There was no substantial progress on any policies that will help pull us out of a severe recession. The United States made a tactical mistake of pushing for a uniform two-percent fiscal stimulus across the G-20; not even the International Monetary Fund (IMF) is arguing for something so unrealistic. The Europeans were easily able to fight this off, pointing out that their stronger social safety nets mean they automatically stabilize their economies in ways that the United States can only do through discretionary fiscal packages.
When the leaders of the Group of 20 nations gather in April, they will have one policy instrument available to address the financial crisis cooperatively, concretely, and credibly. They should make a commitment to an immediate, one-time allocation of $250 billion in special drawing rights (SDR) by the International Monetary Fund (IMF) to its 185 member countries.The summit statement will contain pledges to adopt expansionary policies, avoid protectionism, and mobilize the IMF and multilateral development banks to help the weakest countries. A large, one-time allocation of SDR would do most to address these issues.
Special drawing rights are assets and liabilities of the Fund provided to each member in proportion to its quota share in the institution. A member receiving SDR can transfer some or all of its allocation to another member country and receive credit in a convertible currency to spend on its domestic or international needs. The interest rate on this credit is now about 0.6 percent—a good deal for most countries.
Does the United States’ need to borrow undercut the needs of others?
That was the argument of a front page article in the New York Times on March 9, reporting that the global flight to dollar-denominated US government securities had contributed to a sharp reduction in the external financing for developing countries. The article strongly implied that emerging-market countries were struggling to gain access to lenders, and that their difficulties had exacerbated the ongoing financial crisis.
From the Peterson Institute for International Economics: The financial and economic crisis is a global phenomenon. No country has been spared. The downturn has been, and continues to be, rapidly transmitted across borders through both trade and financial channels (table 1 indicates the different degrees of exposure to the crisis among the G-20 countries). A [...]