The Global Financial Crisis: Increasing IMF
Resources and the Role of Congress
Jonathan E. Sanford
Specialist in International Trade and Finance
Martin A. Weiss
Specialist in International Trade and Finance
June 5, 2009
Congressional Research Service
7-5700
www.crs.gov
R40578
CRS Report for Congress
P
repared for Members and Committees of Congress
The Global Financial Crisis: Increasing IMF Resources and the Role of Congress
Summary
The current global financial crisis is testing the ability of the International Monetary Fund (IMF),
and other international financial institutions (IFIs) to provide sufficient assistance to affected
countries. It has also enhanced the IMF’s role in crisis management and given it a key place in
current efforts to reform the world financial system.
During the past half-year, many countries have come to the IMF for assistance and more are
likely to apply. Several steps have been taken to expand the IMF’s financial resources and to
otherwise augment the funds available to help vulnerable countries weather the present crisis.
At their meeting in London on April 2, 2009, the leaders of the 20 systemically important
industrialized and developing countries (G-20) agreed on several initiatives affecting the IMF and
other international organizations. They agreed that the New Arrangements to Borrow (NAB), a
supplemental fund to bolster IMF resources, should be increased by up to $500 billion from its
present level of $50 billion. The Obama Administration has proposed a U.S. contribution of up to
$100 billion. Pledges totaling $255 billion have been received from several countries and others
are considering additional contributions. The G-20 also agreed that the IMF should create new
Special Drawing Rights (SDRs) to a value of $250 billion and to allocate them to its members
through its SDR Department. These new resources would expand world foreign exchange
reserves by about 4% and provide needed resources to countries in crisis. The G-20 said in
addition that $250 billion would be provided, through their bilateral agencies and through the
multilateral development banks (MDBs), for new trade finance, and they said the MDBs should
increase their level of assistance by $100 billion to meet crisis needs. They also agreed that poor
countries should be aided with some of the gold the IMF is planning to sell. Details of the plans
for new trade finance and aid to poor countries have not yet been released. Already pending at the
time of the G-20 meeting was a proposal for a new increase in IMF quota resources. Negotiations
on a package of reforms and a new quota increase had been completed in April 2008 and
submitted to the House and Senate leadership by the Bush Administration last November. The
U.S. share would be SDR 4.97 billion (about $8 billion). The package includes reforms in the
IMF governance process, finances, and procedures. It also includes a proposal that the IMF sell
403 metric tons of gold to create a facility that would cover the costs of its country and global
surveillance, technical assistance, research, and other non-lending operations. Also pending in
2008 was a proposed Fourth Amendment to the IMF Articles, originally proposed in 1997, that
would create a new allocation of about SDR 21.4 billion.
Some elements of the above require congressional approval and some do not. U.S. participation
in the new IMF quota increase and a U.S. subscription of $100 billion for the NAB would require
congressional approval. Likewise, amendments to the IMF Articles—including the prospective
Fourth Amendment for a new SDR allocation—would require congressional approval. On the
other hand, the proposed $250 billion allocation of SDRs (which is being made under a different
provision of the IMF Articles) is too small to trigger the legal requirement that Congress give its
assent. Any contributions to the IMF, to fund increases in the U.S. quota or to subscribe new
resources to the NAB, must be authorized by Congress. In 1967, a Presidential Commission on
Budget Concepts recommended that U.S. payments to the IMF should not be treated as budget
outlay but rather they should be counted as an exchange of assets which is matched by transfers
of equivalent value to the United States from the IMF. Since that time, payments to the IMF have
been deemed to have no impact on the Federal budget or on the Federal budget deficit.
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The Global Financial Crisis: Increasing IMF Resources and the Role of Congress
Contents
Background: Economic Impact of the Financial Crisis................................................................. 1
Economic Growth Rates........................................................................................................ 3
Impact of the Financial Crisis on World Poverty.................................................................... 5
Impact of the Crisis on the IMF................................................................................................... 7
Increasing Fund Resources.......................................................................................................... 9
Expanding the NAB ............................................................................................................ 11
SDR Allocation................................................................................................................... 12
IMF Bond Sales .................................................................................................................. 13
Other Pending IMF Reforms ............................................................................................... 14
The Role of Congress................................................................................................................ 15
Some Initiatives Would Require Congressional Approval .................................................... 15
Congress and the New Allocations of SDRs ........................................................................ 16
Gold Sales .......................................................................................................................... 18
Budgetary Treatment of IMF Contributions ......................................................................... 19
Figures
Figure 1. Selected Economic Growth Rates, 2000-2001 .............................................................. 3
Figure 2. Merchandise Exports from Emerging Markets, 2003 - 2008.......................................... 4
Figure 3. Net Private Capital Flows to Emerging Markets ........................................................... 4
Figure 4. Commodity Price Indices ............................................................................................. 5
Figure 5. Progress towards MDGs – All Developing Countries.................................................... 7
Figure 6. Outstanding IMF Lending ............................................................................................ 8
Tables
Table 1. IMF Financial Arrangements as of May 4, 2009 ............................................................. 9
Table 2. G-20 Commitments to the NAB ................................................................................... 11
Table 3. Congressional Action Needed on Various IMF Options ................................................ 15
Contacts
Author Contact Information ...................................................................................................... 23
Congressional Research Service
The Global Financial Crisis: Increasing IMF Resources and the Role of Congress
n April 2, 2009, leaders from 20 of the world’s largest economies—the Group of 20 (or
G-20)—met in London, U.K., to discuss measures that might be taken to address the
O current global economic crisis.1 They reached agreement in general terms on some steps
they might take to (1) help stimulate consumption and recovery in their countries as well as the
world economy and (2) help coordinate and strengthen regulation of world financial markets,
although they did not commit to any specific steps they should take to address these problems.
The area of clearest and most specific agreement among the G-20, however, involved expanding
the stock of financial resources available to the IMF (Box 1) by an additional $500 billion to
enhance its capacity to assist troubled countries requesting its aid.2 G-20 members also agreed to
create an additional $250 billion in IMF Special Drawing Rights (SDRs). The G-20 agreement to
increase the resources of the IMF was approved at the April 2009 spring meeting of the IMF
Board of Governors’ International Monetary and Financial Committee (IMFC). 3
This report provides information on (1) the role the IMF has played in the financial crisis, (2)
international agreement to increase the financial resources of the IMF, and (3) the role of
Congress in increasing the Fund’s resources. As will be discussed in detail at the end of the
report, congressional authorization, and perhaps appropriation, would be required to increase U.S.
contributions to the IMF.
Background: Economic Impact of the Financial
Crisis
What began as a bursting of the U.S. housing market bubble and a rise in foreclosures has
ballooned into a global financial and economic crisis. The crisis has exposed fundamental
weaknesses in financial systems worldwide. Despite coordinated easing of monetary policy and
trillions of dollars in intervention by central banks and governments, economies continue to
decline into what is turning out to be the most severe global recession since the Great Depression
of the 1930s.
1 Members of the G-20 are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy,
Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the United States, and
the European Union.
2 Global plan for recovery and reform: the Communiqué from the London Summit, available at:
http://www.londonsummit.gov.uk/en/summit-aims/summit-communique/
3 The IMFC has the responsibility of advising, and reporting to, the Board of Governors on matters relating to the
Board of Governors' functions in supervising the management and adaptation of the international monetary and
financial system, reviewing developments in global liquidity and the transfer of resources to developing countries;
considering proposals by the Executive Board to amend the Articles of Agreement; and dealing with disturbances that
might threaten the system. The IMFC has 24 members who are governors of the Fund, ministers, or others of
comparable rank. The membership reflects the composition of the IMF's Executive Board: each member country that
appoints, and each group of member countries that elects, an Executive Director appoints a member of the IMFC.
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Box 1. The International Monetary Fund
The IMF was created in 1946, a result of the 1944 international financial conference at Bretton Woods, New
Hampshire. It was created in order to prevent a return of the international financial chaos that preceded -- and in
some ways precipitated -- World War II. During the 1930s, many countries pursued "beggar-thy-neighbor" economic
policies -- restricting purchases from abroad in order to save scarce foreign exchange, cutting the value of their
currencies in order to underprice foreign competitors, and hampering international financial flows -- in ways that
deepened the world depression and accelerated the decline in economic activity.
The IMF was designed to limit or prevent this kind of economic behavior. Technically, the IMF is a specialized agency
of the United Nations, but it functions virtually independently of UN control. The IMF must obey directives of the
U.N. Security Council, but it need not comply with directives from the U.N. General Assembly or other U.N.
agencies. Rather than being organized on a one-country, one-vote basis, as is the United Nations, it has weighted
voting. The IMF has 185 member countries, whose voting share depends on the size of their quota or financial
commitment to the organization. A country's quota is determined by its GDP size, its openness to international trade
and other factors. The amount a country can borrow is determined by the size of its quota. The United States is the
largest single shareholder, with a 16.77% voting share. The nine Executive Directors (EDs) representing the G-7
countries and other advanced countries in Europe share nearly 56% of the vote. Most decisions are reached by simple
majority, though this is generally expressed by consensus. Some special matters (changes in the Articles of Agreement
or approval of new quota increases, for example) require an 85% vote. Because the U.S. vote exceeds 15%,however,
no quota increases, amendments or other major actions can go into effect without its affirmative vote. The same can
be said for other major blocks of IMF member countries.
As stated in its Articles of Agreement, the purposes of the IMF are (1) to promote international cooperation on
international monetary problems, (2) to facilitate the expansion and balanced growth of international trade,
promoting high levels of employment and real income and the development of productive resources in all member
countries, (3) to promote exchange rate stability and to avoid competitive exchange rate depreciation, (4) to help
establish a multilateral system of payments among countries for current transactions and to help eliminate foreign
exchange restrictions which hamper world trade, (5) to make loans to countries on a temporary basis with adequate
safeguards for repayment, "thus providing them with opportunity to correct maladjustments in their balance of
payments without resorting to measures destructive of national or international prosperity," and (6) to shorten with
such loans the duration and to lessen the degree of disequilibrium in countries’ balances of payments.
The IMF is an international financial institution (IFI) which deals mainly with balance of payments (BOP), exchange
rate, and international monetary concerns. It originally focused mainly on macroeconomic issues. It monitored the
macroeconomic and exchange rate policies of member countries and it helped countries overcome BOP crises with
short-term loans conditioned on their making improvements in macroeconomic performance. It left microeconimic
issues and domestic institutional issues to the World Bank and the other multilateral development banks (MDBs). In
recent years, however, the Fund has found that these issues have a much larger impact on countries' abilities to
pursue effective macroeconomic and exchange rate policies. Increasingly, it has included them among the subjects
which need to be addressed in the context of its loan programs. It has also given these issues more attention in its
consultations with member country governments, its surveillance activities, and its technical assistance activity.
The IMF is a monetary institution, not a development agency. Its sister agency, the World Bank, was created at the
same time as the IMF in order to provide long-term loans and to stimulate growth and economic development in
war-damaged and developing countries. Even so, economic development and growth are core objectives of the IMF,
as specified in purposes 2 and 4 above. The founders believed that international monetary stability would facilitate the
growth of world trade and that this in turn would generate higher levels of employment, increased income, and
expanded growth and development in the countries participating in the post-World War II international economy.
The founders expected (purposes 5 and 6) that the IMF would be a means through which countries could remedy
their domestic economic problems without resorting to the kinds of "beggar-thy-neighbor" practices which sought to
shift the burden of adjustment onto other countries. Countries with chronic BOP deficits could get short-term IMF
loans to help them weather a balance of payments crisis. It was generally presumed that BOP deficits, inflation,
unemployment and low levels of economic activity were the result of inappropriate domestic economic policies.
Better policies and adjustments in the exchange rate for the country's currency were deemed to be the appropriate
response to this situation. It was expected that IMF assistance would help countries shorten the depth and duration
of their economic problems and help contain or prevent the spread of monetary instability to other countries.
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Economic Growth Rates
On April 22, 2009, the International Monetary Fund (IMF) revised its forecast for world
economic growth down to -1.3% for 2009. This would be the lowest level of growth since World
War II and would be down from the IMF’s forecast in January 2009 that global economic output
would grow by 0.5% this year and its projection in November 2008 that growth in 2009 would be
around 1.7%. The World Bank, in March 2009, issued an equally pessimistic outlook, projecting
(without providing a specific figure) that the world economy will contract (negative growth) in
2009.4 As shown in Figure 1, countries world-wide are experiencing a simultaneous downturn in
economic activity. The advanced industrialized countries of North America, Europe, and Japan
are declining into recession, and economic growth rates in most developing and emerging market
countries are also in marked decline. Even China, though its economy continues to expand, has
experience a substantial reduction in its rate of economic growth. These declines in economic
activity have been accompanied by losses of trillions of dollars in equity markets and a credit
squeeze that not only are affecting households and businesses worldwide but are putting a damper
on the financing of activities such as world trade and oil exploration. The International Labor
Organization expects global unemployment in 2009 to increase over 2007 by a range of 18
million to 30 million workers, and more than 50 million if the situation continues to deteriorate.5
In the latter case, some 200 million workers, mostly in developing economies, could find
themselves in extreme poverty.
Figure 1. Selected Economic Growth Rates, 2000-2001
Percent Growth in GDP
20
A ctu a l
Fo re ca st
Global
15
2001
Ch i n a
Recession
Financial
Crisis
10
5
0
U.S .
Ja p a n
Ge rm a n y
-5
S . Ko re a
M e xi co
B ra zi l
U.K .
-10
United States
Mexico
Germ any
United Kingdom
Rus s ia
China
Japan
South Korea
Brazil
-15
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Year (4th quarter)
Source: Congressional Research Service with data from Global Insight, March 15, monthly forecast, using
annualized quarterly changes in growth rates.
4 Swimming Against the Tide: How Developing Countries are Coping with the Global Crisis, Background Paper
prepared by World Bank Staff for the G20 Finance Ministers and Central Bank Governors Meeting, Horsham, United
Kingdom on March 13-14, 2009.
5 Global Employment Trends Report 2009, International Labour Organization, January 2009.
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Figure 2. Merchandise Exports from Emerging Markets, 2003 - 2008
(in percentage change from year earlier)
60
50
40
30
20
10
0
3
3
4
4
5
5
6
6
7
7
8
8
-03
-03
-0
03
-0
-04
-04
-0
04
05
-0
05
-0
05
-06
-06
-0
06
-0
-07
-07
-0
07
08
-0
08
-0
08
ar-03 ay
Jul-0 ep
ov-
ar
ay
Jul-04 ep
ov-
ar
ay- Jul-05 ep
ov-
ar-06 ay
Jul-0 ep
ov-
ar
ay
Jul-07 ep
ov-
ar
ay- Jul-08 ep
ov-
-1
Jan0 M
M
S
N
Jan M
M
S
N
Jan- M
M
S
N
Jan M
M
S
N
Jan M
M
S
N
Jan- M
M
S
N
-20
-30
-40
Emerging Economies
Latin Amer.& Caribb.
Emerging Asia (APD)
Emerging Europe
Source: International Monetary Fund
Figure 3. Net Private Capital Flows to Emerging Markets
($ in billions)
$700
$600
$500
$400
$300
$200
$100
$0
2006
2007
2008
2009
-$100
Equity investment
Private Creditors
Source: Institute for International Finance: “Capital Flows To Emerging Market Economies.” January 27, 2009
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Figure 4. Commodity Price Indices
(index: Jan. 2002=100)
700
600
500
400
300
200
100
0
2
3
5
7
-0
02
02
03
04
04
06
06
y-
-0
y-03
-04 y-
p-
-0
y-05 p-05 -06 y-
p-
-0
y-07 p-07
y-08 p-08
Jan
ep-
ep-
Ma
S
Jan Ma S
Jan Ma Se
Jan Ma Se
Jan Ma Se
Jan Ma Se
Jan-08Ma Se
Metal Index
Beverage Index
Food Index
Agricultural Raw Material
Energy
Source: International Monetary Fund
Developing and emerging market countries are seeing the collapse in growth through several
channels. First, economic slowdown in the advanced economies is leading to decreased demand
for exports (Figure 2) and a contraction of capital flows (Figure 3). Developing countries also
suffer from the collapse of commodity prices (Figure 4). Rapid economic growth in China and
India over the past decade led to record prices for petroleum, minerals, and other commodities.
Between 2003 and 2008, oil prices rose by 320% and food prices by 138%. Since mid-2008,
however, weakening demand for these exports has led to a rapid decline in the price of many of
these commodities. Because many of the poorest countries are heavily dependent on a few
primary export commodities, rapid swings in commodity prices can wreak havoc on their
domestic economies. Yemen, for example, announced in January that it would have to decrease
public expenditures by 50% because of the financial crisis and the lower government revenues
from its oil exports.
Impact of the Financial Crisis on World Poverty
While the poorest countries, many in sub-Saharan Africa, are less integrated into global capital
markets than the advanced industrial nations or emerging economies in Eastern Europe, the
global economic slowdown is affecting their standards of living and is expected to lead to higher
levels of global poverty – and not just in the least developed countries. Many argue that the
impact on poverty may be felt most strongly in the large, middle-income countries such as China
and India, the world’s two most populous nations. Over the past two decades, the largest gains in
raising people out of poverty have been made in these two countries. For several years China has
averaged 10% annual economic growth, while India has grown upwards of 8% annually between
2002 and 2007. The World Bank estimates each one percentage point drop in world economic
growth could trap another 20 million people in poverty. Slow economic growth in both of these
countries could push millions into poverty as well as have other adverse effects in less-developed
economies. The International Labor Organization predicts that some 50 million more people
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The Global Financial Crisis: Increasing IMF Resources and the Role of Congress
around the world will be unemployed in 2009 compared to 2007. The majority of these newly
unemployed will likely be in developing countries.6
According to recent World Bank research, almost 40% of developing countries are highly
exposed to the poverty effects of the crisis due to both declining growth rates and high initial
poverty levels. An additional 56% of countries are moderately exposed due to either decelerating
growth or high poverty levels, but not both. Over 90% of developing countries face a greater risk
of increased poverty because of the financial crisis. While advanced economies are expanding
their fiscal deficits with robust stimulus packages, the World Bank finds that only one quarter of
the exposed countries have the ability to expand their fiscal deficits. One third of developing
countries with reasonable fiscal capacity are aid-dependent and will require extensive bilateral
and multilateral support if they are to increase fiscal spending.7
Lower levels of world remittances will also impact poverty levels. The combination of slow
growth rates, job losses, and the rising cost of living in advanced countries has led to fewer
economic migrants from developing countries and lower levels of remittances. This could have
major effects in countries which provide large numbers of migrant workers, including Mexico,
India, Bangladesh, and the Philippines. The volume of remittances soared over the past decade,
but recent data show significant deceleration since the beginning of the current crisis with Latin
America and Caribbean the hardest hit. The Inter-American Development Bank calculates that
remittances to the region declined by 1.7% between 2007 and 2008.
While many countries were already having difficulties making progress in meeting the
Millennium Development Goals (MDGs),8 the financial crisis will likely further hinder their
efforts. According to the World Bank, by 2007, countries had only made sufficient progress
toward achieving two MDGs, those for poverty reduction and access to safe water to be on track
of reaching the 2015 targets (Figure 5). The decline in world employment; the shift away from
export-oriented industries; and the decline of remittances are expected to jeopardize many of the
recent gains in poverty reduction throughout the developing world. The World Bank notes that it
is difficult to assess the exact impact the financial crisis is likely to have. However, research on
prior crises suggests that:
countries that suffered economic contractions of 10 percent or more between 1980 and 2004
experienced, for example, more than one million excess infant deaths. Evidence suggests that
growth collapses are costly for human development outcomes, as they deteriorate more
quickly during growth decelerations than they improve during growth accelerations. The
average GDP growth rate of developing countries is now projected to fall in 2009 to less than
half the pre-crisis rate. The projected lower growth path will sharply slow the reduction in
infant mortality. Preliminary analysis shows that, as a result, infant deaths in developing
6 “Unemployment, working poor and vulnerable employment to increase dramatically due to global economic crisis,”
International Labor Organization, January 28, 2009.
7 “The Global Economic Crisis: Assessing Vulnerability with a Poverty Lens,” The World Bank, February 2009.
8 In September 2000, at the United Nations General Assembly’s Millennium Summit, world leaders issued the United
Nations Millennium Declaration (A/RES/55/2) agreeing to a set of time-bound, measurable goals to fight poverty,
hunger, and disease, combat illiteracy, protect the environment and promote gender equality. One hundred eighty-seven
nations unanimously agreed to these objectives which became the eight Millennium Development Goals. These goals,
which are to be achieved by 2015, are to serve as a framework as nations plan their development assistance programs.
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countries may be 200,000 to 400,000 per year higher on average between 2009 and the MDG
target year of 2015 than they would have been in the absence of the crisis.9
Figure 5. Progress towards MDGs – All Developing Countries
Source: World Bank
Despite the current global economic slowdown, estimates suggest that poverty rates are still likely
to decline in the long-term. Over the medium-term (3-to-5), economic growth rates may still be
higher than they were in the 1990s due to macroeconomic policy improvements and structural
reforms such as privatization and regulatory initiatives within developing countries. This
depends, however, on how quickly and fully the world can recover from current recessionary
economic conditions.
Impact of the Crisis on the IMF
The severity of the current financial crisis is a challenge for the IMF, whose financial resources
have not kept pace with the global economy over the past decade. The IMF reports that its
resources would need to grow by 55% to match the levels relative to global output that prevailed
during the Asian financial crisis of 1997-1998. The leaders of the G-20 countries agreed in April
2009 that resources available to the IMF needed to be increased three-fold in order to deal with
current world financial crisis and the risk that it might become even more serious in the future.
Demand for IMF resources in 2009 has been strong, though, as Figure 6 indicates, the recent rise
in IMF lending was preceded by historic lows in loan demand. On August 31, 2008, total IMF
lending was SDR11.65 billion (about $16.65 billion), down from a peak of SDR76.84 billion
(then around $116 billion) in September 2003.10 Since the IMF’s main source of income is the
interest paid for its loans, the decrease in demand for IMF loans resulted in shortfalls in the IMF’s
9 Swimming Against the Tide: How Developing Countries are Coping with the Global Crisis, Background Paper
prepared by World Bank Staff for the G20 Finance Ministers and Central Bank Governors Meeting, Horsham, United
Kingdom on March 13-14, 2009. pg. 11.
10 Total IMF Credit Outstanding for all members from 1984-2008, available at http://www.imf.org/external/np/fin/tad/
extcred1.aspx.
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administrative budget and a roughly 20% reduction in IMF staff during 2007-2008. The latest
annual review of the IMF’s income position was prepared in April 2008 and publicly released in
July. Fund officials suggest that the projected shortfall for FY2009 is about SDR150 million or
$242 million. According to IMF officials, the Fund’s income in FY2009 is likely to be somewhat
higher, given the recent surge in lending in response to the global financial crisis. Between
October and December 2008, lending almost doubled, from SDR11.3 billion ($17.1 billion) to
SDR21.48 billion ($32.54 billion).
Figure 6. Outstanding IMF Lending
(1990-2008, billion SDR)
90
80
70
60
50
40
30
20
10
0
3
0
7
-94
-95
-01
-02
-0
-08
Jan-90Jan-91Jan-92Jan-9 Jan
Jan
Jan-96Jan-97Jan-98Jan-99Jan-0 Jan
Jan
Jan-03Jan-04Jan-05Jan-06Jan
Jan
Source: International Monetary Fund
The current financial crisis represents a major challenge for the IMF. The United States and other
advanced industrial economies are at the center of the crisis, but the IMF would not have enough
resources to provide them with significant financial assistance if they sought IMF aid. The IMF’s
total financial resources as of April 2009 were $335.4 billion, of which $228.2 billion were usable
resources.11 This is small compared to amount owed to other creditors by the emerging market
countries. At the end of the third quarter of 2008, the latter had borrowed about $2.75 trillion
from the world’s banks. Developing countries also had around $4.5 trillion in foreign exchange
reserves. If the G-20 pledges of $500 billion in new resources are realized, the IMF would once
again have the financial resources to credibly lend to developing countries impacted by the crisis.
11 The IMF resources considered non-usable to fund its operations are (1) its gold holdings, (2) currencies of members
that are using IMF resources and are therefore, by definition, in a weak balance of payments or reserve position, (3) the
currencies of other members with relatively weak external positions, and (4) other non-liquid IMF assets.
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Increasing Fund Resources
At the 2009 Davos World Economic Forum, John Lipsky, the IMF’s First Deputy Managing
Director, said that to be able to effectively lend to all the potential countries affected by the crisis,
the IMF should double its lending resources to around $500 billion.12 Momentum to boost IMF
resources increased during the spring as the global economy worsened and many countries sought
IMF financial assistance through a variety of the IMF’s lending facilities (Table 1).
Table 1. IMF Financial Arrangements as of May 4, 2009
(in millions of SDR)
Undrawn
Total Credit
Member
Effective Date
Expiration Date
Amount Agreed
Balance
Outstanding
Stand By Arrangements
Armenia
03/06/09
07/05/11
368 206 162
Belarus 01/12/09
04/11/10
1,618 1,100 518
Costa Rica
04/11/09
07/10/10
492
492
--
El Salvador
01/16/09
03/31/10
514
514
--
Gabon 05/07/07
05/06/10 77 77 --
Georgia
09/15/08
03/14/10
477 189 288
Guatemala 04/22/09 10/21/10 631
631
--
Hungary 11/06/08
04/05/10
10,538 4,215 6,323
Iceland 11/19/08
11/18/10
1,400 840 560
Latvia 12/23/08
03/22/11
1,522
986 535
Mongolia 04/01/09
10/01/10 153 102
51
Pakistan 11/24/08
10/23/10
5,169 2,533 2,639
Romania 05/04/09
05/03/11
11,400 11,400 --
Serbia 01/16/09
04/14/10
351 351 --
Seychel es 11/14/08 11/13/10 18
11
07
Ukraine 11/15/08
11/04/10
11,000 8,000 3,030
Flexible Credit Line
Colombia 05/11/09
05/10/10 6,966 6,966
--
Mexico 04/17/09
04/16/10
31,528
31,528 --
Poland 05/06/09
05/05/09
13,690
13690 --
Exogenous Shocks Facility
Kyrgyz
Rep 12/10/08 06/09/10
67
50
100
Malawi 12/03/08
12/02/09 52 17 81
Senegal 12/19/08
12/18/09 49 24 223
12 “As Contingency, IMF Aims to Double its Lendable Resources,” IMF Survey Magazine: Policy, February 2, 2009.
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Source: IMF Financial Activities – Update April 30, 2009
Note: 1 U.S. dol ar equals approximately 0.67 SDR
Box 2. IMF Lending Facilities
The Flexible Credit Line. In April 2009, the IMF announced the creation of its new Flexible Credit Line (FCL).
Countries with good economic track records may borrow – in amounts not subject to the Fund’s normal access
limits – for periods of 6 to 12 months. Unlike other IMF loan programs, FCL loans can be disbursed up front rather
than over a period of time.. The FCL replaced earlier facilities -- the Short-Term Liquidity Facility (SLF), created in
2008, the Contingent Credit Line (CCL), created in 1999 and closed in 2003, and the Supplemental Reserve Facility
(SRF). No countries ever borrowed from the SLF or CCL. Colombia, Mexico, and Poland have borrowed from the
new facility. FCL borrowers can borrow on a precautionary basis based on potential balance of payments needs. That
is, they can use the loan as a line of credit, to bolster their foreign exchange reserves and improve their financial
situation, without any requirement that funds need actually be disbursed. This aims to provide stability and to lessen
the chance that incidental events might trigger capital flight or a run on the nation’s economy. Access is normal y not
to exceed 1000% of quota.
Stand-By Arrangements (SBA) are the IMF’s standard loan program and its most commonly used facility.
Designed to address short-term BOP problems, these are lines of credit which may be used as needed during a
specific period of time (general y 12 to 18 months). Repayment is expected within 3¼ to 5 years after each
disbursement is made. SBA loans carry performance conditionality and are disbursed in stages as countries meet
specified policy and performance goals. These generally address fiscal, and monetary criteria, though in recent years
the IMF has also monitored institutional goals and sought steps to preserve borrower countries’ social safety nets.
SBA loans can be approved on a precautionary basis, with funds being drawn only if the country needs them to
address deteriorating conditions. In April 2009, the executive board decided that high-access precautionary SBAs
(HAPAs) should be available on a more regular basis. It also said the design of SBAs should be more flexible, with
respect to phasing, frontloading of access and the frequency of performance reviews, to take into account the
borrowers’ varying circumstances.
The Extended Fund Facility (EFF) was created in 1975 to help countries address long-term BOP problems which
required major restructuring of their economies. These loans are similar to SBAs, but credit is generally kept available
for a longer period (3 years) and repayment is expected within 4 ½ to 7 years of disbursement. Surcharges also apply.
The executive board decided in April 2009 to retain the EFF because of its importance for low-income countries.
The Supplemental Reserve Facility (SRF) was created in 1997 to provide short-term financing (2 to 2½ years)
on a large scale. The IMF used this facility to fund the large loans it made to emerging market economies during the
international financial crises of the 1990s. SRF loans carried a substantial surcharge of 3- to-5% and were intended to
supplement SBA or EFF arrangements. The SRF was abolished in April 2009 when the FCL was established.
The Compensatory Financing Facility (CFF) was created in the 1960s to help countries experiencing a sudden
loss of export income or a sudden rise in imported cereal prices due to fluctuating world prices. SBA repayment
terms apply. The CFF was abolished in April 2009 when the FCL was established.
Concessional Rate Facilities. Low income countries may borrow on concessional repayment terms from the
Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF). To qualify for
such loans, countries must be eligible to borrow from the World Bank only through its concessional aid facility, the
International Development Association (IDA). Most borrowers have per capita income levels of about $865 a year.
PRGF loans are intended to help low-income countries surmount BOP or financial crises. Unlike SBA and other loans,
however, conditionality for PRGF loans is based more on the economic strategies outlined in Poverty Reduction
Strategy Papers (PRGF), which are prepared jointly by the borrower country, the IMF and World Bank staff, and civil
society groups. The ESF is intended to provide countries with quicker and easier access to assistance to help them
cope with economic shocks that have a negative impact on their economy but are beyond their governments’ control.
Conditionality is focused on steps needed to adjust to the economic shock, with less attention to the structural
adjustment measures more commonly associated with SBA, EFF and PRGF assistance. In 2008, access was made more
flexible and the earlier requirement that countries must have PRGF in place was dropped.
Loan Terms. The IMF funds its loans from its General Resources Account (GRA), using money paid in quotas or
money borrowed through the NAB or other procedures. The amount a country may borrow will depend on the type
of loan but is generally a multiple of its quota. Surcharges are applied to loans which represent high multiples of the
borrower country’s quota. IMF non-concessional loans carry an interest rate (“rate of charge”) which is based on the
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IMF’s SDR interest rate. The SDR rate is calculated weekly, for a basket of major currencies, based on a weighted
average for short-term government debt in major international money markets. There is a margin (currently 100
basis points) over the SDR interest rate to cover intermediation costs and build reserves. There is also an interest
rate premium (“surcharge.”) In April 2009, the rate was 2.1%, Loans from the PRGF and ESF carry an interest charge
of 0.5% and are repayable over a period of between 5 ½ and 10 years, depending on the borrower’s situation. A
subsidy account funded by donor countries enables the IMF to charge this reduced rate to PRGF and EFF borrowers.
Expanding the NAB
At the G-20 meeting in April 2009, the major countries agreed that the resources of the New
Arrangements to Borrow (NAB) should be expanded by about $500 billion. This would not
expand the IMF’s core resources, but it would triple the funds available to the IMF for use in
fighting the current crisis. The G-20 leaders said the expanded NAB would be more flexible than
the existing program, but the details are still being worked out and have not yet been released.
The NAB is a facility from which the IMF may borrow supplemental funds to help it respond to
financial crises in countries of key significance to the world economy. Under current NAB rules,
for NAB resources to be drawn against, an 85% majority of the Executive Board and countries
representing 80% share of the NAB credit volume must agree. The IMF must repay the NAB
creditors within five years. The NAB was proposed in 1994 and created in 1998 after the
Mexican debt crisis raised concerns about the adequacy of IMF resources in the face of a
worldwide crisis. An earlier facility, the General Arrangement to Borrow (GAB), was created in
1962 to augment the IMF’s resources in case it were needed to backstop the major European
currencies after they became freely convertible after the Second World War. The NAB/GAB
currently has commitments totaling $50 billion from 26 countries.13
Table 2. G-20 Commitments to the NAB
(in billions of U.S. Dollars)
Country Amount
Japan $100.0
European Union
$100.0
Switzerland $10.0
Norway $4.5
South Korea
$10.0
Canada $10.0
China
$40.0*
U.S. $100.0
13 The NAB are a set of credit arrangements between the IMF and 26 developed country members and institutions.
These arrangements have been renewed twice, most recently in November 2007 for a further period of five years from
November 2008. The NAB are a supplemental, emergency mechanism. They provide temporary financing for the IMF
only when necessary. Thus, they are a non-quota based source of financing for the IMF. The NAB are not, therefore,
intended to substitute for a quota or capital increase. The NAB has been activated once to finance a Stand-by
Arrangement for Brazil in December 1998, when the IMF called on funding of SDR 9.1 billion, of which SDR 2.9
billion was used.
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Country Amount
Needed from others to reach $500 billion target
$125.5
* Possibly through SDR bond purchases
Source: Deutsche Bank
The G-20 agreed that $250 billion should be made available immediately through bilateral
arrangements between the IMF and individual countries (Japan had just signed an agreement
loaning $100 billion to the IMF and the European Union had pledged to do the same). The also
agreed that the NAB would be increased in size by an additional $250 billion as more countries
pledged their participation. At the time of the G-20 meeting, Japan had already lent $100 billion
to the IMF, and members of the European Union had agreed to provide an additional $100 billion.
Subsequently, Canada ($10 billion), South Korea ($10 billion), Norway ($4.5 billion), and
Switzerland ($10 billion) agreed to subscribe additional funds. The Obama Administration has
asked Congress to approve a U.S. subscription of $100 billion to the NAB and expects that major
emerging market countries will also agree to lend supplemental funds to the IMF. The sources for
the remaining funds have not been announced.
China has agreed, in principle, to contribute another $40 billion to the IMF to be invested in IMF
SDR-denominated bonds.14 The IMF, however, has not publicly announced a plan to issue SDR-
denominated bonds, although it has the legal authority to do so. If these bonds are issued, an
additional $125.5 billion will still need to be pledged by other countries if the $500 billion goal
announced by the G-20 is to be achieved (Table 2).
SDR Allocation
In addition to the planned expansion of the NAB, the G-20 leaders agreed that the IMF should
create $250 billion worth of new SDRs and allocate them to its member countries. The First
Amendment to the IMF Articles, which went into effect in 1969, authorized the IMF to create a
new international reserve asset that could be used to supplement its member countries’ foreign
exchange reserves. SDRs are distributed to member countries in proportion to their IMF quotas.
They are held in the SDR Department of the IMF and are separate from quota resources. The
SDR serves as the unit of account of the IMF and some other international organizations. Its
value is based on a basket of key international currencies.
The new $250 billion allocation of SDRs is not an expansion of the IMF’s resources but rather is
an expansion of the international reserves of all its member countries. Each country will get a
portion of the new SDRs based on its ownership share (its quota) in the IMF. This will increase
the size of each country’s foreign exchange reserves without any requirement that some country
must run a deficit in order for another to accrue a surplus.
If a country wishes to exchange some of its allocated SDRs for money, it applies to the IMF and
the IMF sells those SDRs to another participating country in order to generate the needed funds.
The IMF does not use its own resources to fund these operations. In effect, the IMF’s SDR
Department is a medium through which countries trade resources among themselves. Technically
speaking, there is no borrowing or lending, since the value of each country’s assets stays the same
14 Daisy Ku, “China to contribute to IMF through SDR bond-sources,” Reuters, April 8, 2009.
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even though the composition of their assets (SDRs or cash) may change. However, countries pay
interest to the IMF whenever the number of SDRs they hold is less than the amount originally
allocated to them and the IMF pays interest to countries that hold more SDRs than the amount
they originally received. Because these are not “loans,” countries are not required to repurchase
their SDRs within any specific period of time, but they pay interest on the outstanding balance.
Articles XVII, XVIII, and XIX of the IMF Articles of Agreement set down the rules by which
SDRs may be created and exchanged among members for usable currency. If a country wants to
encash some of its SDRs, the IMF facilitates the exchange among member countries. In recent
years, all transactions in SDRs have been conducted on a voluntary basis. Countries must pay
interest if the number of SDRs they possess is less than the amount originally issued to them, and
these payments are received by those members that own more SDRs than they were originally
allocated. The rate of interest paid and received in connection with use of SDRs is fixed by the
IMF – currently a weighted average of short-term dollar, euro, yen, and sterling interest rates.
The $250 billion allocation of SDRs would greatly expand the volume of SDRs allocated to date
(currently worth about $32 billion). A proposal has been pending since 1997 (commonly referred
to as the “Fourth Amendment” to the IMF Articles) that would roughly double the number of
SDRs allocated to date. The Obama Administration has asked Congress approve U.S. consent to
this amendment. With U.S. approval, the amendment will have received sufficient votes to go into
effect. An amendment is required for this allocation of SDRs because it is not a straight pro rata
distribution. Rather, countries that did not receive previous allocations because they were not
members of the IMF (or participants in the SDR Department) would get a catch-up allocation to
remedy that situation.
IMF Bond Sales
Several developing countries with considerable foreign exchange reserve holdings have been
approached about contributing to the G-20 pledge to increase IMF resources. Many have
expressed their unwillingness to lend money to the institution until broader governance reform at
the institution is achieved. While some changes were agreed on at the April 2008 IMF spring
meetings (these are discussed in more detail below) that will increase developing country
representation, they have been widely characterized as modest. Many developing countries have
thus sought a temporary means to provide assistance to the IMF, while delaying a more
permanent contribution until more substantial governance reforms give them a larger
representation in the institution.15 At the IMF’s spring 2009 annual meetings, Brazil, China, India,
and Russia signaled their interest in purchasing bonds issued by the IMF in SDRs.16 For countries
with large reserves, these bonds could prove an attractive way to diversifying the currency
composition of their foreign exchange reserves. (Most foreign exchange reserves are currently
held in only a few currencies including U.S. dollars, euros, and Japanese yen.)
Article 7 of the IMF’s Articles of Agreement provides the Fund the authority to borrow from the
capital markets. No additional congressional authorization is needed. While the IMF has never
issued bonds in its 60-year history, a framework for issuing bonds in the official sector was
15 For background, see: CRS Report RL33626, International Monetary Fund: Reforming Country Representation, by
Martin A. Weiss.
16 Cai Hong, “Use IMF Bonds to Fight Crisis,” China Daily, April 24, 2009.
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developed in the early 1980s. While details about the current proposal are still being negotiated,
some details have emerged. It is expected that the bonds would be traded only amongst official
agencies, and countries would not be allowed to sell the bonds to private firms or individuals on
the secondary market.17 The implication for the United States of the proposal would be mixed. If
successful, the proposal could lead to greater international macroeconomic security from which
the United States could benefit.
A concern about the bond sales is that if increasing amounts of foreign exchange reserves are
transferred out of dollars into IMF bonds, the future demand for U.S. Treasury bills and agency
instruments, which are used to finance the country’s deficits, might decrease, thus increasing the
yield on low-risk assets. This would raise the cost to the United States of future debt placements
and possibly accentuate a trend of countries slowly diversifying their reserves out of the dollar.
Many analysts have argued that since the Asian financial crisis (and during the current crisis),
foreign demand for U.S. Treasury assets (largely from central banks) has played a crucial role in
depressing U.S. interest rates. Should demand for U.S. Treasury assets decrease because of asset
allocation decisions by foreign central banks, or because foreign governments need to spend more
of the reserves domestically and have less to invest, there could be upward pressure on U.S.
interest rates. However, the overall demand for U.S. Treasury bonds may also be little affected, if
they are held instead by an emerging market country that receives IMF loans rather than by an
emerging market country purchasing IMF bonds.
Other Pending IMF Reforms
Several proposals affecting the IMF were already pending at the time of the G-20 meeting on
April 2, 2009. These proposals are part of an IMF governance reform package negotiated between
2006 and 2008. The George W. Bush Administration submitted proposed legislation regarding
these reforms in November 2008, but it was not taken up by the 110th Congress. The reforms
included plans for a an increase in IMF quotas for selected members and several procedural,
policy and financial reforms. Also pending was an amendment to the IMF Articles of Agreement,
originally proposed in 1997, that would permit a special allocation of SDRs to IMF member
countries as discussed above.
The quota increase involves a targeted realignment in the voting shares of member countries in
order to give poor countries and dynamic emerging market countries more say in the
organization. The U.S. voting share in the IMF would remain at its present 16.77% and the
United States would retain the capacity to block the 85% vote that is required to approve most
major initiatives in the Fund. Under this reform of IMF quotas, 54 under-represented countries
would see their combined quota share in the Fund increase by about 5% of the total.
Other reforms included in the governance reform package include: (1) a new formula for
determining country quotas, giving much more weight to GDP and thus better reflecting
countries’ weight in the world economy; (2) a tripling of “basic votes” – equally allocated votes –
thus giving the poor countries an increased voice in the organization; (3) an additional Alternate
Executive Director for the two constituencies of the executive board representing countries in
sub-Saharan Africa; and (4) changes in the IMF’s investment and financial procedures, including
the sale of gold to finance the establishment of an income-generating endowment fund to help
17 Eswar Prasad, “Details and Implications of IMF Bonds,” May 4, 2009.
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pay for the IMF’s activities (research, policy and technical assistance, etc.) that are not related to
its loan operations.
The proposed Fourth Amendment to the IMF Articles would permit a one-time allocation of about
SDR 21.4 billion disproportionately to all IMF member countries in order to make total SDR
allocations more equitable. In dollar terms, the allocation would be worth about $32 billion and
would include about $5 billion in new resources for Eastern Europe. Under the IMF’s Articles of
Agreement, specifically Article XVIII, each allocation of SDRs is made to members on a pro rata
basis according to quota. However, the proposed allocation of resources under the proposed
Fourth Amendment is not a straight pro rata distribution. Rather, in this allocation, in which all
countries would receive some additional SDRs, countries that joined the Fund after 1981, or
between 1972 and 1978, and therefore did not participate in the SDR allocations that took place
before those dates (about one-fifth of the total membership), would receive additional SDRs
equivalent to the amounts they would have received had they been members before that date. An
amendment to the IMF Articles is required to allow this “catch-up” allocation of SDR resources.
The Role of Congress
Some Initiatives Would Require Congressional Approval
Some of the provisions discussed above would require congressional assent and some do not. In
general, action by Congress is not required before the United States can vote for increases in IMF
resources that do not require contributions from the United States, changes in IMF policy, or
procedures that implement existing provisions of the IMF Articles. On the other hand,
congressional action is required before the United States can vote for amendments to the IMF
Articles, for gold sales, or for quota increases that involve contributions by the United States.
Table 3. Congressional Action Needed on Various IMF Options
Option Congressional
Action
Ad Hoc Quota
None required (even though this may lower the U.S. voting share.)
Increase for
selected countries
Quota increase for
Requires congressional authorization (because it changes the amount of quota resources held
the United States
by the United States) .
Loan to IMF
Requires congressional authorization.
Through NAB
Sale of IMF Gold
Requires congressional authorization under most circumstances.
Revise quota
No congressional authorization or appropriation required.
formula
Reorganize
No authorization or appropriation required under most circumstances. However, if Board
Executive Board
reform is done through an amendment of the Articles, congressional authorization is required.
This is the case for the current proposed amendment to allow the largest Board
constituencies to be represented by two Alternate Executive Directors.
Increase Basic Votes The proposal requires amending the IMF’s Articles of Agreement and thus requires
congressional authorization.
4th Amendment
Requires congressional authorization, as it is an amendment to the IMF Articles,. It would
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Option Congressional
Action
Allocating SDRs
allocate SDR 21.4 billion, some countries getting more because they did not participate in the
earlier allocations.
New Allocation of
Not required if the total amount of SDRs al ocated to the United States is smal er than the
SDRs
current U.S. quota in the fund. U.S. receipts in the new allocation would be smaller than that
amount.
Congress and the New Allocations of SDRs
Two new allocations of SDRs are currently under discussion. Under U.S. law, the smaller
allocation requires the assent of Congress before it can go into effect, but no action by Congress
is needed before the larger allocation may occur. The Bretton Woods Agreements Act (BWAA)
says that Congress must give its assent before the United States may vote for any amendment to
the IMF or World Bank Articles of Agreement.18 The smaller (SDR 21.4 billion) allocation would
be accomplished through adoption of the Fourth Amendment to the IMF Articles. As noted
before, this allocation provides countries that did not participate in the earlier allocations of SDRs
with a catch-up distribution equivalent to the amount they would have received if they had been
members when the previous allocations were made. Because of this catch-up provision, the
allocation must be done through an amendment rather than through the regular SDR allocation
process. Because it is an amendment to the IMF Articles of Agreement, Congress would be
required to give its assent before the United States may vote for the plan.
18 The Bretton Woods Agreements Act, P.L. 79-171 (22. U.S.C. 286, et seq.), is the key act governing procedures for
U.S. participation in the IMF and World Bank. Sec.5 says that that no one may vote on behalf of the United States for
an increase in the U.S. quota in the IMF or an amendment to the IMF Articles unless Congress authorizes that action.
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Box 3. U.S. Participation in the IMF
As the largest single contributor ($50.4 billion cumulatively) to the IMF, the United States has a leading role in shaping
the IMF's lending, surveillance, and advisory operations. Both House and Senate committees frequently hold hearings
on IMF activities in developing countries and on IMF reform. Other countries are also concerned that steps should be
taken to make the IMF more effective.
The President has the ultimate authority under U.S. law to direct U.S. policy and instruct the U.S. representatives at
the IMF, and the multilateral development banks (MDBs). The President, in turn, has generally delegated authority to
the Secretary of the Treasury. The Treasury's Under Secretary for International Affairs and his staff manage day-to-
day U.S. participation. With the advice and consent of the Senate, the President names individuals to represent the
United States on the executive boards of the IMF and MDBs. The Executive Boards have authority over operations
and policy and must approve any loan or policy decision.
The Secretary of the Treasury serves as the U.S. representative on the World Bank Board of Governors, where each
country has its own representative. The Board of Governors is the highest level decision making body of the World
Bank. In both the World Bank Executive Board and Board of Governors countries have voting shares comparable to
their financial contributions. At the World Bank, the United States has a 16.84% vote in the principal loan window.
Congress must give its consent by law before the United States may agree to participate in any new funding
agreements. The Senate has advise and consent authority over all persons nominated to represent the United States
at the IMF and the multilateral development banks. On many occasions, Congress has enacted legislation specifying
what U.S. policy shall be in the international financial institutions (IFIs) and how the U.S. executive directors at these
institutions shall vote and the objectives they shall pursue. Congress has also frequently made specific suggestions to
the Administration through Sense of Congress resolutions or language in committee reports accompanying legislation
suggesting specific goals and priorities the United States ought to emphasize in the IFIs. Since the World Bank and the
other multilateral institutions are not agencies of the U.S. government, but rather international institutions, their
activities and policies are not subject to U.S. law.
By contrast, the proposed $250 billion allocation of new SDRs would be accomplished through
the procedure set forth in Article XVIII of the IMF Articles of Agreement. This says that, upon an
85% majority of the IMF membership, the SDR Department of the Fund may create new SDRs
and allocate them to member countries in proportion to their IMF quotas in the institution. The
SDR mechanism at the IMF was created in 1969, following adoption of the First Amendment to
the Articles. In the Special Drawing Rights Act of 1968, Congress gave the Administration
authority to vote for the First Amendment, and it set forth the guidelines for U.S. participation in
the SDR Department.19 Section 6 of the Act says that, before the United States can vote for any
allocation of SDRs that would be equal to or greater than the existing U.S. quota in the Fund,
Congress must give its consent. However, the Act also says that, if the U.S. share of a new
allocation of SDRs is less than the size of the U.S. quota, the United States can support it as long
as the Treasury Department consults with leaders of the House and Senate authorizing
committees at least 90 days in prior to the vote. The 90-day period began on April 13, 2009, when
a Treasury official notified Congress that the United States planned to vote in favor of the
proposed new allocation of SDRs.
The IMF’s total quota resources amount to about SDR 217 billion and the U.S. quota is equal to
about SDR 37.15 billion. The $250 billion allocation is equivalent to about SDR 168 billion and
the U.S. share would be worth about SDR 28 billion. On May 1, 2009, the U.S. dollar was worth
19 P.L. 90-349, 22 U.S.C. § 286o. Any SDRs allocated by the IMF or otherwise acquired by the United States are
resources of the Exchange Stabilization Fund. For background on the ESF, see: CRS Report RL30125, The Exchange
Stabilization Fund of the U.S. Treasury Department: Purpose, History, and Legislative Activity, by Arlene E. Wilson,
The Exchange Stabilization Fund of the U.S. Treasury Department, by Arlene Wilson.
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about SDR 0.67. If the dollar goes up in value compared to the euro, UK pound or Japanese yen,
the dollar’s value vis-à-vis the SDR would increase. Therefore, a $250 billion allocation of SDRs
allows some scope for the dollar to appreciate relative to the other currencies in the SDR basket
without triggering the requirement for congressional action.
Gold Sales
It also expected that President Obama will request congressional authorization for the
Administration to vote in favor of selling 403 metric tons of IMF gold for the purpose of
increasing the Fund’s liquid reserves. Income earned on these reserves, in turn, would finance a
portion of the IMF budget related to its provision of global public goods, such as economic and
financial surveillance. The gold sales to benefit poor countries, announced by the G-20 leaders,
would be included in this agreed total, as it is expected that the currently high price of gold may
provide some additional income beyond what is expected for budget financing. However, any
additional income would likely be modest since the current price of gold (around $925 an ounce
on May 14, 2008) is not significantly difference from the assumption on which the new income
model was based ($850 per ounce). The IMF Articles of Agreement specify that any sale of IMF
gold must receive an 85% affirmative vote by the member countries.
In the late 1990s, limited gold-sales were proposed to finance the IMF’s initial contribution to the
Heavily Indebted Poor Countries (HIPC) initiative. Due to the concerns raised above, 13 million
ounces of gold were sold in off-market transactions with two members, Brazil and Mexico, that
had financial obligations to the IMF. Gold was sold at the market price, and profits were placed in
a special IMF HIPC account. At the same time, the IMF accepted back the gold sold to Brazil and
Mexico in settlement of their financial obligations to the Fund. The result was that the balance of
the IMF’s holdings of physical gold remained unchanged, although its usable resources shrank
relative to what they otherwise would have been if the Fund had received currencies in settlement
of these financial obligations.20 The transaction was structured in this way because, in the past,
proposals to sell IMF gold reserves have been unpopular among some Members of Congress.
Some have argued that there is a potential lack of IMF transparency. Some claim that the gold
held by the IMF belongs to the member nations and that it is not the IMF’s place to propose gold
sales to fund current operating expenses. Some also argue that gold sales have the potential to
weaken the global price of gold, and the effect on the IMF balance sheet is unclear. The sale
contemplated now, however, would only include gold acquired by the Fund after the Second
Amendment to the IMF Articles of Agreement, which occurred in 1978, after which members no
longer paid quota contributions in gold. Therefore, the gold sold is in no way attributable to
member countries.
Under Article V, Sec. 12 of the IMF’s Articles of Agreement, approval of gold sales by the IMF
requires an 85% IMF voting majority. The United States has almost a 16.77%vote and could thus
block any sale of IMF gold. Understanding this “virtual” veto, Congress, in 1999, enacted
legislation in the FY 2000 Consolidated Appropriations Act that authorized the United States to
vote at the IMF in favor of a limited sale of IMF gold to fund the IMF’s participation in HIPC
debt cancellation. However, the act, amending section 5 of the Bretton Woods Agreements Act
20 The IMF may hold gold as an asset, but it cannot lend gold nor can it use gold as security for borrowing funds. The
transactions in 1999 shifted money out of the IMF’s general resources account into a special fund for HIPC debt
cancellation. To offset this deduction, the IMF revalued some of its gold by an equal amount. See Jonathan E. Sanford,
“IMF Gold and the World Bank’s Unfunded HIPC Mandate,” Development Policy Review, January 2004.
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(22 U.S.C. 286c), requires the explicit consent of Congress before the executive branch can
support future gold sales. However, the law provides that the United States may support the sale
of IMF gold without congressional action if the Secretary of the Treasury certifies to Congress
that the sale of gold is necessary for the Fund to restitute gold to its members, or to provide
liquidity that will enable the Fund to meet member countries’ claims on it or to meet threats to the
systemic stability of the international financial system.21
Budgetary Treatment of IMF Contributions
On May 12, the White House and Congress reached an agreement to treat the U.S. subscription to
the IMF as a line of credit for budgetary purposes and it was agreed that the Senate would include
IMF request in its FY2009 Defense supplemental request.22 Reminiscent of the method used for
the 1966 quota increase, Congress has been asked by the Administration to authorize the United
States to extend a line of credit to the IMF for the NAB and quota subscriptions that total $108
billion. Unlike IMF quota increases since 1967, that were treated as an exchange of assets with
no budgetary impact, under the new agreed framework, the U.S. contribution would be scored for
budgetary purposes under the existing credit reform legislation. This legislation says that
Congress need not appropriate the full face value but only the expected amount of loss for any
loans made by the United States Government. When U.S. contributions to the IMF were treated
as an exchange, there was considered to be no risk of default by the IMF in its obligations to the
United States. Under credit reform, a small fraction of the total would be appropriated to cover
possible losses. Reportedly, CBO has determined that the U.S. contributions to the IMF would
require $5 billion to be appropriated.23
Prior to the May 12th agreement, Congress had appropriated budget authority to facilitate U.S.
subscriptions to the IMF, but the actual payments were treated as an exchange of assets with the
IMF. Thus, from a U.S. budgetary perspective, there were no net outlays and no net impact on the
U.S. budget. In the past 60 years, Congress has handled the bookkeeping aspects for U.S.
participation in the IMF in a variety of ways. This system was the result of a compromise among
the leading figures on the relevant congressional committees in 1980.
Payments to the IMF were considered to be an exchange of assets because the United States
receives back from the IMF a monetary instrument of equal value which it adds to its foreign
exchange reserves. The United States receives an increased holding of SDRs in the Fund’s SDR
Department whenever it purchases SDRs from another country, and an increased reserve tranch
position whenever the IMF draws on the U.S. quota to finance loans to borrower countries. Both
the SDR and reserve tranche positions are liquid interest bearing assets. SDRs cannot be used to
make purchases in the marketplace, but they can be exchanged with other IMF members for
currencies or used to satisfy international obligations which in most cases involve the Fund. In the
case of loans through the NAB, the United States receives a promissory note from the IMF
pledging to repay the loan with interest at a certain time. Credits provided to the IMF through the
NAB are considered to be monetary assets and are included in countries’ foreign exchange
21 P.L. 106-113, Consolidated Appropriations Act, 2000, Sec. 504(d).
22 For more information, see: CRS Report R40531, FY2009 Spring Supplemental Appropriations for Overseas
Contingency Operations, coordinated by Stephen Daggett and Susan B. Epstein.
23 “Obama IMF Aid Request goes into Senate Bill,” Reuters, May 13, 2009.
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reserves. The proceeds are considered to be readily available because NAB participants can
obtain immediate early repayment from the IMF if they have a balance of payments need.
In 2009, there was concern that the procedural aspects of the budget process may have an impact
on congressional consideration of the proposed new U.S. subscriptions to the IMF. Some are
concerned that Members of Congress may vote against providing budget authority for the
proposed $100 billion line of credit to the IMF through the NAB on account of “bailout fatigue,”
even though the payment would have no outlay effect under then-existing congressional budget
scorekeeping procedures.
Peter Orszag, director of the Office of Management and Budget (OMB), was quoted in April
2009 as saying that he cannot see “any analytical rationale for why something would score zero
as an outlay but then score as something in budget authority.” He reportedly urged the
Congressional Budget Office (CBO) and the House and Senate Budget Committees to use an
alternative “exchange of assets” procedure (like that use for IMF payments in 1976 and 1977) in
which no appropriations would be required to put the $100 billion line of credit through the NAB
and U.S. participation in the IMF quota increase into effect.24 Others have been concerned,
though, that changing the existing budgetary procedure for IMF subscriptions at the present
moment might weaken their support because it might be seen as an effort to change the rules in
the face of controversy or a signal that the Administration fears that it may not have the votes to
approve the measure through the established process. By contrast, critics of the current
scorekeeping system say that it would be unfortunate if bookkeeping procedures hindered
Congress from considering the IMF proposals on their merits.
The Treasury Department is required by law to report to Congress quarterly the financial cost of
U.S. participation in the IMF. The most recent report, current through 2007, was submitted in
April 2009.25 The Department reports that, in 2007, the United States earned a net $68 million
from its participation in the SDR Department, and it earned a net $362 million from its
transactions with the IMF General Department (which deals with quota accounts.)
The United States has used various methods over the years to account for the cost of its
participation in the IMF. Before 1967, the United States funded its participation in the IMF
through a variety of procedures, including public debt transactions and payments from the
Exchange Stabilization Fund. In the 1966 quota increase, the U.S. payment took the form of a
letter of credit to the IMF which, for technical reasons, the United States mostly borrowed back
during the following years.
In 1967, the U.S. Government adopted a unified Federal budget that consolidated the operating
budget of the government with other previously off-budget accounts. This was intended to
improve clarity and to enhance the government’s management of fiscal policy. In the process, the
President’s Commission on Budget Concepts (PCBC) also examined the procedures by which the
United States managed its payments to the IMF. It recommended that payments to the IMF should
be treated as monetary exchanges akin to bank withdrawals and deposits rather than as
international lending operations. As such, these payments would be handled as an exchange of
assets and would be excluded from budget receipts and expenditures. Congress would be asked to
24 David Rogers. “How to spend without ‘spending.’” Politico, April 22, 2009, p. 1.
25 [Department of the Treasury.] Report to Congress on Financial Implications of U.S. Participation in the
International Monetary Fund. Available at http://www.ustreas.gov/press/releases/reports/imfreportq1q42007.pdf
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authorize new U.S. payments to the IMF, but the cost of those payments would not be included in
the Federal budget.
The new budget concept was not fully implemented when the next quota increase was considered
by Congress. In addition to legislation authorizing U.S. participation, the Nixon Administration
sought and Congress approved appropriations to effect U.S. participation in the plan. They
agreed, however, that the exchange of assets concept was sufficient to cover the resulting
payments, and they would have no net outlay impact on the U.S. budget.26 In 1976, when the
following quota increase was considered, the Ford Administration proposed and Congress agreed
that the transaction would be treated solely as an exchange of assets. Legislation was enacted
authorizing U.S. participation in the plan, but no appropriations were required. The same
procedure was used the following year to approve a loan by the United States to the IMF’s
Supplemental Financing Facility (“Witteveen Facility”).27 CBO found, in a study of the budgetary
scorekeeping issue in 1978, that any procedure – appropriated, exchanged, on-budget, off-budget
– is intrinsically arbitrary and not consistent with similar or comparable programs that are treated
differently from a scorekeeping perspective elsewhere in the U.S. budget process.28
Many Members of Congress, reportedly, were not happy with this arrangement. Some argued,
citing the provision of the U.S. Constitution which says that no money shall be drawn from the
Treasury except through an appropriation by law, that the funding for U.S. participation in the
IMF must be appropriated. Some also said that treating the U.S. payments to the IMF as an off-
budget transaction was inconsistent with the principle of budgetary unity which underlay the
work of the Presidential budget commission in 1967 and a violation of the prohibition against
“backdoor spending” in the Congressional Budget Act of 1974.
The issue came to a head in 1980 during congressional consideration of legislation to approve
U.S. participation in a new quota increase for the IMF. A compromise was ultimately agreed to.
Under this arrangement, the full amount of the U.S. subscription to the IMF would be
appropriated as budget authority.29 This gave Congress control over the size of the U.S. payments
and the amount of contingent liability the United States undertook through its participation in the
IMF. However, consistent with the exchange of assets concept, no outlays would be counted and
26 P.L. 91-599 and P.L. 91-619, enacted in December 1970, added Sec. 22 to the BWAA and appropriated necessary
funds. The Administration had requested that funds for the quota increase be both authorized and appropriated. U.S.
Bureau of the Budget. The Budget of the United States Government, Fiscal Year 1971, Appendix, p. 105.
27 P.L. 94-564, enacted in October 1976, added Sec. 25 to the BWAA, saying that “the U.S. Governor of the Bank (sic)
is authorized to consent to an increase in the quota of the United States in the Fund equivalent to 1,705 million Special
Drawing Rights.” The next year, P.L. 95-435, enacted in October 1977, added Sec. 28 to the BWAA, saying that “The
Secretary of the Treasury is authorized to make resources available as provided in decision 5509-(77/127) of the Fund,
in amounts not to exceed the equivalent of 1,450 million Special Drawing Rights.” In neither case were appropriations
required. See also Treasury Secretary William E. Simon’s paper, “The Exchange of Assets Concept,” reprinted in U.S.
Congress. Committee on Banking, Currency and Housing. Subcommittee on International Trade, Investment and
Monetary Policy. Hearings on H.R. 13955, June 1 and 3, 1976. USGPO, 1976, p. 31.
28 Congressional Budget Office. U.S. Participation in the Witteveen Facility: The Need for a New Source of
International Finance. March 1978. This paper is available at http://www.cbo.gov/ftpdocs/67xx/doc6727/78-CBO-
027.pdf.
29 P.L. 96-389, enacted in October 1980, added Sec. 32 to the BWAA. This says the Secretary of the Treasury “is
authorized to consent to an increase in the quota of the United States in the Fund equivalent to 4,202.5 million Special
Drawing Rights, limited to such amounts as are appropriated in advance in appropriation Acts.” Congress substituted
the latter language for the original text, which approved participation in the quota increase “to such extent or in such
amounts [as] are provided in appropriation Acts.” The latter language would have required action by the appropriations
committees but would not have required formal appropriations to effect the U.S. increase in the IMF.
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the payments to the IMF would be deemed to have no net impact on the U.S. budget. This
procedure remains in effect to this day.
Congress has taken a different approach in its budgetary treatment of the contingent liability
associated with U.S. participation in the multilateral development banks (MDBs). The MDBs
fund their market-rate loan programs with money borrowed in commercial markets. Because they
are backed by substantial reserves and by the callable capital subscriptions of their member
countries, the banks can sell their bonds and notes at favorable interest rates, and they pass these
relatively low rates on to their borrower countries. MDB member countries subscribe some of
their purchases of capital stock in callable capital and some (a fixed ratio, now a very small
percent of the cost for each share) in paid-in capital. Callable capital is a type of full faith and
credit guarantee to the banks’ bondholders from their member countries. Most analysts believe
that it is very unlikely that one of the MDBs would go bankrupt, exhausting all its resources, and
needing to call on the callable capital of its members in order to satisfy its creditors.
Before 1982, Congress appropriated the full amount necessary for the callable portion of U.S.
subscriptions to capital stock in the multilateral development banks (MDB). About $12 billion for
callable capital had been appropriated by that time, roughly $8 billion for the World Bank and $4
billion for the regional development banks. No outlays were associated with this budget authority
and it had no impact on the budget or the budget deficit. During the 1970s, however, cuts were
adopted reducing the appropriations for MDB callable capital. The proponents of these cuts often
claimed that they were saving the taxpayers and reducing the budget deficit by hundreds of
millions of dollars. The cuts in callable capital were not program oriented, since the full paid-in
portion of the subscriptions for MDB capital stock was generally appropriated. The resulting
mismatch in appropriations had a negative effect on U.S. participation in the banks.
Consequently, in 1981, Congress decided that funds would no longer need to be appropriated for
new U.S. subscriptions to callable capital. Instead, as is now the current arrangement, the size of
the annual U.S. subscription is regulated through program limitations in appropriations acts.30 No
formal appropriations are required, though appropriations would be required if there ever were to
be a call on callable capital. In the case of the IMF, neither the Balanced Budget Act of 1977 nor
Sec. 17 of the BWAA require that budget authority must be appropriated to facilitate future
increases in the U.S. quota in the IMF or future loans to the IMF through the NAB. The law is
silent as to the budgetary procedures that Congress should use on such occasions.
The procedures are different for the IMF and the multilateral banks, but the budgeting issue in
both situations is essentially the same. Should the outlay effect of the U.S. commitment to these
institutions be counted as zero or is there a likelihood that the IMF will not pay the United States
back or a possibility that a call might be made on callable capital? Congress has used a variety of
mechanisms to effect the U.S. payments to international financial institutions – in some cases
appropriating the full amount in budget authority, in other cases setting a program limitation on
new liability, and in other cases treating the entire transaction as an off-budget exchange of assets.
None of these arrangements seems to be superior to the others, either in terms of maintaining
congressional control or in reflecting or controlling the liabilities that the United States faces
through its participation in international financial programs.
30 P.L. 97-35, enacted August 1981, adding Sec. 39 to the Bretton Woods Agreement Act. This authorized U.S.
participation in a new capital increase for the World Bank, providing that ‘any subscription to such additional shares
shall be effective only to such extent or in such amounts as are provided in advance in appropriations acts.” This is the
same language Congress had chosen not to enact the previous year in connection with U.S. payments to the IMF.
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In 2004, CBO Director Douglas Holtz-Eakin told the Senate Banking Committee that, “The
current budgetary treatment does not fully reflect the U.S. share of the credit risk associated with
the lending and other transactions of the international financial institutions.” He had no
recommendations for change, however. He said that CBO hoped to discuss these issues further in
a future paper.31 For various reasons, that study was never completed and no paper was released.
It may be difficult, in the present moment, for Congress to determine what the “right” budgeting
procedure might be in this situation. Over the longer term, however, Congress may want to
consider whether an analysis of these budgetary issues might be desirable and whether some
changes in the scorekeeping system for international financial institutions might be appropriate.
Author Contact Information
Jonathan E. Sanford
Martin A. Weiss
Specialist in International Trade and Finance
Specialist in International Trade and Finance
jsanford@crs.loc.gov, 7-7682
mweiss@crs.loc.gov, 7-5407
31 Statement of Douglas Holtz-Eakin, Director. Congressional Budget Office. The Costs and Budgetary Treatment of
Multilateral Financial Institutions’ Activity. Testimony before the Senate Committee on Banking, Housing and Urban
Affairs, May 19, 2004. A copy of this testimony is available at http://www.cbo.gov/ftpdocs/54xx/doc5458/05-19-
MFIs.pdf. CBO’s last scored IMF legislation in 1998 when it considered H.R. 3114, the International Monetary Fund
Reform and Authorization Act of 1998, a bill that was reported by committee but not considered by the House. A copy
of the CBO cost estimate is available http://www.cbo.gov/ftpdocs/3xx/doc385/H.R.3114.pdf.
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