October 14, 2011 / 1:27 PM / in 6 years

IMF needs around $350 billion more capital: G20 source

PARIS (Reuters) - The International Monetary Fund may need a capital injection of about $350 billion to give it more firepower to fight economic crises, an emerging market G20 source said on Friday.

The senior delegation source said that any recapitalization would not be part of a plan the euro zone aims to present later this month to stem its deepening debt crisis.

A second source at the G20 finance chiefs’ talks in Paris cautioned that there was little chance of an agreement on any capital increase being agreed at their two-day meeting.

The IMF is weighing whether it could expand its rescue lending capacity through debt issuance or bilateral borrowing as part of a review of its crisis-fighting resources mandated by the lender’s managing director, Christine Lagarde.

Should a country the size of Italy or Spain need rescuing, the IMF’s funds could be severely strained.

But the IMF’s dominant shareholders, including the United States, Japan, Germany and China, would likely be wary of a new independent funding source that could dilute their influence.

“The IMF has $380 billion worth of resources. It has ample capacity. The issue I think at hand, first and foremost (is that) Europe has substantial resources, Europe has substantial capacity,” Lael Brainard, Treasury Under Secretary for International Finance, said this week.

Lagarde and the IMF staff have said the Fund’s existing resources could prove woefully inadequate if Europe’s crisis gets worse. A staff study obtained by Reuters suggested that the IMF may face demands for $840 billion in a “worst-case” scenario.

IMF officials have floated unconventional ideas. Earlier this month, IMF Europe chief Antonio Borges suggested setting up a special-purpose vehicle to buy Spanish or Italian bonds alongside the euro zone bailout fund, but he quickly backed away from the suggestion.

Such a move would require a change in the fund’s legal structure -- and alternative funding sources -- and nothing has been discussed with members, Borges said. Still, the IMF has used special purpose vehicles in the past.

The G20 emerging market source told Reuters that options under consideration to help in fighting the debt crisis included bilateral loans, special purpose vehicles and note purchase agreements.

Most BRICS economies favor bolstering the capital base of the International Monetary Fund as a way to contribute to a financial rescue for Greece, G20 sources told Reuters in Paris on Thursday.

Another source said the IMF would present a plan to its executive board in the days ahead to make short-term credit lines available to fundamentally healthy countries hit by liquidity crises. That could be used to aid euro zone countries hit by the current crisis of confidence in the bloc’s sovereign debt.

“The IMF will present, in a couple of weeks, a window for liquidity with a maturity of three to six months for countries that have solid fundamentals but are hit by a liquidity crisis,” the source told Reuters.

Reporting by Abhijit Neogy, Francesca Landini and David Milliken, writing by Mike Peacock; editing by Janet McBride

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