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World Bank and IMF keep on keeping on at fall meetings… but is more needed for Africa?
The annual fall meetings of the World Bank and IMF in Istanbul this week focused on the “road to recovery” from the global economic crisis. While we didn’t see major new initiatives emerge from the meetings, the Bank and the Fund reaffirmed important commitments to help emerging market and developing countries cope with the impacts of the financial crisis. These include commitments to ensure the Bank and the Fund have adequate resources to respond to the crisis and timetables for governance reforms that would give greater voice and representation to emerging market and developing countries.
They echoed calls to: protect core spending on health, education, infrastructure, agriculture and social safety nets; revive global trade and investment; and establish a multilateral trust fund at the World Bank for the food security initiative. The World Bank and African Development Bank also announced this week that they would invest $215 million to bring high-speed, low-cost internet access to central African countries.
While important progress is being made at the institutions, some say it’s not going fast enough or deep enough. Nancy Birdsall, at the Center for Global Development, says the newly inclusive G20 is more progressive than the modest changes in governance being proposed at the World Bank and IMF. Several African finance ministers also issued a statement during the annual World Bank and IMF meetings calling for their countries to have a voice in the G-20, and another self-styled “group of 30” financial figures called for much more dramatic reforms at the IMF including ending the U.S. veto power and cutting the number of European board chairs.
We’ll be watching to see how these financial mechanisms and new governance proposals will benefit sub-Saharan African countries.
ONE’s Reaction to the Pittsburgh G20 Communique
Overall, the Pittsburgh G20 Summit appears to have made some progress towards reshaping global power structures to make them more representative, but it still has some way to go before it becomes a truly representative global decision making body.
I spent the summit with our US Government Relations Director Tom Hart, who said:
“Moving from the G8 to the G20 is a seismic shift: it brings many more of the world’s people to the table, but the new expanded world body must now start addressing the needs of the poorest countries, especially in Africa. For nearly a decade now, Africa has been squarely on the G8’s agenda, even if delivery on their commitments has been mixed. During this transition time, African development must not fall through the cracks. One way to show the world will not forget Africa would be to hold an upcoming G20 summit on the African continent.”
As I posted earlier here, we passed our petition, in which 75,000 ONE members worldwide call for a G20 Summit to be held in Africa, to the US delegation at the summit.
Below are some key points in the summit’s communique that are relevant to Africa:
- Agriculture - The G20 called on the World Bank to develop a new trust fund, as a way to implement the G8’s food security initiative announced at the L’Aquila Summit in Italy in July. This multilateral fund will support the set of principles championed by the White House to make aid for agriculture more effective, coordinated and geared towards the strategies developed by poor countries themselves.
- Climate change – The G20 failed to call for resources to help the poorest countries adapt to the harmful impacts of climate change, and tackle its causes. It was disappointing that there was no mention of the urgency of addressing these needs.
- African Development Bank – The G20 have reaffirmed the commitment to make sure the multilateral development banks have enough finance, especially the World soft loan arm, the International Development Association (IDA) and the African Development Bank (AfDB). The African bank has increased its lending to respond to the financial crisis by as much as US$4bn and now needs support to replenish its coffers. ONE welcomes Canada’s announcement of an extra US$2.8bn in loan guarantees for the Bank.
- World Bank and IMF- Both International Financial Institutions took steps towards increasing representation of developing countries.
IMF provides new financing for the poorest countries
In April, ONE members from around the world urged the International Monetary Fund (IMF) to use profits from a proposed gold sale to help the world’s poorest countries weather the financial storm brought on by the global financial crisis .
And last week, the IMF came through with a package of new assistance for low-income countries (LICs) that goes a long way towards fulfilling what we asked for from world leaders. Leaders at the IMF and the US Treasury Department even credited ONE with being the driving force behind this victory for the world’s poor!
Beginning at the London G20 Summit, there was favorable language for this effort in the communiqué. Then, prior to the IMF Spring Meeting, ONE’s Bob Geldof and the organization Jubilee worked closely with House Financial Services Chair Barney Frank and the US Treasury in delivering on the G20 communique’s promise – to leverage IMF resources for the poorest countries, particularly by leveraging the planned sale of a small portion of the IMF’s gold reserves.
Building on intense negotiations and campaigning from ONE members, Bob Geldof met with IMF head Dominque Strauss-Kahn in late April to make the case and brought along petition signatures from more than 50,000 ONE members, a day he described in this video.
The resulting initiative increases IMF’s concessional lending capacity to poor countries to $17b through 2014, $8b of which will be available in the first 2 years. All loans (including current loans) to LICs will be 0% interest for 2 ½ years (through 2011). And the IMF will permanently lower interest rates thereafter.
It’s not a perfect deal and we remain concerned about LICs re-accumulating debt burdens that ONE members and other advocates have worked so hard to relieve. But there is heavy demand for this financing from across the developing world and this deal makes those funds available at very reasonable terms.
-Aaron Banks
Increased IMF Lending Announced
On Wednesday, the International Monetary Fund (IMF) announced it would increase lending to low-income countries to help contend with the global economic crisis. The IMF is expected to provide up to $17 billion to these countries through 2014, including up to $8 billion over the next two years. Additionally, the IMF said that these countries would not be required to pay interest on any IMF loans, including outstanding through 2011.
At their meeting in April, G20 leaders asked the IMF to respond to the global financial crisis and called for $6 billion in new lending to low-income countries. In April, ONE joined other organizations to ask the IMF to build upon successes of the G20 Summit in London and provide African countries with the resources they need to get through the financial crisis in a way that does not create unsustainable levels of debt. ONE called on the IMF to direct more of their own resources and more of the anticipated profits from an impending sale of gold reserves to finance these efforts. The IMF has met requests to increase low-interest resources. Critically, the Fund also announced that all loans through 2011 will have no interest rate charges. Interest rates after 2011 will also be reduced.
The IMF’s announcement as also included new provisions for delivery, including new and re-vamped lending instruments to better suit each country’s needs. These instruments include a standby credit facility for countries to draw funds from when necessary, improving flexibility for recipients. The resources for these new loans will come partially from the sale of IMF gold reserves, explained representatives of the IMF.
The fund said lending to low income countries has increased over the past year to four times historical levels. In sub-Saharan Africa, new IMF lending commitments from January to mid July 2009 reached $2.7 billion compared with $1.1 billion for all of 2008. The World Bank estimates that as many as 50 million people risk being pushed into extreme poverty in 2009. This scaled-up funding represents an IMF effort to limit this damage. The fallout from the financial crisis continues to impair developing countries in sub-Saharan Africa.
In response to the IMF’s announcement, ONE supporter Bob Geldof said, “until recently, trillions had been found for fiscal stimulus packages for the rich world but nothing much for the bottom billion. Dominic Strauss Kahn’s radical leadership at the IMF has delivered a major breakthrough for the poorest countries being battered by an economic crisis not of their making. Great credit goes also to Barney Frank and the U.S. Treasury for their strenuous work in driving this deal forward.”
In addition to what IMF has announced today, we are hopeful that the IMF is exploring options to provide more resources for grants or debt relief.
IMF and World Bank Spring Meetings
Each spring, committees of the World Bank and International Monetary Fund (IMF) Board of Governors gather in Washington, DC. This year, because of the global financial crisis and the $1.1 trillion in resources for low-income countries promised at April’s G20 Summit in London, the meetings were of critical importance to developing countries. This was essentially the first chance for international financial institutions to follow through and take specific action on the promises made the G20.
On 26 April, we headed to the final portion of the meetings where the World Bank and the International Monetary Fund Joint Development Committee gathered to discuss how the global economic crisis is impacting developing countries specifically.
The Development Committee and the IMFC released communiqués laying out their recommendations for action. Overall, a few positive recommendations were made, but we have yet to see a comprehensive, grand plan to protect the world’s poorest people from the fallout of the financial crisis.
ONE, along with others in the development community, requested that the Bank “frontload” funding to low income countries and the Development Committee communiqué indicates that this may happen. Frontloading International Development Association (IDA) funding commitments means that the World Bank will have the resources to provide funding to low income countries now in larger bundles over smaller periods of time, rather than spanning it out until 2011. This is critical in order to ensure that development projects already underway can be completed and new projects that help the poor can be implemented.
The IMFC communiqué recommended that the IMF increase its lending capacity for poor countries, and agreed to explore the idea of giving better terms for low income countries on their lending. However, it did not specify how far the IMF will go with this. This is something we have to watch for as IMF loans can come with burdening economic conditions and this has the potential to lead to a new debt crisis. ONE are advocating for African countries to be given strong representation because, after all, institutions like the World Bank and IMF have a very large impact on their development and it’s only right that these nations have a say.
Overall the weekend was very productive, but there is still plenty of work to do in the coming weeks and months. The anti-poverty campaigner Bob Geldof delivered a petition from ONE members to IMF Director Dominique Strauss-Kahn with over 60,000 signatures. ONE members around the world put forward an exceptional effort trying to convince the IMF to sell a small amount of their gold reserves to help developing countries hit hard by the financial crisis.
So although the IMF hasn’t yet delivered what we asked for, in meetings with ONE staff they confirmed that they are actively looking at options to increase resources for low-income countries and are exploring ways of ensuring that provision of new resources does not lead to a debt problem for Africa in future years. The process is still moving along and we won’t let up pressure until we get the right outcome for Africa.
-Jessica Gomez-Duran
What’s the economic outlook for Sub-Saharan Africa?
The IMF recently released their April 2009 Regional Economic Outlook for Sub-Saharan Africa, which provides statistics and insights about sub-Saharan Africa’s economy in 2008, and some predictions for 2009. The primary message is that countries need to take action to contain the effects of the financial crisis, while preventing erosion of the gains SSA has made over the last several years. The IMF recommends countries avoid protectionist measures to address the impact of the crisis.
The report acknowledges that unfortunately, the hope that quick policy actions in developed economies would protect developing countries from the impact of the crisis were unfounded; it also warns that the global slowdown’s magnitude and spillover may be greater than initially expected. The report notes that to maintain the momentum of the last decade, Africa will need additional aid resources – at least the doubling of aid that was promised by the G8 at Gleneagles in 2005. Although donor countries are under pressure, commitments should still be honored to avoid setbacks in poverty reduction and economic development, and to prevent political instability.
There are three channels through which Africa is experiencing the effects of the financial crisis. Lower global growth has reduced demand for African exports, decreased commodity prices and government revenues, and decreased remittances from abroad – all of which reduce domestic consumption, and subsequently reduce GDP growth. Foreign direct investments (FDI) are down as investors look for safer investments. Lastly, even though African banks aren’t dealing with toxic assets, a global economic slowdown could affect the quality of their credit portfolios. The global crisis could also eventually cause donors to reduce aid to Africa.
The report provides some key facts for 2008…
- SSA has been more resilient than other regions due to lags in the transmission of shocks, and because SSA financial systems are less integrated into global markets. Nevertheless, growth in sub-Saharan Africa fell from nearly 7%in 2007 to just under 5.5% in 2008.
- The decline in growth has been felt faster and stronger in middle-income and oil/commodity exporting countries of Africa, like South Africa and Nigeria.
- Inflation has declined across sub-Saharan Africa, reflecting the decline in commodity prices in the second half of 2008.
And predictions for 2009…
Growth:
- Growth for sub-Saharan Africa is projected at 1.5% for 2009 (from 5.5% in 2008), and just under 4% in 2010.
- A more rapid and serious slow-down in South Africa and Nigeria could seriously affect other African countries, especially neighboring countries with close trade and financial linkages.
Poverty:
- The global financial crisis could substantially increase poverty, especially since it comes right after the food and fuel price shock of 2008. The poverty impact in the near term could be compounded by still-high food and fuel prices, and by the absence of well-functioning social safety net systems in sub-Saharan Africa.
- The financial crisis could also decrease the demand for low-skilled labor, and hence cause a decrease in wages and employment. These, in turn, contribute to declining remittances and tight borrowing conditions for small businesses, further impoverishing people. Labor-intensive sectors like tourism and manufacturing are already being hit.
- Tighter global funding conditions are expected to have noticeable effects, particular on middle income countries like South Africa, and the frontier markets of Ghana, Kenya, Nigeria, and Tanzania.
The report also provides some suggestions as to how countries can mitigate the effects of the crisis. These include financing growing balance of payment deficits, and conducting short-term initiatives like strengthening surveillance mechanisms, while staying focused on medium and long-term goals like strengthening public financial systems and scaling up well-targeted social safety-net programs. Countries are also cautioned to avoid imposing new trade restrictions.
It remains to be seen exactly how the crisis will play out in sub-Saharan Africa; we at ONE will be bringing you new developments as they emerge.
-Beth Adler
How to Avoid a Renewed Debt Crisis in Africa
I recently attended a very interesting congressional briefing titled “The Global Financial Crisis and Africa: How to Avoid a Renewed Debt Crisis?” hosted by partner organizations Jubilee USA Network, the Evangelical Lutheran Church of America, the American Jewish World Service and the Episcopal Church. The conversation focused around how to preserve the achievements that many African countries have made over the last five or so years (with help from debt relief and increased trade) in light of the current global financial crisis. One of the measures suggested was that the International Monetary Fund (IMF) direct revenue from its upcoming gold reserve sales to developing countries.
As explained by Matthew Martin, Director of Debt Relief International, countries freed from odious debt have been able to invest in national poverty-fighting strategies such as lowering the barriers to healthcare and education by reducing user fees and improving infrastructure. In turn, debt relief empowers countries to be less dependent on foreign assistance in the future. Hon. Timothy Thahane, Minister of Finance and Development Planning for Lesotho, shared how when Lesotho received debt relief from the United Kingdom, they immediately redirected monies previously spent on debt relief service to vulnerable populations by providing free primary education, school feeding programs, and antiretroviral drugs for persons living with HIV/AIDS.
All this was somberly put into context when Thahane explained that the gains in employment and revenue due to debt relief and increased trade vis-à-vis the African Growth and Opportunity Act (AGOA), are currently threatened by the global financial crisis. The World Bank has estimated that an additional 53 million people will be forced to live on less than $1 per day as a result of the global economic downturn. The decline in commodity prices, remittances, and demand for exports has already had a dramatic effect throughout the continent. For example, the downward trend of car manufacturing in the U.S. has led to a significant decline in steel exports, which has impacted steel-producing African countries such as Guinea, Liberia and South Africa. Similarly, the sudden decline in demand for textile exports, led to a loss of 12,000 jobs in Lesotho, which impacts 40,000-50,000 lives.
Vitalis Meja, Program Director of African Network on Debt and Development (Afrodad) warned that the economic situation will make it very difficult for African countries to achieve the Millennium Development Goals (MDGs) and called on donor countries to resist reducing Official Development Assistance (ODA). Meja called for the reform of lending practices and joined the other panelists in asking the IMF to allocate revenue from its gold sales for debt relief and grants for the world’s poorest countries, which would help them weather the current economic crisis and avoid falling back into another debt crisis. Lesotho would be one of the countries that would directly benefits.
More information about the IMF gold sales and its potential to help low-income countries can be found in briefings prepared by ONE and Jubilee USA.
-Margaret McDonnell, US NGO Partnerships & Faith Relations Team
Reflections on the IMF, World Bank Spring Meetings
On Sunday, we headed to the final portion of the IMF and World Bank Spring meetings. Unlike the International Monetary and Financial Committee (IMFC) on Saturday, where little was discussed on what the IMF can do for the poor, yesterday, the World Bank and the International Monetary Fund Joint Development Committee gathered to discuss how the global economic crisis is impacting developing countries specifically.
The Development Committee and the IMFC released communiqués laying out their recommendations for action. Generally, a few positive recommendations were made, but we have yet to see a comprehensive, grand plan to protect the world’s poorest people from the fallout of the financial crisis.
The good news first: ONE, along with others in the development community, requested that the Bank “frontload” funding to low income countries. Yesterday’s Development Committee communiqué indicates that this may happen. Frontloading International Development Association (IDA) funding commitments means that the World Bank will have the resources to provide funding to low income countries now in larger bundles over smaller periods of time, rather than spanning it out until 2011. This is critical in order to ensure that development projects already underway can be completed and new projects that help the poor can be implemented.
The not-so-good news: The IMFC Communique recommended that the IMF increase its lending capacity for poor countries, and agreed to explore the idea of giving better terms for low income countries on their lending, but did not specify how far the IMF will go with this. IMF loans also frequently come with burdening economic conditions and has the potential to lead to a new debt crisis.
Also, little progress has been made to reform the IMF and World Bank governance. We are asking that African countries be given strong representation because, after all, institutions like the World Bank and IMF have a very large impact on their development and it’s only right that these nations have a say.
The weekend was productive, but we still have a lot of work to do. Even with the petitions of ONE members, the IMF did not budge on the gold sale issue. We’ll now need to take that up with participating countries to ask them to help us move on this issue. We also continue to ask that funds be made available to poor countries through grants and debt relief, rather than in loans. Additionally, the IMF and World Bank must move forward quickly on reform.
Stay tuned for ways you can help.
-Chandler Smith
On-The-Ground at the IMF Spring Meetings
A couple of us from ONE are at the International Monetary Fund headquarters in Washington this weekend. We are here talking with a number of leaders and government officials, journalists and other organizations to remind the IMF how important it is to address ways to help developing countries. We are asking Finance Ministers and other officials to ensure that more people are not pushed even deeper into poverty due to the economic crisis and pushing for them to take action immediately because, by some estimates, as many as 53 million potentially face extreme poverty in the next year.
Yesterday, Finance Ministers made some recommendations for ways to handle the economic crisis at a meeting of the International Monetary Fund Committee. The document that details decisions made in the meeting (called a communique) described some small steps towards progress.
You’ve already heard how ONE, along with other groups like Oxfam and Jubilee, want the IMF to increase the amount of profits from approved gold sales directed to developing countries. Any progress on that issue would generally be communicated in this document. It appears that the International Monetary Fund Committee has not agreed to follow through on this request which means we still have a lot of work ahead of us on this issue. Otherwise, the document presents some reason for hope for a better deal for the world’s poorest countries.
The IMFC reaffirmed the G20 decision to double lending for low-income countries and instructed the fund to explore ways of making those loans more affordable. This is potentially good news, but the devil, as they say, is in the details.
The IMF now needs to immediately set to work developing an ambitious proposal which delivers increased resources for those who need it most. The Fund must be sure to do this in a way that does not push countries into more debt with unrealistic interest rates and excessive economic conditions attached. “The only conditions,” said ONE’s Oliver Buston, “should be transparency and accountability to citizens on the ground.”
You can read the communiqué in its entirety here.
-Chandler Smith
Bob Geldof Has The Midas Touch On IMF Gold Petition Delivery
The IMF is about to make a decision at its annual Spring Meeting this weekend that will impact millions of people in some of the poorest countries in the world. This weekend, there is an opportunity for the IMF’s governing body to decide what to do with the proceeds from a planned sale of a small portion of their gold reserves. Will they use those funds to build up their endowment to pay their staff? Or, will they use the lion’s share of the money raised to help the global poor weather the current financial crisis?
ONE members have a strong opinion, and in just one week, more than 60,000 have signed our petition to the Managing Director of the IMF Dominique Strauss-Kahn. The petition reads:
Dear Dominique Strauss-Kahn,
Please use the revenue from gold sales to create as much funding as possible for developing countries and ensure that this doesn’t create new debts or have harmful conditions attached.
Yesterday, anti-poverty campaigner Bob Geldof met with Strauss-Kahn and delivered the petition. Afterward, he took a moment to record this message:
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