IMF taps Brics to fund $1-trillion crisis gap

BY AGENCIES

THE International Monetary Fund (IMF) is looking to the Bric nations — Brazil, Russia, China and India — and other countries to raise its lending capacity by as much as $500bn to insulate the global economy against the worsening of Europe’s debt crisis.

US stocks advanced on news of the proposal yesterday, pushing the Standard & Poor’s 500 index to a five-month high. The euro strengthened for the second day against the dollar and the yen, appreciating 0,7% to $1,28 /€.

The JSE all share index hit a record high for the second day in a row yesterday, rising to 33550,09 points, boosted by the news that Europe could receive further assistance from the IMF.

The Washington-based lender was aiming to increase its resources after identifying a potential need for $1-trillion in financing in coming years, an IMF spokesman said yesterday.

The IMF said yesterday it was studying options and would not comment further until it had consulted its members. To incorporate a cash buffer, the lender is seeking a total $600bn.

IMF MD Christine Lagarde said yesterday her staff was looking at ways to expand the fund’s war chest, which currently has about $385bn available.

While euro-zone nations have pledged to contribute €150bn, the US has said it has no plans to make new bilateral loans and leaders of Group of 20 (G-20) nations ended last year at odds over the issue.

"The biggest challenge is to respond to the crisis in an adequate manner and many executive directors stressed the necessity and urgency of collective efforts to contain the debt crisis in the euro area and protect economies around the world," Ms Lagarde said yesterday in an e-mailed statement after a discussion among members of the IMF board.

The IMF is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors to the war chest, according to a G-20 official, who spoke on condition of anonymity because the talks are private.

The fund wants a deal struck at the February 25-26 meeting of finance ministers of the G-20 and central bankers in Mexico City, where Ms Lagarde’ s proposal will be discussed.

 

Emerging-market countries may try to twin the call for help with a push to increase their clout at the IMF. Such nations, which are growing twice as fast as their developed counterparts, argue their voting power does not reflect their weight in the global economy and they want to end the tradition of selecting a European to head the institution.

The push for more money by the IMF may extend this month’s rally in investor sentiment towards European debt markets on speculation the region is enjoying a respite from its two-year debt turmoil and any euro-zone recession may be shallow.

In a sign the crisis may have longer to run, on Tuesday the World Bank cut its global growth forecast for this year by the most in three years, to 2,5%, and said the euro zone may shrink 0,3%.

Euro-zone countries also need to repay €157bn of maturing debt this quarter.

At a summit in November, G-20 leaders baulked at writing fresh cheques for the IMF, demanding Europe’s governments do more to fix their crisis while saying they would ensure the IMF "continues to have resources to play its systemic role". A US official reiterated that stance last month, saying President Barack Obama’s administration would not stump up more cash for the IMF and a solution had to be led by Europe. Russia’s government would not decide on any contribution before its March presidential elections, First Deputy Prime Minister Igor Shuvalov said yesterday.

Bank of Canada governor Mark Carney said yesterday Europe needed to raise its own additional resources to resolve its crisis.

Greater support for the IMF also attracted controversy within Europe. Germany’s Bundesbank coupled its €41,5bn input to a promise that the aid would not be earmarked for Europe.

Such recycling would violate euro-zone rules that bar central banks from financing government deficits. As a result, the euro zone will lend to the IMF’s general resources, not to a special crisis fund.

Options for raising the IMF’s resources include opening a trust fund or not rolling back a 2009 increase. Officials have also discussed increasing the amount of the fund’s Special Drawing Rights.