IMF widens pool for crisis funds to include emerging economies

The International Monetary Fund on Monday tripled the amount of money it can deploy in a crisis, drawing more heavily on commitments from emerging economies such as China and Brazil to establish a pool of more than half a trillion dollars that officials hope will help deter future problems.

The board action finalizes an effort begun a year ago when the G20 group of the world's largest economies agreed that the IMF should seek commitments for at least $500 billion that countries would lend to the agency if needed.

Although the IMF was not at risk of exhausting the roughly $250 billion it had available going into the recession, the speed with which the downturn hit and the extent of problems in larger, developed economies raised the fear that an extended downturn would stretch its resources.

The new loan pool "will make an important contribution to global stability," Dominique Strauss-Kahn, IMF managing director, said in a written statement after the fund's executive board agreed to the arrangement.

"The whole idea is that because the amount is so large, you won't have to use it," said Liliana Rojas-Suarez, a senior fellow at the Center for Global Development and a former deputy chief of the IMF's capital markets division. "The whole discussion before the crisis was 'who cares about the IMF? They are so small, the private sector is so large, they cannot do anything.' "

Beyond the amount of money involved, IMF officials and outside analysts said its source is also important: About $100 billion came in commitments from 13 mostly emerging economies that had not previously agreed to lend to the fund.

All IMF members make contributions based roughly on the size of their economy, a "quota" that also determines a country's voting rights within the fund. There is debate about expanding those contributions, a process that rising powers such as China and India argue should give them more influence over how the international agency is governed.

The lending agreement approved on Monday is different from those quotas, and for the first time puts China, Russia, India, Brazil and nine other countries in line to lend money to the fund alongside the 26 nations that already had extended credit lines to the agency. China made the largest commitment among the new countries, promising about $50 billion. The program includes a promised $100 billion in loans from the United States, a tenfold increase.

Involving the developing countries more deeply in financing international agencies the IMF could have spin-off benefits, according to IMF officials and outside economists. Countries such as China, India and Brazil have accumulated large stockpiles of foreign reserves, much of it invested in low-yielding government-issued bonds and treasury bills.

Some argue it would help the world economy if that money was put to more productive use, and the new commitments to the IMF are seen as a step in that direction.

"This is a significant broadening of the base," available to the fund, said a senior IMF official. "This is part of these countries having a larger role in the international financial system."