By Steven K. Beckner
WASHINGTON (MNI) – Finance ministers and central bank governors of
the Group of 20 nations joined with the International Monetary Fund
Friday in declaring their willingness to act to ensure financial
stability.
“Firm commitments” to increase IMF lending resources by “over $430
billion” were announced in an unusual statement issued jointly by the
G20 and the IMF’s policymaking body — the International Monetary and
Financial Committee.
The $430 billion, which comes from special pledges by Japan,
Sweden, the Nordic nations and others, comes on top of the IMF’s regular
quotas, which are in the process of being doubled to roughly $767
billion. And it comes on top of the roughly $1 trillion European
bail-out or “firewall.”
Additional pledges from other nations may yet be forthcoming.
“We remain committed to take the necessary actions to secure global
financial stability,” the G20-IMF joint statement said, adding, “We
welcome the euro area members’ decisions in March to strengthen European
firewalls as part of broader reform efforts and the availability of
central bank swap lines.”
The one-page statement said the new IMF resources “will be
available for the whole membership of the IMF, and not earmarked for any
particular region.”
“The resources would be channeled through temporary bilateral loans
and note purchase agreements to the IMF’s General Resources Account,” it
said.
The statement vowed that if the resources are used, “adequate risk
mitigation features, conditionality, and adequate burden sharing among
official creditors would apply.”
“This effort, together with the national and regional structural,
fiscal, and monetary actions that have been put in place in the past
months, shows the commitment of the international community to safeguard
global financial stability and put the global economic recovery on a
sounder footing,” the joint statement declared.
In a separate communique of its own, the G20 used nearly identical
wording to assert its commitment to “take the necessary actions to
secure global financial stability.”
The G20 mixed optimism with a heavy dose of caution in assessing
the economic and financial outlook.
“Recent economic developments point to the continuation of a modest
global recovery, supported by some significant policy actions that have
taken place since our last meeting,” the G20 policymakers said. “The
tail risks facing the global economy only months ago have started to
recede.”
“However, growth expectations for 2012 remain moderate,
deleveraging is constraining consumption and investment growth,
volatility remains high partly reflecting financial market pressures in
Europe and downside risks still persist,” they continued, adding that
they “remain committed to further reduce these risks.”
The G20 communique said “high levels of public and private
indebtedness, the need for structural reforms, insufficient global
rebalancing, and persistent unemployment and development gaps continue
to weigh on medium-term global growth prospects.”
“In the context of high unemployment and indebtedness in many
countries, supporting growth and job creation, structural reforms,
restoring medium-term fiscal sustainability and promoting global
rebalancing remain at the core of our commitments,” it said.
The finance ministers and central bankers also agreed that
“protecting investment is crucial for the global recovery” and so
reaffirmed their commitment to avoid protectionism.”
Taking note of high oil prices, the G20 said they “stand ready to
carry out additional actions as needed and welcome the commitments by
producing countries to ensure adequate supply.”
Unlike past G20 communiques which have spoken of the need for “more
market-determined exchange rate systems,” “exchange rate flexibility”
and the need to avoid “disorderly movements” of currencies and
“competitive devaluation of currencies,” the latest communique refrained
from such language — presumably in deference to China, which has
recently taken steps to allow greater appreciation of the yuan.
The only reference to exchange rates came in a section on IMF
surveillance, in which the G20 underscored “the importance of rigorous
surveillance on exchange rate policies” and supported “a more ample
coverage of surveillance activities, where relevant, including global
liquidity, capital flows, capital account measures, reserve and fiscal,
monetary and financial sector policies that could have an impact on
external stability.”
The G-20 policymakers met against a backdrop of furious activity
aimed at defusing the still-ticking European debt bomb.
The Eurozone has beefed up its bailout fund, the European Financial
Stability Facility (EFSF) to nearly $1 trillion, and the International
Monetary Fund has been busy supplementing its lending resources, with
the aim of creating a $500 billion pool of emergency lending reserves.
Meanwhile, the European Central Bank has been lending heavily to
sovereign debt-encumbered European banks through a series of three-year
long-term refinancing operations (LTROs) to ease bank funding strains.
This came on top of the roughly $260 billion of European government
bonds it had bought.
Financial markets stabilized considerably after Greece reached a
debt restructuring deal with its creditors last month, even though the
creditors roughly $130 billion loss constituted a technical default by
the country.
But in recent weeks the focus of concern has turned to heavily
indebted Spain, a far more significant euro-zone country, which has seen
its borrowing costs soar in bond markets.
As the IMF warned in its World Economic Outlook report, “although
the problems there (Greece) and in other economies on the euro area
periphery will likely persist for a long time.”
Earlier this week, Treasury Under Secretary for International
Affairs Lael Brainard told reporters that “recent market volatility
experienced by Spain and others provides a sobering reminder that the
economic adjustments underway in Europe will require sustained effort.”
Brainard said “the euro area will need to strike a careful balance
to avoid a downward spiral. Sustained efforts will be required to
restore growth, repair the banking system, strengthen sovereign balance
sheets and address internal reversals in private capital.”
“Europe must demonstrate a continued willingness to do whatever it
takes to reinforce the foundations of the currency union, including
through fiscal integration,” she added.
But some European policymakers exhibited a bit of ennui with U.S.
calls for more action, particularly German ones.
Following an informal G-7 meeting, German Finance Minister Wolfgang
Schaeuble declared that “Europe has delivered” on promises to stabilize
the euro zone and that it is therefore no longer the “focus” of the
Spring Meetings. And he rejected as “nonsense” calls for Germany to do
more to boost European economic activity.
European Central Bank member Jens Weidmann, appearing with
Schaeuble at a press conference, bristled at what he called “reflexive”
calls for more ECB intervention to aid European debtor nations.
** MNI Washington Bureau: 202-371-2121 **
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