The Global Economic Governance (GEG) Africa programme is a policy research and stakeholder engagement programme to strengthen the influence of pro-poor African coalitions at global economic governance fora.
Thursday, 24 October 2013 09:36

Global Financial Governance and Impact Report

Written by New Rules for Global Finance

For over a decade, New Rules for Global Finance has been advocating and engaging in reform of the institutions shaping global finance. The goal is to ensure that global finance has the maximum positive impact on the lives of the world’s citizens, by including the voices of the excluded and affected are heard at the decision tables. For this reason, New Rules (in conjunction with many like-minded organizations) have launched an annual Global Financial Governance and Impact Report, with the immodest task of assessing the governance and impact of the institutions that are supposed to write the rules for global finance: the FSB, G20, IMF, World Bank and other tax rule-making bodies (OECD and UN).

The South African Institute of International Affairs (SAIIA), who manage Tradebeat, has been one of the partners involved in the production of this report. Below is an excerpt from the Executive Summary (without tables).

Click here to dowdload the report in PDF from the New Rules website.

WHY A GLOBAL FINANCIAL GOVERNANCE AND IMPACT REPORT?

In 2008, the world was hit by a massive global financial crisis, which almost everyone now acknowledges reflected an abdication by the world’s leaders of their responsibilities for governing global finance. This was based on an incorrect assumption that free and liberalized financial markets would solve the world’s problems and produce the best possible outcome for its citizens. Global finance was largely ungoverned, and the citizens of the world paid a heavy price for the resulting market failures.

As a result of the crisis, world leaders decided on a major reinforcement of the institutions which are supposed to govern global finance: the Group of Twenty (G20), Financial Stability Board (FSB), International Monetary Fund (IMF), Organization of Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank. But what has all this effort achieved? Are the rules for global finance achieving greater positive impact for the world and its citizens? Are the institutions setting those rules well-governed in a transparent, accountable, inclusive and responsible way? Can we be confident that finance will achieve more equitable and sustainable development?

THE FINDINGS OF THE REPORT: FROM “POOR” TO “MODERATE”

This report is the first ever attempt to assess the major institutions engaged in international financial rule-making, for the quality of their governance and their impact on the world’s poorest countries and citizens. Its findings are not encouraging.

Each chapter of this report contains a detailed qualitative assessment of the governance and impact of one institution. Based on these detailed analyses, the authors have assigned “scores” to each institution (see annexes for the details of the criteria).

Overall, the results are very disappointing. On both governance and impact, the overall average score across all institutions is “Poor, Moderate Outlook” (less than 2 out of a possible 4).

GOVERNANCE: TOO MUCH AD HOCERY, NOT ENOUGH IMPROVEMENT

The report assesses all institutions for the same four components of Governance: Transparency, Inclusiveness, Accountability and Responsibility. On these, the FSB, IMF and World Bank score slightly higher, reaching an average level across the four criteria of 2 (Moderate);  the G20 and Tax Rule-Making Bodies perform less well, with only 1.5 (Poor) (See graph below).

Too much of the governance of global finance remains ad hoc, with non-transparent, non-inclusive, largely unaccountable and un-responsible institutions wielding great power: this is particularly true of the G20 and the multiple tax rule-makers. The poor governance of the G20 is particularly worrying as it now exerts inappropriate authority over the agenda and processes of the other global rule-setters, superseding their formal governance structures.

Many organizations have made considerable improvements over time, as reflected in the report’s analysis: examples include: the FSB calling for public input into policy documents well before they are finalized; the G20 having consultative forums with civil society, business and think-tanks; the IMF revising its Staff handbook on CSO relations; and the World Bank’s enhancement of its Independent Evaluation Group. In some cases (FSB and G20) these reforms have come reasonably rapidly, whereas in others they have been slow.

However, other “reforms” are less convincing: the FSB’s Regional Consultative Groups do not constitute genuine consultation or inclusion, and the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes does not represent full participation in global tax rule-making.  There remains a massive distance to travel before the institutions reach an acceptable level of basic governance standards.

IMPACT: SOME MODERATE PERFORMERS BUT A LONG WAY TO GO

The report also assesses each institution for the impact of its actions on the poorest countries and citizens of the world. It is astonishing how little analysis has been conducted (including by the institutions themselves) of their huge overall impact, especially given their immense power. As a result of this lack of analysis, it has not been possible to use a common analytical framework. Instead, experts on individual institutions have assessed impact in different ways, taking account of the differing mandates of the institutions.

Among the institutions, the IMF and World Bank are assessed as scoring more highly at “moderate to good” levels of 2.4-2.6, the G20 just reaches the “moderate” category at 2.1, the FSB is “poor” but with a slight moderate outlook at 1.4, and the tax institutions score the poorest at only 1 (See graph below).

To some degree, as with the governance category, these low scores reflect the mandate of each institution (i.e. how much it focuses on low-income countries, or global development), as well as the amount of time for which each institution has focused on development (much longer for the IMF and World Bank).  As with governance, there have also been recent improvements, with the G20 having a Development Working Group and assessing how to improve the availability of long-term development financing; the FSB assessing the needs and impact of its recommendations on emerging and developing economies; the IMF and World Bank focusing increasingly on poverty reduction and more equitable development; and the tax institutions looking at how tax policies can be more equitable and focused on developing countries’ collecting taxes from transnational corporations and tax avoiders.

Nevertheless, in all institutions, there are huge gaps between declarations and actions, and all have a very long way to go before they can confidently declare that they are having a strong positive impact on equitable and sustainable development. How seriously the institutions (especially the G20) incorporate the post-2015 development agenda into their discussions and actions will be crucial to their future success.

THE WAY AHEAD: RECOMMENDATIONS, ANALYSIS AND POPULAR MOBILISATION

This is the first ever attempt to assess the quality of the governance and impact of the institutions trying to set the rules for global finance. It provides a snapshot as of September 2013, while aiming in the text to reflect recent efforts by institutions to improve their practices. All the authors recognize that errors are likely, and improvements in our own methodology are vital.  In particular, we place less importance on the numbers quoted above, than on the reality they point to, and the analysis which underlies them in each of the chapters, which we hope will provoke widespread discussion and debate.

We also welcome all efforts to improve our methodology, as well as feedback, comments and questions about the findings, and look forward to reflecting these contributions in future reports. Most of all, we welcome examples of good performance on which the institutions can build, and will celebrate future improvements by them. Based on these ideas, future reports will include priority recommendations for each organization to improve further its governance and its positive impact on the world’s citizens.

Another interesting issue to examine in future will be causality between low governance scores and low impact scores. As the experts writing this report agree, the fact that the voices of low-income countries and the world’s poor citizens are rarely heard in the forums governing global finance almost certainly explains why they have disappointingly low impact on improving their lives. In future reports we hope to identify which governance reforms would most change this cycle, and yield much stronger positive impacts.

We also hope that this report will provoke much greater investment in analysis on the impact of these institutions on the world’s poorest people. Repeatedly when writing this report, its authors confronted a vacuum of analysis on impact on low-income countries, which means that those making decisions on global governance are operating on the basis of assumptions that what works in OECD (or emerging market) countries will work elsewhere, on preconceptions without evidence, or don’t really care about impact. This will change only when those who do care about these issues are able to conduct more analysis.

Finally, we want to make sure that this report contributes more energy to the global popular movements which have sprung from the global financial and economic crisis: those fighting for louder voices of the poor in global governance, for stronger financial regulation, for fair national and global taxes, and for fully funding basic government services needed by the poor. Only if they achieve their goals will the global community succeed in shaping a global financial system which serves the real economy and the people of the world.

Read 4480 times

Click the button below to receive email updates any time new GEG Africa material is posted. (Or click here to subscribe to the quarterly GEG Africa newsletter).

SUBSCRIBE