The Coming of the Great Depression
Greg Ip Is Kinda Sorta Optimistic

Obama Succeeds at the G-20

We actually have some successful international policy coordination!

Paul Krugman:

An IFI success: Credit where credit (line) is due: the G20 outcome was better than I expected, with something substantive and important emerging — namely, much bigger funding for international financial institutions (IFIs), plus expanded trade credit. This will help smaller, currency-crisis countries a lot. A turning point? No. But realistically, most big-time international meetings produce nothing; this did something significant.

Jennifer Loven:

Obama's scorecard: Some setbacks but a good summit: Thursday's daylong gathering of the G-20 nations pledged $1.1 trillion in loans and guarantees to struggling countries, agreed to crack down on tax havens, large hedge funds and other risky financial products, rejected protectionism that hampers foreign trade and committed to upgrading an existing financial forum to flag problems early in the global financial system. Those were all elements Obama was seeking.... Overall, the outcome seemed more robust than the one global leaders were able to muster at a first summit held last fall....

Still, the leaders, many wary of piling up debt, did not sign off on large new stimulus packages for their own countries. Obama's administration had initially pushed for such a commitment.... "The steps that have been taken are critical to preventing us sliding into a depression," he said. "They are bolder and more rapid than any international response that we've seen to a financial crisis in memory."...

"I do not buy into the notion that America can't lead in the world," Obama said. "America is a critical actor and leader on the world stage and that we shouldn't be embarrassed about that. But ... we exercise our leadership best when we are listening"...

The IMF's willingness to turn its funds into resources that countries can count on is especially nice to see:

Flexible Credit Line (FCL). The IMF is introducing this new credit line for countries with very strong fundamentals, policies, and track records of policy implementation. Access to this credit line would be most useful for crisis prevention purposes—although use of this instrument for crisis resolution is also allowed. FCL arrangements would be approved on request to countries meeting pre-set qualification criteria. Access under the FCL would be determined on a case-by-case basis. Disbursements under the FCL would not phased or conditioned to policy understandings as done under a traditional Fund-supported program. This is justified by the very strong track records of countries that qualify to the FCL, which give confidence that their economic policies will remain strong and that corrective measures will be taken in the face of shocks.

The establishment of the FCL represents a significant shift in delivering Fund financial assistance, even relative to the Short-term Liquidity facility (SLF), which will therefore be discontinued. While the SLF was also designed to cater only to very strong-performing members, several of its design features—including its capped access and short repayment period, as well as the inability to use it on a precautionary basis—limited its usefulness to potential borrowers. The concept of a credit line available for either crisis prevention or resolution and dedicated for only very strong-performing members, with all its flexible features is new. The FCL’s flexibility includes:

• Assuring qualified countries of large and upfront access to Fund resources with no ongoing (ex post) conditions; • Meeting rigorous upfront qualification criteria to signal the Fund’s confidence in the qualifying member’s policies and ability to take corrective measures when needed; • Renewable credit line, which at the country’s discretion could initially be for either a six-month period, or a 12-month period with a review of eligibility after six months; • Longer repayment period (3_ to 5 years versus maximum rollover period of 9 months in the SLF); • No hard cap on access to Fund resources, which will be assessed on a case-by-case basis (the SLF had a cap on access of 500 percent of quota); and • Flexibility to draw at any time on the credit line or to treat it as a precautionary instrument (which was not allowed under the SLF)...