Thursday, April 02, 2009

G-20 Expected to Give IMF $500 Billion

Sources: Reuters UK, G20 to up IMF resources by $500 bn; BBC News, G20 leaders close to global deal; Telegraph, Don't Mistake an IMF "breakthrough" for G20 success; Dow Jones Newswires, IMF Lipsky: "Agnostic" on Amount of IMF Resource Increase; IMF Factsheet, Special Drawing Rights

News broke out today that the Group of 20 (G-20), a group of the world's 19 largest economies and the European Union, is set to lend the International Monetary Fund (IMF) $500 billion to bolster the organization's ability to lend funds to countries that are trying to recover from the global financial crisis. The G-20 countries are meeting today in the United Kingdom for a "summit" on how to respond to the financial crisis. After today's summit, the G-20 countries are expected to release a "communique" through which they will share with the rest of the world how they expect to contribute to the international effort to recover from the crisis.

The "hottest" item in the press right now is the $500 billion loan that the G-20 countries are expected to give to the IMF. Over the course of the day, the European Union and Japan have each pledged $100 billion. The United States has stated that it is ready to give at least that amount. Norway has pledged $4.56 billion and Canada has pledged C$10 billion.

Some sources also say that the G-20 countries are also considering an additional $100-250 billion contribution to the IMF's Special Drawing Rights (SDR). The SDR is a reserve asset that the IMF uses to supplement the assets that the IMF's member countries already have with the IMF. If the G-20 countries decide to allocate $250 of their SDR assets to the IMF, the IMF's resources will increase to almost $1 trillion. That amount is three times the amount that the IMF currently has to draw from in helping countries respond to the crisis.

What has been the response to this potential G-20 loan to the IMF? The IMF's First Deputy Managing Director John Lipsky has said that he is "agnostic" about the exact amount that the IMF is going to receive. His main concern is that global investors and policymakers feel that the IMF has the support of the G-20 and will be able to continue to help countries respond to the crisis. Some observers, on the other hand, are not surprised that the G-20 is expected to boost the IMF's resources. In their view, the increase in funding was really an expected development, and the international community should not automatically assume that, by lending money to the IMF, the G-20 has successfully addressed all major issues related to the crisis. Without a doubt, it is important to keep these issues in mind as the world awaits the G-20's confirmation of the exact amount the IMF is set to receive.

Discussion Questions:

1- Many people have referred to the current financial crisis as a "crisis of confidence." What do you think about John Lipsky's view that he does not care as much about the exact amount of the G-20's loan, as long as investors feel confident in the IMF's ability to help countries bounce back from the crisis? Is the IMF's apparent stability crucial to resolving this crisis?

2- Do you think that there will be countries in the G-20 that will be opposed to lending the IMF this much money? Why do you think a country would not favor the proposed $500 billion figure?

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