General Agreements to Borrow (GAB)

General Agreements to Borrow (GAB) refers to a lending medium for members of the Group of Ten countries.

The G10, as it is known, actually comprises 11 industrialized nations that meet annually, or more frequently if necessary, to consult each other, debate and cooperate on international financial matters. Member countries are: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States, with Switzerland playing a minor role.

Under General Agreements to Borrow, members of the lending countries deposit funds into the International Monetary Fund - IMF. The IMF then provides the funds to the borrowing country in need. One advantage of this system is that each country deals in its own currency, leaving all conversions to the IMF. Generally, the loans made through General Agreements to Borrow are temporary, and help address potential crisis situations.

General Agreements to Borrow (GAB) are central to the mission of the IMF. If a country is facing financial difficulty, especially of the kind that could stall economic growth or harm the international monetary system, it can turn to the IMF for supplemental liquidity. Through the General Agreements to Borrow, member countries and institutions offer funds to the IMF to be distributed to the country requesting the funding. Under current General Agreement rules as of mid-2018, the IMF provides supplemental loans of up to $26 billion to members in need. In addition, under so-called New Arrangements to the IMF, as much as $565 billion is available to help stave off events posing a threat to the stability of the financial system.

Proponents argue that at times, all a small country needs is a shot of added liquidity to implement the right policies to jump-start its local economy back into expansion. Through General Agreements to Borrow, the IMF helps a member country restore exports after natural catastrophes, and investor confidence when necessary. Through General Agreements to Borrow, the IMF tries to stanch problems related to instability that might spread to other countries if left unchecked.

Some argue, however, that General Agreements to Borrow create as many problems as they solve, by empowering poor policy decisions and serving as a backstop for poor government leadership. Also, many times, the loans wind up flowing to banking institutions in industrialized countries, reimbursing bankers for their poor, risky bets in emerging markets.

Moreover, the IMF, as it did with its three bailouts for Greece, demands austerity measures that, at best, do not help citizens in struggling countries directly. Some even argue that General Agreements to Borrow prolong their economic suffering.