Europe Looks to IMF, China for Rescue-Fund Cash
European officials are studying the potential for an International Monetary Fund channel for money for their enlarged rescue fund, asChina considers contributing to ending the area’s sovereign-debt crisis.
The European Financial Stability Facility may explore setting up a special purpose vehicle with the IMF, Klaus Regling, the EFSF’s chief executive officer, said at a briefing in Beijing today. Separately, Chinese Vice Finance Minister Zhu Guangyao said that while an investment by his nation is “under discussion,” China needs more detail of what is planned.
European leaders aim to tap China, holder of the world’s largest foreign-exchange reserves, for help after yesterday moving to contain the crisis by writing down Greek debt and targeting an expansion of the EFSF to about $1.4 trillion. China may aim to increase its influence at the IMF, a global lender of last resort, as a quid pro quo for contributing, said Tomo Kinoshita, an economist at Nomura Holdings Inc.
It may suit China “to contribute to European and global financial stability by injecting funds through an IMF channel,” said Hong Kong-based Kinoshita. The nation would “try its best politically” to benefit, he added.
Asian stocks climbed, extending the best weekly rally since 2009, on renewed confidence in the global economy after better- than-expected U.S. data added to signs of progress in Europe. The MSCI Asia Pacific Index rose 1.3 percent by 3:05 p.m. in Tokyo.
No Strings Attached
Regling said China hasn’t set any conditions for buying EFSF bonds after being a “good” and “loyal” purchaser of the securities so far.
French President Nicolas Sarkozy spoke with Chinese counterpart Hu Jintao by phone yesterday and the two agreed to “cooperate closely” to ensure global growth and stability, Sarkozy’s office said in a statement. Regling said that he didn’t expect a “precise outcome” from talks with Chinese officials during his trip.
Japan plans to support the increase in the fund and is awaiting details, a person familiar with the matter said yesterday. Japan anticipates waiting until November for specifics on how it may be able to help with the European rescue effort, a second person said, with both speaking on condition of anonymity because the discussions are private.
Officials from Brazil, Russia, India, China and South Africa — the so-called BRICS — said in a Sept. 22 statement they are “open” to contributing to global financial stability through the IMF or other international financial institutions. Asia has bought 40 percent of ESFS bonds this year, according to Regling.
The IMF said last month that its uncommitted reserves, now about $393 billion, may not be enough to meet all loan requests should the global economy worsen. The Group of 20 leaders meeting in Cannes, France, next week is scheduled to discuss whether the war chest is sufficient.
Creating a special purpose vehicle within the IMF would require approval by the organization’s executive board.
The IMF has channeled money from selected member countries for specific purposes before. In the 1970s, oil producers contributed to a pool that financed loans to economies hurt by the increase in the price of crude. Currently, some nations chip into a trust fund that helps lend to the poorest nations at lower rates. These pools have been used to lend to countries, not to intervene in financial markets.
Nations such as China or India have enough currency reserves to participate in a fund focused on Europe, said Mohsin Khan, a former IMF department director who is now a senior fellow with the Peterson Institute for International Economics in Washington. Such support may come at a price, Khan said.
“I think there will be some quid pro quo on this,” he said. “They would like a bigger role in global financial governance and I think they will also see it as they are systemically important and they are doing something good for the world.”
China’s foreign-exchange holdings have topped $3 trillion this year, swelled by the nation’s trade surplus and inflows of speculative capital.
The IMF is involved in programs for Greece, Ireland and Portugal — nations at the center of the debt crisis — while China is “an important member” of the organization, Regling said. The possibility of a special vehicle “needs to be explored,” he said.
Regling was due to meet with People’s Bank of China and finance ministry officials today, he said.