The Group of Twenty (G-20) advanced and emerging market economies, along with the broader International Monetary Fund (IMF) membership, agreed on Apr. 20 to boost the IMF’s lending capacity by more than US$430 billion to the Caribbean and other developing countries.
After a meeting during the IMF-World Bank Spring Summit in Washington, the G-20 and the IMF’s policy-setting International Monetary and Financial Committee (IMFC) said there are “firm commitments to increase resources available to the IMF by more than $430 billion.”
The statement said these resources will be available for the entire membership of the IMF.
“This effort, together with the national and regional structural, fiscal, and monetary actions that have been put in place in the past months, shows the commitment of the international community to safeguard global financial stability and put the global economic recovery on a sounder footing,” the statement said.
IMF Managing Director Christine Lagarde said the G-20 pledges signal “the strong resolve of the international community to secure global financial stability and put the world economic recovery on a sounder footing.
“These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members,” she said. “They will be drawn only if they are needed; and, if drawn, will be refunded with interest.”
IMFC Chairman Tharman Shanmugaratnam told reporters that the agreement to build a “firewall” to contain further crises by boosting the IMF’s resources arose from a broad consensus that spanned European and non-European countries, and advanced and emerging economies.
“We all agreed that it was absolutely essential to have the firewall built up at this time. It’s not a day too early to be building up the firewall,” he said.
“But we also felt that the real solution to the crisis does not have to do with firewalls,” he added. “The firewall is a necessary but far from sufficient condition to resolving this crisis.
“The real solution has to do with the fiscal and structural reforms that address the real causes of this crisis, particularly in Europe, but also elsewhere,” continued Shanmugaratnam, stating that “having the firewall in place gives us the confidence to go about these real solutions.”
Mexican Finance Minister Jose Antonio Meade noted that the bulk of the G-20 members had chosen to contribute to the group’s commitment to augment the IMF’s lending resources.
He said this showed that “the whole of the community is very comfortable with the way we have moved forward.”
Lagarde told reporters that formal and specific pledges from IMF member-countries to boost IMF resources amounted to more than US$360 billion.
She said the balance, taking the total to more than US$430 billion, comprised commitments that still had to be ratified by pledging countries.
The IMF chief said the G-20 commitment shows the resolve of the international community to have available the tools to defend against crisis.
“We shall make use of it wisely, in accordance with the rules, with due regard to making sure that the creditors’ interests are well protected, with the appropriate risk mitigation strategy in place,” she said.
The joint G-20–IMFC statement said the agreement to boost the IMF’s resources “shows the commitment of the international community to safeguard global financial stability and put the global economic recovery on a sounder footing.”
“This broad-based response to our request for additional resources will help strengthen global economic and financial stability in the interests of all our members,” Lagarde said.
She said the Washington-based financial institution has been advocating the need to build a stronger global firewall of additional resources to contain any further financial crises.
On Apr. 19, Lagarde said the global economy has entered a “timid” recovery and still faces high risks, adding that the IMF needs to participate in the international recovery effort by building additional firepower to promote global economic stability.
Since the start of the global economic crisis in 2007, the IMF said it has committed more than US$300 billion in loans to its member countries, many of whom are in the Caribbean.
The IMF said it has also reformed its policies toward low-income countries and quadrupled its concessional lending.