Depending on whose analysis you read, the G20 summit in London was the best or the worst of meetings. To some critics, it was an abysmal failure by a self-appointed illegitimate body. To others (read: Gordon Brown), the world has been saved from the brink of its economic demise by inspired leadership and deft summitry.
Regardless of where you sit on this continuum, it’s clear that a lot was at stake at the G20 summit. New analysis from Oxfam estimates that the current financial crisis could push 100 million people into poverty in 2009 alone.
What exactly is the impact of the summit on issues relating to development, low-income countries, and the international financial institutions?
The Good News
First, what’s good? The G20 took some responsibility for the crisis. They recognized that the crisis has a “disproportionate impact on the vulnerable in the poorest countries and recognize our collective responsibility to mitigate the social impact of the crisis.” Leaders of wealthiest nations acknowledged that it is both our responsibility and in our interest to help the poorest. President Barack Obama and UK Prime Minister Gordon Brown both declared the Washington Consensus over. This was a long overdue recognition that the orthodox policies of World Bank and International Monetary Fund haven’t worked.
And they came up with some cash. The reality is that the financial crisis has blown open a huge hole in developing country finances. While developing nations didn’t cause the crisis, they’re suffering its effects most severely. They need money — fast. The G20 did agree to a lot of money — including $50 billion for the poorest countries.
Of the $50 billion for low-income nations, up to $19 billion of it will come in through the issuance of so-called “Special Drawing Rights” (SDRs) — a special currency that the IMF can issue. The good thing about these SDRs is that the money comes without any harmful economic conditions attached.
Finally, we should welcome Obama’s announcement following the London summit in which he committed to work with Congress to provide $448 million in immediate assistance and $1 billion for food support to vulnerable populations.
The Bad News
First, while leaders announced the headline figure of $1.1 trillion in support for all countries, of which $50 billion for low-income countries, there is more context needed on that figure.
Chris Giles, writing in the Financial Times on April 3, figured that of the $1.1 trillion, “the new commitments appear to be below $100bn and most of these were in train without the G20 summit.” Much of the announcement consisted of repackaged old pledges. Moreover, while the $50 billion sum for poor countries is significant, it still falls well short of the need: A paper from the IMF in early March said that low-income countries would require $216 billion to cover the overall balance of payments impact during 2009.
Second, while the G20 put up a lot of cash, it’s nearly all in the form of loans, rather than grants. This is sort of like if a car ran into your house and the driver of the car offered you a loan to pay for the damage. The loan is better than the driver disappearing and offering you nothing, but it would be more just if the driver actually paid for the damage created. Even before the crisis, the IMF was projecting that more than 30 of the poorest countries were at significant risk of debt distress: This new lending will only increase the risk of a renewed developing country debt crisis.
Third, the G20 gave the IMF — an institution long criticized by civil society for the anti-poor conditions it places on its loans — an $850 billion blank check. The IMF is still pushing harmful conditions including budget caps and wage restraints that limit poor countries from hiring doctors, nurses and teachers. Just this week, the IMF held up its most recent crisis loan to Latvia, which is in a full blown economic depression, until the country slashed it government spending by more than 20%.
Fourth, while there is no doubt that developing countries need help urgently, a balance must be struck between disbursing loans quickly and ensuring transparency, accountability, and safeguards for human rights and the environment. If loans are quickly prepared without due diligence and safeguard policies, the G20 announcement could result in a huge new burden of odious and illegitimate debt in developing countries.
Safeguard policies and environmental standards shouldn’t be relaxed or abolished. Non-governmental advocates in the South and the North have fought for more than two decades to win accountability and environmental safeguard policies at the World Bank. If anything, such policies need to be strengthened, so that old destructive mistakes are not repeated.
Now is the time for the World Bank to adopt strong standards for responsible lending, such as those laid out in the European Network on Debt and Development’s (EURODAD) “Responsible Financing Charter.” These standards would help to ensure that loan terms and conditions are fair, that the loan contraction process is transparent, that human rights and the environment of recipient nations are respected, and that repayment difficulties or disputes are resolved fairly and efficiently. Banks have been offered loans on flexible and changing terms — but new loans from the IMF/World Bank have no provisions for dispute resolution.
What we can build on
The G20 deal is far from perfect. In the coming months, there are opportunities to improve the deal so that it helps the world’s poor.
First, the U.S. Congress has to approve the new money for the IMF. Congress is in no mood to give a big blank check to the IMF, nor should it be. In exchange for new funds, Jubilee USA and its partners are calling on Congress to require the IMF to drop its anti-poor conditions and sell some of its gold reserve to fund debt cancellation, not new loans.
Second, the IMF/World Bank will hold meetings in Washington at the end of April to work out the details. This will be a critical moment to call for meaningful changes at the IMF and to win our demand of expanded gold sales for debt relief or grants, rather than more loans for the poorest nations in the world.
Beyond that, a more promising venue for the bolder steps still needed to “refound the financial system” may lie at the UN. The Joseph Stiglitz-led commission at the UN General Assembly has put out a blueprint that addresses some of the deficiencies of the G20’s approach, calling for an end to harmful IMF conditionality, a sovereign debt resolution mechanism, a more representative global economic council which includes the voices of even the poorest countries. A UN conference scheduled for June 1-3 in New York will be an important opportunity to build on the modest steps taken in London, and think bigger and bolder.