The need for a big boost in aid flows to developing countries and finding ways to finance debt relief for the poorest nations will be key themes at tomorrow's meetings of finance and development ministers in Washington.
World Bank President James Wolfensohn yesterday gave unqualified support to UK Chancellor Gordon Brown's call for a new International Financing Facility (IFF) that would help achieve both aims. But the plan is certain to provoke heated discussion.
The ministers will also consider a major replenishment of the World Bank's soft loans and grants agency, the International Development Association (IDA), although Wolfensohn emphasized that the proposed IFF will complement rather than compete with IDA for resources. Yet another avenue to be explored for aiding debt relief could be revaluation of the IMF's massive gold holdings, also proposed by Brown.
These issues will straddle the meetings of both the Development Committee, a policy-making arm of the World Bank, and of the IMF's International Monetary and Financial Committee (IMFC). Other key topics will be how to achieve the UN Millennium Development Goals that aim to halve world poverty by 2015, and how to raise the "voice and participation" of developing and transition countries in the global development debate. World economy issues will also figure prominently, with the oil price being uppermost, officials say.
Brown's IIF proposal seeks to raise the amount of development aid from $50 billion a year to $100 billion by the year 2015. This would involve long-term donor commitments, on the basis of which the IFF could leverage funds from global capital markets. The plan has the backing from France but the US, Japan and some European nations oppose it on the grounds that aid cannot easily be pre-committed and that doing so could cause future aid shortfalls.
Wolfensohn yesterday called the IFF proposal "enormously constructive" and stressed that the World Bank, which was initially ambivalent, would "support it wholeheartedly" when it is discussed by development ministers tomorrow. It would help to ensure that money, which IDA and other agencies use for financing debt relief to poor countries, could be ?replaced? so that it is available to other borrowers, he noted.
IDA itself needs replenishing and the Bank is "shooting for a significant increase? in funding, Wolfensohn said. Negotiations are already under way to provide 23.5 billion SDRs of new money to IDA to cover its 14th replenishment, which takes effect from next July. This would be one-third bigger than the 18 billion SDR that IDA received under its previous injection. "This is very important" given IDA's growing global commitments, he added.
"Various options" will be discussed for increasing resource flows to developing countries and for meeting the MDGs, Development Committee Chairman Trevor Manuel told Emerging Markets. These could include a new issue of IMF Special Drawing Rights (SDRs) as well as front-loading aid commitments. IMF Managing Director Rodrigo Rato yesterday noted that revaluation of the Fund's 103.4 million ounces of gold (currently valued by the market at $42 billion) had been done before, but it would require approval by the IMF board.
"All the proposed agenda items [for the Development Committee] are important," says Manuel. "However, given the political nature of some of these issues, more emphasis should be placed on building the necessary consensus in taking them foward. In particular, I would like to see progress being made on reaching a consensus on ways to address the voice and participation of developing and transition countries in the World Bank and IMF."