By John Lipsky
The economic and financial crisis of the past two years has placed in high relief profound changes in global economic and financial realities. Most notably, the crisis has underscored the shift in relative economic weight in favor of dynamic emerging market economies. In response, the G-20— a grouping that includes both advanced and large emerging economies—has stepped forward as the premier political venue for addressing economic and financial policy challenges.
These changes are exerting significant influence on the evolution of global governance, and they directly involve the IMF in two concrete ways. First, new advances are taking place in multilateral economic policy cooperation, with Fund participation. Second, realignment of Fund governance has been put on a fast track, with delivery scheduled for January 2011.
Once upon a time, those tracking international reserves focused on simple measures of reserve adequacy—enough to cover, say, 3 months of imports or all of the external debt maturing over the next year. However, the relevance of such yardsticks evaporated as a number of countries accumulated reserves that far surpass such levels, partly in reaction to emerging market financial crises of the 1990s and early part of this decade. Brazil’s reserves now exceed $200 billion, while Russia’s are more than $400 billion—and even these numbers are dwarfed by China’s reserves, which top $2,000 billion.
Reserves are rising, driven by emerging markets and, increasingly, low-income countries
As the financial crisis pulled the rug from under the emerging markets, analysts and policymakers alike began to question the adequacy of Fund resources. This worry was neither new nor surprising. For decades, private international capital flows had grown at a much faster rate than those of the IMF, rendering our institution too small to be able to deal with systemic crises.
As one country after another approached the Fund for financial assistance, it become clear that the international community needed to act decisively. Thus in April, the leaders of the G-20 industrial and emerging market countries, supported by the entire IMF membership, called for a tripling of the IMF’s lending resources from $250 billion to $750 billion. By early September, individual country pledges, including from many non-G20 countries, had reached the promised $500 billion in contingent resources that could be called by the Fund if needed.