IMF Likely To Expand Resources To $1.3 Trillion: Report

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The International Monetary Fund may consider expanding its financial resources to $1.3 trillion to fight the debt crisis, that now threatens to engulf the entire Eurozone, German daily Frankfurter Allgemeine Zeitung (FAZ) reported Monday.

IMF Managing Director Christine Lagarde has signaled that the Fund may need extra funding to bailout larger economies in the Eurozone if crisis deteriorates.

In an "action plan" distributed to the IMF steering committee over the weekend, she said "the fund's credibility, and hence effectiveness, rests on its perceived capacity to cope with worstcase scenarios."

"Our lending capacity of almost $400 billion looks comfortable today, but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders," she said in the action plan.

In a speech in Washington on Sunday, former Bundesbank president Axel Weber said that policymakers must tackle the root causes of the global economic crisis, not just the symptoms.

Weber said that the IMF should not be permitted to sell bonds on capital markets to raise additional funds to lend to financially troubled member countries. Now the IMF taps capital paid in by all member countries to make short-term loans to countries in distress. "If it sold bonds, its unique character as a monetary institution would be lost," Weber warned.

He also urged that the central banks might leave the institution, making it the province of ministries of finance, as the World Bank now is. It could also enhance the IMF's lending capacity, which some analysts think is too small, Weber noted.

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