Boosted IMF riding to the rescue?
The G20 leaders plus hangers-on are currently discussing a massive boost to the IMF’s lending resources as a back-stop confidence-building measure for markets nervous about just which economy will come close to default next. The hope is that the firepower of the IMF – currently $380B but expect a much bigger figure if this plan comes off- will reassure markets, even if the EFSF is a work in progress.
Effectively, the G20, after morphing into a Eurozone summit, has now morphed into an IMF shareholders’ meeting. There are 53 IMF programmes in the world at the moment of which 3 are currently in the Eurozone – Ireland, Portugal and Greece (Poland also has a “flexible credit line”). Clearly the intention – carefully unstated – is to have bail-out power available in Washington if the Eurozone’s bail-out flops.
The UK position is that we still wish all speed and success to the EFSF and this is in addition. But the Indians and the Chinese have been clearly wary about putting money in the EFSF so this is a way of harnessing their good credit to get confidence in the market using a body (the IMF) with more credibility than the Eurozone’s week old “bazooka.”
Boosting IMF resources has been promised before at global gatherings and not delivered on. Britain is good for 4% of IMF loans so some will say this is a backdoor way of Britain bailing out the Eurozone. But no-one has yet lost money on an IMF loan, the British sources over here are keen to point out.
The Prime Minister, who is a big fan of this idea, has just said this lunchtime: “there is no risk to British taxpayers” from (enhanced) IMF exposure. Well, it is true that the tranche of money attached to creditors like the UK at the IMF is a kind of funny money – you don’t hand over gold reserves to sit in the IMF safe. You don’t issue UK government debt to enable it. But you do say what you’re “good for” guaranteeing (increasing that exposure is a kind of global money printing). If someone defaults on an IMF loan you do have to stump up. We do keep being told these are very different stormy times. So some will worry that the past (no-one losing out as an IMF creditor) is not necessarily a guide to the future. That is one reason why, as yet, only 25% of IMF creditor countries who promised to increase their exposure at the IMF in the course of 2008-10 have actually ratified those past promised boosts to the IMF lending power. And if the main debtor countries helped by all this are the Eurozone biggies, Spain, Italy, even France, it might look and smell like a Eurozone bail-out even if, technically, it is a bi-lateral arrangement with countries who just happen to be members of the Eurozone.