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In its Economic Roundup report, released Wednesday, Treasury questioned whether the global financial safety net – the set of financial resources and institutional arrangements that provide a backstop during a financial or economic crisis – is at a tipping point to fragmentation.
“Unabated growth in regional and bilateral resources will create challenges for coordination of crisis resolution and prevention,” the report said.
“At worst, it risks a situation where assistance is provided to countries without addressing moral hazard issues, thereby increasing the likelihood, magnitude and severity of the next crisis,” it said.
“Unless international economic policymakers act decisively, we may well be approaching a tipping point beyond which the global financial safety net will fragment because of a combination of stasis at the IMF and increasing concentration of safety net resources that are unlinked with the Fund.”
The Australian government believes the G20 must work to avoid reaching this tipping point, ensuring that the various elements of the global financial safety net are complementary and work together to achieve a common set of objectives.
Treasury’s report concludes that the composition of resources, comprising both permanent and temporary, could be rebalanced towards additional permanent resources, ideally located at the IMF, and supplemented by maintaining resources in regional institutions which are structured to be temporary and as a complement to the IMF.
“This will support an appropriate balance in the institutional framework of the global financial safety net,” the report said.