From the ashes of global prosperity the International Monetary Fund emerged this week as the bulwark against the economic crisis, its role and finances heavily bolstered by world leaders. The IMF was the main beneficiary at the Group of 20 London summit where leaders agreed to triple its war chest to 750 billion dollars by adding 500 billion dollars, some of it already pledged.
The 20 industrialised and developing countries backed an extra 250 billion dollars to increase the funds reserve assets and pump liquidity into the gridlocked financial system. The summit Thursday also set a target to more than double the IMFs concessional lending to poor countries, and endorsed the use of a portion of the IMFs planned gold sales to help finance it.
The G20 not only sharpened the IMFs firepower to fight the global contagion, but placed the 185-nation institution at the center of what summit host British Prime Minister Gordon Brown says is a "new world order" based on international co-operation. The summit decisions represented that new order, as China, India and other emerging powerhouses reached accord with the established Group of Seven (G7) powers - Britain, Canada, France, Germany, Italy, Japan and the United States - on a way forward to deal with global economic crises.
The IMF was called on to improve its early warning systems to head off crises before they can spill over into the broader world economy, in collaboration with the Financial Stability Board, a beefed-up successor to the Financial Stability Forum.
The G20 also committed themselves to implementing IMF reforms under way and called for further reforms to make the 185-nation more transparent and more representative of the globalized economy. The summit stamp of approval on the IMF, albeit forged in the most devastating economic crisis since World War II, marked a milestone for the developing countries which long have criticised the funds lending conditions as harmful and railed against its G7 domination.
It was only a year ago the IMF was struggling to reinvent itself.
Member nations overwhelmingly approved major voting and quota reforms in April 2008, yet they are still awaiting approval by their legislatures. Managing director Dominique Strauss-Kahn launched an employee buyout program to cope with a budget shortfall due to dwindling demand for its loans.
Hopes grew that the credit crisis that began in the US mortgage sector in August 2007 would be contained. Then Wall Street investment bank Lehman Brothers collapsed last September, triggering the worst financial mayhem since the 1930s Great Depression. The IMF has seen its fortunes rise as others fall.
"You will see that its the beginning of increasing the role of the IMF, not only as a lender of last resort, not only as a forecaster, not only as an advisor in economic policy and its old traditional role, but also in providing liquidity to the world, which is the role finally, and in the end, of a financial institution like ours," Strauss-Kahn said. Analysts hailed the G20s generous outlay as a boon to global stability and to the developing countries.
Uri Dadush at the Carnegie Endowment for International Peace said the G20 communique was "striking in the degree to which it accommodates the interests of developing countries in various ways; they are the greatest likely beneficiaries of the increase in IMF and multilateral development bank resources."
Jan Randolph at IHS Global Insight agreed. "These sums more than match the total amount of capital flight and bank loan redemptions from emerging markets since 2007 of over 700 billion dollars and will go a long way to supporting financial stability in the developing and emerging market world," Randolph said.
But the IMFs enhanced role drew fire from critics who say no new money should go to the IMF until it changes its policies. "We have deep concerns about how central the IMF has become in this crisis. The fund has been given a blank check but its reform remains no more than a promise," said Duncan Green at Oxfam International, an anti-poverty organisation.
With the ink barely dry on the G20 communique, India laid partial blame for the crisis on inadequate IMF surveillance. "As far as the developing countries are concerned, there has already been all these years excessive surveillance of the developing countries economies," Indian Prime Minister Manmohan Singh said at a post-summit news conference.
"The real imbalance in the functioning of the IMF has been that there has been too little surveillance of the affairs of the developed countries." India did not need to ask the IMF for financial assistance. "We have no intention of going to the IMF," he said. "Our reserves are about 250 billion dollars."
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