Dollars & Sense: Beyond the World Creditors’ Cartel

Beyond the World Creditors’ Cartel
In Latin America and elsewhere, the IMF may be re–emerging—but in a changed landscape.

By Dariush Sokolov


One group of financiers seems to be doing nicely out of the global recession: the International Monetary Fund and other international financial institutions (IFIs) are enjoying a return to relevance and lining up for increased funding.

The London G20 Summit in April was the IMF’s big comeback gig. In 2007 the fund’s loan book was down to just $20 billion; now its capital is set to triple to $750 billion, plus permission to issue $250 billion in “special drawing rights” (the fund’s quasi–currency which allows member countries to borrow from each others’ reserves). Since September 2008 a range of East European and ex–Soviet states have taken out new loans. So too have Pakistan, El Salvador, and Iceland—the fund’s first Western European client since Britain in 1976.

The World Bank and regional development banks are also getting in on the party. In Latin America, the World Bank’s regional vice president Pamela Cox says she expects lending to triple in 2009 to $14 billion. The Inter–American Development Bank (IDB), the most active IFI in the region, expects to lend $18 billion—its typical loan portfolio is under $8 billion. And the development banks are queuing up behind the IMF with their caps out for capital increases: the Asian Development Bank wants to triple its capital to $165 billion; the IDB is asking for an extra $50 to $80 billion on top of its current $101 billion.

Why now? The IFIs, says Vince McElhinny of the Bank Information Center, a group that monitors them, are opportunists at heart. Just like any private bank or corporation they fight for market share, and as the world economy and global capital markets grow they need to increase their lending apace or lose relevance. The freezing of world capital markets, particularly severe in emerging markets, has created a need which they can seize as opportunity. The Institute of International Finance predicts private net capital flows to emerging markets of $141 billion in 2009, down from $392 billion in 2008, after a record $890 billion in 2007. The IFIs see themselves helping to fill this gap. ...........(more)

The complete piece is at: http://dollarsandsense.org/archives/2009/0909sokolov.html