The International Monetary Fund says it will need about $1-trillion (U.S.) to create a bulwark against the European debt crisis, more than double its current lending capacity, setting up a potentially divisive fight over who should take the lead in warding off another global recession.
Christine Lagarde, the fund's managing director, will seek to bolster her resources by as much as $500-billion, an IMF spokesman said in a statement Wednesday, a response prompted by various media reports citing unnamed officials.
"At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations with the fund's membership have been completed," an IMF spokesman said in a statement.
The shortfall outlined by the IMF in the years ahead is the latest example of the toll that Europe's struggles are taking on the global economy. The World Bank on Wednesday slashed its outlook for global economic growth in 2012 to 2.5 per cent from a previous estimate of 3.6 per cent, and the Bank of Canada predicted that Europe would suffer through a recession for most of the year.
Yet the role of the IMF in aiding Europe is a contentious one.
Even though Europe's troubles represent the biggest risk to the global economy, countries such as the United States and Canada have opposed a wider international rescue. Countries such as China and Brazil have expressed a willingness to help, if with a certain wariness.
European leaders last month issued a cry for help, asking members of the Group of 20 to contribute to the IMF so the fund would be better able to act as a backstop for the region's financially strained governments. Members of the European Union pledged $200-billion in new loans for the Washington-based fund to show they weren't simply seeking charity.
The $500-billion the IMF said it is seeking does not include Europe's commitment of$ 200-billion.
Ms. Lagarde will have to raise that sum without the help of the United States, the biggest shareholder in her institution.
The Treasury Department reiterated its opposition to the IMF taking on a bigger role in Europe, saying governments must do more to convince investors that inflated deficits will be brought under control. "The IMF cannot substitute for a robust euro-area firewall," the Treasury said in a statement. "We have told our international partners that we have no intention to seek additional resources for the IMF."
For now, Canada is siding with its allies in Washington. At a press conference in Ottawa, Bank of Canada Governor Mark Carney said it was an "open question" whether increasing the IMF's resources is appropriate. And Finance Minister Jim Flaherty said the European pledge to buttress the IMF's lending arsenal is too small given the wealth and relative economic health of countries such as Germany and the Netherlands.
"Once we see a full commitment by the Europeans, then the situation would be different, but we have not seen that full commitment," Mr. Flaherty told reporters in Gatineau.
"Two hundred billion is not a full commitment by the Europeans to the solution of what is a European problem that is affecting the rest of the world and they need to step up to the plate, quite frankly, and make a full commitment of the resources they have available."
Mr. Flaherty declined to say what contribution he would deem appropriate.
Analysts say the IMF likely will seek to increase its resources by asking select countries for bilateral loans, rather than relying on a general increase in contributions from all of its 187 members.
Ms. Lagarde has visited Asia, Latin America and Africa in recent weeks. Countries in those regions tend to have significant reserves because of all the money pouring into their economies from international investors. A country such as China easily could divert some of the money it spends on purchasing U.S. government debt to a loan for the IMF.
But those emerging powers would be unlikely to do so without asking for something in return. Payback could come in the form in a greater say in the running of the institutions such as the IMF, something established powers have been reluctant to grant.