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Analysis

G20 Finance Conclusions
on the Architecture of International Financial Institutions, 1999-2009

Drawn from G20 finance communiqués
Anton Malkin, G20 Research Group, August 2009

Summary of Conclusions on IFI Architecture in G20 Finance Communiqués

Notes: *emergency meetings

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Definition

This issue area includes the activities of the Bretton Woods institutions, as well as other international financial institutions (IFIs) such as the Financial Stability Board (FSB) and its former incarnation, the Financial Stability Forum (FSF), as well as the International Monetary and Financial Committee (IMFC) of the International Monetary Fund (IMF). It includes these institutions' responsibilities such as policies and consensus-oriented activities that help shape and govern the global financial system. Thus the issue area considers the "financial architecture" built on these global institutions — their institutional role, effectiveness, legitimacy, coordination and lending activities. It does not include IMF governance reform, trade architecture, debt crisis in emerging markets, capital account liberalization or exchange rates. It does, however, include the institutional crisis management role of the IFIs.

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Criteria

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Conclusions on IFI Architecture in G20 Finance Communiqués

Berlin, Germany, December 15-16, 1999
Overview

They welcomed the important work that has been done by the Bretton Woods institutions and other bodies toward the establishment of international codes and standards in key areas, including transparency, data dissemination, and financial sector policy. They agreed that the more widespread implementation of such codes and standards would contribute to more prosperous domestic economies and a more stable international financial system.

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Montreal, Canada, October 25, 2000
Communiqué

As G20 Finance Ministers and Central Bank Governors, we are committed to working together to promote policies that successfully meet this challenge. In particular, we agree to:

1. Commit ourselves to further improve the effectiveness of international institutions, which are fundamental to a strong and stable global financial system. These efforts include increasing the transparency of their activities and decision-making processes, and enhancing co-operation among them.

5. Strengthen our efforts to combat financial abuse, including money laundering, tax evasion and corruption, given its potential to undermine the credibility and integrity of the international financial system, cause serious macroeconomic distortions, and jeopardize national financial sectors. Market integrity is an important pre-condition for financial stability, and we look forward to the joint paper by the IMF and World Bank asked for by the IMFC on their respective roles in combating financial abuse and in protecting the international financial system.

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Ottawa, Canada, November 16-17, 2001
Communiqué

Building on our discussion at our last meeting in Montreal, we reviewed our experiences in responding to the challenges of globalization. We agreed that greater economic integration has led to demonstrable improvements in living standards for the vast majority of our citizens. The G20 and other countries that have integrated into the global system have in general made significant progress in raising real incomes and reducing poverty. But globalization also poses a number of challenges and risks, which call for enhanced international co-operation. We recognise the need to work with the international financial institutions and World Trade Organisation to ensure that the benefits of globalisation are shared by all, including the poorest countries. To obtain the full benefits of globalization, our governments have a critical role in creating well-developed domestic institutions, good governance and sound domestic macroeconomic, social, and structural policies. As reflected in the Montreal Consensus, by sustaining such policies we ensure that our economies are better able to maximize the contribution of open markets to growth, equity, and well-being for all our peoples.

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Delhi, India, November 23, 2002
Communiqué

Economic Situation and Financial Stability

We believe that effective and accountable International Financial Institutions (IFIs) and worldwide surveillance are essential for a healthy global financial system. Sustainable exchange rate regimes, prudent asset-liability management, and implementation of agreed standards and codes are important components of an effective strategy for crisis prevention. We agreed on the need for sound national financial systems, effective supervision, and corporate governance in line with global best practice. We also agreed that capital account liberalisation should proceed in an appropriately sequenced manner.

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Morelia, Mexico, October 26-27, 2003
Communiqué

We reaffirm our mandate to review and promote crisis prevention and resolution measures. We encourage the IMF to continue to enhance its capacity to identify vulnerabilities, such as currency and other balance sheet mismatches, and provide advice to member countries on policy reforms.

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Berlin, November 20-21, 2004
Communiqué

7. Against the backdrop of global demographic changes, we assessed trends in our countries and the challenges they present for economic policy. As all our countries will be affected by ageing-related budgetary pressures in the coming decades, we are well aware of the need for fiscal consolidation and further structural reforms. However, policy challenges differ greatly among countries in the short-term. Countries that will encounter ageing problems first need to integrate a larger part of their working-age population into the labour force, expand individual working life and implement life-long learning. Countries that will experience a rise in the working age population before the problematic impact of ageing becomes apparent should increase investment in human-capital and infrastructure while pursuing prudent fiscal policies. We emphasised the importance of a stable and efficient international financial system that allows smooth flows of capital between regions at different demographic stages. We are committed to strengthening the monitoring of economic challenges of an ageing population and surveillance of respective policies and call on the IMF to regularly include, e.g. every four years, in the context of its Article IV consultations a thorough and integrated analysis of these long-term challenges and policy responses. Building on this, the G20 will review demographic, migratory, and other long-term challenges regularly at a global level.

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Xianghe, China, October 15-16, 2005
Communiqué

5. We acknowledge the Bretton Woods Institutions (BWIs) have made significant contributions to growth and development, and the improved functioning of the international monetary systems. However, the evolution of the international economy and global financial markets requires a continuing review of the representation, operations, and strategies of the BWIs. We have discussed the necessity for, and committed our strong support to, reforming the BWIs. We have issued a “G20 Statement on Reforming the Bretton Woods Institutions”, which underlines the importance of improving governance, management and operational strategies of these institutions, and aims at providing support to the reform of the BWIs.

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Xianghe, China, October 15-16, 2005
Reforming the Bretton Woods Institutions

1. We, the Finance Ministers and Central Bank Governors of the G20, highlight the vital role the Bretton Woods Institutions (BWIs) should play in promoting macroeconomic and financial stability, economic growth, and poverty reduction. We recognize the need for the BWIs to be effective in delivering these objectives and believe that high standards of governance and internal management are critical. We welcome the IMF Managing Director’s Strategic Review. More work is needed to develop a ‘roadmap’ for the future strategic reform of the BWIs, and we look forward to the work underway at the IMF to develop further details of the Strategic Review.

2. It is our shared view that more innovative approaches and renewed commitments are needed to cope with dynamic issues, such as growing international interdependence and interactions through trade and financial integration, uneven progress toward alleviating poverty and achieving the development goals of UN Millennium Declaration, prevention and resolution of international financial crises, and external shocks. Within this context, we agree upon the strategic importance for the BWIs to reinvigorate their fundamental missions and roles in meeting new challenges in a globalized world economy.

Mission of BWIs

3. We reaffirm the complementary roles that the BWIs are called to play, and recognize that promoting macroeconomic and financial stability and development continue to be of critical importance. Likewise, we believe there is a need to ensure effective pursuit of, and tangible progress towards, these objectives to further strengthen efficient cooperation between the two institutions. The IMF should primarily focus on national and international macroeconomic and financial stability, exercising enhanced surveillance of the global economy, international capital markets and strengthening crisis prevention and resolution. The World Bank should keep its focus on development, sharpening its financial and technical assistance roles for both least-developed countries and emerging markets. We welcome the review of the division of responsibilities launched by the two managements, taking into account external expertise, as part of the strategic review and look forward to their report to the International Monetary and Financial Committee (IMFC) and the Development Committee (DC) at the Spring Meetings in 2006.

Governance of the BWIs

4. The world economy has evolved considerably since the founding of the BWIs, with fast growth in many emerging markets and deepened integration in industrialized countries. We reaffirm the principle that the governance structure of the BWIs – both quotas and representation – should reflect such changes in economic weight. The G20 underscores the critical importance of achieving concrete progress on quota reform by the next International Monetary Fund (IMF) and World Bank Annual Meetings in Singapore. The G20 will seek to identify principles for quota reform which could be an important input into the IMF’s Thirteenth General Review of Quotas, scheduled to be completed by January 2008.

Management and Operational Strategies of the BWIs

5. We believe the IMF and the World Bank should work to enhance their institutional effectiveness, and that the strategic review needs to consider how to improve internal governance. The selection of senior management should be based on merit and ensure broad representation of all member countries.

6. We believe the BWIs should adjust their operations in a timely manner so as to meet the changing needs of their members, while maintaining their high quality standards and results-orientation. The BWIs should continue improving their lending frameworks, and consider ways to best meet their members’ needs for financial assistance, while ensuring continued financial strength and minimizing moral hazard.

7. All G20 members are committed to ensuring the continued role of the BWIs and will focus their efforts on strategic reform measures in the coming years. We will revisit these issues at our next meeting in Australia in 2006.

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Melbourne, Australia, November 18-19, 2006
Communiqué

The G20 believes that the effectiveness and legitimacy of the IMF and World Bank must be enhanced through comprehensive governance reform and strategic policy review.

We emphasised the importance of modernising and strengthening IMF surveillance to meet the demands of globalisation and agreed to further consider broad directions in surveillance, focusing on desirable objectives and medium-term priorities, as input to IMF discussion on a remit for surveillance in the first half of 2007. We also welcomed the IMF review with a view to updating the 1977 decision on surveillance over exchange rate policies.

We welcomed the initiative taken in March 2006 by the heads of the two institutions to establish an External Review Committee on World Bank-IMF collaboration. We were joined by the chair of the Committee, Mr Pedro Malan, in our discussion of key issues around the responsibilities of the two institutions.

We reiterated the position expressed in our October 2005 Statement that the selection of senior management of the IMF and World Bank should be based on merit and ensure broad representation of all member countries. We welcomed consideration of any steps to ensure a fully transparent process for the selection of the IMF Managing Director and the World Bank President.

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Kleinmond, South Africa, November 17-18, 2007
Communiqué

Bretton Woods Reform

14. Building on our statement on Reforming the Bretton Woods Institutions, issued in 2005 and following our work in 2006, we reiterated our commitment to strengthening the credibility, effectiveness and legitimacy of the International Monetary Fund (IMF) and the World Bank. The G20 has made further progress in 2007 in contributing to the IMF’s efforts to find a solution to the second stage of IMF quota and voice reform. We were pleased to note that the forum’s efforts in 2007 have contributed to a convergence of views among the IMF’s members. We reiterated that the reform should enhance the representation of dynamic economies, many of which are emerging market economies, whose weight and role in the global economy have increased. We also reiterated our commitment to continuing our discussion in order to develop a consensus within the timeframes set by the Governors in 2006. We encourage the Executive Board to continue its work in order to allow agreement on all elements of the package by Spring 2008.

15. We also noted further progress with other policy and internal governance issues raised in our statement in 2005 on Reforming the Bretton Woods Institutions, including the IMF’s adoption of the new 2007 Decision on Bilateral Surveillance over Member’s Policies, and the progress made in establishing a framework for developing a new income model for the IMF. The adoption of an income model and the further reduction in expenditure through Fund-wide priority setting, which should be pursued simultaneously, can place the Fund’s finances on a sustainable footing. We look forward to similar progress being made on the design of a new liquidity instrument. We welcomed the announcement that the IMF has secured sufficient financing pledges from member countries to allow the Fund to provide debt relief to Liberia. We welcomed the steps being taken within the World Bank to address the challenges of internal governance reform. We welcomed the early efforts of the new President to set out a comprehensive strategic policy direction for the Bank and look forward to contributing to the further development of this framework. We also welcomed the Bank’s continuing efforts to improve the voice and representation of its emerging market and developing member countries, which should be part of this strategic framework. Within this framework we encourage its role in fostering lending in local currency as a means to develop domestic capital markets which will enhance better liability management.

16. We reiterated the position expressed in our November 2006 statement, that the selection of senior management of the IMF and World Bank should be based on merit and should ensure broad representation of all member countries; and urged the improvement in the process for the selection of the IMF Managing Director and the World Bank President. We reaffirmed our strong commitment to continue contributing to the reform efforts of the two institutions

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Sao Paulo, Brazil, November 8-9, 2008
Communiqué

13. 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 IMF´s 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.

14. We agreed that we must draw policy lessons from the current crisis and take all necessary steps to restore market confidence and stability and to minimize the risk of a future crisis. Given its near universal membership and core macro-financial expertise, the Fund should take a leading role in this task consistent with its mandate. We believe that the IMF must enhance its early warning capabilities with due regard to systemically important economies, in order to anticipate stresses and identify at an early stage vulnerabilities, systemic weaknesses and spillover risks across financial markets that can endanger both the international financial system and the global economy. We also underline the importance of strengthening the IMF surveillance and policy advice leading to appropriate and timely macroeconomic policy responses from all countries.

15. In response to the challenges presented by the global financial situation, and recognizing the global nature of financial markets, we believe that the FSF must expand to a broader membership of emerging economies.

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Horsham, United Kingdom, March 14, 2009
Communiqué

5. We are committed to helping emerging and developing economies to cope with the reversal in international capital flows. We recognise the urgent need to pursue all options for mobilising International Financial Institution (IFI) resources and liquidity to finance countercyclical spending, bank recapitalisation, infrastructure, trade finance, rollover risk and social support. We agreed on the urgent need to increase IMF resources very substantially. This could include further bilateral support, a significantly expanded and increased New Arrangements to Borrow (NAB), and an accelerated quota review. We should also ensure that all Multilateral Development Banks have the capital they need, beginning with a substantial capital increase for the Asian Development Bank, and put it to best use to help the world’s poorest. We welcomed the progress by the IMF and World Bank in introducing new and enhanced instruments, including the development of anew high-access, quick-disbursing precautionary facility.

To further strengthen the global financial system we have completed the immediate steps in the Washington Action Plan and we welcome the Financial Stability Forum’s (FSF) expansion to all G20 members. We remain focused on the medium term actions, and make recommendations to the London Summit to ensure … strengthened international cooperation to prevent and resolve crises, including through supervisory colleges, institutional reinforcement of the FSF, and the launch of an IMF/FSF Early Warning Exercise.

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