Speculation was building last night that G20 leaders will use their summit in Cannes to unveil a doubling of the IMF’s resources to help them deal with the spreading economic and financial crisis.
The move would follow weeks of demands on world leaders, reported by Emerging Markets, to strengthen the IMF’s resources to enable it to act to prevent the European debt crisis centred on Greece from triggering contagion.
Mexico’s central bank governor Agustín Carstens and leading economist Barry Eichengreen both told Emerging Markets that the G20 needed to come up with the extra funding this week.
Australian prime minister Julia Gillard said she would push her colleagues to back an increase in IMF resources when they begin their two-day meeting later today.
Carstens said that despite recent moves to bolster the IMF, world leaders needed to continue to explore ways to “enhance the Fund’s capacity to deal with contagion in systemic crises”.
He said: “Given the size of potential shocks in a globalized economy a much larger amount of resources for the Fund is required. We realize that this will involve strong commitments among G20 countries.”
Writing in today’s Emerging Markets, Barry Eichengreen, economics professor at the University of California, Berkeley, says the political chaos in Greece and the “explosive” rise in Italian spreads showed that last week’s eurozone summit did “nothing to change the facts”.
“More funding for the institution is therefore essential,” he writes. “When the idea of the BRIC countries providing it was mooted last month, the US and other advanced countries put the kibosh on the idea.
“If their motive was to increase the pressure on the Europeans to solve their own problems without outside help, then the stratagem failed. It is time to acknowledge that failure and move on.
“IMF intervention is now the only alternative left for solving the crisis. Only the G20 can put the Fund in the driver’s seat and give it the resources needs to complete the task.”
Speaking last night Christine Lagarde, the IMF’s managing director, publicly welcomed a communique issued earlier in the day by the B20 group of business leaders that called for a “reinforcement of the role of the IMF” to help solve the current global problems. “We and the B20 are closely aligned on this,” she added.
The B20 said in its communique that “the G20 should drive a reinforcement of key international institutions. “In particular the IMF should be strengthened in its roles of crisis management and lending, surveillance and support in the coordination of macroeconomic policies, it said.
Meanwhile Gillard said she would push her colleagues on the G20 to increase the resources of the IMF as a way of giving practical help to the eurozone to battle its debt crisis.
“I think we can also assist in a practical way,” Gillard told a panel at the B20 business summit here in Cannes before the G20 begins tomorrow. “The IMF does need more resources in order to be ready and prepared in case there is a bigger spread of problems,” she said.
Australia is “certainly” prepared to play its role in increasing the Fund’s resources, she added.
Noriyuki Shikata, personal press secretary to Japanese prime minister Yoshihiko Shikata told Emerging Markets that IMF resources might need to be augmented even after the $1 trillion package announced at the 2009 Summit.
“If contagion spreads [from the eurozone] to countries elsewhere, there will be an opportunity for the IMF to play a role,” Shikata said.
Montek Singh Ahluwalia, India’s sherpa at the G20 said last week: “We will certainly support the International Monetary Fund (in) providing resource support to Europe.”