G20: IMF Wins Big

Posted by: Kerry Capell on April 02, 2009

As expected, the G20 won’t produce any big coordinated fiscal boost. Or at least not the kind that both British Prime Minister Gordon Brown and U.S. President Barack Obama had hoped. But sources involved in the negotiations say it could provide as much as $1 trillion to the global economy through a combination of measures such as increased funding for the International Monetary Fund and a trade credit package.

British Minister Mark Malloch-Brown, the Prime Minister’s official envoy to the negotiations, says the aim is to bolster the economies of poorer countries. It’s providing “stimulus support for those parts of the globe that can’t do it on their own.”

Dramatically improving the funding of the International Monetary Fund will enable it to increase lending to poorer countries that are unlikely to see any benefit from the more than $2 trillion in global stimulus measures. The expectation is that the G20 will pledge funds “more than doubling” the amount the IMF initially sought to $750 billion.

“You can expect a big IMF announcement of a stimulus package for non-G20 countries by the end of today,” he says.

This summit promises to offer much more specifics than the G20 meeting in Washington last November, he says. “There is a sense this summit is different; and the context in which it is occurring, against the backdrop of a global economic recession has given it an element of drama,” Malloch-Brown said in a briefing on the sidelines of the meeting.

“The leaders coming here realize they cannot just adopt the communiques of their sherpas [senior aides] and go home, he said. “Their is a real sense their political capital is on the line.”

According to Malloch-Brown regulation will remain national. But to make sure national regulators are up to snuff, “the Financial Stability Forum and the IMF “looking over their shoulder to ensure they are doing their job.”

There is also universal agreement from the G20 delegations to closing the loopholes that currently exist around hedge funds and tax havens. But it is unlikely to go as far as French President Sarkozy or German Chancellor Angela Merckel would like.

Expect action to improve global trade. Similar comments were made at the G20 last November only to see 17 out of the 20 countries enact protectionist measures almost immediately afterwards. Today Malloch-Brown says today leaders of the G20 will likely agree to roll back those measures, and take action on trade finance.

While protectionism is very worrying, Malloch-Brown says it is not the main reason for the slowdown in international trade. “What has stopped internaitonal trade is the collapse of international trade finance,” he says. One likely outcome of today’s summit is an increase in trade finance insurance that is likely to exceed $100 billion.