Washington: The International Monetary Fund (IMF) on Saturday said it had forged agreement on the stimulus measures taken to combat the global financial crisis and the need to clean up bad assets weighing on banks.
“Everybody is happy with what has been done on fiscal stimulus...all agree on the absolute necessity of cleansing the financial system,” IMF head Dominique Strauss-Kahn said after a meeting of the fund’s steering committee.
He said that during discussions of IMF board’s International Monetary and Financial Committee, it had become clear there was no longer any major disagreement over how to tackle the crisis.
As the worst global slump since the 1930s spread through 2008, there were substantial differences over how much money governments should spend—even at the risk of going heavily into debt—to get their economies going again. The US advocated spending any amount necessary while Europe generally, and especially Germany, was reluctant to commit ever more funds, preferring to wait and see the effectiveness of initial steps.
Strauss-Kahn said the 185-nation IMF had been right to stress the need to clean up the toxic assets at the banks as there could be no recovery without getting the banks lending again. The ultimate recovery “is heavily reliant on” this clean-up, he said at a news conference on the first day of spring weekend meetings of IMF and sister institution the World Bank in Washington.
Strauss-Kahn said substantial differences remained, however, over what the exit strategies should be for getting out on the other side of the crisis, adding that countries needed to have a view three-four years ahead. Some countries wanted to discuss the issue later, after dealing with the immediate crisis.
“Our point of view is that (the) exit strategy view has to be taken into account as soon as possible,” the former French finance minister said.
Strauss-Kahn said the meeting in Washington, picking up from the Group of Twenty (G-20) London summit of developed and developing countries on 2 April, confirmed that IMF was now at the centre of policy coordination on the crisis. He noted positively broad agreement on supplying IMF with additional funds so that it can help poorer countries struggling in the crisis.
“A key achievement of today’s meeting is ensuring the doubling of the fund’s loanable resources,” a statement by IMF’s International Monetary and Finance Committee said.
In a first stage, $250 billion (Rs12.48 trillion) will be available through a special facility to help “member-countries with external financing needs”, followed by another $250 billion, as agreed at the G-20 summit on 2 April. Since then, however, there has been concern that some countries were moving too slowly in following through on their pledges.
“In order to ensure recovery, IMF must...have adequate resources and instruments to respond forcefully to address the needs of its emerging market and developing country members hard hit by the crisis,” US treasury secretary Timothy Geithner told the steering committee.
The European Union (EU) told the IMF steering committee that it planned “ambitious reform” of the financial sector this year to address the failings that led to the current global crisis. “The crisis has exposed unacceptable weaknesses in the current governance of international and European financial markets,” EU economic affairs commissioner Joaquin Almunia said.
Top officials have highlighted tentative signs of stabilization in the crisis but have also warned that recovery will be long and fraught with risks in the battle to end a vicious circle of slowing growth and tight credit.
IMF earlier this week sharply downgraded growth forecasts, saying it now sees the global economy contracting by 1.3% this year before returning to growth of 1.9% in 2010.