Although Mohamed El-Erian had long advocated for aid to troubled Europe (with an obvious interest in mind), he wants strong strings attached to any lending, especially when it comes to the International Monetary Fund.
“At this weekend’s G20 meeting, European countries are likely to press for an increase in the International Monetary Fund’s resources as a means to bolster the firewalls against the eurozone debt crisis. The other G20 members must resist such pressure until Europe starts showing more signs that it’s getting its act together,” he writes Friday in the Financial Times.
The organization that consists of with 187 member countries is already overexposed to the eurozone countries that are in crisis, he argues. Greece, Ireland and Portugal combined account for almost 60% of outstanding loans even before the fund’s participation in the latest bailout for Greece announced earlier in the week.
“Europe is attracted to IMF financing for four reasons,” he notes. “It is a very cheap source of funding, especially for countries that are essentially shut out of private markets. It can act as a catalyst to unlocking other public and private financing. It is accompanied by a set of policy conditions, including both quantitative and qualitative performance targets. And it can come with technical assistance to strengthen the borrowing country’s administrative capabilities.”
Europe has pressed the IMF very hard to make exception after exception over the course of the past few years, he adds, and it has succeeded, which has resulted in a “number of firsts by an organization that prided itself on the ‘uniformity of treatment’ for member countries.”
“All this has understandably raised concerns among the other members, most acutely in Asia and Latin America where people still have vivid memories of what they were made to go through before receiving what now seem like relatively small loans compared to Europe,” he concludes. “It has also damaged the standing of the IMF in the private sector.”