International Monetary Fund Managing Director Christine Lagarde said she expects more contributions after landing pledges of about $320 billion in her campaign for bigger reserves to combat threats to global growth.
“I look at this pot of money as an umbrella,” Lagarde said today on Bloomberg Television’s “InBusiness With Margaret Brennan” in Washington before meetings of the world’s finance chiefs. “There are clouds on the horizon.”
Japan, Denmark and Switzerland are among the countries to rally this week to Lagarde’s call for a bigger lending capacity beyond the current $380 billion to shield the world economy against any deepening of Europe’s debt turmoil.
Having last month boosted their own defenses beyond $1 trillion, euro-area policy makers are counting on a reinforcing of the IMF to calm financial markets. Spain now sits in the crosshairs with the yield on its 10-year bonds closing in on levels at which Greece, Ireland and Portugal required bailouts.
Between $400 billion and $450 billion is the “most realistic” end result, South Korean Finance Minister Bahk Jae Wan said in an interview in which he promised his country would contribute “more than its fair share.” That marks a scaling back of the $600 billion first sought, reflecting demands for Europe to do more to fix its own woes and a refusal by the U.S. to chip in more money. The lending amount will be lower than the total amount raised because the IMF must keep some cash on hand.
While a boost for the IMF would help it protect smaller economies sideswiped by Europe, it’s not enough to defeat the two-year crisis, said Simon Johnson, a former IMF chief economist who now teaches at the Massachusetts Institute of Technology.
“The Europeans have to fix their own problems,” Johnson told Bloomberg Television. “Bailing them out, protecting them with generous money from outside will not help them make progress.”
Europe was also urged to do more by Lagarde, Australian Treasurer Wayne Swan and Canadian Finance Minister Jim Flaherty. said.
“They need to build up a firewall with their own resources more than they have done so far,” Flaherty said in an interview in Washington. Swan said in a statement that “important reforms are still needed to minimize the risk of contagion from instability in Europe.”
Italian and Spanish 10-year bonds today led declines among Europe’s higher-yielding government securities amid concern the crisis is worsening. The yield on Spain’s benchmark has jumped about 1 percentage point since the beginning of March as Prime Minister Mariano Rajoy struggles to meet budget deficit targets.
Euro-area finance ministers decided March 30 that 500 billion euros in fresh money would go along with 300 billion euros already committed to create an 800 billion-euro defense against the woes. That stopped short of a bolder proposal that would have taken the amount close to 1 trillion euros.
“The tool box is much bigger and I hope they can address the Spanish issues together with the Spanish government,” Lagarde said. “If there’s a need, the IMF has to be there for all members.”
The U.S., the IMF’s largest shareholder, is refusing to offer more cash in part because of skepticism Europe has done enough, the view the IMF has substantial resources already and reluctance to seek more money from Congress in an election year.
Treasury Secretary Timothy F. Geithner yesterday called for “a clean and unequivocal commitment” by European policy makers to ensure countries can borrow at sustainable interest rates, noting they had “put in place a stronger set of tools for managing this crisis.”
“In the U.S., with an election only six months away, any ’bailing out’ of Europe would be misinterpreted,” Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said in an e-mail. “Leadership, therefore, is lacking.”
China is still willing to discuss means for funding the IMF with member countries, Foreign Ministry spokesman Liu Weimin said at a briefing in Beijing today.
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