- IMF, World Bank and G-7 Finance Ministers Meet in Washington
- May 29, 2009
- Law Firm: Alston & Bird LLP - Atlanta Office
On Friday, in connection with the Annual Spring Meetings of the IMF's International Monetary and Financial Committee (the committee responsible for advising, and reporting to, the Board of Governors on matters relating to the Board of Governors' functions) and the joint World Bank-IMF Development Committee (the forum of the World Bank and the International Monetary Fund that facilitates intergovernmental consensus-building on development issues) held in Washington, the G-7 Finance Ministers and Central Bank Governors met to discuss both ongoing national and international regulatory reforms adopted in response to the crisis. Following their meeting, the G-7 finance ministers released a statement emphasizing their commitment to “continue to act, as needed, to restore lending, provide liquidity support, inject capital into financial institutions, protect savings and deposits and address impaired assets,” and support efforts to increase the IMF’s lendable resources. While acknowledging that "downside risks persist," they welcomed signs that "the pace of decline in our economies has slowed and some signs of stabilization are emerging." The finance ministers emphasized the importance of strengthening "national efforts to address systemic risks; extending the perimeter of regulation to include all systemically important institutions, markets, and instruments; ensuring sound regulation, adequate capitalization of financial institutions, and strengthened risk management practices; enhancing transparency; reinforcing international collaboration; improving accounting standards on valuation and provisioning; and bolstering market integrity.”
Secretary Geithner in a separate statement noted that, since the G-20 Summit held earlier this month, the G-20 leaders have been making progress to address the agreed upon coordinated framework of policy actions that include the following four key elements: “(1) promotion of economic recovery, (2) repair of national financial systems, (3) support for the IMF, the World Bank, and the multilateral development banks (MDBs) in their efforts to mitigate the effects of the crisis, and (4) reforms that substantially reduce the odds that crises of this magnitude do not happen.” Secretary Geithner cautioned however, that G-20 leaders must continue to “supply the necessary stimulus to domestic demand” in each of their respective countries and stabilize their “financial systems to ensure a sustained global recovery.”
World Bank President Robert B. Zoellick noted that the meetings "were the first major global gathering since the G-20 and provided an opportunity to discuss the broader set of problems in developing countries where real economies are being hit by second and third waves of the crisis.” On Thursday, the World Bank announced that it would provide $45 billion of new infrastructure loans over the next three years, to "provide the foundation for rapid recovery from the global economic crisis." The loans will be made through a new Infrastructure Recovery and Assets Platform. In addition, the World Bank's IFC unit established a new Infrastructure Crisis Facility that would be funded with up to $300 million of IFC equity that, together with an additional $2 billion of co-investment from other sources, "is likely to help mobilize additional funding worth three times that, covering around $10 billion worth of infrastructure projects." That followed Tuesday's announcement that the World Bank would join with other multilateral development banks to provide up to $90 billion over the next two years to Latin American and Caribbean countries, with the World Bank Group contributing $36.5 billion to that effort.
On Saturday, the IMF's International Monetary Financial Committee (IMFC) issued a communiqué calling on member states to take “account of the effects of their economic, financial, and investment policies on others" and stressed the importance of "refraining from protectionism in any form.” The communiqué also restated the IMFC’s resolve to “work collaboratively to restore international financial stability and global growth” and called upon the IMF “to continue acting promptly to make available, under adequate safeguards, substantial resources to member countries with external financing needs.”
In response to the issues addressed at the meetings, José Viñals, Financial Counsellor and Director of the IMF’s Monetary and Capital Markets Department, noted that “[c]ontinued decisive and effective action is needed to preserve and strengthen" recent signs of improvement, and "to help provide a more stable and resilient platform for sustained global growth.” One of the issues addressed at the meetings was the IMF's efforts to strengthen its lending framework and lendable resources. Thus far the IMF has received substantial aid from Japan and the European Union and received various commitments from other member countries. Managing Director of the IMF, Dominique Strauss-Kahn indicated in a statement to reporters that the IMF may also seek to raise additional resources by issuing bonds, which would pay interest at the rate charged on Special Drawing Rights.
Finally, the joint IMF-World Bank Development Committee issued a communiqué acknowledging that the "global economy has deteriorated dramatically since our last meeting," but emphasizing that "[w]e must alleviate its impact on developing countries and facilitate their contribution to global recovery." The Committee expressed support for initiatives the World Bank has initiated, including its new Vulnerability Financing Facility, expansion of its Global Trade Finance Program to $3 billion, its new $15 billion Infrastructure Recovery and Assets Program, and its Eastern European-focused bank Capitalization Fund.