Washington, 2 July 1998 (RFE/RL) -- The International Monetary Fund (IMF) is not out of money and would not be strapped for cash if it is decided that Russia needs an international rescue package of up to $15 billion.
That is the response of IMF officials in Washington to headlines in some German newspapers on Wednesday quoting IMF Managing Director Michel Camdessus as saying a big new Russian loan could force the fund to "launch its lifeboat."
Camdessus was interviewed by several German reporters, discussing the status of the fund's basic reserves. The officials say, however, that they misinterpreted Camdessus' comments about the IMF's basic reserves and liquidity to mean the fund was in bad financial straits.
They give this explanation:
Because of rising demand for the fund's programs and loans in recent years, the IMF's governors decided last year to seek a general 45 percent increase in the fund's quotas, or membership fees. That will raise the fund's resource base from around $203 billion to $293 billion.
Camdessus had asked for an increase twice that size, but said the 45 percent rise would at least allow the fund to continue to deal with a global economy that has grown substantially since the last quota increase nearly ten years ago.
Each member country has a quota determined by the size of its economy and it is the quotas which provide the basic working capital of the IMF.
Quota approvals require parliamentary approval of at least 85 percent of the member nations, and it normally takes a year or two to get the required number. This time the problem has been made worse by U.S. congressional refusal so far to approve the quota increase. The debate has been caught up in a number of national political issues, including abortion, and a popular belief by some that IMF loans are subsidized by American taxpayers.
The U.S. Congress has also failed to act so far on American participation in a program known as the New Agreements to Borrow (NAB). This special facility is to replace a long-standing General Agreements to Borrow (GAB), set up by the major industrial and rich nations, which made available $25 billion for emergency borrowing by the fund whenever its own resources would be overtaxed. The NAB would make $39 billion available, drawn from many more nations.
The General Agreement to Borrow is sometimes referred to as the fund's "lifeboat," not because it's a last-gasp before bankruptcy, but because it allows the IMF to maintain all of its operations on a "prudent" financial basis.
After the fund agreed to the Asian rescue package, First Deputy Managing Director Stanley Fischer said the IMF had uncommitted resources of around $43 billion. The fund operates by tallying all loans promised -- even if they won't be drawn on for several years -- and counts only what is left over as its uncommitted resources.
Further, it estimates "unexpected" needs, potential delays in scheduled repayments, and decides how much of this uncommitted money can safely be used. This is called the "liquidity ratio," a measure used by any prudent bank or financial institution to make sure it never is caught short of resources or reserves.
Under its ratio, the IMF has just over $15 billion available for unplanned lending right now. IMF officials say that since Russia is talking about the need for up to $15 billion dollars -- which in a rescue package would include loans from other institutions such as the World Bank and the European Bank for Reconstruction and Development, and other countries -- the IMF could safely participate without any additional borrowing on its part.
But IMF officials say when Camdessus talked about having to "launch" the lifeboat, he was referring to the fact that a major loan to Russia of say around $10 billion would not leave the fund with much money to help any other nation in an emergency need.
Said one IMF official: "No responsible bank would ever lend its last penny, you always leave reserves." Further, officials point out that Camdessus often says the IMF must be available to help all of its member countries. So if a major Russian package drew down the available cash beyond what officials believe is prudent or wise, the fund has mechanisms available to simply make sure it is never "out of money" when a member nation calls.
Not mentioned in all this is the several thousand million dollars worth of gold the fund holds as part of its resource base.
IMF officials say the newspaper quotes of what Camdessus said were accurate, but that misunderstanding of how the fund operates led some to interpret the Managing Director's remarks as meaning the fund is in far worse shape than it is.
The IMF needs the quota increase, say officials, but the fund is not anywhere near running out of money.