“Woe to him who builds his palace by unrighteousness, his upper rooms by injustice, making his countrymen work for nothing, not paying them for their labor…
IMF chief presses for more cash to fight crisis
By PAN PYLAS Jan 28, 9:17 AM (ET)
DAVOS, Switzerland (AP) – The head of the International Monetary Fund appeared to be making headway Saturday in her drive to boost the institution’s financial firepower so that it can help Europe prevent its crippling debt crisis from further damaging the global economy.
Christine Lagarde, who replaced Dominique Strauss-Kahn as managing director of the fund six months ago, is trying to ramp up the IMF’s resources by $500 billion so it can help if more lending is needed in Europe or elsewhere. The IMF is the world’s traditional lender-of-last-resort and has been involved in the bailouts of Greece, Ireland and Portugal.
Insisting that the IMF is a “safe bet” and that no country had ever lost money by lending to the IMF, Lagarde argued that increasing the size of the IMF’s resources would help improve confidence in the global financial system. If enough money is in the fund the markets will be reassured and it won’t be used, she said, using arguments similar to those that France has made about increasing Europe’s own rescue fund.
“It’s for that reason that I am here, with my little bag, to collect a bit of money,” she said at the World Economic Forum in the Swiss Alps town of Davos.
Her plea appeared to find a measure of support from ministers of Britain and Japan, sizable IMF shareholders that would be expected to contribute to any money-raising exercise.
George Osborne, Britain’s finance minister, said there is “a case for increasing IMF resources and … demonstrating that the world wants to help together to solve the world’s problems,” provided the 17 countries that use the euro show the “color of their money.”
Osborne said he would be willing to argue in Parliament for a new British contribution, though he may encounter opposition from some members from his own Conservative Party.
Japan’s economy minister, Motohisa Furukawa, said his country would help the eurozone via the IMF, too, even though Japan’s own debt burden is massive. Unlike Europe’s debt-ridden economies, Japan doesn’t face sky-high borrowing rates, partly because there’s a very liquid domestic market that continues to support the country’s bonds.
Europe once again dominated discussions on the final full day of the forum in Davos. Despite some optimism about Europe’s latest attempts to stem the crisis, fears remain that turmoil could return.
Whether the markets remain stable could rest for now on if Greece, the epicenter of the crisis, manages to conclude crucial debt-reduction discussions with its private creditors. It’s also seeking to placate demands from its European partners and the IMF for deeper reforms.
A failure on either front could force the country, which is now in its fifth year of recession, to default on its debt and leave the euro, potentially triggering another wave of mayhem in financial markets that could hit the global economy hard.
One German official even said Saturday that Greece should temporarily cede sovereignty over tax and spending decisions to a powerful eurozone budget commissioner to secure further bailouts. The official spoke on condition of anonymity because talks on the idea are confidential.
“The fact that we’re still, at the start of 2012, talking about Greece again is a sign that this problem has not been dealt with,” Britain’s Osborne said.
For Donald Tsang, the chief executive of Hong Kong, efforts to deal with the 2-year-old debt crisis have fallen short of what is required. The failure to properly deal with the Greek situation quickly has meant the ultimate cost to Europe has been higher, he said.
“I have never been as frightened (about the global economy) than I am now,” he said.
Most economic forecasters predict that the global economy will continue to grow this year, but at a fairly slow rate. The IMF recently reduced its forecasts for global growth in 2012 to 3.3 percent, from the 4 percent pace that the IMF projected in September.
Lagarde sought to encourage some countries that use the euro to boost growth to help shore up the ailing eurozone economy, which is widely expected to sink back into recession, adding that it would be counterproductive if all euro countries cut their budgets aggressively at the same time.
“Some countries have to go full-speed ahead to do this fiscal consolidation, but other countries have space and room,” Lagarde said.
Though conceding that there aren’t many such countries, Lagarde said it is important that those that have the headroom explore how they can boost growth. She carefully avoided naming any countries, but likely had in mind Germany, Europe’s largest economy and a major world exporter. She didn’t specify how to boost growth or how one eurozone country could help others grow.
Lagarde said members of the eurozone should continue the drive to tie their economies closer together. On Monday, European leaders gather in Brussels in the hopes of agreeing on a treaty that will force member countries to put deficit limits into their national laws.
Britain’s Osborne said eurozone leaders should be praised for the “courage” they have shown over the past few months in enacting austerity and setting in place closer fiscal ties, but said more will have to be done if the single currency is to get on a surer footing.
Fiscal transfers from rich economies to poorer ones will become a “permanent feature” of the eurozone, Osborne predicted.
While politicians and business people were discussing the state of the global economy within the confines of the conference center, protesters questioned the purpose of the event as income inequalities grow worldwide.
Protesters from the Occupy movement that started on Wall Street have camped out in igloos at Davos and were demonstrating in front of City Hall to call attention to the needs of the poor and unemployed.
In a separate protest, three Ukrainian women were arrested when they stripped off their tops – despite temperatures around freezing – and tried to climb a fence surrounding the invitation-only gathering of international CEOs and political leaders.
“Crisis! Made in Davos,” read one message painted across a protester’s torso.
Davos police spokesman Thomas Hobi said the three women were taken to the police station and told they weren’t allowed to demonstrate. He said they would be released later in the day.
Associated Press writers Frank Jordans and Edith M. Lederer contributed to this report from Davos, Switzerland. Juergen Baetz in Berlin also contributed.