IMF Meets To Face Global Crisis

It's the spring meeting of the World Bank and the International Monetary Fund in Washington, D.C. Friday, finance ministers from the Group of Seven countries met to discuss what their own governments can do.

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This is WEEKEND EDITION from NPR News. I'm Scott Simon.

The guardians of the global economy are in Washington, D.C. this weekend for the spring meeting of the World Bank and the International Monetary Fund, the financial institutions responsible for trying to help countries that have been most deeply hurt by the global recession. Yesterday, finance ministers from the Group of Seven countries met to discuss what their own governments can do.

NPR's Tom Gjelten reports.

TOM GJELTEN: Never in the history of the International Monetary Fund and the World Bank meetings have governments faced an economic situation this grim. The IMF sees the global economy shrinking this year by 1.3 percent, global trade is expected to drop by nine percent, easily the worst numbers since World War II. And yet, it looked even worse just a couple of months ago. The G7 finance ministers, after their meeting here yesterday, said they expect global economic activity to begin to recover later this year.

U.S. Treasury Secretary Timothy Geithner said financial conditions in some markets have shown modest improvement.

Secretary TIMOTHY GEITHNER (Department of the Treasury): These are encouraging signs but is too early to say the risks have receded, and it's too early to conclude that we're beginning to emerge from this remarkably challenging set of pressures.

GJELTEN: Challenging, above all, predictably for the poorest countries. The IMF and the World Bank released a report yesterday on the impact of the global financial crisis on low-income countries. The report is titled "A Development Emergency."

Mr. JUSTIN LIN (Chief Economist, World Bank): It's a crisis. It's an urgent situation.

GJELTEN: Justin Lin of China, the chief economist for the World Bank, highlighted some of the findings. Most alarming are the predicted effects on children.

Mr. LIN: According to our studies, about 200,000 to 400,000 children below the age of five may die because of malnutrition, and so on. And this increasing infant mortality rate may continue until 2015 because of this crisis.

GJELTEN: It would continue because a deterioration in health and education programs has a lingering effect. For example, school enrollments in poor countries are declining, especially for girls. Those girls may never recover from that lost opportunity.

The international institution with the most responsibility for leading the world out of this economic crisis is the International Monetary Fund. At the G-20 meeting in London earlier this month, governments said they'd work to increase IMF lending by $500 billion, a tripling of the current resources.

But Dominique Strauss-Kahn, the IMF managing director, says this remains only a goal, at least for now.

Mr. DOMINIQUE STRAUSS-KAHN (Managing Director, International Monetary Fund): I must say we're not exactly at the 500 yet, but I'm confident that this amount will be reached before the end of this year, which is also the plan. We already have a lot of pledges.

GJELTEN: The hope is that the IMF will be able to jumpstart economic growth. But Strauss-Kahn also pointed out that the most serious economic problem right now is the failure of banks around the world to provide the credit needed for an expansion. This will only be solved, Strauss-Kahn said, when governments take the necessary steps to clean up the bad assets that are clogging their bank balance sheets.

Mr. STRAUSS-KAHN: We are far from what we need. And I want to say this to you with some gravity, all the experience we have of past banking crisis is that you never recover before you completed the cleaning up of the balance sheet of the financial sector. So you can postpone it. At the same time, you postpone the recovery.

GJELTEN: But banking reform must be done on a country-by-country basis. There's not much of an IMF or World Bank role here, so the top goal this weekend is to get governments to boost their contributions, especially to the IMF. The emerging economic powers, like Brazil, India, China, and Russia, are being asked to give more. But there is a problem: the fund and the bank have been dominated by the U.S. and Europe.

Timothy Geithner says the time has come to reform those institutions to give the emerging countries a bigger voice.

Secretary GEITHNER: There's been a lot of change in the world, less change in the structure of those organizations. And we are going to be laying out ambitious proposals for change not just in voting shares and in seats at the table, but in how those institutions use their resources in ways that are more responsive to the needs of their member countries, as a whole.

GJELTEN: It's an overstatement to say the fate of the global economy will be determined here this weekend, but the stakes at these meetings have never been higher.

Tom Gjelten, NPR News, Washington.

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