The global economy
High oil prices and global financial imbalances will occupy much official talk as well as chatter on the sidelines of the meetings. G7 finance ministers will again be confronted by the familiar challenges facing global economic growth, including the possibility of further oil shocks, the ever looming question of America's deficits as well as prospects for greater exchange rate flexibility.
On the plus side, global GDP growth is well above trend, and inflation remains low. So far, the rising price of oil has done little harm, but another spike, or serious disruption in supply, could have severe reprocussions. But both the IMF and the World Bank are warning that with energy demand growing strongly, underinvestment in supply – thanks to years of inadequate spending on exploration, development and refining capacity – could pose the biggest threat.
Increasing demand, notably in China, has driven the oil price boom; last year's increase in global oil consumption was the biggest for almost 30 years. But the role of speculators, whose bets that prices have further to climb have given the market an extra momentum - perhaps leaving it vulnerable to a future drop – will also be addressed.
Officials will be asking whether the solid performance seen in emerging economies can be sustained in the months ahead given the risks associated with the growing international payments imbalances. Debate will round on American fiscal profligacy, as well as whether the status quo can be maintained. America's current-account deficits have soared past 5% of GDP. For now, US consumers are still spending, but if that stops, the adjustment to the world economy could be severe.
Further exchange rate flexibility in Asia, following China's much anticipated adjustment to the value of its currency, the renminbi, will also be the subject of much debate, especially in the context of growing trade imbalance between the US and China. The impact of a further RMB adjustment - which sources say could entail a minimum 15% revaluation by the end of the year - will urge plenty of consideration.
Wolfowitz's debut
The world will be watching for a clearer announcement of Paul Wolfowitz's agenda during his debut meeting as president of the World Bank. Speculation is mounting that Wolfowitz plans to slim down the bank, possibly in a manner outlined by economist Alan Meltzer, who, in his seminal report in 2000, called for the institution's radical downsizing in favour of regional development banks. Moving the bank towards having a higher share of its portfolio in the form of outright aid and grants, instead of loans, is also a pillar of the Meltzer approach.
So far Wolfowtiz has focused on Africa, debt relief and the role the multilaterals can play in alleviating poverty on the continent. His first trip as president was to the continent, which he has pledged to make the centrepiece of his leadership. The big question is whether – and to what extent - the World Bank will remain engaged in Asia and Latin America. While having extended new loans to both India and Pakistan, there are signs that the bank may be gearing up to shift out of east Asia.
Yet whether other regions, such as the Middle East, will assume a greater place of prominence is also a matter of some speculation. There are indications, however, that Wolfowitz wants to get the job of reconstructing Iraq right. He is reportedly considering sending World Bank staff back to Baghdad, after a two year relocation to neighbouring Jordan following a bloody attack on the UN compound in August 2003. The bank's executive board also recently approved a plan to lend up to $500 million to Iraq's cash strapped government. The bank's involvement in Iraq is especially sensitive, given Wolfowtiz's previous role as a key proponent of the country's invasion, and so Wolfowitz will have to tread carefully to avoid the predictable charge that the multilateral has become a tool of US foreign policy.
Infrastructure finance will also be brought to the top of the agenda as developing countries clamour for more bricks and mortar support.
IMF and World Bank reform
Though previously known for his decisiveness and leadership abilities, there is mounting concern that IMF managing director Rodrigo de Rato has yet to hammer out his vision for the institution to which he was appointed last year, following acrimonious debate over the selection process.
Talk is that the managing director will use the meetings to chart out a future role for the institution. Delegates will keenly await the results of the IMF's strategy review which could provide the basis for a more comprehensive discussion about the Fund's prospects.
The issue of voting structure at both the Fund and the World Bank is also still very much in the minds of delegates, especially developing countries. There will be a renewed impetus to give developing countries, especially Asia, a greater say in running the institutions.
Poverty and aid
The Millennium Development Goals - which were supposed to cut extreme poverty in half and improve social indicators such as education and health care – narrowly escaped their demise at the recent UN Summit. But on present trends, most poor countries will nevertheless miss almost all the goals, in some cases by "epic margins." How Wolfowitz will weigh in on this debate, especially in light of his government's apparent opposition to the targets, will be watched closely.
Against this background, a renewed political push for industrialized countries to meet their 0.7% target for overseas development aid will be crucial. So too will the G7 statement on debt relief. Nailing down agreements made at the G8 finance minister's meeting in June, as well as what was promised at the Gleneagles Summit, is vital for further progress.
As stands, there is inadequate funding in place and developing countries, together with civil society, will be pushing for an extension of relief and assurances that no new conditionality will be introduced.
International trade
The issue of trade - the single most important external source of development financing – will also loom large. Developing country leaders have in recent weeks stepped up their offensive to get rich countries to end farm subsidies.
Delegates, of course, will be under no illusions as to the size of the task facing their trade negotiators in trying to put the Doha global trade talks back on track. With just three months to go to the Hong Kong ministerial conference, which must approve a blueprint for a final trade package a year later, virtually none of the key issues have been resolved. Officials, accordingly, will call for renewed impetus to save the flagging trade round.
Increased support to the integrated framework for trade-related capacity building will figure high on the agenda. At the same time, proposals for an adjustment fund for countries who suffer adverse effects from trade liberalization may also be considered.