Lagarde: IMF has its 'Washington moment'

@CNNMoneyInvest April 21, 2012: 5:17 PM ET
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IMF managing director said Saturday that she considered the fund's latest meeting a success after members pledged an additional $430 billion in loans to the global crisis lender.

WASHINGTON, D.C. (CNNMoney) -- The International Monetary Fund wants to build a "global firewall" to prevent the world economy from being burned by another financial crisis.

The IMF took a big step forward in that direction after a number of its members pledged a combined $430 billion in additional resources at the fund's spring meeting this week in Washington, D.C.

That nearly doubles the amount the IMF has available to lend to countries in crisis.

In the run-up to this week's talks, IMF managing director Christine Lagarde had urged policymakers to recreate the sense of shared purpose that prevailed during the financial crisis, saying she hoped the meeting could be considered a "Washington moment."

"I personally feel that that Washington moment was clearly in the room in the course of the meetings," Lagarde said Saturday.

The additional resources could be used to help rescue troubled eurozone economies, although the IMF stressed that the funds will be available to all 188 members.

The IMF has provided $300 billion in emergency loans since the global financial crisis struck in 2007, including a program for Greece that is the largest in the fund's history.

The push to increase IMF resources comes as the global economy faces multiple risks. While conditions have improved recently, the outlook for growth remains tepid. In addition, the debt crisis in Europe continues to threaten the global financial system, along with ongoing problems in the banking system and rising oil prices.

The IMF has estimated that its funding needs will reach $1 trillion over the next few years.

The firewall is "an important step forward," but additional steps are needed to provide a "real solution to the crisis," said Tharman Shanmugaratnam, chairman of the IMF's governing committee.

He said there was "very strong consensus" on the need to enact fiscal reforms, such as bringing down government deficits, while also taking steps to boost economic growth over the next three years.

"If we don't get growth back then fiscal sustainability isn't possible either," Shanmugaratnam told reporters Saturday. That holds true for both the euro area and the United States, he added.

In announcing the pledges Friday, Lagarde said the international community had demonstrated a commitment to stabilizing the financial system and supporting the global economy. But she suggested that the IMF expects more members to contribute.

"We made a call to action, and our members have delivered," Lagarde said. "I look forward to further commitments from our broader membership."

The United States has declined to provide any additional loans for the IMF. Under the current IMF quota system, the U.S. government stands behind nearly 18% of the funds' normal resources, making it the largest shareholder.

U.S. officials argue that Europe has the resources it needs to resolve the crisis, and that the IMF should not be used as a substitute for a strong European response.

On Saturday, U.S. Treasury Secretary Tim Geithner welcomed the pledges, saying in a statement that the IMF has "substantial capacity" to address threats to the global economy, including "the effects of the European crisis on the rest of the world."

The IMF "can and should play a complementary role in a comprehensive and well-designed European response," he said.

While European leaders have taken "important action" to contain the crisis, Geithner suggested that more needs to be done to ensure that governments can follow through on proposed reforms.

"The success of the next phase of the crisis response will hinge on Europe's willingness and ability, together with the European Central Bank, to apply its tools and processes creatively, flexibly and aggressively to support countries as they implement reforms and stay ahead of markets," said Geithner.

European officials, meanwhile, echoed Lagarde's call for more IMF members to provide additional loans.

"We agree with the managing director that the fund's membership should now swiftly raise the fund's lending capacity, as important challenges remain," said Steven Vanackere, Belgium's minister of finance.

Vanackere added that euro area governments have pledged €150 billion in IMF loans, saying "the rest of the membership should contribute its fair share."

Jan Kees de Jager, the Netherlands finance minister, said the euro area is aware of its "special responsibility in the current circumstances." But he said other IMF members should rise to the occasion, noting that European nations have aided others in past crises.

"We call on other IMF members to support the efforts to safeguard global financial stability by contributing to the increase in IMF resources as Europe has done in the past when major crises threatened economies in other parts of the world," said de Jager. To top of page

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