Washington
20 April 2009
Next weekend, financial officials from around the world and development NGOs will be in Washington for the 2009 Spring Meetings of the World Bank and International Monetary Fund. Among the topics will be how best to apply the $1 trillion allocated by G-20 leaders last month to the IMF.
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| G20 leaders pose for group photo at G20 Summit in ExCel center in London, 02 Apr 2009 |
For development organizations, the meetings are a time to discuss some of the unfinished business of the G-20. Last month in London, its leaders pledged $1 trillion to the IMF for loans and other assistance to help cushion the developing world from the effects of the global financial crisis.
But some questions remain. Activists say, for example, that the G-20 promised $100 billion for multi-lateral institutions like the African and Asian Development Banks, but did not specify where the money would come from.
Low income countries may receive $19 billion
They also want clarification on how proposals made by the G-20 would work. One is the issuing of $250 billion worth of the IMF reserve currency, called Special Drawing Rights, or SDRs, to nations needing funding against the effects of the global financial downturn. It is estimated that nearly $19 billion would go to low income countries under the plan and $60 billion to middle income countries like Mexico and Brazil.
SDRs, which are worth about $1.50 can be exchanged for the leading currencies, including the dollar, the euro and the yen.
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| World Bank (left) and International Monetary Fund (right) headquarters, Washington DC |
Soren Ambrose is the development finance coordinator for ActionAid International, based in Nairobi. He says bigger industrialized economies, which have a larger percentage of votes on the IMF's executive board, would receive more SDRs than poorer countries.
"What that member country can do with it is withdraw the money and cash it in for real currency. The only thing they have to pay on that is a regular interest charge to the IMF as a fee for the conversion of the currency," said Ambrose. "They must keep paying that fee on an annual basis until they replenish the [loan]. So, the SDRs are a good idea that should be moved on quickly. [They] would be even better if rich countries who will [receive more SDRs] could transfer the rights to the countries that need it most [instead of using it themselves]."
IMF to sell gold reserves in order to help developing countries
The G-20 also agreed to sell more than 400 tons of the IMF's gold reserves. The move is expected to yield up to $11 billion, with a portion going to help finance developing countries.
"But what has not yet happened is setting up the complicated vehicles inside the institution to convert that gold and the proceeds from selling it into money for low income countries. At this point in time, they are only allowed to use the money for IMF purposes, to pay IMF staff or replenish accounts for [administrative] use," said Ambrose. "This could be taken care of easily at the Spring Meetings of the IMF. They could get together and say we are writing a new rule on how these gold proceeds can be used, but no one has taken the initiative to start to make that happen."
The IMF also has a program called the Flexible Credit Line, which grants emergency loans to countries with strong financial track records. Borrowers would not be required to make IMF-mandated changes to their economic policies. They could also have access to unrestricted renewals and up to five years to repay the loans. But development specialists are concerned the money will go only to medium-sized economies and bypass the poor countries that need help the most.
"The problem is which countries will be able to access this credit line. [So far, it is] only the ones IMF says are [deemed] stable enough like Mexico, and Poland, but is not likely the IMF will allow the poorest countries to access the flexible credit line," said Jesse Griffiths, the coordinator of the Bretton Woods Project, an NGO that acts as a watchdog to scrutinize and influence the World Bank and IMF in their efforts to help developing countries and protect the environment. "Instead they will extend traditional IMF lending [practices], which come with austere conditions."
The IMF says it has introduced reforms called stand-by arrangements (SBA) that would provide flexibility in lending to poorer countries, but Griffiths says they too would come with preconditions not imposed on wealthier states.
Grants or loans?
At the spring meetings, many development activists will push for the IMF and World Bank to issue funds to poor countries as grants rather than loans, which they say could lead to a second debt crisis in Africa. Today Africa owes about $400 million to donors, though relief efforts have alleviated the debt of several of the continent's poorest countries.
Activists are also encouraging IMF and World Bank leaders not to link new funds to austerity measures normally prescribed for borrowers, like cuts in public spending and an increase in interest rates. They say the measure would likely lead to cutting the safety net to the poor and to deeper recessions. Instead, they want to maintain or increase social spending in areas like education and health care.