G20 look to boost IMF resources by $400bn-500bn

The world’s 20 biggest economies are likely to agree to up the resources of the IMF by between $400bn and $500bn (€306m and €382m), rather than the $600bn initially sought by the IMF, Group of 20 officials have told Reuters.

The extra money is to give the IMF — a lender of last resort to governments — more firepower to fight the sovereign debt crisis, triggered by unsustainable policies in eurozone countries such as Ireland, Greece and Portugal.

G20 finance ministers will meet in Washington next week to discuss the IMF’s call for more resources from January after the eurozone increased the size of its own crisis-fighting funds in March in response to G20 pressure.

IMF managing director Christine Lagarde said on Thursday that reaching an agreement could take some time, a sign that next week’s meeting may not be the last word.

But she also said the IMF may not need as much money as it thought just a few months ago as economic and financial risks had receded and the global lender’s funding needs were now smaller.

Officials said that with the first quarter peak of eurozone government refinancing needs already taken care of by the European Central Bank’s cheap long-term loans, or refinancing operations, the need for more IMF resources has diminished.

One G20 official said: “I would say it will be somewhere between $400 and $500bn and it very much depends on how much the big global economies and European, but non-eurozone economies pledge.”

In January, the IMF estimated it would need an additional $500bn to lend and another $100bn for reserves to erect an adequate safeguard against the risks posed by the eurozone’s crisis.

“It has always been clear that the $500 to $600bn ... was too much, not realistic,” a second G20 official said.

“We would be happy if we get as much from other countries as the Europeans are willing to provide,” the second official said.

Eurozone countries have committed to provide €150bn while other EU countries have pledged

another €38.2bn.

The first official said China and Japan might provide another $100bn or slightly more between the two of them.

“Japan and China appear to be relatively happy with what Europe has achieved,” a third G20 official said.

“But for developing economies, there’s still a strong sense that rich members like Germany should play a bigger role in fixing the region’s problems.

“There might not be a deal until the last minute,” the third official said.

Officials said there would be intense telephone diplomacy under IMF coordination between capitals next week to discuss who will pledge how much and when.

The only countries not expected to contribute to the increase in IMF resources now were the US and Canada.

“All the others are candidates to pledge to an increase in the New Arrangements to Borrow resources,” said the first official.

The discussion of more cash for IMF bailouts of governments comes at a time when fresh concerns about the sustainability of Spanish public finances have boosted Madrid’s borrowing costs on the market close to 6%.

“In the framework of discussions about the eurozone crisis, Spain represents a downside risk,” the first official said.

“There will be a mention of it, without going into details.

“I don’t expect there will be specific sniping at Spain, the focus will be clearly on policy responses and IMF resources.”

Reuters