The International Monetary Fund is proposing a $1 trillion expansion of its lending resources to safeguard the global economy against any worsening of Europe?s debt crisis, according to an official at a Group of 20 (G20) nation.
The Washington-based lender is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors, according to the official, who spoke on condition of anonymity because the talks are private.
The fund wants the agreement struck at the February 25-26 meeting of G20 finance ministers and central bankers in Mexico City, the official said.
IMF managing director Christine Lagarde said on Tuesday that her staff are studying options to increase the fund?s war-chest beyond the current $385 billion. While euro-region nations have already pledged to contribute 150 billion euros ($192 billion), the US has said it has no plans to make new bilateral loans and G20 leaders ended last year at odds over the issue.
?The biggest challenge is to respond to the crisis in an adequate manner and many executive directors stressed the necessity and urgency of collective efforts to contain the debt crisis in the euro area and protect economies around the world,? Lagarde said on Tuesday in an emailed statement following a discussion among her institution?s board of directors.
The matter is likely to be discussed this week in Mexico where G20 deputy finance chiefs are scheduled to meet.
European stocks and commodities rebounded and the euro strengthened after the news of the IMF proposing a $1 trillion expansion of its lending resources.
The Stoxx Europe 600 Index advanced 0.2% at 10:20 am in London after dropping 0.9%. Standard & Poor?s 500 Index futures gained 0.6%. Copper climbed 0.4% and oil rose 0.7% to $101.35 a barrel. The euro rose 0.7% to $1.2827. Portuguese two-year yields rose five basis points to 15.26% before a bill auction.
If the IMF were to have its resources ramped up by governments raising their contributions, then it would have more money available to potentially help Europe in dealing with its debt woes.
?More resources means more liquidity which I guess is good for asset prices in the short term, or at least reduces threat of systemic risk in the interim,? said Neil MacKinnon, global macro strategist at VTB Capital.
Europe?s debt crisis started in Greece over two years ago and investors will be looking to see if the country can negotiate a deal with its creditors that will ease the burden of its crushing debts.
Last October, Greece?s partners in the eurozone sanctioned a deal whereby Greece?s creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country’s debt burden.
