IMF Survey: As Contingency, IMF Aims to Double its Lendable Resources

IMF News, February 2, 2009

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Canonical URL: IMF Survey: As Contingency, IMF Aims to Double its Lendable Resources

Publication date: February 2, 2009.
Context: IMF First Deputy Managing Director John Lipsky stated the IMF aims to double the amount of money available to lend to governments to $500 billion to strengthen international confidence during the global downturn.
Purpose: Precautionary move to ensure the IMF can meet further demands if more countries seek IMF lending.

Current resources: "We have, through quotas and existing borrowing agreements, $250 billion in total."
Proposal: "add contingent facilities that would double the resources available"—an additional $250 billion to reach $500 billion.
Specific offers and targets:
- Japan has offered to lend the IMF $100 billion.
- The IMF aimed to raise an additional $150 billion beyond Japan's offer.
Potential instruments mentioned:
- Contingent facilities to give confidence that the IMF has the resources to respond if needed.
- Consideration of issuing bonds (mentioned in an interview with the Wall Street Journal).
Alternative funding approaches suggested by Montek Singh Ahluwalia:
- A tripling of the IMF's quotas—capital provided by member countries.
- A generalized issue of the IMF's Special Drawing Rights (SDRs).

Total committed lending so far: $47.9 billion to economies affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Serbia, and Ukraine.
Additional actions:
- A precautionary loan for El Salvador announced the prior month.
- An IMF team in negotiations with Turkey.
- Other countries may need financing in due course.
IMF assessment: "Right now the IMF has adequate resources to respond to the demands that we see in front of us immediately," but additional contingent resources are prudent.

IMF assessment published January 28: world growth is forecast to fall to its lowest level since World War II; financial markets remaining under stress; global output and trade plummeting.
Lipsky on recovery prospects:
- With adequate policy response, including fiscal stimulus in advanced economies and some emerging markets, "the world could see a revival of economic growth toward the end of 2009 'and a return over the next year to trend growth. But decisive action will be needed.'"
Conditions emphasized:
- "A restoration of the health of the financial system was a precondition for economic recovery."
- Governments must not fall into the "seductive trap" of focusing only on national priorities at the expense of international health.
- The fall in oil prices and continued domestic spending by oil exporters would be an important source of support for the global economy.
Risks noted: Capital flows to emerging markets have slumped, leaving those with large current account deficits vulnerable.

Calls for IMF governance reform to improve representation of emerging markets and other developing countries.
- Concern: European countries "should not have so many seats on the Executive Board" (Trevor Manuel).
- Manuel is chairing a committee on IMF governance reform expected to report in April.
Ahluwalia: Reform of the IMF should be a critical part of the agenda for the Group of Twenty (G-20) leaders meeting in London on April 2.
Ahluwalia critique: "we need an IMF, but what we're doing is taking the IMF we invented in 1945 and putting Band-Aid on all kinds of bits and pieces. You need to go back a little bit to the drawing board."

Target lendable resources after proposal: $500 billion.
Current lendable resources before proposal: $250 billion.
Additional contingent resources sought: $250 billion.
IMF committed lending so far: $47.9 billion.
Japan's offer: $100 billion.
Remaining targeted funds to raise (after Japan): $150 billion.
IMF membership cited: 185-member institution.
Relevant dates:
- Panel discussion at the World Economic Forum in Davos on January 31.
- IMF assessment published on January 28.
- G-20 meeting in London on April 2.
- Governance reform committee expected to report in April.

Source: IMF Survey: As Contingency, IMF Aims to Double its Lendable Resources (February 2, 2009).