Alex Brummer in London
THE International Monetary Fund (IMF) is to ask shareholders for an increase in its capital base after a sharp deterioration in the Fund’s cash position.
Michel Camdessus, the managing director, has indicated that he would like to see the fund’s quotas — the equivalent of its capital base — doubled from the current $210-billion.
The IMF’s annual report, released last week, shows that the fund’s liquidity has tumbled to the lowest levels since 1987 because of the pressure put on its resources by the 1995 Mexican crisis and lending to support the Yeltsin administration in Russia.
Moscow was the biggest borrower from the fund in the last financial year, using up $5,5-billion of fund quotas. Russia is currently drawing down the biggest credit ($10,8-billion) ever advanced by the fund.
The report also shows that Mexico continues to draw heavily on resources, along with Argentina and Zambia. Much of the IMF’s usable resources are being eaten up in lending programmes to the countries of the former Soviet bloc, with Ukraine among those which are prospective big borrowers.
Senior fund officials conceded that achieving a doubling of resources during what is known as the 11th Quota Review will almost certainly be politically impossible, given the difficulty in getting the United States Congress to agree to any funding for international organisations.
The World Bank is already being forced to redraw plans for the International Development Association, which makes loans to the poorest countries, because appropriations are still trapped in congressional committees.
Officials believe that although the need for greater resources can be shown, given the sharp rise in IMF members since the last quota increase, a doubling of resources is unlikely to win support of the richest industrial countries. IMF officials are still hoping for an increase of between 50 and 75%, although a formal request is unlikely to be made until the US elections are out of the way.
The annual report shows that the fund’s cash declined last year and will continue to fall in the current year, given the demand on its resources and the commitments already made. It is particularly concerned, however, that the capital increase should cope with the needs of more than three dozen new members — many of them ex-communist countries — which have joined up since the last quota increase.
The quota increase will also provide the opportunity for the IMF to adjust national holdings of quotas to take account of shifts in global economic power.
Several large countries, notably China, Russia and India, have joined the upper ranks as their national output has grown — as have some of the East Asian tigers. As part of the quota increase they are expected to strengthen their shareholdings, but not enough to dislodge the IMF big five: the US, Japan, Germany, Britain and France.
A similar broadening in the power base of the world economy is expected to be approved at the annual meetings of the IMF/World Bank later this month when the General Arrangements to Borrow, a credit facility for use by the IMF in emergencies, is expanded to $50-billion, bringing in a series of new countries.
l Uganda is expected to be the first country to benefit from the World Bank/IMF debt reduction scheme if it is approved by finance ministers.
There is still some uncertainty, because of the opposition of countries including Germany, Italy and the Nordic states to gold sales designed to help finance the IMF contribution to the plan. IMF officials have raised the possibility privately that some of the organisation’s reserves might be used to close the funding gap.
Under current figures the IMF would cut its claims on Uganda by $75-million by the end of 1999; the World Bank would have to provide a further $155-million of debt forgiveness, and other lenders, including the European Investment Bank, would come in with $18-million worth of reductions.