LOS CABOS, Mexico: World leaders meeting in Mexico next week will agree to boost the US$430 billion firewall the International Monetary Fund announced in April, host President Felipe Calderon said.
“I estimate that there will be a larger capitalization than the pre-accord reached in Washington, which will be finalized here, but I don’t want to speculate by how much,” Calderon told reporters today in the coastal resort of Los Cabos (see AP Photo).
Group of 20 leaders are gathering in Los Cabos for a two- day summit that will be dominated by the financial crisis in Europe that the White House said yesterday is the key risk to the global economy. While G-20 nations agreed earlier this year to bolster IMF resources that could be channeled to defuse the euro-area crisis, German Chancellor Angela Merkel last week called on the G-20 to do more.
“I hope there’s a very important agreement about the IMF,” Calderon said. While he said he regrets that the U.S. won’t take part in the IMF recapitalization, that won’t prevent it being the largest in the fund’s history.
“It’s going to be the first time the fund is capitalized without the U.S., which reflects the importance of emerging markets,” Calderon said.
Lagarde’s Focus
IMF chief Christine Lagarde, who is due to attend the June 18-19 Los Cabos meeting, said earlier this year that she wants to raise the Washington-based fund’s lending capacity by $500 billion to fend off “further shocks” to the global economy. In April, she managed to win commitment for about $430 billion, with key emerging markets such as Brazil and China withholding their specific pledges until progress is made giving them a bigger say in how the lender is run.
Lagarde canceled a planned trip to Brazil next week to focus on “ongoing developments in Europe,” the IMF said today in an e-mailed statement.
The G-20 summit takes place amid the weakest international economy since the 2009 recession and the day after parliamentary elections in Greece. A victory for Syriza, an anti-austerity party, may lead Greece to renege on the terms of its bailout and become the first nation to leave the euro currency union, throwing global markets into turmoil.
It’s “very difficult to predict” the outcome in Greece, said Calderon, who is himself preparing to step down after July 1 presidential elections.
“My experience is that during campaigns you say a lot of things,” he said, when asked about the prospects of Syriza gaining power. “The key moment we’re only going to know when there’s a government formed.”
In the meantime, Calderon said European governments must work together to strengthen their institutions to prevent damage from spreading to countries on sounder financial footing, like Spain and Italy. The G-20 communique will endorse steps taken by Europe to achieve a closer monetary and fiscal union, he added.
“When your credibility is broken, there’s no system or economy than can sustain itself,” Calderon said, adding that for now Europe doesn’t face such a dire threat. “We still have time, and Europe still has time, to make the right decisions.” (Bloomberg/aph)
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