The IMF is seeking to more than double its war chest by raising US$600 billion in new resources to help countries deal with the fallout of the eurozone debt crisis, but the plan faces roadblocks from the US and other countries.
The US 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 were to meet in Mexico City yesterday and today to discuss boosting IMF resources. Any outcome would need leaders’ signoff.
G20 finance ministers meet late next month.
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 faced a US$1 trillion financing gap over the next two years if global economic conditions worsened considerably. The IMF’s current lending capacity is about US$380 billion.
The sources, present at an IMF board meeting on the issue on Tuesday, said the IMF was seeking to raise up to US$600 billion to meet those potential financing needs. Of that, US$500 billion would be for lending and US$100 billion would be a “protection buffer.”
An IMF spokesman confirmed the IMF was seeking to raise up to US$500 billion in additional lending resources. He said that amount included a European commitment to inject US$200 billion into IMF resources.
“At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations,” he said.
The Chinese foreign ministry said Beijing stood by G20 commitments to ensure the IMF has ample funds to cope with the financial crisis, but it stopped short of saying the country was ready to put up more cash.
China is likely to resist moves to increase IMF resources unless a number of conditions are met, said Xiang Songzuo (向松祚), 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 nations, changing the stance of IMF policy more to meet the concerns of emerging countries — such as on 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.
Japan stands ready to support the IMF fund raising drive, but it wants to see strong efforts by European countries to resolve the crisis first, a senior government source said in Tokyo.
South Korea is also pressing for discussions first about Europe’s contribution and for it to agree on additional measures, another source connected to the process said. European nations have argued 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 afterward 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.