South Africa to Contribute $2 Billion to IMF Firewall Against Eurozone Crisis

G-20 meeting Mexico
BRICS leaders at the G-20 meting in Mexico

South Africa has committed to contribute $2 billion of its reserves to the International Monetary Fund’s firewall fund, the Presidency said on Tuesday.

“Along with fellow members of the G20, South Africa announced in Los Cabos today that it is committed to supporting the IMF’s firewall fund, and will be investing $2 billion of its reserves towards this effort. The funds used for this purpose would be considered part of South Africa’s foreign reserves.”

This as the crisis centred in Europe persists and is affecting the rest of world, with global growth having slowed and unemployment rising.

At the G20 Summit in Cannes in November 2011, leaders agreed to increase the resources of the IMF so it can serve as a backstop in the event of further deterioration in the Eurozone situation.

The money will be drawn down only if it is needed.

“They [funds] will be drawn down only if they are needed and only after other resources have been depleted. The funds will be invested and earn interest, and would only be drawn down in emergency circumstances. If the funds are drawn down, they will ultimately be repaid and they will continue to earn interest over this period,” said the Presidency.

The resources could be used by all members of the IMF to stave off the risk of another financial crisis, which would likely lead to a sharp global slowdown and rising unemployment.

In April 2012, G20 countries and a significant number of other IMF members confirmed their participation in this effort. Commitments to increase IMF resources exceed $430 billion. The funds will be available for the whole IMF membership and will not be earmarked for any particular region.

The resources would be channelled through temporary bilateral loans and note purchase agreements to the IMF’s General Resources Account.

“South Africa’s participation in this resourcing exercise anticipates that all the quota and voice reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares,” noted the Presidency.

Previous meetings had also called for the speedy implementation of the IMF’s 2010 quota reform plan, which would not only shift more quotas to the emerging economies, but also enhance their representation inside the IMF.

South Africa and Ethiopia are the only two African country participating in the meeting of the 20 most powerful leaders and will seek to remind the world about the continent’s development agenda. Its participation among others is informed by the goal of achieving a better Africa and contributing to a better and just world.

China and New Zealand were among other countries at the summit – which concludes today – who also announced their contributions to the IMF.

President Jacob Zuma, who is attending the summit together with Finance Minister Pravin Gordhan, has previously said that the continuing vulnerability of several larger European economies presents serious negative implications for the global economy and has urged Europe to work together to resolve the debt problems which have created volatility and uncertainty in the world economy.

South Africa will be urging G20 members to put the interest of the global economy ahead of short-term national interests, and that the crisis in the Eurozone must not push development issues to the bottom of the G20 agenda.