G20 doubles IMF's war chest amid fears on Europe

Fri Apr 20, 2012 7:53pm EDT
 
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By Lesley Wroughton and Jan Strupczewski

WASHINGTON (Reuters) - Leading world economies on Friday pledged $430 billion in new funding for the International Monetary Fund, more than doubling its lending power in a bid to protect the global economy from the euro-zone debt crisis.

The promised funds from the Group of 20 advanced and emerging economies aim to ensure the IMF can respond decisively should the debt problems that have engulfed three euro zone countries spread and threaten a fragile global recovery.

"This is extremely important, necessary, an expression of collective resolve," IMF Managing Director Christine Lagarde said. "Given the increase that has just taken place, we are north of a trillion dollars actually. So I was a bit mesmerized by the amount."

The $1 trillion figure includes both the IMF's existing and newly won resources, as well as loans already committed.

The IMF would be able to use its increased firepower to help any country or region in need. But Europe's crisis was the driving force behind the push for more funds, though officials and investors alike said it merely buys time for Europe to undertake more economic reforms.

Greece, Ireland and Portugal have already received bailouts. Investors now are worried that Italy and Spain, the euro zone's third and fourth biggest economies, will fail to bring down their debt burdens quickly enough to satisfy financial markets and be forced to follow the same path.

The IMF traditionally has provided aid to struggling emerging market nations, but the euro zone debt crisis has made big industrial economies a new focus. And emerging economies, which have been pressing for a greater say at the IMF, joined in pledging additional funds.

GRAVEST ECONOMIC THREAET   Continued...

 
(From L-R) Brazil's President Dilma Rousseff, Russian President Dmitry Medvedev, Indian Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma join their hands together during a group photo for the BRICS Summit in New Delhi March 29, 2012. REUTERS/B Mathur