IMF Survey: G-20 Reaffirms IMF's Central Role in Combating Crisis

IMF News, April 3, 2009

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IMF Survey: G-20 Reaffirms IMF's Central Role in Combating Crisis

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• Published: April 3, 2009

Overview

• The G-20 reaffirmed the IMF’s central role in the international financial system at the London summit on April 2, agreeing to triple the Fund’s lending capacity to $750 billion and enabling it to inject extra liquidity into the world economy.
• The G-20 mandated the IMF to make a new general allocation of SDRs which will inject $250 billion into the world economy and increase global liquidity.
• The summit set a target to more than double concessional lending resources for low-income countries.

IMF roles emphasized by the G-20 and Managing Director Dominique Strauss-Kahn

• Economic forecaster
  • IMF economic forecasts were described as the central reference point for countries planning how to respond to the crisis.
  • The IMF is forecasting that the global economy will recover in 2010, but only if the right policy actions, including a coordinated fiscal stimulus, are taken.
• Policy advisor
  • The IMF pressed for a coordinated response through cuts in interest rates, big increases in government spending, cleaning up the financial sector, and bolstering regulation.
  • The IMF became a partner for governments to discuss policies and analyze effective policy responses to the crisis.
• Economic surveillance
  • The IMF will monitor policy implementation by governments and was asked to beef up early warning systems, along with the Financial Stability Forum.
  • The G-20 communiqué: “We call on the IMF to assess regularly the actions taken and the global actions required.”
  • Strauss-Kahn: “Our global and country monitoring procedures are being sharpened, including with a new mechanism for early warnings.”
• Global lender
  • The resources the IMF has to support its members will be tripled to $750 billion, including $100 billion each from Japan and the European Union.
  • The IMF will use the money to buttress countries affected by the global downturn.
  • Example: Mexico is seeking $47 billion in a precautionary credit line from the IMF.
  • The IMF announced changes in lending policy to make it more flexible.
• Provider of help to low-income countries
  • The summit set a target to more than double concessional lending to the world’s poorest countries.
  • Strauss-Kahn reaffirmed the IMF commitment made in Dar es Salaam to be the voice for low-income countries at the G-20.

Resources, liquidity, and SDRs

• G-20 decision: triple the IMF's war chest to $750 billion.
• G-20 backing for IMF to effectively create an additional $250 billion by issuing "special drawing rights," or SDRs.
• Strauss-Kahn: the $250 billion SDR allocation is “the beginning of increasing the role of the IMF” in providing liquidity to the world.

Gold sales and concessional financing for poorest countries

• The communiqué said the IMF would use part of the proceeds of a previously proposed sale of gold to provide concessional financing for low-income countries.
• A move to sell gold requires support by 85 percent of the Fund’s executive board and legislative action by several member countries.
• The proposal agreed last year was to sell 403.3 metric tonnes of IMF gold as part of a plan to bolster the Fund’s income.
• The G-20 communiqué: “We have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings.”

Governance and representation reforms

• The G-20 committed to implementing the package of IMF quota and voice reforms agreed in April 2008.
• The G-20 agreed to bring forward a further review of quotas by January 2011.
• The G-20 agreed to consider greater involvement of the Fund’s Governors in providing strategic direction and increasing accountability.
• The G-20 agreed that heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process.

Source: IMF Survey: G-20 Reaffirms IMF's Central Role in Combating Crisis (IMF Survey online, April 3, 2009).

References

• https://www.imf.org/en/News/country-focus
• PRESS CENTER
• In The News
• Hear Strauss-Kahn podcast
• IMF revamps lending
• Crossroads at G-20 summit
• IMF to track crisis response
• Lending reforms Q&A
• IMF key issues: lending
• Changing IMF combats crisis
• IMF aims to double resources
• "special drawing rights,"
• conference in Tanzania
• Quotas
• sale of gold
• Spring Meetings
• https://www.imf.org/en/home