G24: In defense of emerging markets, developing countries
THE global economic recovery, which has been assessed as uneven with manifest divergences across countries and regions, has however, been supported by Emerging Markets and Developing Countries (EMDCs) as the major drivers of global growth, although it is currently moderating in some countries.
But the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G24), in its 93rd meeting in Washington D.C., United States of America, said there remained important downside risks as concerns are high on the potential spillover effects on EMDCs from monetary policy normalization in the U.S. and divergent monetary policies among advanced economies, with potential for increased exchange rate and capital flow volatility. “We are also concerned about the continued uncertainty associated with Greece and a possible fallout.
Collective efforts in the form of international policy coordination and responses will be needed to boost demand and rekindle business confidence in order to enhance prospects in the years ahead.
In the face of economic headwinds, G-24 countries commit to continue efforts to put in place sound macroeconomic and structural policies to sustain higher and more inclusive growth,” the Group said in a communiqué.
G24, a chapter of the G-77, coordinates the positions of developing countries on international monetary and development finance issues and ensures that their interests were adequately represented in negotiations on international monetary matters.
The Group is not an organ of the International Monetary Fund (IMF), but the Fund provides secretariat services for it, with its meetings taking place twice a year, prior to the International Monetary and Financial Committee and Development Committee meetings, to enable developing country members to discuss agenda items beforehand.
As it is called, the membership in the G24 is strictly limited to 24 countries, although any member of the G-77 can join discussions. G-24 is made up of emerging markets and developing countries, even in its regional compositions. For example, the continents include Africa, Asia and Latin America.
The member-countries from Africa are Algeria; Côte d’Ivoire; Democratic Republic of Congo; Egypt; Ethiopia; Gabon; Ghana; Nigeria; and South Africa. Asian Group includes India; Islamic Republic of Iran; Lebanon; Pakistan; Philippines; Sri Lanka; and Syrian Arab Republic.
The Latin American members are Argentina; Brazil; Colombia; Guatemala; Mexico; Peru; Trinidad and Tobago; and Venezuela. The Group in a communiqué recently, said the overall impact of the fall in oil prices on the global economy has been positive, adding that in addition to the income effect of the price decline, oil importers have experienced improvements in their fiscal space on the one hand, while on the other hand, oil and commodity exporters face the challenge of managing their fiscal positions and improving their resilience to oil price shocks, including through diversifying the export base.
It noted that domestic policy efforts to improve resilience to external shocks remain critical and must be complemented by adequate financial backstops, including from the IMF and other international financial institutions (IFIs).
The Group, which stressed the critical importance of infrastructure investments for increasing growth, also underscored the central role of the public sector in putting in place sound regulatory policies, project preparation, and management of contingent liabilities.
According to them, leveraging private finance for long-term investment, including for infrastructure, is crucial, and will require effective approaches and innovative instruments, adding that Multilateral Development Banks (MDBs) need to play a greater role in supporting governments in their efforts to scale up investment in infrastructure.
The developing countries’ Group said it is expecting full implementation of the various financing and capacity building mechanisms underway in existing MDBs and ambitious efforts to increase their financing for infrastructure, while also crowding in private financing.
“In this regard, we also look forward to the operational launch of the New Development Bank and the establishment of the Asian Infrastructure Investment Bank.
“We look forward to further work by the IMF to strengthen its lending framework, including to protect its resources, drawing lessons from recent experiences in restructuring. We also welcome the progress in the implementation of the BRICS’s Contingent Reserve Arrangement.
We support continued global reforms to strengthen financial regulation, but call for vigilance in monitoring unintended consequences, including on the availability of long-term finance and financial inclusion and deepening.
“We are concerned with heightened geopolitical tensions and security concerns, particularly in the Middle East, Ukraine, and West Africa, which have regional and global implications. Some countries, such as Lebanon, Chad, Jordan, and Niger, have been disproportionately affected, including through the economic and social impact of heavy flows of refugees, which calls for continued support by the international community.
We support diplomatic efforts for resolving regional tensions, as political stability in these regions would enhance growth prospects,” the Group said.
G-24 noted with pleasure the continued efforts by international organizations to assist countries affected by the Ebola epidemic and to put in place mechanisms that improve the ability to prevent and respond to future global epidemics and catastrophes, especially the establishment of the International Monetary Fund’s (IMF) Catastrophe Containment and Relief Trust, while looking forward to seeing progress in the development of the World Bank Group’s Pandemic Emergency Facility.
However, concerns remain over the continued difficulties faced by countries in fragile and conflict-affected situations, as the Group expressed confidence over the upcoming review of Fund engagement with the affected countries and urge the issuance of new guidelines for such engagement, greater attention and support by the international financial institutions to countries in fragile situation, including through higher levels of access to concessional financing.
“We welcome the discussion on macroeconomic issues in small developing states and encourage its use to leverage international financial institutions engagement with these countries, as well as greater support to small developing states, including enhancing their access to concessional financing,” it said.
With respect to financing for development, G24 said 2015 is a pivotal year for action on development and climate change, and marks the deadline for the achievement of the Millennium Development Goals.
According to the Group, the expectations and high-level decisions are in the waiting, especially with the upcoming third International Conference on Financing for Development (FfD), the launch of the post-2015 development agenda, including the Sustainable Development Goals (SDGs), and the United Nations Climate Change Conference.
The members of the Group expressed confidence on a credible financing framework for the SDGs, noting that while country level actions will be crucial in meeting the SDGs, global efforts will also be essential to support these actions and address collective challenges.
“We support the focus and collaboration on FfD by the WBG, the IMF, and other MDBs, consistent with their mandates and areas of expertise. We also support a review of the role, scale, and effectiveness of existing MDBs to determine how they can scale up support for the implementation of the SDGs.
“We note the ‘Zero Draft of the Outcome Document of the Third International Conference on Financing for Development’ with its emphasis on the importance of leveraging various sources of public and private financing for development as a good starting point.
“We support the focus that is placed on investment in people and sustainable infrastructure, among others, which will be transformative for our countries if taken to scale.
We stress that a robust FfD framework needs to be underpinned by collaborative efforts for sustained, inclusive growth that creates jobs, reduces poverty, and addresses inequality.
“We underscore that domestic resource mobilization is an important source of development financing. There is scope for enhancing tax revenues as well as improving the efficiency of public expenditures and developing domestic capital markets in ways that promote growth and equity.
We call for increased global cooperation in addressing harmful tax practices that erode domestic resource bases in developing countries,” the Group said in the communiqué.
It also acknowledged the Group of 20 (G20) and Organisation for Economic Cooperation and Development initiatives on Base Erosion and Profit Shifting (BEPS) and the Automatic Exchange of Information (AEoI), as well as the continued efforts to engage with developing countries in the process of joining and implementing BEPS and AEoI, in ways that are meaningful and on equal footing, while taking into consideration the different levels of capacity and readiness across countries.
“We also welcome the recommendations of the High-Level Panel on Illicit Financial Flows from Africa that highlights the negative impact of outflows emanating from lawful but harmful cross-border practices, as well as illicit outflows due to corruption and criminal activities.
We call for strong supportive actions and commitments by the international community to help countries curb these flows as well as to facilitate asset recovery and repatriation of funds to countries of origin.
“Official Development Assistance (ODA) flows remain a key source of development finance and play an effective role as catalysts of private investment.
We call on advanced economies to meet their ODA commitments and on all development partners to continue providing development assistance, with an increased share for the least developed countries and a focus on leveraging resources for greater impact.
New sources of development financing should also be explored. “Climate change mitigation and adaptation is inherently related to the challenges of development, growth, poverty reduction, and sustainability.
We underscore that, in line with commitments made, there should be adequate, new, and additional finance to assist developing countries, particularly those most vulnerable to climate change,” Group said.
It also noted the recent reform of the IMF’s Debt Limits Policy, which recognizes that some Low-Income Countries (LICs) need to tap external financial markets to complement limited concessional financing and domestic financial resources.
However, it called for flexible implementation of this policy to take into account member countries’ capabilities and needs while preserving evenhandedness, stressing that access to external financing, along with sound debt management and effective use of borrowed funds, should enable the financing of productive investments. The Group therefore, commended the extension, until December 2016, of the temporary waiver on interest rates applicable to the Poverty Reduction and Growth Trust.
“We continue to call for urgent review and greater flexibility of the International Development Association’s (IDA) non-concessional borrowing policy for LICs, taking into account their large financing needs as well as the changing landscape of global financing.
We call for care and caution while considering any proposal to leverage IDA resources to raise debt to provide non-concessional loans to countries, as this may fundamentally alter the character of IDA and reduce availability of concessional funds to LICs,” G24 noted.
The reform and governance of IFIs also drew the attention of the Group, which reiterated its deep disappointment with the lack of progress in implementing the IMF quota and governance reforms agreed to in 2010 and strongly urge the U.S. to complete ratification.
This, according to G-24, remains an impediment to IMF credibility, legitimacy, and effectiveness and has considerably delayed forward-looking commitments, namely, a new quota formula and the 15th General Review of Quotas.
“Implementing the 2010 reforms remains our key priority. Nevertheless, we believe that a decision to de-link quota reform from the board reform amendment, which is the element of the 2010 reforms that requires ratification by the U.S. Congress, would be the preferred option in the interim, as it increases IMF resources and also realigns quotas to reflect the increased economic weight of EMDCs.
“The alternative option, interim ad hoc increases, can, if properly designed, achieve meaningful progress towards the shifts in representation under the 2010 reforms, although it would increase IMF quota resources only marginally.
It is important that any interim measures be designed so as not to lower incentives to complete the 14th General Review of Quotas. “We call for the initiation of the work on the IMF 15th General Review of Quotas, including a new quota formula, without further delays so as to complete it by the December, 2015 deadline, as mandated under the Articles of Agreement.
We reiterate our longstanding call for a third chair for Sub-Saharan Africa in the IMF Executive Board, provided this does not come at the expense of other EMDC chairs.
“We reiterate our commitment to conclude the next World Bank shareholding review by no later than October, 2015, as agreed by our Governors in 2010, and call for a roadmap for this review.
We stress that any future shareholding realignment formula must meaningfully increase the voting power of developing and transition countries and move towards equitable voting power, while protecting the voting power of the smallest poor countries,” the communiqué added. While acknowledging the progress made in implementing the reform agenda of the World Bank Group, particularly in articulating a new country engagement model, G24 urged further strengthening of its operating model in order to enhance its relationship with clients and achieve greater development results.
It applauded the ongoing World Bank reviews of safeguards and procurement policies, aimed at streamlining environmental and social safeguard policies and moving away from a one-size-fits-all procurement policy towards a fit-for-purpose policy.
The Group also appreciated the greater role envisaged for the use of national systems, but sought for revised policies that recognize diversity among countries and promote capacity building, urging the bank to remain responsive to the views of developing countries and to ensure that the new frameworks and their implementation serve to improve operational efficiency and enhance development results, without imposing undue burden on borrowers.
“We continue to believe that the financing of the IFIs, particularly the World Bank Group, should be based solely on countries’ economic conditions without any political considerations.
“We also call for concrete efforts for greater representation of nationals from underrepresented regions and countries in the form of recruitment, career progression, and promotions to achieve balanced representation in the World Bank Group and IMF. To that end, we reiterate the importance of staff diversity and gender balance at all levels, including diversity of educational institutions,” the Group added.