U.S. tepid on boosting IMF lending power

IMF chief Christine Lagarde visited Moscow today for the first time as managing director. Shortly before her meeting with the Russian president, foreign minister Sergey Lavrov offered what would seem to be an IMF-friendly message. In a news conference, he  insisted that any significant financial support to the Eurozone must be channeled through the IMF rather than going directly to the European bailout mechanism:

Without directly referring to the euro zone’s bailout fund, Foreign Minister Sergei Lavrov made it clear that Russia would not be willing to lend directly to it, preferring to channel any support through the IMF.

Lavrov added that this was the joint position of the so-called BRICS caucus of emerging markets nations that have accumulated trillions of dollars in foreign reserves to insure against external shocks.

"Our countries are ready to take part in joint efforts, including the provision of credits, under those rules and channels that exist in the International Monetary Fund," Lavrov told a news briefing in Moscow.

Lavrov said that, in return for financial assistance, emerging markets wanted earlier agreements on "deep reform" to the IMF and the global financial system to be implemented.

Any claims to a unified BRICS position should be taken with a grain of salt, but there is reason to believe that China, Brazil, India and South Africa broadly support this position. As Ben Chu explains here, the BRICS run less risk by funneling money through the IMF and stand to gain institutional power at the Fund, particularly if the institution’s voting shares are tweaked in order to get BRICS cash.

But that BRICS position is running headlong into an American reluctance to boost IMF lending power. At the Cannes G20 summit, President Obama put the onus on Europe to sort out its debt crisis before seeking additional international help. Washington’s tough line may be more about domestic political threats than moral hazard: A major IMF funding boost would require Congressional action. 

Meanwhile, Britain, France and several other key players appear to be supporting new resources for the Fund, although with varying degrees of enthusiasm and specificity. All of which puts Lagarde in a difficult position. She undoubtedly would like to see IMF lending resources increased, but she may also realize that a significant increase is politically untenable.