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South Africa has announced at the G20 summit in Mexico that it will contribute $2 billion (R17bn) to the International Monetary Fund’s firewall to try to prevent the European debt crisis spreading to the rest of the world.
South Africa’s investment will be part of a wider commitment by countries to increase the IMF’s resources by more than $430bn to try to contain the crisis.
President Jacob Zuma and other leaders of the Brics bloc (Brazil, Russia, India and China) agreed to put money into the IMF’s firewall fund at a meeting on the sidelines of the summit. China offered to contribute $43bn to the crisis-fighting reserves, adding to offers of $10bn each from Brazil, Russia and India.
The other leaders of the bloc of emerging nations are Brazilian President Dilma Rousseff, Russian President Vladimir Putin, Indian Prime Minister Manmohan Singh and Chinese President Hu Jintao.
There had been some uncertainty about whether the Brics would agree to help bale out the northern developed countries because they had been holding out for increased representation in the IMF’s decision-making board in exchange for more of their funds.
But instead they decided to commit the increased funds first.
The South African government said: “Our 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 reform of voting power and reform of quota shares.”
Caroline Bracht and John Kirton of the G20 Research Group, a Canada-based independent institute, praised Brics for showing “solidarity with crisis-inflicted Europe, by promising to help find co-operative solutions to resolve this crisis”.
IMF member countries decided two years ago that EU member states should give up two of their seats on the IMF board but no decision has yet been taken about which other countries should get the seats.
Zuma went to the Mexican G20 summit in Los Cabos with a request that sub-Saharan Africa would get one of the seats, but it is not clear if this will be decided at the summit which ends today.
Explaining the decision to invest the $2bn, the SA government statement said: “The crisis centred in Europe persists and it is affecting the rest of the globe.
“The resources could be used by all of the 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.”
The SA government’s contribution was the minimum required to participate in the New Arrangements to Borrow (NAB) and represents 0.09 percent of the total money in the fund.
The government stressed that if SA ran into debt problems after lending money under the NAB, “this money will be repaid to South Africa immediately”.