By Michael Burgevin
At the Group of 20 meeting last week, global leaders agreed to provide over $1 trillion in a new funding to combat the international financial crisis. The agreement included $750 billion of new lending commitments and credit guarantees for the International Monterey Fund (IMF), which will quadruple the fund’s current budget. Leaders believe that $1 trillion is the largest possible amount that could be pumped into the global economy without the risk of a ballooning effect on national budgets. The G20 also agreed to increased regulation on tax havens and tighten control over large hedge funds, forcing financial institutions to be held accountable on a more global level.
Many new pledges were formed last week to increase the IMF’s funding. Both Japan and the European Union have already promised $100 billion each to the fund. Rich countries, such as the United States, will work as a conglomerate to open a new line of credit, known as the “New Arrangements to Borrow.” Most notably, the IMF will print $250 billion of its own currency, allotting sums to IMF member countries according to their quotas. As of now, it is unclear whether or not this funding can be reallocated from rich to poor countries. IMF administrators were thrilled by the news. “Today is the proof that the IMF is back,” said the fund’s managing director, Dominique Strauss-Kahn.
Some however worry that the IMF is ill suited for distributing the new financial assistance. Criticism has been focused on the IMF’s image as a policy enforcer as opposed to a free lender. Many worry that normal IMF demands such as national budget cuts could easily harm fragile economies in the current economic crisis. Supporters of the IMF have pointed to Mexico’s new loan under the recently created “Flexible Credit Line,” which does not place traditional IMF restrictions on the borrowing country. In a promising sign, the Peso has already risen 12 percent from its 16 year low in early March.
President Obama played a significant role in the G20 meeting, successfully mediated a disagreement between French President Nicholas Sarkozy and Chinese President Hu Jintao over whether to impose sanctions on tax havens that do not provide enough information to the government. German Chancellor Angela Markel praised the freshman President’s role in the meeting. Although world leaders approved of President Obama’s cooperative approach, those in Washington may find his initial promise of $100 billion of U.S. aid to the IMF hard to swallow. The President has the support of many democratic leaders on Capital Hill, including D-Rep. Gregory Meeks, the head of the House Financial Service Subcommittee. However, many Republicans who have protested the national bailouts balked at the idea of funneling U.S. currency into the international market.
At the Group of 20 meeting last week, global leaders agreed to provide over $1 trillion in a new funding to combat the international financial crisis. The agreement included $750 billion of new lending commitments and credit guarantees for the International Monterey Fund (IMF), which will quadruple the fund’s current budget. Leaders believe that $1 trillion is the largest possible amount that could be pumped into the global economy without the risk of a ballooning effect on national budgets. The G20 also agreed to increased regulation on tax havens and tighten control over large hedge funds, forcing financial institutions to be held accountable on a more global level.
Many new pledges were formed last week to increase the IMF’s funding. Both Japan and the European Union have already promised $100 billion each to the fund. Rich countries, such as the United States, will work as a conglomerate to open a new line of credit, known as the “New Arrangements to Borrow.” Most notably, the IMF will print $250 billion of its own currency, allotting sums to IMF member countries according to their quotas. As of now, it is unclear whether or not this funding can be reallocated from rich to poor countries. IMF administrators were thrilled by the news. “Today is the proof that the IMF is back,” said the fund’s managing director, Dominique Strauss-Kahn.
Some however worry that the IMF is ill suited for distributing the new financial assistance. Criticism has been focused on the IMF’s image as a policy enforcer as opposed to a free lender. Many worry that normal IMF demands such as national budget cuts could easily harm fragile economies in the current economic crisis. Supporters of the IMF have pointed to Mexico’s new loan under the recently created “Flexible Credit Line,” which does not place traditional IMF restrictions on the borrowing country. In a promising sign, the Peso has already risen 12 percent from its 16 year low in early March.
President Obama played a significant role in the G20 meeting, successfully mediated a disagreement between French President Nicholas Sarkozy and Chinese President Hu Jintao over whether to impose sanctions on tax havens that do not provide enough information to the government. German Chancellor Angela Markel praised the freshman President’s role in the meeting. Although world leaders approved of President Obama’s cooperative approach, those in Washington may find his initial promise of $100 billion of U.S. aid to the IMF hard to swallow. The President has the support of many democratic leaders on Capital Hill, including D-Rep. Gregory Meeks, the head of the House Financial Service Subcommittee. However, many Republicans who have protested the national bailouts balked at the idea of funneling U.S. currency into the international market.
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