IMF Seeks to Raise its Lending Capacity by $500B

The International Monetary Fund is seeking to raise its lending capacity by $500 billion after identifying the potential for a $1 trillion global financing gap in the next two years, according to a person familiar with the talks.

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The Washington-based lender currently has about $385 billion available to lend. IMF Managing Director Christine Lagarde said yesterday that her staff are studying options for more than doubling the size of the fund’s war chest in order to better insulate the global economy against Europe’s debt crisis.

Nations on the euro have already pledged to contribute 150 billion euros, but the U.S. has no plans to make bilateral loans, and Group of 20 leaders remain 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 yesterday in an e-mailed statement after a meeting of the IMF’s board of directors.

The IMF is pushing China, Brazil, Russia, India, Japan, and oil-exporting nations to be the top contributors, according to a G-20 official who spoke on condition of anonymity because talks are private. Lagarde hopes an agreement will be reached at the February 25-26 meeting of G-20 finance ministers and central bankers in Mexico City.

But the U.S. has reiterated the stance it held at a November G-20 summit — that it won’t contribute more to the fund, and that a solution to the turmoil must be led by Europe. Russia’s government won’t decide on any contribution until after the March presidential elections, First Deputy Prime Minister Igor Shuvalov said in an interview today in Moscow.

Some emerging markets may meet the call for help, but with a caveat. Many emerging markets feel underrepresented at the IMF and say their voting power no longer reflects their weight in the global economy, and may push for an end to the tradition of selecting a European to head the institution.

Other options for raising the fund’s resources include opening a trust fund or not rolling back a 2009 increase. The IMF may also decide to increase the amount of its Special Drawing Rights.

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