Emerging-market nations including China and Brazil formalized funding pledges to the International Monetary Fund, helping to almost double its lending power to protect the world economy from Europe’s debt turmoil.
With the addition of new pledges from 12 nations that also includes Russia, India and South Africa, the Washington-based lender said it now has received funding commitments of $456 billion, up from the roughly $430 billion it said it had secured in April. The temporary contributions will add to the $380 billion the IMF currently has available for lending.
“Countries large and small have rallied to our call for action,” IMF Managing Director Christine Lagarde said in a statement on the sidelines of a Group of 20 summit, adding that the new contributions would only be used as “second line of defense” after existing resources are depleted.
Managing Director of the IMF Christine Lagarde speaks at the World Economy panel discussion in the framework of the G20 Leaders Summit which starts on Monday in Los Cabos, Mexico. (AFP-Yonhap News)
G20 leaders are gathering in the Mexican beach resort of Los Cabos for a two-day summit dominated by the financial crisis in the 17-country euro region just as Spanish borrowing costs soar to a euro-era record. Canada and the U.S. abstained from pitching in for the IMF, despite calls by German Chancellor Angela Merkel for the rest of the world to do more.
“It’s going to be the first time the fund is capitalized without the U.S., which reflects the importance of emerging markets,” Mexican President Felipe Calderon said on June 16.
The meeting’s host said Mexico would contribute $10 billion to the fund, matching pledge amounts made here by Russia, India and Brazil. China said it will provide $43 billion, while South Africa, Colombia, Malaysia, New Zealand and the Philippines were among nations offering smaller amounts.
The second replenishing of the IMF’s coffers in three years, while marking a victory for Lagarde, falls short of her initial fundraising goal of $600 billion.
“There is concern that the firewall available may not be adequate to deal with contagion,” Indian Prime Minister Manmohan Singh told leaders at the summit yesterday. “The resources currently expected to be mobilized by Europe and the IMF are less than was estimated a year ago, and the crisis is actually more serious.”
After meeting yesterday, leaders from the so-called BRICS group ― Brazil, Russia, India, China and South Africa ―said in a statement that their contribution was based on the expectation that IMF members follow through “in a timely manner” on a 2010 pledge to give them a bigger say in how the IMF is run.
That includes an increase in their voting rights to better reflect their growing weight in the world economy. The changes aren’t yet in place because some nations including the U.S., the largest IMF member nation, haven’t yet ratified the changes in their legislatures.
“Emerging economies are bailing out Europe” and deserve a seat a the decision-making table, Jasmine Burnley, a spokeswoman for aid group Oxfam International, said in an e-mailed statement. “It’s outrageous that a country the size of Belgium has more voting weight at the IMF than South Africa or Argentina.”
G-20 leaders focused their response to Europe’s financial crisis on stabilizing the region’s banks, raising pressure on Merkel to expand rescue measures as contagion from the crisis engulfs Spain.
The IMF has also been pressing European officials to increase fiscal and banking integration, including letting the financial rescue mechanism recapitalize banks directly and by issuing common bonds. European Union leaders will discuss paths to closer political and economic union at a summit in Brussels June 28-29.
The IMF, which is co-funding bailouts to Greece, Ireland and Portugal, now has a very high concentration of its loans, and therefore risks, in the region, Lagarde said on a panel in Los Cabos on June 17.
“That requires clearly that very significant progress be put in place,” she said.
(Bloomberg)