01 July 2010
By Nuria Molina
Last week, the G20 leaders met in Toronto, Canada, but unfortunately they were strongly divided on the policies that are needed to ensure a global economic recovery. Most concerning is the G20 return to business as usual, of prioritising fiscal consolidation at a time when global recovery is still weak, and failing to deliver on key measures to regulate the global financial system.
Ninety million additional people will fall into poverty in 2010 as a result of the global crisis. The G20 Summit in Toronto was a golden opportunity to step up aid commitments, agree upon a financial transaction tax to raise new resources for development, reform the International Financial Institutions to make them deliver for the world’s poor, and curb illicit flows from the South that drain much needed resources for development.
The G20 leaders failed on all counts, showing a shameful lack of urgency to correct the deep faults in the global financial architecture that hinder it from delivering for the poor.
Not much on offer for poor countries
At the time the G8 countries meet in Canada, only $12 billion ODA had been delivered. This falls $38 million short of their promise made in Gleneagles in 2005 to increase aid by $50 billion by 2010. As rich countries’ freeze their aid budgets, the G8’s vague reference to “reaffirm our commitments, including on ODA and enhancing aid effectiveness” is most concerning. No new resources are identified, and most of the numbers given are simply “old money, re-pledged, recycled and renamed,” according to Mark Fried from Oxfam.
Two days later, the G20 did not make up for the G8 failure to reaffirm their ODA commitments. The G20 leaders stated they would “narrow the development gap and … consider the impact of our policy actions on low-income countries”, but they did not dare to translate their promises into action and ensure that the poor do not have to pay for the crisis that originated in the North.
G20 leaders also missed the golden opportunity to tax financial transactions to raise new funds for the world’s poor. “It’s disturbing that the most far-reaching proposal the G20 leaders can muster is for bank taxes that will do little to prevent another economic melt-down. A Financial Transaction Tax (FTT) – a small tax on all financial trading – would both tame destabilising financial speculation and provide hundreds of billions for development and climate adaptation. “But sadly, no concrete progress has been made in Toronto for this” said Soren Ambrose from Action Aid.
Nothing new on International Financial Institutions reform
On IFI reform, the G20 declaration commits to “strengthening the legitimacy, credibility and effectiveness of the IFIs to make them even stronger partners for us in the future.” Unfortunately, the declaration fails to put forward an action plan to address long overdue reforms at the IFIs to ensure that they help, rather than hinder, sustainable development for the world’s poor.
The declaration welcomes the “$350 billion in capital increases for the Multilateral Development Banks (MDBs), allowing them to nearly double their lending;” and the “commitment to ensure an ambitious replenishment for the concessional lending facilities of MDBs, especially the International Development Association and the African Development Fund.” It endorses the “voice reforms agreed by shareholders at the World Bank;” and calls for an “acceleration of the substantial work still needed for the IMF to complete the quota reform by the Seoul Summit and in parallel deliver on other governance reforms.”
Unfortunately, none of these measures address civil society demands to fix longstanding flaws in the way the IFIs provide financial support to poor countries. In a briefing published just before the G20 leaders met in Toronto, “Making the grade? The G20’s commitments to the world’s poorest,” Jubilee USA warned that increased lending by the IFIs is hardly going to the poorest countries. Instead, the funds come mostly in the form of loans – not grants – thus increasing the risks of a new debt crisis in poor countries. In addition, current voice and vote reforms endorsed by the G20 have not substantially increased the voices of the poorest countries at the boards of the IFIs.
The main highlight of the strategic directions given to the MDBs by the G20 is the encouragement to support “private sector development, including through more private sector operations and investment.” Although a vibrant private sector is fundamental to ensure economic growth, this needs to go hand in hand with the establishment of a set of binding standards forresponsible finance. However, no steps in this direction have been proposed.
Turning a blind eye to piling debt levels in poor countries
Virtually all the new funding agreed by the G20 at their Summit in London in April 2009 to help developing countries cope with the effect of the global crisis – and channelled by the IFIs – was in the form of loans, rather than grants. This increase in loans poses serious risks of a new debt crisis in developing countries, which the G20 simply addressed by flexibilising the IFIs debt sustainability framework. By tweaking the way in which they assess whether a country is in debt distress, the IFIs simply turn a blind eye to higher levels of developing countries’ debt, consequently threatening their future.
Grand announcements of debt cancellation for Haiti, “including the full cancellation of all of Haiti’s IFI debt,” are nothing new, only a recognition of agreements made by the IFIs already in the wake of Haiti’s earthquake, a result of a strong CSO campaign to push forward debt cancellation for Haiti.
Short in action for curtailing illicit outflows
Most disappointing was the failure to acknowledge the importance of curtailing illicit financial outflows from developing countries in the G20 declaration. "The G20 seems intent on pumping money into lending bodies for development work but the annual loss of $1 trillion a year from developing countries will continue to dwarf development aid and undermine all efforts to foster robust and sustained economic development until corrective action is taken," said Global Financial Integrity Director, Raymond Baker. Unfortunately, the official statement from Toronto reveals a continued failure to grasp key linkages between financial opacity in the global financial system and illicit financial outflows from developing countries.
On a positive note, the G20 "encouraged the International Accounting Standards Board to further improve the involvement of stakeholders, including outreach to emerging market economies, within the framework of the independent accounting standard setting process." Although vague in their phrasing, this could potentially be a step forward towards the improvement in the governance structures of the most influential body that sets accounting standards for multinational companies operating in the South.
The G20 leaders also “agreed to consider measures and mechanisms to address non-cooperative jurisdictions based on comprehensive, consistent and transparent assessment … with the support of the international financial institutions (IFIs).” Cracking down on tax havens is not a new call by the G20. Unless specific sanctions for tax havens are envisaged and theOECD criteria for identifying secrecy jurisdictions is seriously reviewed, general calls will not make the grade.
What next now?
A notable action taken is the establishment of a Working Group on Development “mandated to elaborate, consistent with the G20's focus on measures to promote economic growth and resilience, a development agenda and multi-year action plans to be adopted at the Seoul Summit.”
If the G20 is not to once again fail the world’s poor in Korea, they will have to take resolute action, as opposed to where G20 leaders could only agree to disagree in Toronto. Concrete measures to regulate global finance to make it work for the world’s poor countries are urgently needed, including:
• Establishing a binding framework of responsible finance standards, for both public and private financial flows to developing countries. It should include provisions for an independent and transparent debt work out procedure to address debt disputes in case of repayment difficulties or over the legitimacy of debt claims.
• Agreeing upon a clear set of binding measures to combat capital flight and tax evasion. These should include a country by country reporting standard for multinational companies and a multilateral framework for automatic information exchange.
• Ensuring that aid targets and aid effectiveness commitments are met by establishing binding legislation. Innovative sources are also needed to make development finance more stable, predictable and equitable.
• An in-depth reform of the International Financial Institutions to ensure greater voice and representation for developing countries and policy space to adopt alternative macroeconomic policies that accommodate growth and development oriented strategies.
It is not too late. More than ever a responsible finance framework is needed to ensure a decent and equitable future for the people of developed and developing countries. The principles, mechanisms, and proposals are out there. Putting them into practice just takes courageous and decisive political will.
NGO reactions to the G20 Summit:
Task Force on Financial Integrity and Development
Source: http://www.eurodad.org/whatsnew/articles.aspx?id=4187