3) Funding and reforming our international financial institutions to overcome this crisis and prevent future ones
The global financial crisis has resulted in the seizing up of international financial markets that are essential for keeping the world economy functioning. The effects of this have been particularly felt in developing and emerging economies. Governments as well as households and businesses in these countries have found it more difficult to borrow, adding to pressures on economic growth from reduced global demand and exports and increasing unemployment. International financial institutions like the International Monetary Fund (IMF) and the World Bank have an essential role in ensuring the stability and recovery of emerging markets and developing economies.
To ensure international financial institutions have the resources needed to provide responsive and effective support to developing economies – which have been key factors in world economic growth over the last ten years and are vital to ending the global recession –G20 Leaders have agreed to resources available through the IFIs by $850 billion. They agreed to treble IMF resources to $750 billion, initially funded through bilateral borrowing to be then incorporated into an expanded and enlarged New Arrangements to Borrow of up to $500 billion.
Leaders also agreed to an SDR allocation of around $250 billion – to provide an additional $100 billion in liquidity to emerging and developing economies (including $19 billion for the poorest) – and urged ratification of the 4th Amendment for an additional $30 billion SDR allocation. Leaders urged MDBs to make available at least an additional $100 billion in resources over the next few years, and also committed to providing up to $50 billion of trade liquidity support as part of the global effort to ensure the availability of at least $250 billion of trade finance.
Leaders also agreed to ensure that the international financial institutions have the facilities they need to address the current crisis and meet the needs of emerging markets and developing countries: welcoming the IMF’s new Flexible Credit Line (FCL) for eligible countries, urging the IMF to reform its surveillance and lending facilities to address the causes of countries’ balance of payments needs, supporting the World Bank Vulnerability Framework through voluntary bilateral contributions, increasing individual country limits on World Bank lending to enable large countries to access required levels of finance, allowing low income IDA countries with sustainable debt positions and sound policies to gain temporary access to nonconcessional IBRD lending, and a temporary lifting of caps on the proportion of concessional lending by the MDBs provided as budget support to low income countries.
As well as increasing resources, it is important that each country has confidence in the institutions’ relevance, effectiveness and legitimacy, to ensure credibility.
At the London Summit, leaders recognised that action needs to be taken to improve the credibility of IFIs.The G20 therefore agreed:
- reform of representation on IFIS – IMF quota reform to be brought forward to be completed by 2011; and similar reform of the World Bank to be completed by 2010
- selection and recruitment of heads of IMF and World Bank to be based on merit
- consideration of greater involvement of the Fund’s Governors in providing strategic direction to the IMF and increasing its accountability;
