Sunday, September 21, 2014


IEO releases 2012 Annual Report

The Independent Evaluation Office (IEO) of the IMF released its 2012 Annual Report. The IEO was established in 2001 to conduct independent and objective evaluations IMF policies and activities. Under its Terms of Reference, it is fully independent from the Management of the IMF and operates at arm's length from the Board of Executive Directors.

To read the full report, click here


Proposed New Constituency led by Belgium and Netherlands

Following the 2010 IMF Reform Agreement that is intended to increase the voting shares of developing and emerging economies; Belgium, the Netherlands and Luxembourg are now considering forming a a new constituency group with several emerging economies. If the new constituency were to be formed, its overall percent of IMF votes would be 6.39, surpassing Japan and making it second to the United States. Ofcourse, if the 2010 Reform Agreement becomes effective (approval and ratification by all members), many of the countries in the "New Group" will see a reduction in their relative votes.                

Group (Led by Belgium) Votes by country % of Fund total New Group Votes by country % of Fund total
Austria 21,876 Belgium 46,789  
Belarus 4,601 Netherlands 52,361  
Belgium 46,789 Luxembourg 4,924  
Czech Republic 10,759 Ukraine 14,457  
Hungary 11,121 Israel 11,348  
Kosovo 1,327 Romania 11,039  
Luxembourg 4,924 Bulgaria 7,139  
Slovak Republic 5,012 Bosnia and Herzegovina 2,428  
Slovenia 3,487 Cyprus 2,319  
Turkey 15,295 Georgia 2,240  
Total Votes 125,191 4.97 Moldova 1,969  
  Armenia 1,657  
Group (Led by Netherlands)     Macedonia 1,426  
Armenia 1,657 Montenegro 1,012  
Bosnia and Herzegovina 2,428 Total Votes 161,108 6.39
Bulgaria 7,139    
Croatia 4,388 Not in New Group  
Cyprus 2,319 Austria 21,876  
Georgia 2,240 Belarus 4,601  
Israel 11,348 Czech Republic 10,759  
Macedonia 1,426 Hungary 11,121  
Moldova 1,969 Kosovo 1,327  
Montenegro 1,012 Slovak Republic 5,012  
Netherlands 52,361 Slovenia 3,487  
Romania 11,039 Turkey 15,295  
Ukraine 14,457 Croatia 4,388  
Total Votes 113,783 4.52 Total Votes 77,866 3.09
Total of eligible votes (Includes the other groups) 2,512,807 99.73  

Tackling Offshore Tax Evasion

Secretary-General Gurria of the OECD released a report in June 2012 about reining in tax evasion.


Increasing the Impact of the FSB

Domenico Lombardi of Brookings presented the Recommendations of High-Level Panel on the Governance of the Financial Stability Board at the G20/FSB Conference in April, 2012. Below is his full presentation, including the recommendations developed at last year's event co-organized by New Rules for Global Finance and Brookings.



Obama Trade Document Leaked

This article below can be found at Huffington Post.

June 13, 2012

WASHINGTON -- A critical document from President Barack Obama's free trade negotiations with eight Pacific nations was leaked online early Wednesday morning, revealing that the administration intends to bestow radical new political powers upon multinational corporations, contradicting prior promises.

The leaked document has been posted on the website of Public Citizen, a long-time critic of the administration's trade objectives. The new leak follows substantial controversy surrounding the secrecy of the talks, in which some members of Congresshave complained they are not being given the same access to trade documents that corporate officials receive.

"The outrageous stuff in this leaked text may well be why U.S. trade officials have been so extremely secretive about these past two years of [trade] negotiations," said Lori Wallach, director of Public Citizen's Global Trade Watch in a written statement.

Sen. Ron Wyden (D-Ore.) has been so incensed by the lack of access as to introduce legislation requiring further disclosure. House Oversight Committee Chairman Darrell Issa (R-Calif.) has gone so far as to leak a separate document from the talkson his website. Other Senators are considering writing a letter to Ron Kirk, the top trade negotiator under Obama, demanding more disclosure.

The newly leaked document is one of the most controversial of the Trans-Pacific Partnership trade pact. It addresses a broad sweep of regulations governing international investment and reveals the Obama administration's advocacy for policies that environmental activists, financial reform advocates and labor unions have long rejected for eroding key protections currently in domestic laws.

Under the agreement currently being advocated by the Obama administration, American corporations would continue to be subject to domestic laws and regulations on the environment, banking and other issues. But foreign corporations operating within the U.S. would be permitted to appeal key American legal or regulatory rulings to an international tribunal. That international tribunal would be granted the power to overrule American law and impose trade sanctions on the United States for failing to abide by its rulings.

The terms run contrary to campaign promises issued by Obama and the Democratic Party during the 2008 campaign.

"We will not negotiate bilateral trade agreements that stop the government from protecting the environment, food safety, or the health of its citizens; give greater rights to foreign investors than to U.S. investors; require the privatization of our vital public services; or prevent developing country governments from adopting humanitarian licensing policies to improve access to life-saving medications," reads the campaign document.Yet nearly all of those vows are violated by the leaked Trans-Pacific document. The one that is not contravened in the present document -- regarding access to life-saving medication -- is in conflict with a previously leaked document on intellectual property (IP) standards.

"Bush was better than Obama on this," said Judit Rius, U.S. manager of Doctors Without Borders Access to Medicines Campaign, referring to the medication rules. "It's pathetic, but it is what it is. The world's upside-down."

The Office of the U.S. Trade Representative insists that while broad standards require many medical patents and IP rules that would increase the price of medications, the U.S. intends to work with countries involved in the Trans-Pacific talks to ensure that the agreement does not restrict access to life-saving drugs.

USTR was not immediately available to comment on the newly leaked investment chapter of the Trans-Pacific deal, and has previously stated that it cannot comment on the terms of an allegedly leaked document. That statement is belied somewhat by recent American efforts in other international negotiations to establish controversial medical patents that grant companies long-term monopolies on life-saving medications. Those monopolies increase drug prices, which impede access to medications, particularly in developing nations. The World Health Organization and dozens of nonprofit public health groups have objected to the standards sought by the Obama administration. Two United Nations groups recently urged global governments not to agree to trade terms currently being advocated by the Obama administration, on the grounds that such rules would hurt public health.Such foreign investment standards have also come under fire at home, from both conservative sovereignty purists and progressive activists for the potential to hamper domestic priorities implemented by democratically elected leaders. The North American Free Trade Agreement, passed by Congress in 1993, and a host of subsequent trade pacts granted corporations new powers that had previously been reserved for sovereign nations and that have allowed companies to sue nations directly over issues.

But while the current trade deal could pose a challenge to American sovereignty, large corporations headquartered in the U.S. could potentially benefit from it by using the same terms to oppose the laws of foreign governments. If one of the eight Pacific nations involved in the talks passes a new rule to which an American firm objects, that U.S. company could take the country to court directly in international tribunals.

Public Citizen challenged the independence of these international tribunals, noting that "The tribunals would be staffed by private sector lawyers that rotate between acting as 'judges' and as advocates for the investors suing the governments," according to the text of the agreement.

In early June, a tribunal at the World Bank agreed to hear a case involving similar foreign investment standards, in which El Salvador banned cyanide-based gold mining on the basis of objections from the Catholic Church and environmental activists. If the World Bank rules against El Salvador, it could overturn the nation's domestic laws at the behest of a foreign corporation.

Basic public health and land-use rules would be subject to challenge before an international tribunal, as would bank regulations at capital levels that might be used to stymie bank runs or financial crises. The IMF has advocated the use of such capital controls, which would be prohibited under the current version of the leaked trade pact. Although several countries have proposed exceptions that would allow them to regulate speculative financial bets, the U.S. has resisted those proposals, according to Public Citizen.

Trans-Pacific negotiations have been taking place throughout the Obama presidency. The deal is strongly supported by the U.S. Chamber of Commerce, the top lobbying group for American corporations. Obama's Republican opponent in the 2012 presidential elections, Mitt Romney, has urged the U.S. to finalize the deal as soon as possible.


EBRD Chooses U.K.'s Chakrabarti as President

On Friday, the European Bank for Reconstruction and Development (EBRD) chose its new president, the United Kingdom’s Suma Chakrabarti. Chakrabarti’s selection process was unique, in part, because past EBRD presidents have always been either French or German. Friday’s decision was additionally noteworthy because it was made via vote, rather than through the typical closed-door discussions. Some see Chakrabarti’s election as heralding in a new era of open merit-based processes for the election of leaders to the world’s major financial institutions. 


To read more, visit the Wall Street Journal's EBRD Chooses U.K.'s Chakrabarti as President.


Don't Gamble with Food - How the German financial industry is making a business out of hunger


Banks and financial advisors in Germany have been promoting agricultural crops as an attractive investment category for the past few years: rising food prices promise high returns that no one should miss, so they argue. The higher the price of basic food commodities, the higher the profits for investors — a bittersweet formula indeed.

In Germany, we spend an average 10 per cent of our income on food. Families in poor countries, by contrast, must invest up to 80 percent. As prices rise, hunger grows. This occurred in 2008: the global food crisis caused the number of hungry people worldwide to rise to over one billion and triggered hunger protests in 61 countries. “Everyone is eating less food. The women make the ultimate sacrifice. They take their food after everyone is done,” explained one agricultural worker during an interview with Oxfam.

In 2010/2011, food prices skyrocketed once again. Forty-four million people living in poor countries—a number equal to more than half of the German population—were driven into hunger because they could no longer afford to buy food. Speculation with food is one of the key factors responsible for this extreme price volatility


To read the full report click: Don't Gamble with Food - How the German financial industry is making a business out of hunger


Will JP Morgan's recent loss catalyze deeper financial reform?

JP Morgan's recent loss and its media attention has given advocates for the Volcker rule and Glass-Steagall new ammunition. 

There are many articles addressing the JP Morgan debacle. A recent NY Times article titled "Dancing with Derivatives"  quoted a New Rules Board Member, Seamus Finn. In the article, he asks an important question: "Do you still believe a company can self-regulate when trading on their own accounts? 

If the answer is "No", then regulations are appropriate. But regulations, like Dodd-Frank, have been undermined with different exemptions and loopholes. 

Will JP Morgan's recent loss catalyze deeper financial reform in the US? 

Are their implications for global financial regulations?

New Rules is interested in your opinions and any information you would like to share with others on this topic.


Enhancing the IMF's focus on Growth and Poverty Reduction in Low-Income Countriess

by Matthew Martin and Richard Watts

Development Finance International

April 2012 


1. Background, Objectives and Methodology

In July 2009, the IMF changed its concessional financing for LICs, introducing the Poverty Reduction and Growth Trust (PRGT) which can lend via the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF). These facilities were intended by the IMF to have “an enhanced focus on growth and poverty reduction”, and the Norwegian government provided financing to support the SCF and RCF windows.

A coalition of Norwegian NGOs commissioned this report from Development Finance International, to analyse whether the new facilities are living up to this objective, and allowing countries to move faster towards the Millennium Development Goals. They asked DFI to look particularly closely at impact on the health sector. The paper analyses all 37 PRGT agreements, and presents case studies of Honduras, Malawi and Sierra Leone, written by local experts closely involved in IMF-government discussions. As the new facilities began only in 2010, this assessment should be seen as preliminary.


The report makes clear that the IMF is not, and should not be, a long-term development lender. However, it has committed to enhancing its focus on growth and poverty reduction through the PRGT, and donors have provided concessional funding to the IMF to support the PRGT on this basis: the facilities should therefore be judged on whether they are achieving this goal. The report also makes clear that it is analysing trends resulting from IMF-government agreements, not ascribing “responsibility” to the IMF for all trends and their impact on MDG prospects.

2. Conclusions and Recommendations

Overall, the report concludes that there is only very limited evidence of an enhanced focus on growth and poverty reduction compared to the previous PRGF facility programmes. There have been some steps forward showing increased flexibility by the Fund, but most of these were introduced before the PRGT, and some look increasingly fragile. As a result, the report recommends 7 important steps to enhance the PRGT’s focus on poverty reduction and growth.


There is no evidence of a broader “enhanced focus on poverty reduction and growth” in the content of PRGT documents. They are broadly the same as PRGFs, and there continues to be little or no analysis of the likely poverty or distributional impact of programmes.


RECOMMENDATION 1: The Fund should produce an annual PRGT review report specifying exactly how programmes are accelerating poverty reduction and growth, how it is analysing and acting on the fundamental drivers of such acceleration, and how it is analysing the poverty and social impact of its macro and structural conditions. In addition, each programme document should analyse how it is accelerating growth, combating poverty/inequality, and assessing the poverty and social impact of the programme.


LICs have made only very limited use of SCF and RCF: they prefer the ECF because they need longer-term loans; and because the low-conditionality RCF provides only very limited resources which are woefully insufficient as a response to external shocks.


RECOMMENDATION 2: There should be early discussion of whether Norway should continue to limit its funds to RCF/SCF and if so, whether it should advocate a sharp increase in RCF loan sizes and a frontloading of SCF disbursements.


IMF programmes have long been criticised for excessively restrictive macroeconomic frameworks, seen as constraining MDG spending and growth/poverty reduction in order to reduce budget deficits and inflation. Global inflation shocks and the financial crisis seemed to be changing the IMF mindset, with a limited trend to higher spending and inflation targets in 2009 pre-PRGT programmes.  However, the PRGT did not explicitly aim to make macroeconomic frameworks more flexible. In 2010-12, most IMF programme countries are cutting overall and health expenditure as a % of GDP, whereas most non-IMF programme countries are not. By the end of 2012, PRGT countries will have expenditure/GDP only 0.6% higher than in 2008 (compared to 2.3% for other LICs).  However, this trend is not due to the PRGT. As explained by the IMF in its publications, it reflects a view that any counter-crisis stimulus should be temporary and followed by a focus on reducing deficits to ensure long-term fiscal sustainability; as well as a changing attitude of some major Board members which since 2009 have become sceptical about anti-crisis stimulus.


RECOMMENDATION 3: There should be a transparent debate between the IMF, LIC policymakers and civil society, at global and national level, on planned spending levels, with the aim of:

  • Allowing deficit levels after grants to stay at up to 5% of GDP until the MDGs are reached, provided that grants or repayable levels of loans are available to fund such deficits;
  • Demonstrating that spending is sufficient to allow accelerated growth and MDG progress;
  • Showing that there is an adequate balance between investment and recurrent spending, (including wage/employment levels necessary to recruit and retain key anti-poverty workers).
  • Explaining why any cuts are needed to avoid early unsustainable budget deficit or debt levels;
  • Telling donors which MDGs will suffer without more aid, and encouraging higher flows;
  • Enhancing efforts to increase tax revenues - through growth and economic diversification, as well as raising taxes on income and wealth; reducing tax avoidance through tax havens and transfer pricing; getting a fair share of taxes and royalties from large companies exploiting natural resources; and reducing tax preferences and exemptions given to investors.


In terms of inflation targets, IMF programmes set slightly higher inflation targets in the light of global food and fuel price spikes in 2007-08 and 2010.PRGT programmes seem to be slightly more flexible than their (pre-crisis) counterparts in 2003-07, by bringing inflation down more gradually and letting it stay at levels above 5%. However, this flexibility springs from the 2008 global food/fuel price increases: gradually (and not in all countries) the IMF has come to think that temporary global shocks should be treated more flexibly, and the focus should be on measuring “core” inflation excluding food and fuel shocks. However, as the impact of the shocks has persisted and especially where inflation goes above 10%, the IMF is increasingly recommending fiscal cuts to cut inflation.


RECOMMENDATION 4: The IMF should change its inflation targeting to keeping “core” (non-food/fuel) inflation at 8-10% levels during periods of exogenous shocks; target much more gradual inflation reduction (to 5-10% only over 3 years); rely much more on supply-side measures rather than fiscal tightening to achieve inflation targets; and provide more evidence to prove monetary and fiscal tightening can reduce inflation in a country before such measures are recommended. It should also encourage LIC central banks to target employment or other real sector variables as well as inflation, to ensure that they are not focusing excessively on inflation reduction.

As regards structural conditionalities, major reforms in these (dropping issues such as privatisation and trade liberalisation which were outside the IMF’s core mandate; and scaling back the use of ceilings or “caps” on wage spending) also predated the PRGT. However, wage caps have remained in 10% of PRGT programmes, where the IMF argues wage levels are so high that they are essential. In addition, the Fund still agrees wage forecasts with all countries, most of which plan reductions as a % of GDP, and 29% of programmes have “structural benchmarks” for measures which need to be taken to reduce the overall wage bill. It is unclear how MDG-related wage spending and employment levels are protected in these circumstances, and PRGT documents do not analyse this issue. 


RECOMMENDATION 5: The IMF should analyse explicitly in all programme documents how anti-poverty expenditures will provide adequate funding for employment and wage levels needed to attain the MDGs, as well as proof that overall wage bill cuts (whether in ceilings or forecasts) and benchmarks will not lead to anti-poverty sector wage or employment cuts.

Minimum “poverty related” or “social” spending “floors” (in order to track and protect spending) were included in 35% of pre-PRGT programmes in 2008-10.  They have been much more extensively used under the PRGT, in 70% of programmes. However,

  • it is unclear why 30% of programmes still do not have a floor;
  • 16% of countries with floors are not publishing data on floors or their performance;
  • half of countries are not reaching their floors – and because they are only “indicative targets”, this has no impact on their programme reviews, and IMF documents do not analyse why.
  • in 16% of countries, floors have been revised downwards in PRGT reviews, and it is not clear why this is happening or how it is compatible with the MDGs.
  • the spending covered by the floors (and by structural benchmarks in a few countries) varies widely, in some countries including all health spending, and in others virtually none.
  • floors only assess all social expenditure covered, making it impossible to analyse whether spending in individual sectors (such as health) is being protected.


RECOMMENDATION 6: The IMF should improve poverty reduction spending floors by:

  • Adopting such floors in all PRGT programme countries
  • Publishing standard and transparent data on floors and actual spending for all countries
  • Analysing the floors (including any changes to targets) and country performance on attaining them in all programme review documents
  • Enhancing efforts towards a more uniform definition of floors in programmes, and to monitoring a standard basket of anti-poverty spending across all low-income countries;
  • Publishing more detailed data disaggregated by sector to facilitate analysis of country spending on the MDGs, and avoid spending cuts in some sectors to protect others.

Before the PRGT, the IMF introduced the practice of allowing some spending to be “adjusted” if donors provided more or less money than expected. The use of adjusters has not changed significantly since the PRGT, and it remains unclear why some countries still d not have them. However, the case studies show clearly that adjusters work most effectively where strong global pressure for free health care initiatives and improved health systems, has translated into strong national-level sector programmes with additional donor support. This has allowed large increases in health spending and improvements in MDG indicators, though there is evidence that cuts in other anti-poverty spending mean that  heath is crowding out other MDGs, and that even the strongest programmes suffer “gaps” between phases, or suspensions of disbursements when countries go “off track” with IMF programmes, which lead to volatile aid and spending.


RECOMMENDATION 7: Donors and developing countries should expand sector-wide initiatives for free health care to a much wider range of countries, enhance similar initiatives in other MDG sectors (education, water and sanitation, agriculture and food security) to avoid health crowding out other MDGs, and ensure that new phases of programmes are prepared and funded more quickly. The IMF should use adjusters to absorb increased spending in all LIC programmes, and donors should detach all disbursement decisions (especially on sector but also on general budget support) more clearly from IMF programme reviews

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