IMF "Makes Up" Funding Needs, Audit Shows

by Abid Aslam

A document, prepared by the General Accounting Office (GAO), calls into question legislators' approval last year of an IMF capital increase, including a 45 percent rise in membership dues. The Fund had said this was needed because it lacked lending funds.

The findings of the independent audit unit has sparked muttering among legislators who are preparing for another fight, this time over IMF proposals to raise income for a combination of debt relief and new loans for Heavily Indebted Poor Countries.

At issue is how much money really is at the IMF's disposal.

The agency said that it has $77 billion in liquid resources available to meet the demands of its 182 member states.

The General Accounting Office, however, insists that the figure is higher because the Fund sets aside $19 billion in a "working balance" reserve that has not been used in more than 20 years.

"Consequently, the IMF's available and uncommitted resources may have been understated," said the GAO's report.

It also assails the IMF's argument that it needs to maintain a "liquidity ratio" -- or a balance of available resources against its liquid liabilities -- of at least 30 percent.

"While a low-end liquidity threshold appears reasonable, we found no analytical basis for the minimum ratio used by the Fund," the document declares.

It adds that the Fund has "no formal methodology for deciding what the appropriate level should be; consequently, this threshold does not provide an analytical basis for determining whether the IMF's resources are constrained."

What's more, GAO argues, "if the Fund's liquidity were to fall to a level considered too low, the Fund could under specified conditions supplement its resources by using its $46 billion in credit lines or by borrowing from sovereign governments, their central banks, or private entities."

Fund officials also defend their "working balance" reserve and liquidity ratio requirement as prudent measures necessary to maintain member states' confidence.

Nevertheless, IMF critics in Congress find favor with the GAO's latest revelations.

"The GAO supports my point (during last year's funding debate) that the IMF's destitution was being exaggerated by the IMF and (U.S.) Treasury," said Jim Saxton, vice chairman of the Congressional Joint Economic Committee.

The body has conducted five IMF hearings in the past two years and members have been frustrated by the complexity of the Fund's bookkeeping.

Their misgivings were compounded in February 1998, when Karin Lissakers, the U.S. representative on the IMF's executive board, admitted to lawmakers that the Fund's accounting system "is not fully transparent to me as a layman in this area."

The GAO report also contains ammunition for those who say that the IMF has strayed from its original mandate of providing short-term balance-of-payments support, and instead has become a self-styled development bank by extended longer-term financing in exchange for structural adjustment.

"Industrial countries' use of IMF resources decreased rapidly and, by 1988, all users of IMF resources were developing countries," the document states. As a result, Fund programs "have expanded from short-term currency purchases for balance-of-payments problems to nine types of arrangements and facilities that have tended to have longer repayment periods."

The main reason for the shift is that wealthier nations have gained increased access to world financial markets, leaving only poorer ones in need of IMF support.

As a consequence, said GAO, "Fund facilities grew to address shortfalls in export earnings, to finance oil purchases and other imports...to fund the transition from centrally planned economies to market-based economies," and to mobilize international financing in the wake of debacles including the 1994-95 Mexican peso crisis and the past few years' troubles in Asia, Russia and Brazil.

The soft-loan window, which operates as a separate trust fund administered by the IMF, has come under fire for dispensing low-cost debt in exchange for economic austerity and restructuring in impoverished nations.

The agency last month won approval from its governors to rename its embattled ESAF the "Poverty Reduction and Growth Facility" but "it will take more than the Orwellian step of renaming this program to undo the damage of past IMF policy mistakes," said Saxton.

The New Jersey Republican is co-sponsor, with Ohio Democrat Dennis Kucinich, of proposed legislation that would condition approval of IMF funding requests on a series of reforms -- chiefly, a permanent end to the use of low-interest loans to enforce the Fund's policy prescriptions.

That condition also would apply to the IMF's intended off-market sale of 14 million ounces of gold from reserves held in the United States, Britain, France and India.

Proceeds from the transfer would be invested, and the resulting interest would be used to write off a portion of poor countries' debts while offering them new loans to implement Fund-approved economic policies.