Accessibility links

Breaking News

World: Reluctant U.S. Support Jeopardizes IMF

Washington, 14 September 1998 (RFE/RL) -- A senior International Monetary Fund (IMF) official says that if the United States Congress fails to approve its share of the IMF member's quota increase, it would be a decision to abandon a global financial system that overall has worked extraordinarily well for more than half a century.

The first deputy managing director of the IMF, Stanley Fischer, says it would be "no small decision" for the U.S. to stop supporting the fund, a central part of a global economic system it helped create at the end of World War II and which has delivered "an extraordinary economic performance unprecedented in history."

Fischer spoke to reporters in releasing the fund's annual report on its 1998 financial year which ended April 30.

He said the continued reluctance of the House of Representatives to approve America's $14.5 billion share of the quota -- or membership deposit -- increase, is a "very, very important issue for the operation of the world economy."

He said the quota increase was not a whim of the IMF management, but a decision by all 182 member governments last year that the IMF needs additional resources to be able to deal with a huge and growing global economy.

But he said criticism of the fund in the U.S., where many congress members blame the IMF for all the world's financial troubles, misunderstands what the fund does.

"We're supposed to operate in cases when markets are disturbed," he said. "It's the nature of the way the fund operates that it makes loans to nations in crisis, when the private sector is trying to pull out, in countries facing difficulties."

It has made mistakes, but overall it has been a very sound institution" which has always protected its members resources, he said. Fischer noted that like a bank, the member nations deposit their quotas in the fund to be used for loans. But each nation, like any bank depositor, has a right to draw some of that "savings" out if needed. So the basic deposit, or quota capital, must be protected, as part of each countries reserves, he said.

Fischer said the fund's 1998 fiscal year, which included the beginning of the Asian crisis, but ended before the full Russian crisis hit, was a "truly momentous" one. Loan disbursements totaled $26 billion, four times the level of the previous year. Since the end of the fiscal year on April 30, he added, the fund disbursed another $11 billion, some of that to Russia.

Fischer said the fund's uncommitted resources, which were at $59 billion at the end of the 1997 fiscal year, were drawn down to $30 billion by the end of April. And since then, he said, they've been drawn down an additional $2 billion.

That has brought the fund's liquidity ratio to 30 percent, a level below which Fischer says the IMF dares not go. The liquidity ratio is the amount of cash any bank must keep on hand to meet withdrawal demands by depositors, or member nations.

That is why, he said, the fund desperately needs the 45 percent quota increase approved at last fall's annual meetings. But quota increases require approval by 85 percent of the fund's voting power and the U.S. holds 17 percent. So, the increase cannot take effect without American participation.