Spring meetings 2012: communiqués coverage
News||20 April 2012|
G24 communiqué (19 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 communique had several themes in the four page document, with a focus on capital flows, IMF governance, and comments on the World Bank's policy agenda. First on capital flows the G24 used unusually strong language in describing their feelings about the IMF's work on capital flows. First they asked for advanced economies to have "a better policy mix to curb negative spillovers in the form of volatile capital flows and commodity prices." Then on the Fund's policy work they said that they "have strong reservations on the integrated approach proposed by IMF staff and insist that it should not result directly or indirectly in new obligations by members." This position is likely to have been heavily influenced by the Brazilian finance minister Guido Mantega, who has been quite vocal about the problems his country is facing from unwanted capital inflows. The statement insisted that developing countries need "flexibility and discretion" in setting their policies. Interestingly the communiqué also added a sentence on the "need for further study of sovereign debt restructuring mechanisms." This topic has not featured on a G24 agenda for quite some time, and it returns not because of a debt crisis in emerging markets or low-income countries but because of the European debt crisis. It is unclear if the call for a study will be picked up in the other communiqués later in the week.
A large section fo the statement focused on the role and governance of the IMF. All week in Washington people have been asking how much new resources the IMF will get. The big question is whether the emerging economies (Brazil, India, China, South Africa, etc) will make substantial contributions. The US has point-blank refused to put more money in an IMF that it thinks is spending too much on loans to Europe. However the G24 statement has only a short statement calling for the IMF to have "the necessary resources", but qualifies this by saying that contributions "must be anchored in a firm commitment to governance reform." The IMF can get new resources either through the quota system - which affects voting rights - or outsid of it, which does not effect voting rights. The G24 would prefer the former, and will likely want any IMF resource increase to be eventually be accomplished in conjunction with a quota increase for developing countries. In fact the statement had a very long paragraph on governance reform, reminding rich countries that they should meet existing commitments on governance reform. The G24 also called "for a third [executive board] chair for sub-Saharan Africa, but this must be in place of a chair held by an advanced country."
On the World Bank side, the G24 statement will not make good reading for many civil society organisations that are demanding more socially-oriented reforms at the institution. They were "concerned that World Bank lending is projected to decline at this critical juncture" and have called for the Bank to increase in size. One of the World Bank presidency candidates, José Antonio Ocampo also said this would be necessary, something which did not sit well with the US or Europe. Both had rejected a larger increase in World Bank capital just last year. The G24 welcomed the program-for-results instrument, which was approved recently despite worries that it lacked sufficient safeguards on its lending, but called it only a "first step". This indicates that the G24 is pushing for less safeguards and less conditionality on loans, which will be relevant as the new Bank president has to consider how to proceed with a safeguard review. Perhaps more worrying was the call for "enhanced public private partnerships" and "greater private sector involvement" to have a "step increase in investment in infrastructure". Advocates in civil society have been concerned for several decades over private sector involvement often resulting in higher costs and less equitable delivery of public services.
The discussion on the new president of Bank was mildly critical. The ministers "recognize that for the first time in the history of the World Bank there was an open process for the selection of the President", but specifically did not call the process merit-based. They urged "future selection processes must build on this process, but must be transparent and truly merit-based." Finally there is an important endorsement of the idea of an alternative development bank, owned and run by developing countries. "We look forward to the outcome of the review called for by BRICS leaders to explore the merits and viability of a development bank for mobilising resources for infrastructure and sustainable development projects in BRICS and other EMDCs." This is the first expression of support for the so-called BRICS Bank from a large group of developing country finance ministers.
G20 finance ministers' communiqué (20 April)
The G20 is a grouping of some of the largest countries in the world. Since 2009 it has met more frequently, and in 2012 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 communique noted that recent economic developments show "modest global recovery", but that growth expectations for 2012 remains moderate, "constraining consumption and investment growth". It noted that volatility remains high, partly reflecting financial market pressures in Europe. Supporting growth and job creation, structural reforms, restoring medium-term fiscal sustainability and promoting global rebalancing was noted as continued core commitment, as well as protecting investment, avoiding protectionism and remain vigilant of high oil prices.
While the G20 recognised progress on growth and jobs, it noted that more needs to be done and an accountability assessment will be carried out. A final report on how the G20 framework can contribute to job creation will be presented at the Los Cabos Summit . Main priority areas to be announced in the Los Cabos Action Plan will include fiscal, financial, structural, monetary and exchange rate, trade and development policies.
The communiqué welcomed the decision to strengthen European firewalls and the agreement to enhance IMF resources for crisis prevention and resolution. It noted "firm commitments" to increase resources to the IMF by over $430 billion, in addition to the quota increase under the 2010 reform, which includes $68 billion from "China, Russia, Brazil, India, Indonesia, Malaysia, Thailand and other countries", showing "the commitment of the international community to safeguard global financial stability and put the global economic recovery on a sounder footing." The breakdown of the contributions from the emerging markets is not yet known. Importantly these are bilateral loans agreements and not through the IMF's standing funding mechanisms, such as the paid-in quota or the New Arrangement to Borrow (NAB). This is because the US is unwilling to participate in the resources increase.
Furthermore, it reaffirmed the commitment to fully implement 2010 Governance and Quota Reform by the World Bank/IMF Annual Meeting in the autumn and to continue to contribute towards comprehensive review of the IMF quota formula by Jan 2012, with completion of the next general review by Jan 2014. It noted that "the distribution of quotas should better reflect the relative weights of IMF members in the world economy which have change substantially in view of strong growth in dynamic emerging markets and developing countries." This stops short of the G24 demand that no emerging markets or developing countries lose voting share in the reforms.
It also welcomed the recent initiatives on IMF surveillance to help achieve a better integration of bilateral and multilateral surveillance, with a focus on global, domestic and financial stability. Surveillance activities should include global liquidity, capital flows, capital account measures, reserve and fiscal, monetary and financial sector policies that could have an impact on external stability. The G20 made no specific mention of the potential controversy over the IMF's "institutional view" on capital account regulations, which is being developed now and is expected to be finalised this summer. The G20 finance ministers agreed their own framework for capital account regulations last autumn, which has been viewed as giving more policy space to developing countries compared to the IMF draft framework first agreed in spring 2011.
On environmental issues, the meeting agreed to work to "rationalise and phase out inefficient fossil fuel subsidies over the medium term, while providing targeted support for the poorest", and report on progress in Los Cabos. With the UN Rio+20 'Earth Summit' coming up in June, it noted the receipt of the preliminary report by the OECD, the World Bank and UN on integrating"green growth and sustainable development policies into structural reform agendas", however, it remains to be seen what this entails in practice and actions of G20 countries will only be monitored through "voluntary self-reporting". Furthermore, the G20's involvement in climate finance was stepped up through the establishment of a "G20 study group" looking into ways "to effectively mobilise resources and support the operationalisation process of the Green Climate Fund". While it noted that it will be "taking into account the objectives, provisions and principles of the UNFCCC", it could still be seen as yet another step towards undermining the UN process. Furthermore, it welcomed the efforts made by the World Band and OECD to prepare a compilation of country experiences on disaster risk management, to be presented at Los Cabos, and expect a voluntary framework to facilitate the assessment of risk and financial strategies towards implementation by November.
IMFC communiqué (21 April)
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, but this year's statement was rather short and had very limited new information. The G20 statement from the day before had already broken the main news from the meetings, about the amount of new resources to be made available to the IMF. This is becoming the usual practice of global economic governance, where the G20 takes decisions which are then just repeated by the representative forums like the IMF board or the IMFC.
The IMFC communiqué did highlight that "risks remain high" in the global economy, but still stressed further austerity is needed in many advanced economies: "further actions are needed in many countries to achieve credible fiscal consolidation and government debt reduction, while avoiding excessively contractionary fiscal policies." At the same time the IMF is also advising that "monetary policy will need to remain accommodative as long as inflation prospects remain anchored and weak growth persists. The potential impact and cross-border spillovers of such a policy should be closely monitored." This final statement is meant to try to allay concerns in developing countries about the impact of low interest rates int he west in terms of creating volatility in capital flows to emerging markets. Brazil particularly has been complaining about the need for the monetary policy in western countries to take account of the unwanted impacts on capital inflows to Brazil.
However the IMFC statement says nothing about the ongoing IMF policy work on capital flows which is supposed to come to the IMF board in the summer. Usually the IMFC would 'welcome' the work and 'look forward' to its conclusions, but these were absent. This is likely to be because of the strong opposition described in the G24 statement to the work programme. Instead there was a vague statement to: "welcome the directions in the Managing Director's Action Plan" without specifics on the policy areas.
The statement also restated existing commitments in a number of areas, including IMF governance reforms, and strengthening the institution's surveillance. There is a general welcoming of the idea of "consideration of an integrated surveillance decision" without committing to have such a decision made, something that has been discussed for more than a year without being agreement. Still the IMFC asserted that it "has a key role to play in regularly guiding strategic and operational priorities for Fund surveillance."
It is also worth noting that the G24 call for a study on a sovereign debt restructuring mechanism was not echoed in the IMFC statement, indicating there remains no agreement on the idea of a standing mechanism.
Development Committee communiqué (21 April)
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. The Development Committee communiqué sets the direction for the Bank in the coming 6 months.
The Development Committee communiqué contained few surprises. It noted growth in emerging and developing countries, but that overall the global economic outlook "remains challenging" and that poor countries still need support. It welcomed the likely achievement of the Millennium Development Goal (MDG) to halve global poverty by 2015, but noted that there is a need to remain vigilant. It confirmed an increased focus on fragile states and called on the World Bank Group (WBG) and the IMF to support the implementation of the New Deal for Engagement in fragile states. It also welcomed steps by the IMF to implement the Poverty Reduction and Growth Trust.
On social issues, unsurprisingly food security was high on the agenda, and the committee noted that volatile food prices threaten lagging MDGs and called on the WBG to "pursue multi-sectoral solutions to food insecurity and malnutrition through instruments such as the Global Agriculture and Food Security Program." It also welcomed the report on safety nets, and noted that WBG has increased its support in this area, including conditional cash transfers. It urged the WBG to collaborate with relvant institutions, such as the IMF, regional development banks and the International Labor Organization.
The Bank's increasing focus on the private sector as a driver for growth, jobs and poverty reduction was also noted. The committee welcomed the Bank report on leveraging the private sector for development, noting that "the WBG is uniquely placed to innovate and advise clients about how to harness the private sector for development and to promote an enabling environment", despite little evidence of the real impact. It also praised the IFC for how it has "effectively suppported development through the private sector", including expansion of its portfolio and introduction of "innovative products", but failed to take note of an increasing portfolio of complaints against the IFC.
The committed noted progress on the so called "modernisation" agenda, to improve "the Bank's effectiveness and efficiency to deliver more and better results", that the momentum must be maintained and that "cultural and organisational change will be needed". Furthermore, it emphaised that greater focus on gender equality and on fragile and conflict affected situations will improve performance. A progress report is expected next spring and an updated Corporate Scorecard this autumn.
With UN's Rio+20 'Earth Summit' coming up in June the Bank's new focus on "green growth" was also noted in the communiqué. A ministerial dialogue on sustainable development, including the United Nations Secretary General Ban Ki-moon, was recognised as an important step for global collaboration. Furthermore, the committee is looking forward to "continued discussion about inclusive, green growth in the context of poverty reduction and sustainable development, natural capital accounting and oceans, feeding into the Rio + 20 and G20 processes", however, concerns have been raised around the Bank's "green" agenda and linkages to the delayed safeguards review and absent energy strategy were not made.
Finally, it thanked Robert Zoellick for his time as World Bank president and welcomed Jim Yong Kim. No reflections were made on the selection process, but Ngozi Okonjo-Iweala and José Antonio Ocampo were thanked for their candidacies and "for sharing their valuable ideas". The committee also welcomed the proposed revision of the Development Committee's membership to reflect the addition of a third chair for Sub-Saharan Africa in the Bank's Board.
This text may be freely used providing the source is credited.
Published: 20 April 2012 , last edited: 22 April 2012
Viewings since posted: 4079
Climate Investment Funds Monitor 7: April 2013 25 April 2013
Working paper: The private sector and climate change adaptation: International Finance Corporation investments under the Pilot Program for Climate Resilience 24 April 2013
The UK's role in the World Bank and IMF: Department for International Development and HM Treasury 13 March 2013
The World Bank and industrial policy: Hands off or hands on? 6 December 2012
Climate Investment Funds Monitor 6: October 2012 26 October 2012