Crucial negotiations for IMF funds

The solution to the burning question of finding liquidity for lenders, and particularly for the "lender of the planet", might finally come from Mexico!

This Latin American country takes over the presidency of the G20 on Monday, December 5, and its government has set as a first target of the six-month presidency the signing of a mammoth deal to increase the liquidity of the Fund, particularly since the timing and the advent of the crisis in the Eurozone makes the current assets of the largest lender in the world insufficient.

At this stage an agreement to increase IMF capital is primarily focused on the funding needs of the Eurozone. But the general director of the Fund, Christine Lagarde, said that the IMF is in need of funds to be ready at all times to intervene and rescue economies even outside the Eurozone, something that was also demonstrated on Friday with a new loan agreement with Hungary.

The problem is that not all members of the Fund are prepared to agree to increase its capital, which would also mean an increase in their contributions. Most dissenters raised two main objections: first, they deny that the Eurozone is doing everything it can to address the debt crisis that is plaguing it and secondly, they disagree over the allocation of the additional funds-contributions that will be required.

All, however, agree that the funds currently in the funds of the …Fund are insufficient to "extinguish" fires around the world, even in Europe in case the economies of Italy and Spain "crash".

Similar doubts are expressed about the desirability of intervention in the Eurozone at this specific time, as many "fear" that the IMF funds will be a "jacket" that will disrupt the efforts of fiscal convergence in EU countries. In a nutshell, the non-euro countries will pay to rescue the Europeans and the latter will no longer have an incentive to tidy their own house.

These are the objections the Europeans are trying to mitigate with a plan they are discussing with IMF representatives to provide loans to the Fund for the financing packages to the Eurozone in case the crisis worsens.

As IMF spokesman Jerry Rice said in a statement on Friday, "European authorities are considering bilateral loans to the IMF by the central banks of Eurozone member states which already lend to the IMF under bilateral agreements in force since 2009." These loans will be a sort of 'guarantee' to the Fund to make funds available to European countries that need funding. Regarding the amount of the loans, they are estimated at around 200 billion.

Meanwhile however, the Mexican presidency of the G20 will try to "convince" non-EU countries to assist them in recapitalizing the IMF, arguing that if the crisis in the Eurozone is not treated promptly and effectively, the global economy will be at risk of a new recession domino.

Today the IMF confirmed assets amounting to 380 billion dollars. It is estimated that it needs an additional 400 to 500 billion dollars to be able to intervene in Italy or Spain. Funds that at this stage can only be given directly by countries with reserves: China, Saudi Arabia, Germany, Japan, Australia, Canada, Singapore, Russia and Brazil.

And here is where calculations begin: in the words of deputy foreign minister Fu Ying, China announced on Friday that it cannot use its reserves to support other countries. She also said the argument that China should support Europe has no basis and that Europeans have not understood how China manages its reserves.

A day earlier, finance minister of Brazil Guido Mantega stated that the countries of the group of emerging economies, the BRICS, «are willing to help but under certain conditions." These conditions are translated into greater influence (and voting rights) in the IMF and "similar operations" by both the U.S. and the Eurozone.

In any case, the issue of financing the IMF is certainly one of the key issues on the agenda of the meeting of finance ministers of the G20 in Mexico on December 12-13.