The UK government is about to ask Parliament’s permission to subscribe for £9.5 billion of new capital to the IMF. I expect we will be told we have to do this, there is no alternative, it’s part of the price of our memebrship of this international club.
So let me begin by saying I am not recommending we withdraw from the IMF or refuse all new subscription. What I would like us to do is to argue against the IMF making more money available for a second Greek bail out when the first does not work.
I also think we could offer a lower additional subscription than the one currently proposed. The interesting thing about the proposed new subscriptions is how variable they are. China and India are offering large percentage increases in their subscriptions, to reflect in their IMF share their growing stature in the world economy. Meanwhile despite their good oil revenues, Kuwait is only offering a 40% increase and Saudi a 43% increase in their sub compared to the UK’s proposed 88%.
It’s not merely the oil countries that are below us. Germany at 83%, Switzerland at 66%, Holland at 69% and Canada at 73% are also all below us. Belgium at 39% shows that just like an oil country a rich European country can offer a much lower amount.
If the Uk matched Belgium and Saudi our new subscription would be £4.3 billion rather than £9.5 billion. In our financial position that would be a lot more comfortable. It would also be a smaller loss in Greeece and fringe Euroland if we did not win the agrument about what the IMF should be doing with our money.
The IMF needs to heed the market warnings about the dangers of Greece and maybe others not being able to repay all their debts on time. Greece would have to pay 17% interest to borrow 10 year money in the market today. Holders of 10 year Greek debt have lost 40% overthe last three years (capital and income combined). Portugal and Ireland woudl have to pay 11% today for 10 year money. Holders of 10 year bonds have lost 20% over the last three years (income and capital combined) in these two cases.