TWN Info Service on Finance and Development (Apr13/04)
29 April 2013
Third World Network 

G24 calls for action by advanced economies
Published in SUNS #7571 dated 23 April 2013
 
Washington DC, 22 Apr (Bhumika Muchhala) -- At the spring meetings of the World Bank and International Monetary Fund (IMF) on 19-21 April, the Group of 24 (G24) developing countries issued a communique that addressed issues including the stagnation of IMF governance reform, the negative spillovers of advanced economies' unconventional monetary policies on emerging markets and developing countries, the lack of coherence in global economic policy-making between the IMF and World Bank, as well as the need to boost productivity and job creation.
 
The communique was negotiated by central bank officials and finance ministers of the G24, which is composed of nine African countries, five Asian countries and eight Latin American countries. The Chair of the G24 this year is Mexico's Secretary of Finance and Public Credit, Luis Videgaray Caso; the First Vice-Chair is Egypt's Minister of Planning and International Cooperation, Ashraf El-Araby; and the Second Vice Chair is Lebanon's Director-General of Finance, Alain Bifani.
 
ADVANCED ECONOMIES SHOULD ADDRESS MACRO-POLICIES AND SPILLOVERS
 
The G24's communique opens with an expression of concern about the adverse effects of protracted difficulties and uncertainties in the Euro area and the United States on the pace and fragility of global economic recovery. More action is needed by advanced economies to reduce uncertainties, restore confidence and strengthen growth.
 
The G24 called on advanced economies to take into account the negative spillover effects of their "prolonged unconventional monetary policies" on inflation, capital flow volatility and commodity price volatility, among other areas, in emerging markets and developing countries.
 
(Meanwhile, the IMF staff, in its World Economic Outlook, has emphasised global risks emanating from emerging market economies, while diluting the role of volatile capital flows, originating in advanced economies, on macroeconomic instability).
 
Macroeconomic policies and structural reforms should focus on encouraging productivity-led growth, safeguarding financial stability and managing volatile capital flows, including through precautionary measures, the G24 stated. Many developing countries have signed onto the IMF's recently created Precautionary Liquidity Line (a financing instrument where country recipients do not actually draw on the money, which provides signals of confidence to creditors and markets).
 
Job creation was emphasised by the G24 communique as a "foundation for sustainable and inclusive growth."
 
Preceding the spring meetings, the IMF had released a new report on "Jobs and Growth," which concludes that in a world with over 200 million people out of work and subdued global output, "macroeconomic stability not only supports job creation, but also encourages investment and growth and helps tackle inequality."
 
GOVERNANCE REFORM IN DEEP INERTIA
 
The G24 stated its regret for the missed October 2012 deadline for entry into force of the 2010 quota and governance reform, and highlighted the lack of agreement for a new quota formula by the review deadline of January 2013. It reiterated the importance of meeting the commitments to give credibility to the ongoing efforts to enhance the legitimacy and effectiveness of the IMF, and emphasised the importance of not postponing the discussion in order to reach agreement on a comprehensively reformed quota formula in time for it to serve as a basis for the 15th General Review of Quotas, to be completed by the January 2014 deadline.
 
Similar to previous years, the G24 reiterated that any quota realignment to reflect the growing weight of dynamic emerging market developing countries should not come at the expense of other developing countries, in particular the low-income countries. Also echoed was the group's long-standing belief that the fundamental goal of quota reform must be to enhance the voice and representation of all developing countries, including the poor and small low- and middle-income countries, and to better reflect changes in relative weights in the global economy.
 
Regarding the components and valuation of the quota formula, which includes criteria such as economic growth and degree of trade openness, particularly the extent to which countries have liberalised their trade with European members, the G24 communique argued that there remain serious flaws with the current formula and several steps are required. For example, due to the significant changes in the global economic landscape, the G24 contended that the role of gross domestic product (GDP) at purchasing power parity (PPP) terms must be increased in the quota formula. At the same time, the size bias must be reduced, including through higher compression.
 
The G24 communique recognised that the shortcomings of the variability measure must be addressed in order to adequately reflect the need for IMF resources if it is to be maintained in the formula. The Group asked that any compensation with respect to variability must take into account its primary goal of enhancing the quota shares of vulnerable countries, including the poor.
 
However, according to sources, during the discussion of G24 finance officials, many middle-income countries sought to remove the variability measure altogether, which would also remove the factor of trade openness while strengthening the weight of the PPP criteria. Other low-income countries criticised the proposed measures of "variability" due to the inferences it had to representing "vulnerability."
 
The communique urged that the serious conceptual and measurement flaws in the openness measure be addressed if it is to remain in the quota formula. Meanwhile, the G24 agreed that the criteria of foreign exchange reserves should be maintained in the quota formula at the current weight. It also reiterated that enhancing the quota shares of the poor must be done directly through the quota formula, so as to ensure a technical assurance of increased voting power.
 
Finally, touching on a long-held debate on the over-representation and domination of European member states on the IMF's 24-seat executive board, the G24 communique once again called on "advanced European countries to fulfill their commitment towards the consolidation of chairs."
 
(In order to avoid having to expand the Board to 25 seats, developing country member states of the Fund have been calling for one European chair to be given up to the creation of a third sub-Saharan African director. In diametric opposition to European over-representation, 44 sub-Saharan African countries are represented by only two directors on the Fund's Board.)
 
The G24 also repeated its long-standing warning that a third chair for sub-Saharan African countries should not come at the expense of other developing countries, meaning that no other developing country should have to give up a chair for the induction of a third sub-Saharan director and seat on the Board.
 
MORE MONEY AT BETTER TERMS FOR LOW-INCOME COUNTRIES
 
The G24 expressed strong reservations about halving access norms and limits to the IMF's concessional facilities when the 14th General Review of Quotas takes effect. It urged that no low-income country eligible for the Poverty Reduction and Growth Trust (PRGT), the concessional financing facility of the IMF, is worse off.
 
To ensure this, the Fund should raise additional resources, including through bilateral contributions and continued non-reimbursement to the General Resources Account (GRA) of administrative expenses of the PRGT. Furthermore, donors should take the necessary steps to meet the financial commitments for poverty reduction and growth in low-income countries.
 
The IMF's new proposal on increasing the flexibility for its official policy on "debt limits" was welcomed by the Group, who agreed that the ultimate goal must be to preserve debt sustainability, including through incentives for appropriate concessionality of financing.
 
The IMF's renewed focus on small and vulnerable states, in particular the small island states, was supported in the G24's communique, which called for the "expeditious completion of consultations with country authorities and other development partners to inform new and revised guidelines for IMF engagement with some of its smaller members."
 
G24 WELCOMES BRICS DEVELOPMENT BANK, SUPPORTS POST-2015 AGENDA
 
On the UN's post-2015 development agenda, the G24's communique endorsed the UN's leadership and supported the World Bank's role in the post-2015 processes, based on its mandate and comparative strengths. The G24 called for an "ambitious set of goals, with a clear plan and solid commitment to mobilise the necessary resources, and to strengthen partnerships and enable conditions for development, including financial system strengthening, recognition of countries' special needs, and improved aid delivery."
 
The communique supported the World Bank's vision on accelerating the end of extreme poverty and achieving shared prosperity, as proposed by World Bank President Jim Yong Kim, and agreed on the "need to focus on inclusive and equitable growth in order to lay the basis for enduring poverty reduction and job creation."
 
According to sources, in the G24 discussions, the question of how the World Bank's grant facility to low-income countries, the IDA, would interact with the post-2015 development framework was raised. However, there was no mention of systemic issues and reforms in the international financial and trade architecture, according to sources.
 
The World Bank's approach to sustainability was also welcomed by the G24. However, the Bank's emphasis on "environmental, fiscal and social sustainability" was changed in the communique to "social, economic and environmental sustainability." This reflected the G24's concern that the operationalisation of a "fiscal sustainability" concept will result in new or reinforced obligations on the part of developing countries. Furthermore, fiscal policy is seen as belonging to the IMF's domain, not the World Bank's.
 
The G24 communique concludes with mention of a priority agenda amongst many developing countries, that of scaling up infrastructure financing and investments across developing countries. The communique states that the mobilisation of resources and investment in infrastructure is crucial for realising "our countries' economic development, inclusion and human development goals." The scale of infrastructure financing needs, and the deficiencies in the existing development financing architecture for those needs, "necessitate the strengthening and reorientation of all pillars of long-term financing."
 
The communique calls on the World Bank in particular to play a key role in meeting infrastructure financing needs. However, given the magnitude of the financing gap, alternative, complementary mechanisms will also be important. In this context, the G24 welcomed the agreement in March 2013 among the BRICS nations of Brazil, Russia, India, China and South Africa to establish a New Development Bank that will prioritise infrastructure financing.
 
While the modalities and structures of governance, membership and development financing have not yet been sketched out, sources said that one of the BRICS countries mentioned during the G24 meeting that a more concrete report will be produced at the next BRICS meeting in September 2013 in St. Petersburg. And when Brazil hosts the following BRICS summit in 2014, the operationalisation of the bank will likely be announced.
 
Details such as the relationship between the BRICS development bank and the multilateral development banks, the question of additionality with the financing carried out by national development banks, particularly in China and Brazil, and the pertinent question on the membership and governance structure of the development bank are yet to be worked out.
 
[The full text of the communique of the Intergovernmental Group of Twenty-Four (G24) on International Monetary Affairs and Development is available at: http://www.imf.org/external/np/cm/2013/041813.htm] +