IFI governance


Spring meetings 2011: communiqués coverage

17 April 2011

  1. G24 communiqué (14 April): analysis, original document
  2. G20 communiqué (15 April): analysis, original document
  3. IMFC communiqué (16 April): analysis, original document
  4. Development Committee communiqué (16 April): analysis, original document

G24 communiqué (14 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 is traditionally the first statement of the meetings.

The G24 grouping of developing countries at the IMF and World Bank focussed their communiqué on global economic issues. They came out with a strongly worded rebuke to advanced economies and the spillovers of their policies onto developing countries. The ministers argued that “overly expansionary monetary policy” in the rich world has “contributed to a surge in capital flows, increased risks to financial stability, promoted speculative movements in commodity prices, and led to overheating and exchange rate pressures in many emerging markets.” They further argued that there is a “need for global macroeconomic policy coordination and cooperative action, in particular among systemic countries, and agreed that the IMF has a role to play in this regard.” This is a big admission compared to pre-financial crisis when developing countries generally tried to keep the IMF out of everything because they did not trust it. However they clearly still disagree with the IMF as they warned again (as they did in the autumn of 2010) against excessively quick public spending cuts in rich countries. The IMF has recently been at the forefront of calls for faster and deeper spending cuts in Europe.

To address the problems and financial risks from the global economic system the ministers made recommendations in a number of policy areas. While sometimes seeming abstract, these policies constitute the architecture on which other international and domestic economic policies rely. Perhaps most importantly, they took issue with the IMF’s recently debated framework for managing capital flows: “Ministers did not agree with the proposed framework for staff advice to member countries on managing capital flows and its inclusion in Fund surveillance.” This is the central battleground at the Fund and in the G20 right now, as developing countries have increasingly relied on capital account management techniques as pragmatic ways to deal with surging financial flows that present risks to their economies. Brazil has been in the lead of countries that are experimenting with stricter measures.

The “ministers reiterated their call for even-handed surveillance and more effective engagement and traction in systemically important advanced economies.” This is a long standing call from a group which often felt the IMF has often spent too much time focussing on developing countries and not enough time disciplining rich countries which can be the source of developing country problems. They also called for IMF reforms in a number of areas including international monetary reform, regular allocations of special drawing rights (SDRs), and more consideration for the unique circumstances of developing countries. A mention was also made of commodity and food prices, but the finance ministers simply called for more emergency lending from the IFIs, rather than broach difficult topics such as food sovereignty and price controls.

On the World Bank side the G24 ministers welcomed proposed reforms that streamline Bank lending, the so called ‘P4R’. This has been controversial as it may remove some safeguards and use more developing country systems without human rights protections. The ministers also called for scaled up resources for multilateral development finance, but failed to specify whether this was a return to the debate of 2010 about increasing the capital base of the World Bank and other development banks. While there was a strong reference to the need to invest more in infrastructure, they also made a call for “enhanced South-South cooperation” in this regard.

A section of the communiqué was also directed at climate finance, another hotly contested area. A key question has been whether and how money for financing policies to stop climate change and deal with its consequences should flow through the World Bank. In this statement, thew ministers did not delve into many details except to reiterate a number of principles by which climate finance should be delivered, including “governance arrangements that operate under guidance and accountability of the Conference of Parties (COP)”. The COP is the UN body that negotiates climate change agreements. However the finance ministers were also clear that they wanted money to come in more quickly and with fewer strings attached.

G20 communiqué (15 April)

The G20 is a grouping of some of the largest countries in the world. Since 2009 it has met more frequently, and in 2011 the G20 finance ministers plan to meet four times, including this meeting 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.

This meeting aimed to deliver agreement on “indicative guidelines” that would allow the G20 to assess whether countries were “maintain[ing] current account imbalances at sustainable levels”. The G20 agreed a bit of a fudge where in the IMF will be tasked with an making an assessment using 4 different statistical and structural “reference values” across a number of indicators.

On monetary reform the G20 agreed to proceed with a number of minor technical tweaks without pursuing fundamental structural reform of the monetary system.

And while referencing the UN and principles previously agree about climate change finance, the G20 “tasked the World Bank, working with Regional Development Banks, and the IMF, in coordination with other relevant organizations, to conduct the analysis on mobilising sources of climate change financing.”

IMFC communiqué (16 April)

The IMFC is the direction-setting body of finance ministers for the IMF. The communiqué of the IMFC usually sets out the consensus position about the direction of the Fund and reform. This meeting showed that governments from emerging market countries are gaining more weight in setting IMFC agreements, particularly with an Asian for the first time sitting as the IMFC chair. While the usual statements were made to “welcome” IMF progress and efforts in many policy areas, notably the IMFC sent a strong message that the IMF work so far was not good enough on improving surveillance and analysing cross-border financial flows.

Recognising that the report by the IMF’s Independent Evaluation Office (IEO) roundly rebuked the Fund for its work in the lead up to the financial crisis, the IMFC “call[ed] for concrete proposals, by our next meeting, to further strengthen IMF surveillance, including on identification of risks, surveillance of countries that pose the largest systemic risks, and the coherence and integration of surveillance products.” The reference to need for a “thorough” review of the “effectiveness, evenhandedness, and traction” of the Fund’s surveillance is a measure that developing countries – who use ‘evenhandedness’ as code for the Fund’s penchant for criticising developing countries while ignoring rich country policies – shows the belief that the Fund has much more work to do.

On the IMF’s work on capital flows, the clear reference in the statement to the IMF’s recent analytical work being “a step that should lead toward a comprehensive and balanced approach for the management of capital flows drawing on country experiences” is a victory of developing countries who disagreed with the framework that was discussed at the IMF board in March. The ministers have, instead of welcoming the work so far, now “urge[d] the IMF to deepen its analysis of global liquidity, the varied experiences of member countries with capital account management, liberalisation of cross-border capital flows, and development of domestic financial markets.” One of the key battlegrounds – the need to deal with the source countries of capital flows, and not just the recipients – was clearly referenced in the communiqué. The IMF staff should now have to broach the issue with the executive board again before using the framework to make policy recommendations.

Development Committee communiqué (16 April)

The Development Committee communiqué was made available at the end of the day on Saturday. The Development Committee is a joint committee of the boards 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. Its statement had a few major themes: North Africa, rising food prices, and conflict-affected countries; but also notable missing ones: the Bank’s new energy sector and education strategies, as well as the review of performance standards at the IFC and safeguards across the whole Bank Group.

On North Africa, while renewed IFI attention to Tunisia and Egypt is starting to raise controversy among civil society, the ministers want more IFI engagement. In Egypt and Tunisia, the former governments were seen as close Western allies and strongly engaged with the IFIs. Indeed the Egyptian government is due to host the World Bank/IMF annual meetings in Cairo in 2012. The new protest movements are thus wary of the IFIs, particularly as they are still seen to be dominated by rich countries. The statement “call on the Bank to strengthen its support to the Middle East and North Africa, working with governments and with relevant multilateral, regional and bilateral organizations” may not generate a lot of enthusiasm on the street. World Bank and Fund engagement in the region will be an important thing to watch in the next year.

The section on food security was lengthy, reflecting the fears about rising food prices and the potential for these to both spark unrest and increase poverty. However the communiqué ignored any concerns about the Bank’s approach to agriculture. A number of these surfaced in 2008 when the Bank’s flagship WDR addressed agriculture and took a completely different, and more market-centric tact than another one written by the International Assessment of Agricultural Science & Technology for Development (IAASTD), a scientific body. Now the Bank is urged to do more, including a call for countries to contribute more to the Bank’s Global Agriculture and Food Security Program (GAFSP), a trust fund held by the Bank. And quite controversial will be Bank Group work on foreign investment in land for agriculture. While civil society groups have said the Bank is facilitating “land-grabs”, the ministers on this occasion asked the Bank to “pursue innovative solutions to strengthening … private investment.” The Bank drafted principles for land investment will be a topic for the G20’s development working group later in the year.

The delayed release of the WDR on conflict led to a call to integrate its lessons into Bank Group policies. The communiqué called for the Bank to take “a key role in helping countries through a focus on job creation and private sector development, inclusive growth, the development of strong institutions, and the enhancement of security and justice”. The issue of climate finance also got a mention, where as expected the Development Committee welcomed the Bank’s role as an interim trustee for the Green Climate Fund, with kind words for the Bank’s expertise in this area. Whereas developing country environment ministers who negotiate climate change agreements have been wary of Bank involvement, rich countries and developing country finance ministers have been more keen.

Another interesting endorsement was of “the report on presidential selection, which responds to the request for an open, merit-based and transparent selection process”. This annex in the development committee document on governance formalises an acceptance of the existing World Bank process for selecting a president, a process which has been heavily criticised. It also sets an inadequate example for the next such process, likely to be the replacement of IMF managing director Strauss-Kahn this summer when it is expected he will resign in order to run for the French presidency. A large coalition of civil society organisation already detailed an alternative process for the IMF to use.