The IMF: More to give
America proposes boosting the IMF’s ability to lend to countries in distress
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SINCE the financial crisis went truly global in the second half of 2008, the resources of the International Monetary Fund, the principal firebreak against global contagion, have looked increasingly inadequate. The fund has about $250 billion of usable capacity at its disposal to lend to countries in distress, but a lot of that has now been spoken for. The IMF has called for its ability to lend to be doubled.
The big countries that are the IMF’s main shareholders agree in principle, but there has been no consensus yet on just how to go about boosting the fund’s resources. On Wednesday March 11th Tim Geithner, America’s treasury secretary, proposed boosting the IMF’s credit line with rich countries to an impressive $500 billion from its present $50 billion. It will be considered at this weekend’s meeting of G20 finance ministers.
There are three possible methods of boosting the IMF’s resources on the table. One is an increase in member countries’ “quotas”, which are analogous to shareholder capital and make up the IMF’s permanent funding. But such increases are laborious to arrange and politically difficult to push through. Congress must approve America’s quota increase and, by extension, everybody else’s increased quota too, since America is the IMF’s largest shareholder. Another option is for the IMF to issue its own promissory notes; it has the authority to do so but has never wielded it.
A third method is borrowing from its member countries. In February Japan lent the IMF $100 billion and other countries with ample reserves, most notably China and Saudi Arabia, have been urged to follow suit. But those countries are unlikely to put their hands in their pockets without getting something in return—for example, more say in the governance of the fund, or less criticism of their policies (such as China’s exchange rate). America supports, in principle, the idea of giving emerging markets more say in the IMF.
A less ad hoc way of lending the IMF more money is expansion of the General Arrangements to Borrow (GAB) and New Arrangements to Borrow (NAB). These are stand-by lines of credit that the IMF maintains with its richest member countries. The GAB was boosted significantly following the Mexican crisis of 1994 and now both pots stand at about $50 billion. It is the NAB that Mr Geithner has proposed expanding.
Brad Setser of the Council on Foreign Relations, an American think-tank, argues they are a superior to bilateral loans because they supply what borrowers need most and what the United States and euro-zone can readily supply: hard currency. From the point of view of many countries, especially America, they are superior to a quota increase because they are only drawn when needed, minimising the IMF’s temptation to lend money just to make itself relevant. The IMF, for its part, anticipates fewer political obstacles in member countries than a quota increase would face, although Congress would probably have to approve the NAB expansion.
At present there are 11 countries in the GAB and 26 countries in the NAB. The United States has the most sway in each; China is not a member, although it could join if the NAB is enlarged, as Mr Geithner proposes. It remains to be seen precisely how the increased lending will be divvied up. The European Union has backed a call for an increase in the NAB that would come mostly by tapping reserve-rich countries like China and Saudi Arabia. But if it is done by keeping current members’ shares constant, then the United States and other developed countries would remain the IMF’s largest lenders.