LONDON (Reuters) - The G20 on Thursday tripled the International Monetary Fund’s resources, adding $500 billion (340 billion pound) for a total of $750 billion, giving it more firepower and putting it centre stage in the battle against global financial crisis.
A G20 summit of developed and developing countries also agreed to support a general allocation of $250 billion worth of IMF Special Drawing Rights (SDRs) to IMF member countries to boost liquidity at a time when credit markets are frozen.
IMF Managing Director Dominique Strauss-Kahn declared the G20 decision to boost resources and support more economic monitoring by the IMF meant that the Fund would play a bigger role as guardian of the global financial system.
Just a year ago, the IMF was struggling f relevance and respect for failing to sound the alarm on lax oversight and reckless lending by the United States.
Many developing countries also complained that the IMF did not publicly reprimand rich countries for the sort of poor oversight that would probably have drawn stern rebuke, had it taken place in an emerging market.
“The IMF is back,” Strauss-Kahn declared. “Today you see the proof,” he said, adding that the Fund was back not only as an economic forecaster but also as an institution that provides policy advice and monitors member countries’ economies.
The increase in IMF resources includes money from the European Union, Japan, the United States, Canada and Norway. There was no formal breakdown provided of resources and which countries had committed funds.
British Prime Minister Gordon Brown said China would contribute $40 billion to the IMF, but did not say whether Beijing would lend through an IMF-issued SDR bond. Meanwhile, Saudi Arabia said it had not committed funding but was studying options to support the Fund.
The G20 communique said it was essential that the new resources should be “used effectively and flexibly to support growth,” to lend to countries facing balance of payments needs and difficulties accessing credit.
Strauss-Kahn said the increase in resources to a total of $750 billion “is about the size that the world may need” as countries deal with the worst economic downturn since World War Two.
He said the added $250 billion of IMF SDRs agreed by the G20 will boost global liquidity and could be used by one member state to lend to others, as well as increase the reserves of a country, thereby providing more financial stability.
The IMF created SDRs in 1969 as a way to support its 185 member countries and are allocated according to members’ IMF quotas, which are broadly based on a country’s relative size in the world economy and which determines its voting power.
Strauss-Kahn said about $90 billion of the $250 billion SDR allocation was for developing countries, which would be allowed to increase their SDR share by using those of another country which may not need them.
In addition the G20 communique said additional resources for low-income countries would be raised through already agreed IMF gold sales of 400 tonnes, which would provide about $6 billion over the next 2 to 3 years for low-interest loans for the IMF’s poorest borrowers.
The IMF last year approved the sale of 403 tonnes of its 3,217 tonnes (103.4 million ounces) gold stocks as part of a plan to put its finances on sounder footing and create an endowment with the profits.
But the G20 dismissed that plan and instead said the profits from the gold sales should be used for needy countries.
Selling IMF gold requires ratification by member countries’ legislatures, including the U.S. Congress, which is expected to take at least several months or longer.
Reporting by Lesley Wroughton. Editing by Mike Peacock