April 3, (Bloomberg)-The International Monetary Fund, dismissed as increasingly irrelevant when the world economy was booming, will now wield more than $1 trillion to help bring it back to life.
Leaders from the world’s most powerful nations, meeting in London on Thursday, agreed to triple the money the IMF can lend to rescue crisis-stricken nations, to $750 billion.
The agency will also get another $250 billion in Special Drawing Rights, an overdraft facility for its 185 members.
The Group of 20 is turning to the Washington-based agency to prevent the worst financial crisis since the Great Depression from swamping more developing nations. In the past six months, the IMF has approved loans totaling more than $55 billion to countries including Ukraine, Iceland and Pakistan. (Sri Lanka is also in line for a $1.9 billion facility).
That is a turnaround from last year, when newly hired Managing Director Dominique Strauss-Kahn was forced to cut staff as lending sank to the lowest in a quarter century. “A year ago the very same countries were forcing the IMF to go through a very damaging set of budget cuts,” said Simon Johnson, a senior fellow at the Washington-based Peterson Institute for International Economics and a former chief economist at the IMF.
“Now the IMF has been asked to come to the rescue. I think the motif for the day is ‘Oops, sorry. Please come and help countries with massive amounts of money’.”
The World Bank and other lenders to poor nations will receive another $100 billion, and a further $250 billion will be devoted to trade finance, the G-20 decided. The IMF and the World Bank were founded in 1944 to help rebuild the global economy after World War II.
G-20 leaders also called for stricter limits on hedge funds, executive pay, credit-rating firms and risk-taking by banks as part of what their statement called a “global plan for recovery on an unprecedented scale.”
The leaders avoided the divisive question of whether to deliver more fiscal stimulus to their own economies.
The $250 billion increase in Special Drawing Rights will allow countries to tap IMF money without having to accept changes to economic policies often demanded as a condition of loans.
The G-20 also pledged a more “open, transparent, and merit-based” selection of people to lead the institutions. The head of the IMF has always been a European, while the World Bank chief is traditionally nominated by the U.S.
The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union. |
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