WRAPUP 1-Lagarde sees deal in making on IMF funding

WASHINGTON, April 19 | Thu Apr 19, 2012 11:17am EDT
(Reuters) - International Monetary Fund chief Christine Lagarde said on Thursday she expects to win a big boost in funding to help the lender safeguard countries from the euro zone debt crisis now that Europe had taken significant steps on its own.
Calling the euro zone the "epicenter of potential risk" for a world economic recovery that is "timid and fragile," Lagarde also urged European Union policymakers to directly inject some of their bailout funds into troubled EU banks.

"We expect our firepower to be significantly increased as an outcome of this meeting," she said at a news conference to kick off the spring meetings of the IMF and World Bank.

The IMF wants to secure at least $400 billion in new funding, which would double its firepower to deal with the euro zone debt crisis and any spillover to other countries.

So far, it has raised $320 billion - all from Europeans and Japan. It wants additional contributions from the leading emerging economies, which are resisting until they get some further assurance they will get a larger say in running the international lender.

A larger IMF war chest to safeguard countries outside of Europe that might run into trouble if the euro zone's troubles widened could help ease concerns in financial markets over the risk of global contagion.

Investors are worried the crisis could hit Italy and Spain, forcing them to join Greece, Ireland and Portugal as bailout recipients.

Markets are worried about Spain's ability to ratchet down its budget deficit as its economy shrinks. Global stocks fell on Thursday despite solid demand for Spanish bonds as investors remained skeptical about the fiscal soundness of the euro zone and softer-than-expected U.S. economic data damped sentiment.

Finance ministers from the BRICS group of leading emerging market nations - Brazil, Russia, India, China and South Africa - were scheduled to gather in Washington later on Thursday, and the prospect of further IMF financing was certain to be discussed.

China, Brazil and Russia have said they are willing to chip in but they want to get more voting power at the IMF in return.

When Japanese Finance Minister Jun Azumi said on Tuesday that Japan would contribute $60 billion in loans, he said there was no gap between China and Japan on IMF funding.

The Group of Seven developed nations were set to talk about bulking up the IMF's resources at an informal meeting later on Thursday, and the topic was set to be taken up by the Group of 20 developed and developing nations at a dinner and again at a meeting on Friday.

"Ensuring that the fund has sufficient resources to tackle rises and to promote global economic stability is in the interests of all our members," Lagarde said on Wednesday as she announced the latest in funding commitments.

She hopes to secure at least $400 billion at this week's meetings, which conclude on Saturday with a meeting of the IMF's steering committee and the joint IMF/World Bank Development Committee.

A rise in borrowing costs in Spain and Italy has lent urgency to the fundraising effort, and the IMF has warned the fallout from a broadening of the crisis could imperil the global economic recovery.

The United States has declined to provide fresh funds but on Wednesday it threw its weight behind the effort to raise more capital from other nations. Previously, it had pressed for bolder action from Europe first.

Lagarde said Europe had taken "significant steps" to combat the crisis and erect a financial firewall to contain it. "There is a little bit missing here or there but it shows significant determination to defend their currency zone."

In addition to bulking up its own bailout funds, the euro zone has said it would provide about $200 billion to the IMF.

Sweden said it would commit $10 billion and increase the amount to $14.7 billion later, while Denmark said it would give $7 billion. Norway pledged about $9.3 billion.

While Europe won some praise from Lagarde on Thursday, she said the region should enable its bailout fund to inject capital directly into banks.

"The European Stability Mechanism and European Financial Stability Facility could actually help in terms of recapitalization anywhere in the euro zone," she said. "What we are advocating is that this be done without channeling through the sovereigns."

By Lesley Wroughton