The report, published just a month ahead of this week’s annual meetings, warned the amounts committed under programmes had continued to rise, placing a strain on the IMF’s finances.
Entitled IMF Reform: The Unfinished Agenda, the report by the Centre for Economic Policy Research (CEPR) comes amid growing concern that the IMF will have to mount bailout programmes for Turkey and Pakistan on top of its $57bn rescue package for Argentina.
“The Fund’s resources have more than tripled since 2000, but they have risen much more modestly relative to global GDP,” the report said. “ The resources are likely to be less adequate than 20 years ago.”
Even more concerning for policymakers is the fact that resources could well be cut by half over the next few years. “The IMF is losing relevance,” said Charles Wyplosz, one of the authors and a professor at the Graduate Institute in Geneva. “New institutions have appeared that are doing the job that the IMF was the only one to do in the past and further down the road I am concerned about diminished resources.”
While the IMF has $1.4tr of financial resources, $450bn are bilateral loans that expire in 2020 and $265bn New Agreements to Borrow (NAB). The US commitment under the NAB expires in 2022 and if it failed to renew the loan other countries would pull out too, he said.
“Absent anything happening, the IMF is going to lose more than half a trillion dollars in resources,” Ted Truman, a former US Treasury official and now a fellow at the Peterson Institute for International Economics, told Global Markets. “So, if you are worried whether the Fund will be able to meet the inevitable financial requirements of the 2020s, there’s a lot to worry about.”
The issue will come to a head as the US decides whether to back or block plans for an increase in the IMF quotas — its general resources — by 2019. If the US blocks the move to avoid losing its current share that allows it to block agreements, Truman said countries such as China would expand regional funding arrangements (RFAs) such as the Chiang Mai Initiative.
The CEPR report said the financial system relied heavily on emergency bilateral currency swaps provided by a handful of central banks. “It is an intractable situation because swaps have been so successful and powerful during the global financial crisis,” Wyplosz said. “But they are totally not multilateral. The Federal Reserve had its own list and those not on it could scream and cry but there was nothing they could do.” The report urged the Fund to set up its own Fast Qualification Facility to take the place of bilateral swaps.