The International Monetary Fund won pledges of fresh cash fromJapan to Denmark in a sign it may be able to declare victory assoon as this week in its campaign for more lending resources.

Denmark, Norway and Sweden will increase their financingcontributions by a total of more than $26 billion, IMF ManagingDirector Christine Lagarde said today. Hours earlier, Japan said itwill provide $60 billion. Europe has already promised about $200billion.

The Washington-based lender is seeking to boost its lendingcapacity from around $380 billion to shield the global economyagainst any deepening of Europe's debt turmoil. Today's pledges addmomentum to Lagarde's push, which she had to scale back last weekamid demands for Europe to do more to fix its own woes and arefusal by the U.S. to chip in more money.

The new financial commitments “set the stage for decisiveprogress to be made by the time of” the IMF's spring meetings thisweek in the U.S. capital, Lagarde said in an e-mailed statement.“Ensuring that the fund has sufficient resources to tackle crisesand to promote global economic stability is in the interests of allour members.”

Denmark will give about $7 billion more, Norway carried out aDecember pledge to help by offering about $9 billion and Swedenwill provide at least $10 billion, Lagarde said.

Europe's two-year debt crisis reignited this month to addurgency to the IMF's call as Italian borrowing costs rose andSpain's 10-year bond yield approached the level at which Greece,Ireland and Portugal required bailouts. While the IMF raised itsforecast for the euro-area economy today, saying it will shrink 0.3percent this year compared with a previously estimated 0.5 percentcontraction, chief economist Olivier Blanchard said “one has thefeeling that at any moment things could well get very badagain.”

An additional $400 billion for the IMF on top of the euro-area'sagreement last month to increase its own war chest beyond thesymbolic $1 trillion mark would “clearly be enough to bail outeither Italy or Spain if one of them lost market access,” AndrewKenningham, an economist at Capital Economics Ltd. in London, saidin a report to clients.

'Not Sufficient'

“But even these resources may not be sufficient to bail out bothshould that be required, not to mention that in such a direscenario some innocent bystanders may well need IMF support,” hesaid. “More fundamentally, though, we do not think that ever-largerbailouts are a long-run solution for the euro zone's underlyingproblems.”

Japanese Finance Minister Jun Azumi said today that he wouldlike to see an early agreement among Group of 20 members, whosefinance ministers will also gather in Washington this week, on asecond increase in the IMF's war chest in three years. He said thestance of China, the world's largest holder of foreign-exchangereserves, is in the same direction as Japan's and that he hopesJapan's pledge will accelerate the commitments of others.

Azumi said that while it may not be possible to reach an overallaccord on expanding the IMF's resources in Washington, it's “fullypossible” over a longer period.

South Korean Vice Finance Minister Shin Je Yoon said it may behard to strike a deal this week given the positions of majorcountries including the U.S., Korean-language news provider YonhapInfomax reported, citing his comments at a conference in Seoul.

After the fresh pledges of cash were announced today, LaelBrainard, the U.S. Treasury Department's undersecretary forinternational affairs, reiterated the Obama administration does notplan to seek additional resources for the IMF.

“The United States will continue to support our euro-areapartners directly through central bank swap lines and indirectlythrough the core resources of the IMF,” Brainard told a briefingfor reporters in Washington.

Lagarde said last week that she would pare her request for $600billion of additional resources as threats to the global economyhad diminished. That boost was designed to enable an additional$500 billion in lending

European governments are banking on a bigger internationalsafety net to soothe markets as the effect of theircrisis-fighting, including more than 1 trillion euros in emergencyloans from the European Central Bank, show signs of fading.

While euro-area policy makers have been criticized for a slowand limited response, a German government official told reportersin Berlin today that the world must show that Europe doesn't standalone by providing the IMF with more resources.

Bloomberg News

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