Chancellor George Osborne criticised over UK £10bn IMF loan

 

George Osborne: "It is in Britain's interest that we have a stable and strong world economy"

Chancellor George Osborne is facing criticism from some Conservative and Labour MPs after pledging nearly £10bn ($15bn) in further UK loans to the IMF.

The money is part of a global effort to boost the International Monetary Fund's capacity to lend to troubled economies, including the eurozone.

But Tory MP Douglas Carswell called the move "IMF bailout bull" and Labour said it was "a sticking plaster response".

Mr Osborne said a "broad body" of Tory opinion backed the UK loan offer.

The IMF says it has received firm commitments of more than $430bn from a number of countries.

The money, pledged at a meeting in Washington, doubles the fund's firepower, which was in danger of becoming overwhelmed by the eurozone crisis.

It can lend that money to other countries in financial stress, with the aim of creating global financial stability and a sounder footing for the world economic recovery.

Analysis

The criticism from some on his own side won't surprise George Osborne. Nonetheless, Douglas Carswell's blunt description of Britain's latest contribution to the IMF as "bailout bull"' is hardly a show of confidence. And the criticism is echoed by others on the Conservative benches who believe the UK is committing funds to a failing project, which, of course, it is not part of.

Some also think it sends out an unpalatable message - that the UK is willing to take a multi-billion pound risk on the euro at a time of sustained austerity at home. But George Osborne believes the currency's survival is crucial if Britain's economy is to have any chance of strong growth again.

The chancellor has avoided the need for a fresh vote in Parliament to approve the loan - he already had consent for the £40bn total. But he is unlikely to offer any more. He knows that getting Parliament to approve that could be a struggle.

But the latest UK pledge has proved unpopular with some members of Mr Osborne's Conservative Party, who had been urging him not to sign up to an increase.

Writing on his blog, Mr Carswell said the loan "makes you wonder how all those earlier bailouts have worked out".

Fellow Tory backbencher Peter Bone said the decision was "bonkers" and any efforts to prop up the eurozone were a waste of time.

Responding to criticism from within his own party, Mr Osborne told BBC Radio 4's Today programme: "When you look at the Tory backbench opinion, of course some people have been critical and they have been critical all along, but actually quite a lot of Conservative backbenchers have come out and said this is the necessary and right thing.

"I think there is a broad body of Conservative opinion that understands we are doing the right thing."

The chancellor accused the Labour front bench of adopting an "opportunistic" stance, arguing that they were "people who, in the past, supported the IMF".

Mr Osborne added that the loan was important to the UK.

Commitments so far

  • Euro area: $200bn
  • Japan: $60bn
  • South Korea $15bn
  • UK: $15bn
  • Sweden: $10bn
  • Norway: $9.3bn
  • Poland: $8bn
  • Australia: $7bn
  • Denmark: $7bn
  • Singapore: $4bn

Source: IMF. Some figures are approximate

"Britain has a massive interest in a stable world economy and institutions like the IMF help to ensure that stability," he said.

"If you don't have a stable world economy you lose jobs in Britain and the British economy suffers."

He added that any loan made would bring in a return in the form of interest.

The chancellor can lend up to £10bn to the IMF without parliamentary approval.

He had some room for manoeuvre because parliament had previously approved £40bn of loans, of which only £30bn had been committed.

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."

He accused Mr Osborne of "running scared" of parliamentary scrutiny, adding: "There is a real risk that yet another sticking plaster response will mean the eurozone continues to duck the tough decisions they need to take."

The UK Treasury pointed out that no country had lost money lending to the IMF in its 67-year history.

Christine Lagarde IMF managing director Christine Lagarde had wanted to bolster the fund's lending capacity by $400bn

It said its contribution to the IMF was 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.

Committing the extra money does not mean it will actually need to be loaned.

IMF 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 them back home.

The eurozone as a whole is contributing $200bn of the total and Japan, another major supplier of funds, is lending $60bn.

Australia will contribute $7bn, Singapore $4bn and the Republic of Korea $15bn.

 

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  • rate this
    -5

    Comment number 558.

    Think of it like this. You have a mortgage which is a big loan and you pay the interest each month. You also have a savings account for "rainy day" and other reasons. You could pay down your mortgage with the savings but then you have nothing in reserve. The IMF loan is using the savings. The public expenditure is funded from the tax income plus borrowing via the "mortgage".

  • rate this
    +5

    Comment number 476.

    The real argument is not about whether the UK can afford to put up the money but as to whether the IMF should bailout states who refuse, for ideological reasons, to use the full range of economic tools at their disposal, most notable among these is the Eurozone, who by refusing to use the full range of tools to manage their currency may cause some EZ countries to need IMF loans

  • rate this
    -10

    Comment number 340.

    As far as I know, IMF is not a charity. Countries borrowing money have to pay back capitals + interests. We can make money from the interests of other nations borrowing.

    It seems to a good joint venture from big nations. If UK doesn’t put in money, we will miss the boat.

    This has nothing to do with our internal political affairs.

  • rate this
    -9

    Comment number 334.

    It's only right that we pay our fair share towards keeping the world economy stable.

  • rate this
    +22

    Comment number 285.

    I've just been reading about how every few days a new food bank opens up in a town or city in the UK..this is because people are struggling with debt,rising food and utility bills and rent.I cannot comprehend how the government can give away our money to other people and leave their own people really struggling to survive.There's something so morally wrong with this.Hang your head in shame Gideon.

 

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