IMF doubles its lending firepower
- 20 April 2012
- From the section Business
The IMF says it has received firm commitments of more than $430bn.
The money is to help economies in trouble and includes just under £10bn ($15bn) from the UK in loans to the International Monetary Fund (IMF).
It is part of a global effort to bolster the fund's lending capacity, which IMF managing director Christine Lagarde wanted to increase by $400bn.
The money doubles the fund's firepower which threatened to become overwhelmed by the eurozone crisis.
Australia will contribute $7bn, Singapore $4bn and the Republic of Korea $15bn.
The IMF's managing director, Christine Lagarde, said that some countries including Russia, India, China and Brazil had made private pledges but did not want to go public until they had discussed the pledges back home.
In a joint statement following the meeting in Washington, the IMF's International Monetary and Financial Committee (IMFC) and the G20 finance ministers and Central Bank governors said: "There are firm commitments to increase resources made available to the IMF by over $400bn in addition to the quota increase under the 2010 reform."
"These resources will be available for the whole membership of the IMF, and not earmarked for any particular region."
The eurozone as a whole is contributing $200bn of the total and Japan is another major supplier of funds and is lending $60bn.
UK Chancellor George Osborne said the loan was important to the UK: "It's in Britain's interest that we have a stable and strong world economy - that creates jobs in Britain."
He added that any loan made would bring in a return in the form of interest.
He can lend up to £10bn without parliamentary approval. He had some room for manoeuvre because parliament has previously approved £40bn of loans, of which only £30bn has been committed.
But this latest pledge is unpopular with some members of Mr Osborne's Conservative Party, who had been urging him not to sign up to an increase.
Backbench MP Peter Bone described the decision as "bonkers", describing any efforts to prop up the eurozone as a waste of time.
The UK's shadow chancellor, Ed Balls said: "The IMF cannot and should not become the de facto central bank of the euro area.
"The IMF is being put up to step in and play the role that the European Central Bank should be playing - a strategy which cannot work and is self-defeating by highlighting the lack of a proper ECB firewall."
The UK Treasury pointed out that no country has ever lost money lending to the IMF in its 67-year history.
It says its contribution to the IMF is not public spending. All UK loans to the IMF are financed from the UK's Official Reserves, remain UK assets and do not contribute to public sector net debt.
The UK's move was welcomed by the head of an important House of Commons committee of MPs.
Andrew Tyrie, chairman of the Treasury Committee, said: "This is not just sensible, it is essential.
"The IMF is the only fire-brigade available to the global economy. It is vital that the IMF has the necessary tools to deal with the current eurozone crisis and the risks to wider global financial stability."
There is still a question about what other major economies will do.
Brazil wants to have a bigger say in running the IMF in return for a commitment of extra money, while the US is not likely to offer any money because doing so would attract criticism at home in a presidential election year, according to BBC economics correspondent Andrew Walker.
Brazil said the US and Europe dominated the IMF and that meant IMF policies favoured the two blocs.
Brazil's voting power is the same as the Netherlands and smaller than Spain, Italy and the UK's, although the Brazlian economy is bigger than all of these.
Its finance minister, Guido Mantega, said emerging countries - including his - were "paying a high price" for the loose monetary policies of advanced economies that had been endorsed by the IMF.
He said though that they would also contribute further to the fund to help reach the desired target of $400bn: "It's likely that we will reach an agreement around $400bn to increase IMF resources."
He said who would give what would be decided in principle by the next (G20) meeting in Los Cabos in Mexico two months from now.
Russia's deputy finance minister Sergei Storchak has already said that his country will offer $10bn and that he is confident that the IMF will reach its funding target.
Committing the extra money does not mean it will actually need to be loaned.
The German finance minister Wolfgang Schaeuble, said the extra funds were a sign of international co-operation: "The Europeans have done what they have promised, what we had agreed on.
"We [the G7 leading developed nations] agreed that the debate on IMF resources has to be brought to an end here. That is not a sole European issue."
The IMF hopes that if private investors think that countries in trouble can be rescued if necessary, they will be more willing to lend to them and any funding problems will not escalate.
It has already warned that the eurozone's debt crisis poses the biggest threat to the global economy, and warnings about Europe are expected to top the eventual communique from the meetings.