Cars lined up for export: world trade has slumped because of the financial crisis (photo: Antonio Scorza/AFP/Getty)
World Financial Crisis
The finance ministers and central bank governors from the Group of Twenty (G-20) said they were determined to revive growth around the world. “Our key priority now is to restore lending by tackling, where needed, problems in the financial system head on, through continued liquidity support, bank recapitalization, and dealing with impaired assets, through a common framework,” a statement at the conclusion of a two-day meeting said.
They agreed to ensure that all systemically important financial institutions, markets, and financial instruments are subject to appropriate regulation and oversight, and that hedge funds or their managers are registered and disclose appropriate information to assess the risk they pose.
The communiqué called on the IMF to assess the actions taken by governments so far to restore world growth and advise on what still needed to be done to combat the crisis, which erupted in the U.S. subprime market in mid-2007. Governments around the world have announced stimulus measures and cut interest rates to counter the recession.
Preparing for London summit
The ministers, meeting ahead of an April 2 summit in London convened to coordinate action to counter the global financial and economic crisis, said they were committed to helping emerging and developing economies cope with the reversal in international capital flows triggered by the turmoil.
They recognized an urgent need to pursue all options for mobilizing the resources of the international financial institutions, as well as liquidity to finance countercyclical spending, bank recapitalization, infrastructure, trade finance, rollover risk, and social support.
The G-20 said the IMF’s resources should be boosted very substantially. The increase could be either from individual contributions by IMF member countries, an increase in IMF official borrowing arrangements, or an accelerated review of quotas—the money that countries pay in as members of the Fund. Japan has already contributed an extra $100 billion.
"The object of the exercise is to strengthen the IMF and its ability to do more." -- Trevor Manuel, South African Finance Minister
U.S. Treasury Secretary Tim Geithner said the G-20 supported a U.S. proposal for a substantial increase in emergency IMF resources through a major enlargement of the New Arrangements to Borrow and expansion of its membership. "The object of the exercise is to strengthen the IMF and its ability to do more," said South African Finance Minister Trevor Manuel.
So far the IMF has lent some $50 billion to countries around the world caught up in the crisis. IMF Managing Director Dominique Strauss-Kahn has been pressing for a at least a doubling of IMF resources to $500 billion as a precaution in case the crisis worsens and more countries need to access money from the Fund. With trade plummeting and capital flows drying up, Strauss-Kahn has said that the world has entered a period of below zero growth, in a phase that he has dubbed the “Great Recession.”
The G-20 said they wanted to ensure that multilateral development banks have the capital they need, beginning with a substantial capital increase for the Asian Development Bank, and put it to best use to help the world's poorest.
G-20 includes two-thirds of world’s population
The G-20 represents about 90 percent of global gross national product, 80 percent of world trade (including trade within the European Union) as well as two-thirds of the world's population.
The G-20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United States of America, plus the European Union, represented by the rotating Council presidency and the European Central Bank. The Managing Director of the International Monetary Fund and the President of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in G-20 meetings.
Strauss-Kahn said it was important also to hear the voice of low-income countries. The IMF held a major conference in Tanzania March 10-11 to listen to the views of African countries and said it would ensure they were taken into account at the London meeting.
Focus on new facilities and governance
Other elements in the G-20 statement relating to the IMF included:
• The ministers welcomed progress by the IMF and World Bank in introducing new and enhanced lending instruments, including the development of a new high-access, quick-disbursing precautionary facility.
• They called for the IMF and Financial Stability Forum to develop early warning mechanisms that could signal when systemic risks were becoming high
• They stressed the need to strengthen the effectiveness and legitimacy of international financial institutions and that they reflect changes in the world economy. Emerging and developing economies, including the poorest, should have greater voice and representation and the next review of IMF quotas should be concluded by January 2011.
• The package of IMF quota and voice measures decided in April 2008 should be swiftly implemented. World Bank reforms should be completed by the Spring Meetings 2010. The heads of international financial institutions should be appointed through open, merit based selection processes.
BRICs call for bigger voice
In a separate communiqué, four major emerging market economies—Brazil, China, India, and Russia—called for a bigger voice on international bodies, and backed a large increase in IMF resources.
“We draw our special attention to the reform of international financial institutions. We stand for reviewing the IMF role and mandate so as to adapt it to a new global monetary
and financial architecture. We emphasize the importance of a strong commitment to governance reform with a clear timetable and roadmap,” they said.
They said the crisis has demonstrated that the IMF must strengthen its capability to monitor and give policy advice on the global economy. “To achieve this goal, we emphasize the importance of better-focused even-handed surveillance across all IMF members, especially in respect to advanced economies with major international financial centers and large cross-border capital flows.”
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