By Lesley Wroughton
WASHINGTON (Reuters) – The head of the International Monetary Fund will seek to activate a $580 billion crisis fund next week, a confidence-building step at a time of heightened global uncertainty.
“The biggest worry is the high risk of contagion from Portugal and general global uncertainty will trigger a new wave of borrowing from the fund,” a source familiar with the plan said. Two other sources also said economic worry spots were behind the expected move.
The IMF confirmed that IMF chief Dominique Strauss-Kahn would seek to activate the fund — New Arrangements to Borrow — but said it was a “natural consequence of ratification of NAB on March 11, which was previously announced.”
Still, the global worry list has expanded in recent weeks because of Japan’s earthquake and nuclear crisis, as well as unrest spreading in the oil-producing Middle East and North Africa.
Concerns about Portugal’s debt crisis increased on Wednesday after the sudden departure of its prime minister made it likely that the country may not avoid turning to the European Union and IMF for financial help.
Sources emphasized that Portugal had not requested IMF bailout money and insists it is adamantly opposed to requesting IMF help. The country first has to request IMF help to trigger formal discussions on a rescue loan and program.
So far, Portugal has managed to finance itself in capital markets although government borrowing costs spiked on Thursday and rating agency Fitch cut Portugal’s credit rating by two notches to A- saying risks to the country had risen after parliament failed to pass fiscal consolidation measures.
The concern is that Portugal’s debt woes has wider repercussions, with neighboring Spain holding about one-third of Portuguese public debt.
In a statement on March 11 announcing the NAB had taken effect, the IMF called it a tool to “provide supplementary resources to the IMF when these are needed to forestall or cope with a threat to the international monetary system.”
The NAB was expanded ten-fold from $53 billion last year to include 13 new contributors, among them large emerging market economies like China, Brazil, India, Russia and Mexico.
The move was in response to a call by the Group of 20 leading economies in 2009 to triple the IMF’s lending resources to shore up confidence in its ability to respond to crises.
The IMF has been at the center of the response to the financial meltdown and recession as the global lender of last resort, recently approving emergency loans to Ireland and Greece.
(Editing by Dan Grebler, Bernard Orr)
- IMF chief to activate crisis fund – sources (reuters.com)
- UPDATE 2-IMF chief to activate crisis fund next week (reuters.com)
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