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World: IMF Head To Urge For Larger Capital Base

  • Robert Lyle

Washington, 16 December 1997 (RFE/RL) -- In an effort to forestall any concern about the ability of the International Monetary Fund (IMF) to be able to deal with the continuing financial crisis in Asia, the head of the global agency is asking that its capital base -- the member government's quotas -- be raised by around 80 percent.

IMF Managing Director Michel Camdessus will make the proposal to a meeting of the fund's Board of Executive Directors tomorrow (Wednesday).

Each 181 member nation of the IMF has a kind of membership fee called a quota. It is determined by the size of the country's economy and determines its voting power in the fund, the amount it can borrow, and most importantly the amount of money it is required to deposit for the fund's operations.

At the annual meetings of the fund in Hong Kong in September, the IMF's governors approved a quota increase of 45 percent. Camdessus had been pushing for a much larger increase, saying that with the size of the global economy continuing to grow larger every day, the fund needed more resources to do its job, especially in case of emergency.

Thailand was the first of the Southeast Asian nations to get into trouble just before the Hong Kong meetings and that apparently helped convince the biggest hold-out on increasing quotas -- the United States -- to agree to a 45 percent increase.

Camdessus said it was a good compromise that would at least protect the basic capital of the fund.

Quota increases require the approval of 85 percent of the fund's member governments, and each one of them must go through a formal ratification process requiring the approval of the national parliament.

A majority of the fund's member countries have not yet even acted on that request, but with the continuing uncertainty in Asian financial markets, Camdessus decided to go back to seek the amount he originally wanted -- a 70 to 80 percent increase.

U.S. officials are not commenting on the proposal.

The 24-member board includes eight directors who represent the largest countries -- the U.S., Russia, Germany, Japan, France, the United Kingdom, China, Saudi Arabia -- and 16 representing groups or constituencies of countries.

IMF officials emphasize that while they think it would be financial prudent to move ahead on a larger increase now -- mostly because it can take up to a year or two to actually put it into effect -- the fund itself is NOT broke or anywhere near it.

The fund's number two official, First Deputy Managing Director Stanley Fischer says that even after the latest loan for Korea of about $21, billion, the fund will have about $44 billion in its uncommitted usable reserves.

The fund figures it's reserves on the basis of commitments made, not on the actual money drawn, officials point out, so the actual reserves of the fund are considerably higher than $44 billion.

In addition, says Fischer, the fund has access to a facility known as the General Agreements to Borrow (GAB). This is a special arrangement under which the IMF can borrow around $25 billion from the 10 richest nations in pressing times.

Importantly, the ten joined by a handful of others agreed recently to double the amount available to this facility to near $50 billion. That additional capability will be available once the five largest contributors and 85 percent of the total amount are ratified by parliaments.

Fischer acknowledges, however, that if several more countries require similar financial rescue packages, including large IMF loans, the fund's liquidity position would be "very uncomfortable." Liquidity refers to the speed with which an asset or investment can be converted into cash. Like any financial institution, the IMF keeps only a small percentage of its money in cash instruments. Most are invested in longer-term instruments which would require a greater period of time to convert to ready cash.

IMF officials are not guessing on how the executive directors will receive the proposal. But they are acutely aware of the fund's financial needs. They are expected to vote the next day (Thursday) on the Stand-by loan for Korea.