Nations from China to Brazil are considering increasing the International Monetary Fund’s lending resources to help stem the European debt crisis, Group of 20 and IMF officials said.
Policy makers are discussing an expansion of the IMF’s firepower as part of a global G-20 agreement next month in Cannes, France, according to three officials, who declined to be named because the discussions are not public. Talks are in preliminary stages as potential contributors wait to see what measures Europeans take to end the debt turmoil at an Oct. 23 summit, they said.
IMF Managing Director Christine Lagarde told member countries last month that her current $390 billion war chest may not suffice to meet all loan requests should the global economy worsen. Additional funds could be used to help shelter Italy and Spain with precautionary lending, the people said.
Such a move would be similar to a G-20 decision in April 2009 to triple IMF resources as part of plan to pull the world out of recession. Emerging markets such as China and Brazil are among potential contributors, along with developed economies such as Japan, two of the people said.
IMF spokesman William Murray declined to comment. The Financial Times reported earlier that emerging-market nations were considering ways to boost the IMF’s lending resources.
As in 2009, additional resources may come through bilateral loans or by purchasing IMF notes rather than by an increase in its permanent resources, the officials said. One solution being considered is the creation of an IMF-run special purpose vehicle, two of them said.
“The fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios,” Lagarde said in an “action plan” distributed to the IMF steering committee Sept. 24. The current lending capacity “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders.”
The IMF can work “alongside” the European bailout fund to help restore confidence in Spain and Italy, Antonio Borges, the IMF’s European department aid, told reporters in Brussels this month.
Officials from Brazil, Russia, India, China and South Africa -- the so-called BRICS -- said in a Sept. 22 statement they are “open” to contributing to global financial stability through the IMF or other international financial institutions.
Brazilian Finance Minister Guido Mantega told reporters today that strengthening the IMF is “the second most important issue we have to discuss” at a meeting with his G-20 counterparts in Paris this week.
“We are having bilateral discussions to see what is the best proposal,” he said. “There is no homogeneous position, but we are trying to reach a common proposal.”
The U.S. this week downplayed the IMF’s needs, with the Treasury Department’s top international official, Lael Brainard, calling its resources “ample.” The IMF is already playing an important role in Europe, she told reporters in Washington.
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