World Bank (WB) meetings
7 September 2006
The annual meetings of the International Monetary Fund and World Bank will
take place in Singapore on 19 and 20 September 2006. The meetings are preceded
by a range of preparatory meetings of the International Monetary and Financial
Committee (IMFC) and Development Committee (DC) on 17 and 18 September.
Further, meetings of the Commonwealth Financial Ministers take place on 12 to
14 September in Colombo, Sri Lanka. There are also a series of side events such
as the world economic outlook press conference on 14 September, the launch of
the Raffles Forum on Good Governance and the Growth Commission on 16
September.
The South African delegation will be led by the Minister of Finance, Trevor
Manuel and includes the Deputy Minister of Finance, Jabu Moleketi,
Director-General of the National Treasury Lesetja Kganyago and other officials.
Two MECs of Finance, MEC Pule Makgoe of the Free State Province and MEC
Mmathulare Coleman of Mpumalanga Province have also been invited to form part
of the delegation. A number of Chief Executive Officers (CEOs) from key
parastatals, the private sector and South African banks will also be attending
many of the side meetings taking place.
Key issues for discussion are proposals to improve the international
financial architecture, better and more rigorous surveillance of developed
economies, improvements to financial instruments for low-income countries and
emerging markets and the monitoring of the debt sustainability framework. For
developing economies, governance reform, addition of resources, aid for trade
and policy conditionality remain critically important. All of these issues will
come to a head in the key discussion of increased quota and voice reform for
developing countries.
The International Monetary and Financial Committee
The primary policy objectives of the IMFC meeting on 17 September include an
assessment of key risks to the global economy, and the IMF's medium-term
strategy.
Global economy
The discussion is likely to focus on some of the major downside risks to the
global economic outlook which have intensified over the past few months. These
include:
* a potential slowdown in the growth of house prices in advanced economies,
particularly in the United States of America (US)
* surging inflationary expectations which could force central banks to raise
rates (driven in part by the recent jumps in oil prices to new highs)
* global economic imbalances
* slower growth in advanced economies particularly the US and Japan
* possible overheating in China�s economy
* increasing protectionist sentiment around the world following the collapse of
Doha,
* the avian flu pandemic.
The IMF's Medium-Term Strategy
The IMF has been under increasing pressure to reform and to make itself more
relevant to the current global economy. As a response a new "medium-term
strategy" was presented at the 2005 annual meetings; this has been followed by
various papers presenting ideas on implementation. The medium-term strategy
covers six broad areas namely:
* surveillance
* role of the fund in emerging market economies
* role of the fund in low-income countries
* building institutions and capacity
* quota and voice issues
* managing an effective institution.
On surveillance, the idea is for the fund to focus more on multilateral
surveillance (given the current context of a rapidly globalising world) and to
streamline its bilateral surveillance of countries to focus on its areas of
core competence monetary policy, fiscal policy, the financial sector and
exchange rate policy. On multilateral surveillance, the fund has already
initiated a policy dialogue between China, the Euro area, Japan, Saudi Arabia
and the US on the issue of global imbalances and it intends to convene more
such dialogue as new issues arise.
The IMF is working towards a discussion of a review of a 1977 decision which
currently defines the remit for IMF surveillance. This review is unlikely to
result in a fundamental shift in the fund's mandate to ensure the stability of
the international financial markets, but is rather a refining of the decision
to deal with current concerns around the ineffectiveness of IMF surveillance
particularly in the larger developed economies.
South Africa has supported the idea of enhancing the effectiveness of IMF
surveillance and promoting policy co-ordination at the global level to ensure
the stability of the international financial system.
IMF quotas and voice
The current proposal on quotas, voice and participation to be voted on is a
two phase process with the first phase to increase the quota of four countries
(Mexico, Turkey, Korea and China) by a total of 1,8 percent and the second
phase to increase the basic vote to preserve the share of African countries.
This proposal tries to deal with the problem experienced with previous
proposals that increasing the share of growing emergent countries will result
in a decline in the share of African countries.
The objective of the reform is (1) to ensure that the quota shares of
members are better aligned with their relative economic weight in the world
economy and to make quota and voting shares more responsive to future changes
in these relative weights and (2) to enhance the participation and voice of low
income countries where the fund continues to play an important advisory and
financing role.
The two-year programme of reforms will include: (a) phase one of ad hoc
quota increases limited to China, Korea, Mexico and Turkey. These countries are
most underrepresented on the basis of the existing quota formula and are also
underrepresented on the basis of all four variables of the formula; (b) phase
two with another round of ad hoc increases implemented after an agreement on a
new quota formula; (c) the second stage would also include a doubling of basic
votes as well as a process to ensure that the ratio of basic votes to total
voting power remains constant so as to safeguard the voting share of low-income
countries.
It should be noted that measures are envisaged to increase resources for the
offices of the African Executive Directors (EDs), including more senior
advisors and a second Alternate Executive Director.
African Ministers of Finance have had a number of meetings to discuss this
proposal, including meetings convened by Minister of Finance of Mozambique
Manuel Chang in Mozambique, and a meeting with the Managing Director of the IMF
in Spain. African countries have argued for mechanisms to protect the share of
African countries.
Development Committee (DC)
4.7 The two primary issues for the meeting of the DC on 18 September on the
provisional agenda are:
* strengthening Bank Group Work on Governance and Anti-corruption
* strengthening the World Bank�s engagement with International Bank for
Reconstruction and Development (IBRD) partner countries.
There are also three progress reports:
* an investment framework for clean energy and development
* progress report for the Education Fast Track Initiative (EFTI)
* Doha development agenda and aid for trade and one background paper on the
Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt
Relief Initiative (MDRI): Status of Implementation Report.
World Bank Group Work on governance and anti-corruption
The President of the Bank, Paul Wolfowitz, made a major speech in Jakarta on
11 April 2006 stressing that promoting good governance and fighting corruption
is critical to helping countries achieve economic progress, promote sustainable
development and ensure that governments are accountable to their citizens. The
speech outlined his plan to enhance the bank's work on governance and
anticorruption and a number of actions have since been taken.
The bank proposes to scale up its work in three areas within countries,
within the bank and in co-operation with other institutions. The detail of what
it proposes will be scrutinised by the DC.
World Bank�s engagement with IBRD partner countries
The bank is trying to identify why its lending to Middle Income Countries
(MICs) is not at the levels they would like. Bank staff argue that they have
comparative advantage helping governments to provide public goods essential to
accelerated growth and poverty reduction and they believe that there is
significant value-added in its packaging together financial and analytic
support.
Nearly 2/3 of the world�s poor (those living on less than US$2 a day) live
in MICs (26 percent in IBRD-only countries and 39 percent in IBRD/International
Development Association (IDA) blend countries); more than half of MICs have
little or no market access to private capital markets and about 20 countries
have volatile market access that is expensive and where the bank still has a
critical role to play with respect to its development and poverty reduction
mandate to finance those projects with the potential to crowd in public
finance, foreign direct investment (FDI) and other forms of private
finance.
In its efforts to address low levels of lending, the bank has defined an
action plan but it is too early to predict whether the measures to be adopted
by the bank will result in an increased level of lending to MICs.
The progress report on an investment framework (IF) for clean energy and
development reviews existing financial instruments, in an effort to identify
ways of closing the financing gap for energy for development and energy
access.
The central issue with respect to the progress report on education fast
track initiative is adequate and predictable funding. Though the impact of the
suspension of the DOHA negotiations are not clear, the progress report on the
Doha Development Agenda and Aid for Trade suggests that there is a general
consensus that aid for trade is an initiative which can proceed regardless of
whether the multilateral trade negotiations are concluded or not. The aid for
trade task force recommendations included supporting a significant
strengthening of capacity in each Least Developed Countries (LDC) recipient
country to manage the IF process, a funding target of US$400 million over an
initial five-year period and a monitoring and evaluation framework. There is a
risk that the resources will not be additional in the sense that it will form
part of the scaling up of aid which has already been promised. There is already
a reshuffling of existing resources towards aid which can be considered
"trade-related". It is of concern that support for aid for trade is presumed to
support the attainment of the Millennium Development Goals (MDGs) and resources
for social development may be cut.
The key points to note on the implementation of the Highly Indebted Poor
Countries initiative and the Multilateral Debt Relief Initiative (MDRI)
are:
* increased creditor participation in HIPC and MDRI is critical to IDA and
African Development Fund (ADF) sustainability;
* South Africa could play a key role in monitoring the successful
implementation of the MDRI and ensure this issue does not fall off the agenda,
as the issue of additionality of resources beyond 2006 is important for the
success of this initiative.
The Commonwealth Finance Ministers' Meeting
Commonwealth Finance Ministers are meeting on 12 - 14 September in Colombo,
Sri Lanka, to consider a number of issues in advance of the annual meetings.
Commonwealth Finance Ministers will review existing approaches to Small States
Issues and will be giving specific consideration to HIPC Debt Relief and the
MDRI. The special theme this year is an agenda for growth and livelihoods and
the challenges of ensuring sustained and equitable growth will be
considered.
South Africa's recent consideration of policy in this regard, the
Accelerated and Shared Growth Initiative for South Africa (AsgiSA), is likely
to be of interest to participants. The technical theme is 'Reform of the
International Aid Architecture,' and participants will debate a number of
options with respect to accelerating the implementation of the Paris
declaration for aid effectiveness.
Raffles Forum on Good Governance and the Wealth of Nations
The Raffles Forum on Good Governance is taking place from the 14 - 15
September during the IMF/WB annual meetings. The event is hosted by the Lee
Kuan Yew School of Public Policy and the National University of Singapore.
Participants include Minister Manuel, Amartya Sen of the University of
Cambridge and Lawrence Summers, Professor at Harvard University.
The forum will discuss issues including; good governance in the 21st
century; the role of the state in global financial markets; translating good
governance into wealth creation through privatisation; investing a nation's
wealth; managing a nation's natural resources; balancing risk and regulation
and pension reform.
Commission on growth and development
The World Bank released a paper on Fiscal Policy for Growth and announced
the creation of an independent commission on growth at the spring meetings in
April this year. The intention of the commission is to deepen the understanding
of economic growth for development and poverty reduction.
Minister Trevor Manuel is a member of the commission and will attend its
next meeting scheduled to be held in Singapore on the fringes of the main IMFC
and DC meetings. The independent commission is chaired by Nobel laureate
Michael Spence, former Dean of Stanford Business School and is a joint
bank-fund initiative. A new analytical framework has been proposed to look at
how governments may create fiscal space for growth. A full report is to be
completed by early 2007.
International Task Force on Global Public Goods
The International Task Force on Global Public Goods is an independent,
consultative body that was created through an agreement between France and
Sweden in 2003. The task force's mandate is to assess and prioritise global and
regional international public goods and make recommendations to policy makers
and other stakeholders on how to improve and expand their provision.
The Institute of International Finance (IIF)
Minister Manuel has accepted an invitation to serve as a trustee for the
principles for emerging markets of the IIF. The IIF is the world's only global
association of financial institutions and was created in 1983 in response to
the international debt crisis. Members include most of the world's largest
commercial banks and investment banks as well as a growing number of insurance
companies and investment management firms. The Institute has more than 320
members headquartered in more than 60 countries.
The IIF aims to support the financial industry in prudently managing risks
including sovereign risk in developing best practices and standards and in
advocating regulatory, financial and economic policies that are in the broad
interest of our members, and foster global financial stability.
Issued by: National Treasury
7 September 2006
