The Growth and Reducing Inequality Working Paper Series is a joint effort of the G-24 and Friedrich-Ebert-Stiftung New York to gather and disseminate a diverse range of perspectives and research on trends, drivers and policy responses relevant to developing country efforts to boost growth and reduce inequality. The series comprises selected policy-oriented research papers contributed by presenters at a Special Workshop the G-24 held in Geneva (September 2017) in collaboration with the International Labour Organization and the Friedrich-Ebert-Stiftung, as well as relevant sessions in G-24 Technical Group Meetings.
The essence of ownership is the acceptance of full responsibility for the consequences of a program. Ownership matters because of the expectation that program design will be more appropriate and country authorities will be resolute in taking steps domestically to ensure full implementation of the program. The steps include seeking proper domestic legitimation, which will prevent certain "political economy" factors from disrupting program implementation. That program success is correlated with degree of ownership and that ownership is correlated with implementation, which in turn is correlated with program legitimation, are supported by available evidence. Ex ante selectivity is easily made preferable to ex post, and for financial support a recipient country must satisfy the donor country team as to the reality of ownership, soundness of the program (policies and outcomes), and adequate implementation capacity. From a positive perspective, forces operating on both the demand and supply side of aid should inevitably bring about a new equilibrium regime in the aid relationship that excludes traditional conditionality
The governing structure of the Bretton Woods Institutions –that is, the International Monetary Fund and the World Bank– was determined sixty years ago. In 1944, a few industrial countries accounted for the bulk of world output, trade, and capital flows. This is no longer the case. Developing countries and economies in transition, the more dynamic elements of the world economy, account today for the same volume of output as the Group of Seven (G-7) countries in terms of purchasing power parity, and for 84 percent of the world’s population. They can no longer be dismissed as minor partners in the global economy.
The lack of adequate representation of the developing countries and emerging market economies in the governance of the global economy and the declining commitment of major countries to a multilateral rules-based system of international monetary cooperation has resulted in short-sighted, and politically motivated decisions by major shareholders, which undermine the efficacy of the IMF and World Bank and have adverse consequences for world economic growth and stability. Indeed, the non representative character of the governance of these institutions increasingly threatens the integrity of the international monetary system, as countries in Asia and elsewhere move away from the IMF and take distance from the World Bank, leaving the institutions to deal mainly with low-income countries.
This paper provides an overview of the international monetary system, briefly discussing six key problems1 in which the concentration of power in a few countries and the limited participation of developing countries in the discussion of systemic issues leads to poor results:
1. the correction of global imbalances;
2. the role of the IMF in the adjustment process; 1 For reasons of space, other important problems, such as the issue of negative net transfers of resources to developing countries, and the problems of the low income countries will not be discussed. 2
3. combating deflation through countercyclical policies;
4.financial crises prevention and resolution;
5. the management of international liquidity, and
6.responding to commodity shocks.
Overcoming these problems requires a renewed commitment of industrial countries to a rules based multilateral system and the participation of developing countries in decision making in a manner commensurate with their economic importance.
The governing structure of the BWIs was determined in 1945 when a few industrial countries accounted for the bulk of world output, trade and capital flows This is no longer the case.The developing countries and economies in transition account for the same volume of output as the G7 countries, in terms of purchasing power parity, and for 84 percent of the world’s population and can no longer be dismissed as a minor partner in the global economy. The lack of adequate representation of the developing countries in the governance of the global economy has adverse consequences for world economic growth and stability.
The paper discusses seven key problems of the international monetary system; namely, correction of global imbalances, combating deflation through countercyclical policies, financial crises prevention and resolution, negative flows of capital to developing countries, management of international liquidity, commodity shocks, and the problems of the poorest countries. It is argued that optimum solutions in these areas require the participation of both developed and developing countries. The correction of global imbalances by (Plaza type) agreements among a few industrial countries is found to be no longer feasible and solutions arrived at without the full participation of developing countries, are unlikely to work (i.e. the CCL, the SDRM, the HIPC strategy) Solutions to global problems require the full involvement of developing countries in a manner commensurate with their economic importance.
Capital flows to developing countries have seen a robust revival after the slump following the East Asian financial crisis. This paper argues that in the wake of financial liberalization, supply-side factors rather than the financing requirements of developing countries explain the surge in cross-border flows. Increasingly a small number of centralized financial institutions intermediate global capital flows and the investment decisions of a few individuals in these institutions determine the nature of the “exposure” of the global financial system. This has implications for the accumulation of risk and vulnerability to financial crisis in markets where agents tend to herd.