27 April 2009

IMf Bond sales needed to fund stimulus

The move, announced after the IMF's annual spring meeting, indicates the world's leading economies are having difficulty following through on a pledge made in London on April 2 to boost an IMF emergency-lending facility $500 billion. The bonds will contribute toward that goal, but will provide shorter-term financing than the loans that Japan, the European Union, and the United States have promised.

The Group of 20, which includes wealthy and developing countries, pledged in London to provide a total of $1.1 trillion to the IMF and other international lending institutions.

"The major emerging markets have made it clear that they . . . will no longer be pushed around by the advanced economies," said Eswar Prasad, an economics professor at Cornell University and former IMF official. While "the net effect" on IMF resources of loans or bond sales is the same, Prasad said, "the symbolic difference between these two types of contributions is huge."

Meanwhile, more than 100 demonstrators angered by how world leaders have handled the economic crisis took on police outside the headquarters of the IMF and World Bank. Authorities used batons and pepper spray when activists tried to march onto a prohibited street, and several people were pushed to the ground by police. The protesters swarmed officers, and police had to respond, said D.C. Police Capt. Jeffrey Harold.

Treasury Secretary Timothy Geithner yesterday urged world finance officials to pony up more money to meet the $500 billion goal. Progress toward that target "must be an important outcome of these meetings," he said.

President Obama is seeking congressional approval for up to $100 billion, matching commitments for the same amount made by Japan and the European Union. Canada and Switzerland have pledged $10 billion, and Norway about $4.5 billion. But the full $500 billion has not yet been raised.

A Japanese official said Friday that countries would meet again with the hope of closing the gap before the end of June.

The additional funds reflect the growing importance of the IMF in dealing with the global downturn, the worst the world economy has experienced in six decades. Just a year ago, the 185-member organization was seen as increasingly irrelevant as the economies of many developing countries boomed.

The additional money could aid countries in Latin America, Eastern Europe, and elsewhere that are reeling from sharp drops in exports and foreign investment. Many poor countries and nongovernmental organizations have long criticized the IMF for failing to give sufficient voice to emerging economies.

Geithner urged that developing countries be given a greater voice. He called for reducing the number of seats on the IMF's governing board to 20 from 24 over the next three years, while maintaining the same number of seats for developing countries. The IMF "needs a more representative, responsive, and accountable governance structure," he said.


No comments: