G20 Members to Inject US$750 Bln into IMF

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Leaders of the world’s 20 biggest economies have agreed to provide US$750 billion to the International Monetary Fund to expand its ability to support troubled economies, British Prime Minister Gordon Brown said on April 2.



Brown said China will provide US$40 billion of the new money, well above its voting share in the organization and another sign of the mainland’s desire to take a larger role in the global economy. China’s contribution represents 5.3 percent of the new funds, as against its voting rights of 3.8 percent within the organization.



At a briefing after the G20 Summit closed, Brown said that in addition to boosting IMF lending resources by US$500 billion, the G20 also agreed to support a US$250 billion increase in special drawing rights, or SDRs, distributed to IMF members according to their quotas. Before the London summit, the IMF had just US$250 billion to lend.



SDRs serve as a quasi-currency that members can trade for other hard currencies. Current SDRs in circulation total US$21.4 billion. Though a 1997 amendment to IMF rules doubled that size, it did not win the required approval of 85 percent of its member states at the time.

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The Chinese government has yet to confirm the US$40 billion contribution.



IMF managing director Dominique Strauss Kahn told Caijing that the method of China’s capital injection has yet to be decided. China has expressed a willingness to buying IMF bonds.



Brown said Japan has signed an agreement with the IMF to lend US$100 billion to the fund, and the EU has agreed to lend the same amount.



The IMF’s resources have been strained by more than a dozen bailouts of distressed economies. The new injection of funds is seen as a positive for emerging markets.



Of the US$250 billion in SDRs, US$100 billion will go to emerging markets and developing economies. The SDR expansion should allow IMF member states greater access to liquidity and should enlarge their foreign exchange reserves, Kahn said.



At the end of last month, the IMF also created the flexible credit line, or FCL, for well-run, emerging market economies. The FCL will give qualified countries access to a pool of money they can either tap immediately or keep as a guarantee in case global conditions worsen. Mexico was the first country to announce it would seek an FCL from the IMF, a one-year US$47 billion credit line.



The G-20 also said in a communique that a new US$100 billion credit line would be established for low-income countries through multi-country development banks, taking their total to US$300 billion over the next three years

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The communique also included a commitment to ensure that all “systemically important financial institutions” are brought under regulatory supervision, including, for the first time, hedge funds.



The G20 also pledged to establish a Financial Stability Board that will work with the IMF to provide early warnings on macroeconomic and financial risk. The board will succeed the Financial Stability Forum.



The G20 reiterated that they will provide US$250 billion to finance international trade credit in the next two years and will not adopt trade protectionist measures.



The G20 consists of the world’s 19 largest wealthy and developing countries, plus the European Union members. The leaders of Spain and the Netherlands also participated.



According to Brown, the worldwide economic stimulus package will amount to US$5 trillion by next year.