The IMF’s own income is shrinking as it expands its mandate, raising concerns over whether it will be able to deal effectively with growing challenges. The IMF is “living off reserves”, one executive director commented. It has squeezed its budget in the face of declining income from repayments as fewer countries borrow and more repay loans.
But the Fund needs to find new ways to generate revenues, which may include charging for certain services. Some want the IMF to sell off part of its huge gold reserves to help make ends meet.
Managing director Rodrigo de Rato has set up a panel of eminent persons under former BIS managing director Andrew Crockett to look at ways out of the dilemma.
The Fund’s International Monetary and Finance Committee discussed the funds squeeze on Sunday, but both Rato and British chancellor Gordon Brown, the committee chair, refused to comment.
De Rato told Emerging Markets during a recent visit to Tokyo that he expects the Crockett Committee to report early next year. Income has fallen partly because “the actual level of IMF programmes right now is the lowest in the last 25 years,” although that could change if future developments should require countries to seek fresh IMF loans, he said.
“I don’t think we should rush into conclusions,” he said, but he did suggest that income should be examined as well as spending.
IMF deputy managing director Carstens told Emerging Markets: “Up to now, there has been a negative incentive in that the Fund suffers if there are no financial crises for it to attend to. Yet, if there are no crises, that is a sign of the Fund’s success. There’s a consensus that this inconsistency of incentives must be eliminated.”
Currently, countries that have a higher income per capita level do pay for technical assistance of the IMF, Carstens noted. It is necessary to sort out how much technical assistance is independent of surveillance and programmes” because surveillance and programmes are obligatory, and it would be hard to charge for technical assistance that is associated with obligatory actions of the Fund, he said.
Some officials argue that the IMF should start charging for surveillance and other services. This work “ is useful for the advanced countries,” so some way should be found to enable those countries that can afford it to pay for such surveillance, one former senior IMF official commented.
Likewise, the work that IMF economists have done recently on money laundering and terrorist financing at the behest of “a few advanced” nations should be paid for by them, the source suggested. Payment should be incorporated into regular funding mechanisms for the IMF and not charged on an “ad hoc basis,” he added.
Other proposals include setting up a financing mechanism on a “levy” basis - creating an endowment from which there would be interest bearing income. The IMF holds 102 million ounces of gold, valued on its book at only $42.5 an ounce compared with a current market price of above $600 an ounce.
Some argue that the IMF should sell part of these holdings, or use them for revenue generating market operations rather than allowing them to “lie fallow” in its vaults. Sources point out, however, that there are strong political objections to this proposal. Another proposal is to grant the Fund the ability to invest money in the international capital markets, as many development banks already do.
The IMF’s executive board approved a budget for fiscal 2007 in April which allowed for zero real growth in administrative expenditures (of $912 million) in fiscal 2007 and real reductions of 1% in each of the two following fiscal years.