TWN Info Service on Finance and Development (Apr12/13)
27 April 2012
Third World Network

G24 concerned with global finance and development, calls on IMF and World Bank actions

24 April, Washington, D.C. (Bhumika Muchhala) – The Group of 24 (G24) developing countries called on developed countries to curb negative spillovers from volatile capital flows and commodity prices, and to restore fiscal and debt stability to their economies without depressing domestic demand.

The G24 held its 87th session at the spring meetings of the International Monetary Fund (IMF) and the World Bank, in Washington, D.C. on 19-22 April.

G24 concerns about recession in the EU and US

Their communiqué expressed concern of the persisting high risks to emerging market and developing countries from possible renewed tensions in the Euro area, and from high and volatile oil prices driven by both geopolitical and financial forces.

G24 countries are adversely impacted by the slowdown in Euro area and US economies in myriad ways, such as a clamp down on export demand and a credit crunch on access to foreign capital.

In the context of the export-oriented economic model that predominates the industrialization trajectory of most developing countries, and in the context that many developing countries are heavily dependent on foreign capital to finance their current account deficits, the unabated economic recession in developed countries is a serious concern.

Developed countries are also called upon by the G24 to undertake “vigorous structural reforms,” which in part implies boosting job-creation and domestic demand in the Euro area and the US.

The G24 also repeatedly highlights “conducive macroeconomic policies to boost global growth” in the Euro area and the US, inferring to the heavy influence the developed countries macro-policies have in spurring or stagnating the momentum of global growth.

In the above context, hasty deleveraging by Euro area banks is cautioned against due to the negative impacts on access to trade and infrastructure finance for developing countries.

Still resisting the IMF’s approach on capital controls

The G24 repeated their previous strong assertion on the ability of developing countries to adopt capital controls and other policies in “flexible and discrete” ways to “mitigate risks associated with large and volatile capital flows.”

This G24 stance has remained unchanged from the G24’s two communiqués in 2011. The G24 has persistently rejected the IMF’s proposed framework for capital controls, to be used as staff advice and surveillance reports to member countries on managing capital flows.

The Fund’s proposed framework had included macroeconomic pre-conditions countries are to have in place before being able to use capital account management tools.

In reaction, the G24 had stressed that the IMF must adopt an “open-minded and even-handed approach to the management of capital flows and take into account policies in capital-originating countries,” in particular the financial centers in the US and the Eurozone.

This year, the G24 again expressed “strong reservations on the integrated approach proposed by IMF staff and insist that it should not result directly or indirectly in new obligations on members.”

The point that capital account management measures should be seen as an integral part of the policy toolkit was reaffirmed.

Policy areas identified as priorities

A significant addition not mentioned by the G24 in last year’s communiqués is the need for further study of sovereign debt restructuring mechanisms, which the G24 state has been highlighted by the ongoing European debt crisis.

The G24 underscored addressing the excessive volatility of commodity, food and energy prices through action that includes “better regulation of commodity derivative markets” and “concerted steps to enhance food and energy security, especially in low-income countries.”

Two areas of priority identified by the G24 are job creation and social safety nets that protect the poor and vulnerable, which the member states underscored their commitment to in order to achieve strong, inclusive, sustainable and equitable growth.

On official development assistance, or ODA, the G24 communiqué reiterates past emphasis on timely and full delivery of aid commitments already made by developed countries.

IMF surveillance, and the need for it to be conducted by staff in a more fair and balanced manner, is again highlighted by the G24. The communiqué referred to the range of existing proposals to “enhance, better integrate and balance the IMF’s bilateral and multilateral surveillance activities.”

The recommendations of the Independent Evaluation Organization (IEO), which highlighted the IMF’s bias in carefully monitoring developing country macroeconomic fragilities but overlooking those of developed countries, was also pointed to by the G24.

The G24 called on the IMF to complete the 2009 financing package for low-income countries, through 2014, as an “immediate priority.” The additional financing needs of low-income countries, particularly in light of the impact of energy price increases, also needs to be addressed by the IMF.

Increased efforts to mobilize donor support is called for, as well as an “early discussion” within the IMF on meeting longer-term financing gaps in low-income countries.

IMF governance reforms still unfulfilled

The G24 called on all IMF member states to implement the 2010 quota and governance reforms by the time of the annual meetings of the IMF and World Bank in October 2012.

A timeline of January 2013 is slated for the review of the quota formula, which determines member state decision-making power in the 24-member Executive Board of the IMF. Completion of the Fifteenth General Review of Quotas is marked for January 2014.

This G24 stated that the reformed quota formula “should lead to an increase in the calculated and actual quota shares of dynamic emerging market and developing countries in line with their relative positions in the world economy.” The additional quota shares of more powerful developing countries should not come at the expense of less powerful developing countries.

The G24 said they “believe that the ultimate goal must be to better reflect the growing role of emerging market and developing countries as a whole in the global economy.” Meanwhile, the voice and representation of the smaller states must also be protected.

With regard to the long discussed third chair for sub-Saharan African countries, the G24 argued that this third chair “must be in place of a chair held by an advanced country,” rather than an additional chair. The G24 also stated that overall governance reforms should increase the number of chairs held by developing countries on the Board.

The boosting of IMF lending capacity must not, the G24 warned, undermine the character of the Fund as a quota-based institution. Rather, an enlarged financing capacity must be anchored in a firm commitment to governance reform.

The G24 also recognized that for the first time in the World Bank’s history, it held an open leadership selection process that involved a debate on the priorities and the future of the institution. It was stressed that future selection processes must build on this last endeavor, and be transparent and “truly merit-based.”

World Bank priorities and programs

The G24 supported the World Bank’s initiative to promote social protection and safety nets, and underscored their necessity not only during crises but also under normal situations, for the building of human capital and productivity. To facilitate an expanded use of social protection and safety nets, increased South-South learning and knowledge transfer was called for.

The importance of both IMF and World Bank responses to the development needs of the Middle East and North Africa region was reiterated by G24 Ministers. A “scaling up” of resources, policy advice and technical assistance was also called for in order to address high and persistent unemployment, and myriad economic and development challenges.

The G24 welcomed the establishment of a working group of IMF Executive Directors representing small states, which aims to give greater visibility to the disproportionate vulnerability of their countries to economic shocks and natural disasters. More appropriate policies and adjustments in small state financing, to respond to their particular circumstances and needs, was urged for by G24 ministers.

In light of the financing gap most developing countries face in the context of shrinking credit available from rich country donors and international banks, the International Finance Corporation (IFC) and the World Bank are called upon by the G24 to provide a “steep increase in investment in infrastructure over the next few decades.”

The possibility of a BRIC development bank was alluded to as a source of financing for sustainable development and infrastructure projects across developing countries. The G24 also pointed to the “growing pool of savings” in many developing countries, in that enhanced South-South cooperation can channel funds into “stable, predictable and scaled finance.”

The G24 urged that the World Bank draw upon the capacity of middle-income countries more meaningfully to produce greater development benefits, particularly for poverty eradication. South-South exchange offers one way, that is so far under-utilized, to leverage resources and knowledge.

The final paragraph of the communiqué acknowledges the upcoming UN Conference on Sustainable Development (Rio+20) as an “important opportunity for the international community to renew its political commitment” on sustainable development, “in accordance with the principles and provisions of the Rio Declaration on Environment and Development, including the principle of common but differentiated responsibilities, Agenda 21 and the Johannesburg Plan of Implementation.”

The full text of the G24 communiqué can be found at: http://www.imf.org/external/np/cm/2012/041912.htm