International Monetary Fund (IMF) may need additional capital worth around 350 billion dollars, to be able to tackle economic crisis, said on Friday a source from an emerging member of the G20, writes Reuters. The senior official said that any recapitalization of the IMF will not be part of anti-crisis plan that will be presented by the leaders of the euro area this month.
A second source present at the talks of finance ministers in Paris warned that the G20 states are unlikely to agree to increase the capital of the Fund, at the two-day meeting that begins Friday night. IMF considers whether it can increase borrowing capacity in case of emergency by issuing bonds or bilateral loans as part of an evaluation process to combat crisis resources mandated by the General Manager Christine Lagarde. If a country the size of Italy or Spain would need to be saved, IMF funds would be seriously affected.
However, Fund’s major shareholders, such as USA, Japan, Germany and China, may be reluctant to use an independent source of funding, which would reduce their influence. “The IMF has resources of 380 billion dollars. It has a broad capacity. Europe has substantial resources”, said this week Lael Brainard, U.S. Treasury Undersecretary of International Finance. Lagarde and employees of the IMF said that the institution’s current resources may be insufficient if the crisis in Europe worsened.
According to a study by IMF staff, in the worst scenario IMF might face with requests of 840 billion dollars. The first source said that among the options considered to combat the debt crisis are bilateral loans, special financing vehicles and purchases of securities agreements.
BRICS economies (Brazil, Russia, India, China, South Africa) favor increasing the IMF’s capital base as a means to contribute to the financial support of Greece, G20 sources said Thursday. Another source said that the IMF will present the next day a plan of short term credit lines for countries with strong economies that are facing liquidity shortages. These lines of funding could be used by countries in the euro area hit by the current sovereign debt crisis of confidence in the region.