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 Simple maths, complex politics - UK funds for the IMF

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Registration date : 2011-02-23

PostSubject: Simple maths, complex politics - UK funds for the IMF   Mon Nov 07, 2011 9:31 pm

Ross Hawkins By Ross Hawkins Political correspondent, BBC News
IMF chief Christine Lagarde Christine Lagarde took over as IMF chief following the resignation of Dominique Strauss-Kahn
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* UK 'could give £40bn to the IMF'
* PM: 'No risk' to UK in IMF plan

The government says it would be able to hand over as much as £40bn to the IMF without a vote in the House of Commons.

That is more than three times as much as the annual budget for the police in England and Wales.

It is more or less the amount the Treasury raises in Corporation Tax in a year.

And until the weekend, many at Westminster had no idea the figure was so big.

Yet Parliament has already agreed to what Chief Secretary to the Treasury Danny Alexander describes as a £40bn "ceiling".
Ifs and buts

The maths are simple.

In July 2010, MPs approved an expanded loan arrangement that could see the UK lend the IMF just short of £20bn.

In June 2011, they approved an increase in the UK's IMF quota - the amount the IMF could call on in addition to that loan - worth just over £20bn.

This, though, is a story of ifs and buts.

Firstly, the amount of UK taxpayers' money sat in IMF coffers is much, much smaller - around £4.9bn. The larger sums represent the amount the UK could lend if required.

Secondly, the government's plan has been to keep the UK's total liability steady at £29.4bn with the loan going down as the quota went up.

Thirdly, among those MPs who voted on this summer's increase, there were some who were not fully aware of the previous summer's decision.

The government is not explicitly saying it intends to push up the UK's guarantee to the IMF to the full £40bn.

But it is dropping some very heavy hints. David Cameron told the House of Commons: "If it comes to extra support for the IMF we want to do that within the headroom that's been set."

Put another way, he is willing to see the UK's maximum potential IMF contribution rise to £40bn. But the prime minister would almost certainly insist on seeing eurozone countries agreed on further measures to help their currency first.

Ministers also point out no country has ever lost money lending to the IMF, and that lending to the IMF does not count as public spending.
Brown government

Some Conservative backbenchers regard all this with considerable suspicion.
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“Start Quote

In a time of austerity, extra resources or fatter guarantees for the IMF will face stiff opposition”

End Quote Ross Hawkins

They are well aware that the Cannes G20 summit failed to place a figure on increasing the IMF's firepower, but the words of the organisation's managing director, Christine Lagarde - noting she left Cannes with an "unlimited no-cap, no-floor, no-ceiling on resources" - also ring in their ears.

The complex nature of the UK's contribution to the IMF may well have foxed some of its potential critics, but it is not a cunning coalition ruse.

It was at the London G20 meeting of 2009 that an agreement to boost IMF resources by up to $500bn was agreed, a meeting chaired and driven by Gordon Brown.

This money was channelled in large part through the system of loans known as New Arrangements to Borrow that supplement contributions IMF members make through their quotas.

That is why Britain is committed to making substantial guarantees to the IMF through two different routes.

Much has changed since 2009 though. Rather than trumpeting extra IMF spending, Labour voted against it in the summer. So too did 32 Conservative backbenchers.

In a time of austerity, extra resources or fatter guarantees for the IMF will face stiff opposition in Parliament, whether there's a vote or not.

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