TWN Info Service on Finance and Development (Apr10/02)
30 April 2010
Third World Network

G24 Ministers call for deeper governance reforms and more tailored lending instruments for developing countries

Washington, D.C. (Bhumika Muchhala) -- The Intergovernmental Group of Twenty-Four (G24) met in Washington, D.C. on April 22, 2010 for their eighty-third meeting on international monetary affairs and development.  The G24 articulated views and recommendations that were in many cases more assertive and far-reaching than those of the G20.  The key areas of discussion were IMF lending, surveillance, and governance, as well as the World Bank’s role in lending to developing countries in the wake of the crisis. 

The G24 is comprised of 24 countries from three regions: Africa, Latin America and the Caribbean, and Asia.  The 24 countries comprised in the G24 are: Algeria, Côte d'Ivoire, Egypt, Ethiopia, Gabon, Ghana, Nigeria, South Africa, the Democratic Republic of Congo, Argentina, Brazil, Colombia, Guatemala, Mexico, Peru, Trinidad and Tobago, Venezuela, India, Iran, Lebanon, Pakistan, Philippines, Sri Lanka and Syrian Arab Republic.  The current chair of the G24 is Guido Mantega, Minister of Finance of Brazil, the First Vice-Chairman is represented by Pravin Gordhan, Minister of Finance of South Africa, and the Second Vice-Chairman is  represented by Arvind Virmani, IMF Executive Director for India. 

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 Africa in the IMF is urged for, with a view to creating stronger representation of developing countries in the International Monetary and Financial Committee.

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 – Poland, Colombia and Mexico.  The qualification criteria was formulated by the IMF and is not publicly available or described in detail through a transparent manner.

Ministers highlighted 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 US and some Western European countries.  The assessment of spillover effects and systemic financial vulnerabilities is therefore critical for all countries, regardless of economic size.

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.