“Truman doctrine” could boost IMF firepower

By Paul Taylor
March 17, 2009

Paul Taylor Great Debate– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

The day before he returned to the U.S. Treasury for six weeks to help the understaffed Obama administration, Edwin Truman published a proposal to give the International Monetary Fund more firepower to fight the financial crisis.

Truman’s idea — a one-off $250 billion allocation of Special Drawing Rights (SDRs) to IMF member states — looks like the quickest way to put a safety net under developing countries and avert financial contagion. The Group of 20 world leaders should embrace it at the meeting in London on April 2.

U.S. Treasury Secretary Tim Geithner has not endorsed the plan in public, but the British minister preparing the summit confirmed it is one of the options under consideration. It could supplement a proposed doubling of the IMF’s resources and get around the reluctance of surplus countries such as China and Saudi Arabia to contribute more for now.

SDRs are international reserve assets, calculated in a basket of major currencies, that are allocated to the IMF’s 185 members according to their quota of the Fund’s capital. A special issue would be a bit like a global central bank printing money to help countries with payments difficulties.

A G20 endorsement would show financial markets that world powers are cooperating to overcome the crisis by supporting developing nations starved of credit by the collapse of international bank lending.

THE BENEFITS

Among the benefits, it would reduce the urge for developing and emerging countries to devalue by boosting exports and amassing balance of payments surpluses and currency reserves to protect themselves against attacks on their markets. That could avert the kind of destabilizing imbalances that arose after the 1990s Asian crisis and ease growing pressure for trade protectionism.

Truman calculates that the poorest developing nations would receive $17 billion in SDRs directly and other developing countries would get a total of $80 billion.

Most SDRs would go to industrialized nations. But they could transfer them to developing countries at a nominal interest rate or hold them in reserve, for example giving European Union states a bigger war chest in case they need to support east European new members or neighbors with payments problems.

Sticklers for financial orthodoxy contend such a special issue of “funny money” would reduce the IMF’s leverage to enforce structural reforms in recipient countries through the conditionality of its loans, and could be inflationary.

But the proposed one-off SDR allocation is far smaller than the sums already being pumped into the system by western central banks, and it would not replace conditional IMF lending programs for individual countries in financial distress.

The move requires the support of 85 percent of the Fund’s membership. Geithner can approve up to $250 billion in SDRs without requiring Congressional authorization. Such a bold move would provide a tangible outcome to the London summit.

16 comments

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Lets see now — We are going to give poor countries help by driving up their national debt by $97 billion, and industrial countries would loan them them the rest to $250 billion, when they cant even service their national debts now?? That size of debt historically leads to political unrest and destabilizes governments because interest on that debt will be paid before health, education and other needs of the population. Who dreams up this stuff? Bold move? Yeah sure, sounds like a plan …….

Posted by AP Taylor | Report as abusive

Don’t we have enough agencies pumping “funny money” into the world financial system? I strongly believe that the so called financial crisis that we are facing now is because of inflated values and unidentified money being pumped into the system.
I don’t feel that we are going to fix the world-wide financial mess until we are able to once again trust governments, the value of products and the money we are using. I think this particular plan will just create more problems on top of what we already have. Our financial news is full of those that were part of the problem attacking former government officials for not catching them.
I think these schemes that are being cooked up are just ways to cover up and miss direct so it looks like something is being done. Let’s get back to financial basics and build a solid foundation and go from there.

Posted by Craig Coal | Report as abusive

Do you think this will end well?
I dont.
When you cant pay your bills, either you cut costs or make more money.
If you run out of money and operate your bank, you close and another bank takes over the scraps.
Thats it!
Is that so difficult to understand. These bailouts, credit crunch, etc are being born on the backs of taxpayers. Against the natural order of the market.
In the end, it will crash and burn. Pour as many billions and trillions as you like, it will not stop a sick business from busting.
The weak are becoming weaker by being allowed bailouts.

Posted by gambino | Report as abusive

One comment? Perhaps if Reuters published comments submitted from the public, instead of editing them with a news bias, the executive would not be soliciting comment from the public in another section of their site. Wow – billions of people on the planet, and one comment. Could this be an indication of how relevant Reuters actually is to the public?

Posted by hal taylor | Report as abusive

The IMF takes money from American taxpayers and hand it out to the rich of the world. Foreign Aid does not go to the poor it goes to governments run by dictators and their bankers. The IMF funds the world’s criminals.

Posted by steve langston | Report as abusive

The IMF is the enemy of all living creatures on this world and any other within it’s grasp.

Posted by jason | Report as abusive

What a con game!
The globalists are getting absurd. The IMF is an organization accountable to no one. It pretends to be a “good doer” using our money? Get real and shut down that self-serving, fraudulent click. Get back to the fundamental economic principles. Swim or sink.

Posted by W. Strasser | Report as abusive

I guess in the general scheme of things, $250 billion is chicken feed. Literally it is feed to help raise chickens. It’s a compassionate move. As difficult as things are in wealthier nations, it’s a totally different level of suffering in these poorer countries. I think Truman is in the right.

Agree 100% with the comment March 17th, 2009 2:36 pm GMT – Posted by jason

The IMF is the enemy of all living creatures on this world and any other within it’s grasp

Posted by micro | Report as abusive

Poor countries do not need to be economically and politically crushed with the burden of more debt. Instead of advancing $250 billion, why doesnt the IMF just FORGIVE $250 billion in existing debt??? Listen up all you politicians — the public is worn out on all this funny money stuff that does nothing but increase our collective tax burden.

Posted by BJ Rire | Report as abusive

Forgiving $250 billion in existing debt would not have the needed effect. This would only lower their annual intrest payments somewhat. These countries are indirectly affected and could use cash but I suggest to only provide it based on actual plans to boost economic activity locally

Posted by Dennis Jilesen | Report as abusive

There is no logical way all this idiocy can be chalked up as accidental. These people know what they’re doing and there’s much more going on here than “just” money. To avoid the “conspiracy theorist” tag ask any Harvard economic “expert” if the national debt can EVER be paid off – it can’t. The simple reason being that the SOURCE of our money the (illegal) “Federal” “Reserve” is the same as the ones we OWE (lately add in the Chinese, Saudi, etc. bond holders but the fiat dollars to pay them utlimately must come from the “Fed”). Again so blatantly stupid it CANNOT be an accident.

THEorYofLIVEvolution.com

Posted by RR | Report as abusive

Why doesn’t the IMF allow the 3,217 tonnes of gold held in their reserves to float at modern market prices? It is currently priced at $42 a troy ounce – a price that was fixed in 1971 just before the Nixon administration officially delinked the USD from the Gold Standard.

I couldn’t believe it when I read a news wire story a month and a half ago about UK Prime Minister Gordon Brown travelling to the Saudi Arabia with Top Hat in hand asking the House of Saud to donate to the IMF.

Classic.

“Truman’s idea — a one-off $250 billion allocation of Special Drawing Rights to IMF member states — looks like the quickest way to put a safety net under developing countries and avert financial contagion.”

Harry Truman may have dropped the Atomic bomb, but this Truman wants to drop an economic bomb. The FED already conducts such services with central banks world-wide through its Commercial Paper Funding Facility, Term Auction Facility and it’s Commercial Paper Funding Facility.

Why establish a new Global Currency? Maybe thats why the IMF won’t float it’s gold on the markets.

Where is my tin foil hat…it’s around here somewhere…

Posted by Baron von Lufthoven | Report as abusive

Thomas Paine penned a forceful argument for the colonies to seek independence 234 years ago. One of the principal arguments for severing ties with the British Crown was the Central Bank of England. The Colonists were opposed to a central banking system for the perceived if not real harm caused to the economic well being of the colonies by the credit manipulation of the money supply. As now the central bank way back then was acting in the interest of large financial interests and probably incompetently so.

Steven Langston, your claim that the IMF hands out money to the criminals of the world, in my view is accurate. I would further submit that close scrutiny of the relationship between the Federal Reserve Board, Treasury and the U.S. banking system would be viewed with equal suspicion.

Posted by Anubis | Report as abusive

No one wants to forgive the debt. Too many greedy SOB’s that don’t want to cut back on their luxuries any more than they have to. They see the problem in the financial system as being more important than the the needless suffering of the vast majority.

Debt could, and indeed SHOULD be forgiven. But that would involve taking a loss. And only poor people do that. The ones in control of, or invested in the financial system, will do everything they can do to collect. Even if that means saddling your children and grandchildren with the debt needed to pay these deadbeats off.

It’s sad that in over five thousand years of recorded history, we still haven’t learned how to simply cooperate to solve problems without trying to serve personal interests first.

This whole system collapse demonstrates our perpetual lack of honor. And still we refuse do what is right.

As the common people of the various countries increase in their anger towards the situation; keep watch for Governments to start blaming external sources, and for sabers to start rattling.

These conditions make war an ever increasing possibility. Look to Russia and China. Iran will also seek to establish its influence more robustly. When the international blame game begins, war will no be far behind.

The wealthy are loosing their money. War will get the poor back to work. By having them both make the bullets in the factories, and catch them in the battlefield. These are interesting times we live in. And this is just the beginning.