SPECIAL INAUGURAL MEETING

NEW RULES FOR GLOBAL FINANCE COALITION, INC.

May 17, 2006

Meeting Report from New Rules Special Inaugural Meeting

Appendices:

A: List of Members as of May 17, 2006

B: New Rules Activities

C: Final Recommendations from FFD Consultations

D: Project Description - Democratic Governance and Parliamentary Oversight (DGPO) Project

E: Board Candidate Bios

F: Proposals Received for Discussion

APPENDIX C:  Final Recommendations from FFD Consultations

1. Design and implement prudential regulations for financial markets and financial institutions in order to enhance transparency, govern risk taking and foster orderly marketplaces.  This should reduce the build up of exposures to risks in such areas as foreign exchange, maturity mismatch, liquidity, and concentrated credit exposures.  Especially important is the application of prudential regulation to derivatives markets, which are growing rapidly in the developing world.

2. Adopt appropriate prudential regulations and, when needed, price-based capital controls in order to facilitate the use of counter-cyclical monetary and fiscal policies by developing country governments.  Appropriate prudential regulations include forward-looking loan-loss provisions and collateral requirements for derivatives.

3. Promote international lending in local currencies in order to prevent buildup of foreign exchange rate risk and to encourage improvements in local financial markets, and promote international investing through the use of diversified portfolios of local currency assets.

4. Encourage better commodity price risk management by supporting government efforts to hedge the correlation between budget revenues and commodity price fluctuations, and by helping governments provide simple and affordable risk management to small, local producers.

5. Improve international tax cooperation and introduce systems for automatic information exchange with national tax authorities to combat tax evasion and harmful tax practices.

6. Design an approach to tax evasion, through the UN Committee of Experts on International Cooperation in Tax Matters, that incorporates the need of small, poor and vulnerable economies for development assistance in order to diversify from harmful tax practices.

7. Develop measures that curb tax avoidance in financial centers in developed countries through initiatives such as the one adopted by the OECD to regulate developing countries’ performance.

8. Design and implement financial regulations that create incentives for private financial service providers to supply adequate availability of long-term credit, on affordable terms and including all sectors and regions, to support the productive economy.  

9. Establish national development banks in order to provide affordable long-term financing, as well as technical assistance, to areas and sectors not adequately serviced by the private sector.

10. Establish prudential regulatory frameworks that micro-finance institutions need and deserve, that are consistent with their special characteristics and that protect the public interest from financial instability, fraud, and predatory lending.

11. Develop a new mechanism, the International Debt Framework IDF), to improve crisis prevention and resolution in the international financial system. The mechanism could be initiated by the Group of 20 Finance Ministers from developed and developing countries.  After its establishment, the IDF should not be limited to G20 member states.

12. Increase the amount of IMF credit available in times of crisis by expanding the use of SDRs and increasing the size of quota-linked funds.  The IMF should also facilitate the recycling of surplus funds from countries with current account surpluses to those with deficits using vehicles such as the oil facility.  Establish a new version of the CCL with more funding and fewer costs and conditions than its predecessor.

13. Establish a fast-responding, overarching, grant-financed shocks facility for low-income commodity dependent countries.  It could be administered by a Bretton Woods Institution.

14. Work actively to conform the governance structure of the World Bank and IMF to democratic principles to restore their effectiveness and credibility.  The IMF Executive Board should:

    • Expand and reallocate quota-based votes using a new formula that: a) measures the size of economic output and financial transactions, and b) a measure of vulnerability, and hence reflects potential need for Fund resources.

    • Reallocate basic votes to the percentage effective at its creation (back to 11.3%, from the current 2.3%)

    • Establish clear and democratic processes for leadership selection at the World Bank and IMF, such as those identified in the Report by the Joint Working Group of Fund and Bank Executive Directors, endorsed by the Executive Boards in April, 2001

    • Use double majorities that require a majority of developing countries in order to adopt certain decisions

    • In the interim, the chairs of the respective Boards, the President in the case of the World Bank and the Managing Director in the case of the Fund, should refrain from taking a decision when the Board is split between “number of votes” and “number of Executive Directors” or “number of countries.” The chair should instead work toward a genuine consensus where policy matters are concerned.

    • Open Board decisions including the content of the debate and the positions taken by each Executive Director.

    • Open the actions of the institutions and of the relevant Executive Directors to scrutiny by national Parliaments, public media, and civil society.

    • Allocate immediately, as an interim arrangement, two additional Executive Directors for Sub-Saharan Africa. 

15. Include developing countries, in accord with principles of representation and rotation, in the membership and deliberations of financial agenda and standard-setting bodies, beginning with the Financial Stability Forum, the Basel Committee for Banking Supervisions, the Basel Committee on the Global Financial System, and the Bank for International Settlements.

16. Invite all interested countries to participate in current and future working groups of these entities.

17. Establish a Committee as soon as possible (with participation of the standard-setting bodies as well as of developing countries) for implementing and evaluating specific proposals to achieve recommendations #15 and #16.

18. Employ double-majority rules for all decisions regarding design, endorsement and implementation of financial standards and codes at the Bretton Woods Institutions.