of global finance – as it plays out in the United States, Western Europe, or anywhere else? Nothing.”

A clear example of this might be the promised G20-chair review of the IFI’s role and responsibilities, which was supposed to be personally handled by British prime minister Gordon Brown. The review went through “consultation with the G20, external academics and low income countries.” There was little to no discussion on the matter with civil society, despite repeated questioning of the prime minsters’ office by NGOs about how a consultation would be run. In the end the poisoned chalice was handed at the last minute to London-based think-tank the Overseas Development Institute, with a ‘consultation brief’ provided by DFID, the UK’s aid agency. The big questions on IFI mandate and governance are likely to be ignored or kicked back into discussions at the IFIs themselves.

In Pittsburgh, civil society organisations were actively organising demonstrations and protests against the 24 September G20 summit despite resistance from the police and refusal by the city council and the mayor to grant permits for the mobilisations. A “Peoples Summit” was organised by local organisations, universities, and representatives at the state legislature for the weekend before the G20 meetings. It was described as “a programme of informed dialogue about the economic, social and political problems facing the world.” Local organisations have also launched a G20 media support website, with the motto “Pittsburgh welcomes dissent”, to “serve as a comprehensive information clearinghouse for members of the media and as a centralised hub for organizations and individuals wishing to work with the media in the context of the G20 summit.”