The International Monetary Fund considers raising its lending capacity by $500 billion with the aim to insulate the global economy against any further negative developments in the Europe’s debt crisis.
The organisation 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. 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 IMF 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 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.
