IMF's War Chest, Surveillance Role Expand to Confront Crisis

By Christopher Swann

Nov. 15 (Bloomberg) -- The International Monetary Fund, struggling a year ago with less relevance and revenue, emerged from Group of 20 talks with more money to lend and a mandate to step up its monitoring of a global financial system in crisis.

``Unfortunately, I'm not expecting that countries will stop lining up in front of the IMF during the coming weeks,'' IMF Managing Director Dominique Strauss-Kahn said at a press conference today after G-20 talks in Washington. ``Our role in surveillance will certainly increase.''

Demand for IMF loans is soaring as market turmoil spreads from rich nations to poorer ones. The IMF has lent $40 billion in the past two weeks, and more requests for aid are under review. Japan yesterday offered to lift the fund's lending capacity to $300 billion from $200 billion.

``To face a crisis like this, we need multilateral entities that are much stronger, much more active and much more agile,'' Mexican President Felipe Calderon told a press conference.

The IMF in late October approved a short-term lending program that almost doubles the amount developing countries are allowed to borrow. Eligible countries can draw 500 percent of their quota -- the amount they contribute to the IMF -- as many as three times in a 12-month period. The usual IMF loan length is three to five years.

The G-20, in a statement released earlier today, said the IMF has an ``important role in crisis response'' and sought to ensure it has ``sufficient resources to continue playing their role in overcoming the crisis.''

``We should review the adequacy of the resources of the IMF, the World Bank Group and other multilateral development banks and stand ready to increase them where necessary,'' the G- 20 said in the statement.

Saudi Arabia, China

British Prime Minister Gordon Brown has called on other nations with large foreign exchange reserves, such as Saudi Arabia and China, to pledge resources to the IMF.

A year ago, a newly appointed Strauss-Kahn faced annual losses of $400 million by 2010 if the IMF's business didn't improve and its staff of 2,600 wasn't reduced. Strauss-Kahn, in a statement released a month after taking office in November 2007, said an overhaul of the IMF needed to address the ``twin issues of the fund's relevance and legitimacy.''

Earlier today, the Washington-based lender announced that it had agreed to a $7.6 billion loan to Pakistan, the latest in a series of assistance packages in the past month. Last week the fund approved a $15.7 billion loan to Hungary and a $16.4 billion loan to Ukraine.

Iceland is in talks for $2.1 billion and Belarus is seeking $2 billion. Strauss-Kahn said today the IMF's executive board would complete the Iceland deal Nov. 19.

Japan's $100 Billion

The office of Japanese Prime Minister Taro Aso released a statement yesterday announcing the $100 billion addition to the IMF's coffers and calling on other members of the fund to boost the amount they contribute.

``The IMF has been called into question over recent years because there have been no fires to put out in the global financial system,'' said Claudio Loser, the former director of the fund's Western Hemisphere department and now a scholar at the Inter-American Dialogue, a policy-analysis center in Washington. ``Now there are plenty of fires to put out.''

Yesterday the fund said it would strengthen its surveillance of financial markets, conducting ``early warning exercises'' along with the Financial Stability Forum, or FSF. The FSF includes officials from the Group of Seven nations along with Australia, Singapore, Switzerland and the Netherlands.

Supervisory Role

The IMF and FSF ``should strengthen their collaboration, enhancing efforts to better integrate regulatory and supervisory responses'' and also ``conduct early warning exercises,'' the G- 20 statement said.

In the days leading up to the G-20 meetings, European officials urged the IMF to conduct mandatory reviews of all 185 member nations' financial systems, in order to better anticipate market turmoil.

Officials from countries including Switzerland and the Netherlands said the IMF should expand its Financial Sector Assessment Program, a voluntary early-warning system set up in 1999 in the aftermath of the Asian financial crisis. The check- ups seek to identify weaknesses in a country's financial institutions and rules and assess how well risks are managed.

So far this year, the IMF has conducted voluntary financial-sector reviews for just 11 countries, mostly in eastern Europe. Expanding the reviews to all 185 member states would make them comparable to the yearly assessments the IMF does on the economies of its members.

On Nov. 6, the IMF released updated forecasts for the world's leading industrial and developing economies that predicted contractions in the U.S., Japan and euro region in 2009. Global growth will be 2.2 percent next year, down from 3.7 percent this year, the IMF said.

To contact the reporters on this story: Christopher Swann in Washington at cswann1@bloomberg.net;