IMF raises $430 billion for crisis firewall

21,Apr, AFP

The IMF raised $430 billion in new funds for crisis intervention, with China and other emerging economic giants taking part despite worries the money will go to more eurozone bailouts.

After weeks of seeking pledges for its “global firewall”, the International Monetary Fund said the BRICS group China, Russia, India and Brazil had helped put it over its goal.

“We have commitments that are north of $430 billion. That almost doubles the lending capacity of the fund,” IMF managing director Christine Lagarde said after meetings of the IMF and the finance chiefs of the Group of 20 economic powers.The figure “signals the strong resolve of the international community to secure global financial stability and put the world economic recovery on a sounder footing.”

The BRICS and a handful of middle-sized economies came in with $68 billion at the end, though specific amounts were not mentioned.That came on top of $200 billion promised by the eurozone, $60 billion from Japan, and $15 billion each from Britain, South Korea and Saudi Arabia each pledged $15 billion.Smaller amounts from the Nordic countries, other European governments and Singapore filled out the total.

“We all agreed it was absolutely essential to have the firewall put up at this time,” said Tharman Shanmugaratnam, chairman of the IMF’s policy-making body.

But, he added, “The firewall is a necessary but far from sufficient condition to resolving the crisis. The real solution has to do with the fiscal and structural reforms that address the real causes of this crisis, particularly in Europe.”

The fundraising, coming after the IMF has committed tens of billions of dollars to rescues of Portugal, Ireland and Greece, was seen as a test of BRICS support for an organization they feel is overly dominated by Europe and the United States.It came at a time when worries were mounting again that Spain and Italy could founder and require international support.In meetings, according to an official at a Group of 24 emerging economies gathering Thursday, Lagarde stressed that the new funds were not dedicated to Europe but were there to help all IMF members. That was reiterated in the IMF statement Friday.Canada and the United States were among those declining to take part in the passing of the hat, and the IMF had to lower its original target of $500 billion to $400 billion when it realized the resistance of contributors.

Both Washington and Ottawa say Europe has enough of its own financial resources to stop the erosion of confidence.Canadian Finance Minister Jim Flaherty said they did not want to add in funds that would likely go to Europe, and that other countries had the same worry.Moreover, he said, the strong European weight on the IMF board led it to treat its eurozone clients differently from others.”There is some discomfort with that quite frankly. There ought not to be particulary different treatment for anybody,” he said.”The reality is that the European countries are relatively wealthy. We have been saying for several years now that they need to step up to the plate and overwhelm this issue with their own resources.”The IMF’s need for the funds nevertheless gave the BRICS room to flex their newfound power on the global economic and political stage.

Brazil’s Finance Minister Guido Mantega gave voice to that when he complained stridently over the IMF quota system, which gives Europe and the US dominant voting power.

He pointed out that Brazil, the world’s sixth largest economy, has half the voting rights of smaller Britain.The IMF needs to remain “evenhanded and unbiased” if it is to retain legitimacy, he said, adding that would “only be achieved after the institution implements reforms to enhance voice and representation of emerging market and developing countries.” Even so, it was unclear whether the BRICS had extracted any commitments for reforms of IMF quotas, which determine voting power on the board.

There were sighs of relief after the target was topped, mainly from Europe.

“Well this is it, and it’s good. Because of the debate about European firewall, IMF resources had been taking up a lot of time, and I think it was about time that that conclusion was taken here,” Danish Finance minister said Margrethe Vestager.

“We think that this is what we need.”