Saturday, 4 April 2009

G20 results: Better done than the G8, but a long way to go

According to the European network on debt and development (Eurodad), political leaders did not agree ground-breaking measures to combat inequality or unsustainability or to transform global economic governance as had been suggested at the start of the enhanced G20 process last year. Yet the amount of money being pledged for developing countries is more than expected, if less than required. And on tax havens there are some useful steps forward, even if the model of information exchange will prevent many developing countries taking advantage of it.

The G20 has done better than many G8 and similar meetings in the past. But they have not sufficiently tackled the symptoms, let alone the causes of the crisis. The summit has certainly failed to “refound the financial system” as was promised before the G20 first met last November. However Eurodad wants to build on several elements in the statement, and plans active follow-up advocacy in the coming months.

Excerpts from a Eurodad statement: The communiqué states that $1.1 trillion extra money will be made available for the International Financial Institutions. Of this it states that $50 billion will be provided to “safeguard development in low-income countries”, but does not specify the time period for spending this.

The money comprises:
• $250bn in IMF Special Drawing Rights. Some $19bn of this will reach low-income countries.
• $500bn new contributions by governments to the IMF of which some $25bn over two years may be for low-income countries.
• $250bn in trade finance from export credit agencies, private companies and regional development banks, but unclear how much for low-income countries.
• $100bn extra via multilateral development banks, to be funded via bond issuances, but none for low-income countries.
• Around $6bn or so for low-income countries to be funded by IMF gold sales.

More than expected of the announced package is new money and $50bn is clearly earmarked for low-income countries, higher than expected. But there are four issues of concern. The amount for use in 2009 is not detailed, although one section of the communiqué suggests it will be over 2-3 years. During this year low-income countries are expected to face a crisis shock of $216bn according to the IMF. Also the finance is mostly in the form of loans or guarantees, not grant transfers. On lending policies or instruments the IMF is praised for its recent conditionality reforms and its Flexible Credit Line (FCL) – which Mexico has just started using – is also mentioned. There is, however, no decisive break with the economic policy conditionality that has partly caused this crisis and which seriously aggravated the social impact of previous financial crises.

The communiqué recognises that the crisis has “a disproportionate impact on the vulnerable in the poorest countries”. To deal with this it also reaffirms previous commitments to the MDGs and to ODA, and mentions that:
• The UN is asked to “establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.
• Some of the low-income country money will be channelled through the World Bank’s Vulnerability Fund, but the nature of this fund is unclear.

On regulation Gordon Brown told the G20 London summit press conference that the G20 has announced an “end to tax havens that do not transfer information on request”. The Global Forum based at the OECD will today publish a list of non-cooperating jurisdictions. The “international standard for exchange of tax information” mentioned in the communiqué is not clear. But it is likely to be based on compliance with measures proposed by the Financial Action Task Force, IMF’s Review of Standards and Codes and perhaps the UN treaty on information exchange. The measures announced are a start, but will not make a significant progress in the fight against tax avoidance industry.

Other measures on regulation that were briefly announced include:
• IMF surveillance will be enhanced.
• Regulation will be extended to “systemically important hedge funds”, though nothing is said on how regulatory arbitrage will be avoided.
• The Financial Stability Forum will be strengthened and renamed the Financial Stability Board, with new members including all G20 members, Spain and the European Commission.

The leaders agree that IFI “mandates and governance must be reformed to reflect changes in the world economy”, but have agreed little specific. The IMF quota reform already agreed last year is re-announced and a further one pledged “by 2011”. The World Bank should propose further ways to change its governance “by 2010”.

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