Translated material
Fill the cash register
The IMF is waiting for money to fight the crisis
In the coming days, financial officials of the world's leading countries will have to demonstrate how feasible the decisions of the G20 summit held in London on April 2 are in practice. Today the finance ministers and heads of central banks of the G7 will meet in Washington, and their negotiations will continue today in the G20 format. And tomorrow and the day after tomorrow the spring meetings of the International Monetary Fund and the World Bank will take place.The global crisis is “far from over”, despite occasional encouraging signals, IMF chief Dominique Strauss-Kahn said at a press conference yesterday. According to the fund's updated forecast published recently, the global economic recovery will begin in the first half of 2010 (this year the decline will be 1.3% of global GDP) and, as Mr. Strauss-Kahn said yesterday, the start of growth will come from the United States.
It would not be a great exaggeration to say that the current state of the world economy worries the participants in the Washington meetings less than the issues of IMF financing. Three weeks ago, the G20 leaders solemnly announced the replenishment of the fund's resources by $750 billion. The news was received with enthusiasm: the markets believed that the leading countries had the determination to prevent the crisis from growing into national defaults. Moreover, after last year’s fruitless attempts by British Prime Minister Gordon Brown, who took on the role of chief financial architect, to persuade the Arab sheikhs to fork out, the amount looked more than impressive. In London, the G20, as is known, decided that the IMF should issue its own currency SDR (Special Drawing Rights) for $250 billion, and $500 billion would be financed by the fund's member countries.
At the same time, although the main expectations were related to receiving funds from China and oil exporters, developed countries had to lead by example. As is known, Japan was the first to announce a loan to the fund in the amount of $100 billion last November. Then the European Union and the United States decided to provide similar amounts (Barack Obama must request appropriate permission from Congress, but has not yet done so). In any case, the example did not turn out to be contagious: so far, Norway ($4.5 billion), Switzerland and Canada ($10 billion each) have promised to provide relatively small resources. And the London summit communiqué emphasized that along this line the G20 intends to achieve “significant progress by the spring meetings.”
Thus, the main question of the negotiations starting today is who is ready to give money to the IMF and how much. There is, apparently, no progress - neither “significant” nor anything else. Those from whom positive decisions are expected (the BRIC countries and the Arab world) are giving rather negative signals (“without money”, apparently, Deputy Prime Minister Alexei Kudrin, the Russian manager at the IMF, also came to Washington). All these countries, which, due to the will of an economic disaster, turned out to be “new creditors”, demand one thing in exchange for money - a change in the decision-making system in the IMF. Now it is obvious to them that money is being demanded from them, and Washington and London will distribute it.
Such assessments are justified. The IMF, trying to give an adequate response to the unfolding crisis, presented a new instrument a month ago - Flexible Credit Line. The peculiarity of this line is that it is opened for a period of one year to countries whose economic situation meets a number of criteria and whose economic policy in the previous period looked sober. At the same time, the state may not use a single dollar from the credit line - it will be enough that the markets know that the country has the resources to maintain stability. The IMF has already approved a $47 billion line of credit for Mexico, with Colombia and Poland next in line with very impressive requests.
It is stipulated that all negotiations on the provision of Flexible Credit Line, including the assessment of compliance with established criteria, are conducted in strict secrecy so that speculators do not take advantage of the opportunity to attack the currency of the country that has requested IMF support. And herein lies the inherent flaw of the fund's newest instrument: if a country requests a line of credit, it cannot be refused. Otherwise, the reaction of the markets will be unambiguous - the country will simply be swept off the financial map of the world, and the IMF will be found guilty. But the “vice” is even stronger than it seems. In fact, decisions are left to the management of the IMF, which presents the board of directors of the fund with a fait accompli (this was the case with Mexico - the decision was announced during the London summit, and the issue was brought to the board of directors of the IMF a few days later). After the fact, someone may try to argue whether the country receiving the credit line meets all the established criteria, but such a dispute will only have theoretical significance.
What incentive do countries with developing economies (including Russia, from which contributions are also expected) have to finance the IMF if there is every reason to distrust its policies? This incentive is a real reform of the system of representation and management system in the fund. The other day, Bolivian leader Evo Morales said that he fully supports the proposals of his neighbors, Brazil and Argentina, for radical reform of the IMF. Although the specific content of these proposals, as well as their addressees, are unknown, Brazil has indeed quite loudly demanded changes in the fund in recent years (it is worth noting that the diplomatic Dominique Strauss-Kahn invariably managed to somehow negotiate with the Latin Americans).
To date, the most radical proposal is the initiative of Dmitry Medvedev - as is known, in his proposals for the London G20 summit, the Russian president came up with the idea of simply canceling the reform of the system of shareholder quotas in the IMF capital that began a year ago. The decision in London to hold an extraordinary review of quotas in 2011 will be the next opportunity for the developing world to strengthen its voice in the fund. At the same time, the opportunity is by no means guaranteed, since British Prime Minister Gordon Brown received the privilege of developing the concept of IMF reform during the London G20 summit.