IMF head seeks help in China, Japan for euro rescue

International Monetary Fund chief Christine Lagarde was to arrive Wednesday in China on her world-wide quest to secure more backing to bailout the crisis-ridden eurozone. On her upcoming visits to China and Japan, following her departure Tuesday from Russia, she has the clout of an increasingly powerful IMF. But her mission is not easy.
Just a few years ago, the IMF was fighting to keep its relevance in the international world of finance. It wasn't until the global financial crisis of 2008 that the organisation reclaimed a major role on the world scene. Since then there appears to be no limit to the IMF's increasing role. As late as last week, at the G20 summit in Cannes, France, the organisation was given oversight of Italy's austerity programme, providing an immense boost to the IMF's influence in Europe.
Lagarde's new mission, seeking broad world support for the eurozone and its rescue fund, the European Financial Stability Facility (EFSF), has only bolstered the IMF's importance. Lagarde is seeking support from Russia, China and even Japan to round up billions of dollars. And few can say no to investing more money in the IMF - or at least in European country bonds. But every country has conditions.
In Moscow, Lagarde met Monday with Russian President Dmitry Medvedev, where senior Russian officials said they would be willing to work with the fund on an assistance plan for the embattled eurozone. Prime Minister Vladimir Putin has rejected the suggestion that Russia invest directly in the EFSF, but he indicated there were other possibilities. Discussions have centered on the amount of 10 billion dollars. In exchange, there is an expectation that emerging economies gain a greater say in decisions about the global rescue plan.
China on the other hand is clearly prepared to buy European bonds and help stabilise the euro, which would also be in its own interest. The European Union is China's largest export market, and a recession there would unleash a harsh backlash on China.
An academic advisor to Beijing's Central Bank, Li Daokui, spoke in an interview of a possible sum of 100 billion dollars. But the government is moving cautiously, and has not echoed this figure. China is also beholden to continue investing in the euro to protect the value of its own foreign reserves, which are increasingly made up of the currency due to a growing trade surplus with Europe.
But whether additional direct investments follow or Beijing decides to use the IMF as its channel for its helping hand is unclear. After the decisions of the eurozone to expand the EFSF, and amidst the chaos of Greece and Italy, Beijing has been reticent. The technical details of the eurozone umbrella must first be ironed out, possibly by early December.
In exchange, the Chinese government is seeking recognition as a market economy - as protection against anti-dumping complaints and as a symbolic approval for the Chinese leadership. Beijing is also demanding more say for emerging economies in the IMF. Even Japan, also dependent on exports, has signalled its readiness to buy European bonds to help stabilize the euro. Tokyo, which has the next-highest foreign currency reserves after Beijing, has taken on about 20 per cent of the European rescue bonds.
Japan's Finance Minister Jun Azumi advocates an expansion of the IMF's capacity to avoid a spillover of Greece's debt crisis onto larger European Union countries, according to Japanese media. He was recently quoted as saying that the IMF must serve as a wall against the crisis, a position which matches Lagarde's goal of doubling the IMF's resources to 2 trillion dollars.
Brazil might also lend its support to the IMF's rescue mission, but only if the Europeans meet their responsibilities, Finance Minister Guido Mantega said. That means setting up the EFSF, the inclusion of additional reserves of the European Central Bank in the eurozone rescue, and the resolution of the Greek problem, Mantega says. "None of that has yet been accomplished, therefore there has as of yet been no concrete offer (from Brazil)," the minister said.