By Tim Montgomerie
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"Australia, Singapore, Republic of Korea and the United Kingdom will make contributions to the International Monetary Fund as part of a broad based global effort at the IMFC/G20 2012 Spring meetings to increase the precautionary resources of the IMF. This will be by way of contingent loans or note purchase agreements.
The IMF plays an essential role in supporting stability in the global economy, from which we all benefit. These resources will increase the lending capacity of the IMF and enable it to play its systemic role for the benefit of all members. Should these additional resources be used, they would support well designed IMF programs with appropriate conditionality and risk mitigating measures would apply. Australia will contribute $7 billion, Singapore $4 billion, Republic of Korea $15 billion and the United Kingdom $15 billion."
Aides to the Chancellor are keen to point out that the Liberal Party of Australia (the conservative opposition downunder) is also backing the increase in the IMF's resources. Conservatives in America are not, however, and neither is the Obama administration (partly because it knows the GOP-controlled House of Representatives would veto extra resources). Yesterday Timothy Geithner, US Treasury Secretary, said:
"What we did not want to see is people [looking] to the IMF as a way to substitute for a more forceful European response. Europe is a relatively rich continent. It absolutely has the financial resources to manage this problem. It's got to play the dominant financial role."
Also nervous about extra resources for the IMF is Canada's Conservative government. When French Finance Minister Christine Lagarde became the IMF's managing director many worried that the Fund was again in the hands of someone ready to save the €uro at all costs. Canadian Finance Minister Jim Flaherty has said that any use of IMF funds to prop up the single currency should be subject to two votes. A bailout should be approved by a majority of non-European IMF members as well as a majority of all IMF member economies, he has recommended.
George Osborne will technically be able to avoid a Commons vote on this extra subscription to the IMF because only a portion of the last increase in Britain's contribution has actually been allotted. The Chancellor will be eager to avoid another clash with Tory rebels. 32 Conservative MPs opposed the Government's bailout policy last time round and there is a strong feeling that countries like Greece need to decouple and devalue if the €urozone isn't to become a low growth, high unemployment economic area. Earlier this week, however, Matt Hancock MP – Mr Osborne's former chief of staff – argued that there were greater risks to the UK recovery if the €urozone failed than if it held together.
The UK contribution is part of a much bigger increase in IMF firepower. IMF resources will grow by $320 to $400 billion.
> 5.45pm – Video of George Osborne explaining the decision.
“The IMF has a vital role to play in the global economy and should have the resources to do that job, but it should not be bailing out the eurozone when the euro area countries are not doing their own bit to help themselves. The IMF should not become the de factor central bank of the eurozone. That is the principled position Labour and the US government have taken and why we voted against increased funding last summer. Just a few weeks ago George Osborne said he could not even consider giving more funding to the IMF until we saw ‘the colour of the eurozone money’. But we have still not seen the colour of the eurozone’s money and there is still no political agreement to let the European Central Bank do its proper job as lender of last resort. George Osborne needs to explain why he has suddenly changed his mind and why he is running so scared of Parliamentary scrutiny on this important issue.”
Click here for Shadow Chancellor's full statement.