At the last G-20 meeting, participants pledged to increase IMF funding by $750 billion to help the institution firefight various balance of payment shortfalls now befalling virtually all regions of the globe. Let us recall from the previous communique...
The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs [multilateral development banks like the World Bank and regional lenders such as the African Development Bank], to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.Well, that was fine and dandy. Now here comes the more difficult part where rubber meets the road: who's to lend the IMF $750 billion? It seems LDCs (especially China) want a larger share of voting rights in the institution if they are to contribute--something that would of course dilute the voting shares of the US and the European countries. This, of course, is a politically contentious process as the institution retains clout in international economic affairs.
Actually, I saw the following article on the front page of Yahoo!--something which surprised me. Since when did the average Yahoo! reader start caring about international economic diplomacy? These are changing times. (As a note to bloggers and would-be bloggers, try not to link to Yahoo! news items as they expire after a while.) From the Associated Press:
Finance officials are pledging to keep the momentum going in their efforts to combat a severe global downturn but have hit a stumbling block in differences over how to boost the resources of the International Monetary Fund. The debate underscored what could be a growing divide within the 185-nation IMF, with emerging economic powers such as China, Russia, Brazil and India insisting that old-line powers such as the United States, France and Britain listen to their ideas on different funding approaches for the IMF.Speaking of which, here are the pertinent parts of the current G7 communique:
At issue is how to supply a portion of the $1.1 trillion increase in resources for the IMF and other lending institutions that was set as a goal by President Barack Obama and other leaders at the Group of 20 nations summit in London on April 2.
The rich nations had hoped to get China and the other nations to commit to billions of dollars of support for that effort at these meetings. However, those countries are insisting that the IMF consider issuing bonds as a way to raise the support. The countries would buy the IMF bonds rather than extending the support in loans. The IMF has never issued bonds before, although the idea was explored in the 1980s.
While the difference would not seem that great — both the bonds and the loans would require the IMF to pay interest — the debate is also tied up in arguments emerging economies are making about the need to boost their voting power at the IMF, something that would come at the expense of the current power structure that favors the United States and Europe. [In essence, the West's approach is more conducive to maintaining their voting power at the IMF.]
Those issues and others were scheduled to be debated behind closed doors on Saturday as Treasury Secretary Timothy Geithner and other finance officials meet for talks of the IMF's policy setting board. The IMF meeting was also scheduled to discuss a proposal to increase the agency's oversight abilities to monitor global activity in hopes of preventing a repeat of the current banking crisis.
The talks began Friday afternoon with a meeting of the Group of Seven wealthy nations — the United States, Japan, Germany, France, Britain, Italy and Canada — and were followed Friday night with a dinner meeting of the Group of 20 countries, which include the seven wealthy nations plus the major emerging markets such as China, Russia and Brazil.
The G-7 issued a communique late in the day that essentially endorsed the positions their leaders had taken just three weeks ago at the London G-20 summit. However, the G-7 communique signaled that disputes evident in London, such as the battle over IMF funding and voting rights, have not yet been resolved.
Geithner and the other finance officials sought to play down the differences, insisting that the nations are pushing ahead with the ambitious agenda their leaders laid out in London to jump-start economic growth through trillions of dollars in increased government spending and tax cuts and efforts to stabilize their battered banks and get them to resume more normal lending...
- We have pledged resources for the IMF and are working with the G20 and others to provide the resources it needs to help restore global financial stability. We support a substantial increase in MDB lending and full and exceptional use of MDB balance sheets in order to mitigate the effects of the global recession on emerging markets and developing countries.
- In particular, we welcome the progress being made in mobilizing temporary bilateral financing for the IMF; this financing will be rolled over into the IMF's New Arrangements to Borrow, which in turn will be increased by up to $500 billion and see its membership expanded. We are working to implement the $250 billion general SDR allocation, as well as to use additional resources from the IMF's agreed gold sales to support the poorest, consistent with the IMF's new income model. We are implementing the initiative to provide at least $250 billion in trade finance.