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G-24 stresses importance of time-bound reforms

Written by: Staff

Singapore, Sep 17: Ministers of the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development have issued a communique stressing the importance of reaching early agreement on a credible and time-bound package of reforms that would ensure an increase in the voice and representation of developing countries in the Bretton Woods Institutions (BWIs).

While welcoming the proposed ad hoc quota increase for China, Korea, Mexico, and Turkey, Ministers pointed out yesterday that the current package of reforms did not adequately address the fundamental issue of the underrepresentation of developing and low-income countries as groups.

They noted that the emerging market countries, other developing countries, and economies in transition accounted for over half of global GDP measured in terms of purchasing power parity, held most of the world's international reserves, and represented a majority of the world's population.

In order to reflect this new reality in the world economy and increase the legitimacy and relevance of the BWIs, the voting power of developing countries and low-income countries as groups should be expeditiously increased and protected.

The ministers reiterated that any package of reforms should include both an early and substantial increase in basic votes-at least a tripling-and a new quota formula that accurately reflects the relative economic size of developing countries in the world economy.

Such a formula should take into account GDP at purchasing power parity, as well as the countries' vulnerabilities to commodity price fluctuations, capital flows, and other exogenous shocks.

These reforms should include measures to enhance the participation of low-income countries in the decision-making and management structures of the BWIs, including through, but not limited to, additional Alternate Executive Directors and Senior Advisors for chairs with the largest constituencies.

The ministers welcomed the ongoing and broad-based global growth performance in 2006. While the prospects for 2007 are encouraging, they underscored that risks to the global outlook have increased, particularly amid concerns over growing global imbalances, rising inflation and tighter monetary policies, volatile oil prices, the breakdown in the Doha Round of trade negotiations, a cooling in the US housing market, and increased geopolitical tensions.

The ministers stressed the pressing need for early and meaningful efforts to address global imbalances. This must involve a concerted response, including fiscal adjustment and efforts to increase household savings in the United States, structural reforms in Europe and Japan, financial sector reform and increased exchange rate flexibility in emerging market countries where warranted by economic fundamentals, as well as improvements in the business climate in many other developing countries.

In this context, the ministers supported the IMF's efforts to undertake a more proactive surveillance role, particularly through the recently initiated multilateral consultation exercise. The ministers expressed deep concern about the loss of life and economic devastation experienced during the recent hostilities in Lebanon. They called on the international community to provide urgent and substantial assistance and compensation to help the people of Lebanon to rebuild the physical and social infrastructure and invigorate the Lebanese economy.

The ministers strongly welcomed the intention of the World Bank to establish a Trust Fund for Lebanon to finance an emergency recovery program for Lebanon, and support the transfer of million from IBRD surplus to the Trust Fund.

The ministers exressed disappointment about the suspension of the Doha Round of multilateral trade negotiations and stressed that the current trading system is heavily biased against developing countries, especially the least developed, particularly owing to the wide array of harmful subsidies, tariff escalation schemes, and non-tariff restrictions maintained by industrialised countries.

The ministers reiterated that an ambitious and appropriately balanced conclusion of the Round holds the potential to yield significant global welfare gains and deliver on its promise to support development and poverty reduction in low- and middle-income countries.

A failure to overcome the current impasse risks squandering years of effort and an important opportunity to make progress in areas of interest to all countries, while opening the door to an exacerbation of protectionist trends across the globe. The Ministers called for an urgent resumption of negotiations.

They urged the IMF and World Bank to support this effort, including by helping to make the case for the Round by highlighting its potential economic benefits, as well as the costs to all countries of trade distortions and barriers, particularly from agricultural subsidies and tariff escalation schemes in advanced economies.

The ministers welcomed recent proposals regarding the "aid for trade" agenda, while reiterating the view that this initiative should not be a substitute for an ambitious Doha Round. In addition to their concerns regarding the future of the Doha Round, the ministers also regreted recent attempts at inappropriate political interference in the smooth functioning of the international trade, banking, and financial system.

The ministers are concerned that while some progress towards the Millennium Development Goals (MDGs) has been achieved over the past few years, the prospects for sub-Saharan Africa remains challenging.

Official development assistance to low-income-countries has not increased, despite the renewed pledge made by the international community at the UN Millennium Review Summit in 2005 to help accelerate progress toward the MDGs.

The ministers underscored that success will require significant scaling up of efforts on the part of both donors and aid recipients, in terms of increased resources, better policies and improved governance, and enhanced aid effectiveness.

The ministers welcomed the debt reduction delivered through the enhanced HIPC Initiative and the MDRI. They call on the donor countries to provide the necessary resources to extend the MDRI to all LICs. They stress that the debt sustainability framework that has been designed by the IMF and the World Bank for LICs must be flexible and pay due regard to country's circumstances.

The ministers called on donors to provide enough grants and highly-concessional loans to LICs to finance development needs, while ensuring debt sustainability. They encouraged donors to deliver their assistance more efficiently and predictably, and to align such flows with countries' own strategies for reaching the MDGs.

Ministers urge the full implementation of the Paris Declaration on Aid Effectiveness. The ministers also appreciated the initial discussion in the IMF on a new instrument that would guarantee high-access financial support to the developing countries with market access that have strong macroeconomic policies but nonetheless remain vulnerable to shocks.

They urged the IMF to move expeditiously to develop and implement such an instrument. Highlighting that such a facility must allow automatic and upfront drawings for eligible countries.

They stress that there should be no conditionality associated with the new facility beyond maintaining macroeconomic stability and reducing vulnerabilities.

The ministers supported a comprehensive approach to strengthening governance and fighting corruption, covering both supply and demand sides. They emphasised that, as poverty reduction and the achievement of the MDGs are at the heart of the World Bank's mission, any strengthening of its work on governance and anti-corruption should serve to advance this mission.

The ministers stress the fundamental importance of country ownership to ensure sustainable outcomes, and they encourage the Bank to work closely with government authorities to support their own plans and priorities.

In this context, and recognising its multilateral character, the ministers underscored that the Bank should not disengage from supporting its members, so as not to penalise the poor. Given the political dimension of governance, they stress the need to delineate more clearly the aspects of governance that are within the Bank's mandate.

The ministers noted with concern the large and growing negative net transfers from the World Bank to middle-income countries (MICs), which is due in large part to the high costs of doing business with the institution. Continued engagement with MICs is fundamental to the Bank's development mandate, its financial health, and its sustained role as a knowledge bank.

Poverty in its various dimensions is still high in MICs, with most MICs continuing to face major challenges in reaching the MDGs.

The ministers viewed that, to be successful, any enhanced strategy in MICs must be flexible, multi-pronged, and comprehensive so as to respond to differentiated and evolving demands across the full continuum of MICs. They note that there has been little progress on the use of country systems, and note their importance in reducing the non-financial cost of doing business and in strengthening countries' institutional capacity.

The ministers urged the Bank to take the necessary actions to achieve timely progress in this critical area.

The ministers expressed their appreciation to the Singaporean authorities for the excellent arrangements for the meetings and to the people of Singapore for their warm hospitality.

The next meeting of the G-24 Ministers is expected to take place on April 13, 2007, in Washington, DC.

The Group of 24 held their 27th meeting in Singapore yesterday, chaired by Mr Margarito B Teves, Secretary of Finance, Philippines.



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