Capital increase to IMF will stablize finance

BEIJING - China's announcement on Monday that it will contribute $43 billion?to the recapitalization of the International Monetary Fund (IMF) cemented China's image as a responsible country and conformed to national interests, experts said.

"The announcement came against the backdrop of global economic uncertainties and mounting financial market turmoil. It aims to narrow the IMF's funding gap and let it play a better role in safeguarding global economic and financial stability," said He Fan, assistant director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences.

China's contribution was part of a pledge made by G20 finance ministers in April to increase the financial firepower of the IMF by over $43 billion in order to shield the world economy from the European financial crisis.

Analysts said China's decision to boost resources for the IMF offers China a good way to use its rich foreign exchange reserves.

"China's capital commitment is not free aid. It is actually an investment and a useful foreign reserve management tool," the People's Bank of China, the country's central bank, said Tuesday in a statement on its website.

The nation's foreign exchange reserves stood at $3.04 trillion by the end of March, the largest in the world.

"It's the IMF borrowing from China on the basis of guaranteeing safe and reasonable returns," the statement said.

Ding Zhijie, an economics professor at the University of International Business and Economics, said such pledges can be regarded as a preventative measure or a credit line for the IMF, and the fund may only use a small amount of the pledged money.

For instance, "China promised to buy up to $50 billion?of IMF bills when the fund expanded in 2009, but has so far only purchased $5.7 billion?worth," Ding said.

As a global intergovernmental organization, the IMF takes necessary measures to ensure the capital safety of its member countries. "China's holdings of IMF bills are safe and with normal interest payments so far," according to the PBOC statement.

"China's capital increase to the IMF is line with China's interests and China's international status and international responsibility," the statement said.

Experts and the PBOC called on the IMF to implement its 2010 quota and governance reform package and increase developing countries' voting power in the financial organization.

In 2010, the IMF's Board of Governors agreed to shift over 6 percent of the IMF quota to emerging or under-represented countries by October this year.