IMF May Have to Take a Stronger Role if EU Doesn't Act - World Bank Chief
06/17/2012| 08:28pm US/Eastern
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By Christopher Emsden and Ian Talley
LOS CABOS, Mexico--The International Monetary Fund may have to step up to a larger and different role in Europe if European Union authorities don't agree to a convincing plan on their regional currency union as planned by the end of the month, World Bank President Robert Zoellick said Sunday.
He noted that the IMF had in previous crisis in Latin America and Southeast Asia acted with local governments and central banks "on the other side of the bargaining table."
IMF programs in the EU, however, have been agreed with the Fund acting alongside the European Central Bank and the European Commission, Zoellick added, noting that such so-called troika arrangements were a novelty. He said he had an "honest worry" that this might not work.
"If Europe can't in this meeting or by the end of the month's summit can't give us a plan or the answers, you're going to see pressure that says to the IMF, you get on the other side of the table, you put the ECB on the this side of the table with the governments, because that's how it was done with Latin America and Asia," Mr. Zoellick said.
His comments come as the Group of 20 largest nations are likely to back boosting the IMF's resource pool by at least $430 billion this week, cash the IMF says it needs if the euro crisis worsens.
Stressed EU nations such as Italy and Spain needed some "medium-term funding relief" that would match the amount of time it will take those two countries' structural reforms and fiscal consolidation to bear fruit, he said.
"It's going to take time for those reforms to pay benefits...they need a duration match between reforms and the funding," Mr. Zoellick said, warning, "if somebody doesn't execute it,. then the uncertainty is going to increase."
Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, said on the same panel that downside risks to Europe's economy could impose a "major shock" on the global economy. That means that "the crisis is no longer just a European issue."
"Europe has to mobilize its strengths...and of course, immediately put out the fires associated with the banking and sovereign debt crisis," he said. Simply "muddling through," as the OECD had previously predicted for the global economy, was looking far less likely a scenario.
Inaction could lead to "a very great slump, cost millions of more jobs" he warned.
Central banks that have room for further action should use it, and countries that have fiscal room should do so as well, Mr. Gurria said.
While the world's monetary and fiscal policies seem to be running out of room, "whoever has some room should use it," he said.
"The European Union is always reinventing and rebuilding itself but now it's time to remove the scaffolding," he said.
International Monetary Fund chief Christine Lagarde said the IMF was having to evolve with the crisis, leaving the door open to changing its traditional role as emergency lender.
"It requires that we do additional study and additional analytical work to determine whether or not the usual mix is actually the appropriate mix to deal with those particular countries," she said.
IMF officials have said as long as the economic goals remain roughly the same, it's open to renegotiating Greece's debt program. Such flexibility will be important as the IMF and Europe head back to the negotiating table with Greece's new government, once it's formed.
Write to Chris Emsden at chris.emsden@dowjones.com and Ian Talley at ian.talley@dowjones.com
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