Friday, April 3, 2009

A Summary of the G20 Meeting from the US

For comparison purposes below is a summary of the G20 Meeting from Bloomberg. Text in bold is my emphasis.

The International Monetary Fund, dismissed as increasingly irrelevant when the world economy was booming, will now wield more than $1 trillion to help bring it back to life.

Leaders from the world’s most powerful nations, meeting in London yesterday, agreed to triple the money the IMF can lend to rescue crisis-stricken nations, to $750 billion. The agency will also get another $250 billion in Special Drawing Rights, an overdraft facility for its 185 members.

The Group of 20 is turning to the Washington-based agency to prevent the worst financial crisis since the Great Depression from swamping more developing nations. In the past six months, the IMF has approved loans totaling more than $55 billion to countries including Ukraine, Iceland and Pakistan. That is a turnaround from last year, when newly hired Managing Director Dominique Strauss-Kahn was forced to cut staff as lending sank to the lowest in a quarter century.

“A year ago the very same countries were forcing the IMF to go through a very damaging set of budget cuts,” said
Simon Johnson, a senior fellow at the Washington-based Peterson Institute for International Economics and a former chief economist at the IMF. “Now the IMF has been asked to come to the rescue. I think the motif for the day is ‘Oops, sorry. Please come and help countries with massive amounts of money.’”

The World Bank and other lenders to poor nations will receive another $100 billion, and a further $250 billion will be devoted to trade finance, the G-20 decided. The IMF and the World Bank were founded in 1944 to help rebuild the global economy after World War II.

“This is the biggest increase in resources in the history of our international institutions,” said U.K. Prime Minister
Gordon Brown, who presided over the talks in London that led to the agreement.
G-20 leaders also called for stricter limits on hedge funds, executive pay, credit-rating firms and risk-taking by banks as part of what their statement called a “global plan for recovery on an unprecedented scale.” The leaders avoided the divisive question of whether to deliver more fiscal stimulus to their own economies.

Japan, the European Union and China agreed to provide the first $250 billion of the increase in IMF rescue funds, and Strauss-Khan said work would begin to secure the remaining $250 from other countries.

“If you look at the governance of globalization, if you look at the resources to deal with the crisis, at each stage of what the G-20 is working on, you find the IMF,” Strauss-Kahn said yesterday in London at a press conference. “The IMF is now back.”

The $250 billion increase in Special Drawing Rights will allow countries to tap IMF money without having to accept changes to economic policies often demanded as a condition of loans. The money is disbursed in proportion to the money each member-nation pays into the fund. Rich nations will be allowed to divert their allocations to countries in greater need.

The larger pool of SDRs will enable nations to boost their foreign-exchange reserves, augmenting global liquidity and helping defend against speculative attacks.

“It is the beginning of increasing the role of the IMF not only as lender of last resort, not only as a forecaster, not only as an adviser in economic policy in the traditional role, but also in providing liquidity to the world which is the role of a monetary institution like ours,” Strauss Khan told reporters at the G-20 summit.

Yesterday’s measures are the latest evidence of the IMF’s growing role. Mexico this week said it would seek a $48 billion line of credit from the IMF.

In the past six months, the fund has approved $16.4 billion for Ukraine, $15.7 billion for Hungary, $10.4 billion for Latvia, $2.5 billion for Belarus, $2.1 billion for Iceland, $7.6 billion for Pakistan and $516 million for Serbia. Turkey is negotiating an IMF loan accord, and Romania has expressed an interest in borrowing.

Increased IMF lending is improving its finances, which depend on interest it charges its members. The fund may turn a profit of almost $650 million next year, former IMF officials said last month. Two years ago, the fund was forecast to lose $360 million in 2010.

A year ago, the IMF was reducing its payroll to fit a diminished role. The fund said last April that 591 staff members had accepted incentives to quit, more the goal of 380 cuts in its 2,900 positions.

The G-20 said yesterday it was seeking steps to improve the “long-term relevance, effectiveness and efficiency” of the IMF and World Bank, and it pledged to give emerging countries such as India, China and Brazil a greater say in how the agencies are run.

The G-20 also pledged a more “open, transparent, and merit-based” selection of people to lead the institutions. The head of the IMF has always been a European, while the World Bank chief is traditionally nominated by the U.S.

The G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

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