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IMF Officials To Go To Rome Next Week, But Not Official Review

Monday, 19 December 2011 | 00:00
International Monetary Fund officials will review the state of Italy's economy and its new budget next week in Rome, but the visit won't be the official "monitoring mission" the debt-beleaguered country agreed to at a summit of world leaders last month, an IMF official said.
As the debt crisis threatens to engulf Europe's core economies, Italy told world leaders at the Group of 20 industrialized and developing economies summit last week it would allow the IMF to monitor its progress on fiscal reforms. The euro zone's biggest fear is that markets will cease financing Italy's massive spending needs, sparking a meltdown Europe would be powerless to stop.
Officials indicated in early November an IMF team would be shortly heading to Rome to start the monitoring mission. But the cost of Italian borrowing has receded slightly since then and there's been no official monitoring mission scheduled.
"They will receive updates on recent budgetary developments and discuss the modalities for future...monitoring conditions," IMF spokesman David Hawley said of the team heading to Rome next week.
Already jittery and relecutant to invest in Italy, markets could be further spooked if Italy appears to be delaying the monitoring mission.
Hawley also reiterated that while the fund currently has enough resources to meet current lending requests, it may need supplementary cash, "an augmentation of resources that would allow the fund to fulfill its systemic role, which is preserving the stability of the international financial system."
Euro zone leaders last week said they were considering funnelling EUR200 billion in central bank reserves to the fund as seed money for expanding the IMF's lending power, particularly boost its ability to come to rescue Europe. The monetary union treaty doesn't allow for Europe's central banks to lend directly into the euro zone to bailout members.
But the IMF and euro zone officials are still discussing the possible extra E.U. cash, including how it should be channelled through the IMF. The U.S. and some emerging markets are concerned that pooling the cash in the fund's general resource account and then lending into Europe would expose the IMF and its members to too much risk. Most of the IMF's lending would be concentrated in the region.
Hawley said the IMF has effectively concentrated its portfolio regionally before, such as in the Asian financial crisis. But economists say the total exposure and the size of IMF investment in Europe is orders of magnitude larger than the IMF has ever experienced.
Source: Dow Jones
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