Delivering the insufficient?

September 11, 2009

G20 finance ministers issue another bland statement

Bretton Woods Project, 10 September 2009

Despite spin doctoring that called it a triumph for cracking down on banking bonuses, the G20 finance ministers’ statement in early September produced an accounting for how the G20 met or did not meet existing promises and little new agreement. Once again the UK government excluded critical civil society from the discussions.

The summit, held in London in order to prepare the ground for the G20 leaders meeting scheduled for 24-5 September in Pittsburgh USA, was billed as a battle over bank bonuses, but the final communiqué was mostly a bland repetition of existing statements with plenty of escape clauses and pushing issues to other forums. On the fiscal stimulus and loose monetary policy that have been the mainstay of rich country responses to the financial crisis, it committed countries to continue “necessary financial support measures” but also “agreed the need for a transparent and credible process for withdrawing our extraordinary … support.”

The communiqué was short, with only seven paragraphs. It final two points served to report on the commitments made to strengthen the IMF and World Bank. The G20 hailed the “significant progress in strengthening the IFIs” but also said “more needs to be done”. For the pedantic, the change in language on IMF governance may look like a positive step forward. In April the G20 said “emerging and developing economies, including the poorest, should have greater voice and representation”, whereas in September it read “the voice and representation of emerging and developing economies, including the poorest, must be significantly increased.” A searching look at the accompanying “progress report on the actions of the London and Washington G20 summits” highlights the areas left vague.

SDRs go ahead at the IMF

The report confirms that the $500 billion promised to the IMF has yet to be delivered as it references only the “commitments of more than $250 billion”. Actually delivery has only come from Japan, Norway, France, Canada, China and the United Kingdom, totalling about $195 billion. The US commitment of $100 billion has been agreed through the New Arrangements to Borrow, which requires additional measures to activate. The IMF has committed about $173 billion overall (including loans made before the crisis), but it had about $250 billion in available capital before the agreement to boost its resources. Thus, the boost in resources has not yet been used to support any developing countries.

And while the London Summit called for a “doubling of the IMF’s concessional lending capacity for low-income countries”, this has been reinterpreted to be a simple doubling of concessional lending year-on-year rather than the overall pot of resources available for such lending. The Fund announced in late July an increase in expected concessional lending to $4 billion a year in 2009 and 2010 from about $1.2 billion on 2008.

The commitments on issuing special drawing rights (SDRs, see Update 65), the IMF-created reserve asset, were the most tangible and successful, with full allocation of SDRs as per the G20 communiqué. This included the final ratification of the fourth amendment to the IMF Articles of Agreement, which provides for an extraordinary allocation of SDRs to countries that joined the IMF between 1981 and 2009. Still most of the new SDRs go to rich countries and no progress was made on a method of re-allocation.

Some World Bank changes left vague

While the Bank did raise lending from about $30 billion to $60 billion in the last fiscal year, there was no quantitative reporting on the take up of programmes oriented at social protection and low-income countries. The communiqué indicates that the Rapid Social Response Fund (see Update 65) was agreed, but fails to say how much was provided, likely due to very low take up of the facility.

A paper on increasing the financial capacity of the Bank through a capital increase is promised for the annual meetings, while the Bank is still “developing an approach” to let some low-income IDA-eligible countries borrow more money on IBRD terms usually reserved for middle-income countries. The progress report said that the IMF and World Bank boards were both reviewing the debt sustainability framework, though the IMF board had actually met on 31 August, prior to the G20 meeting. The IMF’s agreed changes were announced on 9 September.

On the promise of increasing trade finance by $250 billion, the G20 produces an unreferenced figure of $65 billion having been taken up, though the only actual programme cited is the one by the World Bank’s International Finance Corporation (IFC), which received commitments of just $7.75 billion (see Update 66).

The promised G20-chair review of the IFI’s role and responsibilities, which was supposed to be personally handled by British prime minister Gordon Brown, is reported to be in “consultation with the G20, external academics and LICs.” There was little to no discussion on the matter with civil society, despite repeated questioning of the prime minsters’ office by NGOs about how a consultation would be run. In the end the exercise was contracted out to London-based think-tank the Overseas Development Institute, which placed a limited discussion note on its website and failed to alert more than its database of researchers about the online discussion forum.

Financial and tax regulation still pending

Despite the hype on bonuses, the communiqué merely asked for “global standards on pay structure” and called on the Financial Stability Board (FSB) “to report to the Pittsburgh summit with detailed specific proposals for developing this framework.” FSB standards are not legally binding and there is no mention in the communiqué of the idea that there should be a cap on the total bonus pool. As the FSB in basically a forum for discussion among the G20 and other governments, countries that have opposed strong regulation on financial sector remuneration such as the UK, will work hard to water down any proposals.

On the fight against tax evasion, there was recognition of the need for “developing countries [to] benefit from the new tax transparency, possibly including through a multilateral instrument.” However the use of the word “multilateral” was left vague. The OECD which has been the lead analytical body on tax matters often uses ‘multilateral’ to mean merely a series of bilateral agreements.

The G20 had previously agreed that all systemically important financial institutions should be regulated, but had left the definition of systemically important to the IMF, Bank for International Settlements (BIS) and the FSB. They promised to do it “by the next meeting of finance ministers and central bank governors.” However they failed to produce the guidelines on the definition by this early September finance ministers’ meeting. They have now promised to do it by November when the G20 finance ministers meet again.

Civil society exclusion

UK-based NGOs, the Jubilee Debt Campaign and Bretton Woods Project, had their accreditation for the G20 finance ministers’ meeting revoked by the UK Treasury just days before the summit. Representatives of both organisations had received notification of accreditation on Friday, 28 August. Both received emails late on 2 September saying “Unfortunately your accreditation has been withdrawn by HM Treasury. Please be aware that you will not be permitted access to the meeting venue or any of the press facilities.” No further information or reason was given for the withdrawal of accreditation for the NGOs.

The UK government also barred NGOs War on Want and the World Development Movement from attending the G20 London Summit in April. Nick Dearden, director of Jubilee Debt Campaign, said “It is outrageous that NGOs such as ours have again been banned again from attending G20 summits. The UK seems to be setting a precedent that it is acceptable to silence voices of dissent and prevent debate from being aired.” Both Bretton Woods Project and Jubilee Debt Campaign had been involved in a 4 September London action calling on the G20 to stop letting money rule the world on the day the summit commenced. UK NGOs Oxfam and ONE, which had not been listed as organisers of the action, were accredited and allowed into the summit venue.


Is West Undermining Summit on Financial Crisis?

June 19, 2009

By Thalif Deen, Inter Press Service, June 17, 2009

UNITED NATIONS, Jun 17 (IPS) – When a Western diplomat was asked whether his country would be represented by a head of state at next week’s U.N. summit meeting on the global financial crisis, his response was tinged with sarcasm and contempt.

We will send only our note takers,” he was quoted as saying.

In diplomatic jargon, “note takers” are equivalent to glorified stenographers who religiously take down everything said at a meeting but have no authority to intervene or take decisions.

The decision to hold a U.N. summit on the global economic crisis was taken by all 192 member states – by consensus – at an international conference on financing for development held in the Qatari capital of Doha last November.

The participants at next week’s summit were expected to be “at the highest political levels”, meaning heads of state and government.

But Western nations have apparently backed out of the decision which they themselves took in Doha.

Speaking on condition of anonymity, an Asian diplomat told IPS: “The Western states are trying to undermine the meeting by sending low-level representatives.”

“The reason is obvious,” he explained. “The West feels the General Assembly is not the appropriate forum to discuss the global financial crisis.”

“They think the crisis belongs to the World Bank, and more importantly, the International Monetary Fund (IMF),” he added.

Asked if there were any Western heads of state or heads of government scheduled to participate in the summit, Enrique Yeves, spokesman for the president of the General Assembly, told IPS: “None from the West.”

But there are around 30 heads of state and government (out of 192), mostly from developing nations, who have confirmed attendance, he added.

“We (will) have a strong presence of Latin America and the Caribbean – especially from the Caribbean, we have several heads of state and government coming,” Yeves said. “We’ll (also) have a good attendance, I’ve been told, from Africa and Asia.”

“And then, as they have already been said in public, the developed countries, especially the Europeans and the United States and some others, have indicated they might not be represented at the level of heads of state, but certainly at the level of ministers or whoever is the chief of delegation,” Yeves added.

The summit meeting of the General Assembly, due to take place Jun. 24-26, was originally scheduled for Jun. 1-3.

But delegates wanted more time to negotiate the draft outcome document that will be adopted at the meeting.

The negotiating process on the document has been painfully slow and is expected to continue till the eve of the summit next week.

After consultations with the various regional groups, the president of the General Assembly, Father Miguel d’Escoto Brockmann, the organiser of the three-day summit, decided to postpone the meeting from the original date to next week.

Meanwhile, there have been several stories in the mainstream media, quoting Western diplomats as saying they are very unhappy with the left-wing agenda of D’Escoto, a former foreign minister in the Sandinista government in Nicaragua.

Asked about this, Yeves told reporters Monday: “But let me – because I have been quoted in some of these articles, as well – tell you what I find strange in the last two or three articles that we have seen, is that we keep hearing these anonymous sources quoting diplomats of the developed countries basically saying that the meeting is not a good idea.”

“It’s going to be a failure or that they don’t think it is going to accomplish anything or whatever,” Yeves said. “I would like to make two comments on this particular issue. The first one, it is very difficult to discuss anonymous sources because, you know, we don’t know who said what, and in what context.”

“However, the president (of the General Assembly) speaks for himself – or I speak for myself – on the record all the time, and our record is very clear.”

“And the second part that I wanted to say is on substance,” because the criticisms are strange, because the summit, and the entire process leading to the summit, have been approved by consensus by all 192 member states,” he said.

The IMF is Back? Think Again

June 3, 2009

Aldo Caliari | June 1, 2009. Foreign Policy in Focus

Last year, as the financial crisis reached global and historic proportions, many commentators identified one institution as the debacle’s great winner: the International Monetary Fund. Just two years ago, the IMF seemed to be on an inexorable downward path: its credibility and effectiveness in question, its portfolio of borrowers severely reduced, its legitimacy and governance structure under challenge, and its own finances in disarray. In fact, the Fund had started “downsizing” its staff as the only way to avoid running one of the deficits that it so strongly advises client countries to steer away from.

Against this backdrop, the world’s credit drought offered the international financial institution a lifeline. Observers predicted it would propel countries that had closed their programs with the IMF to have to reapply. Big IMF loans were back. The G20 summit in London in early April, with its dizzying figures in new funding for the IMF (The Wall Street Journal and other major outlets reported a $750 billion pledge) only made the feeling a distinct belief.

Since October of last year, the number of IMF non-concessional loans has more than tripled, while the total volume of outstanding loans more than doubled — from nearly $7.5 billion to about $16 billion. This is far from the almost $50 billion in loans that were outstanding in 2003, but does reflect a U-turn.

Still, looking beneath the surface reveals a more nuanced picture. Accounts that herald the IMF’s “revival” are premature and superficial. Recent events illustrate nothing more than the fact that the world’s largest economies, who happen to be the Fund’s largest shareholders, view it as an instrument to manage emergency crisis financing. That was never, however, in question. It was the borrowers who saw the need for substantial reform in the IMF before this emergency financing function could be played effectively and, in fact, the infusion of large amounts of funding, by freeing the IMF’s hands and relieving its fears of survival that will act against such reforms. On the other hand, there’s little that suggests a sense of renewed faith on the IMF by its main shareholders, let alone by the borrowers.


At its April summit in London, the Group of 20 countries committed to increase IMF resources through “immediate financing” from members in the amount of some $500 billion. A thorough reading of thecommuniqué revealed big holes in this announcement.

Less than half this amount could be actually traced back to bilateral pledges by members to the IMF. Such contributions included $100 billion that Japan pledged, and $75 billion pledged by European countries earlier in the year. 
A U.S. pledge of approximately $100 billion was also being assumed in the deal. At the time of the London summit, skeptics said chances were slim that a Congress fed up with domestic bailout packages would clear the contribution. The Senate recently backed $108 billion for the IMF as part of a broader piece of legislation; approval by the House of Representatives (which didn’t pass the same version of a broader bill as the Senate did) is, nonetheless, expected. Arguably, though, skeptics weren’t so wrong.

Passing the measure required the resourceful accounting trick of portraying the real cost of the contribution as much lower than it really was. It also called for attaching a measure to a supplemental military spending bill to bypass calls for hearings and debate on the proper oversight and reform that the Fund should be called to perform for this funding increase. Including it in the supplemental budget bill also made it harder for lawmakers to oppose it, and it shows that the vote didn’t reflect support for the IMF in Congress.

More important than the actual amount of the contributions was the mechanism used for making them. The major announcements of immediate funding increases weren’t in the form of a commitment to contribute more capital to the institution, but through a set of bilateral credit lines that acts as a supplement to the IMF’s capital. These credit lines are collectively called the “General and New Arrangements to Borrow.” An infusion of capital to the institution could have been taken as an indication of renewed trust in it, a will to structurally strengthen the IMF and a show of commitment to stay with it for the long haul. Contributing to those bilateral credit lines, on the other hand, suggests a sense of caution. Unlike a capital increase, they can be easily revoked once the moment of emergency fades away. If you think in terms of rescuing a bank, this is the difference between buying more shares and promising that if it needs money in the future you are going to give it some. Which of these two behaviors would you say reflects more confidence on the institution?

The size of the increase in bilateral credit commitments is such that structurally changes the institution in unpredictable ways. The proportion of capital in the resources the Fund has to lend would go from 80% — that is, the primary portion of its resources — to 40% — a minority portion, and potentially even less.

Reportedly, the lack of agreement to approve increases in capital, rather than in the bilateral credit arrangements, has been the reason for China to withhold its contribution. In a blunder that got little press attention, the London summit’s host government announced $250 billion in immediate contributions, which allegedly included $40 billion from China. Yet, no Chinese government sources would confirm this. As the communiqué issued by the policy-making committee of the IMF later in April made clear, China is effectively not contributing to the New Arrangement to Borrow.

The behavior of other major contributors, such as Japan, fuels further doubts about commitment to the IMF. Last January, Japan was the first country to announce a bilateral loan to the IMF in the amount of $100 billion. But last month it announced a contribution of over $38 billion to the Chiang Mai initiative, a network of bilateral currency swap arrangements among Asian countries seen, for a long time, as a potential source of competition to the IMF. On top of this, it is setting up a $100 billion bilateral currency swap scheme for Asian countries. This would effectively mean its own bilateral, direct line of credit for such countries, should they need emergency financing.


Another important point that gives away the persistent distrust on the IMF by its main shareholders is the way they’re dealing with the issue of surveillance. However much the Group of 7 trusts the IMF with the management and prevention of crisis in less-developed countries, they have systematically refused to trust the IMF with such a role in the global economy, especially the implications this role would carry for their own domestic policies.

As a result, while rich nations pay lip service to the need to strengthen the IMF’s surveillance functions, also known as its capacity to play an “early warning” function, it’s usually surveillance of  developing countries — those that have actually less responsibility in the functioning of the global economy — that they reference. The industrialized countries have kept their ability to dodge the IMF’s prescriptions safely protected.

Since the late 1990s, several observers had warned about the unsustainable imbalances that were building up. The attempt by emerging markets to self-insure against sudden capital outflows led them to grow large trade surpluses and build huge reserves in U.S. dollars which, in turn, provided the demand for U.S. dollars that permitted the growth of unsustainable U.S. trade deficits.

Article IV of the IMF’s Articles of Agreement requires it to prepare, every year, an individual country report assessing its macroeconomic policies. The reports are usually known as “Article IV Surveillance reports.” In these routine surveillance reports for “advanced economies,” the IMF started building a component in the late 1990s that looked at the “spillover” effects of macroeconomic policies in such countries. But since the countries capable of causing the most damage to the global economy don’t depend on the IMF for funding, IMF recommendations to them fell in deaf ears.

In 2006, the IMF was endowed by its members with a new procedure for “multilateral consultations on surveillance.” The mechanism would allegedly provide a forum for countries with systemic impact to coordinate their policies. Suitably, the first topic to come up for consultations was the buildup of global imbalances. What was lost amidst the great fanfare of the announcement was that this function wasn’t very different from the Article IV assessments of systemically important economies that the IMF had been carrying out since the late 1990s, and for which it had little to show. There was, likewise, little difference between the newly announced “multilateral consultations” and the routine discussion of Article IV reports by the Board that had been so easily ignored by large countries. Over time, the results of the new procedure proved equally innocuous.

Yet, in a very similar vein to what happened in 2006, the G20 statement tries to project a sense of renewed mandate for surveillance over the global economy for the IMF. The G20 speaks of a surveillance and “early warning” function, to be jointly played by the IMF and the Financial Stability Board. But the reality is no changes were agreed upon that would actually empower the IMF to play a more prominent role over the economies that matter — which happen to be its dominant members.


Clearly, there’s not much evidence of a change of heart among IMF shareholders, particularly the richest industrial countries, to revive and strengthen the IMF. That doesn’t mean that the wealthier nations don’t see the IMF as an instrument for managing and channeling assistance, in a selective and conditioned way, to emerging markets hit by the global financial crisis. But this isn’t really a different policy approach than what they had espoused in the past. The large increases in funding, however, will certainly shut down the limited movement towards reform that was taking place within the institution. By positioning the IMF as the necessary creditor of last resort in times of crisis, they may force borrowing countries that had disengaged from the institution to have to re-engage, in the process weakening their hand at demanding substantial reform.

Many in civil society and academia have been demanding an alternative approach that involves better prevention measures to avoid crises while ensuring that, in case they happen, emergency financing is available without conditions that generate poverty and unemployment and limit growth and development. The prevention of crisis calls for more policy space to discipline capital movements and an adequate system of regulation and incentives that tackles financial institutions not only in the host, but also in home countries. An international system for sovereign bankruptcy, by putting some restraints on the side of the creditors, would go a long way to avoid devastating crises.

In turn, an alternative means of emergency financing will only take place with a very different kind of governance for the institutions that provide it. One shouldn’t stop calling for the democratization of the governance of the Fund, but dramatic changes to emergency financing are unlikely to happen in the absence of monopolies like those that the International Monetary Fund has held in the past and is now trying to cement. In this regard, the emergence of vigorous regional financial and monetary institutions is a welcome development of the past few years that should continue to be encouraged.


*Aldo Caliari, a Foreign Policy In Focus contributor, is director of the Rethinking Bretton Woods Project at the Center of Concern in Washington, DC.

NGOs Oppose Nearly 100-Billion-Dollar Pledge to IMF

May 30, 2009

By Danielle Kurtzleben, Inter Press Service, May 29, 2009

WASHINGTON, May 29 (IPS) – A broad coalition of civil society groups, as well as some U.S. lawmakers, is fighting what they call a “blank cheque” from the U.S. to expand funding for the International Monetary Fund (IMF).

On May 22, the Senate passed a 91.3 billion-dollar-wartime spending bill that included 108 billion dollars for the Washington-based Fund. The bill will now have to be reconciled in a conference committee between the Senate and the House of Representatives whose own version omitted any IMF funding. 

The funding was the U.S. part of a larger package agreed by the G20 leaders at their April meeting in London, where they pledged to provide 1.1 trillion dollars in additional funding to the IMF. 

The goal is to boost lending to cash-strapped developing countries during the current economic crisis, which has drastically reduced the flow of private investment to emerging markets and the earnings of many poor countries that depend on their commodity exports. 

Opponents of the funding are concerned about the conditions the IMF usually imposes upon low-income countries when they accept these funds, conditions which, according to many NGOs, actually do more harm than good, particularly for the most vulnerable sectors of the recipients’ populations. 

Typically, the IMF requires recipient countries to reduce their budget deficits and increase interest rates, both of which can produce the opposite effect of the economic stimulus the funds are meant to provide. As a result, countries have been forced to cut essential social programmes, like unemployment insurance and other safety-net mechanisms. 

“It makes no sense to provide money intended to support global stimulus spending to the IMF when the IMF is demanding developing countries employ recessionary policies,” says Robert Weissman, director of Essential Action, a non-profit organisation that advocates, among other things, change in what it considers to be harmful IMF and World Bank practices. 

“The point of giving these crisis loans is to help countries avert those kind of contractionary policies, not to demand them as a condition on the loans,” according to Weissman. “So the conditionality undermines the logical purposes of giving the loans.” 

Mark Weisbrot, co-director of the Centre for Economic and Policy Research (CEPR), also notes that U.S. lawmakers may not understand the broader implications of IMF policy. “A lot of them are looking at it in straight power terms. They’re not looking at it as ‘Does the IMF do good or harm?’ but rather, ‘This is a potentially powerful organisation.’” 

Still, there is a push in Congress to amend the bill so that the requested funds can be used to ensure that more vulnerable groups in low-income countries will benefit. Rep. Maxine Waters of California has circulated a letter opposing the funding and currently has over 33 signatures from fellow House members. 

The letter calls for Congress to attach its own conditions to Washington’s commitment to provide the funding committed to the IMF: ensuring that the IMF’s new loans are stimulatory and not contractionary; using some of the planned IMF gold sales to finance the rescue packages for at least five billion dollars in debt relief and/or grants to the poorest countries; requiring parliamentary approval in the recipient countries before loans are extended; and boosting the transparency of the borrowing countries’ dialogue with the IMF so as to better inform local publics about the conditions under which the loans are to be extended. 

Above all, the letter requests that U.S. leadership work “to ensure that the [IMF] becomes more transparent and accountable to all member countries, including the poorest.” 

In recent months, the IMF has been touting policy changes to more efficiently supply assistance to needy countries with only a minimum of conditions. What conditions it would apply, IMF officials promised in March, would be to help any loan-seeking country “to overcome the problems that led it to seek financial aid in the first place.” 

The IMF has introduced the Flexible Credit Line (FCL), a new facility that has fewer restrictions on it. However, only select countries that meet certain conditions – for example, eligible countries must have low inflation, “the absence of bank solvency problems,” and minimal public debt – can qualify for FCL, according to the activists. 

They complained that the IMF’s executive board, which is dominated by the western powers, may also be guided by political or strategic considerations. Paradoxically, this means that the countries most in need of freer funding may be the least likely to qualify for them. 

The IMF has so far approved Mexico, Colombia, and Poland for FCL loans. 

JoAnn Carter, executive director of RESULTS, an advocacy group concerned with ending hunger, called the FCL and other IMF lending policy changes “more rhetoric than reality.” She said that since the IMF implemented reform of its lending restrictions, “There still have been very austere conditions imposed upon some of these countries.” 

Asia Russell, international policy director of Health GAP, a group that works for broader provision of AIDS and HIV medicines worldwide, concurred: “The proof is really in the pudding. Despite declarations from [IMF] headquarters in Washington, the same sort of policies are being used – contractionary policies, slashing deficits.” 

For now, groups mainly await the results of the conference committee’s deliberation and hope that lawmakers see the issue from their point of view. 

“We’re astonished, really, that the Senate could pass this measure,” said Russell. “Now, it’s important for Congress to take its oversight role seriously, instead of putting blind faith in the IMF.”

Borrowing into submission?

May 17, 2009

The Real News, May 15, 2009

Bankrupt governments are finding the IMF an unfit lender, but alternatives may be developing.

Finance ministers in Washington fail to deliver on G20 promises

April 30, 2009

Eurodad, 27 April 2009

Finance ministers from around the world met in Washington at the Spring Meetings of the World Bank and the International Monetary Fund this weekend with the promise to pin down the details of the G20 agreements made in London on 2 April. From the point of view of the millions of people in low-income countries suffering from inequitable economic policies compounded by the effects of the current crisis the meetings in the last two days made very little positive progress. The small clarifications on gold sales, Special Drawing Rights and other issues indicate that there is very little or no concessional, low condition money available and considerable policy and procedural obstacles to getting what little there is.

At the beginning of the month the leaders of the twenty biggest world economies agreed to make available more than $1 trillion to help countries meet their immediate financial needs arising from the crisis and to boost economic activity worldwide. The IMF was the definitive winner of the London April 2 G20 deal, with the promise to quadruple its resources – from $250 billion up to $1 trillion. The meeting of the finance ministers in Washington was expected to clarify how and how much of this money would help poorer countries counter the effects of the crisis, and how International Financial Institutions would be reformed. Despite the urgency of the moment and the promise for resolute action, Finance Ministers managed to do little more than restate the London commitments. Impoverished countries don’t know yet on how much they will count and the extent to which the IMF will grant this finance at reasonable terms and avoid making past mistakes.

No clarity on funding for poorer countries

Initial calculations by Eurodad earlier this month suggested that only $24 billion, a mere fortieth of the $1 trillion promised in London, was earmarked for low-income countries. African and other leaders, plus civil society groups, have been calling for increased grant or highly concessional resources for low-income countries. Using proceeds from IMF gold sales is one option agreed in principle by the G20. Another that found its way into the G20 communiqué was increasing the concessionality of Fund resources for low-income countries by issuing Special Drawing Rights (which have a non-concessional interest rate attached).

The IMFC Communiqué of 25 April 2009 simply restates the intention to “double the Fund’s concessional lending capacity for low-income countries, while ensuring debt sustainability, and exploring scope for increased concessionality.” This actually means that low-income countries will be able to access only some $4 billion extra IMF resources at below market interest rates. To obtain more poor countries would have to borrow at market interest rates, which are presently very low, but may rise in the near future and trap them into new spirals of unsustainable debt.

However even if low-income countries want to obtain this money to stimulate their economies they may not be able to. Their borrowing is limited by thresholds of what the Bank and the Fund consider to be sustainable debt levels (calculated using the controversial Bank/Fund Debt Sustainability Framework). And the latest Fund programmes for low-income countries that Eurodad has analysed prohibit poor countries from borrowing at market interest rates. Therefore the $19 billion for low income countries from the SDR increase is more of a mirage than a real funding option. The Fund is also being silent on the possibility of providing grants to low income countries.

Europeans block progressive deal on IMF gold sales

Civil society organisations are calling to use a greater share of the gold sales proceeds to fund poor countries’ needs. In 2007 the IMF decided to sell a tiny share of its huge gold reserves to meet their administrative costs, which were not met by the Fund’s low lending activity at the time. Due to the increase in the gold price, this plan will generate much more resources than expected in 2007. The G20 has now recommended that up to US$1 billion of these unforeseen additional profits be used to support the poorest countries in the face of the financial and economic crisis. Some CSOs suggest that the full additional profit from the gold sales – US$5.2 billion – should be used to help the poorest countries weather the financial storm and fight poverty.

The IMF Executive Board had a heated discussion on this issue last week, where some European countries – including Belgium and the Nordic constituency – expressed strong objections to using a sizeable share of proceeds from the gold sales for poor countries. Arguments range from the need to “protect the Fund’s capital base”, to the “unfairness of using gold sales for poor countries when emerging economies are paying higher market interest rates to meet Fund’s operational needs that will be not covered if more gold sales proceeds are channelled to low income countries”, according to the Nordic Baltic constituency. However, preliminary CSO calculations show that channelling US$5.2 billion generated from gold sales to the poorest countries will not have any impact on the plan to use part of the proceeds from gold sales for the Fund’s new income model to cover its administrative and operating costs.

Unfortunately, due to the strong split in the Executive Board, the IMFC Communique only mentions that IMF “subsidies (for low income countries) could be financed through a combination of bilateral contributions—possibly by new donors—and the Fund’s resources and income, including the use of additional resources from agreed gold sales.” The Board asked the Fund’s management last week to draft a second paper to spell out the options available in an attempt to take a decision which is being painfully delayed.

Size matters: how expansionary the Fund can be?

But cheap lending – or even grants – is only half of the picture. Conditions attached to these loans will also determine the extent to which this lending will do any good to low income countries. The IMFC Communiqué echoes recent changes in IMF conditionality, including the creation of the new Flexible Credit Line (FCL), which provides precautionary finance for higher middle income countries such as Mexico which the Fund considers to have strong macroeconomic performance. The Communiqué also calls “on the IMF to ensure the successful and evenhanded implementation of this new lending and conditionality framework, and ask the Managing Director to report on progress at our next meeting.”

Although the FCL is an improvement from past Fund’s facilities for its lighter conditionality framework, this facility is only available for a very reduced group of countries. This concern is echoed in the G24 Communiqué. This developing country grouping “encouraged the IMF to apply in its LIC lending the same flexibility and streamlined and review-based conditionality, as agreed for other lending facilities.” According to a senior developing country official “the Flexible Credit Line has opened Pandora’s box. There is no way other developing countries are going to agree that only a few benefit from lighter conditionality frameworks. Probably this is the beginning of better times for streamlining IMF’s conditionality.”

Yet the Fund still has a long way to go to allow generous expansionary fiscal and monetary policies in its programmes. Recent speeches by IMF Managing Director Strauss-Kahn, and the IMFC Communiqué call to “maintain expansionary monetary policies (and)… deliver the scale of sustained fiscal effort necessary to restore growth’. However, a Eurodad discussion paper circulated in Washington – and reports by Third World Network (TWN) and Center for Economic Policy Research – show that IMF programmes still do not include resolute countercyclical policies. Eurodad co-organised a workshop in Washington with TWN, Oxfam and ActionAid to discuss the extent to which the IMF was changing its stance in the context of the crisis. Despite claims to have flexibilised fiscal and monetary targets in its programmes for poor countries, the IMF’s baseline is so stringent that current programme targets are still far from the types of countercyclical policies that rich countries are implementing. Even if the Fund claims to have clear instructions to consistently advice expansionary policies to all countries without exception the reality is that changing deep-rooted policy convictions is rarely achieved overnight in large institutions unless strong guidelines are adopted and closely monitored by the Board of Governors.

Europeans also an obstacle on IMF governance reform

Not much has happened either on governance reform. The Communiqué merely records the need to “complete the quota reform by 2011 … (which will result in) increases in the quota shares of dynamic economies.” Once again the poorest countries are left out from the deal. On this issue, the growing split between low income countries and emerging economies – particularly those that have been accepted into the selective Group of Twenty – is increasingly apparent. Middle income countries which feel that they have a change to be included in the circles that matter when it comes to global economic and financial governance are less and less interested in uniting with the world poorest in a common front.

European governments also played a less than helpful role on this issue. Public comments and proposals were raised by governments from other regions. Brazilian Finance Minister Guido Mantega said, for example: “the IMF repented from many of its past sins. But it still has to address the original sin: its democratic deficit.” US Treasury Secretary Timothy Geithner called for emerging nations to be given more voting shares in the IMF. He also suggested slimming the the Fund’s 24-member board to 22 representatives by 2010 and just 20 by 2012, while maintaining the number of seats for developing countries, thereby strengthening their position. However Belgian Finance Minister Didier Reynders, whose small government has as many votes on the Fund’s board as China and fields a representative there, told Reuters that he supports the status quo: “I think for the moment the representation around the table is attractive. The European countries are having to finance the Fund very strongly”.

The way forward

The lack of progress at the Spring Meetings leaves a lot of homework to be done in the next few weeks. The Fund will struggle to get a deal on gold sales and pin down the details for the SDR increase. It will rush to complete before the Annual Meetings the reform of its low-income country facilities and the flexibilisation of the Debt Sustainability Framework. It will also have to speed up work on voice and quota reform. These piecemeal internal reforms might deliver significant change if coalitions are built to push much further than most IMF staff want.

Despite the recent headlines about a $1 trillion deal for the Fund, the general sense Eurodad staff and members picked up in Washington was not that supportive of a long term role for the Fund. CSOs have for a long time advocated that the Fund should fully withdraw from, or seriously limit, its role in low income countries. However, according to the former Turkish Finance Minister Kemal Dervis now researcher at the Brookings Institution, rich countries have only turned to the Fund now because it was the only institution available. This does not indicate a desire to perpetuate a prominent role for the Fund once the crisis is over. Seriously limiting the role of the Fund to macroeconomic surveillance; creating a panel to monitor its performance; and increasing its linkages to the UN system were some of the proposals put forward by Dervis in a seminar organised by the Frederich Ebert Foundation. UN DESA Under-Secretary General Jomo Sundaram went further, suggesting a World Central Bank to eventually phase-out the need for an IMF.

The June 2009 UN conference on the impacts of the financial crisis in low income countries will give an indication of the extent to which rich and emerging countries have an appetite to re-balance power between the UN and the IFIs. So far the lack of progress to detail the IMF reforms in a progressive direction, as well as the dramatic lack of interest in the UN conference seems to show that we will not get the necessary shake up of global economic and governance institutions.

Bangladesh central bank governor defends rejection of IMF advice

April 28, 2009

The Daily Star, April 28, 2009

Outgoing Bangladesh Bank Governor Salehuddin Ahmed today said he had rejected at least four IMF suggestions, including the one of adopting policy support instrument (PSI), in four years in office considering the country’s interest.

The other suggestions were: Introducing a tight monitoring policy, increase in cash reserve requirement (CRR) for the scheduled banks with the Bangladesh Bank and opening of capital account.

“We had told the IMF that we didn’t need a PSI,” Dr Salehuddin Ahmed, whose tenure would end this month, told reporters at his farewell briefing in the central bank.

Ahmed also said, “There was no capital outflow from Bangladesh in the recession period. We stayed safe because of not allowing opening of capital account.”

He cited example of India from where billions of dollars have been out flown for allowing opening of capital account.

Ahmed also stressed doing homework and developing negotiation capacity of officials before going for singing any deal with donors such as International Monetary Fund (IMF) and the World Bank.

“The IMF listened to us and was convinced,” said Ahmed who will be replaced by Dr Atiur Rahman, an economist from May 1.

The governor also focused on central bank’s role as the regulator of the financial sector, overall economic situation and challenges in the recession period and the fiscal package to tackle the recession-hit industries.

“Over the past four years the BB acted as an enabling and caring body for the financial sector,” said Ahmed.

He said, “The financial sector and the country’s overall macroeconomic situation remain stable because of the central bank’s proper role.”

Export and remittance remain steady despite global meltdown, he noted.

Bangladesh’s macroeconomic stability is better than other South Asian nations, mainly because of BB’s prudent role, he claimed.

Still he emphasised on more interactions with the stakeholders for better stability of the financial institutions.