The International Monetary Fund said Wednesday it would seek up to $500 billion in new financial firepower as the European debt crisis increasingly threatens the global economy.
With several European countries veering on recession and Greece on the brink of default, the IMF said it lacks the resources to be the planet’s lender of last resort.
“Based on staff’s estimate of global potential financing needs of about $1 trillion in the coming years, the Fund would aim to raise up to $500 billion in additional lending resources,” it said in a statement.
The IMF said the $500 billion includes the recent European commitment to add about $200 billion to its resources.
“At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations with the Fund’s membership have been completed,” the 187-nation institution said.
The United States, the biggest stakeholder in the IMF, reiterated that it would not ask Congress to boost the IMF’s war chest.
“We continue to believe that the IMF can play an important role in Europe, but only as a supplement to Europe’s own efforts,” Treasury spokeswoman Kara Alaimo said in an email to AFP.
“Europe has the capacity to solve its problems. The IMF cannot substitute for a robust euro area firewall,” she said.
“We have told our international partners that we have no intention to seek additional resources for the IMF.”
The IMF funding statement followed an executive board meeting Tuesday to discuss the adequacy of its resources − currently about $385 billion in available funds.
IMF managing director Christine Lagarde said Tuesday that the discussion was held at the request of the membership and the “general support” of the Group of 20 major economies.
Lagarde said the board had recognized the importance of making sure the Fund had enough resources “to help defuse the current global economic weaknesses and regional challenges.”
“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 from spillovers,” she said.
Prodded last year by the Group of 20 major economies to increase the money it has for intervening in financial crises, the IMF has been exploring informally the issue for months.
Eurozone leaders pledged in December to provide the IMF with bilateral loans worth 150 billion euros ($192 billion).
A handful of European Union countries outside the 17-nation eurozone − Czech Republic, Denmark, Poland and Sweden − were also expected to offer funding.
Britain, another non-eurozone member, has said it would consider an IMF request but would demand that the funds be used to help member countries in trouble, and not expressly to save the euro.
There has been widespread speculation that the IMF will try to raise the bulk of the funds from the emerging-market powers, notably Brazil, China, India and Russia.
The IMF’s funding call came amid increasing signs the global economy is slowing sharply, mainly because of Europe’s financial turmoil, which has seen Greece, Ireland and Portugal take IMF-EU bailouts and rocked other economies in the single-currency region.
The World Bank slashed its global economic growth forecasts Tuesday and warned that rich nations’ debt problems may yet reap a crisis that would eclipse the tumult of 2008.
High-income countries cannot count on the willingness of markets to finance their deficits and maturing debt, the World Bank warned in its twice-yearly Global Economic Prospects report.
If shunned by the markets, a much wider financial crisis could sweep private banks and financial institutions on both sides of the Atlantic.
“The world could be thrown in a recession as large or even larger than that of 2008/09.”
The IMF has signaled it will also lower its global economic forecasts in an update on Jan. 24.