The Islamic Post Blog

International Monetary Fund Gains After G20 by Khalida
May 21, 2009, 5:59 am
Filed under: Business/Economy, International, May Volume I - 2009, World | Tags: ,

By Noora Ahmad

Islamic Post Staff Writer(IP) –A major goal of boosting the power and influence of the International Monetary Fund (IMF) and other global lending institutions was accomplished at the G20 financial summit last month by doubling, and in some cases quadrupling lending capacity to assist nations weighed down by financial woes. A total of $850 billion was allocated by G20 nations in support of increased lending, along with an additional $250 billion culled from special drawing rights (SDRs) –a currency belonging to the IMF and not overseen by any regulating agency.
The Wall Street Journal printed an article entitled The G20’s Funny Money which lambastes SDRs as “bits of paper printed by IMF officials in the basement,” which nonetheless could commit the U.S. taxpayer to come to their support. In explaining how the SDRs work, the Journal notes that so far Congress has had to be consulted and that the last decision to increase the issuance of the pseudo-currency, taken by the Clinton Administration in 1997, had been blocked by the Congress. The Journal then quotes Ted Truman, a former Assistant Secretary of the Treasury, who he believes an actual allocation could be made by the US Treasury Secretary with only consultation with Congressional leaders, not a vote.
While SDRs are backed by the yen and the euro in addition to the dollar, management of the IMF’s currency will not be at the discretion of the countries in ownership of those currencies. Ambrose Evans-Pritchard, the international business editor of the Daily Telegraph, cites the clause calling for the issuance of $250 billion in SDRs as “a revolution in the global financial order.” He writes: “In effect, the G20 leaders have activated the IMF’s power to create money and begin global ‘quantitative easing.’ In so doing, they are putting a de facto world currency into play. It is outside the control of any sovereign body.” The BBC reports IMF managing director Dominique Strauss Kahn as having noted “that this was the first step to the IMF becoming a lender of last resort or, in effect, the world’s central bank.”
While no specific targets (besides Mexico) were mentioned in the G20 declaration on Delivering Resources Through The International Financial Institutions for the $850 billion in increased loans via development banks, roughly half of the $250 billion is set to “go directly to emerging market and developing countries.” In conclusion, the declaration on increased lending stated: “Emerging and developing economies, including the poorest, should have greater voice and representation.” This refers primarily to the emerging economies of Brazil and India, according to the BBC.
Other new administrative policies include the US potentially losing its veto power in the World Bank and IMF. More Western countries could find their voting rights “severely reduced,” again, as reported by the BBC. Even “the convention that an American heads the World Bank and a European heads the IMF will also now be abandoned, the G20 leaders say,” the BBC also stated.
An IMF statement after the summit listed other assumed duties:
“Economic forecaster. IMF economic forecasts were now the central reference point for countries planning how to respond to the cris
“Policy advisor. The IMF had become a partner for governments to discuss policies and help them analyze what policy responses to the crisis would work.
“Economic surveillance. The IMF will monitor policy implementation by governments around the world.”

Sources: BBC, LPAC, IMF, G20, Wall Street Journal


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