IMF expects to double lending capacity

WASHINGTON — the IMF expects, to double their lending capacity by $450 billion in the next few months there are additional firepower to tackle the sovereign debt crisis of engulfing Europe according to IMF officials and documents.

Associated press ECB President Jean-Claude Trichet, links, and IMF Managing Director Dominique Strauss-Kahn at a central banking Conference last month.

Whether this will be sufficient, depends how deep it spreads. The IMF has currently 202 billion $ in basic resources and an additional $41 billion that can tap it in times of acute international financial distress, for a total of 243 billion $, according to IMF financial documents. But this is less than the amount offered by the euro zone to the IMF for troubled countries now counts.

Under a European recovery plan announced in may after the bailout for Greece the IMF would provide $325 billion. Ireland is the first country get a loan under the Rescue Fund and its 30 billion dollar IMF loan will leave the Fund with $295 billion in commitments – less than the IMF side has. IMF officials point out regularly, however, that the IMF to the full $325 billion formally commit not. Rather the IMF approves loans on a case by case basis and don't need any money aside, to individual rescue loans are approved. So that the Fund believes that even now it space to the maneuver has.

The Group of Nations to the IMF financing offer 20 developed and developing countries has appointed in April 2009 add institution lending chest committed. Since 248 billion have around 20 countries the IMF total $, awarded the IMF, in turn, can give financially troubled countries. Without the money would the IMF now operate in the red, IMF according to documents.

G-20 initiative these loans are summarized in a new lending pool, which is the $41 billion-replace Kitty and adding $250 billion of new money. Seven European countries have still to ratify the loan program - Austria Belgium Italy, Switzerland, Luxembourg, Norway, Sweden - but expected parliamentary approval to get into the first quarter of 2011. That will increase the lending capacity of the IMF to $450 billion.

The United States has approved the increase and committed approximately $106 billion in the new Kitty pledge - about 10 times what it is with the old. The United States and Japan each have enough votes in the fund its activation veto. If the IMF makes a loan – under any of their lending rules - each one of its members are responsible for a certain percentage of the loan. In General, the U.S. part is slightly higher than its 17% stake in the IMF. The Fund is that it rarely repaid get fails although it sometimes waits for the repayment of which would have a commercial bank, to classify a loan as distressed.

The European crisis quickly escalate a former Obama Treasury should said Edwin Truman, officials at the Peterson Institute for international economics, these countries under pressure, its ratification faster done. Italy has a special incentive; It is seen as one of the countries in Europe which eventually might need help IMF.

On Wednesday, Reuters in Brussels reported an increase in the IMF would secure the U.S. funding for the European bailout. But in Washington, a U.S. official with knowledge of the U.S.-European talks, a subject which was discussion now said such an increase. U.S. Treasury under Secretary Lael Brainard, is meeting now in Europe with their colleagues.

"The Fund in a strong position as necessary is needs to its members," said spokeswoman Caroline Atkinson IMF.

Europeans should decide to increase the size of the Fund rescue, although it would not have sufficient resources with increased resources the IMF. Some in the European Commission discussed doubling the amount of the entire European rescue fund that would mean an other 325-billion dollar commitment of IMF resources. A larger Fund aim would be to calm it is markets much larger countries of euro zone Spain and Italy, which should become necessary available to bail out.

"Ammunition has a stabilizing effect," said Harvard University economist Ricardo Hausmann, who experience dealing with Latin American debt crises. "You have to play more chips;" "more degrees of freedom to go forward."

But others argue that a larger Rescue Fund could backfire in the European Commission and spook markets by signal that the problems are deeper than expected and spread. So far, Germany has successfully against development of the Fund. The Commission denies discussions has been expanding.

Write toBob Davis on the bob.davis@wsj.com

View the original article here