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G24 Says Rich Nations’ Policies Hurting Developing World

Aprille Muscara*

WASHINGTON, Apr 14 2011 (IPS) - Finance ministers of the G24 group of developing and emerging countries met on the sidelines the World Bank and International Monetary Fund spring meetings here on Thursday, warning against continued risks to their economies, despite largely “strong” growth as the world climbs out of the global financial crisis.

“[T]he nature of that recovery and the very expansionary monetary policies in advanced economies have had important spill-over effects on developing countries, contributing to a surge in capital flows and overheating pressures,” Lesetja Kganyago, the G24‘s current chairperson, told reporters after the meeting.

The cost and price volatility of commodities was also high on the group’s agenda. While improved trade terms benefit commodity- exporters, they said, high food and fuel prices partly driven by excessive financial speculation are a pressing concern for developing countries, who are most vulnerable to price shocks.

“The sharp increases will…accentuate inflationary pressures, pose a renewed threat to the poor and vulnerable, exacerbate social tensions, and add significantly to fiscal and import burdens, endangering growth prospects, especially of low income countries,” the group warned in a communiqué.

“Beyond the recovery, the environment for growth and development in the post-crisis period will be characterised by major structural changes. A major challenge is how to ensure that growth in the future is inclusive and employment-intensive,” Kganyago, director-general of South Africa’s National Treasury, added.

“A push to raise investment, including for infrastructure improvement, can help sustain and broaden growth poles in the developing world, but this will require a reinvigoration of development finance,” he said.

In their communiqué, the G24 ministers called for a “shift towards multi-polar sources of growth”, noting, “[T]he most dynamic sources [are] now centred in the developing world.”

Notably on Thursday, South Africa officially joined the so-called alliance of powerhouse emerging market BRIC (Brazil, Russia, India and China) nations.

The group also continued discussion on climate financing and again called for “even-handed surveillance” of not only developing countries but also advanced economies and the expansion of the SDR basket to include emerging market currencies.

The G24 ministers also rejected two proposed IMF policies that would provide greater oversight and that they consider to be restrictive.

These include a new method of determining whether a developing country’s given level of foreign currency reserves is “adequate”. Although reserve build-ups can lend to exchange rate manipulation and global imbalances, they are a necessary line of defence against potential crises, the group said.

Another sticky matter is a newly planned framework for staff to advise countries on managing capital flows – much of which streams from developed to developing nations.

“[T]he idea of having a toolkit is a good one,” Kganyago said. “What we had a problem with is to then say that these things get integrated into the surveillance programme of the IMF and will form the basis of the advice of the IMF staff.”

“The second issue where we had a problem with the Fund’s approach was the fact that the focus tended to be on receiving countries,” he added. “You cannot just say that there are these inflows that are coming into developing countries without dealing with the source of the problem.”

“Certainly, the question of capital flows will still create some debate, but it is a very important, very interesting one, and it shows that the institution doesn’t shy away from difficult problems,” IMF Managing Director Dominique Strauss-Kahn told reporters on Thursday. “On the contrary, we want to address this problem directly and try to find collective solution.”

Meanwhile, the France-chaired G20 of advanced and emerging economies are slated to meet here on Friday, when they are expected to grapple with commodities concerns and the thorny issue of global economic imbalances as well as assess the world economy and prospects for growth more broadly.

On Wednesday, 1,000 economists from over 50 countries penned a letter to G20 policymakers urging them to adopt a so-called “Robin Hood Tax,” which would impose a minimal levy on financial transactions and could potentially raise hundreds of billions of dollars for development financing.

“[T]here can’t be a business as usual approach to growth,” Oxfam spokesperson Luc Lamprière said, echoing a sentiment expressed by Strauss-Kahn. “The G20 talks about inclusive sustainable growth but it’s going to have to turn the rhetoric into action on a whole range of policies including fair tax systems.”

*Follow Aprille Muscara on Twitter at @aprilledaughn.