G20 leaders meeting in Cannes are poised today to agree to a substantial increase in the IMF’s resources in a dramatic bid to help resolve Europe’s debt crisis.
Heads of state from a number of advanced and emerging nations yesterday said they were prepared to join a coordinated effort that could double the Fund’s coffers, as sentiment among non-eurozone nations appeared to cool on putting money into the European Financial Stability Facility, the single currency’s E440 billion bail-out fund.
A grand bargain between rich and emerging economies on supersizing the IMF would represent a triumph for French president Nicolas Sarkozy, whose hopes of using the Cannes summit to address weaknesses in the global economy had just yesterday seemed dashed by a spiraling crisis in Greece.
Such a move would follow growing calls to strengthen the IMF’s resources. Writing in Emerging Markets on Thursday, renowned economist Barry Eichengreen said that “IMF intervention is now the only alternative for solving the [eurozone] crisis. Only the G20 can put the Fund in the driver’s seat and give it the resources it needs to complete the task.”
British Prime Minister David Cameron on Thursday gave a strong hint that the world’s sixth largest economy was prepared to join in the effort to use taxpayer’s money to bolster the Washington lender.
He said there was a “big opportunity” at the Cannes Summit for the world to “come together and solve some of its problems.”
“When the world is in crisis, it is right that you consider boosting the International Monetary Fund, an organization founded by Britain in which we are a leading player. No government ever lost money by lending money to the IMF that supports countries right around the world.”
However, he ruled out the idea of the UK putting money into the EFSF. “What we wouldn’t support is the IMF investing directly in some euro bailout fund. That wouldn’t be right and we won’t back it.”
Australian prime minister Julia Gillard said she was supporting an increase in IMF resources in order to “send a message of confidence to markets” that the institution has the ability to cope with the possibility of crises spreading beyond Europe.
“It is essential to ensure that the IMF has the appropriate resources it needs” and extra resources need to be provided in a form “that can be brought to fruition fast,” she said last night.
Leaders of Brazil, Russia, India, China and South Africa (Brics) also expressed their support yesterday for a greater role for the IMF in combating an escalating eurozone crisis. Brazil’s president Dilma Roussef told her counterparts during closed-door talks that her country was willing to contribute to bolstering the Fund to prevent the euro crisis from impacting emerging economies.
South African president Jacob Zuma hinted that the Cannes Summit could echo the London Summit of 2009 that delivered a $1 trillion recapitalization of the IMF.
That gathering “demonstrated the ability of G20 leaders to reach a consensus” on coordinated action, he said. “We have confidence that tangible progress will be made here in Cannes as well.”
But despite the rapidly emerging consensus over boosting the IMF’s firepower, there were signs yesterday that developing nations could fight hard to extract a bargain in return for greater representation in the institution.
Writing in today’s Emerging Markets Mexico’s central bank governor Agustin Carstens said that any increase in the IMF’s lending capacity must be accompanied by reforms in its governance. “We should also strongly push for...the doubling of quotas and governance reform of the IMF,” he wrote.
Asked by Emerging Markets whether the increase in IMF resources would be tied to reforms in IMF governance, Gillard said that this issue is already ”being addressed by the G20.”
”There is a broad view [within the G20] that there is a need to address the issue of IMF resources,” said Gillard, adding that ”Australia is prepared to play its part in increasing those resources.” On the eurozone crisis, Gillard emphasized that the crisis must be solved within Europe but that “non-European countries have a role to play by addressing the issue of IMF resources” so that the Fund can play a role in helping resolve the situation.
Japan meanwhile took a more cautious view on augmentation of IMF resources. Japan needs to listen to the views also “of countries that are not members of the G20 and of the IMF itself" before committing itself to supporting any increase in IMF resources,” Noriyuki Shikata, Japanese deputy Cabinet secretary for global affairs told Emerging Markets last night. “We are not being negative but we need to know more,” he said.
European Commission president Jose Manuel Barroso and European Council president Herman Van Rompuy said in a joint statement that G20 leaders will today discuss “IMF instruments, including the creation of a new facility, and appropriate IMF resources.”
News reports yesterday suggested meanwhile that the G20 is also mulling a multi-billion dollar injection of Special Drawing Rights (SDRs), the IMF’s unit of account, in a bid to support global liquidity. The London Summit in 2009 backed a $250 billion allocation of SDRs.