International Monetary Fund (IMF): Costs and Benefits of U.S. Participation

International Monetary Fund (IMF): Costs and Benefits of U.S. Participation

98-412 E
CRS Report for Congress
Received through the CRS Web
International Monetary Fund (IMF): Costs and
Benefits of U.S. Participation
April 29, 1998
(name redacted)
Specialist in International Trade and Finance
Economics Division
Congressional Research Service ˜ The Library of Congress

ABSTRACT
The International Monetary Fund (IMF) is the international lender-of-last-resort. As Congress
considers major funding proposals for the IMF, the costs sustained and the benefits provided
by U.S. participation in the IMF have become issues. This report examines both the
quantifiable costs and, briefly, the largely unquantifiable benefits. It also summarizes relevant
budgetary conventions, which dictate that U.S. transactions with the IMF have no net impact
on the budgetary position of the United States and do not require a compensatory cut in
domestic spending. In light of new data presented to the Congress by the Department of the
Treasury on April 20, 1998, this report will be udpated again this year.

International Monetary Fund (IMF): Costs and Benefits of
U.S. Participation
Summary
This report examines U.S. costs of participating in the International Monetary
Fund (IMF). Under conventions governing U.S. budgetary treatment of the IMF, any
expenditures (outlays) arising from transactions with the IMF are offset by the
increase in the U.S. reserve position in the IMF and, thus, have no net impact on the
budget. Nevertheless, funds for the IMF are both authorized and appropriated.
Expenditures in connection with U.S. participation in the Fund, however, do give
rise to three other types of financial flows that enter the budget:
! an increase or decrease in the Treasury's interest costs,
! receipts from the IMF, mostly from interest (remuneration) earned on the U.S.
reserve tranche position, and
! foreign exchange gains and losses resulting from exchange rate movements
between the Special Drawing Right (SDR) and the U.S. dollar.
For the period July 1, 1969 through December 31, 1982, the U.S. government
sustained a loss on its transactions with the IMF that amounted to $1.4 billion or an
annual average of $107 million.
For the 18-year period extending from April 30, 1980 to April 30, 1997 (IMF
fiscal year), the United States had a positive return to the U.S. budget of $1.3 billion
or an annual average of $73 million. Within the total financial picture of the U.S.
government, these sums are modest. For 1997 (IMF fiscal year), for example, the
U.S. sustained a loss of $1.6 billion; this was equivalent to about 0.1 percent of total
expenditures or 0.2 percent of discretionary expenditures (U.S. fiscal year).
Gains and losses resulting from transactions with the IMF were largely
attributable to exchange rate movements between the U.S. dollar and the SDR, the
international reserve asset in which all IMF accounts are denominated.
Benefits of the IMF to the United States, like those arising from most
government programs, are difficult to quantify. Perhaps the most important point is
that the U.S. government, with 18.25 percent of total IMF quotas (capital) and 17.78
percent of the voting power, is the largest shareholder. It has a veto over major IMF
policies and a deciding say over much else, including support programs extended by
the IMF within the context of major international financial crises. The IMF is deeply
intertwined with U.S. international economic policy. Given the relatively modest
financial costs of U.S. participation in the IMF, it would appear that the IMF's
performance, policies, and programs are the more critical issue in the current policy
debate over funding for the IMF.
This report will be updated in light of later data provided to the House Banking
General Oversight and Investigations Subcommittee on April 20, 1998.

Contents
Budgetary Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Flows Arising from U.S. Participation in the IMF . . . . . . . . . . . . . . . . 3
Estimated U.S. Treasury Borrowing (Interest) Costs . . . . . . . . . . . . . . . . . 4
Impact on Net U.S. Treasury Debt Outstanding . . . . . . . . . . . . . . . . . . . . . 5
Receipts from the IMF: Interest, "Remuneration," and Refunds . . . . . . . . . 6
Valuation Gains and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The "Bottom Line": Net Financial Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Appendix I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 1. Estimated U.S. Treasury Borrowing Cost Associated with
IMF Transactions, April 30, 1980-April 30, 1997 . . . . . . . . . . . . . . . 15
Table 2. Cumulative Net Treasury Debt Outstanding Associated with
IMF Transactions, April 30, 1980-January 31, 1991 . . . . . . . . . . . . . 16
Table 3. Remuneration, Interest, and Refunds Received from the IMF,
April 30, 1980-April 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 4. Valuation Gains and Losses on the U.S. Reserve Position in
the IMF, April 30, 1980-April 30, 1997 . . . . . . . . . . . . . . . . . . . . . . 18
Table 5. Financial Return from U.S. Participation In the IMF,
April 30, 1980-April 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Appendix II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Appendix III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

International Monetary Fund (IMF): Costs and
Benefits of U.S. Participation
The International Monetary Fund (IMF) is the international lender of last resort.1
It extends financial support to countries experiencing balance-of-payments difficulties,
particularly in the wake of an international financial crisis. Increases in funding for the
IMF — $14.5 billion for an increase in the U.S. capital or quota subscription and $3.5
billion for the "New Arrangements to Borrow" (NAB) — are under consideration
by the U.S. Congress at this writing.
2
Within the context of the current congressional debate, the question of financial
costs sustained by the United States in connection with its participation in the IMF has
arisen. This report examines these costs, and to a lesser extent, the largely
unquantifiable benefits growing out of participation in the Fund.
The report is based on data provided by the International Monetary Fund (IMF)
to CRS, updating and supplementing earlier data provided to the U.S. Congress by
the U.S. Department of the Treasury on an ad hoc basis at the time of the 1983 and
1992 quota increases.
3
The data are presented in two time series: the first period extends from July 1,
1969 to December 31, 1982; the second, from April 30, 1980 to April 30, 1997. The
first set of data were prepared by the U.S. Treasury on a U.S. fiscal year basis; the
second set, combines U.S. Treasury data and IMF data, both of which were prepared
on an IMF fiscal year basis. Because of the difference in fiscal year definition, the two

1 For an introduction to the IMF, see The International Monetary Fund: A Short Overview,
CRS Report 97-228 E, by (name redacted).
The author would like to acknowledge comments and suggestions offered on this report
during the CRS peer-review process.
2 These are discussed in detail in CRS Issue Brief #97038, The International Monetary
Fund's "New Arrangements to Borrow" (NAB), and CRS Report 98-56 E, The International
Monetary Fund's (IMF) Proposed Quota Increase: Issues For Congress, both by (name r
e
dacted).

3 U.S. Treasury Data is presented in U.S. Congress. Senate. Committee on Appropriations.
International Monetary Fund Quota Increase. Special Hearing, May 17-18, 1983, 98th
Congress, 1st Session, p. 49-53. U.S. Govt. Off. [Washington] 1983. Senate Hearing 98-
402, and in U.S. House. Committee on Banking, Finance, and Urban Affairs. Subcommittee
on International Development, Finance, Trade and Monetary Policy. Quota Increase of the
International Monetary Fund. Hearing held July 10, 1991. 102nd Congress, 1st session.
U.S. Govt. Print. Off. [Washington] 1991, p. 65-68. Serial No. 102-53.

CRS-2
data series could not be combined into one series and have, therefore, been presented
separately. Throughout the report, emphasis has been placed on the more recent data.
The data are not routinely compiled or published by either the U.S. Treasury of
the IMF. On April 20, 1998, the U.S. Department of the Treasury provided its
estimates on the net benefits and costs of U.S. participation in the IMF to the
Committee on Banking and Financial Services, General Oversight and Investigations
Subcommittee. In light of this new data, this report will be updated.
Budgetary Treatment
Quota increases are paid to the IMF by transferring 25 percent of the amount
of the increase, the so-called "reserve tranche," to the IMF in the form of international
reserve assets and the balance, equal to 75 percent of the increase, in the form of a
letter of credit.
4
The reserve tranche payment to the IMF is made immediately upon acceptance
of the increased quota. Payment is made either in "hard currencies" (currencies that
are generally acceptable for international transactions) other than a country's own
currency or in Special Drawing Rights (SDRs).5
The letter of credit, on the other hand, is considered to be a contingent liability
of the U.S. government. The letter of credit is encashed by the IMF to meet its
requirements for U.S. dollars to be used in making loans to countries that are
borrowing from the it.
Both reserve tranche payments and payments to the IMF under the quota letter
of credit result in a budget expenditure only as cash is actually transferred to the IMF.
When a transfer is made, however, the United States gets an equal and offsetting
receipt — an interest-bearing, liquid international monetary asset, specifically the
increase in the U.S. reserve position in the Fund. Under current budgetary
conventions, these offsetting transactions are treated
6
as an exchange of assets. As
a consequence, they do not result in net budget outlays, and they do not affect the net
budgetary position (deficit or surplus) of the federal government. Looked at another
way, any debt (liability) incurred through the sale of securities to make this
expenditure is balanced by an asset — the U.S. reserve position in the Fund.

4 A letter of credit is a non-negotiable document that permits the holder to draw upon it up to
a specified sum of money upon presentation of evidence of satisfaction of prescribed
conditions. Letters of credit are most widely used in international trade.
5 The Special Drawing Right (SDR) is an international reserve asset that is created by the
IMF. For a discussion of the SDR, see CRS Report 97-738 E. The IMF's Proposed Special
Drawing Rights' (SDRs) Allocation: A Background Paper, by (name redacted).
6 For more information on the budgetary treatment of U.S. transactions with the IMF, see
CRS Report 96-279 E,. U.S. Budgetary Treatment of the International Monetary Fund, by
(name redacted).

CRS-3
Under budgetary practices established in consultation with Congress in 1980,
funding for the IMF, nevertheless, requires budgetary authorization and appropriation
in the full amount. This is an historical development that contravenes the governing
accounting convention, but reflects congressional concern regarding the then
burgeoning U.S. fiscal deficit
Funding for the IMF also does not require any compensatory cuts in domestic
spending. Title X of P.L. 105-33, the “Balanced Budget Act of 1997,” provides for
an adjustment to the budget’s discretionary spending limits to allow for U.S.
acceptance of the increased financial commitment that would arise in connection with
the IMF.
Budgetary treatment for the NAB, which are an arrangement of credit lines that
the IMF could tap in the event of a financial crisis, is identical to that of IMF quota
increases: an exchange of assets, having no net effect on the U.S. fiscal position and
requiring no compensatory cuts in domestic spending. A drawing by the IMF under
the NAB would not constitute a contribution to the IMF's capital and would not,
therefore, increase the U.S. reserve position in the IMF. Rather, it would constitute
an interest-bearing loan to the IMF, repayable within five years.
Financial Flows Arising from U.S. Participation in the
IMF
As cash is actually transferred to the IMF, however, a number of financial flows
that are distinct from the exchange of assets that has been described above also occur:

! U.S. government borrowing (interest) costs may be either increased or
decreased,
! the net debt position of the U.S. Treasury is either increased or decreased,
! interest (remuneration) on the U.S. reserve position in the IMF will be
received, and
! valuation gains and losses reflecting exchange rate movements between the
U.S. dollar and the SDR are incurred.
Each of these four types of flows that have been listed above are discussed in further
detail in the balance of this report.

CRS-4
Estimated U.S. Treasury Borrowing (Interest) Costs
U.S. transactions with the IMF give rise to a budget expenditure only as cash
is actually transferred to the IMF. Transfers to the IMF enter the U.S. budget as
interest costs. They increase the Treasury's borrowing requirement, that is,
Treasury's need to sell securities and, thus, they increase interest costs. Conversely,
receipts from the IMF reduce the borrowing requirement. This, in turn, results in a
decrease in the imputed interest costs associated with the effect of the transaction on
the Treasury's borrowing requirement. Estimated interest costs are, however, not just
affected by the amount borrowed, but also, obviously, by U.S. domestic interest rates.
The net effect of U.S. transactions with the IMF on U.S. borrowing costs has
varied over the years. They reflect the pattern of U.S. transactions with the IMF and,
ultimately, the pattern of IMF lending. Thus, for example, when the United States
itself borrowed from the IMF in November 1978, it received an inflow of dollars and,
hence, U.S. borrowing requirements were reduced. On the other hand, this was
somewhat offset, beginning in 1977, by loans that the United States made to the IMF
under the "Supplementary Financing Facility" ((SFF) or the "Witteveen Facility").
As shown in figure 1, after the onset
Figure 1. U.S. Interest Costs
of the Third World debt crisis in 1982,
Attributable to Transactions
U.S. transfers of dollars to the IMF for
with the IMF,
use in the latter's loan operations
April 30, 1980-April 30, 1997
accelerated. Fund credit outstanding
(Million $)
peaked, for the decade, in 1985, a fact
reflected in the increase of U.S.
borrowing costs attributable to the IMF.
In the late 1980s, repayments made by
developing countries that had borrowed
earlier from the IMF reduced transfers of
dollars by the United States to the IMF,
improved the cash position of the U.S.
Treasury, and, correspondingly reduced
associated borrowing costs. Fund credit
outstanding declined until 1990, when it
again accelerated in the wake of the
emergence of market economies in
Eastern Europe and the former republics
of the Soviet Union. IMF lending
increased by nearly one quarter between 1994 and 1995, with the increase more than
accounted for by IMF loans to just two countries — Mexico and Russia.
The data that are available indicate that, from July 1, 1969 through December
31, 1982, the estimated cost of Treasury borrowing attributable to the IMF amounted
to $1,753 million or an annual average of $130 million.7
7 U.S. Treasury data appearing in, U.S. Congress. Senate. Committee on Appropriations.
International Monetary Fund Quota Increase. Special Hearing, May 17-18, 1983. 98th
(continued...)

CRS-5
A second data series, appearing in appendix table 1, shows that the estimated
borrowing cost for the period April 30, 1980 through April 30, 1997 was $7,469
million, or an annual average of $415 million.
The lower estimated borrowing costs during the earlier period undoubtedly
reflect the fact that the U.S. was a borrower from the IMF during the period (1970-
1972 and 1978). In the later period, the U.S. was a lender to the IMF, causing a rise
in the imputed borrowing costs attributable to transaction with the IMF.
Impact on Net U.S. Treasury Debt Outstanding
If the U.S. Treasury borrows (sells
Figure 2. Cumulative Net Debt
securities) in order to make payments to
Outstanding Resulting From U.S.
the IMF, it increases the level of U.S.
Participation in the IMF,
government debt outstanding. In the
April 30, 1980-January 31, 1991
past, the U.S. Treasury has estimated the
(Million $)
impact of IMF transactions on the level of
net Treasury debt outstanding.
During U.S. fiscal year 1982, the net
Treasury debt outstanding attributable to
transactions with the IMF amounted to
$5.3 billion, equivalent to about ½ % of
the total outstanding Treasury debt of
$1.1 trillion at the end of the fiscal year.8
During the first quarter of fiscal 1983
(final quarter of calendar year 1982), the
net debt outstanding attributable to
participation in the IMF was $6.8 billion.9
The annual average net debt
outstanding attributable to transactions with the IMF during the period July 1, 1969
through December 31, 1982 was $1,938 million.
More recent data prepared by the U.S. Treasury were presented not on the basis
of U.S. fiscal years, but, rather on the basis of IMF fiscal years. The latter end on
April 30 of each year. As shown in appendix table 2 and figure 2, cumulative net
debt outstanding attributable to transactions with the IMF amounted to $4.6 billion,
as of January 31, 1991. T
10
his was equivalent to less than 0.2% of the $2,845 billion
(...continued)
7
Congress, 1st session. U.S. Govt. Print. Off. [Washington] 1983. Senate Hearing 98-402,
p. 51. Herein after referred to as Senate Special Hearing.

8 Ibid., p. 50-51.

9 Ibid., p. 51.
10 Data from the U.S. Treasury, as presented in, U.S. Congress. House. Committee on
Banking, Finance, and Urban Affairs. Subcommittee on International Development, Finance,
(continued...)

CRS-6
in U.S. government debt outstanding. The annual average of net Treasury debt
outstanding attributable to U.S. participation during the period was $4.1 billion.
Data from the two periods lead to the following conclusions:
! cumulative net debt outstanding attributable to transactions with the IMF was
significantly lower at the end of January 1991 than at the end of December
1982, having declined from about $6,772 million to $4,617 million, a decline
of nearly one-third;

! cumulative net debt arising from transactions with the IMF also declined as a
percentage of total U.S. government debt outstanding, from less than 0.5%
during U.S. fiscal year 1982 to less than 0.2% at the end of calendar year
1990; and, finally,
! although the fiscal periods differed, the average annual net debt outstanding
more than doubled between the two periods, from $1,938 million (U.S. fiscal
year basis) to $4,117 million (IMF fiscal year basis).
The impact of U.S. transactions with the IMF on the U.S. net debt position is the
counterpart to U.S. borrowing costs and, thus, likewise, mirrors U.S. transactions
with the Fund. Again, in the earlier period, the United States, as a borrower, was
receiving funds from the IMF; in the later period, it was a lender. By the late 1980s,
the United States was being paid back for IMF use of its quota following the 1982
debt crisis, but the surge of lending to Eastern Europe and the former republics of the
Soviet Union had just begun. It is also not surprising that the average annual net debt
outstanding was higher in the later period, again reflecting the U.S. shift from
borrower to lender.
At the time this report was written, the U.S. Treasury Department had not
provided data for the period since January 1991 to the U.S. Congress.
Receipts from the IMF: Interest, "Remuneration," and Refunds
Interest costs sustained as a result of U.S. Treasury borrowing in connection
with U.S. transactions with the IMF are offset by receipts from the IMF. These arise
from:
! interest that the United States receives on any loans that have been extended
to the IMF, such as under the "General Arrangements to Borrow" (GAB)11
and, potentially, under the proposed NAB,
(...continued)
10
Trade and Monetary Policy. Quota Increase of the International Monetary Fund, Hearing
held July 10, 1991. 102nd Congress, 1st Session, p. 65-68. U.S. Govt. Print. Off.
[Washington] 1991. Serial No. 102-53.
For
11
more information on the General Arrangements to Borrow, see CRS Report 97-467 E,
The IMF's "General Arrangements to Borrow" (GAB): A Background Paper, by (name redac
ted).

CRS-7
! "remuneration" (interest) received on the U.S. reserve position in the IMF,
and, finally,
! refunds from burden-sharing.12
Receipts represent a cash inflow into the General Treasury that reduce borrowing
requirements and, hence, interest expense.
The largest source of U.S. receipts from the IMF is "remuneration," that is,
interest paid on the so-called "remunerated reserve position." The remunerated
reserve tranche position is derived from the "reserve tranche." One-fourth of the U.S.
quota or capital contribution to the IMF is paid into the IMF immediately in SDRs
from the Exchange Stabilization Fund (ESF), the fund used by the U.S. Treasury to
stabilize the international value of the U.S. dollar . This "reserve tranche" i
13
s
considered to be part of an IMF member's international reserve assets, hence the
name. Members may draw upon their reserve tranche immediately and
unconditionally upon representation of balance-of-payments need. The reserve
tranche, therefore, is a liquid asset for IMF members and a liquid liability for the IMF
itself. In 1978, the United States, experiencing substantial pressure on the external
value of the dollar, made a reserve tranche drawing of SDR 2,275 million ($3 billion)
from the IMF.
In addition to immediate payment of the reserve tranche, the United States also
presents the IMF with a non-interest bearing letter of credit on the Treasury general
account for the balance (75%) of the quota contribution (except for a small amount
(1/4 of 1%) that is in the form of a dollar demand deposit). This is also part of the
IMF's capital, but operates much like a credit line. It is activated by the IMF as it
needs dollars in its financial operations. As the letter of credit is drawn upon by the
IMF in order to use U.S. dollars in its loan operations, the Fund's holdings of dollars
(as represented by the unused balance under the letter of credit) decrease and,
concomitantly, the U.S. reserve position in the Fund expands; similarly, as IMF
drawings under the letter of credit are paid back, the U.S. reserve position contracts.
The "remunerated reserve tranche" is not equal to the reserve tranche. The exact
definition of the "remunerated reserve position" is a technical matter. The phrase
refers to the amount by which the Fund's holdings of a member's currency are less
than the member's "norm." The "norm," in turn, is defined as "an amount equal to 75
percent of the member's quota on April 1, 1978, plus the sum of subsequent increases
in the member's quota." In the U.S. case, the U.S. quota on April 1, 1978 was SDR

12 Since May 1986, the financial consequences of overdue obligations to the IMF have been
shared between debtor and creditor member countries. This has been accomplished by
increasing the rate of charge to borrowers and decreasing the rate of remuneration to creditors.
When the overdue charges are paid, equivalent amounts are refunded to the members that bore
the burden. IMF. Treasurer's Department. Financial Organization and Operations of the
IMF. Pamphlet No. 45, 4th ed., p. 117-118.

13 For more information on the Exchange Stabilization Fund, see CRS Report 95-262 E, The
Exchange Stabilization Fund, by Arlene Wilson.

CRS-8
8,405 million. On that date, therefore, the "norm" was SDR 6,303.75 million.
Increases since then have amounted to SDR 18,121.8 million (the current quota of
SDR 26,526.8 million less SDR 8,405 million). The U.S. "norm," therefore, currently
equals SDR 24,425.55 million or about 92.1% of the total U.S. quota in the IMF.
With each successive quota increase, the norm moves closer to 100 percent of quota.
In calculating the level of the Fund's holdings of a member's currency, the IMF
excludes currencies held in working balances (IMF No. 2 Accounts) that it uses to
handle its administrative expenses and receipts in member countries when they are
equal to less than 1/10 of 1% of a member's quota. In the case of the United States,
this threshold for exclusion of working balance is quite high, at SDR 26.5 million
(currently about $34.4 million). It is undoubtedly safe, therefore, to assume that
working balances in the United States constitute excluded currency holdings. The
IMF manages its working balances in such a way as to minimize them, even or,
perhaps, especially, in the case of the United States, where it is headquartered.
Additionally, currency holdings that reflect a member's borrowings from the IMF are
excluded; this does not apply to the United States, which is not a borrower.
Figure 3 provides
Figure 3. Remunerated Reserve Position,
two graphic examples of
Illustrative Examples
the U.S. remunerated
reserve position. In the
Billion
30
SDR 26.5
SDR 26.5
left-side example, the
U.S. reserve position is
25 Reserve
Norm
exactly equal to the
Position
Remunerated
Reserve
20 (SDR
Position
reserve tranche, which is
6.6)
Reserve
(SDR
Position
equivalent to 25 percent
15
13.4)
of the U.S. quota or SDR
10 Currency
Currency
6.6 billion. The quota
Holdings
Holdings
(SDR
letter of credit has not
5(SDR
19.9)
13.1)
been drawn upon by the
0
IMF. Currency holdings
are SDR 19.9 billion.
L/C Not
L/C Activated
Activated
(1/31/98)
With no allowance for
exclusion of working
balances, the remunerated
reserve tranche would be equal to SDR 4.5 billion. Given the importance of the U.S.
dollar in the IMF's operations, the U.S. would virtually never be in this position, that
is, with its quota letter of credit not having been activated.
The example on the right side of figure 3 shows the position of the U.S. accounts
in the IMF on January 31, 1998. The quota letter of credit has been activated. At
that time, the Fund held the equivalent of SDR 13.1 billion in U.S. dollars. The U.S.
reserve position, therefore, was equal to SDR 13.4 billion (that is, the quota of SDR
26.5 billion less the currency holdings.) The remunerated reserve position was SDR
11.3 billion (that is, the "norm" of SDR 24.4 billion less the currency holdings) —
simplified again in this presentation by not allowing for working balances (which
were, in fact, SDR 3.2 million.)
.

CRS-9
Using IMF data, for calendar year 1997, CRS estimates that the U.S
14
.
remunerated reserve position in the IMF fluctuated between a high of SDR 11,309.85
million at the end of December (about $15.3 billion) and a low of SDR 7,845.25
million at the end of June (about $10.9 billion). The average U.S. remunerated
reserve position for calendar year 1997 was SDR 8,575.6 million (about $11.8
billion). IMF holdings of U.S. currency ranged from a low of SDR 13,115.7 million
(about $17.7 billion) at the end of December 1997 to a high of SDR 16,580.3 million
(about $23.0 billion) at the end of June 1997. Average currency holdings amounted
to SDR 15,849.9 million (about $21.8 billion). CRS estimates that working balances
ranged from SDR 0.5 million at the end of January (about $0.7 million) to SDR 4.5
million at the end of October (about $$6.2 million), with the average month-end
balance being SDR 2.8 million (about $3.9 million)
Remuneration accrues daily on the remunerated reserve tranche position, which
is calculated daily. It is paid quarterly at the SDR interest rate (adjusted for burden
sharing, which, for example, retroactively for the first quarter of 1998, reduced the
rate of remuneration by 20 basis points). The SDR interest rate is based on the
weighted average of interest rates on the three-month paper of the five countries
whose currencies are included in the SDR basket — the United States, Japan,
Germany, the United Kingdom, and France. Thus, the SDR interest rate is market-
based. Because interest rates on some of the constituent currencies, notably the
Japanese yen, are lower than U.S. interest rates, the SDR interest rate is currently
below U.S. interest rates. The SDR interest rate, for example, during the week
beginning April 6, 1998 was 4.26%.
During the period July 1, 1969
Figure 4. Receipts from the IMF,
through December 31, 1982, interest and
April 30, 1980-April 30, 1997
remuneration received from the IMF
(Million $)
amounted to $905 million, of which $225
million was attributable to U.S. loans to
the IMF and $680 million was attributable
to remuneration on the U.S. reserve
position in the Fund. Annually (U.S.
fiscal year), these averaged $17 million
and $50 million, respectively.15
Receipts from the IMF are shown in
appendix table 3 and figure 4. During
the period April 30, 1980 through April
30, 1997, the United States received
$7,070 million from the IMF. Annually
(IMF fiscal year), receipts averaged $393
million.
IMF.
14
International Financial Statistics, monthly, March 1997-February 1998 issues.
Senate Special Hearing, p. 51.
15

CRS-10
Valuation Gains and Losses
Whereas receipts from the IMF reduce the Treasury borrowing requirement, the
impact of the final category of U.S. transactions with the IMF — valuation gains and
losses — varies from year to year according to the movement of the exchange rate
between the U.S. dollar and the SDR.
All IMF accounts are denominated in SDRs. Since July 1, 1974, the IMF has set
the value of the SDR in terms of a basket of currencies. As a result of this method of
SDR valuation, however, the dollar value of the U.S. quota in the IMF fluctuates.
Under the rules and regulations of the Fund, IMF members must maintain the total
value of the Fund's holdings of their currencies constant in terms of the SDR. Stated
another way, the purchasing power of the SDR must be maintained. Settlements to
maintain the dollar value of the U.S. quota result in foreign exchange losses or gains
for the U.S. government.
Valuation settlements, in which the member country either makes a payment to
or receives a payment from the IMF, are made at least annually, at the end of the
IMF's fiscal year, April 30. They are made through a valuation adjustment account
that is part of the IMF's holdings of a member's currency.
Whether or not a valuation
Figure 5. U.S. Dollars Per SDR,
adjustment payment is required is
April 30, 1980-April 30, 1997
determined from the point of view of the
IMF's accounts, whose value in dollar
terms is being maintained. Thus, an
appreciation of the U.S. dollar
internationally means that the SDR is
falling in dollar terms. (or, stated yet
another way, each SDR commands fewer
dollars), decreasing the dollar value of the
U.S. quota in the IMF. Thus, a strong
U.S. dollar results in a valuation
adjustment payment to the IMF, a
budgetary outlay. As shown in figure 5,
for example, in 1985, when the dollar was
strong internationally, the SDR was
correspondingly weak, worth about 99¢.
The United States experienced valuation losses against the SDR amounting to $569
million, as shown in appendix table 4. Conversely, when the dollar is declining
internationally and, thus, also against the SDR, the dollar value of the U.S. quota is
increasing and the U.S. receives a valuation adjustment payment from the IMF. An
example to clarify how currency movements affect the valuation settlement is
presented in Appendix II at the end of this report.
Valuation gains and losses arise out of the market value of the U.S. dollar and
the other constituent currencies of the SDR, the German mark, the Japanese yen, the
British pound, and the French franc. Since the U.S. dollar is the largest component
of the SDR, valuation gains and losses are related, as least in part, to the performance
of the U.S. dollar. In turn, the international value of the U.S. dollar, over the

CRS-11
medium- and long-term, reflects the macroeconomic policies of the U.S. government
and the performance of the U.S. economy relative to the performance of the other
major economies.
During the period July 1, 1969
Figure 6. Valuation Gains (+) and
through December 31, 1982, the U.S.
Losses (-) on the U.S. Position in the
experienced a valuation loss of $843
IMF, April 30, 1980-April 30, 1997
million. (Note that before July 1, 1974,
(Million $)
the issue of valuation gains and losses did
not arise because SDR1 equaled $1.)
This was more than accounted for by a
loss of $1,295 million in 1981. Annually,
the United States experienced, on
average, a valuation loss of $62 million.16
As shown in appendix table 4 and
in figure 6 on the preceding page, the
U.S. experienced both valuation gains and
losses during the period April 30, 1980
through April 30, 1997. For the period as
a whole, however, these amounted to a
gain of $1,466 million or an annual
average gain of $81 million.
16 Ibid.

CRS-12
The "Bottom Line": Net Financial Return
During the period July 1, 1969
Figure 7. Net Financial Return on
through December 31, 1982, the U.S.
U.S. Participation in the IMF,
government sustained a loss on its
April 30, 1980-April 30, 1997
transactions with the IMF. This
(Million $)
amounted to $1,443 million or an annual
average of $107 million.17
Appendix table 5 and figure 7
show the total net gains or losses accruing
to the United States from its financial
transactions with the IMF for the period
1980 to 1997, taking into consideration
borrowing costs (table 1); interest,
remuneration, and refunds (table 3); and
valuation gains and losses (table 4). In all
but six of the eighteen years, the U.S. had
a positive return on its transactions with
the IMF. Stated another way, the United
States sustained losses only one-third of
the time. For the entire period, April 30, 1980 through April 30, 1997, the return
amounted to $1,307 million or an annual average of $73 million.
Benefits
Perhaps the "beauty" of costs associated with the IMF, or any other public
program, is that they can be quantified. Benefits may not be as easily defined and are
often not susceptible to being quantified. In the current discussion of the proposed
funding for the IMF — $3.5 billion for the NAB and $14.5 billion for a quota
increase — debate over the IMF, its role, and programs has been vigorous. More
importantly, for some, the benefits provided by the IMF have been at issue.
In the post-war world, it is hard to argue that the international monetary system
has been stable; to the contrary, it has frequently been characterized by substantial
volatility. Nevertheless, when compared to the exchange rate turmoil of the 1930s,
the intellectual reference point for the creators of the Bretton Woods system, the
current system has worked relatively well. Perversely, financial crises in the current
system are the "flip" side of what is, perhaps, the system's greatest success — its
liberalization of financial flows, which has made possible the enormous expansion of
international trade, economic growth, and employment that has characterized the
post-World War II era. In the broadest terms, therefore, the purposes of the IMF, as
expressed in Article I of its Articles of Agreement (Appendix III), have, to a great
extent, been fulfilled. Emergency financing provided by the IMF has helped to ease
the impact of the financial crises that have occurred. It has allowed countries to avoid

17 Ibid.

CRS-13
restricting imports and growth to the levels that would otherwise have been required
by the rapid outflow of short-term capital, while at the same time permitting them to
undertake needed economic reforms.
The United States itself is the world largest economy, the world's largest
international trader, and the world's largest debtor, and, thus, has a major stake in the
international monetary system. This dominance is reflected in the structure of the
IMF. The IMF is a creature of the major industrial countries, including the United
States, its largest shareholder. The United States accounts for 18.25% of the quotas
and 17.78% of the votes in the IMF. This position has given it a veto over nearly all
major policy decisions of the IMF, including quota increases, allocation of SDRs, and
sale of gold. And it has also given the United States a major voice in all IMF loan
programs, a deciding one in the support programs that have been developed in the
wake of major financial crises, notably for Latin America in the 1980s, for Mexico in
1995, and for Asia in 1997. U.S. international economic policy and IMF policy have
been deeply intertwined; if the United States has not achieved substantial benefits
from the IMF over its 52-year history, then, to a great extent, it is also U.S. policy
that has failed.
Conclusions
U.S. budgetary conventions governing transactions with the IMF provide that
expenditures (outlays) for the IMF are offset by the increased U.S. reserve position
in the IMF. These are considered to be an exchange of assets. The transactions
themselves, therefore, have no net impact on the budgetary position of the United
States, whether it is in deficit or in surplus.
Expenditures in connection with U.S. participation in the Fund, however, do
bring about three other types of financial flows that enter the budget:
! an increase or decrease in the Treasury's interest costs,
! receipts from the IMF, mostly from interest (remuneration) earned on its
reserve tranche position, and
! foreign exchange gains and losses.
During the 18-year period that has been the primary focus of this report, the
impact of these flows on the U.S. financial picture has been modest. From April 30,
1980 to April 30, 1997, these transactions resulted, cumulatively, in an inflow into the
U.S. budget of $1.3 billion or an annual average of $73 million. In IMF fiscal year
1997, ending April 30, they amounted to a $1.1 billion outflow, the second largest
outflow, after 1996, in the 18-year period. The 1997 outflow was well under 0.1
percent of total U.S. fiscal year expenditures of $1,601 billion, or less than 0.2 percent
of discretionary expenditures of $548 billion. More importantly, the bulk of thi
18
s

18 Data on U.S. budgetary outlays for FY 1997 from A Citizen's Guide to the Federal Budget.
(continued...)

CRS-14
outflow was attributable to foreign exchange losses, which were equivalent to 89
percent of the total outflow. Indeed, in virtually every year during the 18-year period,
the major determinant of the net financial gain or loss arising from U.S. participation
in the IMF was attributable to valuation gains or losses, that is, to exchange rate
movements.
During the 18-year period, the implied interest costs of U.S. Treasury borrowing
exceeded interest (remuneration) and other payments received from the IMF by a
cumulative $227 million, or an annual average of $12.6 million. After contributing
to a reduction of U.S. Treasury borrowing costs in 1980 and 1981, the United States
sustained interests costs in the following 16 years. Both estimated U.S. Treasury
interest costs and receipts from the IMF were at their highest level in 1985, that is, at
the height of the Latin American debt crisis. Implied interest costs in 1997 were at
the second highest level for the period.
U.S. Treasury interest costs are affected both by the amount borrowed and by
U.S. domestic interest rates. They are not fully offset by receipts from the IMF for
three reasons: 1) the composite SDR interest rate is lower than U.S. domestic interest
rates, notably because of particularly low Japanese domestic rates; 2) the reserve
tranche position is not fully remunerated; and 3) there is an adjustment to the IMF's
rate of remuneration for burden-sharing, that is, for countries in arrears to the IMF.
Figures for net debt attributable to transactions with the IMF are available only
for the period up to January 1991. The impact of IMF transactions on the U.S.
government's net debt position varied during the period. Within the context of the
total U.S. debt picture, however, the impact of transactions with the IMF was also
modest, with the $4.6 billion outstanding at the end of calendar year 1990 amounting
to less than 0.2% of total U.S. government debt outstanding.
Given that transactions with the IMF have a limited impact on the total financial
picture of the U.S. government, it would appear that assessments of the role and
programs of the IMF are the more important policy issue.
(...continued)
18
Budget of the United States Government, Fiscal Year 1999, p. 12.

CRS-15
Appendix I
Table 1. Estimated U.S. Treasury Borrowing Cost Associated with IMF
Transactions, April 30, 1980-April 30, 1997*
(Million $)
IMF
IMF
Fiscal Year
Borrowing Cost
Fiscal Year
Borrowing Cost
Ending April 30
(-) or Reduction
Ending April 30
(-) or Reduction
1980
189
1989
-551
1981
125
1990
-521
1982
-246
1991
-460
1983
-370
1992
-315
1984
-621
1993
-254
1985
-782
1994
-304
1986
-609
1995
-501
1987
-493
1996
-633
1988
-482
1997
-641
Total
-3,289
-4,180
Annual Average/
18-Year Period
-415

* Estimated at the average annual rate of interest on 3-month Treasury bills. For
1983-1997, this was applied to the average remunerated reserve tranche position for
the year.
Source: 1980-1982: U.S. Department of the Treasury; 1983-1997: IMF.

CRS-16
Table 2. Cumulative Net Treasury Debt Outstanding
Associated with IMF Transactions,
April 30, 1980-January 31, 1991
(Million $)
IMF Fiscal Year Ending
April 30
Cumulative Net Debt Outstanding
1980
1,418
1981
1,078
1982
-1,817
1983
-5,528
1984
-6,820
1985
-6,557
1986
-8,535
1987
-7,148
1988
-5,464
1989
-2,438
1990
-2,977
1991*
-4,617
Annual Average
-4,117
* Through January 31, 1991 only.

Source: U.S. Department of the Treasury, as presented in U.S. Congress. Committee
on Banking, Finance and Urban Affairs. Subcommittee on International
Development, Finance, Trade, and Monetary Policy. Quota Increase of the
International Monetary Fund. Hearing, July 10, 1991. 102nd Congress, 1st session,
p. 67. Serial No. 102-53.

CRS-17
Table 3. Remuneration, Interest, and Refunds Received from the IMF,
April 30, 1980-April 30, 1997
(Million $)
Remuneration,
Remuneration,
IMF
Interest, and
IMF
Interest, and
Fiscal Year
Burden-
Fiscal Year
Burden-
Ending April
Sharing
Ending April
Sharing
30
Refunds
30
Refunds
1980
0
1989
445
1981
16
1990
520
1982
88
1991
498
1983
347
1992
405
1984
510
1993
399
1985
661
1994
380
1986
596
1995
378
1987
477
1996
481
1988
422
1997
447
Total
3,117
3,953
Annual
Average/ 18-
Year Period
393
Source: 1980-1982: U.S. Department of the Treasury; 1983-1997: IMF.

CRS-18
Table 4. Valuation Gains and Losses on the U.S. Reserve Position in the
IMF, April 30, 1980-April 30, 1997
(Million $)
IMF Fiscal Year
Valuation Gains (+) or Losses (-)
Ending April 30
on U.S. Reserve Position in the IMF
1980
-45
1981
-143
1982
-204
1983
-234
1984
-370
1985
-569
1986
1,797
1987
1,026
1988
712
1989
-629
1990
57
1991
227
1992
192
1993
438
1994
-20
1995
1,292
1996
-1,185
1997
-876
Total
1,466
Annual Average
81
Source: 1980-1982: U.S. Department of the Treasury; 1983-1997: IMF.

CRS-19
Table 5. Financial Return from U.S. Participation In the IMF,
April 30, 1980-April 30, 1997
(Million $)
IMF Fiscal Year Ending
Total Net Gains (+) or Losses (-) on U.S.
April 30
Transactions with the IMF
1980
144
1981
20
1982
-146
1983
-256
1984
-481
1985
-690
1986
1,784
1987
1,010
1988
653
1989
-735
1990
56
1991
265
1992
282
1993
582
1994
56
1995
1,170
1996
-1,337
1997
-1,070
Total
1,307
Annual Average
73
Source: 1980-1982: U.S. Department of the Treasury; 1983-1997: IMF.

CRS-20
Appendix II
The current U.S. quota equals SDR 26.53 billion. The valuation adjustment may
be calculated in two ways.
In order to keep the dollar value of the U.S. quota the same in terms of the SDR
at the end of April 30, 1997 as it was at the end of April 30, 1996, as IMF rules
require, the valuation adjustment is calculated as follows, from the point-of-view of
IMF accounts:
1)
In terms of the SDR:
April 30, 1996 (SDR1=$1.45006) SDR26.53 billion x $1.45006 =
$38.47 billion
April 30, 1997 (SDR1=$1.36553) SDR26.53 billion x $1.36558 =
$36.23 billion
As shown in figure 3, the SDR depreciated against the dollar, that is, each SDR
bought fewer dollars on April 30, 1997 (about $1.37) than on April 30, 1996 (about
$1.45). A valuation payment would be made to the IMF to maintain the dollar value
of the U.S. quota, which has fallen in terms of the U.S. dollar.
Looked at from the point-of-view of U.S. government accounts, however, the
dollar appreciated against the SDR. Thus, the valuation adjustment would be
calculated as follows:
2) In terms of the U.S. dollar:
April 30, 1996 ($1=SDR 0.68963) SDR 26.53 billion ÷ SDR 0.68963 =
$38.47 billion
April 30, 1997 ($1=SDR 0.73232) SDR 26.53 billion ÷ SDR 0.73232
= $36.23 billion
The U.S. dollar appreciated against the SDR. Thus, each dollar bought more SDRs
on April 30, 1997 (about SDR 0.73) than on April 30, 1996 (about SDR 0.69). The
dollar value of the U.S. quota in the IMF would, however, have fallen from $38.47
billion to $36.23 billion, a loss.
By either method, the United States, hypothetically, had to pay a valuation
adjustment to the IMF of $2.24 billion in order to maintain the value of its quota
constant between April 30, 1996 and April 30, 1997. In fact, this would not have
been the amount of the adjustment. The dollar value of the U.S. quota has to be kept
constant from the effective date of the last quota increase on November 11, 1991.
The above calculation is for illustrative purposes only. As appendix table 3 shows,
the United States actually had a valuation loss of $876 million during IMF fiscal year
1997, ending April 30.

CRS-21
Appendix III
Articles of Agreement of the International Monetary Fund
Article I
Purposes
The purposes of the International Monetary Fund are:
(i)
To promote international monetary cooperation through a permanent
institution which provides the machinery for consultation and collaboration
on international monetary problems.
(ii) To facilitate the expansion and balanced growth of international trade, and
to contribute thereby to the promotion and maintenance of high levels of
employment and real income and to the development of the productive
resources of all members as primary objectives of economic policy.
(iii) To promote exchange stability, to maintain orderly exchange arrangements
among members, and to avoid competitive exchange depreciation.

(iv) To assist in the establishment of a multilateral system of payments in
respect of current transactions between members and in the elimination of
foreign exchange restrictions which hamper the growth of world trade.
(v) To give confidence to members by making the general resources of the
Fund temporarily available to them under adequate safeguards, thus
providing them with opportunity to correct maladjustments in their balance
of payments without resorting to measures destructive of national or
international prosperity.
(vi) In accordance with the above, to shorten the duration and lessen the degree
of disequilibrium in the international balances of payments of members.
The Fund shall be guided in all its policies and decisions by the purposes set forth in
this Article

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