George Osborne's statement to Parliament on the IMF spring meetings
George Osborne, 23/04/2012
Category: Economic Policy
Mr Speaker, let me update the House on this weekend’s G20 and IMF Spring meetings and the Government’s decision to make a loan of just under £10 bllion – or $15 billion – to boost the IMF’s reserves.
As I have said to this House on many occasions, Britain has always been one of the IMF’s largest shareholders and biggest supporters.
We helped create the institution over 60 years ago.
Our predecessors determined that countries would never again turn their backs on the world’s economic problems, but instead come together to solve them.
And in every single decade since the 1940s, the UK has been part of global agreements to increase the IMF’s resources.
Why has every post war British government done this?
Because they recognised what we again recognise today.
That Britain, as a proud, open, trading nation, has a huge national interest in a strong IMF as a force for stability and free markets.
And that Britain exerts its influence in the world partly through the institutions it helped create, like the IMF, where we remain one of the few countries to have our own seat on the Board.
That was the case sixty years ago when the world recovered from the ravages of a global conflict borne out of depression and disastrous economic nationalism.
It was the case when Latin America struggled in the 80s, and the Asian economies collapsed in the 90s.
It was the case at the London G20 summit when Britain’s economy was at the centre of the storm.
It remains the case today, as we cope with the biggest debt crisis of any of our lifetimes – and when the epicentre of the problem today lies on our doorstep in Europe, and with some of our largest trading partners, including Ireland, the home of banks deeply connected to our own banking system.
We will not turn our back on the IMF, or turn our back on the world.
That would be a betrayal of our country’s interest and its identity, and at the same time a betrayal of my Party’s history.
Mr Speaker, it is because of the decisive action this Government has taken to deal with our own debts that we can now be part of the solution, and no longer part of the problem.
Let us not forget that in 1976, under a Labour Government, this country itself needed an IMF bailout.
And if we had a Labour Government today, their Chancellor could well be explaining to the House today the heavy terms of a loan from the IMF, not a loan to it.
Instead, we’ve taken action that means Britain is a safe haven in the storm.
Action that means interest payments are lower for families, businesses and the taxpayer funding for the huge debts racked up in recent years.
But in the modern, global economy, we cannot simply act alone.
Mr Speaker, at the annual IMF meetings last autumn, there was a real sense that the world economy was staring over another precipice.
The feeling at these spring meetings was that we had stepped back from the brink, but the risks remain.
Markets are calmer.
Banks are finding funding.
There are some signs of confidence emerging.
Figures last week here in Britain showed unemployment falling and retail sales up.
The IMF revised up a little its global growth forecasts and its forecasts for the UK.
But as the IMF rightly warns us all, the global economy remains very fragile.
We see that in the Spanish bond spreads and the disappointment over the latest American jobs data.
At an uncertain time like this, we want the IMF to be able to cope with whatever is thrown at it – the worst case scenario – instead of hoping for the best.
That’s why – for almost a year now – I’ve said that we would be willing to consider the case for additional resources for the IMF.
And I set out in January four conditions for British support.
First, that the IMF should only support countries, not currencies.
That is now clearly expressed in the Communique issued this weekend.
Second, that full IMF rigour and conditionality will apply to any future programmes.
That too was agreed explicitly in Washington.
And Britain led the way in making it clear that that conditionality would not be restricted to a country’s fiscal policies – but would also include structural reforms to increase growth.
The third condition was that we needed to see more resources first from the Eurozone for their firewall – we had to see the colour of their money.
The IMF cannot be a substitute for action by the Eurozone to stand behind their currency.
In December, the European Central Bank began its massive long-term liquidity operation – something we publicly called for and privately urged.
Last month, the Eurozone Member States added 200 billion euros to their firewall– bringing the total to over 700 billion.
And may I add that this Government has not added a single pound of British taxpayers’ money to those funds – and this Government is getting us out of the commitments the last Labour Government sucked us into.
Now 700 billion is not as big as some wanted – and the IMF itself asked for.
And so, as I will explain, the size of additional IMF resources from non-Eurozone countries is proportionate to the Eurozone’s action.
The last condition I set was that other G20 countries had to make contributions – Britain wouldn’t act alone.
This weekend, we were very far from being alone.
The Eurozone themselves provided an extra $200 billion dollars to the IMF.
France, which has the same shareholding as Britain, contributed $40 billion.
Germany, $55 billion.
If it had just been the Eurozone, Britain would not have contributed.
But it was not just the Eurozone.
Japan contributed $60 billion.
South Korea $15 billion.
Mexico and Singapore took part.
Australia – with a population one third our size and 10,000 thousand miles away from Europe – contributed $7 billion with the support of all the main parties there.
European countries not in the eurozone have committed loans, from Sweden and Denmark, to Switzerland and Norway, not even in the EU.
Some have suggested that the BRIC counties didn’t contribute.
That’s not the case.
India, Russia, and - yes – China have all made firm commitments to contribute resources – and will set out the exact sums in the coming weeks.
The total of the expected commitments is set to be over $430 billion dollars.
It is true that America has not offered a loan – and mainly for that reason, nor has Canada.
But then, America didn’t offer a bilateral loan at the London G20 summit – and the reason the US Treasury Secretary gives is clear.
The US – because it is the global reserve currency - has in the last few months offered dollar swap lines to the eurozone with outstanding balances peaking at more than $85 billion dollars – far exceeding any contribution anyone else has made.
And their exposure is direct to the eurozone.
What we – and others – have offered is something very different: a commitment to lend to the IMF should it need the resources.
Mr Speaker, in the case of Britain, that commitment is denominated in the IMF currency of Special Drawing Rights – and it equates to less than £10 billion pounds or around $15 billion dollars.
This is within the mandate authorised by this House of Commons and voted on twice in the last 18 months.
If I had felt Britain should have contributed more, then I would have asked Parliament for the authority to make a larger loan.
But $15 billion is in line with Britain’s quota share at the IMF and the same as previous loans we had made.
And our loan is only available once the quota reform deal put together in 2010 is ratified by the required majorities of the countries who signed up to it.
So our £10 billion is proportionate to our shareholding; and similar to our previous contributions.
Let me end by saying this.
No one believes that a well-funded IMF on its own is the solution to the problems of the eurozone.
Eurozone countries need to make painful adjustments to their public finances and external deficits.
It is a difficult path they have to walk – though the new governments in the likes of Ireland, Portugal, Spain and Italy are walking it.
But that is the logic of the single currency they are all committed to.
That is why I am opposed to British membership of the euro, why I shut down the euro preparations unit in the Treasury and why under this Government Britain will never relinquish the pound.
But opposition to our membership of the euro and the problems in the Eurozone should not be a reason to turn our back on the IMF.
If anything, it makes the case for a stronger IMF.
Mr Speaker, I know that when we offer our loan to the IMF, it is presented by some as British taxpayers simply handing over money to the euro – supposedly money we will never get back and could have been used on public spending here at home.
But just because it makes for an easy newspaper headline does not make it true.
Lending to the IMF is a loan to the most credit worthy institution in the world.
It is a loan that comes with interest.
The IMF has preferred creditor status.
They get paid back even when other creditors are not.
Yes, very occasionally, countries have defaulted on their obligations.
But eventually, if they want to regain access to international funding, they have to pay back debts to the fund – and in the end they all do. The IMF is designed to manage this.
It lays down tough conditions; has large precautionary balances; and sits on large gold reserves.
That is why no country has ever lost money lending to the IMF in its 67 year history.
And let me also be clear.
Not a penny less will be spent on public services; not a penny more will be levied in tax to fund our commitment to the IMF.
Were the IMF to call for financing from the UK, we would exchange some of our foreign currency reserve for a claim on the IMF; in other words, we exchange a claim on one safe asset for another.
And that is why no one includes IMF loans in their calculations of Britain’s net debt or deficit.
Nor do our sterling financing plans for the official reserves need to be changed.
So, when it comes to lending to the IMF – I know of no other mechanism which is so clearly in the British and global interest, no other form of insurance against the world’s risks that has such potential benefits, no other loan that can be provided with such low risks – and which comes with interest.
Mr Speaker, at home this Government has confronted head on the debt problem it inherited.
Abroad, we support the international effort for global stability.
We are guided by Britain’s national interest.
Britain does not walk away from its problems.
It confronts them.
It doesn’t turn its back on the world.
It helps to lead the world.
We will do everything abroad to support the IMF – and everything at home to avoid a bail out from the IMF.
Keeping the UK safe is the overriding mission of this Government.