Treasury is considering whether New Zealand should contribute more money to the International Monetary Fund, but is waiting to see what other small economies agree to commit as the IMF seeks to double its warchest.
IMF managing director Christine Lagarde announced over the weekend that the G-20 economies had committed to a US$430 billion expansion of the Fund's resources, almost doubling its lending capacity.
In January, Lagarde was hoping for a US$600 billion expansion of the fund's resources, due to fears sovereign nations may require US$1 trillion worth of bail-out loans over the next couple of years. She relaxed this view earlier in April after "some of the dramas" expected in late 2011 and early 2012 did not materialise, while "a little bit of confidence" had been restored to markets.
At an IMF meeting in Washington, only some G-20 governments promised set amounts to expanded IMF resources up front. This included Australia, which will contribute US$7 billion towards the expansion. The American government refused to contribute any more resources to the IMF, while China, Brazil, Russia and India did not set specific amounts despite indicating they would contribute.
The Canadian Finance Minister ruffled feathers last week by suggesting non-EU members of the IMF should be given a further vote on IMF lending due to the heavy EU representation at the IMF. This would effectively allow non-European members to veto bail-out packages.
The latest increase in IMF resources comes alongside an expansion in the European Union's own 'firewall', the European Stability Mechanism (ESM). EU members have pledged to increase the ESM from 500 billion euro to 800 billion euro.
What will NZ do?
New Zealand Treasury officials have been meeting with the IMF in Washington DC, and will be reporting back to the government on possible actions New Zealand might take.
A Treasury spokesman told interest.co.nz that New Zealand was supportive of ensuring an appropriately-resourced Fund, along with a strengthened European firewall, "as these underpin market confidence in the international financial and economic system."
Treasury would actively consider whether New Zealand should contribute to additional lending, and was waiting to see what other non-G20 countries were going to do before committing more New Zealand funds, the spokesman said.
What we currently contribute
New Zealand contributes to the IMF in two ways. One is through the IMF’s regular quota resources, while the other is a credit line called the New Arrangements to Borrow.
New Zealand currently accounts for 0.38% of the IMF’s quota resources. Our quota – effectively promissory notes - is equivalent to about NZ$1.8 billion. Just over 30% of this has been paid in to the IMF, which then uses that money to fund bail-out packages for countries such Greece, Ireland and Portugal.
New Zealand signed up to the New Arrangements to Borrow credit line in 2010. Originally, the NAB was only supposed to be used once quota resources were exhausted. However, political wrangling over quota increases (separate from last weekend’s commitments) meant the IMF turned to the NAB facility for funding.
New Zealand currently accounts for 0.17% of NAB resources, equivalent to NZ$1.3 billion. New Zealand has currently lent about 7% of its NAB commitments to the IMF.
That’s set to change
Before last weekend’s commitments, the IMF was part way through a process of raising countries’ quota commitments and reducing the NAB facility.
With these changes, New Zealand’s quota was set to rise to the equivalent of NZ$2.5 billion, which would represent 0.26% of the Fund’s new quota resources.
New Zealand’s NAB commitments would fall to NZ$0.7 billion, which would represent 0.19% of the revised NAB facility.