The International Monetary Fund has identified a need for an extra $500 billion to $600 billion in resources to help fight the European debt crisis, euro zone and IMF officials said Wednesday.
The IMF has sought for months to boost its coffers. Managing Director Christine Lagarde last year warned that the needs of potential emergency bailouts across the globe amid the growing euro debt crisis may “pale in comparison” to the IMF’s existing cash base. Despite its best efforts, so far the IMF has been unable to persuade the Group of 20 largest industrialized and developing nations to make a firm pledge for cash.
“Based on staff’s estimate of global potential financing needs of about $1 trillion in the coming years, the Fund would aim to raise up to $500 billion in additional lending resources,” an IMF spokesman said. That includes the recent European commitment of about $200 billion beyond their normal IMF dues.
“At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations with the Fund’s membership have been completed,” the spokesman said.
Tuesday, the IMF executive board called for staff to continue studying how to boost the IMF’s financing capability after reviewing a report on the adequacy of the fund’s existing resource base. Just as world financial leaders failed to find consensus on whether to contribute more cash to the IMF, the board also failed to find common ground on where the new cash would come from. A range of figures was presented.
The euro-zone official said Europe was planning to commit around $250 billion and the rest of the world would need to cough up an additional $350 billion, the official said. That would ensure the Fund has around $100 billion in prudential reserves on the fund’s balance sheet.
But giving more resources to the IMF is still controversial among the Group of 20 industrial and developing nations. The U.K. and other G-20 governments want to see plans from the euro zone move ahead to boost the lending capacity of their sovereign-rescue funds, ensuring that the brunt of the bailout burden will fall on the euro zone itself.
Euro-zone governments at their summit last month already agreed to contribute EUR150 billion ($190.01 billion). It is hoped that the U.K. and other EU governments not using the euro will agree to contribute an extra EUR50 billion as part of a global deal to boost the IMF’s resources, the official said. The EU will contribute more to the new IMF resources than the third of the fund’s quota its members hold, reflecting a recognition that the bulk of these new funds will be used for lending to beleaguered euro-zone governments, the official said.
There is currently a EUR500 billion cap on lending from the European Financial Stability Facility and its permanent successor, the European Stability Mechanism. Euro-zone leaders at their summit last month said they would consider lifting the cap when they meet again in March, but Germany, the euro zone’s main source of bailout funds, is still opposed to the step, officials say.
The euro zone’s sovereign funding needs for this year are huge. Italy alone plans to raise EUR440 billion, a task that will worsen the country’s debt burden if yields remain at their current level. Euro-zone officials are hoping that the IMF will help them create a “firewall” that can keep the government’s financing costs manageable.
Governments in 2010 had already agreed to double their contribution to the IMF resources, from about $375 billion to around $750 billion. But it is still unclear where any additional cash would come from, even with the fund calling for a cash injection.
The IMF’s biggest contributor, the U.S., has said it won’t cough up any more money than it has already lent the IMF. Some lawmakers are even pushing to revoke a $100 billion loan made to the IMF in 2009 for an emergency reserve. The U.S. Treasury was planning to use that cash to meet the U.S. commitment, due later this year, to double the fund’s normal resource base.
