ONE’s Analysis of the G20 Communiqué, 2 April 2009
RESOURCES
1. Reaffirming Millennium Development Goals and ODA pledges
The G20 reaffirmed the commitment to meeting the Millennium Development Goals and to achieving our respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa (SSA). This sends a positive signal for the poorest parts of the world at a time when the financial global crisis threatened to make the focus of the Summit solely on developed and emerging economies. We continue to urge the donor countries to move forward from this rhetorical agreement and to fully implementing their historical commitments, by setting clear, accountable, and annual timetables for the delivery of their aid pledges. To help developing countries weather the impact of the crisis, donors should also frontload aid in their pipelines as much as possible. In this regard, the EU's decision after the G20 Summit to frontload €3 billion, or 72% of its foreseen budget support to African, Pacific and Caribbean nations is welcome. Others donors should follow suit.
2. A $50 billion commitment for low income countries
The G20 committed to providing $50 billion to support social protection, boost trade and safeguard development in low income countries. If this $50 billion is used to support SSA immediately, it can potentially offset most of the output loss incurred in SSA, with strong positive impacts on the very poor. The $50 billion in the communiqué however is for all low income countries, not just SSA. It is unclear what the timeline for disbursing this resource is, and the Communiqué does not specify whether this money will be provided in the form of grants or loans - lending agreements could be costly for low income countries with implications for years to come. The Communiqué also does not clearly indicate a baseline for this pledge - that is, whether this amount is a commitment for new and additional money, or whether it is merely a recommitment of previous pledges. The G20 should make this money additional to past commitments, and clarify this position in future meetings.
3. An increase in lending of $100 billion by multilateral development banks
The G20 committed to supporting a substantial increase in lending by multilateral banks. Although this is welcome, it is not clear at this stage how much of this will go specifically to low income countries, particularly SSA. The baseline and timeline for this increase are also unclear. The agreement to review the need for capital increases at the African Development Bank is welcome, but falls short of the commitment made to the Asian Development Bank of a 200 percent general capital increase.
4. Doubling of IMF's concessional lending capacity for low income countries
Coupled with the commitment to make an additional $850 billion available through the IMF and the multilateral development banks is the commitment to double the IMF's concessional lending capacity for low income countries and double access limits. If the lending is executed in a way that avoids debt from accumulating beyond sustainable levels, we welcome this outcome, though it is important that the increase is commensurate with the needs of the poor. As this proposal is considered at the Spring Meetings of the World Bank and IMF, the doubling of capacity should focus on increasing the concessionality of the lending in addition to increased quantity of lending.
5. IMF Gold Sales to finance extra resources for the poorest countries
The G20 committed to additional resources from agreed sales of IMF gold [to] be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. The G20 called on the IMF to come forward with concrete proposals at their Spring Meetings. This is a good start. It is incumbent on the IMF to make sure that there are enough additional resources to ensure a significant degree of concessionality. This should include the option of further off-market gold sales.
6. New allocation of IMF's special drawing rights (SDR)
The G20 supports a general allocation of SDRs equivalent to $250 billion to increase global liquidity, $100 billion of which will go directly to emerging markets and development countries. Based on the current SDR allocations, the increase in SDR allocations to SSA will result in just over $1 billion for SSA. A reallocation of SDRs that moves away from the current allocation, which is roughly based on IMF quotas, could be explored. To help SSA, this would mean reallocating from countries with large allocations that do not require SDRs to countries with smaller allocations that are currently in need of increased assets. It is worth noting however that if countries wish to use this fund by drawing down their allocation, they will have to pay non-concessional interest rates on it.
7. Ensuring $250 billion for Trade Finance
The G20 agreed to ensure $250 billion over the next two years to support trade finance, including a new IFC Global Liquidity Pool, a private-public partnership fund, which should provide up to $50 billion of trade liquidity support over the next three years. The G20 will provide $3 to 4 billion in voluntary bilateral contributions. Although we welcome such commitment which will provide vital short-term capital for developing countries to trade in the global trading system, it is unclear how much of these funds will flow directly to developing countries, especially SSA.
REFORM
8. International Financial Institutions Reform
The G20 recognised in the Communiqué that emerging and developing economies, including the poorest, must have greater voice and representation at international financial institutions. In addition, the G20 reaffirmed its commitment to implementing the agreed package of IMF quota and voice reforms and World Bank reforms. Notably, the G20 agreed that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process. These reforms are welcome breakthroughs, if they are acted upon in the true spirit of reform. For example, merit-based selection process must mean that citizens of any country can apply, and this must be clarified at the Spring Meeting.
9. Trade
The commitment to resist protectionism made at Washington in November 2008 was reaffirmed. However, trade restrictive measures have increased since November. Reaffirming the November agreement seems rhetorical without any concrete measures to rectify the move towards protectionism. Furthermore, although provisions for trade finance and reaffirmation of aid for trade are welcome, there is no mention of fundamental changes in the global trading system that denies the opportunities for the poor from participating.
REGULATE
10. Financial supervision and regulation
The G20 agree to take action to build a stronger and more globally consistent supervisory and regulatory framework for the financial sector. To this end, the G20 agreed to take action against non-cooperative jurisdictions including tax heavens, and agreed to establish a process on tax information exchange to ensure that all countries have access to tax information. However, there are few details on how this mechanism will actually work. A litmus test of this initiative would be how many stolen assets are repatriated to developing countries as a result.
Other important agreements that would help the poorest in the world were also were also reached, including:
11. Monitoring the Impact of the Crisis
The G20 agreed to establish an UN-lead Global Vulnerability Alert monitor the impact of the crisis on the poorest and most vulnerable.
12. Follow Up Mechanism
The G20 agreed to meet again before the end of the year to review progress on the commitments.