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the World Bank in Istanbul that ended on Wednesday, but is on a
rough road between a fragile economic recovery and dissension among
members. The finance chiefs from the 186 member nations of the
institutions agreed after two days of talks on a broad mandate to
build a lasting recovery from the worst crisis since the Great
Depression. But they said the nascent global recovery was
considerably weak and could stall as unemployment surges and serious
strains remain in the financial system. Divisions were evident
over the International Monetary Fund's ambition to become a 'new
IMF'—the global lender of last resort and watchdog of the Group of
20 largest economies' plan to build sustainable growth. 'This
annual meeting may be the starting point of a new IMF, and you may
say later when you will be talking with your grandchildren that you
were in Istanbul at this time,' IMF managing director Dominique
Strauss-Kahn said. The IMF's policy-steering committee asked the
fund to address four key reform areas—the IMF's mandate, its
financing role, multilateral surveillance, and governance. This
included a shift of at least 5.0 per cent in voting power to
under-represented countries as recommended by the Group of 20
largest rich and emerging countries. Strauss-Kahn said these
'Istanbul Decisions' would be a focal point for the coming year. 'We
have come a long way, but the journey is not over,' he told
delegates. 'The credibility of the fund still is precarious,' said
Carlos Quenan, an expert at the Institute of the Americas in France.
'It certainly has bolstered its fire- fighter role as the only
international institution that can deliver aid,' Quenan said in an
interview. 'But nevertheless it remains unclear what will be the
conditionality on the new loans and how voting power will be shifted
to give emerging countries more weight and thus gain better
credibility,' he added. Currency frictions stalked the meetings as
the weak dollar and the yuan, which the IMF says is undervalued,
highlighted the so-called global imbalances blamed for fuelling the
crisis. Americans' credit-fuelled consumption of Chinese-made
goods built up a huge trade deficit with China, and Beijing's
export-led growth model has allowed China to amass more than two
trillion dollars in reserves, mostly in dollars. The United
Nations called for a new global reserve currency to end dollar
supremacy, which it said had contributed to global imbalances. Top
UN official Sha Zukang said that ' greater use of a truly global
reserve currency, such as the IMF's special drawing rights,' the
fund's international reserve asset, would benefit global
development. Strauss-Kahn urged the delegates to build on the
spirit of economic cooperation at last month's G20 Pittsburgh summit
and 'seize this opportunity to shape the post-crisis world' and
reduce poverty. He said the fund could need more than a trillion
dollars in financing from its members to function as a bank of last
resort that would reduce the need for countries to build big reserves
as a cushion against shocks. Germany, Europe's biggest economy
and a G20 member, balked, saying a massive increase in the fund's
reserves could encourage governments to adopt risky economic policies
in confidence that they could get bailed out if they failed.
'Moral hazard issues... arise from the vast increase in fund
resources that is currently taking place. This increase should be
viewed as a temporary measure,' German central bank chief Axel Weber
said. The World Bank appealed for more funds as it sees a second
straight year of record lending to developing and poor countries.
'As we start to get towards the middle of next year, we are going to
start to face some serious constraints, and we would have to ration
and obviously focus on the lowest-income countries,' said World Bank
president Robert Zoellick. Policy-makers approved the first
general capital increase for the World Bank in 20 years as the crisis
was expected to force as many as 90 million more people into poverty
by 2010.
