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Brooking's Event on Natural Resource Transparency

Martha DiSimone

June 11, 2014

            At Monday’s event at The Brookings Institution, Senator Benjamin Cardin (D-Md.) delivered a keynote address, introducing the discussion on international developments in natural resource transparency. He outlined the three primary objectives that Section 1504 of the Dodd-Frank Act (requiring oil, gas and mineral companies to publish their payments to governments around the world) sought to achieve. This amendment (1) supported investors’ right to know, (2) stabilized and made more reliable global energy sources and (3) promoted good governance and human rights. However, in 2013, a U.S. District Court directed the U.S. Securities and Exchange Commission (SEC) to re-issue its rule, and therefore no disclosures have been made. Congress continues to fight for full disclosure with the SEC. They believe that American companies can compete on a level playing field, prompting them to question why there is secrecy and why American businesses are pushing against this initiative.

            A panel discussion followed with representatives from the American Petroleum Institute (API), European Commission, Calvert Investments, Nigerian anti-corruption campaign, and Global Witness NGO. Europe has already agreed to full disclosure of all payments, reaffirming the need for the U.S. to assume leadership and for the establishment of global standards. API upheld that their institution supports transparency, but would like to see it implemented in such a way that specific company level payments are not disclosed. On the opposite side of the debate, poor nations argue that the multinational companies from the developed world compromise their development by not disclosing payments on a project-to-project basis, aiding the illicit flow of capital and prompting corruption.

This debate centers on the simple principle that transparency breeds better decision making. Ukrainian citizens, earlier this year, ousted President Yanukovych in an attempt to fight corruption within their country. Transparency initiatives are about the inclination of citizens to advocate for good governance and appropriately assign accountability.This is essential when it comes to ensuring that a country’s natural resources are used (or protected) for the benefit of its citizens.

Keeping payments to governments hidden not only undermines transparency and accountability in countries, but it also increases opacity and darkness in the global financial architecture – which creates even greater risks and opportunities for corruption worldwide.



Update on Section 1504 (as of May 2014): the SEC pledges to propose a rule by March 2015 governing how oil, gas and mining companies disclose payments made to foreign governments. 

 

   

Achieving Inclusive Capitalism: Views from Exclusive Institutions

 

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BLOG CALL: Inequality & Minimum Wage

Dear Friends and Colleagues,

We are issuing this “Blog Call” to help answer the following question: While the IMF formulates its new position on inequality, where does it stand on minimum wage? Blogs will be accepted on a rolling basis until June 15 (no more than 1500 words). All blogs will be posted on New Rules website, included in our reports/updates and shared with the IMF.

The IMF’s recent Art IV recommendation to Germany sparked this question (see below):

        7. The new nationwide minimum wage will help reduce growing wage inequality, but it risks exacerbating unemployment in some                       regions. Expert estimates suggest that the proposed minimum wage will be binding for about 20 percent of workers in some federal states                       where unemployment is already relatively high. While the employment effects of changes in minimum wage regulation are notoriously difficult to                 predict, sizable adverse effects in these areas could materialize. Decisions by the to-be-created commission on the future level of the minimum                   wage should take these employment effects into account and give adequate consideration to the interests of those not well represented by                       employers’ and employees’ associations. In addition, alternative ways to achieve income redistribution could usefully be explored.                                               http://www.imf.org/external/np/ms/2014/051914.htm

Two sides of the coin:

       1.    IMF’s recent paper “Redistribution, Inequality and Growth” finds that lower net inequality is good for sustainable economic growth. IMF                             acknowledges that Germany’s new minimum wage will reduce inequality. Therefore, simple logic tells you that a minimum wage would support                     sustainable economic growth.

      2.    However,another view is that wages increases will make it more difficult for employers to pay workers, which may result in higher unemployment.                IMF advice agrees that there are adverse impacts to minimum wage increases, but that these are “notoriously difficult to predict.”

The IMF seems to be stuck in between these two arguments. However, the recent recommendation to Germany (as well as to other countries) demonstrates that the IMF tends to lean toward the second position: increasing minimum wage is harmful for growth.


We want to know your views. Please let us know if you have any questions.








Nathan Coplin, Deputy Director

New Rules for Global Finance

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Is there an IMF Governance Problem?

The US is the largest stakeholder at the IMF, maintaining veto power over major decisions, yet has failed to secure support from the US Congress for even modest reforms to the IMF’s outdated governance arrangements. While the US remains reticent and unwilling to lead, the Europeans seem to be steering the ship. Nearly 90 percent of IMF lending is concentrated in Europe.* Does this reflect a governance problem?

Even with an active US at the helm, European countries, collectively, control 35 percent of votes in the IMF. This disproportionate influence reflects the distribution of economic power from decades ago and not the realities of today. Until the 2010 IMF governance reforms are implemented...

World on IMF

       

Total IMF Active Financial Commitments (not including flexible credit lines or PRGT loans) is SDR 69.567 billion. The total committed to European countries is SDR 61.995 billion or 89.1 percent of total. Source: http://www.imf.org/external/np/tre/activity/2014/042414.htm

   

How to win the new debate about the IMF

Dr. Martin S. Edwards ( School of Diplomacy and International Relations, Seton Hall University)  

The White House recently announced that it was attaching legislation on IMF quota reform to a bill to provide emergency bilateral assistance to Ukraine. The White House is effectively climbing back into the boxing ring with Congress on IMF reform – as the previous attempt to get IMF reform approved was a casualty of the January budget talks. The case for IMF reform is substantial and has been made in great detail elsewhere. As before, the White House faces considerable resistance in the House. To win the debate on IMF reform this time, the White House needs to do three things:

Keep the debate focused on leadership. The debate in the House was sidetracked over a procedural matter regarding moving the US account from an ad-hoc account to a permanent one. As a result, the IMF reform package looked less like needed reforms to update a vital international organization and more like thoughtless pork barrel spending. The US was roundly criticized at the recent G20 Finance Ministers meeting for not doing enough to conclude reforms that it lobbied other countries to adopt. The White House needs to make clear that the issue is not procedural matters over the US contribution, but rather about sustaining US leadership of the global economy. It’s not clear what the House wants here, and negation cannot be the foundation of foreign policy.

Remind Congress how the crisis underscores the value of the IMF. That the White House is linking IMF reform to support for emergency foreign aid is not surprising. The Republicans tried to do the exact same thing to wring further concessions out of the White House last month. The Fund operates as a global ‘fire department’ helping out countries in economic crisis. In this case, the Fund’s involvement is a clear force multiplier for US interests. Helping Ukraine is an easy rebuke to Putin’s adventurism, and stabilizing the economy and supporting a fragile government can help make a political settlement possible.

The critics of this proposal need to answer a simple question: if the Fund did not exist, what would happen? The answer is simple: more bilateral foreign aid. The IMF exists to help cost-share among major powers, and if it did not exist, the US would be left to pay the check alone.

Remind Congress that the IMF is a good insurance policy. The Fund dispatched a mission to Kiev knowing two things: that the country’s political situation is fluid, and that it’s past history with Ukraine has not been positive. The new Yatsenyuk government has said all of the right things to signal a commitment to economic reform, but promises do not always lead to successful implementation. The two prior IMF loans to Ukraine broke down prior to their intended completion date as the governments did not keep their pledges to implement austerity measures.

In this light, having the Fund take the lead is a commitment device to secure policy reform. The IMF has a measure of independence from other great powers, and this means that it can more credibly threaten to suspend foreign aid than the US government might. In six months’ time, if the Yatsenyuk government backs off its pledges, and the approach of elections in the Fall suggests this might well be the case, the Fund will be more likely to suspend a loan than the US government would.

In sum, linking the IMF reforms to the Ukraine foreign aid legislation may well be a political masterstroke for the White House. Congress is not going to pass this blindly, but managing the message differently may well permit the Obama administration to turn defeat into victory.

 

This piece was originally posted on the Center for UN and Global Governance Studies website at this link

   

The IMF and Reversing the Trend of Rising Inequality

by Nathan Coplin

Inequality is at its highest point in history – where just 85 individuals have as much wealth as half of the global population. The severity of inequality is even drawing the attention of the IMF, where Managing Director Christine Lagarde is acknowledging this growing problem and its consequences. Lagarde recently admitted that inequality “leads to an economy of exclusion and a wasteland of discarded potential.” Just a few months ago, the IMF also published research which found that two policies – capital account liberalization and fiscal consolidation – lead to greater levels of inequality. However, these two policies have often been tenants of IMF policy conditions and advice. While the IMF has a new "institutional view" on capital account liberalization, it has continued to recommend austerity measures.

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Comments on Governance and Impact Report - Paul Blustein

by Paul Blustein, Center for International Governance Innovation (CIGI)
November 7, 2013

Congratulations to New Rules for Global Finance for its "Global Financial Governance and Impact Report 2013," which shines a critical spotlight on the way the major institutions that govern the global economy are run and what they have done in recent years. Having taken a few shots at these institutions myself over the years, I applaud the report's objectives and overall thrust; and since New Rules asked readers for feedback, I will offer my two cents.

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Insight to CSO Views on Fiscal Transparency

Still Room for the IMF to Further Improve Its Fiscal Transparency Code

This week at the World Bank’s annual fall meeting, I was part of a panel discussion on the IMF’s newly revised Fiscal Transparency Code. First, kudos to the IMF for publishing the consultative draft of the revised Code. The revised draft provides practical recommendations on how governments can improve fiscal transparency in a phased manner and in a way that takes into account different starting points in current fiscal transparency practices.

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The Wall Street Alchemist - How does financial innovation impact the real economy?

The Wall Street Alchemist
How does financial innovation impact the real economy?

by Nathan Coplin

Alchemists were known for their efforts to transmutate common metals into more valuable ones like gold. Alchemy is uncommon today, but the practice of transforming the “bad” to “good” continues, especially in the financial industry through financial innovation. It is widely accepted that innovation, in general, improves productivity and stimulates economic growth. However, it is less clear how financial innovation impacts the real economy. 

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World Economic Forum Meetings Key Points and Briefings

Cheat Sheet for the 2013 World Economic Forum (WEF):

Key points and briefings of the WEF meetings relevant

to global finance and New Rules mission


Opening Address
A New Global Economy for a New Generation, Davos, Switzerland (summary)

In her address to the World Economic Forum, International Monetary Fund’s Managing Director, Christine Lagarde believes the biggest test for 2013, will be maintaining a strong drive for reform. Lagarde points out that 2013 will be a make-or-break year for the global economy.

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Blog

  • Brooking's Event on Natural Resource Transparency
    June 11, 2014 
  • Achieving Inclusive Capitalism: Views from Exclusive Institutions
    May 29, 2014 
  • Is there an IMF Governance Problem?
    May 02, 2014 
  • How to win the new debate about the IMF
    March 07, 2014 
  • The IMF and Reversing the Trend of Rising Inequality
    February 06, 2014 
  • Comments on Governance and Impact Report - Paul Blustein
    November 07, 2013 
  • Insight to CSO Views on Fiscal Transparency
    October 16, 2013 
  • The Wall Street Alchemist - How does financial innovation impact the real economy?
    April 23, 2013 
  • World Economic Forum Meetings Key Points and Briefings
    February 01, 2013 
  • Overexposed and Under-reported: Bank Disclosure of Risk
    January 18, 2013 
  • Sovereign Debt: Solving Insolvencies
    January 09, 2013 
  • Why is a Human Rights Approach Needed in Financial Regulation?
    December 11, 2012 
  • IMF's Re-engagement with Egypt: A New Economic Plan
    August 22, 2012 
  • Note on Quota Formula Review: Initial Considerations
    May 03, 2012 
  • Contenders for the World Bank Presidency
    March 29, 2012 

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