Lagarde: IMF may not have enough to lend

THE IMF’s $384 billion (€283.5bn) lending chest may not be enough to meet all loan requests if the global economy worsens,managing director Christine Lagarde said.

“The fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios,” Lagarde said in an “action plan” distributed to the IMF steering committee.

“The current lending capacity looks comfortable today, but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders.”

Tripling IMF resources was part of the Group of 20 leaders’ response to the global recession in 2009.

As the European debt crisis threatens to spread and further dampen the global recovery, the IMF was asked by its steering committee to review whether its resources are sufficient.

“The IMF has a limited financial ability to staunch an escalation of the crisis that envelops major European economies like Spain and Italy,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington.

At the same time, “the current economic and political climate in advanced economies makes it highly unlikely they are in a position to provide additional resources to the IMF,” he said.

Finance officials from Brazil, Russia, India, China and South Africa said in a recent statement they are “open” to contributing to global financial stability through the IMF or other international financial institutions.

It is too early to say what these countries can do to help Europe, where nations need to put into place the measures they agreed to in July to enhance their bailout fund, Chinese Central Bank governor Zhou Xiaochuan said in Washington.