20 Apr 2012

Osborne agrees extra money for IMF

Chancellor George Osborne agrees to lend the IMF an extra £10bn, despite backbench Conservative concerns.

George Osborne is in Washington, along with the world’s leading finance ministers and central bankers, to discuss loans to help the global economy.

Parliament has approved around £40bn in support for the IMF, of which about £30bn has already been committed. Any new request going beyond the £10bn “headroom” still available to Mr Osborne would have required a fresh vote by MPs. It is part of a $400bn package of extraordinary funding for the IMF, which is the world economy’s lender of last resort.

Conservative MPs are opposed to British financial support for the indebted eurozone. But Mr Osborne said the extra funds “met strict conditions, that it’s a loan, and not a gift, within the ceiling already set by parliament”. He said no country had ever lost money by lending to the IMF.

Earlier, IMF boss Christine Lagarde said it was in the UK’s interest to allocate extra resources. She is seeking to secure at least £250bn in additional resources for the IMF’s “firewall” fund to stabilise the world economy.

“The UK is a founding father of the IMF. And the UK is there for international grave situations. It’s always been a very loyal partner when it’s tough,” Ms Lagarde told Sky News.

“But it’s in their interest. Because if the key partners of a country like the UK are in very bad shape, they are bad clients. It’s not in the interest of the UK to have a weak euro.”

Terms and conditions

Earlier this year Mr Osborne said “there is a case” for increasing the pot and he would have to “think very hard” about rejecting any request. However, Treasury officials insisted any deal had to be done at a “global level” and must meet strict conditions.

Committing money does not necessarily mean it will be drawn against, and because it would be given in the form of a loan, it would not deplete public spending budgets.

Money will ‘prop up a doomed currency’

However Conservative backbenchers warned against giving money that could be used to “prop up” the eurozone.

Peter Bone MP said: “I don’t think there should be any more British money going to bail out the eurozone, it’s up to the eurozone countries to bail themselves out.

“At a time when people are groaning from the problems of the budget, to prop up a doomed currency is utter madness. The last thing the Government needs at the moment is more bad headlines.”

No country has lost money investing in the IMF in the organisation’s 67 year history.