IMF Wants A Financial Hand

The fund desires an additional $100B to help countries impacted by the global credit crisis.

The International Monetary Fund has roughly $200.0 billion in its treasury for struggling economies, but with the global financial crisis spreading deeper into emerging markets, the IMF is going to need more funding, according to its managing directors.

"It is true to say that because of globalization, the amount which the IMF is asking for is increasing rapidly, and the list of countries asking for some support is increasing every day," said IMF Managing Director Dominique Strauss-Kahn.

Developing countries are being hit by the financial slowdown despite hopes that their limited exposure to the soured structured investment vehicles that tightened global credit markets would keep them largely insulated from economic weakness. Foreign investors, however, began pulling much-needed funding from the countries, pressuring their currencies and banks. (See "The Global Financial Crisis.")

"A lot of capital has left emerging market countries where stock markets are down 30.0% to 50.0% and currencies have come down," said Arvind Subramanian, a senior fellow at the Center for Global Development. He said the Fund seems to be preparing for a protracted global slowdown since it has enough money to cover countries' needs in the short term.

"It would seem prudent to aim for a doubling of the resources available for Fund lending, even if the resources appear adequate in the current situation," said IMF First Deputy Managing Director John Lipsky, emphasizing that resources may not be enough if financial weakness isn't corrected before it spreads further. (See "The IMF Only Has So Much Oomf.")

The Ukraine, Iceland, Hungary, Serbia, Belarus and Turkey have already been talking to the IMF, which has 185 member countries.

So far, only Japan has offered additional funding with a $100.0 billion unilateral loan although Strauss-Kahn seems to be expecting more countries to come forward. British Prime Minister Gordon Brown has been lobbying Saudi Arabia and China for more money, and Subramanian said China is certainly in the position to offer financial support--though neither country is likely to give money without also asking for a more active role in managing the Fund, he added.