IMF role in cross-hairs as G20 grapples with crisis

31st March 2009, Comments 0 comments

The IMF, which is predicting that this year will see the first global recession in 60 years, is seeking hundreds of billions of dollars to meet an expected rise in demands from its 185 members and to instill confidence in the tottering financial system.

Washington -- The International Monetary Fund says it needs a huge cash injection to help countries battered by the global economic crisis, but reform of the institution will loom large at this week's G20 summit.

The IMF, which is predicting that this year will see the first global recession in 60 years, is seeking hundreds of billions of dollars to meet an expected rise in demands from its 185 members and to instill confidence in the tottering financial system.

The Washington-based institution hopes to at least double its lendable resources to more than 500 billion dollars; Group of 20 finance chiefs backed the idea in March.

The IMF already has lent more than 50 billion dollars to help crisis-affected countries and is in talks with more.

Japan was first to help the IMF, providing an extra 100 billion dollars in February. The EU has pledged 75 billion euros (roughly 100 billion dollars).

The United States, the largest IMF stakeholder, has backed a substantial increase without saying how much it is willing to put on the table.

Brazil, Russia, India and China, the emerging powerhouses, also have indicated support for an increase without giving numbers.

"One thing I'm concerned about in the G20 process is there's a lot of discussion of providing additional resources to the IMF to help out in the event of a crisis," said Steven Dunaway, an economist at the Council on Foreign Relations, a Washington think tank.

"But to me what's most important is that the IMF is there, and through its surveillance capacity, able to try to head crises off before they develop," Dunaway, a former senior IMF economist, said.

The severe economic crisis has swept the 65-year-old IMF, which has been trying in recent years to reinvent itself for a globalized economy, back into the spotlight.

At an emergency G20 summit last November in Washington as financial markets plunged, leaders called for reform of the IMF, the World Bank and other multilateral institutions as a major means to ensure global stability.

Ahead of the London summit, the IMF last week unveiled reforms to streamline lending and offer bigger loans, including a landmark line of credit for well-managed economies that has no conditions or limit.

The IMF also doubled the loan limits on other programs and removed lending measures it acknowledged had been damaging to some developing countries.

Before the financial crisis, when credit was easy, IMF lending nearly dried up as developing countries snubbed what they said were punishing conditions on IMF loans and borrowed money elsewhere.

China and other emerging nations have pushed for greater clout at the IMF and the World Bank that would reflect their new economic power, and the IMF has begun the cumbersome multilateral reform process.

IMF managing director Dominique Strauss-Kahn last week welcomed a report prepared by the committee on IMF Governance Reform, chaired by the South African finance minister Trevor Manuel.

"The committee proposes a package of measures to enhance the fund's legitimacy and effectiveness," said the former French finance minister.

This would include a high-level ministerial council "to foster political engagement in strategic and critical decisions, acceleration of the quota and voice reform begun last year ... and the introduction of an open, transparent and independent of nationality selection process for the managing director."

British Prime Minister Gordon Brown, who is hosting the G20 summit on Thursday, has called for an end to the implicit deal that puts a European at the head of the IMF and an American at the helm of the World Bank.

"The International Monetary Fund, the World Bank and all the international institutions must change now to meet the new realities," Brown said during a visit to Brazil.

"The next head of the World Bank need not be an American. The next head of the IMF need not be a European," he said.

The G20 comprises the seven major industrialized nations -- Britain, Canada, France, Italy, Japan, Germany, and the United States -- plus Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey, and the European Union.

AFP/Expatica

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