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From London to Pittsburgh: assessing G20 action for developing countries

16 September 2009

Just before the September 2009 European leaders meeting in Brussels and the Pittsburgh G20 summits, this briefing summarises the pledges made by G20 leaders on development, compares them to latest assessments of need, and examines implementation and likely outcomes. It makes recommendations for extra actions that leaders should agree this month.

Eurodad's analysis - based on official documents from the World Bank, IMF, European Union and other sources, plus interviews with key officials finds that the G20 is behind on its pledges. It has not yet provided the finance that it agreed to, the finance that is on offer is on disadvantageous terms for develooping countries, and the regulation of commodity price speculation and tax havens is slow and insufficient. The G20 has made faster progress than many previous international summits and should agree further measures at its summit this month.

Executive summary

The financial and economic crises are continuing and their worst effects for citizens are still to come. European and other richer countries face immediate impacts through factory closures and house repossessions, and medium-term cuts to welfare state spending to pay down massive public debts. Developing countries are experiencing an investment squeeze, a decline in remittances, and a new debt trap as they are forced to borrow their way out of the current crisis.
 
The leaders of the Group of Twenty (G20) largest economies declared in April that they had taken decisions that would put the global economy back on track and ensure that citizens worldwide were shielded from the worst effects of the crisis. Their communiqué contained many impressive pledges and initiatives including spending increases, improvements to financial regulation, measures against tax evasion and reforms of international financial institutions. Action in the months since the summit has been more rapid than that following most previous summits. 

However the communiqué’s careful wording oversold the agreements among the G20 governments, and its headline statistic of US$1.1 trillion exaggerated the amount of new money being brought forward. For all developing countries the G20 will provide a maximum of $240 billion and for low-income countries $50 billion.  The amount for low-income countries is three hundred and sixty times less than the $18 trillion that richer governments have found to bail out or guarantee their private financial institutions. 

These pledges, to be implemented over several years, represent less than half of what developing countries need to compensate them for the shock created by the economic crisis. According to the World Bank this crisis will cause a financial shortfall for developing countries of between $350 and $635 billion in 2009 alone, and most developing country economies will recover more slowly than those of richer countries. 

This year G20 governments have made several steps in the right direction. But they have focussed on measures to support their own economies, and turned down key proposals that would help others – for example on transferring to poorer countries extra proceeds from IMF gold sales and Special Drawing Rights. Less than half of the promised extra $50 billion for low-income countries is secured, and little has started to flow. Most of the G20’s finance is available as loans, risking another major new debt crisis in future years. The clampdown on tax havens has already been declared successful, but the test of success in this area is far too weak and does not help most developing countries.

Richer countries need to clean up their financial systems and provide funding to compensate countries for the impacts they are facing through this crisis that originated in North America and Europe. Eurodad recommends that European governments agree at their 17 September 2009 meeting in Brussels to take proposals to the Pittsburgh summit that will help cushion the impact of this crisis on developing countries.  These include:

• Doubling crisis-related grant funding available for low-income countries, including through reallocating proceeds from IMF gold sales and Special Drawing Rights;
• Instituting a two year moratorium on low-income country external debt service payments;
• Introducing multilateral, automatic, information exchange on tax matters;
• Instituting a transactions tax and other measures on commodity and financial speculation;
• Consolidating European representation in international financial institutions so that votes and seats can be reallocated to developing countries.

The G20 includes only the world’s largest economies – including seven European representatives.  It can take important decisions for those economies and make proposals that affect others. However it lacks legitimacy to write the new rules for the economic system by itself. It should refer more comprehensive reforms of international economic decision-making to the United Nations, where all governments are represented. 

From London to Pittsburgh: Assessing the G20's Development Pledges : 240 Kb