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G20 communiqué: some progress on governance and finance, but a long way to go
02 April 2009
Political leaders did not agree ground-breaking measures to combat inequality or unsustainability or to transform global economic governance as had been suggested at the start of the enhanced G20 process last year. Yet the amount of money being pledged for developing countries is more than expected, if less than required. And on tax havens there are some useful steps forward, even if the model of information exchange will prevent many developing countries taking advantage of it.
The G20 has done better than many G8 and similar meetings in the past. But they have not sufficiently tackled the symptoms, let alone the causes of the crisis. The summit has certainly failed to “refound the financial system” as was promised before the G20 first met last November. However we can build on several elements in the proposal, and active follow-up advocacy will be needed this week and in the coming months.
The communiqué states that $1.1 trillion extra money will be made available for the International Financial Institutions. Of this it states that $50 billion will be provided to “safeguard development in low-income countries”, but does not specify the time period for spending this.
The money comprises:
• $250 billion in IMF Special Drawing Rights. Some $19 billion of this will reach low-income countries.
• $500 billion new contributions by governments to the IMF, of which some $25 billion over two years may be for low-income countries.
• $250 billion in trade finance from export credit agencies, private companies and regional development banks, unclear how much for low-income countries.
• $100 billion extra via multilateral development banks, to be funded via bond issuances, none for low-income countries.
• Around $6billion or so for low-income countries to be funded by IMF gold sales.
More than expected of the announced package is new money and $50 billion is clearly earmarked for low-income countries, higher than expected. But there are four issues of concern. The amount for use in 2009 is not detailed, although one section of the communiqué suggests it will be over 2-3 years. During this year low-income countries are expected to face a crisis shock of $216 billion according to the IMF.
Also the finance is mostly in the form of loans or guarantees, not grant transfers. On lending policies or instruments the IMF is praised for its recent conditionality reforms and its Flexible Credit Line – which Mexico has just started using- is also mentioned, There is, however, no decisive break with the economic policy conditionality that has partly caused this crisis and which seriously aggravated the social impact of previous financial crises.
The communiqué recognises that the crisis has “a disproportionate impact on the vulnerable in the poorest countries”. To deal with this it also reaffirms previous commitments to the MDGs and to ODA, and mentions that:
• The UN is asked to “establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.
• Some of the low-income country money will be channelled through the World Bank’s Vulnerability Fund, but the nature of this fund is unclear.
On regulation Gordon Brown told the G20 London summit press conference that the G20 has announced an “end to tax havens that do not transfer information on request”. The Global Forum based at the OECD will today publish a list of non-cooperating jurisdictions. The “international standard for exchange of tax information” mentioned in the communiqué is not clear. But it is likely to be based on compliance with measures proposed by the Financial Action Task Force, IMF’s Review of Standards and Codes and perhaps the UN treaty on information exchange.
The measures announced are a start, but will not make a significant progress in the fight against tax avoidance industry. They may in fact address only the smaller, weaker secrecy jurisdictions while allowing major jurisdictions including many European ones to escape censure. Developing countries’ which lose billions of dollars a year through illicit capital outflows are unlikely to be able to conclude bilateral tax information exchange deals with Switzerland or other such countries, meaning that they do not have the right to request information, even if they were able to produce dossiers outlining their suspicions about individuals who may be evading taxes.
There is no standardised, automatic information exchange, nor clarity on sanctions to be applied to non-compliant jurisdictions. Companies will still be able to avoid and evade taxes through transfer pricing, as the approach envisaged by the G20 covers individuals. It will be important to push for an extension of the measures announced today and to watch the implementation very carefully.
Other measures on regulation that were briefly announced include:
• IMF surveillance will be enhanced.
• Regulation will be extended to “systemically important hedge funds”, though nothing is said on how regulatory arbitrage will be avoided.
• The Financial Stability Forum will be strengthened and renamed the Financial Stability Board, with new members including all G20 members, Spain and the European Commission.
The leaders agree that IFI “mandates and governance must be reformed to reflect changes in the world economy”, but have agreed little specific. The IMF quota reform already agreed last year is re-announced and a further one pledged “by 2011”. The World Bank should propose further ways to change its governance “by 2010”.
The summit has achieved some results, including on crisis response funding for low-income countries and some additional transparency measures for some jurisdictions. But many of its announcements – including the headline numbers – are misleading as they do not specify the time period. Others remain vague. Although the financial markets reacted rapidly by boosting share prices, many citizens’ groups will not be convinced that G20 leaders have understood the depth of the crisis or made a sufficient break with the now discredited economic, trade and financemodel which has caused it.
LINKS
- The G20 communiqué
- Eurodad’s recent news and analysis on the issues in this briefing
- G20 Financial Package Unpacked
G20 analyses produced by members:
G20 analyses by other allies: