The International Monetary Fund on Tuesday appeared to be inching toward a deal on boosting its financial firepower with Japan, Sweden and Denmark committing a total of $77 billion to help contain the eurozone debt crisis.
The pledges by the three countries come ahead of IMF and World Bank meetings and a Group of 20 finance leaders gathering in Washington this week. Informal meetings kick off on Thursday ahead of official sessions on Friday and Saturday.
Discussions will focus on whether the IMF has enough resources on hand to deal with the possible fallout on the rest of the world from Europe's sovereign debt crisis, especially if the situation in Italy and Spain deteriorates.
While a deal may not be fully fleshed out this week, it is possible that the G20 leading developed and emerging nations could agree on an overall figure and leave it to a leaders' summit in Mexico in June to hammer out details.
Emerging market economies such as China and Brazil are being more cautious about ponying up money until they have firm commitments that any new resources will be accompanied by more voting power in the global lender.
Negotiations on IMF governance reforms began last week, with member countries discussing a new formula for calculating the quotas that influence countries' voting power. A review of IMF voting reform is expected to be completed in 2013.
Japan on Tuesday pledged $60 billion in fresh loans to the IMF, becoming the first non-European nation to commit to strengthen the Fund's firepower. Sweden said it was ready to immediately commit $10 billion and increase the amount to $14.7 billion later, while Denmark said it would give $7 billion. Norway pledged $9.6 billion in December.
"Together, they set the stage for decisive progress to be made by the time of the spring meeting of our global membership later this week," IMF Managing Director Christine Lagarde said in a statement.
Lagarde said she hoped to secure agreement among IMF member countries to raise $400 billion to bolster the resources the institution could draw on to help countries facing spillovers from the eurozone's crisis.
"I really hope this week we'll reach the critical mass of more than $400 billion," she told Italy's main financial newspaper Il Sole 24 Ore, though she said sealing a deal might take longer.
The IMF has scaled back estimates for its funding needs in recent weeks, saying that the risks to the global economy it foresaw last year had not materialized. Still, on Tuesday it warned of persisting risks, saying the economy faced an "uneasy calm."
In January, the IMF said it needed an additional $500 billion to lend and another $100 billion for reserves to comfortably guard against risks posted by the eurozone crisis.
Euro zone countries have already committed to provide 150 billion euros ($200 billion) and hope other European Union countries, notably Britain, will pledge up to 50 billion euros ($65 billion).
The United States, heading into a presidential election in November and facing international political opposition to putting up money for wealthy European nations, has said it will not participate in the fundraising effort. Canada has insisted it will not contribute because Europe has enough of its own resources to deal with the crisis.
Japanese Finance Minister Jun Azumi said Tokyo's contribution, which will be formally announced at the G20 meeting, would encourage other countries to follow suit.
Azumi said he consulted with Chinese Vice Premier Wang Qishan on Monday and that there were no gaps between the two countries on IMF funding.
He acknowledged it would be tough to secure commitments from all countries this week and underlined Japan's long-standing position that Europe needs to do more to combat the debt crisis.
Analysts said Japan's commitment may be motivated partly by fears that an unruly euro zone crisis could lead to a surge in safe-haven demand for the yen.
"It remains to be seen how much the other major economies, which are less exposed to the euro zone, will contribute," economic research firm Capital Economics said on Tuesday.
In an interview with Reuters, Germany Finance Minister Wolfgang Schaeuble was more optimistic about a deal on IMF resources being clinched this week.
He said it would be wrong for countries to withhold new funds for the IMF in an effort to secure a deal on quota reform, saying this would amount to going back on a promise.
"That's what we've agreed and I assume it will happen. There are some voices that apparently want to set new conditions. That would go against what we've agreed," Schaeuble said.
"That's why nobody should get the idea now to say we'll decide on increasing the funds only once the quota increase has been decided," he added.
Germany wants to resolve the quota issue later this year. ($1 = 0.7610 euros)
© 2016 Thomson/Reuters. All rights reserved.