IMF Seeks $500B Boost to Lending Resources

18.01.2012 13:48

Bloomberg: The International Monetary Fund is proposing to raise its lending capacity by $500 billion to insulate the global economy against any worsening of Europe’s debt crisis, according to a person familiar with the talks.
The Washington-based lender currently has about $385 billion available to lend and wants to lift that to $885 billion after identifying the potential for a $1 trillion global financing gap in the next two years, the person said. To incorporate a cash buffer, that means asking its membership for $600 billion.
IMF Managing Director Christine Lagarde said yesterday her staff are studying options to increase the fund’s war-chest. 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.
“The biggest challenge is to respond to the crisis in an adequate manner and many executive directors stressed the necessity and urgency of collective efforts to contain the debt crisis in the euro area and protect economies around the world,” Lagarde said yesterday in an e-mailed statement following a discussion among her institution’s board of directors.
The Washington-based lender is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors, according to a Group of 20 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.
Euro Gains
The push for more money by the IMF may extend this month’s rally in investor sentiment toward European debt markets on speculation the region is enjoying a respite from its two-year debt turmoil and that any euro-area recession may be shallow.
The euro today rose 0.5 percent to $1.2797 as of 12:32 p.m. in London.
In a sign the crisis may have longer to run, the World Bank yesterday cut its global growth forecast by the most in three years to 2.5 percent this year and said the euro area may contract 0.3 percent. Euro-area countries also need to repay 157 billion euros of maturing debt this quarter, according to UBS AG calculations.
Mexico Talks
Lagarde’s proposal is set to be discussed by G-20 deputy finance officials, scheduled to meet this week in Mexico. At a November summit in the French resort of Cannes, G-20 leaders balked at writing fresh checks for the IMF, demanding that Europe’s governments do more to fix their crisis while saying they would ensure the IMF “continues to have resources to play its systemic role.”
A U.S. official reiterated that stance last month, saying President Barack Obama’s administration won’t stump up more cash for the IMF and that a solution to the turmoil must be led by Europe.
Russia’s government won’t decide on any contribution before March presidential elections, First Deputy Prime Minister Igor Shuvalov said in an interview in Moscow today.
Greater support for the IMF also attracted controversy within Europe. Germany’s Bundesbank coupled its 41.5 billion- euro input to a promise that the aid not be earmarked for Europe. Such recycling would violate euro rules that bar central banks from financing government deficits. As a result, the euro area will lend to the IMF’s general resources, not to a special crisis fund.
Options for raising the IMF’s resources include opening a trust fund or not rolling back a 2009 increase. Officials have also discussed increasing the amount of the fund’s Special Drawing Rights.
Emerging markets may try to twin the call for help with a push to increase their clout at the IMF. Such nations, which are growing twice as fast as their developed counterparts, say that their voting power doesn’t reflect their weight in the global economy and they want to end the tradition of selecting a European to head the institution.
reporter on this story: Simon Kennedy in London

editor responsible for this story: Craig Stirling

 

Euro Rises as IMF Said to Seek $500 Billion Capacity Boost; Dollar Slides

The euro strengthened for a second day against the dollar and yen as the International Monetary Fund was said to seek a $500 billion expansion of its lending resources to safeguard the global economy.
The 17-nation currency rallied against most of its major counterparts as Greek Prime Minister Lucas Papademos prepared to resume negotiations with bondholders. The dollar fell against the euro and yen on reduced demand for a refuge before a U.S. report forecast to show a gain in industrial production. The pound fell against the euro as Britain’s unemployment rose.
“The news that the IMF will probably get more money and could increase its lending capacity is one factor supporting the euro,” said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “Short-term risk sentiment seems to be improving.”
The euro appreciated 0.5 percent to $1.2794 at 7:29 a.m. New York time, after rising 0.5 percent yesterday. Europe’s shared currency climbed 0.5 percent to 98.29 yen. The dollar was unchanged at 76.83 yen.
The Dollar Index (IDX), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.3 percent to 80.869.
Industrial production in the U.S. increased 0.5 percent in December after a 0.2 percent drop in the previous month, according to the median forecast in a Bloomberg News survey before today’s Federal Reserve report.
Housing Outlook
The National Association of Home Builders/Wells Fargo index of builder confidence climbed this month to 22, the highest level since May 2010, a separate survey showed.
“There’s more positive data coming out of the U.S,” said Gavin Friend, a markets strategist at National Australia Bank in London. “The market is in a more optimistic mood,” which is boosting the euro and weakening the dollar, he said.
Sterling dropped for a second day against the euro and Swiss franc as data showed the U.K.’s unemployment rate rose to 8.4 percent in the quarter through November, the highest since January 1996.
The pound depreciated 0.3 percent to 83.31 pence per euro and slid 0.3 percent to 1.4519 Swiss francs. Sterling climbed 0.2 percent to $1.5372.
The euro rallied versus the dollar and yen as a person familiar with the discussions said the IMF is proposing to raise its lending capacity by $500 billion to insulate the global economy against any worsening of Europe’s debt crisis.
IMF Capacity
The Washington-based IMF currently has $385 billion available and wants to lift that to $885 billion after identifying the potential for a $1 trillion global financing gap in the next two years, the person said.
Greece will resume talks today with the Institute of International Finance, which represents private creditors. The Washington based IIF broke off negotiations last week after failing to agree with the government about how much money investors will lose by swapping their bonds.
The Greek government is close to a deal with bondholders that would give them cash and securities with a market value of about 32 cents per euro of debt, according to Bruce Richards, chief executive officer of New York-based Marathon Asset Management LP, who is on the committee of 32 creditors.
“I’m highly confident the deal will get done,” Richards said in a telephone interview yesterday with Bloomberg Businessweek.
Euro’s Decline
The euro weakened 4 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes. The yen rose 8.1 percent in the best performance among 10 developed nations. The dollar strengthened 6.4 percent.
Futures traders last week increased bets to a record that the euro will decline against the dollar. The difference between wagers that the shared currency will fall versus those that it will rise -- so-called net shorts -- surged to 155,195 in the week ended Jan. 10, data from the Commodity Futures Trading Commission showed on Jan. 13.
“Only expectations are supporting the euro, including one that Greece’s debt-swap deal will be settled somehow,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin trading services.
reporter on this story: Emma Charlton in London
editor responsible for this story: Dave Liedtka