A stronger firewall is needed to protect the world economy from Europe's debt crisis, but the International Monetary Fund may not need as much money as it thought just a few months ago, said IMF Managing Director Christine Lagarde.
Speaking yesterday (12 April) ahead meetings of finance chiefs in Washington on 20-21 April, Lagarde said a deal among countries on giving more money to the fund would likely take time, signalling an agreement may not be sealed next week.
However, she said economic and financial risks the IMF had identified just three months ago had receded and the global lender's funding needs were now smaller.
In January, the IMF estimated it would need an additional $500 billion (€379 billion) to lend and another $100 billion (€76 billion) for reserves to erect an adequate safeguard against the risks posed by the eurozone's crisis.
Both advanced and emerging economies, including Japan and Canada, have said they want Europe to do more to help itself before they offer fresh resources to help.
Lagarde said she was not concerned about building up IMF resources for the eurozone but for countries outside the region that could face fallout.
"A stronger global firewall will help complete the 'circle of protection' for every country," she said at the Brookings Institution in Washington. "The IMF can help. But to be as effective as possible, we need to increase our resources."
The meetings of the IMF's 187 member countries next week will be dominated by discussions on new IMF resources, growing concerns Europe's crisis could widen to Italy and Spain, and slowing growth in major emerging markets, including China.
Lagarde said the IMF was reassessing risks to the global economy, and how actions taken by Europe to address its crisis may have tempered them. "The needs now may not be quite as large as we had estimated earlier this year," she added.
Still, the former French finance minister said the "the risk that looms largest is that sovereign and financial stresses return with renewed force in Europe."
Lagarde said policy actions in Europe helped to restore some stability in financial markets.
"Some of the dramas that we envisioned in 2011 and the very beginning of 2012 not only have not materialised but some good news has actually restored a little bit of the confidence," she said.
"So we need to cautiously reassess, and are reassessing, to a lower number in terms of risk, which will bring me to probably reassess a lower number" for the amount of additional funds the IMF needs, Lagarde added.
Last month, Europe expanded its own bailout capacity to €700 billion from €500 billion, hoping that finance chiefs from the Group of 20 advanced and developing nations, who meet on April 20, would agree to contribute more money to the IMF.