Videoconference between UK civil society and Alex Gibbs, UK IMF Executive Director
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Present
- UKDel: Alex Gibbs (Executive Director); James Talbot and Rob Ward
- HMT: Lyndsey Whyte; Claire Wren; Britta Moeller; Ben Cropper; Dominic Curran, Alice Dowswell, Mark Paskins
- NGOs: Katy Athersuch (StopAIDS); Sarah Edwards (Jubilee Debt Campaign); Jesse Griffiths (Bretton Woods Project); Gideon Rabinowitz (UK Aid Network); Erica Carroll (Christian Aid); Julia Modern (Results UK)
Minutes
1. IMF frameworks and conditionalityNGOs made the following points:
- The IMF has, in rhetoric at least supported loosening of fiscal and inflation targets in response to the crisis. We welcome its change of approach on wage bill ceilings.
- New studies, which we will share shortly, by ActionAid/The Global Campaign for Education and StopAIDS of recent IMF loans to low income countries show that this is only a temporary change; many countries will return to tighter IMF frameworks next year, and virtually all will be by 2011. In many countries this means that planned increaes in social spending on health, education etc, have been revised downwards significantly. Countries’ ability to pursue counter-cyclical policies will be severely reduced. Social investments are long term investments; temporary increases followed by subsequent reductions can be highly damaging.
- Does the UK support an independent review of the IMF’s approach and its impact on the social expenditure necessary to meet the MDGs? Will the UK push for the IMF evaluation of the Fund’s crisis approach to focus on this?
UKDel ED made the following points:
- This is a very important set of issues. UKDel agree that medium term flexibility is important; and believe the Fund has demonstrated significant flexibility but it is possible to debate the speed at which countries should return to pre-crisis fiscal policies.
- Last week the Executive Board discussed an IMF staff paper on its crisis approach; which is expected to be published shortly. Key messages IMF staff highlighted were:
- – Since the last IEO review, overall conditionality has been reduced in terms of number of conditions per programme – the average number of conditions per programme review has fallen from nine during 2001-04 to six in 2008-09;
- – There are no wage bill ceilings in any of the 37 IMF-supported low income countries
- The rate at which conditions are being met has risen, which may indicate greater country ownership of conditions.
- Close to two-thirds of 2007-9 programmes allow for higher government spending, even against a backdrop of declining revenues.
- With one exception, all programmes budgeted higher levels of social spending in 2008-09; average social spending increased by 0.4 per cent of GDP in 2008 and 0.8 per cent of GDP in 2009.
- Flexibility on countries’ macro-targets varies according to the country’s specific conditions and starting position.
HM Treasury officials made the following points:
- There are other positive elements of the way the Fund has responded to the crisis; temporary reduction of interest rates for lending to low income countries, raising access limits, increasing overall lending levels, delivery of the London Summit commitments etc.
- Each country has different country-specific issues; we agree that it is important to look at the qualitative information from each country as well as the overall quantitative data. NGO work on this will be a valuable contribution to the debate.
2. Debt Sustainability Framework
NGOs made the following points:
- The World Bank estimates a $11.6 billion funding gap for low income countries’ (LICs) core spending requirements and removing IMF debt limits. Debt sustainability indicators will deteriorate further as time goes on. LICs need relief on borrowing costs and concessional finance.
- We are concerned about the signals that are being sent out by relaxing the debt sustainability framework; lenders may take this as a signal to reduce the concessional part of their financing, thus increasing the debt burdens of poor countries. Isn’t this the wrong way round? There should have been an increase in concessional finance first.
- UNCTAD and HIPC Finance Ministers have called for a debt moratorium during the crisis; is this something that HMT is considering?
UKDel ED made the following points:
- Hear the message on it being the wrong place to start; but in fact the Fund started with a big increase in resources and by revamping its lending instruments.
HM Treasury and UKDel officials made the following points:
- The approach remains that debt sustainability is a crucial issue for low income countries. However it should be flexible where possible.
- We welcome the changes to the Debt Sustainability Framework and there are clear benefits from the new approach:
- It allows for greater counter-cyclical policies; for example more flexible treatment of borrowing to fund investments.
- IMF staff have more flexibility to apply the framework differently to reflect varying circumstances in different cases.
- IMF staff have also confirmed that they do not expect that the framework will substantively affect the risk ratings of low income countries.
- The need for highly concessional resources was a point strongly made by directors, and is set out in the press release. UKDel agrees that this is a key point of ensuring debt sustainability and we will seek to ensure that the new flexibility does not send the wrong signals.
- IMF has reduced its interest rate for concessional lending to 0% until 2011 – at that point the Fund will reconsider whether this should be extended. This is part of an ambitious package of substantial measures, including SDRs, trade finance, increased resources etc.
- It is crucial to balance longer term sustainability with short term flexibility; a key concern when considering a moratorium.
- UK consulted closely with African Finance Ministers to secure their input to the Prime Minister’s review of IFIs.
- The Board is aware that debt sustainability is a difficult issue; the Fund is in discussion with developing country authorities on this; hope that civil society is also involved. The Debt Sustainability Framework review said that ‘country voices’ should be reflected in a public way; there was near unanimous support for this.
NB: Following points supplied after the meeting by HMT:
- The Treasury has no plans to bring forward such a moratorium. We aim to target resources for crisis response at those countries with the greatest need as a result of the crisis, which a debt moratorium would not easily achieve.
- The HIPC Initiative and bilateral commitments from the UK and others have already greatly reduced the debt service costs for the poorest and most heavily indebted countries. Any country facing difficulties repaying its debt can approach the Paris Club of creditors for support in the context of an IMF programme.
3. Tax
NGOs made the following points:
- $160 billion is lost to tax evasion and avoidance by developing countries annually. Key to preventing this is the introduction of country by country reporting. We welcome the government’s work on this.
- The IMF has a role to play to support this agenda. It could start by increasing the scope of its CPIS study so that all OECD countries and tax havens have to report; is this something the UK supports?
HM Treasury officials made the following points:
- There is a wider context to this discussion; the G20 London Summit marked a step change in action against tax heavens. More transparent tax agreements are increasing rapidly; there are fewer places to hide for tax evaders.
- The Global Forward process is important, – peer review will be important and two work streams are underway: Developing multilateral instruments; and Integrating developing countries.
- OECD is doing a study on country by country reporting. Part of this work includes defining the concept on an internationally agreed basis. This would facilitate implementation on as wide an international basis as possible
- Action: Will get back to us on the CPIS point.
4. IMF Governance
NGOs made the following points:
- Reforming voting shares is critically important; we support significant increases for developing countries, and low income countries.
- There will also be a need to ensure that as middle income countries increase their voice, smaller countries and low income countries can have a voice and stake in the Fund; this is why double majority voting is a crucial concept. Is the UK pushing for this? What are the prospects that this will be part of the negotiations.
The UK ED made the following points:
- The issues of voting thresholds and rules are on the agenda, but not as prominent as the quota debate. Many emerging markets argue that other issues shouldn’t be discussed until quotas are agreed.
- HMG has been arguing that other issues are also important, including the role of the IMFC, Ministerial engagement with the Fund etc. We are keen to encourage work to continue on other issues alongside the quota review.
- Double majority voting raises a number of complicated issues, but we can understand the benefits. It is also important to note that an 85 per cent majority would be needed to change the current majority voting rules.
5. AOB
Financial Transaction Tax
NGO points:
- Media coverage indicates that Pittsburgh G20 commissioned IMF to review the feasibility of this. It will be important to get independent advice and to include stakeholders including civil society in this process. Does the UK support this?
HM Treasury officials response:
- Not clear on IMF involvement in this but we agree on the need for thorough research, analysis and expert input. Feasibility will need to be robustly tested.
IMF transparency
NGO points:
- Huge contrast between the Bank’s disclosure policy review which has had widespread consultation with CSOs, and the Fund’s which has been an opaque process with little consultation.
UK ED response:
- The point on the respective Bank and Fund processes is valid, the UK will pursue this with IMF staff.
- Hopefully the Fund’s work is also informed by civil society consultations, particularly those that went into the Fourth Pillar consultation on governance, where transparency was a focus. This has produced a thorough and wide-ranging report.
- A report is expected mid-November; papers should be circulated in October.
