IMF triples firepower as G-20 injects $500 billion

In one of the boldest moves of the summit, G-20 leaders announced a tripling of loans available to the International Monetary Fund (IMF) to $750 billion, supporting financial stability in the developing world and in emerging markets.

The IMF now has enough financial strength to deal with potential crises around the world, the institution's managing director Dominique Strauss-Kahn declared yesterday.

The fund helps countries that run into financial trouble with loans to support their currencies and financial system

In a press briefing after the completion of the G-20 summit, Strauss-Kahn said the international financial institution now had ''the firepower... for what the world may need.''

''The IMF is back, today you see the proof,'' he said, adding that the Fund was back not only as an economic forecaster but also as an institution that provides policy advice and monitors member countries' economies.

The G-20 also agreed to support an increase in IMF funding of up to $500 billion, with $250 billion delivered immediately, and backed a possible increase in 'special drawing rights' (SDRs) worth $250 billion. Of those, $100 billion will go to emerging markets and developing economies.

SDRs are an IMF-backed money equivalent that can be exchanged for hard currency, and their expansion should allow IMF member states greater access to liquidity.

Strauss-Kahn said $250 billion of SDRs agreed by the G-20 will boost global liquidity and could be used by one member state to lend to others, as well as increase the reserves of a country, thereby providing more financial stability.

Additionally, a new $100 billion credit line will be established for low income countries through multi-country development banks, taking their total to $300 billion over the next three years. They also agreed to sell IMF-held gold to poor countries.

Before the summit in London, the IMF only had $250 billion to lend to hard-pressed countries all around the world.

Earlier yesterday, Prime Minister Dr Manmohan Singh called for a $500-billion fresh funds for IMF to help developing countries cope with the worst financial crisis in six decades. (See: Give IMF a $500-billion boost to help developing world: Manmohan).

Many emerging markets have run into massive difficulties refinancing their debt obligations with western banks. The IMF has had to assist Ukraine, Iceland, Latvia, Hungary, Armenia, Romania, Serbia and Pakistan.

The enhanced funding will assist in providing alternative refinancing options, as long as governments are able to manage these resources responsibly and under increasing economic, social and sometimes political pressures, an analyst opined.

Just a year ago, the IMF was accused of failing to sound the alarm on lax oversight and reckless lending by the US.

Many developing countries also complained that the IMF did not publicly reprimand rich countries for the sort of poor oversight that would probably have drawn stern rebuke, had it taken place in an emerging market.

The increase in IMF resources includes money from the European Union, Japan, the US, Canada and Norway. China is expected to contribute $40 billion to the IMF. Meanwhile, Saudi Arabia said it had not committed funding but was studying options to support the Fund.

The meet also said additional resources for low-income countries would be raised through already agreed IMF gold sales of 400 tonnes, which would provide about $6 billion over the next 2 to 3 years for low-interest loans for the IMF's poorest borrowers.

The IMF last year approved the sale of 403 tonnes of its 3,217 tonnes gold stocks as part of a plan to put its finances on sounder footing and create an endowment with the profits. (See: IMF board approves plan to sell 403 tonnes of gold).

But the G-20 dismissed that plan and instead said the profits from the gold sales should be used for needy countries.

Selling IMF gold requires ratification by member countries' legislatures, including the US Congress