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 one trillion dollars allocated by G-20 leaders last month to the IMF.
For development groups, the meetings are a time to discuss some of the unfinished business of the G-20. Last month in London, ts leaders pledged one trillion dollars 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 dollars for multilateral institutions like the African and Asian Development Banks but did not specify where the money would come from.
Special Drawing Rights
They also want clarification on how proposals made by the G-20 would work. One is the issuing of $250 billion dollars worth of the IMF reserve currency, called Special Drawing Rights, or SDRs, to nations needing funding against the effects of the global financial downturn. SDRs, which are worth about $1.50 (or one British pound) can be exchanged for the leading currencies, including the dollar, the euro and the yen. It's estimated that nearly 19 billion dollars would go to low income countries under the plan and 60 billion to middle income countries like Mexico and Brazil.
The IMF would
distribute SDRs to states according to the size of their voting shares within
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 [the SDR's]," he explained, "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. 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]."
The G-20 also
agreed to sell over 400 tons of the IMF's gold reserves. The move is expected
to yield up to 11 billion dollars, with a portion going to help finance developing
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.
According to Ambrose, "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. This could be taken care of easily at the Spring Meetings of the IMF…. [IMF officials] 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."
Flexible Credit Line
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 that the money will go only to medium-sized economies and bypass the poor countries that need help the most.
Jesse Griffiths is 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.
"The problem," he said, "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. 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 dollars to donors, though relief efforts have alleviated the debt of several of the continent's poorest countries.
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