WASHINGTON, Jan 19 — The International Monetary Fund is seeking to
boost its war chest by US$600 billion (RM1.8 trillion) to help
countries reeling from the euro zone debt crisis, but some nations
insist Europe must first do more to support its ailing members,
international financial sources said yesterday.
Group of 20 officials will discuss increasing IMF resources at a
meeting in Mexico City today and tomorrow, the first under Mexico’s
2012 presidency of the group of developed and emerging economies.
The IMF said it will need US$500 billion to lend to member countries
in need and IMF sources who were present at an IMF board meeting on the
issue on Tuesday told Reuters that another US$100 billion is needed as
a “protection buffer.”
The IMF also estimated there would be a US$1 trillion global
financing gap over the next two years if global economic conditions
worsened considerably, the sources added.
On foreign exchange markets, the reports of plans for increased IMF lending capacity helped boost the euro.
Euro zone nations have already promised to inject an extra €150
billion (RM600 billion) into the IMF, which is included in the total
estimate. G20 officials in Mexico for the meeting of deputy finance
ministers and central bank officials said there was still resistance in
some quarters to increase funding.
“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 meeting.
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 that as well as Canada,
the United States, Japan and Korea were pressing for discussions first
about Europe’s contribution to the crisis and for it to agree on
additional measures. European nations were arguing that they have done
enough and were calling for more IMF resources now.
“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.
The IMF currently has a lending capacity of about US$380 billion and
estimates demand could be about US$ 1 trillion in the medium-term.
“Based on staff’s estimate of global potential financing needs of
about US$1 trillion in the coming years, the fund would aim to raise up
to US$500 billion in additional lending resources. This total includes
the recent European commitment of about US$200 billion in increased
fund resources,” an IMF spokesman said.
“At this preliminary stage, we are exploring options on funding and
will have no further comment until the necessary consultations,” he
added.
Emerging market countries such as China and Brazil have said they
are willing to contribute new resources to the Washington-based global
lender in exchange for greater voting power. Emerging market powers
have repeatedly argued in recent times that their power at the IMF
should be increased to reflect their growing clout in the world economy.
Getting more resources from advanced economies, such as the United
States, is going to be difficult, if not impossible. With a strained
budget at home, some US congressional Republicans have threatened to
yank US$100 billion in US money to the IMF if the funds are used to
bail out more euro zone countries.
The White House is unlikely to want to take on the issue as US President Barack Obama seeks re-election this year.
The IMF’s managing director, Christine Lagarde, said on Tuesday she
met with the IMF board to assess whether the global lender needs
additional funds to respond effectively to the euro zone crisis. She
said IMF management would explore options for increasing the fund’s
firepower.
The IMF has warned it will cut global growth projections for 2012
when it updates its forecast on January 24. Weakening global growth
prospects raise fears that more countries will need to be rescued by
the IMF, especially if capital markets freeze up completely.
The World Bank warned in its annual growth outlook late on Tuesday
that Europe appears to already be in recession and developing countries
should brace for a slowdown in their economies, especially Brazil and
India, and to a lesser extent Russia, South Africa and Turkey.
With credit downgrades in nine euro zone 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 euro zone leaders to take steps to contain the crisis.
The board called for policies that would address the European crisis
and for euro zone policymakers to make sure there is enough money
available to tackle the bloc’s debt problems effectively. — Reuters
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