Korea pledges $15 bln to G-20`s increase of IMF war chest

The Group of 20 major economies has pledged 430 billion U.S. dollars in new funding for the International Monetary Fund to guard against contagion risks triggered by the eurozone debt crisis. Korea will contribute 15 billion dollars, third highest among G-20 member countries that released their contributions.

In late 1997, Korea had received a massive bailout from the fund in the wake of the Asian financial crisis. After significant setbacks, the G-20 and the IMF finally reached an agreement, establishing a firewall to prevent Spain and Italy from sliding toward default.

○ IMF raises 430 billion dollars for crisis firewall

Finance ministers and central bank governors issued a statement Friday at the G-20 meeting in Washington, saying they agreed to raise lift funding resources by 430 billion dollars to the IMF.

Seventeen countries that use the euro have committed 200 billion dollars and Japan 60 billion dollars. Korea and the U.K. will each offer 15 billion dollars, the third-largest amount by an individual country.

Sweden, Denmark, Norway and Poland committed a combined 34.3 billion dollars, while China, Russia and Brazil collectively pledged 72 billion dollars.

Korea`s donation will come through contingent loans from foreign exchange reserves, which will be returned should an emergency arise in Korea`s currency market.

While discussions saw a rough going Friday, Korea, along with Singapore, the chair country of the IMF Committee, is known to have persuaded the U.K. and Australia to contribute to the new funding plan.

In a meeting the same day, Korean Strategy and Finance Minister Bahk Jae-wan in a speech quoted Elvis Presley`s song "Suspicious Minds" in persuading member countries that were reluctant to provide funds. Quoting the lyrics, "We’re caught in a trap, I can‘t walk out," he said, "Let`s work together in escaping (from the European debt crisis)."

"Korea decided to provide 15 billion dollars after considering the IMF`s funds capacity target, its global role in having chaired the G-20, the IMF`s increase in Korea`s quota, and other G-20 countries` participation."

○ Discord among major economies

The IMF`s new funds will be used on debt-stricken eurozone countries including Spain and Italy.

The fund estimates that it needs 1 trillion dollars to contain the eurozone crisis. European countries had demanded that the European Fiscal Stability Fund provide 500 billion dollars and the IMF the remainder.

With Spain and Italy facing a national default, the IMF`s new funds are expected to help contain the eurozone crisis. European stock markets rallied Friday after the IMF and G-20 reached an agreement, with Germany`s main stock index DAX30 rising 1.18 percent and the U.K.’s FTSE 100 gaining 0.48 percent.

Major economies, however, disagree on how to solve the eurozone crisis. The U.S., the largest shareholder of the IMF, along with Canada refused to participate, calling the self-rescue efforts of eurozone countries "insufficient."

China and Brazil are demanding that the IMF increase the quota of emerging economies as a prerequisite to their funding contributions. The fund will come up with a quota reform plan by January next year, but the process will likely involve major discord between advanced and developing economies.

Eurozone countries` sluggish self-rescue efforts also remain an obstacle. The IMF has demanded drastic restructuring, with the fund`s managing director Christine Lagarde warning of another eurozone crisis if the bloc fails to regain trust.

weappon@donga.com