The U.S. and IMF bailout of Mexico in 1994 is often cited as a textbook example of a successful financial rescue. The economy stabilized allowing Mexico to pay back most of its loans in less than 2 years. In response to the current crisis the Fed took on the role of global dollar lender of last resort by lending to foreign, primarily European, central banks. These loans were paid back more quickly than Mexico’s.
The Association of Southeast Asian Nations (ASEAN) along with Japan, China, and South Korea says it will launch a $120bn reserve fund, increasing the foreign exchange reserves that the region can draw on in times of turmoil. Japan has offered an additional $60bn via a swap line. Can regional funds provide an Asian alternative to the IMF?
Mexico, Poland and Colombia have approached the IMF seeking access to the new Flexible Credit Line. If all these lines are drawn, the increase in lending during the current crisis would far exceed the increase during the 95 Mexican crisis, the 97-98 Asian crisis, and the 2001 Argentine crisis.
IMF lending capacity as a percent of cross border bank lending to developing countries has declined steadily over the past three decades. The global economic crisis has revealed the need for more funds. In response, G20 leaders agreed to increase the IMF’s lending capacity by $750 billion.
G20 leaders are meeting in Washington to discuss a possible overhaul of global finance. One topic on the agenda is whether to increase the resources of the IMF, which stood at $201 billion at the end of August. However, many underrepresented emerging market countries, such as China, would be wary of such a move without a shift in the power structure. The following articles tackle the agenda of the upcoming G20 meeting.
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