IMF Funding Doubled to $1 Trillion; G20 Promises China and Other Emerging Countries More Clout

The IMF, in collusion with the governments of the world, are sucking the lifeblood from honest, hardworking people.

Russia to Consider Greater Contribution to IMF

April 21, 2012

Reuters - Russia will consider contributing more than the $10 billion it has already promised to bolster the International Monetary Fund's crisis-fighting war chest, with the final figure to be coordinated with other BRICS countries, Finance Minister Anton Siluanov said on Saturday.

"Ten billion dollars as (Russia's) minimum contribution has already been declared, the issue now is of changing it, increasing the sum, taking under consideration the IMF's need for additional resources," Siluanov told journalists on the sidelines of the International Monetary/World Bank spring meeting in Washington.

"We will coordinate with our BRICS colleagues and will jointly decide on our possibilities."

Leading world economies on Friday pledged $430 billion in new funding for the IMF, more than doubling its lending power in a bid to protect the global economy from the euro-zone debt crisis.

Siluanov said that $362 billion of the sum had been already committed.

"There's around $70 billion left," Siluanov said.

He said that the so-called BRICS countries, which consist of Brazil, Russia, India, China and South Africa, would have figures ready by the June summit of the Group of 20 advanced and emerging economies that will take place in Los Cabos, Mexico.

The IMF traditionally has provided aid to struggling emerging market nations, but the euro-zone debt crisis has made big industrial economies a new focus. Emerging economies, which have been pressing for a greater say at the IMF, joined in pledging additional funds.

A central issue for winning support from the emerging markets has been the G20 assurance that their voting power in the IMF, known as quotas, will be increased, giving the nations a greater clout at the Fund.

The G20 communique issued on Friday reaffirmed that members would redistribute IMF power by the October meeting.

Russia downplayed the issue of the quota reform as a precondition for the country's contribution to the IMF, but said the new quota distribution formula should be clear and understandable.

"We proposed that the emphasis in the calculation of quotas is based on two main indicators, the size of gross domestic product of each country and the volume of their gold and foreign exchange reserves," Siluanov said.

If those conditions were accepted, Russia's say at the IMF would increase considerably, as the country holds the world's third largest amount of forex reserves, standing at $516.7 billion.

Siluanov said that some BRICS countries spoke only of the need to increase the share of GDP in the quota formula.

"Several countries spoke of the need to continue dialogue on this issue," he said.

"Some countries that already have quotas are not interested in refining them and, naturally, prefer to keep the existing formulas, without making changes."

G20 Doubles IMF's War Chest 'Amid Fears on Europe'

April 21, 2012

Reuters - Leading world economies on Friday pledged $430 billion in new funding for the International Monetary Fund, more than doubling its lending power in a bid to protect the global economy from the euro-zone debt crisis.

The promised funds from the Group of 20 advanced and emerging economies aim to ensure the IMF can respond decisively should the debt problems that have engulfed three euro zone countries spread and threaten a fragile global recovery.

"This is extremely important, necessary, an expression of collective resolve," IMF Managing Director Christine Lagarde said. "Given the increase that has just taken place, we are north of a trillion dollars actually. So I was a bit mesmerized by the amount."

The $1 trillion figure includes both the IMF's existing and newly won resources, as well as loans already committed.

The IMF would be able to use its increased firepower to help any country or region in need. But Europe's crisis was the driving force behind the push for more funds, though officials and investors alike said it merely buys time for Europe to undertake more economic reforms.

Greece, Ireland and Portugal have already received bailouts. Investors now are worried that Italy and Spain, the euro zone's third and fourth biggest economies, will fail to bring down their debt burdens quickly enough to satisfy financial markets and be forced to follow the same path.

The IMF traditionally has provided aid to struggling emerging market nations, but the euro zone debt crisis has made big industrial economies a new focus. And emerging economies, which have been pressing for a greater say at the IMF, joined in pledging additional funds.

In a central bank statement, China said it "will not be absent from the table" of increasing funds for the IMF, but it did not specify any amount.

GRAVEST ECONOMIC THREAT

Worries about the debt crisis have dominated talks among finance officials in Washington this week for the semi-annual meetings of the IMF and the World Bank, with Spain facing special scrutiny.

The IMF has warned the crisis presents the gravest risk to global economic expansion, though the G20 said in its statement that the threat of a major blowup has started to recede. The IMF estimated in January it would need $600 billion in fresh funds, but Lagarde lowered that figure to $400 billion, saying actions Europe had taken to quell the crisis had cut the risk.

In foreign currency markets, investors welcomed the G20 move, giving a boost to the euro, which has enjoyed its best week since February.

But in a sign investors lack confidence that a big IMF war chest can draw a line under the region's problems, both Spanish and Italian bonds faced pressure on Friday. The yield on Spain's 10-year bond topped 6 percent before retreating..

David Keeble, global head of interest rate strategy at Credit Agricole Corp., said the expansion of the IMF's coffers was only a start in resolving the euro zone crisis.

"The $430 billion is a nice enough size. I'm guessing that they'll get a few billion more, although the market will no doubt come to the conclusion that no number is big enough," he said.

Indeed, IMF officials said the new funds would only buy time for Europe to continue difficult economic reforms. Tensions over whether European countries are sufficiently committed to making deep and painful cuts to their budget deficits or whether European Union policymakers have dug deeply enough into their own pockets have plagued G20 talks over financial resources.

Lagarde defended Europe's actions to date, saying its package of fiscal, financial and monetary measures taken in recent months were "sufficient." However, the head of the IMF's steering committee, the Singapore finance minister Tharman Shanmugaratnam, was more cautious.

"Whether Europe has done enough to build up its firewall depends really on its reforms," he said, speaking alongside Lagarde. "If its reforms lose credibility, if its reforms lose momentum, then quite frankly the firewall is not enough. So it depends entirely on the commitment to reform."

Not all G20 members were committing new funds.

The United States has said it has already done enough by providing dollar liquidity for European banks and Canada has said Europe needs to do more to erect a financial firewall, although it did not close the door completely.

"Circumstances could change," Canadian Finance Minister Jim Flaherty said.

EMERGING MARKETS

Emerging markets won assurances from their G20 partners that their growing economic clout would be rewarded over time with greater voting power in the IMF, known as quotas - an issue that was central to winning their support.

"We conditioned the money to the completion of the IMF's quota reform so that emerging countries have larger representation - that was accepted," Brazilian Finance Minister Guido Mantega said after the G20 meeting.

While the BRICS group of leading emerging nations - which also includes Russia, India, China and South Africa - have agreed to provide more money, the exact amount each country will chip in was not announced. The issue now goes to the G20 leaders' summit in Los Cabos, Mexico, in June.

The BRICS countries are especially frustrated that the United States is stalling over implementing a 2010 voting reform deal, which would reduce Europe's dominance on the IMF board and give China the No. 3 position. Danish Finance Minister Margrethe Vestage said the European Union would go ahead and give up two IMF board seats later this year as planned.

The G20 communique reaffirmed members would redistribute IMF power by the October meeting, and stick to plans to revisit voting shares next year. This action would recognize that the world economy has changed substantially in view of strong growth in dynamic emerging markets, the communique said, meaning that emerging economies should have greater clout at the IMF.

IMF's Bid for Funds Just Part of Europe's Struggle

April 20, 2012

AP - When the International Monetary Fund meets this weekend, its top goal will be as simple as it is difficult: Get member nations to pledge many more billions in aid — in case the IMF needs to rescue more European economies. Yet even success would hardly inspire confidence in Europe's economy. It is, by all accounts, already in recession. And slowing economies elsewhere — from China to Brazil to India — may reduce the exports the continent needs to grow. European nations need faster growth to help lighten their debt loads.

All that is out of the IMF's control — whether or not it receives pledges of further aid this weekend.

"The extra IMF resources will serve as a backstop that will provide reassurance to financial markets," said David Wyss, former chief economist at Standard & Poor's. "But it doesn't address the issue of how you get growth started in countries that are in deep recessions."

What makes stronger growth so hard to achieve is that Europe's most troubled economies are under orders to cut — not boost — spending. That's part of the fiscal austerity deal under which many European Union members must curb spending to help combat the continent's debt crisis.

The IMF's policy meetings Saturday in Washington will focus on the more immediate task of raising more money. Its sister lending agency, the World Bank, will also hold policy meetings.

Before they do, finance ministers and central bank governors of the Group of 20 nations meet Friday to discuss Europe's debt crisis. The G-20 comprises traditional economic powers such as the United States, Germany and Japan and faster-growing emerging nations such as China, Brazil and India.

The IMF's managing director, Christine Lagarde, has scaled back her target for how much more aid the IMF needs member countries to contribute. The 188-nation IMF already has about $385 billion it can lend to troubled countries. In January, Lagarde had mentioned seeking up to $500 billion more in commitments.

Last week, she said less money might be needed because of stronger global growth. She didn't specify a figure. But she said Thursday that she's received about $320 billion in pledges and is seeking more.

Japan said this week it's prepared to contribute $60 billion. And three European countries that don't use the euro — Denmark, Norway and Sweden — pledged a combined $26 billion. The 17 euro countries already said in December that they would send an extra €150 billion ($200 billion) to the Washington-based fund.

Pressure on the IMF to support the most ailing economies could escalate. Investors are demanding higher interest rates to buy Spanish and Italian debt. Those increased borrowing costs for Spain and Italy have renewed fears that Europe's crisis could worsen after weeks of relative calm.

The United States has declined to provide more funding for the IMF. Congress would likely resist it. And the administration wants Europe to provide most of the additional lending resources.

U.S. Treasury Secretary Timothy Geithner noted this week that the Federal Reserve and other central banks have made it easier for European banks to get U.S. dollars to provide loans. Many banks lend in dollars because so much trade and investment is denominated in the U.S. currency.

"Europe is a rich continent," Geithner said at the Brookings Institution. "It has to play the dominant financial role."

But Geithner also said Europe must strike the right balance "between growth and austerity." Countries squeezed by debt must avoid cutting spending so much that it stifles growth, Geithner said. Slower growth would shrink tax revenue and worsen deficits, he said.

That point was sounded by the IMF in its latest World Economic Outlook. It forecast that the global economy will grow 3.5 percent this year, down from 3.9 percent last year.

The IMF warned of an even worse outcome if Europe can't defuse its debt crisis. It said global growth could drop 2 percentage points if Europe's problems escalate.

"Things have quieted down ... but an uneasy calm remains," said Olivier Blanchard, the IMF's chief economist. "One has the feeling that any moment, things could well get very bad again."

Europe's overall economy is expected to shrink 0.3 percent this year, according to the IMF forecast, before growing an anemic 0.9 percent next year.

Still, sharp differences divide the nations. Thanks to exports of cars and machinery to the United States and Asia, for example, Germany's economy is picking up. Low unemployment (5.7 percent) has given Germans money to spend.

By contrast, output in Spain and Italy is slumping as their governments cut spending to ease debt loads. Three smaller nations — Greece, Ireland and Portugal — are worse off. They're able to pay their debts only because they received bailout loans.

The most effective way for them to shrink their debts is to grow faster. But the usual tools to fuel production and hiring — cutting interest rates and boosting spending — are unlikely.

The European Central Bank won't cut rates from their record low of 1 percent. Inflation is 2.7 percent, above the central bank's goal of just under 2 percent. Rate cuts might help revive weak economies by making borrowing cheaper. But they could also ignite inflation.

In the meantime, governments are being caught between the need to cut deficits and the need to grow. The 17 nations that use the euro have backed a treaty that limits their budget deficits. Analysts say that the push for austerity has led to slower output and higher unemployment in the most struggling countries.

Italy's economy is expected to shrink 1.9 percent this year, according to the IMF's forecast. Spain's economy shrank 0.3 percent in the fourth quarter. Spain's unemployment rate is 23.6 percent. For those under 25, it's 50 percent.

Spain's latest austerity budget lops €27 billion ($35 billion) off spending this year and raises corporate taxes. Pay for civil servants is frozen. Government departments must cut spending by an average 17 percent.

Governments likely have to improve their financial health to persuade bond investors to lend enough to roll over debt loads. Otherwise, high interest rates could force governments to seek bailouts to avoid disastrous defaults.

Greece, Portugal and Ireland have already needed such bailouts. Some fear Spain could be next. Italy is considered too big to rescue.

Spanish bond rates topped 6 percent this week, raising fears that they might near the 7 percent level that's forced some countries to receive bailouts.

The three bailed-out countries are still suffering. Greece must make deep cuts under the terms of its bailout loans. Yet it's in the fifth year of a severe recession, with 21 percent unemployment.