WASHINGTON (AP) — An infusion of hundreds of billions of dollars will give the International Monetary Fund a badly needed boost to tackle Europe’s prolonged debt crisis. But global finance officials sent a strong message Saturday that struggling governments must speed reforms or risk spooking jittery markets and raising the economic danger.
The lending agency said in a statement after its weekend meetings that financially-strapped European countries must put in place bold changes to resolve their debt problems. The IMF received $430 billion in pledges from individual countries, nearly doubling the agency’s reserves available for loans to almost $1 trillion.
“It is nice to have a big umbrella,” Managing Director Christine Lagarde said at a news conference. She and other officials said the new money should reassure financial markets troubled recently by the prospect that Spain could come next to the IMF for emergency loans to escape a default.
The 188-nation IMF, working with European governments, has provided rescue programs already for Greece, Portugal and Ireland. Spain, however, is much bigger economy and would require much more financial assistance were it unable to sell its government debt to private investors.
The IMF’s policy committee’s statement said it was important for European countries to commit to bold reforms and put them into practice.
Europe’s problems dominated the discussions of finance officials who assembled in Washington for the spring meetings of the IMF and the World Bank. Those gatherings were preceded by talks among the Group of 20 major economic powers; the G-20 includes traditional economic powers such as the United States and Germany and developing nations including China and Brazil.
In past years, thousands of demonstrators have sometimes turned out to protest against the ills of globalization. But this year only a handful of protesters showed up. Police said they had made three arrests by Saturday afternoon.
Tharman Shanmugaratnam, Singapore’s finance minister and the chairman of the IMF’s policy-setting committee, said the IMF recognized that the world had to strike a balance between getting government budgets back under control while at the same time promoting stronger growth.
Treasury Secretary Timothy Geithner told the IMF panel that Europe needs to be more creative and aggressive in fighting its debt crisis, using all the resources at its disposal, including the European Central Bank, the lender for the 17 nations using the common euro currency.
“The success of the next phase of the crisis response will hinge on Europe’s willingness and ability … to apply its tools and processes creatively, flexibly and aggressively to support countries as they implement reforms and stay ahead of the markets,” Geithner said Saturday.
The additional $430 billion in resources was announced by Lagarde following the G-20 meeting Friday. The United States and Canada were two rich countries that did not make pledges. The United States would face problems winning support for increased support for the IMF and Canada expressed the view that Europe, as a rich continent, had sufficient resources to deal with its debt problems.
“They need to step up to the plate and overwhelm this issue with their own resources,” Canadian Finance Minister Jim Flaherty told reporters.
Lagarde said Russia, India, China and Brazil had made private pledges but did not want to make public commitments until they had conferred with officials back home. This group has pushed for the IMF to move to put in place a 2010 agreement giving fast-growing, emerging economies such as theirs more of a voice in the agency’s decision-making.
The IMF has struggled to find agreement because Europe will have to give up some of its voting power and seats on the 24-member executive board. At the moment, Europe controls eight; the expectation is that it could lose perhaps two.
Brazil, one of the developing countries that made a pledge but has not revealed the amount, has been vocal in its criticism of the IMF for allowing countries in Europe to delay resolution of the dispute over rebalancing the voting power.
Brazilian Finance Minister Guido Mantega said in his speech to the IMF committee Saturday that the resistance of some countries to the change in voting power had been “deeply damaging to this institution.”
He said that even though Brazil would rank as the third largest economy in Europe behind Germany and France, its voting power at the IMF was equivalent to the Netherlands and smaller than Spain, Italy and Britain.
Elizabeth Stuart, a spokeswoman for Oxfam, the international aid agency, said that it was critical for the IMF to resolve the disputes over voting power so that the 2010 agreement can be implemented by the IMF’s fall meeting.
“It is outrageous that a country like Luxemburg has more voting weight at the IMF than South Africa or Argentina,” she said.
Of the more than $430 billion in increased support that the IMF raised, the agency released a list of specific commitments from 12 individual nations ranging from $60 billion from Japan to $2 billion from the Czech Republic. The biggest total amount was $200 billion pledged back in December by Europe.
Italian Premier Mario Monti said Saturday in Milan that the IMF’s move to boost its resources to provide a financial backstop for Europe was a clear sign that Italy and the rest of Europe “had put its house in order.”
On the question of whether the expanded IMF resources would be enough, Monti said, “I ask myself if this will be enough. I say that this is something objectively important, but market reactions are not always predictable, and it is not wise for those who govern to make predictions.”
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Online:
International Monetary Fund: https://www.imf.org
World Bank: https://www.worldbank.org
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Associated Press writers Colleen Barry in Milan and Desmond Butler in Washington contributed to this report.
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