Sunday, April 22, 2012

IMF crisis-fund donors worry about Europe bailouts

WASHINGTON: The International Monetary Fund wrapped up meetings here Saturday with its coffers to fight the eurozone crisis $430 billion richer.

But it also collected a message from the emerging economies that contributed that it should not easily throw more money into Europe, and that they want more say in how the IMF is run.

There was some clear relief in the air after the IMF and Group of 20 major economies came out of their meetings Friday with commitments from the leading emerging economies Brazil, Russia, India and China to contribute to the fund's "global firewall".



With worries now that Spain and Italy are on the verge of needing rescues, the funding boost is aimed at preventing new financial crises from ripping through global markets.

"It is nice to have a big umbrella, or a big firewall... and that was really the achievement" of the IMF-G20 meeting, Lagarde said.

The IMF had already cut its goal for the firewall funding from $500 billion to $400 billion, with its major shareholder the United States declining to contribute and the emerging giants, known as the BRICS, clearly nervous about whether their contributions might end up in a European black hole.

Early on eurozone countries ponied up $200 billion and Japan $60 billion. But it was only at the Friday financial summit that the IMF was able to pull in the balance to reach the goal.

Britain, South Korea and Saudi Arabia each pledged $15 billion; smaller amounts came from other European governments, and then, finally, the BRICS and three Southeast Asian countries promised a collective $68 billion, though no specific amounts were given.

The amount doubled the IMF's resources for intervening in crises, and together with the eurozone's own recently assembled $1 trillion firewall, was close to what IMF analysts say is necessary to prevent financial contagion that could erupt beyond Europe.

"Well this is it, and it's good. Because of the debate about (a) European firewall, IMF resources had been taking up a lot of time, and I think it was about time that that conclusion was taken here," said Danish Finance Minister Margrethe Vestager.

But the money came with warnings from IMF members not part of the US-Europe-Japan axis that dominates the Washington-based global lender.

First, they worried that after committing some $130 billion already to rescues of Greece, Portugal and Ireland, the European-dominated IMF board would too easily give in to another bailout of a foundering eurozone economy.

Canadian Finance Minister Jim Flaherty, whose country did not contribute to the new resources, suggested there was lighter treatment for eurozone clients than other crisis borrowers.

"There is some discomfort with that quite frankly. There ought not to be particularly different treatment for anybody," he said.

Argentine Economy Minister Hernan Lorenzino, who represents several Latin American countries at the IMF, echoed that.

"During this process, many rules of the Fund had been changed to accommodate the support to the most-needed countries in Europe in a way that was not seen at the time of the Asian crisis in 1997 or the Latin American crisis in the 2000s," he said in a statement to the IMF.

Lagarde though insisted nothing had changed in the IMF approach anywhere, and repeatedly stressed the new resources were equally available for all 188 IMF members.

"What has been clearly reminded through the course of the discussion is that, number one, that those bilateral loans... do not form a special pot of funds or coffers that have an EU label on it. It is for all members of the IMF."

Secondly, she said, "it must be used under the strict, exact, even-handed, non-discriminatory demanding terms that we have for all our programs. And that is the strength of the IMF."

Beyond that issue, though, the rising economies laid on the pressure for the IMF to get moving on substantial reforms to fund quotas, or shareholder voting rights, that reflect the new realities of the global economic order -- that is, the newfound power of China and the other BRICS.

Two years after a minor reform to the quotas, the IMF was far from getting enough members to ratify them, with the United States a key laggard.

Meanwhile, the IMF is already committed to undertaking a more fundamental shakeup -- that could sharply cut European power -- and many fear it might not make the deadline of January 2014.

"The reluctance that some countries are demonstrating in following through with the agreements we have on the comprehensive review of the formula is deeply damaging to this institution and to these countries' own credibility," said Brazil's finance minister, Guido Mantega.

Lagarde acknowledged the pressure and said she wanted the first 2010 reforms ratified by the IMF's annual meeting, in Tokyo in October.

"Everybody wants to have a bigger share of the same pie," she said.

"So there will have to be gives and takes."

- AFP/cc

View the original article here

Source From Channel News Asia

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