IMF seeks $600 billion to help battle EU crisis
Updated: 2012-01-20 07:28
IMF Managing Director Christine Lagarde said the fund will explore options such as obtaining resources from non-European countries to increase its firepower to combat the European debt crisis, which is seen as the biggest threat to the global economy. Tomohiro Ohsumi / Bloomberg
China says honoring G20 pledge is key to boosting fund's firepower
WASHINGTON / BEIJING - The International Monetary Fund (IMF) is seeking to more than double its war chest by raising $600 billion in new resources to help countries deal with the fallout of the eurozone debt crisis, but the plan faces roadblocks from the United States and other countries.
The United States and Canada said on Wednesday that Europe must put up more of its own money to resolve its sovereign debt crisis, raising doubts G20 talks in Mexico this week can lay the ground for a deal on bolstering IMF resources.
Japan and South Korea also want Europe to do more and China might insist a number of conditions are met before it supports a boost in IMF resources.
"We continue to believe that the IMF can play an important role in Europe, but only as a supplement to Europe's own efforts," a US Treasury spokesperson said. "The IMF cannot substitute for a robust euro area firewall."
G20 deputy officials are meeting in Mexico City on Thursday and Friday to discuss boosting IMF resources. Any outcome would need leaders' approval. G20 finance ministers meet in late February.
The IMF plan to boost its lending capacity eased worries on financial markets about Europe's funding difficulties, boosting the value of the euro.
IMF sources said the world will face a $1 trillion financing gap over the next two years if global economic conditions worsen considerably. The IMF's current lending capacity is about $380 billion.
The sources, present at an IMF board meeting on the issue on Tuesday, said the fund was seeking to raise up to $600 billion to meet those potential financing needs. Of that, $500 billion would be for lending and $100 billion would be a "protection buffer".
An IMF spokesman confirmed the fund was seeking to raise up to $500 billion in additional lending resources. He said that amount included a European commitment to inject $200 billion into the IMF's resources.
"At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations," he said.
The United States repeated that it would not contribute more resources to the IMF.
With a strained budget at home, some US congressional Republicans have threatened to yank $100 billion in US money to the IMF if the funds are used to bail out eurozone countries.
The White House is unlikely to want to take the issue on as US President Barack Obama seeks re-election this year.
"We have told our international partners that we have no intention to seek additional resources for the IMF," a US Treasury spokeswoman said.
China was also likely to resist moves to increase IMF resources unless a number of conditions are met, said Xiang Songzuo, vice-director of the International Monetary Institute in Beijing, a high-level policy think tank.
He said these would include more voting power for China and other emerging economies, changing the stance of IMF policy more to meet the concerns of emerging countries - such as by stabilizing capital flows and exchange rates - and making the mechanism for crisis rescue much more transparent.
"The process of negotiating all of that would be quite time consuming," Xiang said.
China's central bank declined to comment on boosting IMF resources.
"Many countries want the Europeans to move ahead with tougher and clearer measures, which at this moment translates to more resources to its stability fund," said a senior Brazilian government source attending the G20 officials' meeting in Mexico.
Bank of Canada Governor Mark Carney said it was not clear European governments had done everything necessary to make sure they could fund themselves at sustainable interest rates over the next few years.
"If it makes sense to enhance the resources of the IMF, the principal focus, it would seem, should be on dealing with fallout of the European crisis for innocent bystanders," he told a news briefing in Ottawa.
Another source connected to the process said Japan and South Korea were also pressing for discussions first about Europe's contribution and for it to agree on additional measures.
European nations have argued that they have done enough and were calling for more IMF resources.
"If, with the parallel discussion, we can achieve extra measures from the Europeans and afterwards agree on promises of additional resources for the IMF from non-European countries in the G20, I think it would be a good result," the source said.
IMF Managing Director Christine Lagarde said the fund's management will explore options for increasing its firepower.
Europe's debt crisis is widely seen as the biggest threat to the global economy. Many countries used up a lot of their financial firepower fighting the global downturn in 2008 and 2009. A fresh global slump would raise fears more countries might need to be rescued by the IMF.
The World Bank said on Wednesday that Europe was probably already in recession and the eurozone debt crisis posed a "real" risk to the global economy. The IMF has warned it will cut its global growth projections when it updates its forecast on January 24.
With credit downgrades in nine eurozone countries by Standard & Poor's last week, including France, and uncertainty over Greek debt talks that risk pushing the country into default, the IMF board has urged eurozone leaders to take steps to contain the crisis.
The board called for policies that would address the European crisis and for eurozone policymakers to make sure there is enough money available to tackle the bloc's debt problems effectively.
The Chinese Foreign Ministry said on Thursday that leading economic powers should honor a pledge to ensure the IMF has sufficient resources to fight financial crises.
"In principle, we believe that the task is to implement the consensus reached at the Cannes G20 summit to strive together to ensure that the IMF has ample funds to cope with the current financial crisis," Foreign Ministry spokesman Liu Weimin said at a regular news conference.
The statement came in response to a question about whether China was receptive to proposals for a funding increase of up to $600 billion for the IMF.
The response stopped short of suggesting that China was ready to put up yet more cash that would likely be channeled to help Europe fight its debilitating debt crisis.
"At the same time, we hope that all sides will step up domestic approval procedures to ensure that the share reform proposal is implemented on time, fundamentally ensuring funding sources," Liu added.
Leaders from the G20 economies reached a broad agreement at the Cannes summit in November to ramp up the IMF's war chest to help stop the eurozone contagion plunging the world back into recession, but they were unable to agree on specific numbers.
Countries such as Britain, China and Australia said they were ready to inject new funds into the IMF, either through bigger quotas or through additional money for the IMF's New Agreements to Borrow crisis fund.