The London Summit 2009.

© Lawrence Looi/newsteam.co.uk

As soon as the curtain fell on the G-20 (Group of 20)* states’ Summit in London, 2 April, the dissection of the deal done to revive the global economy began. Leading think-tanks and Non-Governmental Organisations (NGOs) alert that to avoid placing more people in poverty, especially in developing nations, the G-20 must now deliver on the pledges contained in the agreed International Global Plan for Recovery and Reform.
 
“This is the day that the world came together, to fight back against the global recession, not with words but a plan for global recovery and for reform with a clear timetable”, said British Prime Minister, Gordon Brown, host of the Summit held in London’s Excel Centre. A $US1.1 trillion booster package to restore growth and create employment was agreed including: an additional US$500bn for the IMF; US$250bn in Special Drawing Rights** (for all IMF Members); a $US250bn two-year trade finance package; and $US100bn of additional lending by multilateral development banks.

The sole African around the G-20 table, former President of South Africa, Kgalema Motlanthe, said he was “quite pleased” with the outcome and particularly, “a commitment to ensure that developing countries receive finances particularly for infrastructure”. US President, Barack Obama, said the event had taken “unprecedented steps to restore growth and prevent a crisis like this from happening again”. Chairman of the African Union (AU), Jean Ping and Ethiopian Prime Minister, Meles Zenawi, representing the New Partnership for Africa’s Development (NEPAD), were both Summit invitees.

General pledges made by the G-20 were to: restore confidence; create growth and jobs; repair the financial system to restore lending; strengthen financial regulation to rebuild trust; fund and reform international financial institutions to overcome this crisis and prevent future ones; promote global trade and investment and reject protectionism, and underpin prosperity. Leaders also committed to adhere to global banking system principles: bring the shadow banking system, including hedge funds, within the global regulatory net; set up new international accounting standards; regulate credit rating agencies; and put an end to tax havens that do not transfer information on request.

Fresh funds?

In a post-Summit paper, Martin Kohr of the South Centre, a development policy think-tank, says the funds pledged are not entirely new allocations: “Some of it had already been decided long before the Summit, and some of it reflected only an intention rather than concrete pledges.” The Summit pledge to provide loans to the IMF and recycle them as loans to crisis-hit countries running out of foreign reserves would compromise the ability of the IMF to carry out surveillance and discipline of countries that provide loans, says Kohr, calling for IMF reform.

What’s more, the $US250bn of Special Drawing Rights pledged would be shared amongst the IMF’s 186 members according to their quotas or voting shares meaning that 44 per cent of these monies will go to richest seven countries and only US$80bn to middle-income and poor developing nations, says Kohr. He adds that the G-20 made no move to assist developing nations in avoiding wrenching debt. Duncan Green, Head of Research at Oxfam says: “There is a huge question mark on how far tax haven commitments really go. There has clearly been a big fight within the G-20 on whether to release a list of bad guys, so they are pleased to pass the buck to the OECD” (see box). And he believes that only US$12bn of a US$250bn trade stimulus will go to low income countries.

* The group of 20 comprises Finance Ministers and Central Bank governors of 19 states; Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and USA. The European Union, represented by the rotating Council presidency and the European Central Bank, is the G-20’s 20th
Member.

** The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. SDRs are allocated to member countries in proportion to their IMF quotas.

Africa’s Summit call

Prior to the G-20, the ‘Committee of Ten’ a group of African Finance Ministers and Central Banks chaired by South Africa’s Finance Minister, Trevor Manuel, put together Africa’s package for the Summit. Its report on the impact of the crisis on African economies warns that steady progress over the last decade could be compromised: “It is sweeping away firms, mines, jobs revenues and livelihoods.”

For the first time in a decade, zero per capita growth could occur across the continent with shortfalls in export revenues continent-wide expected to be $US251bn in 2009 and $US277bn in 2010, oil exporters being the biggest losers. Capital inflows are declining as worker remittances and tourism receipts fall and stocks of foreign reserves run low. Some countries only have few weeks' cover (i.e DRC) severely jeopardising the capacity to import basic commodities food, medical supplies and agricultural inputs, says the report.

A key concern is how to sustain adequate levels of investment, especially in infrastructure. An additional $US50bn in 2009 and $US56bn in 2010 are needed to maintain pre-crisis levels of growth. Increasing investment to the level needed to achieve higher, MDGs-consistent growth rates requires an additional $US117bn in 2009 and $US130bn in 2010, says the report. Recommendations are for additional resources, donor policy flexibility with reduced conditionality and trade promotion measures.

Aid should be increased

President of the European Commission, José Manuel Barroso, swiftly called on 8 April for development aid of the EU’s 27 EU States to be increased: “We are now more than half way to the 2015 deadline for achieving Millennium Development Goals (MDGs) and some of the gains achieved so far risk being forefeited, leaving poor countries worse off than before the crisis”. As the world’s biggest aid donor in terms of Gross National Income (GNI) share, the EU committed €49bn in 2008, or 40 per cent of GNI. But aid volumes would need to increase to €69bn collectively in 2010 to meet the promise of 0.56 per cent of GNI to Oversaeas Development Aid made at the Gleneagles Summit of the G-8 in 2005. Barroso called for “greater use of development aid to leverage other funds, including through the European Investment Bank (EIB). Every euro spent on aid should leverage up to five euros of private investment”, he said.

Barroso said the EC would ‘frontloaded’ (expediting the disbursement of its aid) and refocus its existing commitments - including €3bn of foreseen budget support - on the most vulnerable. In addition, an ad hoc FLEX instrument is to compensate developing nations worst hit by falling export revenues as world trade contracts. Barroso said this would be on stream before the end of 2009 and includes €500M to allow developing nations to continue social safety net spending. In addition, the EU has adopted a ‘food facility’ to stimulate agricultural production in developing nations (see article that follows).

Action on tax havens?

On the announcement of the G-20’s action on tax havens, the Paris-based Organisation of Economic Cooperation and Development (OECD) promptly published lists of states that are lagging in implementing agreed tax transparency standards. A ‘grey’ list of countries that have improved international transparency standards, but not sufficiently, includes 16 Caribbean countries.

See: www.oecd.org

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