TWN Info Service
on Finance and Development (Apr10/02)
G24 Ministers call for deeper governance reforms and more tailored lending instruments for developing countries
The G24 is comprised
of 24 countries from three regions: Africa, Latin America and the Caribbean,
G24 Ministers on IMF
One of the most critical
assertions made by this G24 meeting is the call for a shift of 7% in
voting power in the IMF from developed to developing countries, reiterating
that the Fund’s “legitimacy, relevance, and effectiveness depend centrally
on redressing the imbalance in voice and representation.” However,
G24 members were also careful in pointing out that shifts in voting
power should not come at the expense of low-income countries, whose
voting power should be protected. A third chair for sub-Saharan
The quota formula, by which IMF voting power is ascribed to its member countries, has been a contentious topic of debate for many years. The G24 ministers stressed the importance of reforming the present quota formula by giving greater weight to GDP at purchasing power prices, rather than by the traditional indicator. Purchasing power parity would enable the growing role and contribution of emerging market and developing countries to be better reflected in the quota formula. The other important reform to the quota formula is the bias resulting from “distortions in the measure of trade openness,” implying that the level of a country’s trade liberalization should not determine its voting power in the IMF.
The G24 welcomed the ongoing review of the IMF’s mandate and emphasized that governance reform must be ambitiously pursued before decisions are taken on the Fund’s mandate by the Executive Board. In reference to the specific areas of capital flows and financial stability, the G24 recognized that views between developing and developed countries can often differ and called for “broad-based consensus” and the “spirit of cooperation and mutual understanding” in making decisions in these specific areas.
The G24 countries emphasized
two other key areas within the Fund’s mandate review, which are the
IMF’s financing role and surveillance. The Ministers asked the IMF
for “consideration of a Flexible Credit Line-type precautionary instrument
for Low-Income Countries.” This is in response to the fact that low-income
countries currently do not have access to any type of precautionary
financing. They also urged the IMF to improve the terms and review
the qualification criteria of the Flexible Credit Line (FCL) in order
to enable wider and equitable access. Thus far, only three countries
have been granted the precautionary financing of the FCL –
the importance of evenhanded surveillance by the IMF of systemically
important advanced countries and markets. This is in reference to the
long-criticized lack of objective macroeconomic assessment of the rich
countries such as the
The expansion of the Fund’s lending resources, which is held in the new arrangements to borrow (NAB), was welcomed by the G24 Ministers. However, they called for a “substantial increase in IMF quotas in the next general review with an appropriate balance between quota and NAB resources.” The Ministers thus assert that the Fund must remain a quota-based organization.
G24 Ministers on World Bank
The G24 expressed concern that the $86 billion capital increase proposed for the World Bank Group is “inadequate and would pose a severe constraint on post-crisis lending.” The Ministers stressed that the capital increase is “simply too small in terms of the overall development financing needs of countries beyond the crisis and the Bank’s potential role in financing global public goods.” Toward this end, Ministers called for a much larger capital increase in both the World Bank Group and the International Finance Corporation.
The Bank’s role in mitigating the after-effects of the crisis, including the loss of jobs and the setbacks in the attainment of the Millennium Development Goals is highlighted. Ministers “emphasized that the World Bank Group should be guided by complementarity rather than exclusivity and that selectivity and the division of labor among Multilateral Development Banks be ultimately driven by individual country demands.”
The G24 Ministers urged the Management of the World Bank to “assess and meet the financial and technical assistance needs of all developing countries solely on the basis of economic and development merits,” rather than other political issues. The support of the World Bank for south-south trade and investment was also highlighted.
The Ministers stressed that redressing the “democratic deficit in the governance structure is crucial for the legitimacy and effectiveness of the World Bank.” The World Bank’s governance formula must also strive to reflect the “evolving ecnomic weight of countries” and the contributions of developing countries to the development mandate of the Bank.
An increase of at least 3 % in voting power for developing and transition countries in the World Bank was called for by the G24 Ministers. However, Ministers noted that a “large number of developing and transition countries would be negatively affected” because the Bank’s governance reform package does not take into account the contributions of developing countries to the Bank’s development mandate.
Once again, the G24 repeated that the Heads of the IMF and the World Bank must be chosen solely on the basis of an “open, transparent, merit-based process without regard to nationality.” The same should also apply to the selection of Senior Management in both the Fund and the Bank. On a broader basis, increased diversity in the staff of both institutions is also urged for, in that the staff should reflect a greater level of diversity in nationality, gender, educational background and work experience.