Inflated claims at G-20

The headline grabbing item from G-20 was talk of $1.1 trillion in fresh funds to fight the recession. Most analysts were quick to point out that this included funds already committed. What was not noticed was that it includes amounts intended to be committed but which are unlikely to be committed. FT dissects the G-20 claim and finds that the correct figure is closer to $100 bn:

Almost half – $500bn – comes in the form of new money for the IMF so that it can guarantee it has enough money to lend to countries caught up in the financial crisis.

Japan unilaterally gave $100bn last November, while the EU pledged €75bn ($101bn) in March. There were no new commitments from the US, China or Saudi Arabia on Thursday, and instead a generalised pledge for a new financing scheme of $500bn into which all these existing commitments and new money would be placed.

.....If the new commitments to the IMF were conspicuous by their absence, the $250bn of new money in Special Drawing Rights – the Fund’s own currency – was new but not all it seems.

....The policy is significant because it represents new money that poor countries can turn into dollars, euros, yen and sterling but rich countries will get most of this new foreign exchange reserve. The group of seven largest and most advanced world economies will get 44 per cent alone. March.

On trade finance, ........ the $250bn figure fails to stand up to minimal testing. An annex to the communiqué says that the new money committed is only $3bn-$4bn and the $250bn figure is an aspiration for the amount of trade that will be financed over the next two years rather than the amount of new trade finance.

In contrast, the new $100bn of lending by multilateral development banks is much closer to reality.

When all the sums are added together, rather than $1,100bn, the new commitments appear to be below $100bn and most of those were in train without the G20 summit.