EU urges China, Gulf States to fund IMF

UK Prime Minister Gordon Brown, French President Nicolas Sarkozy and IMF first deputy managing director John Lipsky have appealed to China and the oil rich Gulf states to contribute to the the IMF fund as the $250-billion, which the IMF has earmarked to bail out countries in distress may not suffiice, as more countries are expected to be forced to seek its finacial help in wake of the global financial turmoil.

Brown appealed to China and the Gulf states yesterday to pour hundreds of billions of pounds into the IMF, warning that the organisation's $250 billion reserves "may not be enough" to bail out countries hit by the global economic crisis.

According to IMF's first deputy managing director John Lipsky, although the IMF has sufficient liquidity to bail out countries, but if the financial crisis continues much longer it may need more resources.

Gordon Brown said that both he and the French President Sarkozy had a common goal in ensuring that the IMF had enough resources to handle the present economic crisis so that it does not spread and said that the world leaders who will be meeting in November 15 at Washington will be at a crucial moment in history as to how countries get together to solve the ongoing crisis.

Brown said President Sarkozy and he would discuss with the IMF to build on its own resources to help economies that are in difficulty to prevent the financial contagion coming moving into their countries from other countries.

Without saying how much would bee needed, Brown said the requirement would run into hundreds of billions.

Brown indicated that Britain would also chip in to boost the IMF's reserves, but was clear that the bulk of the money should come from China and the oil rich Gulf states that have got the biggest surpluses.

Brown plans to tour the Gulf states to convince leader in Saudi Arabia, Qatar and the UAE, who have all increased their coffers from the recent steep hike in crude prices and will be talking to Chinese premier Wen Jiabao on the phone as China is sitting on the world's largest foreign reserves which is at $1.9 trillion as of the end of September.

Out of the present $250 billion the IMF has in its reserves, it has already committed $34.3 billion to three smaller European states - $2.1 billion to Iceland, (See: IMF approves $2-billion loan for Iceland),  $16.5 billion in loans to Ukraine (See: IMF bails out Ukraine with a $16.5 billion loan), and today approved $15.7 billion to Hungary.

Currently Pakistan, whose rupee has fallen drastically against the dollar is struggling to combat inflation, which is heading towards 30 per cent, and a collapsing currency. Its central bank, meanwhile, holds barely enough foreign currency to cover six weeks of imports because of the drain caused by high crude prices, is in talks with the IMF officials to bail them out of the current crisis. (See: Pakistan seeks IMF help),  while Belarus is among those currently negotiating an IMF loan to help overcome its staggering foreign debt.

Countries that may may not be able to handle their large foreign debt burdens and require IMF help include EU members, Romania, Bulgaria and the Baltic states. Standard & Poor's yesterday reduced Romania's sovereign rating to junk status.

Eastern Europe has suffered greatly from the global financial crisis as foreign investors who were once bullish about the region's prospects of strong economic growth and deeper integration into the European Union have dumped their assets.

Many countries have bailed out large financial institutions which has become common in the US and Europe and also guaranteed all its bank deposits, could find themselves in need of international help.

Since the beginning of the financial crisis, governments around the globe have pumped in nearly $4 trillion to shore up banks and markets and the Bank of England has said global finance has lost $2.8 trillion in the crisis which is the worst in 80 years.

Some economist feel the IMF loan to Iceland, Ukraine and Hungary is just the beginning, as the most vulnerable countries in the region, who have yet to be fel the impact of the crisis will soon be knocking at the IMF's doors.

One commentator has said that the EU countries were not conditioned to seek IMF help that the fund's members would probably have to cover for loans that would not be paid back.