IMF Resources May Not Suffice If Crisis Worsens
By Sandrine Rastello
– Sep 24, 2011 6:18 PM ET
The International Monetary Fund’s $384 billion lending chest may not be enough to meet all loan requests if the global conomy worsens, Managing Director Christine Lagarde said.
“The fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios,” Lagarde said in an “action plan” distributed to the IMF steering committee today. The current lending capacity “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders.”
Tripling IMF resources was part of the Group of 20 leaders’ response to the global recession in 2009. As the European debt crisis threatens to spread and further damp the global recovery, the IMF was asked by its steering committee today to review whether its resources are sufficient.
“The IMF has a limited financial ability to staunch an escalation of the crisis that envelops major European conomies like Spain and Italy,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and a professor at Cornell University in Ithaca, New York.
At the same time, “the current conomic and political climate in advanced conomies makes it highly unlikely that they are in a position to provide additional resources to the IMF,” he said.