- G24 communiqué (10 April): analysis, original document
- G20 finance ministers’ communiqué (11 April): analysis, original document
- IMFC communiqué (12 April): analysis, original document
- Development Committee communiqué (12 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 G20 countries such as India, Argentina, Brazil, Mexico, and South Africa, and also Egypt, Iran, Nigeria, Venezuela as well as a number of other countries. The G24 communiqué is traditionally the first statement of the meetings.
The G24 communiqués have almost become exercises in thesaurus usage to find new words to describe developing countries anger over the lack of IMF governance reform. Last year’s “deeply regret” has turned into “deeply disappointed” that the 2010 IMF governance reforms are yet to be agreed by the US Congress. New language in the statement calls for “all options” to be on the table. This is a reference to proposals for other ad hoc measures suggested for dealing with the impasse, including the idea of getting the US to consent to other countries increasing their voting rights, but the US not taking up its own voting rights increase. As usual the G24 stressed other complementary reforms such as a third chair on the board for a Sub-Saharan African country.
The G24 has upped the ante on the sovereign debt workout mechanism front. Last autumn’s statement called for progress since the Fund was debating the issues. However, reflecting the lack of progress, the G24 said that developing countries “may have to take leadership in facilitating dialogue”. That would be unusual since such an important topic would usually require US assent to move forward. Equally interesting is that Argentina’s case before the US Supreme Court is drawing attention. Argentina restructured its sovereign debt but some creditors held out for full repayment and sued Argentina. The IMF was prepared to submit a brief to the court on the case but withdrew at the last minute. The G24 (Argentina is a member) said the court case had “systemic relevance” and “potentially profound implications”, hinting that the grouping would like the IMF to intervene on Argentina’s behalf.
On the global macroeconomic agenda, the G24 “remain highly concerned about the adverse impact of disruptive capital flow and exchange rate volatility resulting from the potentially abrupt changes in monetary policy in a few major advanced economies.” This is not new, but the request for “multilaterally coordinated actions to mitigate adverse spillover effects” was new language. During previous discussions, for example on the capital account management ‘institutional view’ there was resistance to the Fund playing a coordination role because of the lack of trust and a supposed ‘lack of even-handedness’.
On the World Bank strategy, the G24 “strongly support the change agenda”, though there seem to be grumbles about implementation where the G24 “call for an effective, timely approach”, implying that the approach so far has been neither effective nor timely. The ministers stress “country ownership” and “less bureaucratic” financing. Part of the new strategy is a budget change and increase in the size of the bank’s lending, paid for by higher interest charges and faster repayments. Interestingly, the G24 is worried about “unintended consequences” and “fair burden-sharing” and suggests “a further capital increase”. This idea was rejected in 2010, but is already being surfaced in preparation for a World Bank governance reform debate scheduled for 2015.
A section on the Middle East and North Africa region repeats the previous calls for “flexibility by the IFIs … in view of their political and socio-economic challenges.” This should be read as a reference to the twice agreed but unsigned IMF lending programme to Egypt, which faced stiff local opposition over the elimination of food and fuel subsidies. Once again the G24 called for “additional resources to neighbouring countries” of Syria, and this time singled out Lebanon as needing assistance with the refugee crisis. But again, the G24 did not specify whether these should come in the form of grant aid through, for example, the UN, or debt-creating loans which are the mainstay of the World Bank and IMF. Local civil society groups have opposed loans.
The G20 is a grouping of some of the largest countries in the world. Since 2009 it has met more frequently, and in 2014 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 G20 communiqué is a short statement of issues, which does not reflect the conflict that was behind the scenes on several issues. The first geopolitical conflict that has been in the news is over Ukraine. While the press and behind the scenes talk was of confrontation with Russia, the statement presents a united front: “welcom[ing] the IMF’s recent engagement with Ukraine” and “highlight[ing] the important role of the IMF as the world’s first responder to financial crises.” Perhaps Russia was isolated, and the statement was simply agreed by overruling Russian objections. No mention was made of the heavy conditionality expected on the loan which will freeze wages, cut public sector employment and reduce fuel subsidies.
There has also been much talk this week of conflict over the “tapering”, or the tightening of US monetary policy with talk of an uncivil exchange between Indian central bank governor Raghuram Rajan and former US central bank governor Ben Bernake at a think tank in Washington. Rajan complains that US monetary policy changes are causing financial volatility and making India bear the burden of adjustment. The G20 statement however “discusses strengthening our macroeconomic cooperation” and “assessing the collective implications of our national policies”. It commits to clear communication of policy changes, including monetary policy tightening. However, it does not discuss actual “coordination” of policy, which is what the G24 asked for on Thursday. This means risks remain of financial crises in emerging markets as a result of US policy changes.
In terms of the IMF agenda, it repeats the G24 sentiment of being “deeply disappointed” in the US’ failure to ratify IMF governance reform. The statement breaks new ground by setting a firm timetable by which alternatives will have to be considered. “If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps and we will work with the IMFC to schedule a discussion of these options.” That give the US some breathing room, with the annual meetings in October passed by a year-end deadline actually translate into an April 2015 deadline, the next time the IMFC could meet to discuss alternatives. With 1 year bought, the US administration can try to get the reform included in the next annual appropriations.
There was no mention of World Bank Group restructuring or strategy, an omission that may indicate a wide displeasure with the handling of the restructuring agenda by Bank president Jim Yong Kim. The only reference made to the Bank is a welcoming of the decision to lend more through changing its charging structure. The G24 had also accepted this but was more wary of the potential negative implications. The G20 has an entire paragraph on the importance of infrastructure investment. In the committed actions, the Bank is asked to meet with the G20 Investment and Infrastructure Working Group by September to update the G20 on actions being taken on infrastructure investment.
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 will also be available online.
As has now come to be normal, the IMFC statement exactly repeats much of the language in the G-20 communiqué of the previous day. So the ministers were “deeply disappointed” in the lack of IMF governance reform. And G20 language was also repeated on the new deadline being given to the US to complete and approve the reforms: “If the 2010 reforms are not ratified by year-end, we will call on the IMF to build on its existing work and develop options for next steps and we will schedule a discussion of these options.“ This buys the US one year, as the next IMFC after year will not be until April 2015.
However, we also got some hint of desires of developing countries with the statement “We are committed to maintaining a strong and adequately resourced IMF.” Developing countries are concerned that the IMF may not have enough resources in the event of a major systemic crisis in large emerging markets. Hence the ministers “stress the importance of an adequate global financial safety net. The Fund should be prepared to provide financing, including on a precautionary basis, to support appropriate adjustments and reforms and help protect against risks.” The implication is that the Fund should have enough resources to provide large precautionary loans to many middle-income countries at once. Doing so would quickly exhaust its existing resources. The developing countries want the previous governance reform completed in order to make permanent the doubling of the IMF’s resources and to start work on asking for another increase in Fund size.
In what may be a show of displeasure with Europeans, the IMFC “reiterate[d] the importance of a follow-up crisis program review.” Many countries feel the European countries did not use the Fund appropriately in the eurozone, largely because they have excessive control on the Fund’s voting rights. The review is likely to focus on the IMFs lending windows, particularly the use of precuationary programmes. What would be more useful is if a review looked into the role the Fund played in the so-called Troika, but that would probably be opposed by the Europeans.
The IMFC statement was actually mostly about global economic conditions. Much discussion this week has centred on US “tapering”, or tightening of monetary policy. Tapering was called “appropriate”, but the finance ministers said monetary policy “be carefully calibrated and clearly communicated, with cooperation among policymakers to help manage spillovers and spillbacks”. In contrast to the G20 statement, the IMF was specifically asked to be “a forum for policy dialogue, concerted action, and cooperation”. So far most major countries view the G20 as the place for coordination, so this statement was likely influenced by non-G20 countries who have a seat at the IMF. They want to be part of the process of global coordination.
Developing countries won a victory with an explicit reference to capital account management policies. Echoing the IMF’s ‘institutional view’ on capital account policy, agreed in late 2012, the statement said: “When dealing with macroeconomic or financial stability risks arising from large and volatile capital flows, the necessary macroeconomic policy adjustment could be supported by prudential measures and, as appropriate, capital flow management measures.” Many states have complained that the Fund has not gone far enough in supporting capital account management, with too many caveats.
Campaigners on tax evasion will be heartened by the IMFC statement reflecting some of their demands: “Further progress is needed to improve data provision, close data gaps, enhance fiscal transparency, and fight cross-border tax evasion and tax avoidance, and improve the transparency of beneficial ownership of companies and other legal arrangements, including trusts.” The statement suggests that the IMF raise these issues in bilateral surveillance, opening the prospect that the Fund will be applying pressure directly on those countries that are doing enough on tax avoidance and beneficial ownership.
Finally there were a couple of specific country/regional mentions. For Arab countries: “We welcome substantial donor support from the region and call on bilateral and multilateral partners to step up their contributions, as appropriate, in support of reforms.” This does not echo the G24 call for “flexibility” in setting conditionality, leaving open the prospect of controversial conditionality demands in Egypt. And for Ukraine: “We welcome the Fund’s engagement with Ukraine as the authorities work to undertake important reforms.” No sign of Russian resistance in the main statement.
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 will also be available online.
The Development Committee communiqué contained few surprises. Despite negative press and staff complaints about the change process at the World Bank Group (WBG), the committee continued to support the strategy process, welcomed progress and urged the Bank to “work effectively to complete the reforms”. It called on the Bank to build on its new country engagement model “as a platform for selectivity based on client demand and the new corporate goals”, for “transformative outcomes”, and welcomed the new WBG corporate scorecard. It expected the new structure would lead to “better global knowledge sharing to benefit all client countries, and to strengthening its role in support of South South and regional cooperation”.
The communiqué was also positive about the Bank’s budgetary measures, expressing confidence that this “will increase the WBG’s financial capacity”, and looked forward to “continued progress in achieving a leaner cost base via improved organisational and operational efficiencies”. It also called on the Bank to “remain actively engaged with middle income countries”.
On the global economy it again emphasised that despite signs of growth, risks remain, requiring “policy adjustments and appropriate coordination and communication.” It urged the IMF and WBG to work together and with member countries, to pursue “sound and responsive economic policies”. It noted that “strong, inclusive and sustainable growth” required measures, including improved “enabling environment for private investment” and boosted “quality investment in resilient infrastructure”. It also pushed for the role “a dynamic private sector” and private investments flows, to “complement development finance”, with emphasis on working as one WBG, which includes the Bank’s private sector arms, the International Finance Corporation and the Multilateral Investment Guarantee Agency.
On infrastructure, the communiqué encouraged an increased “level and quality of investment in infrastructure, which is critical for growth, job creation, prosperity and poverty reduction in countries of all income levels.” In contrast to the G24 and G20 statements, it did not make a direct reference to the Bank’s development of a Global Infrastructure Facility, however, in the press conference Bank president Jim Yong Kim declared that the facility had been given a “great boost”, with the G20 and the development committee being “anxious” for the Bank to take it forward, with an aim to have at least one project initiated by the end of the year. In what could include an indirect reference to the highly controversial Inga dams in Democratic Republic of Congo it also commended the Bank for “helping to close the infrastructure gap of Sub-Saharan Africa”.
While the committee praised IMF’s work on “how countries can use fiscal policy to address inequality in an efficient manner”, it did not explore this topic further, including in relation to the Bank’s work. Instead it referred to “social inclusion and policies that broaden income opportunities and the full participation of all groups”. It also called for an “open business climate that fosters competition, more inclusive human capital development and well-targeted social protection programmes.”
As a less prominent sideline, the communiqué noted that “environmental considerations need to be integrated into policymaking”. Furthermore, in line with Kim’s push for getting climate change higher on the agenda, it added that “climate-smart policies are necessary for environmental sustainability and resilience, and could also generate side benefits for growth and jobs”, however, failed to elaborate further. With reference to the progress report on mainstreaming disaster risk management, it asked for these efforts to be intensified in the new country partnership frameworks, and for a further update in two years time.
Furthermore, the committee called on the Bank to help “further develop nutrition-sensitive agricultural production, including through support to smallholders and cooperatives, and to broaden the support for sustainable agriculture”, however, it was unclear whether this was linked to the criticized Bank initiative Benchmarking the Business of Agriculture.
The committee welcomed the “successful IDA 17 replenishment”, including “innovative financing mechanisms”, putting IDA “in a strong position”. More controversially, it encouraged the Bank to “explore extending IBRD loans to well performing IDA-only countries while ensuring their debt sustainability.” It also urged the Bank and IMF to “continue to strengthen their engagement with Sub-Saharan Africa”, towards “fostering country-driven structural transformation”. It welcomed the Bank’s increased engagement in “addressing the regional drivers of fragility and conflict”. It called for “enhanced focus and attention to the Middle East and North Africa region”, but raised concerns about “the continuously deteriorating humanitarian situation in Central African Republic, South Sudan and Syria.” It urged the Bank and the IMF “to remain closely engaged” in fragile and conflict states, as well as countries in transition. In line with the G24 and G20 communiqués this included “continuous support for Ukraine”.
Finally, the communiqué expressed support for collaboration with the Post-2015 Millennium Development Goals process and for the World Trade Organisation agreement. It also expressed commitment to completing the implementation of the 2010 WBG shareholding realignment, with the next review coming up in 2015.