Singapore’s decision to pledge $4 billion loan to the International Monetary Fund to help troubled economies must be seen as part of a broader international effort. It is necessary because, as a trading nation, Singapore is critically dependent on the health of the global economy. Should Europe’s crisis deepen, it could also spread far beyond the region. Singapore’s contribution is therefore an investment made in enlightened self-interest. Even if the funds are drawn down, the money will remain part of Singapore’s official foreign reserves.
Singapore will be loaning the money not to the IMF’s borrowers but to it directly. This underscores the republic’s recognition of the crucial stabilizing role that the IMF plays in containing crises. That recognition is shared by Australia, Britain and South Korea, which joined Singapore last week in increasing the “precautionary resources” of the IMF. Immediately, these contributions will help the fund meet the need for additional funds in its war chest to cope with contingencies created by the euro zone crisis. The funds are a kind of firewall that the IMF is trying to build around the problem.
This is well and good but questions need to be asked about any predispositions on IMF’s part. There is fear that the U.S.-Europe-Japan axis which dominates the IMF might be a little too willing to accommodate a future bailout of Europe, where Greece, Portugal and Ireland have already drawn about $130 billion in IMF commitments. Indeed, Canadian Finance Minister Jim Flaherty has suggested that the IMF treated eurozone clients more lightly than it did other crisis-hit borrowers. Others have said many IMF rules were changed to accommodate European countries in a way not seen during the Asian crisis of 1997 or the Latin American crisis in the 2000s. Although the IMF denies any discrimination, it faces pressure to reform shareholder voting rights so as to reflect the growing economic power of the BRICS group: Brazil, Russia, India, China and South Africa. Progress has been slow.
The euro zone crisis will test these latent fissures in the global economic system. The IMF is a crisis manager, it is not an alternative to wise national and regional policy-making. As the euro zone struggles to control rising public debt, create jobs and spur economic growth, its members need to adopt a long-term view of economic health. Painful austerity measures have led to street riots in Greece and demonstrations elsewhere, but Europeans need to understand that no one can live indefinitely on borrowed time.
