The head of the International Monetary Fund warned that the European debt crisis has become a serious threat to poorer countries that rely on trade and global credit markets, setting the stage for a weekend debate over boosting the emergency lender's firepower by more than $400-billion (U.S.)
Christine Lagarde, the IMF's managing director, predicted Thursday that she would go to work next week with a significant increase in lending capacity. While she is well past the halfway mark to reaching her goal, Ms. Lagarde still was struggling to win over a handful of bigger countries – including Canada – that characterize the effort as a backdoor bailout of Europe.
Canadian Finance Minister Jim Flaherty kept up his blunt critique of the rush to increase IMF financing, telling a conference organized by the Bertelsmann Foundation in Washington that the richer members of the euro zone hadn't done enough on their own to deserve international support through the IMF.
Mr. Flaherty's comments drew a rebuke from Jorg Asmussen, a member of the European Central Bank's executive board and a former deputy finance minister in Germany, who was sharing the stage with Canada's finance chief.
"With all friendship, I would say the Europeans have done their work on the firewall," Mr. Asmussen said in response to Mr. Flaherty's assertion that Europe's plan for a $1-trillion (U.S.) financial backstop is insufficient. "Now it's up to our global partners" to bolster the resources of the IMF, Mr. Asmussen added. "This is in the interest of all of us."
The clash was a public demonstration of the negotiations that will occur behind closed doors this weekend. The meetings got started with a working dinner of finance ministers and central bank governors from the Group of 20 on Thursday, and were set to follow through into G20 sessions Friday and the IMF's steering committee on Saturday.
Later, Mr. Flaherty told reporters that he believes the IMF's current lending capacity of about $400-billion (U.S.) is enough to deal with "imminent" threats posed by the European situation. He also expanded on his opposition to a deeper involvement in Europe, explaining for the first time that he has concerns about the IMF's ability to protect the interests of its non-European members.
The IMF has contributed to the rescues of Greece, Ireland, and Portugal, but as a junior partner to European authorities; the IMF typically takes the lead in bailouts, leaving it in control of the conditions attached to its loans.
Mr. Flaherty also suggested that there is a potential conflict of interest on the IMF's main decision-making body when it comes to dealing with Europe. Five of the IMF's 24 executive directors come from the euro zone, and because of the fund's share structure favours older economic powers, these directors control a quarter of the votes. Mr. Flaherty said future decisions related to Europe should require two votes: one by the full executive board, and one by the non-European members.
"We have some governance issues," Mr. Flaherty said.
Big emerging market countries such as China and India also have serious complaints about governance at the IMF, where relative clout is more reflective of the global economy at the end of the Second World War, when the fund was established, than today's world order.
It was unclear how Canada's decision to go public with its concerns over IMF governance would influence the larger debate over funding.
Warning of the dark clouds that remain on the horizon, Ms. Lagarde used a press conference to reiterate her call for a "Washington moment." This was an analogy to the G20's "London moment" in 2009, when it mustered $1-trillion (U.S.) to fight the financial crisis. Ms. Lagarde also defended the European response, and emphasized that she is seeking more money to protect the most vulnerable among her 188-country membership, not the euro zone.
"There are crisis bystanders that might need help. We know that," Ms. Lagarde said.
She is seeking an amount in excess of $400-billion, less than the $600-billion target the IMF first set earlier this year. Ahead of the G20 dinner, Ms. Lagarde had pledges of $320-billion after Poland and Switzerland added to previous commitments by Japan, the euro zone, Sweden, Denmark and Norway. More money appeared to be on the way. South Korea's finance minister, Bahk Jae Wan, told Bloomberg News that his country was prepared to do "more than its fair share."