Memorandum submitted by the G24 Secretariat
GOVERNANCE
The Monterrey Consensus reiterated the need
to enhance the effective participation of developing countries
in international dialogues and decision making processes (paragraph
61). In order to implement this agreement, changes are needed
in the representation of the developing countries in the World
Bank and the IMF.
The European Union is represented by nine Executive
Directors in the IMF and eight in the World Bank. The 47 countries
of Sub-Saharan Africa are represented by two Executive Directors
in both the Bank and the Fund. The disproportionate representation
of the EU in the Executive Boards of the Bank and Fund comes at
the expense of the developing countries which are grossly under-represented.
A revision of IMF quotas is needed to better reflect the relative
size of developing countries and to take into account the exclusion
of intra-EU trade.
The share of basic votes must also be increased
in order to increase the participation of small countries in the
decision making process. Since 1944, the number of basic votes
has remained unchanged despite the 37 fold increase in IMF quotas
and corresponding increases in the World Bank. As a result, the
share of basic votes of the original members has declined from
11.3% to 0.5% of the total voting power in the IMF. A similar
fall has taken place in the World Bank.
Will the UK Government support a revision of
quotas in the IMF and similar changes in the World Bank, and an
increase in basic votes to give the developing countries a greater
voice in governance of these institutions?
CRISIS PREVENTION
AND RESOLUTION
Successive financial crises over the past decade
have dramatically highlighted the risks associated with the malfunctioning
of the international financial system. The high costs of crises
that result from the volatility of international capital markets,
cyclical fluctuations in the industrial countries and from sudden
and large shifts in interest and exchange rates fall disproportionately
on the developing countries.
Will the UK Government support policy changes
in the IMF and the World Bank that would (i) make surveillance
of the macro-economic policies of the major industrial countries
more effective; (ii) support measures, such as the selective use
of market friendly capital controls (as in Chile), to increase
the stability of short-term capital flows and (iii) encourage
the adoption of counter-cyclical measures by the borrowing countries?
Will the UK Government support revisions of
the Contingency Credit Line in the IMF to make access more timely
and predictable?
SDR ALLOCATION
Owing to the uncertainty surrounding the provision
of an adequate and timely response of the IMF to financial crises,
many developing countries have built up their reserves to protect
themselves. This costly form of self insurance contributes to
a deflationary bias in the international economy.
A new allocation of SDRs would help countries
to attain a desired level of reserves at a lower financial and
economic cost. The countries that do not need the SDRs allocated
to them could make them available to others to ensure more adequate
financing for the attainment of the Millennium Development Goals.
Will the UK Government reiterate its support
for the allocation of SDRs through the proposed Fourth Amendment
of the Articles of Agreement of the IMF and additional allocations
to reduce the cost of holding reserves and offset the current
deflationary pressures in the world economy?
THE NEED
FOR POSITIVE
NET CAPITAL
TRANSFERS
According to the World Bank an additional $50-$60
billion of ODA a year is needed for the attainment of the Millennium
Development Goals in the poorest countries by 2015. In view of
the limited prospects for increases in ODA, will the UK Government
support debt cancellation as a means of reversing the negative
net flows to the poorest developing countries?
MECHANISMS FOR
DEBT RESTRUCTURING
The lack of any mechanism for the orderly structuring
of the debt owed to private creditors is a major deficiency in
the existing global financial system. The ad hoc procedures that
are followed by debtors and their creditors are costly and ineffective.
Can the UK offer proposals to address this problem
in a multilateral framework that shares the burden equally between
the creditors and the debtors?
The HIPC initiative has contributed to reducing
the debt stock of a number of low-income countries but the overall
debt burden remains unsustainable even for countries that have
gone through the completion process. Does the UK support the proposal
to limit the debt service of the poorest countries to 5-10% of
their exports?
THE DETERIORATION
IN COMMODITY
PRICES
Many of the poorest countries are highly dependent
on the exports of non-oil commodities and have experienced a secular
deterioration in the terms of trade. The World Bank and the IMF
demand that developing countries increase their exports has contributed
to global oversupply conditions and falling prices. At the same
time, the consuming countries have been unwilling to agree to
measures to stabilise prices. The deterioration in the terms of
trade of developing countries adds to the resource transfer from
the developing countries to the industrial countries.
Will the UK support (i) requests that the IMF
revise the terms and conditions of the Compensatory Financing
Facility to make it more relevant to current conditions? (ii)
requests that the World Bank develop instruments to assist countries
to manage the fluctuations in commodity prices? (iii) measures
to encourage the establishment of producer and consumer agreements
to halt the decline in commodity prices?
October 2003
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