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17th Feb 2019

G20 radically strengthens IMF in 'new era'

  • The G20 looks set to meet again this summer or autumn. (Photo: EUobserver)

World leaders mixed hubris and humility on Thursday evening (2 April) as they sought to highlight the achievements of the G20 meeting of industrial nations, while admitting much still needs to be done to restore the world's economy.

"By any measure the London summit was historic," said United States President Barack Obama, adding that he had come to the meeting with the intention of listening and learning but also to provide American leadership.

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British prime minister and chair of the event Gordon Brown declared: "The old Washington consensus is over, today we have reached a new consensus to take global action together to deal with the problems we face."

Later, Mr Obama agreed that the era of the lightly regulated market was indeed over, saying free markets could go "off the rails" if not properly controlled.

The International Monetary Fund was the day's main winner hands down. Showered with new resources and new tasks, its importance is set to grow in the coming years.

" Today you get the proof that the IMF is back," said its managing-director Dominique Strauss-Kahn.

Leaders agreed to triple the organisation's main lending facility from its current level of $250 billion (€186 billion) to $750 billion and will allow it to create a new Special Drawing Rights (SDR) allocation, essentially an overdraft facility, of $250 billion, with which to boost global liquidity.

The new SDR facility was one of the few concrete measures provided as a specific step to boost the world's economy rather than to help financial fire-fighting.

The new donations to the IMF, if and when they materialise, will mean the body wields a substantial $1.1 trillion chequebook with which to tackle the world's financial problems.

Added to this, $100 billion of additional lending will be made available to multilateral development banks in general.

A further sum of approximately $6 billion will be raised from the partial sell-off of the IMF's gold reserves, with the money going to help the world's poorest countries.

Sceptics were quick to point out however that some of the money had already been pledged in previous announcements and the exact breakdown of where the rest will come from remains unclear.

Mr Brown said China had agreed to provide $40 billion, possibly through the purchase of new IMF bonds.

China and a number of other emerging economies have made it clear in recent weeks that they expect the IMF's governance system to be reformed if they are to start making increasing donations.

While the group's communique says leaders are "determined to reform and modernise the international institutions," little change to the fund's voting rights is likely to take place before 2011, a date agreed by G20 finance ministers last month.

In its increased regulatory capacity, leaders agreed that the IMF should co-operate with the Financial Stability Forum, to be renamed the Financial Stability Board, in providing early warnings on the risks faced by the world's financial system and also propose suitable actions to meet these risks.

Added to this new macro-prudential role, the IMF will also monitor whether states have implemented new rules on financial regulation that include greater oversight of hedge funds.

Tax havens and trade

Leaders agreed to tone down language regarding a new OECD list of tax havens published on Thursday.

Rather than including the final list in the communique, leaders said they "took note" of the list and insisted they "stand ready to deploy sanctions to protect our public finances."

China is thought to have objected to the list's inclusion in the G20 communique because of sensitivities over Hong Kong and Macao.

G20 leaders repeated their pledge of last November to reject protectionism, despite a World Bank report since then which says 17 of the 20 states had increased trade barriers of one kind or another.

However they agreed that $250 billion would be donated to trade finance in a bid to unblock trade channels that are currently suffering from a lack of credit.

"Today's meeting will not solve the crisis but we have begun the process by which it will be solved," said Mr Brown.

The G20 looks set to meet again this summer or autumn.

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