IMF to Seek $1 Trillion Boost Amid Euro Crisis
The International Monetary Fund is proposing a $1 trillion expansion of its lending resources to safeguard the global economy against any worsening of Europeâ€™s debt crisis, according to an official at a Group of 20 nation.
The Washington-based lender is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors, according to the official, who spoke on condition of anonymity because the talks are private. The fund wants the agreement struck at the Feb. 25-26 meeting of G-20 finance ministers and central bankers in Mexico City, the official said.
IMF Managing Director Christine Lagarde said yesterday her staff are studying options to increase the fundâ€™s war-chest beyond the current $385 billion. While euro-region nations have already pledged to contribute 150 billion euros ($192 billion), the U.S. has said it has no plans to make new bilateral loans and G-20 leaders ended last year at odds over the issue.
I do hope they aren’t telling the Chinese, Brazilians, Indians etc that the more money they put up the less likely it is to be used. (For further clarification on what this is all about, see here)
And as if to “ready up” potential funding participants for the IMF the World Bank has issued this warning to emerging economies.
Developing countries should take steps to plan for a global economic meltdown on a par with 2008-09 if the European sovereign debt crisis escalates, the World Bank warned on Wednesday in its latest economic forecasts. Predicting significantly slower global growth in 2012 than it expected last summer even if the eurozone muddles through its crisis, World Bank economists said that if financial markets deny funds to eurozone economies, global growth would be about 4 percentage points lower than even these figures, with poorer economies far from immune.
Andrew Burns, head of macroeconomics at the Bank, told journalists in London: â€œDeveloping countries should hope for the best and prepare for the worst.â€ Stressing the importance of contingency planning, he added: â€œAn escalation of the crisis would spare no one. Developed and developing-country growth rates could fall by as much or more than in 2008-09.â€
â€œThe motor of the global economy â€“ developing nations â€“ is slower at the same time as the worldâ€™s largest economic area â€“ the EU â€“ is in recession and these could feed on each other,â€ Mr Burns said.
If such a vicious circle were to develop, developing countries would find it impossible to decouple from European woes, he added. Many would be affected by falling oil and commodity prices, remittances sent home from workers in rich countries could fall more than 5 per cent along with income in rich countries, banking systems in poor countries would be vulnerable to financing risk as many developing countries have significant short-term debt falling due in 2012 and a confidence crisis would also hit spending in rich and poor countries alike.
Edward Hugh, head of global economic strategy on Facebook said, “Threatening people with dire consequences seems to be in fashion these days. Mario Monti is telling Angela Merkel she could face a populist revolt on the periphery if she doesn’t help him, while the World Bank seem to be warning the poor countries that if they don’t go along with the IMF whipround they could become ever poorer.”