AP, DAVOS, SWITZERLAND
The head of the IMF appeared to be making headway on Saturday in her drive to boost the institution’s financial firepower so that it can help Europe prevent its crippling debt crisis from further damaging the global economy.
IMF Managing Director Christine Lagarde is trying to ramp up the institution’s resources by US$500 billion so it can help if more lending is needed in Europe or elsewhere. The IMF is the world’s traditional lender-of-last-resort and has been involved in the bailouts of Greece, Ireland and Portugal.
Insisting that the IMF is a “safe bet” and that no country had ever lost money by lending to the IMF, Lagarde said that increasing the size of the body’s resources would help improve confidence in the global financial system. If enough money is in the fund, markets will be reassured and it won’t be used, she said.
“It’s for that reason that I am here, with my little bag, to actually collect a bit of money,” she said at the World Economic Forum in Davos, Switzerland.
Her plea appeared to find a measure of support from ministers of Britain and Japan, sizable IMF shareholders that would be expected to contribute to any money-raising exercise.
British Chancellor of the Exchequer George Osborne said there was “a case for increasing IMF resources and ... demonstrating that the world wants to help together to solve the world’s problems,” provided the 17 countries that use the euro show the “color of their money.”
European countries have said they’re prepared to give the IMF US$150 billion, meaning that the rest of the world will have to contribute US$350 billion. However, many countries, such as Britain and the US, want Europe to do more, notably by boosting its own rescue fund.
Osborne said he would be willing to argue in parliament for a new British contribution, though he may encounter opposition from some members from his own Conservative Party.
Japanese Minister of State for Economic and Fiscal Policy Motohisa Furukawa said his country would help the eurozone via the IMF, too, even though Japan’s own debt burden is massive. Unlike Europe’s debt-ridden economies, Japan doesn’t face sky-high borrowing rates, partly because there is a very liquid domestic market that continues to support the country’s bonds.
Europe once again dominated discussions on the final full day of the forum in Davos. Despite some optimism about Europe’s latest attempts to stem the crisis, fears remain that turmoil could return.
Whether the markets remain stable could rest for now on whether Greece, the epicenter of the crisis, manages to conclude crucial debt-reduction discussions with its private creditors. It’s also seeking to placate demands from its European partners and the IMF for deeper reforms.