IMF World Bank Spring Meetings overview
Against the backdrop of robust expansion of the global economy, but increased downside risks, top economic and financial policy leaders warned on April 16 in Washington, D.C., that hefty current account imbalances across regions, potential exchange rate instability, high oil prices and oil market volatility, and the potential for higher long-term interest rates all cloud the currently bright economic picture. The world’s finance ministers and central bank governors were gathered for the spring meeting of the International Monetary and Financial Committee (IMFC), the IMF’s ministerial steering committee. They also cautioned that most developing countries were likely to miss most of the Millennium Development Goals (MDGs) by the 2015 target date and called on donor nations to increase the amount and quality of development financing.
IMFC Chair Gordon Brown, U.K. Chancellor of the Exchequer, told reporters after the meeting that countries around the world need to take concrete steps to ensure orderly adjustment of global imbalances. As the IMFC communique noted, these steps include “fiscal consolidation to increase national savings in the United States; greater exchange rate flexibility as appropriate, supported by continued financial sector reform, in emerging Asia; further structural reforms to boost growth and domestic demand in Europe; and further structural reforms, including fiscal consolidation, in Japan” (see page 101). IMF Managing Director Rodrigo de Rato added that if country policies do not adapt and react to the imbalances, “we run the risk of an abrupt correction by the markets at a moment in which confidence, for different reasons, could evaporate or could be reduced.”
The IMFC underscored the vital importance of progress on the Doha Round of global trade talks. It urged participants to “aim for ambitious and comprehensive results”—notably in agriculture, financial and other services, and multilateral trade rules. The IMFC also expressed support for the IMF’s advocacy of trade liberalization and encouraged it to explore additional ways to ease the adjustment costs of those countries that do liberalize. These sentiments were seconded by the African finance ministers, who told reporters that industrial countries now need to make good on their promises of greater market access (see page 112).
In the coming months, the IMFC emphasized, IMF surveillance should “focus on promoting policies for reducing global imbalances over time; addressing the impact of higher oil prices, in particular on the most vulnerable countries; managing the policy response to potential inflationary pressures; and ensuring the sustainability of medium-term fiscal frameworks.” Given the vital role that a stable oil market plays in global prosperity, it urged oil-producing countries to “remove disincentives to investment in oil production and refining capacity” and encouraged countries “to promote energy sustainability and efficiency”. It also saw benefits in a closer dialogue between oil exporters and importers, and recommended that greater efforts be made to improve oil market data and transparency. The IMF is forecasting global growth of 4.3 percent in 2005 and 4.4 percent in 2006—close to its potential rate—after 5.1 percent growth in 2004, the fastest in a generation (see page 106).
The IMFC welcomed Argentina’s rapid recovery, and noted that the recent debt exchange offer represents an important step toward sustainable growth. It said that “Argentina will now need to formulate a forward-looking strategy to resolve the remaining arrears outstanding to private creditors consistent with the IMF’s lending into arrears policy, and to continue with necessary structural reforms.”
IMF charts its course
On the IMF’s future direction, the IMFC took up a preliminary report on one of de Rato’s first initiatives as Managing Director: a strategic review of the organization. The IMFC discussed the preparation of a medium-term strategy that, when finalized at the September 2005 Annual Meetings, will provide the basis for the IMF’s work program and budgetary framework for the next three years (see page 105). The IMFC encouraged the IMF to do further work on the following “emerging priorities that will help shape the institution’s strategic direction”: surveillance; finance sector issues and international capital markets; lending; low-income countries, internal management and governance; and member countries’ quotas, voice, and participation in the IMF.
The IMFC noted that the Thirteenth Review of Quotas, which is currently underway, “provides an opportunity for the membership to make progress toward a consensus.” In remarks to the IMFC, Japan’s Minister of Finance Sadakazu Tanigaki pointedly asked “whether Asia has a status in the IMF that is proportionate to its increasing relative importance in the world economy.” IMF quotas, he said, should reflect current realities and relative positions in the world economy, and in these areas—as well as representation on the IMF Board and in the diversity of the IMF’s staff—”East Asian countries are seriously underrepresented.”
De Rato said that the debate over country quotas in the IMF is one “shareholders should face” and one that is not a technical issue but a “political issue that demands countries to recognize” possibly new circumstances and new relative country weights in the world economy. Such a re-examination might also include a new look at the role of basic quotas, which are allotted to all countries and whose relative importance may have been eroded over the years, to the disadvantage of small and poor countries. The communiqué of the Group of 24 developing countries charged that the “current underrepresentation of developing countries in the IMF and the World Bank Executive Boards undermines the legitimacy and effectiveness of these institutions.”
Debt relief, more aid needed
As for the low-income countries, the financial leaders agreed that poverty reduction must remain at the top of the international agenda and that efforts must be stepped up to help these countries make faster progress in reducing poverty and toward the MDGs—including through debt relief and more and better aid (see page 109). The IMFC noted that with improved macroeconomic stability in most developing countries, “the key challenge remains to press ahead with reforms to strengthen the investment environment and foster private sector-led growth. The global community, in turn, needs to support these reform efforts through meeting commitments to increased and better coordinated financial and technical assistance, further debt relief, policies to improve remittance flows, and improved market access for developing countries.”
The IMFC noted that the IMF has “a critical role” in supporting low-income countries’ efforts to achieve macroeconomic stability, debt sustainability, and strong, sustainable high growth needed to make progress toward the MDGs. The Committee looked forward to further work to ensure adequate financing of the Poverty Reduction and Growth Facility and other IMF instruments to assist low-income countries. It also looked forward “to further work on a policy monitoring arrangement to enhance the IMF’s signaling role for countries that do not need or want IMF financing.”
The joint IMF-World Bank Development Committee, which met on April 17, noted that “without tangible action to accelerate efforts, the vision of the Millennium Declaration will not be realized. At stake are prospects not only for hundreds of millions of people to escape poverty, disease, illiteracy, and gender inequality but also for long-term global security and peace, which are intimately linked to development.” This assessment was based on the findings of the IMF-World Bank 2005 Global Monitoring Report (see page 110). Trevor Manuel, Development Committee Chair and South Africa’s Minister of Finance, told reporters after the meeting that there was a “general agreement that every country must commit more resources.”
Wolfensohn says goodbye
Reflecting on outgoing World Bank President James Wolfensohn’s achievements, Brown highlighted debt relief for 27 countries and progress made in realizing “our dream of a world free of poverty.” De Rato saluted Wolfensohn’s role in deepening the collaboration between the two institutions and said that “Jim is going to be remembered by many people who are not here and probably will never meet him but are people who benefited from his work in fighting poverty.”
Wolfensohn, who retires shortly, told reporters that he has derived the greatest satisfaction from “having the Bank become more of a partner than a policeman with the developing world.” Asked about the chances of reaching the MDGs by 2015, he said, “my hope is that at the meetings of the UN at the heads of state level, they will recognize that what they said in the year 2000 was right. They weren’t forced to say in 2000 that for the world to live in peace, we have to meet these goals”