IFI governance


Spring meetings 2010: communiqués coverage

26 April 2010

  1. G24 communiqué (22 April): analysis, original document
  2. G20 finance ministers’ communiqué (23 April): analysis, original document
  3. IMFC communiqué (24 April): analysis, original document
  4. Development Committee communiqué (25 April): analysis, original document

G24 communiqué (22 April)

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 was the first off the block, coming in a day earlier than the G20. The G24 set out strong positions around the current debates at the IMF and World Bank – even rejecting some of the agreements that came out of the G20 leaders summit in Pittsburgh.

They have said that IFI reform is crucial this year but called for further and more ambitious IMF governance reform to be completed before the IMF changes its mandate. While the G20 had committed to a 5 per cent shift in IMF quota using the existing formula, the G24 have “reiterated their call for a shift of 7 per cent in quota shares from developed to developing countries” and empasised “the importance of addressing the deficiencies in the present quota formula before it can be used as a robust guide for quota realinment.” They repeated their demands for reform of the elemtns that go into the quota formula, but given the short time frame for the IMF’s governance reform discussions (due to be completed by January 2011) it is not clear if the major rich country shareholders will be willing to reopen a debate about the quota formula. The G24 reiterated the call for merit-based open and transparent selection of the heads of the IFIs and senior management; and also for executive board restructuring so that developing countries are better rpresented.

On the substance of what they want out of the IMF mandate review the G24 has set out some clear blue water between themselves and what the rich countries may be willing to concede. They have asked for more “evenhanded surveillance of systemically important advanced countries and markets” and “underscored the need for better multilateral surveillance, including assessment of outward spillover effects.” This is a reference to the belief that the IMF should have done more to criticism the regulatory policies of advanced countries before the financial crisis broke out. They have also asked for more conditionality free financing from the IMF, including “reviewing the qualification criteria [of the Flexible Credit Line] in order to ensure wider and equitable access. Only three countries (Mexico, Poland and Colombia) have had access to the FCL, and the G24 wants more countries to be eligible for this finance which is free of IMF conditionality. They have also called for “a FCL-type precautionary instrument for LICs”, something that aid agencies and NGOs called for at the time of the low-income country facility review in 2009.

China is not a member of the G24, but an observer. That may have played into why there was not a stronger demand around international monetary system reform, which has come onto the agenda more strongly since early 2009. The G24 o called for “the IMF to continue to explore options to improve the international monetary system” without a formal call for a radical overhaul. Importantly, they did support “regular allocations of SDR”, the the IMF-created reserve asset which was issued for the first time in more than 20 years in 2009.

On the Bank side they have asked for a larger capital increase for both the IBRD and IFC, the preivate-sector arm of the Bank. The G24 has been deeply unhappy about the proposition that World Bank lending sink back down to pre-crisis levels, as they view World bank financing quite positively because it is cheaper than borrowing that developing countries can undertake on their own on international markets. “They expressed concern that the capital increase proposed for the IBRD is inadequate and would pose a severe constraint on post-crisis lending.” They “called for a much larger infusion of capital into the IFC in order to enable it play developmental role.” While the G24 is mostly middle-income countries, some of the group do get money from IDA, the Bank’s arm for low-income country finance. So they also called for “an ambitious IDA-16 re[plenishment with the supoprt of all donors.”

The G24 ministers only “took note of” rather than ‘welcomed’ the World Bank governance reforms that were agreed in the run up to the spring meetings.However being resigned to the small 3 per cent shift, musch of which will benefit high-income countries that are wrongly classified as ‘developing’, the G24 demanded that a “next review should take place on an ambitious time frame and should result in parity of voting power between developed and developing countries.”

While the G24 “concurred with the five post-crisis priorities identified by the Bank” for its strategic review, they did not go into much detail on World Bank policies areas. They studiously avoided taking a view on the Bank’s energy and education strategy reviews and the IFC performance standards implementation review, all of which are engaging civil society organisations. Instead they focussed on the buig picture, that the World Bank should strive to “support south-south trade, investment, and cooperation.” If the G24 grows in strength at the Bank, civil society will have a job to do to convince them that the Bank’s orientation on issues like energy and human rights need an overhaul.

G20 communiqué (23 April)

The G20 finance ministers’ statement itself is not particularly remarkable, and the G-20 failed to provide the point-by-point update on implementation that was available after the last G20 finance ministers’ meeting in Scotland in November 2009. The lack of accountability on reforms, which many saw as inadequate anyway, will not please civil society organisations who want deeper and more structural financial reform. What is provided is several page annex on the G20 framework for growth – “a key mechanism through which we will continue to work together to address the challenges associated with achieving a durable recovery and our shared objectives.” It provided some outline definitions of what is actually meant by the terms “strong”, “sustainable”, and “balanced” in relation to growth.

Despite having received the draft of the IMF report on the way banks can help pay for the costs of the crisis (a leaked copy was published by the BBC before the meeting), the communiqué makes no statement either way about support for or against any of the proposals. This may hearten campaigners, who have been pushing for a financial transaction tax rather than a bank insurance levy as is being proposed by Germany, the United States, and several other countries. In the communiqué the ministers stated that they “look forward to receiving the IMF’s final report”.

The one paragraph on the IFI reform agenda sets out no specifics, except for a request that the IMF governance reform package be completed by November 2010 rather than the previously agreed January 2011 deadline. The lack of a reference to the target shift of 5 per cent of votes is odd, because it appears in previous G20 and IMFC statements, meaning it seemed a foregone conclusion. Additionally the ministers “look forward to an agreement on a package of voice reforms and World Bank financial resources, together with reforms to ensure effectiveness, at the upcoming Development Committee meeting. We will work towards ambitious IDA16 and African Development Fund replenishments. We welcomed the agreement in principle to increase the capital of the IaDB and EBRD.”

On a whole host of other issues – from the specifics of financial regulation to dealing with fossil-fuel subsidies to cracking down on tax havens – the finance ministers seemed to just ‘welcome progress made’, not surprising since it was their finance ministry officials who were making the progress in most cases. A lot of the decision making was left to the June G20 leaders’ summit planned for Toronto. Of course the leaders won’t actually be making most of the decisions at that time, but this G20 finance ministers’ meeting felt a bit anti-climatic.

IMFC communiqué (24 April)

The International Monetary and Finance Committee (IMFC) is the direction setting body of finance ministers and central bank governors for the IMF. It has bascially the same country composition of the executive board and meets twice a year to agree on key issues for the IMF. The spring 2010 communiquéwas shorter than usual, running to only 5 paragraphs. This is despite the unprecedented move of a eurozone country, Greece, requesting financial assistance from the IMF just day in advance of the meeting.

The really just lists the range of issues being discussed without stating any conclusions or directions. For example the IMFC ministers “welcome the important work on the Fund’s mandate and responsibilities over surveillance, lending, and the stability of the international monetary and financial system. We urge full and open debate aimed at enhancing the Fund’s effectiveness in these areas.” However, no clarity was forthcoming from the IMFC about how the mandate issues should be resolved. The only inference to draw is that disagreements are still so rife and so deep that the communiqué could say nothing of substance.

On IMF governance reform, which is proceeding on a parallel track to the mandate review – the omission of a statement of agreement on the ambition for the reform is quite significant. The G20 had promised a 5 per cent shift in votes, but the G24 had at both the annual meetings in 2009 and again this week asked for a 7 per cent. The IMFC in October 2009 had also used the language of a 5 per cent shift, but this time the language on the size of the shift was removed. It is unclear why this has happened – but it may be that the developing countries, including the IMFC chair (currently held by the Egyptian finance minister) are beginning to consider vetoing any shift that does match their demands. This would be a significantly more aggressive posture to take than the stance at the time of the last agreement on governance reform in 2008. At the time the developing countries were unhappy with the deal, but accepted it because they that it was the best outcome they could get. The recent Brazil-Russia-India-China (BRIC) leaders’ summit, held the previous week in Brazil, may not be yielding the kind of policy coordination at the IMF that makes a significant different in outcomes.

Development committee communiqué (25 April)

The Development Committee communiqué confirmed the changes in voting share and the increase in capital for the Bank that were already widely expected (see Update 70). The final shift in voting power at the IBRD, the Bank’s middle-income country lending arm was just 3.13%. This means that ‘developing and transition countries’ (DTCs) now have just over 47% of the vote, but the way the World Bank classifies DTCs means that some high income countries are included in this figure – the real share of voting power for developing countries excluding these high income economies is now just over 42%.

The expected capital increase of $86.4 billion at the IBRD is confirmed including $58.4 billion as a general capital increase (GCI) from all countries in proportion to their voting shares and $27.8 billion as a selective capital increase (SCI) from countries who gained extra shares in the voting reform package. The actual money that is transferred to the Bank will be significantly lower – $3.5 billion from the GCI and $1.8 billion from the SCI – the rest is retained by countries, but the Bank could call on it if needed. This means the Bank may not be able to chieve its desired outcome of annual lending of $100 billion, because its rules prevent it from lending that much based on the existing capital base. But this level of capital increase should allow it increase its lending above pre-crisis levels and in the medium-term to stabilise at $15 billion a year for the IBRD.

An initial shift in IFC voting power of 6.07% to DTCs at the International Finance Corporation (IFC), the Bank’s private sector lending arm, is confirmed, bringing their total to 39.48%. However, once again the real total for developing countries will be several points lower, once high income countries are removed from the DTC classification. Further voting reforms for the IFC are promised in the future. These extra shares will result in a small capital increase of $200 million for the IFC. As expected, there was no general capital increase for the IFC, meaning it can not massively scale up its lending. It will instead rely on its existing capital base and any profit made on existing investments in order to generate resources for new commitments. Developing countries had been arguing for an ambitious increase in capital for the IFC so that it can lend more, including to so-called South-South investment.

The Development Committee reiterated the need for an “open, merit-based and transparent process” for the selection of the World Bank president, which appears to be backtracking from previous commitments for all senior management to be selected by such a process. Proposals for further internal reform of the World Bank are promised for the Bank’s annual meetings in October.

On the possibly fundamental changes to the Bank’s strategy and internal structures, the communiqué says little. The ministers “support the World Bank Group embarking on fundamental reforms and developing a post-crisis directions strategy”, said that the “ongoing reforms will strengthen the efficiency, effectiveness and accountability of the World Bank Group”, and noted that “effective implementation will be critical and we look forward to reviewing progress at our future meetings.” Given that the strategy was developed internally and in secret, with no consultation with external stakeholders, it leaves the question about whether the ministers themselves had even read the Bank strategy document before giving it the rubber stamp approval. Now with Development Committee ‘sign-off’ the Bank can present the strategy as the result of a discussion with its members, and proceed without paying heed to any further questions about its legitimacy.