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This is a joint post with Benjamin Leo.
A special new lending facility was announced in July 2009 with the objective of providing up to $17 billion in new loans through 2014 and, to entice cash-strapped borrowers, the lender is waiving interest payments for the first two years. This may sound like dangerous new short-term teaser offers for sub-prime borrowers. But this isn’t coming from Countrywide Financial. It actually is a new IMF facility for low-income countries, including some of heavily indebted poor countries (HIPCs) who are just barely coming out of the last debt crisis.
The stated objectives of the new IMF facility are laudable: to offset the effects of the global economic crisis by boosting international reserves and supporting adjustment policies. And yes, the overall terms are more concessional than past IMF loans. Nonetheless, the net impact on national debt levels may be significant. And it was just four years ago that the IMF committed to cancel roughly $6 billion in bad loans to many of these very same countries.
On Monday, October 5, IMF Managing Director Dominique Strauss-Kahn and Princess Maxima of the Netherlands, an international development advocate and the UN Special Advocate for Inclusive Finance for Development, launched the IMF’s new Access to Finance Project at
This post originally appeared in the Business Standard.
Wanted: An Asian Managing Director and new approaches to capital flows.
The IMF will strike a triumphalist tone at its forthcoming annual meetings in Istanbul. Some of this will be warranted because the IMF’s record in responding to the global financial crisis was commendable, even if its record leading up to it was less stellar (see http://www.iie.com/realtime/?p=942 for more details).
In 2002, John Williamson and I proposed that the gold at the IMF be used to deal with global public good (bad) of unsustainable debt of poor countries – and in particular to allow the IMF to finance suspension of debt service to the IMF and the multilateral development banks following an external shock.
The U.S. House and Senate passed the $105.9 billion war supplemental last week, which includes $5 billion to secure $108 billion in additional lending by the International Monetary Fund (IMF). Congress’s approval for increased IMF lending supports President Obama’s G20 commitments and paves the way to unlock the $1 trillion (mostly contributions from other high-income countries) for emerging and developing countries coping with the economic crisis.
In testimony before the House Foreign Affairs Subcommittee on Terrorism, Nonproliferation and Trade last week, CGD president Nancy Birdsall argued that support for the G-20 commitments to increase lending resources at the IMF is a critical part of ensuring U.S. recovery from the economic crisis and global prosperity and security. She was, however, confronted with a host of concerns about whether multilateral lending would go to governments like Iran, Sudan, and Syria, and with one member of Congress’s view that he “is a citizen of the United States, not the world.”
The U.S. should do more to support the International Monetary Fund and its efforts to stabilize the global economy, CGD president Nancy Birdsall and three other witnesses told the House Financial Services Subcommittee on International Monetary Policy and Trade last week.