In welcoming these commitments, Christine Lagarde, IMF Managing Director, said: “These commitments will preserve the overall lending capacity of the IMF and provide confidence that the Fund will continue to address the needs of our membership. I am heartened that so many countries have already made a commitment, and I would encourage others to join this important international cooperative effort.”
Access to the bilateral borrowing will be governed by a new framework approved by the IMF’s Executive Board in August 2016 that will replace the framework agreed in 2012 when, in response to the global financial crisis, the membership decided to supplement IMF resources through bilateral borrowing agreements.
There are currently 35 agreements with creditors under the 2012 Borrowing Agreements for a total of SDR 282 billion or US$393 billion. These agreements, set to expire starting October 12, have not been drawn but have played a critical role as a third line of defense, after quotas and the New Arrangements to Borrow (NAB), in providing assurance to members and markets that the IMF has adequate resources to meet potential needs.
The new framework retains key modalities of the existing borrowing framework and includes a new multilateral voting structure that gives creditors a formal say in any future activation of the bilateral borrowing agreements. The new agreements will have a common maximum term of end-2020, with an initial term to end-2019 extendable for a further year with creditors’ consents. The agreements under the new framework will continue to serve as a third line of defense after quotas and the NAB.
The persistently low growth has exposed underlying structural weaknesses, and risks further dampening potential growth and prospects for inclusiveness. Lower productivity growth and remaining crisis legacies in advanced economies, challenges from ongoing adjustments and vulnerabilities in some large emerging market economies, and the effects of lower commodity prices on exporting countries continue to weigh down the outlook. Overall, uncertainty and downside risks are elevated, while longstanding headwinds persist.
The global economy has benefited tremendously from globalization and technological change. However, the outlook is increasingly threatened by inward-looking policies, including protectionism, and stalled reforms. We commit to design and implement policies to address the concerns of those who have been left behind and to ensure that everyone has the opportunity to benefit from globalization and technological change.
Policy response
“We reinforce our commitment to strong, sustainable, inclusive, job-rich, and more balanced growth. We will use all policy tools—structural reforms, fiscal and monetary policies—both individually and collectively. We are strengthening policies to bolster confidence and resilience, safeguard financial stability, and ensure that all members of society have the opportunity to benefit from globalization and technological change. We encourage countries hit hard by a persistent decline in their terms of trade to proceed with their policy adjustment,” she said.
“We recognize that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will refrain from competitive devaluations and will not target our exchange rates for competitive purposes. We reaffirm our commitment to communicate policy stances clearly and resist all forms of protectionism. We will also redouble our commitment to maintain economic openness and reinvigorate global trade as a critical means to boost global growth,” she said.
IMF priorities include:
Growth-friendly fiscal policy. All countries should use fiscal policy flexibly and make tax policy and public expenditure more growth-friendly, including by prioritizing high-quality investment, while enhancing resilience and ensuring public debt as a share of GDP is on a sustainable path. Appropriate and credible fiscal policies along these lines will support growth, job creation, and confidence. Well-designed tax structures, as well as income policies where appropriate, can promote stronger growth, protect the vulnerable, and reduce inequality.
Continued supportive monetary policy. In advanced economies where inflation is still below target and output gaps remain negative, monetary policy should remain accommodative, consistent with central banks’ mandates, mindful of financial stability risks, and underpinned by credible policy frameworks. Monetary policy by itself cannot achieve sustainable and balanced growth, and hence must be accompanied by other supportive policies.
Prioritized structural reforms. Structural reforms are key to raising potential growth and would benefit from synergies with other policies to support demand. Tailored to country-specific circumstances, reforms must be reinvigorated, carefully chosen, and appropriately sequenced to yield the maximum growth benefits, raise productivity, and create opportunities for all, while assisting those who bear the burden of adjustment to globalization and technological change.
Effective financial sector policies . To help ensure that the financial sector is robust enough to support growth and development, we will intensify efforts to address remaining crisis legacy issues in some advanced economies and vulnerabilities in some emerging market economies, while monitoring potential financial stability risks associated with prolonged low or negative interest rates, systemic market liquidity risks, and non-bank intermediation. Timely, full, and consistent implementation of the agreed financial sector reform agenda remains an important priority, as well as finalizing remaining elements of the regulatory framework as soon as possible.
Stronger global cooperation. Concerted effort at the international level is key to boost global trade; sustain progress on global rebalancing; manage spillovers from economic and non-economic shocks; ensure a fair, efficient, and transparent international tax environment; tackle the sources and channels of terrorist financing, corruption, and illicit financial flows; and address the decline in correspondent banking relationships. Comprehensive, coordinated, and time-consistent policy actions that exploit synergies would amplify positive cross-border spillover effects of individual policy actions. We will continue strengthening the international financial architecture, including the global financial safety net.
IMF resources and governance
To help maintain the current lending capacity of the Fund, we welcome the pledges of SDR260 billion (US$360 billion) received from 26 members to ensure the IMF’s continued access to bilateral borrowing under the strengthened governance framework approved by the Executive Board; support the need for continued access to multilateral borrowing agreements; and call for broad participation of the IMF membership including through new agreements.
Looking ahead, IMF reaffirms its commitment to a strong, quota-based, and adequately resourced IMF to preserve its role at the center of the global financial safety net.
“We are committed to concluding the 15th General Review of Quotas and agreeing on a new quota formula as a basis for a realignment of quota shares to result in increased shares for dynamic economies in line with their relative positions in the world economy and hence likely in the share of emerging market and developing countries as a whole, while protecting the voice and representation of the poorest members,” IMF said.
To provide adequate time to build the necessary broad consensus, we support the Managing Director’s proposal to reset the timetable for completing the 15th Review in line with the above goals by the Spring Meetings of 2019 and no later than the Annual Meetings of 2019, subject to adoption by the Board of Governors. We call on the Executive Board to establish a concrete work agenda to achieve this goal.
“We support the efforts of the IMF to harness new technologies—including by improving knowledge management—to increase its agility and effectiveness. We reiterate the importance of maintaining the high quality and improving the diversity of the IMF’s staff. We also support promoting gender diversity in the Executive Board,” it said. (*)