World leaders meeting in Mexico will boost the $430 billion firewall the International Monetary Fund announced in April, host President Felipe Calderon said.
“I estimate that there will be a larger capitalization than the pre-accord reached in Washington, which will be finalized here,” Calderon told reporters in the Mexican coastal resort of Los Cabos yesterday. “But I don’t want to speculate by how much.”
Leaders of the Group of 20 nations are gathering in Los Cabos for a two-day summit dominated by the financial crisis in Europe and its risk to the global economy. While the G-20 agreed earlier this year to boost IMF resources that could be channeled to Europe, German Chancellor Angela Merkel last week called on the G-20 to do more.
“It’s going to be the first time the fund is capitalized without the U.S., which reflects the importance of emerging markets,” Calderon said. While he said he regrets the U.S. refusal to take part, that won’t prevent it being the largest recapitalization in the fund’s history.
“I hope there’s a very important agreement about the IMF,” Calderon said.
The G-20 summit begins tomorrow amid the weakest global economy since the 2009 recession as the crisis in the 17-nation euro area drags on markets worldwide. With elections in Greece today carrying the risk of the euro’s first exit and more contagion, European leaders are due to hold their own summit in Brussels on June 28-29 to discuss a roadmap to closer political and economic union as a means of staunching the crisis turmoil.
European Central Bank President Mario Draghi, one of those charged with drawing up the plan for closer integration, said on June 15 that the ECB will continue to provide liquidity to solvent banks. The ECB has already lent banks more than 1 trillion euros ($1.26 billion) for three years.
European stocks and the euro advanced for a second week last week amid speculation that central banks will take steps to stimulate the global economy. While the Stoxx Europe 600 Index climbed 0.9 percent to 244.21, the gauge has still declined 10 percent from its high on March 16 after Spain was forced to call for aid for its banks. The euro rose 1 percent to $1.2638.
IMF chief Christine Lagarde, who is due to attend the June 18-19 Los Cabos meeting, said earlier this year that she wants to raise the Washington-based fund’s lending capacity by $500 billion to fend off “further shocks” to the global economy. In April, she won commitment for about $430 billion, with key emerging markets such as Brazil and China withholding their specific pledges until progress is made giving them a bigger say in how the lender is run.
Lagarde canceled a planned trip to Brazil this week to focus on “ongoing developments in Europe,” the IMF said yesterday in an e-mailed statement.
Angel Gurria, secretary general of the Paris-based Organization for Economic Cooperation and Development, signaled that emerging nations may supply some of the IMF boost.
“There are some conspicuous absences,” he said in an interview in Los Cabos yesterday. “Those large emerging countries that are part of the G-20 are now part of the solution.”
The G-20 meeting is the second straight summit to be overshadowed by developments in Greece. A victory today in parliamentary elections for Syriza, an anti-austerity party, may lead Greece to renege on the terms of its bailout and become the first nation to leave the euro zone, throwing global markets into turmoil.
Syriza was in a dead heat with New Democracy, which says its rival will take Greece out of the currency union, according to an exit poll broadcast on state-run NET TV. The first official result is expected around 9:30 p.m. local time.
The global economy is at a “very dangerous moment,” World Bank President Robert Zoellick said in Los Cabos. “If people don’t come to the fundamental decisions, first at a national level, but work it out internationally, very bad things could happen.”
Calderon, who is preparing to step down after July 1 Mexican presidential elections, said that it’s “very difficult to predict” the outcome in Greece.
“My experience is that during campaigns you say a lot of things,” he said, when asked about the prospects of Syriza gaining power. “The key moment we’re only going to know when there’s a government formed.”
For the meantime, Calderon said European governments must work together to strengthen their institutions to prevent damage from spreading to countries like Spain and Italy. The G-20 communique will endorse steps taken by Europe to achieve a closer monetary and fiscal union, he said.
“When your credibility is broken, there’s no system or economy than can sustain itself,” Calderon said, adding that for now Europe doesn’t face such a dire threat. “We still have time, and Europe still has time, to make the right decisions.”