By Omoh Gabriel
The ministers of Finance and Central Bank governors of the Group of 20 emerging economies that met in Brazil on Sunday have said that the IMF and the World bank must ensure that arrangements are in place to support Africa and other low income countries by maintaining official flow of aids in line with existing commitment and sustain the momentum of infra-structure investment for development in low income countries. This fact is contained in the communique issued by the group after their two day meeting which ended on Sunday in Sao Paulo, Brazil.
The communique signed by the group, a copy of which was made available to Vanguard, said “We recognised that many low income countries are particularly vulnerable to commodity price volatility and changes in investor sentiment due to the financial crisis. We agreed on the importance of maintaining official flows, including aid flows, to these countries in line with existing commitments and urge all multilateral development banks to work to sustain the momentum of infra-structure investment for development in low income countries.
The Group in the communique said “It is essential that the recent gains in reduction of poverty and social inequality are not set back by the financial crisis and global economic slowdown.. Less developed countries would probably need more flexible frameworks. Furthermore, in cases where severe market disruptions have limited access to the necessary financing for counter-cyclical fiscal policies, multilateral development banks must ensure arrangements are in place to support, as needed, those countries with a good track record and sound policies.
“We noted that fiscal policies have served as an important instrument to address the current financial crisis, including through government support to the financial sector and have performed an important stabilization role and in mitigating further negative effects on markets and on economic activity. Some countries are also considering additional fiscal measures to stimulate the economy and we agreed that countries must use all their policy flexibility consistent with their circumstances, to support sustainable growth, while we recognize the importance of fiscal sustainability for macroeconomic stability and growth.
According to the them “the key challenge of the financial melt down is to resolve the financial crisis in a durable manner and to mitigate the impact of the crisis on global economic activity through comprehensive, coordinated and timely measures as appropriate. It said that Measures must be designed not only to restore growth and financial stability, but also to minimize the negative social impact particularly in emerging and low income countries.
According to the communique issued after the two day meeting “The G-20 with its broad representation of major systemically important economies, has a critical role to play in ensuring global financial and economic stability, and, with that purpose, is committed to enhancing collaboration.
It further stated “We noted that the current financial crisis is largely a result of excessive risk taking and faulty risk management practices in financial markets, inconsistent macroeconomic policies, which gave rise to domestic and external imbalances, as well as deficiencies in financial regulation and supervision in some advanced countries.
“We welcomed the bold and decisive measures taken in a number of countries to stabilize financial markets and restore the flow of credit, to support global economic growth. These measures have begun to stabilize the banking system and other financial sectors. However, there remains considerable volatility in global financial markets. We will continue to work together to take all necessary actions to reduce this volatility and restore normal functioning of money and credit markets in both advanced and emerging market countries.
The G20 ministers and Central Bank Governors equally said “We agreed that all countries must address the risks associated with excessive leverage and improve their regulatory and supervisory regimes in order to deliver improved risk assessment and management by financial institutions, to enhance transparency and accountability in financial markets, as well as to strengthen international cooperation to identify and respond preemptively to national and international systemic risks.
“Furthermore, we recognised the need to improve the supervision and governance of financial institutions, at both national and international levels.
“In this regard, we should consider ways of enhancing the identification of systemically important institutions and ensure proper oversight of these institutions, including credit rating agencies. We should ensure that all sectors of the financial industry, as appropriate, are regulated or subjected to oversight. We agreed that it is important to address the issue of pro-cyclicality in financial market regulations and supervisory systems. We also agreed that financial institutions should have common accounting standards and clear internal incentives to promote stability and that action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking. Regulators and supervisors should enhance their vigilance and cooperation with respect to cross-border flows.
“We expressed concern over the impact of the spreading international financial crisis on the real economy through trade, credit and currency transmission channels. We considered in particular the severe challenges it poses to short-term growth. Advanced economies, where the crisis came into being, are slowing markedly and some are already close to or in recession. We are also seeing evidence of slower growth in emerging markets, and while overall these countries should continue to play an important role in supporting world growth, emerging economies are facing external financing pressures. We recognised that a pronounced lack of confidence has led to severe credit constraints, which affects consumption, investment and employment. We affirmed our determination to take all
necessary steps to foster non-inflationary growth in a stable and sustainable manner according to the needs and available instruments in our respective countries, including through monetary and fiscal policy. We recognized the need to support the efforts of the emerging economies and, especially, to help them find additional resources for their development. We urged all countries to resist protectionist pressures, whether in respect of trade or investment, and reiterate our strong support for a prompt and ambitious conclusion of the Doha Development Round of trade negotiations.
“One of the most deleterious aspects of the current crisis is the freeze in the private credit and equity markets and the tendency of capital to flow back to where the current crisis originated. We should explore ways to restore emerging and developing countries’ access to credit and resume private capital flows which are critical for sustainable growth and development, including ongoing infrastructure investment.
They further stated “We recognized the relevance of adopting sound monetary policies. The recent slowdown in world growth and consequent reduction of commodity prices have decreased inflationary pressures especially in advanced economies and permitted central banks to decide on monetary easing. In those economies facing currency depreciation and still suffering from second round effects, inflationary pressures may be more persistent. In this context, monetary authorities will need to continue to carefully monitor economic developments, including the consequences of financial deleveraging, in order to take appropriate action if needed.
“We underscored that the Bretton Woods Institutions must be comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy and be more responsive to future challenges. Emerging and developing economies should have greater voice and representation in these institutions. We welcome the progress made this year in reforming the IMF. We also noted the first step in the ongoing process of reform of the World Bank Group, which is to be followed by a wider share realignment. We emphasized our commitment to further reform the Bretton Woods Institutions in order to increase their legitimacy and effectiveness. Such reforms should also take into account the interests of the poorest countries and reflect their distinct mandates.
“At this juncture, the IMF, the World Bank Group and other international financial institutions have an important role to play, consistent with their mandates, in helping to stabilize and strengthen the international financial system, advancing international cooperation for development and assisting countries affected by the crisis. To meet this task, we should review the adequacy of the resources of the IMF, the World Bank Group and other multilateral development banks and stand ready to increase them where necessary. In this context, we welcome the use of the IMF́s emergency procedures to provide substantial assistance quickly to countries in need, and also the creation of a new short-term liquidity facility, which allows quick disbursements without traditional conditionality for countries with strong economic policy track records. We urge the IMF to continue to review and adapt its lending instruments to adequately meets its member needs and revise its lending role in the light of ongoing financial crisis.