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Update: The G-20 and the IMF
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Update: The G-20 and the IMF
STRATFOR TODAY » April 2, 2009 | 2236 GMT
A key result of the G-20 summit — and one that was fully anticipated — was the decision to recapitalize the International Monetary Fund (IMF) to strengthen its reserve position and enable it to lend more freely to stop the financial crisis from spreading. Before the summit, most G-20 members agreed that boosting the IMF’s reserve funds was a prime objective. The IMF currently has approximately $250 billion, and has agreed to provide emergency loans totaling $64.44 billion to Iceland, Ukraine, Hungary, Latvia and Pakistan, among others.
The IMF needs to handle all the new loan requests, including negotiations with Turkey for a loan to the tune of $25 billion and Sri Lanka for about $2 billion, plus countless others as the financial crisis weakens various developing countries. Japan has offered the IMF $100 billion, the European Union has offered $100 billion and Norway has offered $4.7-6 billion. The communique issued after the G-20 summit April 2 said the group will boost the IMF even further than any of the G-20 members were expecting. Several developments are noteworthy:
An immediate contribution of $250 billion has been announced for the IMF’s New Arrangements to Borrow. This figure can be doubled if necessary, bringing the new G-20 sum to $500 billion, and pushing total IMF resources up to $750 billion.
The burden sharing of this potential $500 billion of new cash has not yet been worked out. The United States has not refuted rumors that it will offer $100 billion. Chinese President Hu Jintao said in a speech to the G-20 that China would allot more funds for the IMF, and British Prime Minister Gordon Brown said China has offered $40 billion, which if true, is considerably less than some were hoping. Canada is rumored to have $10 billion ready for the purpose. Brazil has said it will contribute an unspecified sum. Saudi Arabia, to which many G-20 members were looking, has not announced any contributions. Australian Prime Minister Kevin Rudd has told a local newspaper that the amounts that different countries will commit for the IMF funding will not be worked out until January 2010.
The G-20 has decided not to push for increased quotas for IMF members at this time, meaning members will not be able to increase their stakes in the fund to gain greater voting power and influence. Before the summit, China and Saudi Arabia were pushing for higher quotas and greater voting power in exchange for an offer of new cash to the fund.
The G-20 will provide funds enabling the IMF to allocate $250 billion worth of new Special Drawing Rights (SDRs — the IMF’s version of a reserve currency). The additional SDRs can be converted to loans in any currency at a future time.
Apart from the IMF, the G-20 has also promised to give $100 billion to multilateral development banks and the World Bank. This will improve long-term projects like infrastructure improvement and other assistance in developing countries, though it is unlikely to assist in overcoming the current crisis.
In addition, the G-20 members have pledged $250 billion to finance global trade through development banks and credit groups.
www.stratfor.com
Update: The G-20 and the IMF
STRATFOR TODAY » April 2, 2009 | 2236 GMT
A key result of the G-20 summit — and one that was fully anticipated — was the decision to recapitalize the International Monetary Fund (IMF) to strengthen its reserve position and enable it to lend more freely to stop the financial crisis from spreading. Before the summit, most G-20 members agreed that boosting the IMF’s reserve funds was a prime objective. The IMF currently has approximately $250 billion, and has agreed to provide emergency loans totaling $64.44 billion to Iceland, Ukraine, Hungary, Latvia and Pakistan, among others.
The IMF needs to handle all the new loan requests, including negotiations with Turkey for a loan to the tune of $25 billion and Sri Lanka for about $2 billion, plus countless others as the financial crisis weakens various developing countries. Japan has offered the IMF $100 billion, the European Union has offered $100 billion and Norway has offered $4.7-6 billion. The communique issued after the G-20 summit April 2 said the group will boost the IMF even further than any of the G-20 members were expecting. Several developments are noteworthy:
An immediate contribution of $250 billion has been announced for the IMF’s New Arrangements to Borrow. This figure can be doubled if necessary, bringing the new G-20 sum to $500 billion, and pushing total IMF resources up to $750 billion.
The burden sharing of this potential $500 billion of new cash has not yet been worked out. The United States has not refuted rumors that it will offer $100 billion. Chinese President Hu Jintao said in a speech to the G-20 that China would allot more funds for the IMF, and British Prime Minister Gordon Brown said China has offered $40 billion, which if true, is considerably less than some were hoping. Canada is rumored to have $10 billion ready for the purpose. Brazil has said it will contribute an unspecified sum. Saudi Arabia, to which many G-20 members were looking, has not announced any contributions. Australian Prime Minister Kevin Rudd has told a local newspaper that the amounts that different countries will commit for the IMF funding will not be worked out until January 2010.
The G-20 has decided not to push for increased quotas for IMF members at this time, meaning members will not be able to increase their stakes in the fund to gain greater voting power and influence. Before the summit, China and Saudi Arabia were pushing for higher quotas and greater voting power in exchange for an offer of new cash to the fund.
The G-20 will provide funds enabling the IMF to allocate $250 billion worth of new Special Drawing Rights (SDRs — the IMF’s version of a reserve currency). The additional SDRs can be converted to loans in any currency at a future time.
Apart from the IMF, the G-20 has also promised to give $100 billion to multilateral development banks and the World Bank. This will improve long-term projects like infrastructure improvement and other assistance in developing countries, though it is unlikely to assist in overcoming the current crisis.
In addition, the G-20 members have pledged $250 billion to finance global trade through development banks and credit groups.
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