Singapore IMF-World Bank meetings September 2006 Report to the Second Committee 12 October 2006

1. Singapore IMF-World Bank meetings September 2006Report to the Second Committee 12 October 2006

2. 2005 World Summit Outcome reiterated commitments to • global partnership for development • internationally agreed development goals, including MDGs • National Development Strategies by end-2006

3. Debt sustainability UN SG defined this as enabling countries to acquire financing to meet the MDGs without further deterioration of their indebtedness

4. Recent increase in ODA, but • many one-time commitments • (e.g. debt relief, disaster relief) • effect of US$ depreciation • aid for LDCs lower (compared to 1990)

5. Need: • more predictable long-term aid flows • greater share of aid through national budgets • better mobilization of domestic resources

6. Recent global economic growth high, but unsustainable, primarily because of global (mainly US) imbalances Other challenges: • high oil/energy prices • vulnerability of financial, especially US mortgage, markets • threat of new military conflicts • threat of pandemic, especially avian flu

7. US current account deficit will exceed $900 billion by end-2006, paradoxically strengthening external sectors and reducing indebtedness in East Asia Adjustment likely to have contractionary effects on world economy, likely to be more adverse in the South

8. In recent 3-4 years, economic growth higher in South than North largely due to higher commodity prices, as in late 1970s external financing costs relatively low private capital flows to emerging markets increased recently

9. However • global liquidity may decline due to inflationary expectations • despite recent increased financial resources to South, net flow still negative, i.e. to North • US absorbing much of these transfers

10. International financial system reform Current IMF resources (about $225bn) inadequate for crisis But sharp fall in US external deficit can cause collapse of global earnings far greater than IMF resource capacity to provide short-term liquidity

11. Challenges • inadequacy of IMF resources [WB, not IMF, should lend to LDCs] • new SDR allocations • sufficient official finance for speedy crisis prevention and management [recent proposals signal vulnerability to crisis, unattractive to emerging markets] • regional financial/reserve pooling arrangements should be complemented -- not opposed -- by IMF

12. Inclusion • urgent need for more inclusive (not G7/8 or L20) international macroeconomic policy coordination; need for impartial arbiter, proactive coordination • IMF policies should be harmonized with national economic strategies, rather than converse

13. Inclusion (cont.) • IMF losing client base, especially among middle income countries; need for critical self reflection on recent record, e.g. Asian, Argentine crises.

14. Voice and participation • strengthen voice and participation for developing countries, through: • greatly enhanced basic votes • 1944: 11.3% for 44 countries • 2006: 2.2% for 184 countries! • quota revisions • change in size, composition, role, responsibilities of executive board

15. Doha round talks breakdown concern • ‘development round’ promise very doubtful • further constraints on policy space for development • WB: much more modest estimates of static gains • Non-agricultural market access (NAMA) concessions • greater recognition of dynamic costs

16. Aid for trade • tariff revenue losses • existing production capacities undermined • difficult to develop competitive new production capacities • commitments modest and diversionary