Moves to Expand IMF Power, Global Stimulus

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Moves to Expand IMF Power, Global Stimulus

US calls for tripling of IMF firepower

By Alan Beattie in Washington

Published: March 11 2009 18:12 | Last updated: March 11 2009 21:42

The US raised the stakes in its drive for an aggressive response to the global financial crisis on Wednesday, calling for a tripling of the International Monetary Fund’s firepower and bigger fiscal stimulus measures worldwide.

Tim Geithner, US Treasury secretary, called for the radical changes ahead of the Group of 20 finance ministers’ meeting in the UK this weekend.

The US proposed that the IMF, which has about $250bn in easily usable resources, should get up to $500bn more to help it combat instability in crisis-struck countries. The agreements would involve massively expanding the so-called New Arrangements to Borrow, a system by which the fund can borrow from its richer members, and expanding it to include more emerging market countries.

The demand outstrips the call even from the fund’s own management, which has asked for $250bn more in resources from its member governments.

Mr Geithner said that each G20 country should set a target of spending 2 per cent of gross domestic product for 2009 and 2010 in fiscal stimulus, and that the IMF should monitor progress towards that goal.

Early warning system

As G20 policymakers struggle to combat the immediate effects of the crisis with fiscal stimulus packages and financial bail-outs, their forthcoming summit will also look at designing early warning systems to spot new disasters

The target is far more than is planned in discretionary spending by several European countries, including the UK, whose discretionary spending is set to fall from 1.4 per cent of GDP this year to minus 0.1 per cent in 2010, according to IMF analysis.

European ministers have countered that their automatic fiscal stabilisers, which increase spending when the economy slows down, are much higher than those in the US.

European ministers this week rejected calls to announce more stimulus at this stage, threatening a damaging rift ahead of the G20 summit. But the Treasury secretary tried yesterday to paper over disagreements with the Europeans, saying that reform of financial regulation – a key European focus – should also be discussed at the G20. Reports of criticism from European ministers “is not what I hear from my conversations with my counterparts,” said Mr Geithner.

As well as expanding the size of the IMF, the US called for fundamental changes in the governance of the global economy.

The Financial Stability Forum, an association of rich nations set up in the aftermath of the Asian financial crisis of 1997-78, should be expanded to include all G20 countries and should play a role alongside the IMF and World Bank, the US said.

Copyright The Financial Times Limited 2009

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