IMF split on recession 'exit strategy'

• Strauss-Kahn fears disagreement on withdrawing stimulus packages
• European governments resist changes in IMF structure

• Heather Stewart and Larry Elliott
• guardian.co.uk, Sunday 26 April 2009 15.17 BST
• Article history

Cracks were today appearing in the united front presented at the London G20 Summit, as the International Monetary Fund failed to deliver reforms of global finance and governance.

Finance ministers meeting in Washington disagreed over when it would be safe to withdraw recession-busting policies, and were unable to finalise a $500bn (£350bn) boost to the IMF's resources.

World leaders at the G20 promised radical reform of the IMF; but Youssef Boutros-Ghali, chair of the IMF's main decision-making committee, admitted that this would be, "a lengthy process".

Although the IMF warned this week that the world economy would contract this year for the first time since the second world war, Dominique Strauss-Kahn, the IMF's managing director, said differences were already surfacing about, "an exit strategy".

Strauss-Kahn said there was consensus about the need to borrow more during the crisis: "Some of us, including the IMF, are arguing that the stimulus is necessary, but at the same time, you need to have a view about what is going to happen in three years' or four years' time, and prepare the exit strategy from the stimulus."

There was also European resistance to radical plans put forward by the US to reshape the IMF for the 21st century.

Tim Geithner, the US treasury secretary, called for the number of seats on the IMF's main committee to be reduced from 24 to 20, by 2012. That would create a powerful new body to replace the more ad hoc G20 as an important decision-making forum for the world economy – and supplant the G7 group of rich countries, which still reflects the balance of power of the post-war world. But some European governments, including Britain and Belgium, would be under pressure to give up their seats under the plan.

Belgian finance minister Didier Reynders rejected Geithner's proposal, saying, "I think that for the moment the representation around the table is attractive. The European countries are having to finance the Fund very strongly so we have to take into account the size of each country's participation in the Fund."

At the London Summit, the G20 agreed a $500bn boost to the resources available to the IMF for fire-fighting in emerging economies and a $250bn increase in its special drawing rights, which allow member countries to borrow from each other's foreign currency reserves. Neither commitment was met when the IMF's 24-strong steering committee met in Washington on Saturday.

Asked whether Alistair Darling's budget forecasts were over-optimistic, Strauss-Kahn refused to be drawn. The IMF said that the UK economy would contract by 4.1% this year, and 0.4% next year – worse than the chancellor expects.

"Most governments' forecasts are better than ours. Part of the recovery relies on confidence and it is absolutely normal that governments all over the world will try to rebuild confidence in looking at the upper part of the range rather than the lower bound."