The International Monetary Fund won pledges of fresh cash from Japan to Denmark in a sign it may be able to declare victory as soon as this week in its campaign for more lending resources.
Denmark, Norway and Sweden will increase their financing contributions by a total of more than $26 billion, IMF Managing Director Christine Lagarde said today. Hours earlier, Japan said it will provide $60 billion. Europe has already promised about $200 billion.
The Washington-based lender is seeking to boost its lending capacity from around $380 billion to shield the global economy against any deepening of Europe’s debt turmoil. Today’s pledges add momentum to Lagarde’s push, which she had to scale back last week amid demands for Europe to do more to fix its own woes and a refusal by the U.S. to chip in more money.
The new financial commitments “set the stage for decisive progress to be made by the time of” the IMF’s spring meetings this week in the U.S. capital, Lagarde said in an e-mailed statement. “Ensuring that the fund has sufficient resources to tackle crises and to promote global economic stability is in the interests of all our members.”
Denmark will give about $7 billion more, Norway carried out a December pledge to help by offering about $9 billion and Sweden will provide at least $10 billion, Lagarde said.
Europe’s two-year debt crisis reignited this month to add urgency to the IMF’s call as Italian borrowing costs rose and Spain’s 10-year bond yield approached the level at which Greece, Ireland and Portugal required bailouts. While the IMF raised its forecast for the euro-area economy today, saying it will shrink 0.3 percent this year compared with a previously estimated 0.5 percent contraction, chief economist Olivier Blanchard said “one has the feeling that at any moment things could well get very bad again.”
An additional $400 billion for the IMF on top of the euro-area’s agreement last month to increase its own war chest beyond the symbolic $1 trillion mark would “clearly be enough to bail out either Italy or Spain if one of them lost market access,” Andrew Kenningham, an economist at Capital Economics Ltd. in London, said in a report to clients.
“But even these resources may not be sufficient to bail out both should that be required, not to mention that in such a dire scenario some innocent bystanders may well need IMF support,” he said. “More fundamentally, though, we do not think that ever-larger bailouts are a long-run solution for the euro zone’s underlying problems.”
Japanese Finance Minister Jun Azumi said today that he would like to see an early agreement among Group of 20 members, whose finance ministers will also gather in Washington this week, on a second increase in the IMF’s war chest in three years. He said the stance of China, the world’s largest holder of foreign-exchange reserves, is in the same direction as Japan’s and that he hopes Japan’s pledge will accelerate the commitments of others.
Azumi said that while it may not be possible to reach an overall accord on expanding the IMF’s resources in Washington, it’s “fully possible” over a longer period.
South Korean Vice Finance Minister Shin Je Yoon said it may be hard to strike a deal this week given the positions of major countries including the U.S., Korean-language news provider Yonhap Infomax reported, citing his comments at a conference in Seoul.
After the fresh pledges of cash were announced today, Lael Brainard, the U.S. Treasury Department’s undersecretary for international affairs, reiterated the Obama administration does not plan to seek additional resources for the IMF.
“The United States will continue to support our euro-area partners directly through central bank swap lines and indirectly through the core resources of the IMF,” Brainard told a briefing for reporters in Washington.
Lagarde said last week that she would pare her request for $600 billion of additional resources as threats to the global economy had diminished. That boost was designed to enable an additional $500 billion in lending
European governments are banking on a bigger international safety net to soothe markets as the effect of their crisis-fighting, including more than 1 trillion euros in emergency loans from the European Central Bank, show signs of fading.
While euro-area policy makers have been criticized for a slow and limited response, a German government official told reporters in Berlin today that the world must show that Europe doesn’t stand alone by providing the IMF with more resources.