Large financial institutions may have to pay an insurance levy to help low-income countries hit by financial crisis, the International Monetary Fund revealed yesterday.
Dominique Strauss-Kahn, the IMF’s managing director, said that it was “just fair” that the financial sector should pay to help mitigate the systemic risks for the global economy that its reckless actions have created.
His statement will be seen as an endorsement of French and German leaders, who persuaded the G20 summit last week in Pittsburgh to include the idea of a financial sector levy in its communique.
Strauss-Kahn said: “Considering that the financial sector is creating lots of systemic risks for the global economy, and that it is just fair that such a sector will pay some part of its resources to help mitigating the risks they are creating themselves.”
Having “some money coming from the financial sector to create a kind of fund insurance or funding for low-income countries” is “something we are going to consider”, Strauss-Kahn added.
John Lipsky, the IMF’s first deputy managing director, added that the Fund was looking at how a mandatory deposit insurance scheme to fund bank bailouts could be extended to cover a broader levy.
“We think the question that has been asked by the G20 [...] is a very valid question and [we will] be responding,” he said.
However Strauss-Kahn played down the idea of a tax on financial transactions tax to quell market speculation, on the lines of the Tobin Tax proposed by the late Nobel Laureate James Tobin.
“The very simplistic idea of just putting a tax on transactions will not work,” he said. “For many technical reasons I think [it is] very difficult to implement.”
Anti-poverty campaign groups hailed Mr Strauss-Kahn’s comments as a breakthrough in their campaign for a global transaction tax. “He has said that it was fair to expect the banks to pay for clearing up the mess they have created,” said Max Lawson, international policy adviser at Oxfam “A financial transaction tax is the only way to do it.”
Last year Stamp Out Poverty, a UK-based group, produced a report that claimed to show that a tax of 0.005% could be imposed on all sterling transactions without causing any market disruption or loss of revenue to the UK.
But Alistair Darling, Britain’s Chancellor of the Exchequer, dismissed a currency tax as unworkable. “A global financial transaction tax could only operate if you had an absolute global agreement. If any one country was out of it, it wouldn’t work,” he told Emerging Markets.
He said the G20 statement was supporting the idea of different countries making different sorts of contributions. He cited the UK’s 0.5% Stamp Duty on shares and a Swedish levy on balance sheets as example of individual national instruments.
“If you are going to do something internationally it would have to be truly international and truly global, but when countries signed up to that we were clearly that this was a signal that different countries would do differently,” he said.
At their summit in Pittsburgh, the G20 leaders asked the IMF to look at options for making the financial sector pay a “fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system”.
After that meeting, German Chancellor Angela Merkel said that she saw that statement as opening the way to a new tax while Nicolas Sarkozy, the French President, said that the IMF study should look at a “a tax on speculative or risky financial activities”.