(from l) Mexico’s Carstens, Meade; IMFC’s Shanmugaratnam, IMF’s Lagarde at news conference announcing new pledges to boost IMF resources (IMF photo)
IMF RESOURCES
IMF Managing Director Christine Lagarde told a news conference April 20 that the new commitments would almost double the IMF’s lending power.
The International Monetary Fund has been advocating the need to build a stronger global firewall of additional resources to contain any further financial crises. Lagarde earlier told reporters April 19 that the global economy has entered a “timid” recovery and still faces high risks, adding that the IMF needs to participate in the international recovery effort by building additional firepower to promote global economic stability.
Since the start of the global economic crisis in 2007, the IMF has committed more than $300 billion in loans to its member countries. In response to the crisis, the IMF also reformed its policies toward low-income countries and quadrupled its concessional lending.
After an April 20 meeting during the IMF-World Bank Spring Meetings in Washington, a joint statement issued by the G-20 and the IMF’s policy-setting International Monetary and Financial Committee (IMFC) said there are firm commitments to increase resources available to the IMF by more than $430 billion. The statement added that these resources will be available for the whole membership of the IMF and not earmarked for any particular region.
“This effort, together with the national and regional structural, fiscal, and monetary actions that have been put in place in the past months, shows the commitment of the international community to safeguard global financial stability and put the global economic recovery on a sounder footing,” the statement said.
Strong resolve
Lagarde said in a statement that the G-20 pledges signal “the strong resolve of the international community to secure global financial stability and put the world economic recovery on a sounder footing.
“These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members,” Lagarde stated. “They will be drawn only if they are needed, and if drawn, will be refunded with interest.”
IMFC Chairman Tharman Shanmugaratnam told a news conference after the G-20–IMFC meeting that the agreement to build a firewall to contain further crises by boosting the IMF’s resources arose from a broad consensus that spanned European and non-European countries, and advanced and emerging economies.
“We all agreed that it was absolutely essential to have the firewall built up at this time. It’s not a day too early to be building up the firewall,” Shanmugaratnam said. “But we also felt that the real solution to the crisis does not have to do with firewalls. The firewall is a necessary but far from sufficient condition to resolving this crisis.
Firewall gives confidence
“The real solution has to do with the fiscal and structural reforms that address the real causes of this crisis, particularly in Europe, but also elsewhere.” Shanmugaratnam added that “having the firewall in place gives us the confidence to go about these real solutions.”
Mexican Finance Minister Jose Antonio Meade noted that the bulk of the G-20 members had chosen to contribute to the group’s commitment to augment the IMF’s lending resources. This showed that “the whole of the community is very comfortable with the way we have moved forward,” Meade said.
Bank of Mexico Governor Agustin Carstens stressed that boosting the IMF’s lending capacity, while an important step, is only one element in combating crises. “Different countries have contributed in different fashions,” Carstens stated. “Each country is contributing through its own means and its own capacity.”
Lagarde said at the news conference that formal and specific pledges from IMF member countries to boost IMF resources amounted to more than $360 billion. The balance taking the total to more than $430 billion comprised commitments that still had to be ratified by pledging countries.
Lagarde told reporters the G-20 commitment shows the resolve of the international community to have available the tools to defend against crisis. “We shall make use of it wisely, in accordance with the rules, with due regard to making sure that the creditors’ interests are well protected, with the appropriate risk mitigation strategy in place.”
The joint G-20–IMFC statement said the agreement to boost the IMF’s resources “shows the commitment of the international community to safeguard global financial stability and put the global economic recovery on a sounder footing.”
Lagarde said in her statement: “This broad-based response to our request for additional resources will help strengthen global economic and financial stability in the interests of all our members.”
■ Mexico is to host a G-20 summit in Los Cabos in June.
