The IMF headquarters building is in Washington D.C. Image: Flickr/pingnews
The International Monetary Fund has announced that it will try to boost its lending power to $1 trillion this November. The Group of 20 summit in South Korea will discuss this request. By increasing its ability to give emergency cash advance money to countries in trouble, the IMF hopes to improve their response to financial crisis.
Lending capacity of the IMF
The IMF currently has a lending capacity of about $750 billion. This money is most often lent in the form of advance loans to countries that are struggling. The money is usually used to help stabilize shaky financial systems, purchase infrastructure and undertake reforms. IMF loans are usually given to third and second world countries. Though they are technically able to take the money, many first-world countries are not taking the fast cash loan in order to avoid appearance of instability.
Increasing ability to lend
The IMF is governed and funded by a large consortium of countries. Many of these countries will be in attendance at the G-20 summit in South Korea in November. If the IMF is granted an additional $250 billion in lending power, these countries will be on the hook. While the IMF does not have a bank account with $750 billion sitting in it, the countries that make up the IMF are responsible for providing the money.
Limitations on IMF money
When the IMF provides a cash loan, it comes with several strings attached. Countries must undertake a number of reforms if they do take a loan from the IMF. The reforms are the basis of much controversy. Some claim that the fast loans given by the IMF end up doing more harm than good. If the IMF does increase lending capacity to $1 trillion, it will be able to provide more loans. The jury is out, though, on if this is a good thing for the world economy.
