Stimulus vs debt
April 26, 2009
"Everybody is happy with what has been done on fiscal stimulus ... all agree on the absolute necessity of cleansing the financial system," IMF head Dominique Strauss-Kahn said on Saturday.
The IMF chief said the spring meeting of the IMF's top steering committee in Washington had made it clear that there was no longer any major disagreement over how to tackle the crisis.
As the magnitude of the worst global slump since the 1930s spread became clear throughout 2008, various governments had taken different positions on how much money they should spend - and how much new debt they should create - to get their economies going again.
The United States advocated spending any amount necessary while Europe, and especially Germany, were reluctant to commit ever more funds, preferring to wait and evaluate the effectiveness of initial steps.
Strauss-Kahn said the IMF had been right to stress the need to clear toxic assets from banks's balance sheets, adding that there could be no recovery as long as banks shied away from lending.
Differences now, he said, centered on what the exit strategies should be used over the next three or four years to break free of the crisis.
Funding to be doubled
Strauss-Kahn said Saturday's IMF meeting, which picked up from the Group of 20 London summit of developed and developing countries on April 2, confirmed that the IMF was now at the center of policy coordination on the crisis.
He noted positively broad agreement on supplying the IMF with additional funds so that it can help poorer countries struggling in the crisis.
The meeting also raised the possibility that the IMF would raise extra funds by selling bonds to member states.
"A key achievement of today's meeting is ensuring the doubling of the Fund's loanable resources," a statement by the IMF's International Monetary and Finance Committee said.
The first stage will see an extra 250 billion dollars made available through a special facility to help "member countries with external financing needs," followed by another 250 billion dollars, as agreed at the G20 summit.
Democratic Deficit
US Treasury Secretary Timothy Geithner said he hoped finance ministers could make "substantial progress" towards the 500-billion-dollar mark, about two-thirds of which has been pledged to the IMF so far.
Geithner called on emerging countries to "demonstrate their growing role in the global economy" by loaning the rest.
China, Brazil and other emerging powers are in talks to make loans, but continue to seek assurances that they will be given a greater role in IMF decision-making in return.
Brazilian Finance Minister Guido Mantega said the IMF still had a long way to go before developing countries were well-represented and suggested a long-term increase in the IMF's funding "could limit the scope for and delay" those reforms.
"The IMF repented from many of its past sins. But it still has to address the original sin: Its democratic deficit," Mantega said in a statement.
The US and Europe, which together hold about half of the IMF's voting rights, have both said they are willing to give emerging powers more clout, but a review is only set to be completed in January 2011.
World Bank pledges to help developing nations
Meanwhile, the World Bank on Saturday launched a 41.5 billion euro (US$55 billion) infrastructure investment program as part of efforts to help developing countries weather the worst global slump in decades.
"As developing countries are facing the trials of the global economic crisis, it is vitally important that economic stimulus packages in the developed world are accompanied by support to those that cannot afford multi-billion (dollar) bailouts," World Bank President Robert Zoellick said in a statement.
"A decline in infrastructure leaves weaker foundations for long-term economic growth that hits the poorest the hardest," he said.
Zoellick said two vehicles were being set up -- its own Infrastructure Recovery and Assets (INFRA) and an Infrastructure Crisis Facility (ICF) run by the World Bank's private sector arm, the International Finance Corp.
Bank officials said Germany would provide 500 million euros for road-building and other infrastructure projects left in limbo because capital investment has dried up, while France pledged one billion euros for the ICF.
While the assistance the World bank provides would be global in scope, Africa is expected to see a large proportion of the investments, given the sizable needs on the continent.
Many developing countries have complained that while they did not cause the global financial crisis, they are among the worst hit and least able to fight the impact on their vulnerable economies.