Brazil seeks IMF reform in exchange for euro zone aid

Brazil is wary of opening up its $350 billion in foreign exchange reserves for IMF aid until it receives a political commitment to reform that would give emerging market nations greater representation and influence over the fund’s decisions.

While the IMF has around $500 billion already available, officials have estimated the fund needs more than $1 trillion to backstop the rich countries whose sovereign debt is collapsing the euro zone.

European officials have pledged to contribute $200 billion, leaving countries from poorer regions to come up with the remaining $300 billion or more. The IMF wants Brazil, Russia, India, China, Japan and oil-exporting nations to be the top contributors to the fund, according to a G-20 official.

Finance ministry officials of G-20 nations are currently meeting in Mexico to discuss the euro-zone crisis and possible solutions. The IMF has so far been unable to convince G-20 nations to make firm pledges for cash, meaning BRIC nations like Brazil have leverage for concessions.

At a G-20 meeting in France last November, Brazil agreed to investigate offering aid through a general assistance fund administered by the IMF, but refused to give direct aid to European governments or stabilization funds.

Moody’s has said it may review Brazil’s credit rating in the second half of 2012. The iShares MSCI Brazil Index ETF (EWZ, quote) traded at 64.80 Thursday, up from 54.30 in November.

The IMF’s biggest contributor — the United States — has no intention of giving more aid to the IMF to help resolve Europe’s current woes.

by Mitchell Hall for Emerging Money

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