Worries grow over IMF loans to Europe

Sat Dec 10, 2011 7:26am EST
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By Lesley Wroughton

WASHINGTON (Reuters) - The prospect of European heavyweights like Italy or Spain turning to the IMF for rescue loans is worrying the United States and other nations that fear they could suffer losses on funds they have extended to the IMF.

The International Monetary Fund cannot be expected to step in as a substitute for a stronger commitment by Europe which needs to assume the brunt of any losses on emergency loans, a senior US official said on Friday.

Despite the International Monetary Fund's stable record - no borrower has ever defaulted on an IMF loan and no country has ever lost money lending to the IMF - there are concerns about the IMF's growing exposure to the euro zone.

That exposure could take a quantum leap if Italy and Spain need bailouts, a level of assistance that would almost certainly dwarf the loans already approved for Greece, Ireland and Portugal in deals engineered with the European Union.

Emerging markets, which are contemplating lending more money to the IMF -- which couples monetary assistance with tough conditions that seek to ensure a country does not default -- have also raised concerns in the IMF about the risks to the fund's capital, officials from emerging nations told Reuters.

A crucial European Union summit ended on Friday with a historic agreement to draft a new treaty for deeper integration in the euro zone in an effort to rein in a debt crisis that started in Greece two years ago and has continued to spread.

Worries about the IMF's risk are also brewing among congressional lawmakers.

Four U.S. lawmakers who met with IMF chief Christine Lagarde this week expressed unease over the risk the fund would take on with a bigger role in Europe.   Continued...