Wednesday, 18 January 2012

IMF seeks to boost half a trillion more in firepower

The Internationaly Monetary Fund issued a statement today, suggesting that it will try to raise close to $500 billion in new funds from cash rich countries like Brazil, China, India and the oil exporters to lend to the eurozone countries in financial difficulties. The question here is, where are they going to shore up this cash-pile, taken that, the countries mentioned have their own little pesky internal issues: China still is at the brink of a real estate collapse and India is going through a massive devaluation of its ruppee.

IMF - the night in shining armor ?

It is well understandable that the IMF is mandated to lend out to less developed countries, to finance their deficits, so that they can in turn export more of their raw materials and import more of the "civilized world`s" iPhones and iPads. The same relationship is between China and the USA, where China is financing part of USA`s trade deficit, so that Americans can continue their spending spree, using Chinese credit. It makes perfect sense. What seems interesting to me is why is the IMF so eager to step in the european debt crisis and do what the ECB should be doing in the first place ?

As Reuters reports, the international fund needs to raise $500 billion from its members to address future lendings and an additional $100 billion as a "protection" buffer. It also estimated that there is going to be a $1 trillion funding gap on the international markets in the next 2 years, if "economic conditions worsened considerably".  Who is going to finance this gap, now that most of the countries are unable to issue debt to anyone but themselves ?

No comments:

Post a Comment