IMF wants $400 bln more funding

FRANKFURT - Agence France-Presse

International Monetary Fund Managing Director Christine Lagarde speaks at the Brookings Institution in Washington DC on April 12. Lagarde says she is worried about the state of Spanish banks, as markets turn their attention towards the Mediterranean country.

The head of the International Monetary Fund called yesterday for members to lend more than $400 billion to the global lending body, ahead of a crunch meeting to debate crisis financing.

Asked by German daily Frankfurter Allgemeine Zeitung how much the Fund needed in additional firepower should other eurozone countries require a bailout, Christine Lagarde said: “400 billion dollars plus” (305 billion euros).

“My hope is that we will get a critical mass this week,” added Lagarde in comments published in German.

She had previously called for an additional 500 billion dollars to boost the Fund’s war chest in case more debt-ridden eurozone states fall victim to the crisis.

At a meeting of finance ministers and central bank chiefs from the IMF in Washington starting April 20, officials will discuss the extra financing the Fund needs to combat the debt crisis.

The eurozone had appealed to the IMF to bolster its financial firewall against the crisis but emerging economies and the United States demanded the 17-nation bloc first puts its hand in its own pocket.
After a month of wrangling and some German resistance, the eurozone last month clinched a deal it claimed was worth more than 1 trillion dollars, even though 300 billion euros of that was in loans already pledged.
 
In other comments to the German daily, Lagarde said she was worried about the state of Spanish banks, as markets turn their attention towards Spain, pushing up their borrowing costs to near unsustainable levels.

“What worries me most is that Spanish and European bank regulators are concerned that Spanish banks have sufficient capital, have enough of a buffer and have valued their assets appropriately,” she said.

Nevertheless, she added that investors and markets are “by nature almost always scared and worried.” While cautioning against too fast a rush towards austerity in Spain, Lagarde called for a “steady and fiscally stable effort to give enough room for budget-neutral growth impulses.” She also called on the European Central Bank to reduce its interest rates to give a boost to the struggling eurozone.

“We see very good reasons for a monetary policy loosening in economies that have inflation under control. There is room for maneuver,” she said.

Lagarde also appealed for “common fiscal responsibility” within the euro area, hinting at support for so-called eurobonds, or a pooling of borrowing.

Lagarde late on April 16 welcomed Japan’s pledge to contribute $60 billion to the global lender and urged other member states to follow Tokyo’s lead.

 “This is an important step forward” in the push to bolster efforts “to prevent and fight crises and to promote global economic stability,” Lagarde said. “I call on the broader Fund membership to follow Japan’s lead,” Lagarde said, adding that the contribution would complement the $200 billion in pledges received from the euro area, and would “enable decisive progress to be made” by the time of membership meeting this week.