At the G-20 summit earlier this month, world leaders decided
to give the IMF $500 billion to lend to countries in need. So far, G-20 member
countries have made about $340 billion in concrete pledges, a senior Treasury
official told the Wall Street Journal.
Earlier this week, the IMF released a gloomy economic
outlook that predicted 1.3 percent drop in the global economy this year — much
weaker than the half percent growth it estimated in January. “By any
measure, this downturn represents by far the deepest global recession since the
Great Depression,” the Fund said in its latest World Economic Outlook.
“All corners of the globe are being affected.”
Last month, the IMF predicted global activity would contract
this year “for the first time in 60 years,” though it didn’t offer a
precise estimate then.
As the worldwide recession spreads, the IMF is anticipating
more demand for its loans. In the last six months it has put out more money
than in any other comparable period in its history, according to the BBC.
The Fund has already announced nearly $150 billion in loan
commitments, including a $47 billion line of credit to Mexico. However, not all
of that money will necessarily be used.
The U.S., Japan and Europe have each announced $100 billion in
extra money for the fund. Although President Obama has agreed to the funding
commitment, he is facing some resistance in congress. Rep. David Obey (D-Wisc.)
has said he is reluctant to approve the funding boost unless European countries
agree to pass larger stimulus plans to jumpstart the world economy.
The head of the IMF’s top advisory committee told the
Journal that the IMF should use the new funding to help poor countries without
forcing those countries to make drastic budget cuts.
“You need to make sure fund intervention doesn’t make
things any worse,” Egyptian Finance Minister Youssef Boutros-Ghali told
the paper. In the past the IMF has been criticized for requiring countries
receiving assistance to reduce their spending, which some say can make
But in a Wall Street Journal interview, IMF Managing
Director Dominique Strauss-Kahn defended the practice.
“If you don’t fix the fiscal problem, you just waste
your money, and after a few years you’re back to square one,” he said.
Meanwhile, in the background at this meeting will be
questions of how to give more voting power at the IMF to emerging economic
powers such as China.
“The governance of the Fund needs to look like the
global economy. It cannot be the old boys club from Western Europe and the
U.S.,” former U.S. Treasury Under-Secretary Timothy Adams told Reuters.