By Jan Strupczewski

BRUSSELS - European Union finance ministers will on Tuesday back a call from the International Monetary Fund to double its funds to US$500 billion ($773.4 billion) at this week's G20 finance ministers' meeting, a document showed on Monday.

The draft paper seen by Reuters says the raise should be split fairly among IMF members, particularly those with large currency reserves - in line with previous calls for countries like China and Saudi Arabia to pay a sizeable share.

'We agreed on the need to increase resources of the IMF, the lending capacity of the IMF in these circumstances,' Economic and Monetary Affairs Commissioner Joaquin Almunia said after finance ministers from the 16 euro zone countries met.

'We agreed also the need to improve the way the IMF can contribute to surveillance,' he added after the talks, which are due to be widened on Tuesday to incorporate EU countries outside the euro zone.

The document spells out the position of the 27-country EU on economic policy, regulation, international institutions, the IMF and Multilateral Development Banks for the G20 finance ministers and central bankers meeting near London on March 13-14.

'It is essential that the IMF has appropriate financial means to assist countries particularly affected by the current crisis,' said the document, a draft paper to be approved by ministers of the 27-nation bloc on Tuesday.

'EU member states support a doubling of IMF resources and are ready to contribute to a temporary increase, if needed,' it said.

'The additional resources should be mobilized in the first instance via enlarging and expanding the NAB (New Arrangements to Borrow), on the basis of a fair burden-sharing, notably by encouraging countries that over the last years have accumulated significant foreign reserves to participate,' the document said.

China and Saudi Arabia fit that description of countries with large reserves. Officials in Europe have said that they need to contribute significantly in return for their place in global policy coordination via the G20 forum, which includes the world's largest economies, industrialised and developing.

Prevent future crises

Borrowing by developing countries from the IMF, World Bank, the Inter-American Development Bank, the Asia Development Bank, and the African Development Bank has risen sharply as the global crisis deepens.

In the last few months alone, the IMF has doled out rescue packages to Iceland, Hungary, Latvia, Ukraine, Serbia and Belarus, Pakistan to the tune of $48 billion, and is in talks with Turkey on a new lending programme.

Romania is to enter talks about IMF financial help this week and Lithuania has not excluded turning to the Fund for money.

Japan, a big "surplus country", has already agreed to give the IMF US$100 billion in extra funds. The World Bank said on Sunday developing countries could face a financing gap of US$270 billion to US$700 billion this year as trade income dwindles, while the IMF said last week that such countries would need US$25 billion, and possibly as much as US$140 billion, this year alone to meet their financing needs.

G20 officials will on Friday and Saturday discuss how to deal with the global crisis. Mark Malloch-Brown, Britain's G20 envoy, said on Friday he would seek extra funds from China and oil-rich Saudi Arabia, G20's only Arab member.

Apart from more money, the EU will support giving the IMF more powers in economic and financial surveillance to prevent future crises, according to the EU document. The IMF should be able to make recommendations.

'The IMF's recommendations ... should become a key internationally shared guideline for macroeconomic policies,' EU finance ministers are to tell their G20 counterparts.

EU finance ministers will tell counterparts that cooperation on restoring the normal functioning of credit markets was vital, as was avoiding economic protectionism, the paper said.

'Countries should also avoid exchange rate devaluations aimed at gaining short-term competitive advantages,' it said.

It said that, with fiscal stimulus packages already agreed, the focus should now be on their swift implementation, but that the sustainability of public finances was crucial.

'Once the recovery takes hold, an orderly reversal of the macroeconomic stimuli is warranted,' the ministers will say.

EU ministers will also say that multilateral development banks should have adequate capital to help members counter the economic consequences of the crisis, but that the need for increasing resources should be assessed on a case-by-case basis.