The International Monetary Fund needs more resources to protect the global economy from a potential relapse that would not spare the U.S., Managing Director Christine Lagarde said.
Now that European governments increased their firewall above a symbolic $1 trillion mark, the time has come to boost the IMF’s own firepower, Lagarde said today in Washington. Strengthening the Washington-based fund is needed as rising oil prices, strains on Europe’s financial system and high unemployment are threats to the world economic recovery, she said.
“If the European economy falters, the American recovery and American jobs would be in jeopardy,” Lagarde said. “So America has a large stake in how Europe fares — and how the world fares.” Foreign banks hold about $5.5 trillion of U.S. assets and U.S. banks have $2.5 trillion of foreign assets, Lagarde said. About a fifth of U.S. exports are directed to Europe, she said.
“The IMF has substantial financial resources available today, and it has the ability, as it has demonstrated in the past, to mobilize temporary resources if that were necessary to help contain the damage from a further intensification of the crisis in Europe,” U.S. Treasury Secretary Timothy F. Geithner told lawmakers last month. “For these reasons, we have no intention to seek additional U.S. resources for the IMF.”
The fund currently has about $367 billion available to lend.
Euro-area finance ministers decided March 30 that 500 billion euros ($667 billion) in fresh money would go along with 300 billion euros already committed to create an 800 billion- euro defense against the two-year-old turmoil.
Lagarde welcomed the decision and said it should help stop the contagion. She said she saw no political intention of breaking up the 17-country euro region.
The U.S., which has low borrowing costs, should not move too quickly to reduce its debt, Lagarde said. She recommended the administration “aggressively” implement measures to ease households’ debt burden, which is holding back the country’s economic recovery.