G20: EU finance ministers to call for doubling of IMF funds

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European Union finance ministers will on Tuesday (10 March) back a call from the International Monetary Fund (IMF) to double its funds to $500 billion at the G20 finance ministers’ meeting this week, a document showed.

The paper, Reuters reported, spells out the EU position on economic policy, regulation, international institutions, the IMF and Multilateral Development Banks for the G20 finance ministers and central bankers meeting on March 13-14.

“It is essential that the IMF has appropriate financial means to assist countries particularly affected by the current crisis,” said the draft document, to be approved by ministers of the 27-nation bloc on Tuesday. 

“EU member states support a doubling of IMF resources and are ready to contribute to a temporary increase, if needed,” it said. It stated that the increase should be funded by direct borrowing from members, especially those with large currency reserves. 

“The additional resources should be mobilized in the first instance via enlarging and expanding the NAB (New Arrangements to Borrow), on the basis of a fair burden-sharing, notably by encouraging countries that over the last years have accumulated significant foreign reserves to participate,” the paper said. 

Preventing future crises 

Ahead of the G20 on 2 April, officials will on Friday and Saturday (13-14 March) discuss how to deal with the global financial and economic crisis, which has made several European countries turn to the IMF for help. 

Apart from more money, the EU will support giving the IMF more powers in economic and financial surveillance to prevent future crises. The IMF should be able to make recommendations. 

“The IMF’s recommendations […] should become a key internationally shared guideline for macroeconomic policies,” EU finance ministers are to tell their G20 counterparts.

On macroeconomic policy, EU finance ministers will tell their counterparts that cooperation on restoring the normal functioning of credit markets is essential, as is avoiding all kinds of economic protectionism. 

“Countries should also avoid exchange rate devaluations aimed at gaining short-term competitive advantages,” the paper said, underlining that with fiscal stimulus packages already agreed, the focus should now be on their swift implementation, but that the sustainability of public finances was crucial. 

“Once the recovery takes hold, an orderly reversal of the macroeconomic stimuli is warranted,” the ministers are expected to say.

EU ministers will also stress that multilateral development banks should have adequate capital to help members counter the economic consequences of the crisis, but that the need for increasing resources should be assessed on a case-by-case basis. 

Cash for the Asian Development Bank 

“There seems to be broad consensus to increase the capital of the Asian Development Bank, while the resources of the World Bank Group are deemed appropriate to meet currently projected demand,” the draft document said. 

The Asian Development Bank is seeking to at least double its capital base from $55 billion. 

The paper reiterates financial reform pledges of the G20 made last November that all markets, products and participants should be regulated or supervised, including hedge funds, private equity firms, credit rating agencies, as well as executive remuneration.

No new regulatory policy initiative is mapped out and there are no additional details of how the reiterated pledges should be fleshed out, leaving plenty of wiggle room for individual jurisdictions. 

Many of the actions the paper calls for are already being pursued unilaterally by the European Union and the United States, such as central clearing of credit default swaps contracts – even though the paper reiterates the G20’s pledge for a globally coordinated approach towards regulatory reform. 

The paper reiterates the need to limit “pro-cyclical” effects of financial rules, such as fair value accounting standards criticised by policymakers for exacerbating the credit crunch fallout. The G20 last November set itself a deadline of end March to set up colleges of supervisors for all big cross-border financial institutions, but this will not be met and the EU paper sets a new deadline of the end of 2009. 

The paper also reiterates the need for the so-called dynamic provisioning – requiring banks to build up reserves in good times to smooth out rough markets when asset prices fall. 

(EURACTIV with Reuters)

 

World leaders must agree a "substantial increase" in funding for the International Monetary Fund to enable it to support emerging economies hit by sudden capital flight, UK Chancellor of the Exchequer Alistair Darling said. 

Writing in Tuesday's edition of the Guardian newspaper, Darling said the action was needed to prevent the financial crisis from escalating. 

"The G20 should agree on a substantial increase in the resources available to the IMF, enabling it to increase its lending to prevent the spread of the crisis from corporations to countries, and to provide liquidity support to those emerging markets facing a sudden stop or reversal in capital flows," he wrote.

The G20 group of nations is discussing a global approach to financial market reforms, including supervision, and meets on 2 April, in London. 

Since a first G20 summit on reforming the global financial architecture was held in Washington in November late last year, recessions in Europe and the United States have deepened, forcing governments to push through massive stimulus packages (EURACTIV 17/11/08). 

Meanwhile, Italian Prime Minister Silvio Berlusconi said on Monday (9 March) that his country would host leaders of the G20 at the end of a G8 summit in Sardinia in July, and that the focus of talks would be new rules for the financial system.

"On this occasion, we will prepare a legal system, new rules to stop the phenomenon of excessive securitisation in the financial system and the use of derivatives that led to this crisis," said Berlusconi.

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