Emerging market countries are working on ways to contribute money rapidly to expand the effective firepower of the International Monetary Fund, with the aim of increasing its role in combating the eurozone sovereign debt crisis.
The discussions, in parallel with talks in the eurozone about creating a bigger “bazooka” to intervene in financial markets, are aimed at producing a confidence-boosting announcement by the Group of 20 heads of government summit next month.
People familiar with the discussions say governments are considering either funding an IMF-run special purpose vehicle (SPV) or lending to the IMF by buying special bonds. Although details have not been worked out, the increased firepower could be used to finance new IMF credit lines to prevent contagion from the Greek crisis spreading to Italy and Spain, or to recapitalise European banks.
A European official said: “We’re increasingly coming to the view that the eurozone crisis is too big a problem for Europe to solve on its own. If you want to sort it out properly you need American and Chinese money, which means the IMF.”
The Bric (Brazil, Russia, India, China) countries favoured a procedure used in 2009 when individual governments pledged to buy special bonds issued by the IMF, a person familiar with the Brazilian view said.
The IMF declined to comment.
The size of the funding plan is also still under discussion, but any lending facility for the eurozone crisis will need to run into hundreds of billions of dollars. Such a move would be likely to give the IMF a stronger say in shaping eurozone rescue plans.