Bloomberg News

G-20 Signals More IMF Aid for Europe Possible, Splits on Fillip

October 15, 2011

(See GMEET <GO> for more on the G-20 meeting and EXT4 <GO> for more on the European crisis.)

Oct. 15 (Bloomberg) -- Group of 20 finance chiefs and central bankers opened the possibility of handing more International Monetary Fund aid to Europe, while splitting over whether the lender should be given more resources.

If European leaders step up efforts to tackle their debt crisis, the U.S. would be willing to back more IMF cash to “supplement” them, U.S. Treasury Secretary Timothy F. Geithner said after the G-20 meeting in Paris yesterday. While the U.S. would respond to a “compelling case” for providing more money, he called the fund’s $390 billion of uncommitted reserves a “very, very substantial amount of financial firepower.”

Such remarks suggest global authorities want European governments to take fresh steps to contain their region’s turmoil before considering additional aid, let alone a fillip of the IMF’s coffers. The G-20 said in a statement that the “IMF must have adequate resources to fulfill its systemic responsibilities” and promised to return to the issue when its leaders meet in Cannes, France on Nov. 3-4.

There is some discord among G-20 officials as those from rich nations such as Germany and Canada questioned proposals to expand the resources of the IMF to help contain Europe’s woes.

‘Adequate Tools’

Canadian Finance Minister Jim Flaherty told Bloomberg Television at the meeting that the European situation is “a problem for the euro zone to sort out” and the 17-member region has “adequate tools and adequate resources to get the job done.” He said that he doesn’t “think we ought to be asking the IMF to do a great deal more.”

“Everybody agrees that the IMF has to have adequate resources at its disposal at all times, but I want to add that from our point of view there is no need at this time for an increase of the IMF’s resources,” German Finance Minister Wolfgang Schaeuble told reporters.

Some nations have signaled they’re in favor of increasing the IMF’s lending power after Managing Director Christine Lagarde said last month her $390 billion war chest may not be enough to meet all loan requests should the global economy worsen. Additional funds could be used to help shelter Italy and Spain with precautionary lending, according to three officials who declined to be identified because the discussions are private.

China, Japan

Chinese Deputy Finance Minister Zhu Guangyao said that his country “supports stability in Europe and holds an open attitude toward all discussions,” while Japanese Finance Minister Jun Azumi said he would first want an explanation of why the extra money is needed before offering it.

Brazilian Finance Minister Guido Mantega said at the meeting that strengthening the IMF is “the second most important issue we have to discuss.”

“It’s really important to provide whatever financial resources that are required by the IMF to cope with future challenges,” Australian Treasurer Wayne Swan told Bloomberg TV in an interview in Paris.

The G-20 also called on the IMF to consider new ways to provide short-term liquidity to countries “facing exogenous, including systemic, shocks.” It said the meeting of G-20 leaders next month will also make progress on broadening the IMF’s Special Drawing Rights, a synthetic currency.

‘Stronger’ IMF

“We have resources available today for any contingencies we face right now but we have to look forward to the risk the global economy faces,” John Lipsky, a special adviser to Lagarde, said in a Bloomberg TV interview in Paris. The important thing “is there is a commitment to ensure the IMF has adequate resources.”

Any move to bolster the IMF’s firepower would be similar to a G-20 decision in 2009 to triple the fund’s resources as part of plan to pull the world out of recession. As back then, additional resources may come through bilateral loans or by purchasing IMF notes rather than by an increase in its permanent resources, according to the officials. One solution being considered is the creation of an IMF-run special purpose vehicle, two of them said.

“We are having bilateral discussions to see what is the best proposal,” Mantega said. “There is no homogeneous position, but we are trying to reach a common proposal.”

--With assistance from Toru Fujioka in Tokyo, Gonzalo Vina, Svenja O’Donnell and Maryam Nemazee in London, Cheyenne Hopkins and Peter Cook in Washington and Helene Fouquet in Paris. Editors: Simone Meier, Simon Kennedy

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net; Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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