20 Apr 2012

Britain commits extra £10bn to International Monetary Fund

Chancellor George Osborne

Chancellor George Osborne has committed Britain to an extra £10bn loan to the International Monetary Fund amid rising tensions in the world economy.

The loan will not be subject to further parliamentary approval. The loan will form part of an $400bn extraordinary fundraising from the IMF, announced by managing director Christine Lagarde, which has been sought in the aftermath of the euro crisis.

The chancellor is adamant that this is not a further back-door bailout of the eurozone. He said that the fundraising “met strict conditions, that it’s a loan and not a gift within the ceiling already set by parliament.” He said it met his four conditions for extra money: that the eurozone had boosted its own firewall, that the funds were not earmarked for the euro, that it was part of an international effort, and that conventional IMF conditions would be attached.

There will be no vote in parliament on the loan, which is sure to lead to backbench Conservative concerns. The opposition voted against a boost to IMF resources in parliament last year. George Osborne stressed that the loan was “broadly the same as in 2009″ when the Labour government bosted IMF resources after the Lehman Brothers crisis, and stressed the funds were “broadly in line with quota size and contributions from non-euro countries.Australia, Mexico and Singapore also announced considerable extra loans to the IMF. Other emerging economies such as China signalled support, in principle, but are not expected to indicate a number here today.

Many of the emerging economies feel their voice and vote share at the organisation that bails out governments, need to be further increased.The funding is unusual because such increases are conventionally announced by the g7 pr by the IMFC committee. This arrangement has been agreed because the US and other advanced nations will not contribute to this extra funding.
The Chancellor reiterated that no country has ever lost money making loans to the IMF, and that the funds would not have any impact on UK public spending or deficits.

Other G20 officials have suggested that the magnitude of the extra IMF firepower is only really for the eurozone, for Spain and Italy, and that there may be extra “non trivial” risks. The official EU position that the crisis is abating is rather difficult to square with the need for huge increases in bailout facilities.

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