In the midst of what some observers call “tensions” among the G-20, there continues to be a need to boost funding for the IMF to staunch the euro debt crisis.
As these leaders meet in Washington next week, their focus will be a series of proposals for countries to contribute more money to the IMF. A better funded IMF will certainly be helpful in fixing the intractable situation in the EU.
Of course, there are many caveats, not the least of which is the fact that Congressional approval is required for the US to ante up more than it already has. Further, there is a growing narrative that bankruptcy is inevitable for some of these sovereign debt nations. In particular, Portugal, Ireland, Greece and Spain may not be able to meet future payment demands while also implementing draconian austerity measures.
Against this backdrop, Reuters reports that some “emerging market countries like China, Brazil, and Russia” are willing to cough up more money in a quid pro quo for greater voting power. This has long been a hotly contested matter, as the next phase of IMF voting reforms are supposed to be completed in 2013. The end result could be that Europe’s voting share would be further diluted.
Meanwhile, U.S. officials rightly argue that they have taken a number of steps to help the EU. One of those is the recent agreement with other central bankers to provide swap lines to the European Central Bank to ease dollar-funding strains among European institutions. But officials acknowledge that “not having Washington’s participation had changed the dynamic of the fund raising effort.”
Of course, this is so because the United States is the largest IMF shareholder and its leadership is often sought on such issues. In this regard, there are frustrations with U.S. delays, but “many countries understand the tough political environment the Obama administration faces,” says Reuters.
The fact remains that the IMF needs about $600 billion in new resources. However, earlier this week, IMF Managing Director Christine Lagarde reportedly that said the global fund “might not need as much money as it had thought because economic risks had waned.”
G-20 leaders believe the world’s major economies are likely to agree to provide the IMF with somewhere between $400 billion and $500 billion.
According to Domenico Lombardi, a senior fellow at the Brookings Institution, the emerging economies were using the IMF’s plea for more money as “leverage” to gain voting power.
“This is a very political game,” he said. “What emerging economies are saying is that even if the 2010 reform package is not approved, at least you have to be more lenient and concede more on the quota formula discussion.”
In the final analysis, the US will not stand by to help this power play even if our EU partners lose ground. But then, the sovereign debt mess is ultimately one that they need to clean up.
Kyle Colona is a New York based freelance writer and a Feature Writer for the Compliance Exchange. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications.