President Jacob Zuma has travelled to this year’s G20 summit in Cannes to highlight the need for global governance reforms as well as enhanced growth, jobs and infrastructure development on the African continent.
Established in the tumultuous aftermath of the 1997 Asian Financial Crisis, the purpose of the G20 is to give advanced and emerging economies an equal say over the creation of a global financial market. Every year G20 leaders meet to discuss the vagaries of the world economy and evaluate their own fumbling attempts at correcting the evils of their ways.
Integral to the workings of the G20 is the International Monetary Fund. The IMF was founded to stabilise international exchange rates and influence the development of emerging economies through loans, restructuring or aid. Last year, Zuma travelled to the G20 summit to insist on reforms to the IMF that would force it to better serve the African continent. At the end of the summit in Gyeongju, Korea, G20 finance ministers and central bank governors agreed to move voting shares towards the developing world. Brazil, China, India, and Russia all progressed up to the top 10 shareholders of the IMF. The deal was lauded as a “historic” move for the IMF, signalling a shift of power to the developing world. But still, Zuma went to this year’s G20 summit, looking for reforms to the IMF once more.
This time, Zuma is seeking better representation of sub-Saharan Africa on the board of the IMF.”The reform of international financial institutions remains a critical point for South Africa,” a statement from the presidency said. “On IMF reform, South Africa has a specific objective: To increase the voice and participation of sub-Saharan Africa and the creation of a third chair for sub-Saharan Africa.”
Addressing business leaders at the G20 Summit in Cannes on Thursday Zuma said, “The least developed countries are innocent bystanders, who have been caught up in the economic turmoil” of the global financial crisis.
A recent report on Uganda illustrates the vulnerability of fledgling economies in the crisis. The Ugandan currency, the shilling, has fallen dramatically this year. While the shilling has started to recover from that fall, the impact of the fall is still tangible. The cost of importing fuel has risen sharply, pushing up the cost of transporting items such as meat, which in turn has exacerbated rising food prices in Uganda.
Zuma rightly points out that the world’s least-developed countries remain at risk unless a unified solution to the global financial crisis is reached. As Europe continues to dither on a solution to the crisis, policymakers around the world are searching for ways to improve the structure of the international financial system so that it benefits countries like Uganda. The G20 are of course integral to determining such processes.
South Africa, as the only African representative on G20, seeks to ensure that the IMF is transformed into a fully-inclusive forum.
Riaz Tayob of the South African chapter of the Southern and East African Trade Institute (SEATINI) explains that South Africa has a close affinity with the IMF. “South Africa has played an important role at the IMF, with Trevor Manuel having chaired the development committee,” he says. Tayob notes that the IMF availed to South Africa its allocation of special drawing rights – an international reserve asset to supplement its member countries’ official reserves – in case it needed it due to the global economic crisis.
Tayob, however, explains that, while measures have indeed been taken to achieve more inclusive governance of the IMF, “there are many reasons why South Africa would want to increase the power of sub-Saharan Africa at the IMF.”
Structural changes to the voting powers of IMF members can be traced back to September 2006 when the IMF changed its voting arrangements to increase the voting power of four principle developing countries, China, South Korea, Turkey, and Mexico. Tayob notes this was achieved despite substantial opposition. In the meanwhile, “Africa gained a paltry 0.5%,” he says, taking its collective vote to 6.5%. In contrast, “The rich countries’ share of votes dropped from 60.6% to approximately 59%,” Tayob says.
When he addressed the IMF last year, Zuma said, “The developing world has an equal right to direct the work of these institutions.” He added that the emphasis on reform of global governance institutions should not be construed as a special concession. “When we raise these issues, we should not create the impression that we have come cap-in-hand to ask for favours,” he said.
Tayob believes that the prominence of reform on Zuma’s G20 agenda is laudable. “What the Zuma administration is doing is commendable,” he says, “As it joins other developing allies in seeking reform of the IMF and a more just global economic architecture.”
For now however, the IMF is unlikely to be swayed by Zuma. Tucked away in the Frequently Asked Questions section of the IMF website is an answer to Zuma’s entreaties. “Will the reform have any discernible impact on countries in Africa? Will there be a 25th chair in the executive board?” the question reads. “The G20 proposed moving ‘to an all-elected board, along with a commitment by the fund’s membership to maintain the board size at 24 chairs, and following the completion of the 14th General Review, a review of the board’s composition every eight years.’ It also proposed a review of the quota formula by January 2013.”
Tayob notes that the drive towards reform will be a protracted one. “This will be a long battle given that the rich countries seek to maintain their privileges in the IMF and it seems like good governance is an issue only to be applied to poor countries, but not the international institutions that are dominated by the rich countries,” he says. “Zuma exposes this double standard and it is no doubt costly in diplomatic currency to pursue this option. It would enhance our position much more if South Africa also pushed for debt cancellation for other African countries.”
As the world watches the G20 and Greece with some mixture of anticipation and trepidation, it is clear that the international monetary system and the global imbalances that have resulted from it are indeed in dire need of reform. DM