LOS CABOS (Mexico): Led by China, emerging economies pledged huge sums to the International Monetary Fund’s global firewall yesterday, helping it raise US$456 billion in resources as the eurozone crisis rages.
In a clear statement of their new force in the world economy, rising economic powers brought some US$95.5 billion in new money to the table for the IMF during the G20 summit in Mexico, pushing it beyond its US$430 billion target.
But the money also came with a warning that things had to change at the Fund, long dominated by the now troubled economic powers of Europe and the United States, which itself has not contributed to the firewall.
In an announcement late yesterday, the IMF said China was offering US$43 billion, Brazil, Russia, India and Mexico US$10 billion each, US$5 billion from Turkey, and smaller sums from a handful of other up-and-coming economies.
IMF managing director Christine Lagarde said that 12 more countries have offered money to the fund, bringing the total to 37.
The contributions show “the broad commitment of the membership to ensure the IMF has access to adequate resources to carry out its mandate in the interests of global financial stability,” she said.
“Countries large and small have rallied to our call for action, and more may join. I salute them and their commitment to multilateralism,” she added.
The announcement brought an end to the mystery of how much the powerful BRICS countries – Brazil, Russia, India, China and South Africa – would provide.
They held back two months ago when the IMF solicited commitments at its spring meetings in Washington and only gathered a firm US$340 billion.
That was well below the US$500 billion the Fund’s own economists had said would be an adequate expansion of its crisis intervention funding, given the potential of more contagion in the troubled eurozone.
China’s contribution was the most keenly awaited. The world’s second largest economy has the largest pile of foreign reserves, US$3.2 trillion.
Its contribution fell below only Japan’s US$60 billion and German’s US$54.7 billion, but was ahead of France and all other donors.
The largest economy, the United States, on the other hand is not contributing, despite its huge voting power on the IMF board.
While Washington has insisted Europe has enough resources to resolve its problems itself, it is also clear that the deeply divided Congress is in no mood, given the US economic problems, to contribute rescue funds for others.
The contributions from the BRICS came with warnings that they want to see changes at the IMF, where their voting power is a fraction of their power in the global economy, and that the mony should not be reserved for Europe.
Meeting on the sidelines of the Group of 20 summit in the Mexican resort, the five BRICS leaders renewed their call for a greater say at the IMF and World Bank, both historically dominated by the United States and Europe.
“These new contributions are being made in anticipation that all the reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares,” they said.
They also said the new funding would be tapped only after the IMF’s existing pool of resources – US$380 billion – is used.
“This would promote adequate burden sharing amongst IMF creditors,” they said, in an apparent dig at Washington for its non-participation in the new fund-raising.
But all are also concerned that, unstopped, the eurozone crisis could do much more damage to their own economies.
“There is concern that the firewall available may not be adequate to deal with contagion,” said Indian Prime Minister Manmohan Singh.
“The global economic situation is deeply worrying. Economic recovery is faltering and even fast growing emerging markets are slowing down,” he said.