- G24 communiqué (10 October): analysis, original document
- G20 finance ministers’ communiqué (11 October): analysis, original document
- IMFC communiqué (12 October): analysis, original document
- Development Committee communiqué (12 October): 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.
This year’s G24 communiqué breaks no new ground nor calls for anything additional beyond previous meetings’ efforts. A long section of the statement is dedicated to IMF governance reforms, of which G24 countries are beneficiaries. The statement says: “We deeply regret that the agreed October 2012 deadline for entry into force of the 2010 quota and governance reform was missed and that there was no agreement on a new quota formula by the review deadline of January 2013. Both are critical to the Fund’s legitimacy, credibility and effectiveness.” The statement went on to call for reforms, due to be agreed by January 2014, to: increase the resources of the Fund; “enhance the voice and representation of [emerging market and developing countries], including the poor, as well as vulnerable, fragile and small low- and middle-income countries; and provide a third IMF board chair for Sub-Saharan Africa.
On other topics of interest to the IMF and the global economy, the statement, as the G24 did in the spring, asked rich countries “to be mindful of negative spillovers and to clearly communicate their exit strategies”, when referencing the end to quantitative easing, a policy under which rich world central banks created more monetary assets in order to stimulate their economies. This policy has the negative effects of introducing unwanted capital inflows into developing countries, building up both asset bubbles and pushing currency appreciation. However when the US central bank was expected to end the policy in the summer there was a sudden flood of money out of developing countries, causing quick currency depreciations and creating risks of financial crisis. The G24 said “Given the renewed financial turbulence, it is important that EMEs affected by global financial instability have the flexibility to adopt policies to preserve resilience.” This could be taken as a reference to debates over capital account regulations. The IMF has begrudgingly started to accept their use but only in limited circumstances, while some countries like Brazil have aggressively used such policies in the last few years. However, the G24 statement did not explicitly reference policy space for capital account regulations, instead discussing “the importance” of productivity growth, job-creating growth, and investments in skills and education.
Finally on debt resolution mechanisms, a topic which has off-and-on featured on the G24 statement, there was general support for the ongoing work programmes of the Bank and Fund. An influential report from global debt experts last week called for the IMF to resurrect proposals for a sovereign debt work out mechanism, but the G24 was less explicit: “We look forward to further work by the IMF and concrete proposals on issues and gaps identified in the review of recent experiences with sovereign debt restructuring.”
On the World Bank Group (WBG), the G24 “support[ed] the WBG corporate strategy” that is the main discussion item for the Development Committee. They also “welcome the emphasis on supporting clients in delivering customized development solutions, backed by finance, knowledge and convening services”. The only oblique criticism of the strategy, was a continued insistence by the G24 on “the particular importance of mobilizing large-scale infrastructure financing to meet demands in developing countries” (it has made this call in its statement for years now). Worryingly for many civil society advocates who have expressed fears about the environmental and social implications of such projects, the G24 wants faster and better preparation of “large regional projects in Africa” and “called on the WBG to further leverage private resources in support of transformative infrastructure investment”. The G24 has consistently asked for more infrastructure finance, and the new Bank strategy seems to be pointing in that direction.
On other development financing fronts, the G24 called for “robust replenishment of IDA”, “an ambitious replenishment of GEF6”, and “look[ed] forward to further discussions on additional mechanisms for long-term infrastructure financing”. GEF6 refers to a ‘global infrastructure facility’ that has been mooted by World Bank president Jim Yong Kim, but proposals for which have not been publicly available.
A special paragraph on the Middle East and North Africa region references the tumultuous political events now called the Arab Spring and calls for “the IMF and the World Bank to demonstrate flexibility in the design and conditionality of their programs in Arab countries in transition, given the political and social constraints facing policymakers”. This should mainly be read as a reference to the twice agreed but unsigned IMF lending programme to Egypt. Each time it was faced with both local opposition, particularly over the elimination of food and fuel subsidies, and with political events overtaking the plan. The G24 called for “additional resources to neighboring countries facing the influx of Syrian refugees” but 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 this week issued a statement demanding the cessation of lending and a scale up of grants to countries dealing with the refugee crisis.
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.
At the forefront of the G20’s concerns remains the need for the US to “take urgent action to address short-term fiscal uncertainties”, meaning the government shutdown currently afflicting the country and the related risk of debt ceiling negotiations breaking down. The tone set since the Spring meetings earlier this year, effectively relegating austerity and fiscal concerns to the medium-term while advocating for “job-rich and inclusive growth” in the short term, is maintained, indicating that leaders of the world’s largest economies still accept that the balance of risk is probably still toward continuing stagnant growth than robust recovery.
Given the recent instability in emerging markets, which the IMF had earlier hoped would act as the engine of global growth, the additional risks from the US ending its unconventional monetary policy too abruptly are also acknowledged. The G20 ministers caution that the transition to normalized monetary policy and “volatility of capital flows” are important challenges.
The G20 reiterated their view that long-term financing for investment would be needed to resolve the growth challenge and create jobs, referencing the St Petersburg work plan to encourage private sector investment flows. They particularly emphasise the importance for development of what many of the BRICS and developing nation G20 members are most focused upon: how to mobilise “additional financing for infrastructure investment”, pointing to the work of the World Bank Group and regional development banks. This reiterates the calls from the G24 the previous day and puts more pressure on the World Bank to deliver larger volumes of investment into large infrastructure projects. We can see the strong influence of the BRICS countries on this agenda.
The G20 lauds the work being conducted on reforming tax systems, though without setting out any new commitments. Instead they commit to continue to monitor the implementation of their “ambitious” tax agenda, the future creation of a new standard of automatic exchange of information and the BEPS Action Plan. Of course, the G20 reiterates the urgent need for IMF governance reform ratification, but as the only impediment to this lies in the US Congress, there is even less hope of this coming to fruition any time soon. Developing countries remain locked out from increasing their voice in the governance of the Fund even though there is unanimity, even from the US administration, of the need for reform to go through, enabling another round of reform to commence in earnest.
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.
A staunchly upbeat message from the IMFC communiqué nevertheless contains plenty of words of caution. The emphasis, conforming to the pattern of IMFC messages in the last 12 months, is on how to protect or stimulate growth and jobs. The risks it sets out, however, include the need to reduce market volatility, manage the transition from unconventional monetary policy (code for the need for rich countries to carefully handle reductions in quantitative easing policies), and – for those states still burdened with large deficits – to prioritise fiscal consolidation, or in other words, austerity. Advanced economies are apparently gaining ground. Apart from the need to transition to a more ‘normal’ policy stance, including in monetary policy terms, the main messages regarding risks that the IMFC has reiterated are present: US short-term uncertainty (a message to Congress perhaps?), the need for reform in Europe, and the challenge of invigorating growth in Japan. As for fiscal consolidation, it’s a strictly “medium term” priority; not an urgent one. So, the optimism only goes so far.
Similarly, emerging markets and dynamic economies apparently have a good growth story to tell, but pick at the surface and the IMFC message is less clear-cut. “Domestic structural challenges remain”, and “volatility in capital flows and financial markets” has led to new challenges. In a continued vindication of what civil society and developing countries spent years advocating, the IMFC notes (as the managing director has, to her credit, also said explicitly) that there is a role for capital controls – albeit a potential one only. The MENA region is once again highlighted as needing special treatment, but the message remains blunt: implement reforms and promote job creation.
Low-income countries benefit from a benign message, being lauded for their relatively good growth performance, and encouraged to promoted public investment and services. All well and good, but the message to promote financial deepening may strike a worrying chord for those who worry low-income states need to prioritise other sectors before financial markets. The recent announcement of successful ratification of the decision to use the gold sales windfall to make the concessional lending fund to LICs self-sustaining is also noted, and members are urged to “make good on their pledges”.
As mentioned already, the Fund’s surveillance role is cited in terms of the need to coordinate monetary policy, address new risks and support growth and job creation. Apart from reminding the world that financial sector reform is still needed, the committee also recalls that the Fund needs to stave off any repeat of the jitters from earlier this year when a ‘currency war’ was feared. Given very little concern about this lately, it seems an odd issue to highlight, and reinforces the sense that – for all the optimism – the IMFC still sees a great deal of fragility in the world economy. This is also suggested by its recommendation that “the Fund continues to be prepared to offer financing to support appropriate adjustments and reforms”. However, there are no specific hints in the document about the stance the Fund will take over loans it has made to eurozone countries. Greece, Ireland and Portugal are all facing actual or potential shortfalls in their financing with insufficient growth to make their programmes work. There is a dilemma for the Fund about whether it will provide more funds, but there has been no clear guidance from the IMFC on what that word “appropriate” means, as this is interpretted very differently by different countries.
The statement finishes with a boiler-plate recommendation that the hugely overdue quota and governance reforms at the Fund be taken forward, with the “highest priority” despite being the last thing mentioned. Like almost everything else in the statement, this too is an issue in the shadow of US congressional deadlock. Most now assume that the statement “We remain committed to completing the 15th general review of quotas by January 2014″ is more farce than real intent, as many countries have made it clear that there is no point negotiating the next round of governance changes with so much doubt over whether the US will even manage to agree to the 2010 reforms.
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 reflected on the global economy and noted that the recovery amongst developed economies “remain uneven, and the growth of some emerging economies is slowing”. It cautioned that the World Bank and the IMF “must remain vigilant to the emergence of new sources of volatility and downside risks”. Moreover, it welcomed the Fund’s analysis on vulnerabilities and the global impact of policy changes in “systematically important countries”, despite the Fund’s continued revisions of its forecasts. Furthermore, it pushed for progress at the World Trade Organisation.
Following the spring meetings endorsement of the World Bank’s new goals to end extreme poverty by 2030 and promote shared prosperity, it came as no surprise that the development committee “strongly endorsed” the new World Bank Group strategy. It noted the rise of inequality, in particular in middle income countries, and warned that lack of progress in building shared prosperity can “obstruct growth by causing instability, distorting incentives and reducing upward mobility”. It called for the Bank to “be selective in its efforts”, work collaboratively with partner organisations and the private sector, and facilitate south-south cooperation and regional integration. More specifically, it called for a focus on job creation and private sector development. In this spirit, it also welcomed the Bank’s move to bringing the World Bank arms together in “One World Bank Group”, working in partnership with both public and private sectors.
The communiqué also focused on the implementation of the strategy, urging this to be “effective, timely, and well-managed”, including regular communication with stakeholders, and noted the need for a culture change as well as to “show results to better satisfy clients’ needs.” The relationship with the World Bank safeguards review, the focus of many civil society organisations, was not explored, but the communiqué included a request for the updated corporate scorecard to be in place by the spring meetings in 2014. It called on the Bank to better utilise existing resources and strengthen its financial capacity, including “a finance work programme that envisages lifting the growth trend of revenues, resetting expenditures to a leaner cost base by improving organisational and operational efficiencies, and better mobilising internal and external resources to enhance the WBG’s capacity to deliver more development assistance while paying due attention to risk.” Decoding that statement, one can see a welcoming from the ministers of Kim’s efforts to shrink the size of the Bank’s staff and to try to raise revenue through either more fee-based consultancy work or attracting more donor funds to IDA or Bank-hosted trust funds, on which the Bank charges administrative and management fees.
Furthermore, the ministers welcomed the controversial new push for “transformative regional projects”, and the related focus on mobilising infrastructure finance, but without specifically mentioning the Bank’s work with the G20 on this issue. Also unmentioned was the Bank’s proposal of a Global Infrastructure Facility, which according to rumours is unlikely to be raised again publically until the replenishment round of the International Development Association (IDA, the Bank’s low income arm) is finalised. As of now the design and functioning of such a facility is unknown, and members of the Bank’s board have cautioned that it’s design is far from being complete.
On IDA, the communiqué reiterated its earlier calls for a “robust IDA 17 replenishment”, with “the scale, quality and policy content that will allow IDA to achieve substantial results.” It also called for “continued strong client orientation”, noting diversity, including special attention to fragile and conflict-affected situations (FCS), one of IDA’s themes, as well as for countries and regions with highest incidence of poverty small states. This included commending the Bank’s engagement in Burma, the Sahel and the Great Lakes regions – the latter subject to controversy due to the focus on large scale hydro projects, including the Inga project in the Democratic Republic of Congo. It called for further engagement in the Horn of Africa and the Middle East and North Africa region.
Besides the strategy, an update on the Bank’s gender equality work was also on the agenda and the communiqué noted its importance welcomed continued work “on updating and renewing the WBG’s strategy for promoting gender equality”, including the next progress report in a year. The communiqué has no mention of the behind-the-scenes dissatisfaction with the Bank’s efforts on gender so far, with some donors being very critical of the bank’s lack of ambition. Reports had it that the original draft of the update paper had to be sent back to the Bank staff and management so that they could be more ambitous in what they would do in the next year. The ministers’ statement also reaffirmed the “crucial role” of the Bank in addressing global challenges, such as climate change.