Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey: Global Leaders to Assess Response to World Recession
April 20, 2009
- IMF-World Bank Meetings to focus on crisis response to global recession
- Finance chiefs to follow up on successful G-20 summit
- IMF head warns of impact of crisis on world's poorest
Finance ministers and central bank governors from around the world gather in Washington April 24-26 to assess the global response to the world financial crisis and attempts to recover from the deepest recession since the 1930s.
Emerging markets are being hit hard as global economic crisis causes sharp drop in export demand, threatens decade of performance gains (photo: Newscom)
IMF-WORLD BANK SPRING MEETINGS
The finance chiefs, convening for the Spring Meetings of the International Monetary Fund (IMF) and World Bank, come together at a critical time for the global economy, which—even with strong policy implementation—is not expected to reach the bottom until later this year, with growth picking up slowly in 2010.
The meeting of the IMF and World Bank follows the summit of the Group of Twenty (G-20) industrialized and emerging market economies that took place in London on April 2 to agree further action to combat the global crisis.
Tracking the response
The IMF has been asked by the G-20 to monitor action taken by countries to counter the crisis and assess whether it is sufficient. Many governments have slashed interest rates and initiated fiscal stimulus packages to revive their economies.
IMF Managing Director Dominique Strauss-Kahn has said that top priority now should be to clean up the banking sector, which lies at the heart of the crisis. “We all understand the stakes. 2009 will almost certainly be an awful year—we expect global growth to enter deeply negative territory,” he told an April 16 briefing at the Washington National Press Club.
“This is a truly global crisis, and nobody is escaping. It originated in advanced economies, and spread like wildfire across the world. Emerging markets are being hit hard, facing the double punch of a sharp drop in export demand and a sudden stop in capital inflows, and this threatens to undo the impressive gains in growth and convergence achieved over the past decade or so. Of possibly even greater concern, the crisis has also arrived on the shores of low-income countries, and threatens to cast millions back into poverty—the human consequences here could be absolutely devastating.”
Latest forecasts
Ahead of the meetings, the IMF will release two important reports that will assess the state of the world economy and the capital markets. The IMF’s Global Financial Stability Report will be released on April 21 and the latest World Economic Outlook on April 22.
According to the IMF, governments need to restore confidence and trust in the financial system by dealing aggressively with uncertainty surrounding distressed assets on bank balance sheets and recapitalizing viable financial institutions, using public money as necessary, and erring on the side of strong actions. Central banks should continue to provide ample liquidity through low policy rates and unconventional monetary policy measures. Sizeable fiscal stimulus should support economies as long as private demand remains depressed, but more sustained fiscal support is needed in 2010.
Research by the IMF released on April 16 suggests that two features of the current recession—its association with deep financial crisis and its highly synchronized nature—mean it is likely to be unusually severe, followed by a slow recovery.
Boosting IMF lending
To counter the fallout of the crisis on emerging markets and developing countries the G-20 has agreed to triple the IMF’s resources to $750 billion and to double money for concessional lending to low-income countries.
The IMF is already putting the money to work, agreeing to a $47 billion precautionary credit line to Mexico, under a newly created instrument for strongly performing economies that need insurance against the crisis, and is also scheduled to consider a request by Poland for a credit line of $20.5 billion. Colombia has also applied for a credit line of $10.4 billion.
Several countries have given or pledged money to the IMF to boost its resources, including Japan and the European Union, and the IMF will be discussing with other potential contributors.
Identifying future risks
Meetings of both the Group of Seven industrialized countries and the G-20 will be convened on April 24, ahead of the Saturday session of the IMF’s policy-setting guidance body, the International Monetary and Financial Committee (IMFC), chaired by Youssef Boutros-Ghali, the Minister of Finance of Egypt.
Among other things, the committee is expected to be interested in measures being taken to prevent crises and to spot emerging ones earlier. Steps are being taken by the IMF to enhance analysis of risks and linkages between the real economy and the financial sector. The IMF is also working on the development of an early-warning exercise—joint with the Financial Stability Board—and revamping the Financial Sector Assessment Programs, which look at country financial sectors.
Cushioning the impact on world’s poorest
Low-income countries will be at the top of the agenda on Sunday when the Development Committee meets. After first striking the advanced economies and then emerging markets, a third wave of the global financial crisis has begun to hit the world’s poorest and most vulnerable countries, threatening to undermine recent economic gains and to create a humanitarian crisis. The IMF is stepping up lending to low-income countries to help them get through the crisis.
Amid concern that the world is falling behind on development targets, the IMF and World Bank will issue a report on April 24 on progress achieved toward the UN’s Millennium Development Goals. Antoinette Sayeh, the head of the IMF’s African Department, will also brief journalists on the impact of the crisis on Africa.
Improving IMF governance
A top priority for the Fund’s legitimacy and effectiveness is the completion of outstanding governance reforms. The IMF will push to promptly ratify quota and voice reforms agreed in April 2008 and then launch the next phase, including further rebalancing of country representation by January 2011. Quotas largely determine a country’s voting power in the 185-member international institution.
Once implemented, the 2008 reform will bring members’ quota shares closer to their evolving position in the world economy:
• 54 members will receive an increase in their quotas, some of the largest gains going to China, Korea, India, Brazil, and Mexico.
• The increase in quota shares for these 54 countries is 4.9 percentage points.
In total, 135 countries will see an increase in voting share of 5.4 percentage points due to the combined effects of the increase in quotas and basic votes.
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