REUTERS

Mexico's President Felipe Calderon.

Major developed economies and rising world powers need to back the International Monetary Fund with more resources to fight financial crisis, President Felipe Calderon said on Tuesday, as his country took over leadership of the Group of 20 heavyweight economies.

Latin America's second-largest economy takes the helm of the world's main economic policymaking forum at a time of intense uncertainty about the euro zone, where large economies like Italy and Spain are being punished by markets.

One of Mexico's first tasks will likely be to broker a deal for increased IMF resources so it can, in turn, provide more support to Europe, which may come with a demand from emerging markets for more say in the fund's administration.

“The G20 (must) contribute to designing mechanisms to increase the Fund's resources in the short term so that it can attend to the most pressing needs of the current crisis,” Calderon said in a speech to outline Mexico's G20 priorities.

European policymakers agreed at a summit last Friday to lend up to 200 billion euros to the IMF and one option would be for key emerging markets to do the same. Officials present at the talks said this was not discussed in detail.

Many other countries want to see even bigger commitments from Europe, as well as clearer plans to rein in deficits, before they would increase contributions, analysts said. Calderon said Europe had to do more to contain the crisis.

“It's crucial that developed economies - particularly Europe, but also the United States - assume their responsibilities, that they take clear and strong decisions to balance their public finances,” he told an audience of diplomats, financial officials and journalists following a two-day seminar in the Mexican capital.

Brazil and other major emerging economies have said they are willing to increase their contributions, but the mechanism still has to be defined. Brazil, which chaired the G20 in 2008, wants to fast-track reforms agreed in 2010 to increase emerging powers' say in the fund's management.

Calderon, who has made backing global climate talks one of his major foreign policy issues, also used the event to take an indirect swipe at Canada, which became the first country to withdraw from the Kyoto protocol on Monday “It is worrying and shameful that countries which have been very committed to humanity through the fight against climate change have decided to abandon the Kyoto treaty ... just at the moment when the world most needs more help to confront this with timely actions , “ Calderon said.

STIFF CHALLENGE

Although growth in the United States is looking moderately stronger, China is slowing under the weight of the crisis in Europe, its biggest trade partner, and nervous investors are putting emerging market assets under pressure.

“Mexico faces a particularly stiff challenge in the sense that the timing is particularly unfortunate to be trying to take over the presidency,” said Capital Economics economist Neil Shearing in London.

“We are perhaps more downbeat on the prospect for a resolution to this crisis and the global imbalances which underpin the crisis than we ever have been.”

Mexico promises a narrower and potentially more achievable G20 agenda than France, which just ended its one-year G20 presidency that aimed to wean the global monetary system off its reliance on the dollar, regulate commodity markets and establish a more formal G20 institutional structure.

Mexico's priorities remain ambitious, ranging from addressing global economic imbalances - something policymakers have been struggling to fix for a decade - to food security and climate change.

“Today we are living one of the most delicate moments of the greatest vulnerability of the global economy that has been seen in a long time,” Calderon said.

Mexico, whose economy is closely tied to the United States, will also face challenges in reaching out to other emerging markets such as China and Brazil, where there is more skepticism of the agendas of the United States and Europe.

“Mexico is in a tricky position,” said Gregory Chin, a senior fellow at the Centre for International Governance Innovation in Waterloo, Ontario. “The issue is whether Mexico can forge a narrow-focused, clear agenda and then get the other emerging market economies on board with them.” - Reuters