Ministers of the Intergovernmental Group of 24 on International Monetary Affairs and Development held their sixty-seventh meeting in Washington, DC, on April 19. Mallam Adamu Ciroma, Minister of Finance of Nigeria, was in the chair, with Alain Bifani, Director-General of Lebanon’s Ministry of Finance, as First Vice-Chair, and Senator Conrad Enill, Trinidad and Tobago’s Finance Minister, as Second Vice-Chair. The meeting of the ministers was preceded on April 18 by the seventy-ninth meeting of the deputies of the Group of 24, with Iremiren of Nigeria as Chair.
It remains unclear whether the balance of risks has moved decisively in the direction of a sustained recovery.
—Group of 24 communiqué
Global economic prospects
Ministers note that, although the slowdown in the global economy appears to have been shallower and of shorter duration than previously forecast, it remains unclear whether the balance of risks has moved decisively in the direction of a sustained recovery, given, among other things, the political uncertainties in the international security area—especially the deteriorating situation in the Middle East—the persistent weakness in demand in Japan, and the lower growth performance in Europe relative to the United States. The uncertain, though improving, environment that is still facing emerging markets and other developing countries and the weak prospects for primary commodity prices further complicate the global outlook, particularly developing countries’ prospects. In order to minimize the risks associated with the ongoing recovery, supportive macroeconomic policies should be maintained in the advanced economies, and, in particular, monetary policy should not be prematurely tightened. Furthermore, structural reforms to inject greater flexibility in product and labor markets are required, especially in Europe, as are far-reaching financial sector reforms in Japan.
Ministers note the trend decline in private saving in a number of advanced economies, especially in the United States, associated with the rapid rise in asset valuations. They are concerned about the continuation of this trend and call on the IMF to look closely at this issue, including in particular its implication for the availability of international financial resources and the cost of borrowing for developing countries. It should also examine the risks associated with persistent external imbalances among advanced economies, particularly a possible abrupt correction of major exchange rate misalignments.
Ministers express their serious concern about the continuation of depressed commodity prices, which have weakened growth and export performance and undermined the fight against poverty as well as financial sustainability in many developing countries. With regard to the oil market, they call for international cooperation to avoid undue oil price volatility, which is costly for both producing and consuming countries.
In light of the increased interdependence in the global economy, ministers underscore the role of multilateral surveillance and the need to increase its focus on the global impact of the policies of advanced economies and developments in major capital markets. This is particularly important because of the asymmetry with which the IMF influences policy-making in member countries.
Despite recent improvement in access to capital markets, net capital flows to developing countries remain well below their 1995–97 levels. This constrains these countries’ growth performance and their ability to integrate into the global economy. It is therefore important to explore ways of improving access to financing in line with improvements in fundamentals, including through technical assistance from the IMF.
Ministers express their grave concern at the loss of innocent lives and the catastrophic situation in the Palestinian territories. They are greatly alarmed by the recent destruction of valuable capital infrastructure provided to the Palestinian people and Authority since 1993 by the international development community, including the World Bank. In this regard, ministers strongly welcome the World Bank’s announcement regarding its intention to provide urgent assistance and to work closely with other donors and stakeholders to ensure that the wide-ranging needs of the Palestinian population, including infrastructure and institutional rebuilding, are met expeditiously.
Ministers express particular concern about the current risk of famines in several African countries and call on the international community to provide rapid and substantial support in order to avert a humanitarian crisis. Furthermore, there is a critical need to address within a global context the continued prevalence of HIV/AIDS in African countries.
Crisis prevention and resolution
Ministers note that globalization has led to greater vulnerability to external shocks and increased volatility of financial markets, thus underscoring the importance of effective crisis prevention mechanisms and the orderly resolution of crises, when they occur. They stress the need to consider voluntary, country-specific, and market-based approaches to crisis resolution, noting the ongoing work in the IMF and other forums. Consideration should be given to addressing the debt sustainability of middle-income heavily indebted countries.
Ministers note the unprecedented severity of the crisis in Argentina and the importance of helping the country to rebuild confidence rapidly for the return of growth and to promote regional stability. A prompt and satisfactory solution to the Argentine crisis is important for all emerging countries, particularly those of Latin America, and ministers urge the IMF to endorse the corrective policies being pursued and to expeditiously work with the authorities to complete a comprehensive program that could help unlock the support of the international community needed to resolve the current crisis.
Implementing the Monterrey Consensus
Ministers welcome the results of the recent International Conference on Financing for Development and the adoption of the Monterrey Consensus, in which the international community commits itself to cooperative action for economic and social development in order to raise living standards and combat poverty in developing countries. They emphasize that financial policies and instruments and the role of the international financial institutions are a central part of the consensus. In this regard, they stress the importance of following up on the understandings reached at the Monterrey conference, with an increased emphasis on the responsibility and accountability of donors, institutions, and recipient countries. Looking forward to the upcoming World Summit on Sustainable Development to be hosted in Johannesburg later this year, and the development of a program of action for sustainable development, including economic, social, and environmental development, ministers encourage continuation of a close dialogue among the IMF, the World Bank, the World Trade Organization, regional development banks, and the UN on financial and development matters. They welcome the Development Committee’s intensified focus on these issues, with particular reference to the plight of Africa.
In order to create a favorable environment for development, ministers emphasize the need to enhance market access, especially in product and service areas where developing countries have a comparative advantage. Access to advanced economy markets is being constrained by their protracted application of trade-distorting measures, including especially the provision of about $1 billion a day in subsidies to agricultural products, which is equivalent to five times the total official development assistance. Ministers call for an early elimination of agricultural subsidies and a substantial reduction in advanced economy tariffs and other barriers to all developing countries’ exports—including duty-free and quota-free access for the least developed countries.
Ministers stress that effective participation by developing countries in the new round of multilateral trade negotiations is essential to ensure that the benefits of globalization reach all countries. In that regard, they call on the IMF and the World Bank to play an active role in coordinating trade-related technical assistance and capacity building.
Ministers welcome announcements by the European Union, the United States, and Canada to increase their official development assistance. They stress that the timetable for the delivery of this assistance should be accelerated, especially for the poorest countries. Ministers urge the developed countries that have not done so to make concrete efforts toward the official development assistance target of 0.7 percent of GNP, as this will be essential to cut poverty in half by 2015 and meet other Millennium Development Goals. To improve aid effectiveness, the “transaction costs” of aid delivery need to be reduced. Ministers consider essential the harmonization of bilateral and multilateral donor policies and procedures, the coordination of disbursement and delivery mechanisms, and the application of “common pooling” arrangements, whereby donors provide untied, direct budgetary support on the basis of programs developed under the leadership of the recipient country. Ministers welcome ongoing efforts by the World Bank to improve coordination in this direction with other multilateral and bilateral stakeholders.
Ministers underscore the need to study innovative sources of development finance. In this context, they reiterate their call for a swift implementation of the Fourth Amendment of the IMF’s Articles of Agreement on the special, onetime allocation of SDRs and urge those countries that have not done so to ratify promptly the Fourth Amendment. Ministers also expressed support for the proposal that advanced economies donate their SDR allocation to an international development fund.
Ministers call for strengthened collaboration among the IMF, the World Bank, the United Nations agencies, and bilateral donors in order to develop mechanisms that meet the demand for technical assistance. They underscore the critical need for increased and better-coordinated bilateral and multilateral technical assistance for capacity building. Ministers welcome the World Bank’s announcement that it will contribute regularly to support Group of 24 research activities and call on the IMF to support these activities in an equivalent manner.
Ministers strongly support the New Partnership for Africa’s Development, an initiative aimed at strengthening the continent’s growth prospects, combating poverty, and enhancing governance.
—Group of 24 communiqué
Support for low-income countries
Ministers welcome the efforts made to better coordinate the assistance of bilateral donors and international financial institutions in the context of the poverty reduction strategy paper/comprehensive development framework (PRSP/CDF) process, thus enhancing the coherence and effectiveness of aid policies. They also express their support for regional efforts aimed at strengthening development frameworks and fostering greater country ownership of poverty reduction strategies and policies. In that regard, ministers strongly support the New Partnership for Africa’s Development, an initiative aimed at strengthening the continent’s growth prospects, combating poverty, and enhancing governance, notably through a strong partnership between governments, the private sector, and Africa’s development partners.
Ministers note the recent review of the PRSP and of the Poverty Reduction and Growth Facility (PRGF) initiatives. They welcome the endorsement of the PRSP approach based on strong national ownership, broad-based participation, and strengthened national and international partnerships. Ministers call on all stakeholders to tackle the main challenges, including (1) the continuous participation of domestic stakeholders in the development and monitoring of PRSPs; (2) strengthening the content and implementation of PRSPs; (3) aligning donor strategies and assistance fully with recipient countries’ priorities and budgetary implementation cycles; and (4) improving the monitoring and evaluation of the effectiveness of poverty reduction strategies. Greater efforts need to be made by the IMF and the World Bank to explore the sources of growth in low-income countries and deepen the systematic analysis of the poverty and social impact of major policy choices. Ministers support the greater, more open exchange of views between national authorities and IMF-World Bank staff on policy options and greater focus in IMF-World Bank research activities on issues of particular relevance to low-income countries, including policy responses to exogenous shocks. They also call on the IMF and the World Bank to continue to harmonize their efforts in order to avoid overlap in their activities and to minimize delays in the delivery of assistance.
While welcoming the progress under the Heavily Indebted Poor Countries (HIPC) Initiative, ministers express disappointment that, after six years of operation, only 5 out of 38 eligible countries requiring debt relief have reached the completion point and a number of creditors are not providing their share of debt relief. The cost of these delays is reflected in forgone real GDP growth, investment, employment, and poverty reduction in eligible countries. Moreover, owing to factors beyond their control—in particular, the recent global slowdown and the significant decline in commodity prices—many HIPCs may not be able to achieve debt sustainability at the completion point under the current HIPC Initiative guidelines. Ministers stress that there should be a shared responsibility to expedite the process: HIPCs should continue to do their utmost to implement sound policies and reforms that benefit their own economies, while the IMF and the World Bank and the rest of the international community should streamline and focus the conditions associated with debt relief, demonstrate greater flexibility, and provide additional resources and topping up of assistance where necessary, as well as additional technical assistance to help countries build capacity for policy implementation.
Ministers commend those countries that have pledged loan resources to allow adequate financing of PRGF operations during the interim period and encourage the IMF and the World Bank to keep under review all the financing issues related to the PRGF and HIPC Initiative.
Postconflict HIPC-eligible countries face particularly difficult challenges in achieving peace and pursuing sound policies, especially owing to major institutional and infrastructure disruptions, a lack of technical and administrative capacity, and a large displacement of their populations. Therefore, ministers emphasize that, in order to expedite the delivery of debt relief, utmost flexibility should be exercised in bringing these countries to their decision points, and the reconstruction and rehabilitation efforts carried out with UN agencies’ assistance should count toward the determination of their decision point track record. They welcome the contributions made by several countries to subsidize the IMF’s postconflict emergency assistance and encourage additional pledges by other members.
Education for All
Recognizing that effective universal primary education is fundamental for sustained human and economic development, ministers welcome the constructive partnership of the World Bank with the UN Educational, Scientific, and Cultural Organization and other appropriate agencies aimed at meeting the goals of universal primary education and elimination of gender disparities. They consider that necessary efforts in developing countries with educational deficits should be supported by the World Bank through technical assistance for capacity building, public spending reviews for effective use of resources, and data enhancements to appropriately monitor educational progress, and by catalyzing efficient and timely budgetary support for Education for All where needed.
Combating money laundering and the financing of terrorism
Ministers reaffirm their support for international and national efforts to combat money laundering and the financing of terrorism. However, they stress that the role of the IMF and the World Bank should be consistent with their mandates and core areas of expertise and that they should not become involved in law enforcement matters. Assessing the implementation of any internationally agreed standards should take into account each country’s capabilities and stage of financial development. Any involvement of the Financial Action Task Force (FATF) in assessments conducted by the IMF and the World Bank should remain conditional on the FATF’s convergence to the Reports on the Observance of Standards and Codes’ principles, which call for a voluntary, cooperative, and uniform approach. Additional technical assistance is critical in helping developing countries strengthen their financial systems and regulatory frameworks. It is important that more developing countries be appropriately represented in the FATF and other relevant bodies.
Ministers welcome the progress being made at the initiative of the Managing Director of the IMF in strengthening national ownership of reform programs and in streamlining conditionality associated with the use of IMF resources, basing it to a greater degree on practical outcomes rather than on the implementation of intermediate target variables or specific prior actions. Developing countries recognize the importance of continuing to make progress in achieving macroeconomic stability and introducing effective regulation and supervision of their financial sectors. Ministers emphasize, however, that the IMF focus on critical macroeconomic and structural conditions should not result in shifting conditionalities to the World Bank and regional development banks, as that would leave unchanged the overall burden of conditionality, thereby undermining the sense of national ownership that is essential for the successful implementation of programs.
Quotas and general SDR allocation
Ministers note that the IMF has commenced discussions on the Twelfth General Review of Quotas, which in their view should result in an increase in the total size of the IMF’s financial resources, thereby strengthening its role in crisis prevention and resolution. The review should also lead to an increase in developing countries’ aggregate quota share, thereby improving their voting power in the IMF. Also, the number of basic votes should be increased. Improved representation of developing countries in the decision-making structures of the IMF and the World Bank should be an integral part of the new international financial architecture within a globalized world economy. It would reflect, among other things, the increased share of developing countries in global trade and strengthen the accountability and representativeness of the institutions. Ministers reiterate their call for an enhancement of the capacity of African member countries to represent their interests more effectively in the IMF and the World Bank.
Ministers reiterate their call for a general allocation of SDRs to meet the increased demand for reserves—particularly in the context of higher volatility in international capital markets, which leads to substantially higher costs in acquiring and holding reserves. They recall that, despite large fluctuations in international liquidity, there has not been a decision in favor of a general allocation of SDRs in the past 25 years.