Editorial
January 23, 2012
The International Monetary Fund’s new managing director, Christine Lagarde, is calling on members to increase the institution’s lending capacity by as much as $500 billion. The IMF says it might need to provide $1 trillion in support to distressed governments over the next few years, and existing resources aren’t enough.
The governments being asked to pony up will take some convincing. They suspect a scheme to bail out Europe’s struggling treasuries -- and think Europe has enough resources of its own to fix its problems. They are right, but they are missing a larger point.
The economic crunch of the past four years has shown that the world needs the global lender of last resort that the IMF was originally intended to be. This means not just more financial resources -- a bigger increase, in fact, than Lagarde is seeking -- but also new rules for access to them and a new understanding about how the IMF is run. These reforms must be all of a piece.
In a statement last week, Lagarde linked the request for new money to “the necessity and urgency of collective efforts to contain the debt crisis in the euro area,” emphasizing the weakest reason to strengthen the fund. The U.S. Treasury’s response was a curt “Europe has the capacity to solve its problems.” Timothy Geithner, the Treasury secretary, even warned his international peers that the U.S. has no intention of seeking additional resources for the IMF. The governor of the Bank of Canada said much the same.
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