IMF plans $600 b fund tap to aid EU debt-hit nations

The International Monetary Fund (IMF) is estimating it needs to raise up to $600 billion in new resources to lend to countries struggling with the fallout from the growing euro zone debt crisis, IMF sources said on Wednesday.

While the IMF estimates it will need $500 billion of the money to lend to member countries, the remaining $100 billion will be used as a “protection buffer,” the sources, who were present at an IMF board discussion on the issue on Tuesday, told Reuters.

Global financing gap

The IMF also esti­mated that there would be a $1 trillion global financing gap over the next two years if global economic conditions worsened considerably, sources added.

The IMF currently has a lending capacity of about $380 billion. IMF sources said a European commitment to inject €150 billion ($200 billion) into the IMF is included in the $600 billion estimate.

The new figures comes as G20 deputies from developed and developing nations gather in Mexico, on Wednesday, for preliminary talks on boosting the IMF’s war chest, with concerns growing that the euro zone debt crisis has worsened.

IMF Managing Director Christine Lagarde said that she met with the IMF board to assess whether the- global lender needs additional funds to respond effectively to the euro zone crisis and said that IMF management would explore options for increasing the Fund’s firepower. “I welcome the recognition of the importance of ensuring adequate Fund firepower to help defuse the current global economic weaknesses and regional challenges,” Lagarde said in a statement issued after an IMF Executive Board discussion on the adequacy of Fund resources.

“To this end, Fund management and staff will explore options for increasing the Fund’s firepower, subject to adequate safeguards. I welcome executive directors’ collective interest in resolving the crisis and securing global economic stability,” noted the statement.

“Today’s discussion on the adequacy of Fund resources was a welcome opportunity to assess whether they are sufficient for the IMF to fulfil its mandate and to play a full and constructive role in securing global stability. Following the request of our membership last year through the International Monetary and Financial Committee and the general support by the G20 leaders at the Cannes summit, today’s discussion was an important step,” said the IMF chief.

“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 from spillovers,” Lagarde noted.

The IMF has warned that it will cut global growth projections for 2012 when it updates its forecast on January 24. Weakening global prospects raises fears that more countries will need rescuing by the IMF, especially if capital markets freeze up completely.

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