LOS CABOS: After searching for months for cash, the IMF looks able to firm up a huge emergency “firewall” fund for crisis prevention after China said yesterday that big emerging economies would chip in.
A day before the Group of 20 powers open crucial talks on the eurozone crisis, Chinese Vice- Finance Minister Zhu Guangyao said that the International Monetary Fund would get the balance it needs to reach the US$430 billion it tentatively announced in April.
Major European and Asian governments have already pledged around US$340 billion to the bailout fund, and Zhu said: “China is confident that the IMF will realise its US$430 billion, and China will pitch in.”
“During this Los Cabos summit a specific amount will be announced,” he told reporters ahead of the G20 summit in the Mexican resort of Los Cabos.
Zhu gave no figure, but said that Mexico’s President Felipe Calderon, the current G20 leader who met with Chinese President Hu Jintao earlier yesterday, was confident of raising “over US$430 billion”.
The issue has been a point of nervousness in recent months as the eurozone situation has deteriorated, increasing the possibility that more IMF funds will be needed to help countries vulnerable to financial contagion.
The IMF said late last year that it needed more “firepower” for emergency aid. But when G20 finance ministers and central bankers met in Washington in April, the IMF pulled in just US$340 billion in firm commitments.
The euro area itself promised US$200 billion, Japan US$60 billion; Britain, South Korea and Saudi Arabia each pledged US$15 billion; and smaller amounts were offered by other European governments and Singapore.
But with the United States refusing to take part, citing domestic political difficulties, and the emerging countries coy, the initial figure was far lower than the US$500 billion the IMF had targeted, based on what its economists had said was needed to stymie any contagion.
Zhu said that the BRICS group of Brazil, Russia, India, China and South Africa would meet on Monday ahead of the start of the summit.
Other emerging economies, including Indonesia, Malaysia and Thailand, also held back on firm commitments in April.
The emerging group has been concerned about the spread of the eurozone’s trouble. But they also want to leverage their contributions as they seek greater voting power in the US and EU-dominated IMF.
Analysts said China, with some US$3.2 trillion in reserves, has to help out, but will be able to reap political benefits as a result.
“We expect China to hold out for concessions on its representation on the IMF Board before committing additional resources to the IMF that will surely be used to support Euroland,” said economist Carl Weinberg at High Frequency Economics.
Even so, the commitment comes amid nervousness about what will happen in Greece, which went to the polls for the second time in six weeks Sunday, narrowly giving an advantage to parties ready to stick to its 130 billion euro (US$165 billion) IMF-EU rescue.
Zhu repeated what Beijing has said before, that the Europeans have the resources and ability to deal with their problems themselves.
“The EU has to make up its mind to untangle this problem and to address the government indebtedness, banking indebtedness, and the relation between the two,” he said.
“We are confident that the European countries can rely on themselves to untangle their problems.”