The International Monetary Fund (IMF) has signed new borrowing arrangements with Japan, Canada and Norway, to mobilise more than $100 billion against issue of notes to interested members, which would allow it to raise further resources for lending.
The IMF's executive board at its meeting on 20 July had also backed an allocation of Special Drawing Rights (SDRs) - an IMF reserve asset - equivalent to $250 billion to provide liquidity to the global economic system by supplementing the fund's 186 member countries' foreign exchange reserves.
The IMF is in the process of raising new resources for its lending activities in response to an associated G-20 request to treble the Fund's resources to $750 billion to underpin its lending activities.
The Fund has signed new borrowing arrangements with Japan, Canada, and Norway, to raise more than $100 billion under the new framework of issuing notes against loans.
"Countries have so far committee more than $400 billion to IMF resources under the `New Arrangements to Borrow (NAB)', putting the Fund in a stronger position than ever to support members in the present crisis and in future times of need," the IMF said in a release.
Members can sell SDRs
The SDR allocation will be made to IMF members that are participants in the Special Drawing Rights Department in proportion to their existing quotas in the Fund, which are based broadly on their relative size in the global economy. The operation will increase each country's allocation of SDRs by approximately 74 per cent of its quota, and Fund members' total allocation to an amount equivalent to about $283 billion, from about $33 billion (SDR21.4 billion), IMF said.
SDRs allocated to members will be added to their reserve assets, acting as a low cost liquidity buffer for low-income countries and emerging markets and reducing the need for excessive self-insurance.
Members can sell part or all of their allocation to other members in exchange for hard currency - for example, to meet balance of payments needs - while other members may choose to buy more SDRs as a means of reallocating their reserves. But, IMF said this window should not weaken the pursuit of prudent macroeconomic policies.
"The SDR allocation is a key part of the Fund's response to the global crisis, offering significant support to its members in these difficult times," IMF managing director Dominique Strauss-Kahn said.
The SDR allocation was part of a $1.1 trillion plan agreed at the Group of Twenty (G-20) summit in London in April and endorsed by the International Monetary and Financial Committee (IMFC) to tackle the global economic crisis. If approved, in a vote scheduled to close on 7 August, the SDR allocation will be effected on 28 August.
"The allocation is a prime example of a cooperative monetary response to the global financial crisis," Strauss-Kahn said in a statement.
Global economy is now projected to grow at a rate half a percentage points higher in 2009-10 than projected in the April World Economic Outlook (WEO), reaching 2.5 per cent in 2010.
But, according to IMF, the global recession is not yet over, and the recovery is still expected to be slow because of impairments in the financial systems.