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
(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
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
(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
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
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
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
[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]