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The big headline from Pittsburgh was the G-20 officially becoming the recognized grouping on “global economic issues”, eclipsing forever the nearly four-decade role of the G-7/8. Presumably that was the quid pro quo for three steps by China: (1) its signing on to the promise in the communique to support for increasing domestic consumption at home to deal with the global imbalance problem; (2) keeping alive that China will find a way to help fill the unfilled gap in the $750 billion to be made available by the G-20 countries to the IMF’s short-term resources; and most important (3) the 5 percent shift in voting power at the IMF to underrepresented countries, which means mostly China.
But insiders can only be disappointed about the contrast between the ascendancy of the more inclusive and representative G-20 (though NOT IDEAL) and the timidity of planned reforms at the Bretton Woods institutions to make them more inclusive and representative. First the G-20 heads of government let stand the antiquated and embarrassing quota formula at the IMF – presumably to quiet the Europeans who benefit from the inclusion in the formula of trade/GDP among countries even within their EU trading zone.
At the World Bank, the promised three percentage point increase in voting power for developing countries, which will increase their total to 47 percent, is a Pyrrhic victory. It fails to go to the heart of the matter, which is about overall influence and sense of ownership – a function as at the IMF of how the head of the institution is selected, how Board chairs and the Board’s budget are distributed, and with whom both positive and effective veto power rest.
In short, no one should be fooled that these promised changes in governance at the institutions alone make any fundamental difference in the distribution of influence and power and the prospects for increased responsiveness and effectiveness.
The agenda for action to tackle illicit financial flows has passed an important threshold. While the G-8 meeting which concluded today did not agree everything that had been hoped, there was tangible progress in two out of the three main areas.
The day before we recorded this Wonkcast news broke of an agreement between the United Kingdom, France, Germany, Italy, and Spain to pilot “multilateral automatic tax information exchange.” My guest, research fellow Alex Cobham, explains why this is so important, why financial secrecy and international tax law seem suddenly to be at the top of the global economic policy agenda—and why this could be especially good news for developing countries.