LONDON, England – LEADERS of the Group of Twenty (G-20) have agreed to inject an unprecedented $1 trillion into the global economy to ensure that international financial institutions have the necessary facilities to address the plight of developing countries during the global crisis.
The group of global leaders, representing the twenty largest economies in the world, made this commitment yesterday (Apr. 2) at the London Summit, which was noted as an “historic” event in terms of the timely response to the global crisis.
During the summit, much emphasis was placed on introducing sanctions on secretive tax havens and on increased regulation of large financial institutions.
According to a G-20 communiqué issued yesterday, an additional $850 billion in resources will be made available through the International Monetary Fund (IMF) and multilateral development banks (MDBs) to support growth in developing countries. The funds will largely finance bank recapitalization, infrastructural development, trade finance, balance of payments support, debt rollover and social support.
In his review of the Summit, US President Barack Obama said, “By any measure, the London Summit was historic. It was historic because of the size and the scope of the challenges that we face and because of the timeliness and magnitude of our response.
“In an age where our economies are linked more closely than ever before, the whole world has been touched by this devastating downturn, and today the world’s leaders have responded with an unprecedented set of comprehensive and coordinated actions,” he added.
As it relates to the IMF, the leaders have agreed to support the international financial body with $250 billion in bilateral financing from its members, as well as give greater consideration to market borrowing by the IMF, if necessary.
This lending would be done in conjunction with other sources of financing to raise the resources of the IMF to the level needed to meet the demands of developing and emerging nations.
“In the near term, we have agreed to incorporate the immediate financing from members into an expanded and more flexible New Arrangements to Borrow, which will include other G20 countries, and be increased by up to $500 billion. We support a doubling of the IMF’s concessional lending capacity for low-income countries and a doubling of access limits, within the Debt Sustainability Framework.
“We have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next two to three years. We call on the IMF to come forward with concrete proposals,” the communiqué outlined.
The global leaders also detailed their support for MDBs, promising a substantial increase in lending of $100 billion to low income countries, per annum for the next three years.
Support was unanimously rendered to the full and exceptional use of balance sheets for MDBs, essentially meaning the banks would have further resources available for lending. The implementation of guarantees, bond insurance and bridging finance was recommended in order to leverage private capital more effectively.
The report stated, “We agreed that these resources and facilities [given] should enhance the capacity of the international financial institutions to address the crisis. Emerging and developing economies, including the poorest, should have greater voice and representation.
As the global economy anticipates a dismal fiscal year, the G-20 reassured its support to the World Bank Vulnerability Framework and similar initiatives that provide necessary facilities to developing and vulnerable countries.
