The Pittsburgh Citizen

The G-20 negotiations were expected to be contentious -- after all, there was a lot to disagree about: bonus regulations, tax havens, and protectionist tariffs just to name a few. Luckily, many of the leaders of the world's largest economies agree that the economy is still fragile despite some signs of improvement.  At the summit held in Pittsburgh last week, these leaders demonstrated their commitment to avoiding the massive global imbalances that some say caused the greatest financial slump since the Great Depression.

International Monetary Fund (IMF) managing director Dominique Strauss-Kahn was quoted the weekend after a meeting of G-20 finance ministers and central bankers in London earlier this year saying that there was an “unprecedented level of cooperation among countries” [for an increase in funding to the IMF].

The final communiqué of last week’s summit here in Pittsburgh includes plans to strengthen the International Financial Regulatory System to limit the chances of future crises and balance the global economy. The statement was issued with a preamble followed by the longer communiqué. The section on modernizing global institutions reads:

18. Our commitment to increase the funds available to the [International Monetary Fund] IMF allowed it to stem the spread of the crisis to emerging markets and developing countries. This commitment and the innovative steps the IMF has taken to create the facilities needed for its resources to be used efficiently and flexibly have reduced global risks. Capital again is flowing to emerging economies.

19. We have delivered on our promise to treble the resources available to the IMF. We are contributing over $500 billion to a renewed and expanded IMF New Arrangements to Borrow (NAB). The IMF has made Special Drawing Rights (SDR) allocations of $283 billion in total, more than $100 billion of which will supplement emerging market and developing countries’ existing reserve assets. Resources from the agreed sale of IMF gold, consistent with the IMF’s new income model, and funds from internal and other sources will more than double the Fund’s medium-term concessional lending capacity.

The recent $500 billion boost to the IMF is a beacon of hope to many nations on their road to recovery and those that are still developing.  The health of this financial safety net indicates a global commitment to improving the current circumstance despite major and even minor signs of improvement for some economies. China has seen a return of jobs while the U.S. still awaits this improvement – it is impressive that this does not stop these nations from contributing to the IMF’s resources.

Laurence Ales, Assistant Professor of Economics at the Tepper School of Business says, “...any of these industrialized countries when deciding to provide additional funds to the IMF will have to weigh the benefits of providing liquidity to foreign economies.  [They must analyze] the benefits of stability in international markets with the benefits of keeping additional reserve to provide liquidity and loans to the domestic market.”