By Simon Miller
The International Monetary Fund (IMF) has boosted its fighting fund by $95.5bn (£60.9bn), bringing the total to $456bn, after 12 more nations came on board including the powerful BRICS countries.
In April, the IMF originally targeted $430bn to deal with the effects of the eurozone crisis on the global economy but fell short at around $360bn after the BRICS countries refused to pledge funding.
However, at the G20 summit in Mexico, BRICS leaders “agreed to enhance their won contributions to the IMF” by $95.5bn, however, the US still refuses to pledge assistance pointing out that Europe has enough resources itself as well as noting that the political atmosphere in Congress would make it unlikely that it would be able to contribute anyway.
In a statement, IMF chief Christine Lagarde commented: "Countries large and small have rallied to our call for action, and more may join. I salute them and their commitment to multilateralism. As a result, total pledges have risen to $456bn, almost doubling our lending capacity.
"With today's announcements by an additional 12 countries, a total of 37 IMF member countries... have joined this collective effort, demonstrating 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."
Meanwhile, an IMF paper has also called on measures to restore competitiveness and growth in Europe.
In Fostering Growth in Europe Now the Fund said that reforms on the supply and demand side as well as structural reforms pan-Europe were needed.
In addition, the paper said the current economic slack and cyclical headwinds argued for a “more supportive approach”.
“It is important that this point not be dismissed as yet another call for stimulus. Rather, it is consistent with fiscal consolidation proceeding rapidly where market pressures are severe, and gradually elsewhere, allowing automatic stabilizers to work, and for the composition of adjustment to be as growth-friendly as possible,” the paper noted.
It continued: “While the fiscal compact is therefore an essential pillar of the growth strategy, consideration should be given to substituting the current pro-cyclical nominal targets with structural balance objectives. Monetary policy should also remain supportive.”
The paper also said relative prices in Southern Europe needed to fall vis-a-vis the North. In addition, the South needs nominal wage restraint with the North letting wages rise in line with productivity and market developments to bridge the uneven spread of demand across Europe.
It also noted that restoring the health of the financial system was also critical to buttressing demand.
As the region’s economies relied heavily on bank credit, bank and corporate restructuring, including through FDI, should be actively encouraged.
“Bank recapitalization should be promoted, with public back-stops where needed. Capital injection from centralized resource pools involving due control over the recapitalized institutions would help prevent adding to the strains on public finances where debt ratios are already on elevated trajectories. Over time banks receiving centralized support should be overseen by a pan-European regulation and supervision system, bridging to the long-run euro area architecture”, the paper said.
IMF fighting fun pledges:
Saudi Arabia $15bn
South Korea $15bn
Sweden At least $10bn
Czech Republic $2bn
South Africa $2bn
New Zealand $1bn