THE INTERNATIONAL Monetary Fund has asked its member countries for an extra $500 billion (€388 billion) to combat the spreading global fiscal emergencies, which it estimates will generate demand for bailout loans of $1 trillion over the next two years.
The estimate was presented by Christine Lagarde, IMF managing director, to the fund’s executive board this week, according to people familiar with the discussions, and would most likely be financed by voluntary ad hoc loans rather than mandatory contributions. The IMF has $387 billion in available resources.
The news comes as the Greek government yesterday appeared to move closer to a deal with private bondholders that would avert a threatened default by Athens.
Talks with holders of close to €200 billion of Greek debt broke down last week, after some euro zone officials called for a sharply lower coupon, or interest payment, on new bonds.
The latest proposal called for a coupon starting at about 3 per cent and rising to 4.5 per cent as the bond approached maturity, one banker said. Another said the average interest paid during the life of the bond would be 4.25 per cent, which he described as a rate “banks would be happy with”.
The deal would amount to a 68 per cent loss for bondholders in net present value terms, according to people familiar with the talks.
Lucas Papademos, Greek premier, and Evangelos Venizelos, finance minister, began discussing the proposal yesterday in Athens with Charles Dallara, managing director of the Institute of International Finance representing private sector creditors. Greece wants at least the outline of a deal on the bond swap ahead of a meeting of euro zone finance ministers on Monday. The IIF said discussions would continue today.
“There’s a bit of optimism in the air,” said one person with knowledge of the discussions. But another person close to the process cautioned: “It’s too early to say. This time last week we were very hopeful but then the deal fell through.”
Much of the additional resources being sought by the IMF are likely to come from large developing nations with the US unwilling to contribute and Britain reluctant. Close to $200 billion pledged to the IMF last month by euro zone states will count towards the new goal. “The IMF cannot substitute for a robust euro area firewall,” the US Treasury said in a statement. “We have told our international partners that we have no intention to seek additional resources for the IMF.”
US and EU officials have also been wary of soliciting funds from China. US and European officials are concerned Beijing will seek geopolitical concessions, such as a lifting of arms embargoes imposed after the 1989 Tiananmen Square massacre, in return for aid.
After weeks of European debate over a new fiscal discipline treaty demanded by Germany, the focus is shifting to so-called “firewalls” needed to slow the spread of financial panic across the euro zone.
Worries that Greece might default on a €14.4 billion bond repayment due in March have also sparked market jitters. – (Copyright The Financial Times Limited 2012)
