ISTANBUL – The International Monetary Fund will need a “substantial increase” in resources in order to act as a guarantor of global economic stability, IMF chief Dominique Strauss-Kahn said on Sunday.
“If this process comes to an end, and it may take a long time… it will need a substantial increase in the resources of the IMF,” he said after a meeting of the IMF’s International Monetary and Financial Committee (IMFC).
Strauss-Kahn said the IMFC, which represents the fund’s 186 member nations, had opened the door for the fund to construct an international pool of reserves that members could tap when needed.
In its statement, the policy-setting IMFC asked the fund to study and report back to the panel whether there is a need to offer “credible alternatives to self-insurance.”
The fund’s new Flexible Credit Line (FCL), where members pay a fee to have access to the institution’s reserves whenever they want, has proved successful, with Mexico, Poland and Colombia signing up earlier this year amid the global economic and financial crisis, he said.
But the FCL back-stop is limited in scope and concerns only a certain category of countries, he said.
“Now we need to reflect and think about an extension of this idea of insurance,” he said, to fix the so-called global imbalances where some countries accumulate huge reserves and others build up huge deficits.
“If you want to avoid countries, including China, to build such big reserves, contributing to global imbalances, we need to find another system,” he said.
An IMF pool of reserves that members could tap could serve as an international guarantee against financial shocks, he said.
“The communique opens the door for the IMF to think about it and I think it’s very important for the post-crisis world because it’s one possible way to contribute to solving this global imbalances problem.”