The International Monetary Fund may continue to increase in membership, but its ability to raise money has weakened recently. The Republic of South Sudan became the IMF’s 188th member today, but the nation is too small to contribute to the $400 billion that the agency’s head Christine LaGarde said would be needed to combat the growing crisis in Europe. The IMF said it has raised $320 billion, just as Switzerland contributed $26 billion. Poland added $8 billion yesterday, but the largest nations economically have contributed less that LaGarde likely expected. That means the safety net that EU finance ministers and the IMF wanted to put under the sovereign crisis is tattered.
The European Union itself faces questions about the extent to which its rescue facilities of about $1 trillion are sufficient if Spain, and perhaps Italy, need bailout dollars. Spain also may need billions of dollars to stabilize its banks, which have growing bad debt, and its states, some of which are nearly insolvent. LaGarde wanted to offer one more firewall, if contagion went from a theory about what could happen to sovereigns in Europe to a reality.
Japan’s contribution to the IMF hardly showed it was willing to help the EU solve its problems. The Asian nation pledged only $60 billion. The U.S. pledged $200 billion, which seems like a large sum, but really is not when the full force of Europe’s problems are taken into account.
LaGarde probably hoped that the IMF’s recent assessment of the world’s economy would help bring in more funds for the EU. The data offered by the agency showed that many of the largest developing nations would have steady, but only modest growth. The U.S. was a bright spot, but Europe was a very dark one.
The IMF’s modest goal of $400 billion was really very modest, given the state of the trouble in Europe. The $320 billion in collections are inadequate and the largest contributors know that. Europe, each is saying, is Europe’s problem.
Douglas A. McIntyre