A STRONGER firewall is needed to protect the world economy from Europe's debt crisis but the International Monetary Fund may not need as much money as it thought just a few months ago, the head of the global lender said yesterday.
Speaking ahead of meetings of finance chiefs in Washington on April 20-21, IMF Managing Director Christine Lagarde said a deal among countries on ponying up more money for the Fund would take time, signalling an agreement may not be sealed next week.
In January, the IMF estimated it would need an additional $500bn (€380bn) to lend and another $100bn for reserves to erect an adequate safeguard against the risks posed by the eurozone's crisis. Emerging economies want Europe to do more to help itself before they offer fresh resources to help.
Lagarde said she was not concerned about building up IMF resources for the eurozone but for countries outside the region that could face fallout.
"A stronger global firewall will help complete the 'circle of protection' for every country," she said at the Brookings Institution. "The IMF can help. But to be as effective as possible, we need to increase our resources."
The meetings of the IMF's 187 member countries next week will be dominated by discussions on new IMF resources, growing concerns Europe's crisis could widen to Italy and Spain, and slowing growth in major emerging markets, including China
Lagarde said the IMF was reassessing risks to the global economy, and how actions taken by Europe to address its crisis may have tempered them. "The needs now may not be quite as large as we had estimated earlier this year," she added.
Last month, Europe expanded its own bailout capacity to €700bn from €500bn, hoping that finance chiefs from the Group of 20 advanced and developing nations, who meet on April 20, would agree to contribute more money to the IMF.
Meanwhile, growth in global trade is expected to slow to 3.7pc this year from 5pc in 2011, the World Trade Organisation (WTO) said yesterday. Economic shocks are behind an expected slowdown. The world economy had "lost momentum" as the 2011 figure fell below its September forecast of 5.8pc.
Multiple setbacks during the year had dampened trade growth more than forecast. On top of this more Americans than forecast filed applications for jobless benefits last week, reinforcing concern among Federal Reserve policy makers that the labour-market recovery will be slow to develop in the States.