- G24 communiqué (18 April): analysis, original document
- G20 finance ministers’ communiqué (19 April): analysis, original document
- IMFC communiqué (20 April): analysis, original document
- Development Committee communiqué (20 April): analysis, original document
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 communiqué was consistent with previous such statements, reiterating longstanding concerns over IMF governance reform and the need for increased financing, however the tone of increasing irritation and urgency required to address these matters has become more explicit. The G24 expressed regret that the 2010 quota and governance reform is overdue (since October), as is the quota formula review (as of January), and also reminded European nations that their commitment to consolidate (meaning reduce) the number of their seats on the board has still not been fulfilled.
This exasperation was also evident in their insistence that the negative spillover effects on emerging and developing countries of the “prolonged unconventional” monetary policies of advanced economies be addressed, including for their impact on inflation and increased volatility of capital flows and commodity prices, for which they advocate the right for developing countries to utilise capital control measures, even in a “precautionary” fashion. They point to the “protracted difficulties” and uncertainties in the Euro area and the United States as underlying causes of the “fragility and pace” of the global recovery.
The G24 reiterated their desire for the World Bank to play a supporting role in “UN-led efforts” to develop a framework for the post-2015 development agenda, reminding the bank to focus principally on its core mandate of poverty reduction as the basis for all of its work, including in the area of social, economic and environmental sustainability. The G24 took special note of the need for the Bank to improve both “flexibility and responsiveness” of its policies and instruments, pointing to Arab countries in transition and fragile and conflict-affected states as requiring “due regard” to be paid to their “social and political realities”.
Given the recent announcement of a BRICS bank, it was no surprise to see the G24 also reiterate another long-held position, that of the need for overcoming the gap in infrastructure financing resulting from the “deficiencies” in the existing development financing architecture. The G24 welcomed the BRICS’ decision to establish their eponymous bank, and called for further elaboration of the bank’s engagement with other such “complementary mechanisms” that can address the magnitude of the financing gap to infrastructure needs.
The G20 is a grouping of some of the largest countries in the world. Since 2009 it has met more frequently, and in 2013 the G20 finance ministers plan to meet four times, including meetings 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.
The major themes of the G20 communiqué are jobs and growth, with a considerable and specific set of recommendations aimed at major advanced economies. Though it repeatedly recognises challenges related to structural reform or risks from debt, addressing these concerns are consistently relegated to the “medium-term”, while the need to make growth “strong, sustainable and balanced” through “steps to stimulate activity” is clearly the immediate priority. This includes calling for large surplus economies, such as Germany, to take “further steps to boost domestic sources of growth.” Those countries employing austerity to address debt levels and fiscal deficits are not criticised, however encouragement is repeated to progress toward “balanced fiscal consolidation” in the “medium term” only. Hence though “maintaining fiscal sustainability . remains essential” the communique calls for advanced economies to develop “medium term fiscal strategies”. This marks a change in tone though not of substance from past G20 statements which had focussed on the need for fiscal consolidation. It indicates that, with change of government in France particularly, the pro-austerity countries are now being out-argued by the pro-growth and investment countries within the G20.
On the currency and monetary system front, the G20 members commited to refrain from competitive devaluation, alluding to fears earlier this year of risks of a ‘currency war’. They committed to maintenance of “open markets” while agreeing that “excess volatility of financial flows and disorderly movments in exchange rates have adverse implications for economic and financial stability”. These seemingly contradictory statements shows up the continued divisions within the G20, divisions which still fall mainly along the line of developed-developing countries. The G20 did find compromise language on rich country monetary policy. Developing countries have blamed excessive volatility in financial flows on the fact that interest rates are so low in rich countries and central banks have been undertaking unconvetional policies such as ‘quantitiative easing’. The G20 agreed that “monetary policy should be directed toward domestic price stability and continuing to support economic recovery according to the respective mandates of central banks.” This means developing countries accept the argument that rich country central banks need to have loose policies for domestic reasons. In return they received a stronger term in the communiqué about the unwanted side effects of these loose policies: “We will be mindful of unintended negative side effects stemming from extended periods of monetary easing.” Rich countries have not before committed to be ‘mindful’, though it is unclear what this will mean in practice as rich world central banks are not contemplating policies to actually stem capital outflows.
The G20 “reaffirm[ed] the important role that regional financing arrangements (RFAs) can play in the global financial safety nets”, a clear reference to the announcement in Durban in late March of moves by the BRICS developing nations (Brazil, Russia, India, China and South Africa) to establish a development bank and a contingency reserve arrangement (CRA). The G20 statement on RFAs focusses on alternatives to the IMF, such as the CRA, leaving aside any explicit discussion of cooperation between the World Bank and the BRICS Bank. The G20 highlighted “strengthening cooperation and increasing complementarities between the IMF and RFAs, while safeguarding the independence of the respective institutions” a clear sign of a divided opinion within the G20. The BRICS countries have had growing impatience with the IMF’s failure to reform its governance and the junior role it is playing in European leanding programmes. It is not clear if the RFAs really want greater cooperation with the IMF or are really mechanisms for countries to avoid the IMF altogether. The G20 “will discuss possible ways to further enhance that cooperation at our next meeting, in order to assess possible options for further policy recommendations by the time of the leaders’ summit in St Petersburg” in September. That seems a dismal prospect since there are no high level meetings of the BRICS planned until September.
The communiqué reiterates the need for the pending reforms to the IMF’s governance, agreed in 2010 and awaiting ratification in the US congress, be implemented. In doing so it avoids the tone of annoyance at the US failure to uphold its part of the bargain that pervaded the G24 communiqué of the previous day. The statement reaffirms the G20’s commitment to achieving another round of governance reform by the agreed deadline of January 2014, but it remains unclear how this will be achieved given that the prior reform remains un-implemented. The G20 also reiterated “the need to protect the voice and representation of the IMF poorest members” in the current negotiations. But again there are neo specifics included int he G20 statement, and the existing proposals on the table from the major shareholders (the US and EU) generally would weaken the voting rights of the poorest countries while strengthening them for middle-income countries. The failure of the IMF’s members to agree a new formula for voting rights by the G20-agreed deadline of January 2013 does not augur well for the negotiations this year.
As one of the few new initiatives put forward by the G20 this year, attention will be on the development of a new G20 study group on “long-term financing for investment”. The group – which includes the World Bank Group, OECD, Financial Stability Board, IMF, UN, UNCTAD , and G20 members – will look at “good practices in creating the necessary conditions for mobilising long-term financing for investment and promoting a sound investment climate.” The short paragraph on this makes clear that one focus will be on a shortfall of infrastructure finance, which has been one of the motivators for the BRICS Bank which was announced in South Africa in late March. However, campaigners will want to watch this study group closely as in the past they have criticised IFIs and governments in both the North and South, for focussing too much on foreign investment and large export-oriented or extractive-indtsry-related infrastructure projects. The G20 statement does not explicit use the word ‘leverage’, but given the past World Bank and developing country focus on leveraging private sector investrment, that will also surely play a part in the study group’s work. Of course campaigners have often complained about investment which ignores the needs of ordinary people and ends up being driven by profit-focussed industries and using public-private partnerships, which have often failed to deliver the claimed risk transfers or savings to public expenditure. The study group will agree a full work plan later this year.
The G20 returns to the subject of public debt management by asking that the IMF and World Bank consult with members over implementation and the possibility of a review on their guidelines for Public Debt Sustainability Management. They also point to the efforts to strengthen the Fund’s public debt sustainability framework which considers “key risks from high debt burden[s]” and look to it to complement the G20’s work on medium-term, rather thean short-term fiscal strategies. Finally, on the subject of financial regulatory reform, the G20 referenced a number of ongoing initiatives such as implementation fo the Basel III capital adequiacy standards for banks. However there was stronger language on tax front: “More needs to be done to address the issues of international tax avoidance and evasion, in particular through tax havens, as well as non-cooperative jurisdictions.” This paring of language is new as the G20 had generally previously used the OECD black list of ‘non-cooerpative jurisdictions’ and avoided the more perjorative “tax haven”. The G20’s statement makes clear that being a ‘cooperative jurisdiction’ does not mean you are cleared of being a ‘tax haven’. The G20 strongly encouraged further progress toward securing automatic exchange of tax information to counter international tax avoidance and evasion, saying that this is now “expected to be the standard”.
The IMFC is the direction-setting body of finance ministers for the IMF. The communiqué of the IMFC sets out the consensus position about the direction of the Fund and reform. The usual practice of global economic governance is now that the G20 takes decisions which are then just repeated by the representative forums like the IMF board or the IMFC. The ministerial statements are also available online.
The 27th meeting of the IMFC focuses on the unresolved risks and challenges to economic recovery, and reflects an increasing assertiveness amongst IMF member states who have vociferously sought to reverse the global policy towards deeper austerity. The risks to global growth and job creation are emphasised in advanced economies, with the expansionary policies of Japan cited approvingly but no word for the deficit-focused approach of countries such as the UK which were described earlier in the week as risking “playing with fire” by the Fund’s chief economist Olivier Blanchard. Though emphasis does appear to have now categorically shifted in favour of prioritising growth – such as in the suggestion that “where country circumstances allow, fiscal policies should avoid pro-cyclicality, and let automatic stabilisers operate fully to support growth” – the prevailing view is that accommodative monetary policy, as used in the United States with quantitative easing, will allow fiscal consolidation to occur but in the “medium term” rather than immediately. But the IMFC does conclude: “Reforms to put debt on a sustainable trajectory are critical.”
The IMFC suggests that emerging market and developing countries buffeted by “large and volatile capital flows” that pose financial stability risks could utilise “capital flow management measures”. This significant departure from the Fund’s historic antipathy to such measures reflects the institutional view on capital account policies, released late last year, which conceded the potential usefulness of such policies. However, the IMFC again couches the acceptance of capital account regulation as playing a ‘support role’ to other “macroeconomic policy adjustment” which is usually IMF code for raising interest rates, cutting public spending and allowing exchange rate flexibility. The IMFC repeats the IMF policy statement of “such [capital account management] measures should not, however, substitute for warranted macroeconomic adjustment.” This sentence has been the most controversial with some large middle-income countries such as Brazil because of a dispute over which adjustments are ‘warranted’ and which are not. However the debate is not over, as the IMFC “call[ed] for further analysis of the impact of unconventional monetary policy on capital flows and asset and commodity prices, the role of capital flows in driving exchange rates, and global liquidity.” It is unknown what form this work will take and on what timeline. More should be revealed in the executive board work programme which is usually released in May.
The IMFC statement also appears to strike an accommodating tone with the suggestion that “more needs to be done by the Fund to support countries undertaking difficult reforms”, explicitly welcoming bilateral support to “Arab countries in transition”. For low-income countries (LICs), the IMFC states concern that the agreement on gold sales windfall that had been earmarked, in a much-trumpeted September 2012 decision to extend interest-free loans to LICs, for the Poverty Reducing Growth Trust (PRGT) has not been implemented. Insufficient countries have confirmed their acceptance the agreement for the Fund to be able to proceed as a 90% threshold had been set.
Finally, the IMFC communiqué also repeats the now overused statement: “We urge members who have yet to complete the necessary steps to ratify the 2010 reforms to do so without delay”, referring to changes to the IMF governance and voting rights that were agreed three years ago but not yet implemented. The United States has so far failed to ratify the agreement, and as the US holds a veto all changes are contingent upon the US giving the gree light. The exasperation of the G24 communiqué has diplomatically been excised from any IMFC statement, but the issue is the same the next round of governance reform is due to be cmopleted by January 2014, but this would be put into jeopardy by failure of the US to agree the previous round. On the substance of this year’s negotiation the IMFC meerly repeats the agreements of the executive board to paper over a failure to find consensus on a new formula to guide the distribution of votingf rights – the new formula had been due to be agreed in January 2013. The G24 won a minor ceoncession in language of the communiqué when it stated: “Any realignment is expected to result in increases in the quota shares of dynamic economies in line with their relative positions in the world economy, and hence likely in the share of emerging market and developing countries as a whole.” That protection of the share of so-called EMDC countries as a whole, when coupled with a commitment to “protect the voice and representation of the poorest members” limits the options of what can be agreed later this year. The EU will be pushing for realignment within the emerging market category so that increases for the likes of China and Brazil are taken from countries like Venezuela and Saudi Arabia. The G24 in contrast will be arguing for those increases to be paid for by further reduction in the shares of over-represented Europeans. This year promises hard-nosed negotiation and it is not clear given past failures that even with the utmost goodwill and agreement can be reached by the deadline.
The Development Committee is a joint committee of the boards of governors 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. The Development Committee communiqué sets the direction for the Bank in the coming 6 months. The ministerial statements are also available online.
The Development Committee communiqué cautioned that “significant global challenges remain”, including macroeconomic instability, high unemployment levels and volatile food prices, and called for “successful domestic policy responses, international cooperation and effective international institutions.” It welcomed progress and confirmed its commitment to the Millennium Development Goals (MDGs) and called on the Bank “to scale up its efforts to support countries in reaching the MDG targets and to participate actively in setting an ambitious post-2015 agenda.”
The communiqué came out strongly in favour of World Bank president Jim Yong Kim’s development of a unified World Bank Group strategy (see Update 85) that “should help the WBG maximise its impact, be more selective and ensure its financial sustainability.” It welcomed the paper, A common vision for the World Bank Group, and the opportunity to discuss further at the annual meeting.
Furthermore, it endorsed Kim’s goals on extreme poverty as a “historic opportunity to end extreme poverty within a generation”, but cautioned that it “will require strong growth across the developing world, as well as translating growth into poverty to an extent not seen before in many low income countries”. It also noted that it would require “overcoming institutional and governance challenges”, as well as investments in “infrastructure and in agricultural productivity”. It asked the Bank to pay particular attention to countries and regions with high incidence of poverty and to fragile and conflict-affected situations (FCS) and small states.
It also endorsed Kim’s goal on shared prosperity, recognising that “sustained economic growth needs a reduction in inequality”, including promotion of gender equality and a focus on those at risk of falling into poverty. The communiqué emphasised that promoting shared prosperity “must be achieve in and environmentally, socially and economically sustainable manner”, with particular attention to climate change. It welcomed the Bank’s “commitment to work with the international community to improve the indicators related to environmental sustainability” and called for both the Bank and the IMF to “provide support to countries” in line with three of the Bank’s priorities in the development of its climate change strategy (see Update 85), including phasing out “inefficient fossil fuel subsidies” but with “due regard to affordability of energy for the poor”, but left out a mention of the fourth priority on carbon markets.
The communiqué pushed for “a robust” replenishment of the International Development Association (IDA, the Bank’s low income arm) replenishment, as “of critical importance”. It welcomed IDA17’s overarching theme of maximising development impact, including the push for further synergies with the International Finance Corporation (IFC, the Bank’s private sector arm) and the Multilateral Investment Guarantee Agency (MIGA, the Bank’s political risk insurance arm), and the special themes on inclusive growth, gender equality, FCS, and climate resilience. It did not make specific mention of the proposed IDA theme of “regional transformational projects” (see Update 85), that was instead picked up as an operational issue, but called for the Bank to “foster regional integration and, where appropriate, to support regional projects”.
The role or the private sector and the mandate of the IFC and MIGA also received a further push in the communiqué, calling for the Bank “to adopt a group wide approach to leverage its development impact.” It stated that private investment flows “are a key factor in achieving our goals”, and called for an enabling environment with adequate infrastructure and policies “that promote competition, entrepreneurship and job creation”.
Furthermore, the communiqué welcomed the Global Monitoring Report on rural-urban dynamics and the Millennium Development Goals, and noted support for “disaster risk management and climate change adaptation as sound investments” for the Bank. It raised concerns for the “continued deterioration of living conditions in the Sahel and the Horn of Africa”, and called on the Bank to deepen its commitments in the area. It recommended for the Bank and the IMF “to remain actively involved in MENA countries, especially supporting policy reforms.” It also noted the renewed engagement in Burma (see Update 84) and urged the Bank and the IMF “to offer strong support in accelerating sustainable growth and shared prosperity”.