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See also economic conditions and sovereign risk.


International Monetary Fund overview

The IMF is an organization of 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

To see more about the background of the IMF please see Wikipedia.

IMF approves governance and quota changes

The Board of Governors of the International Monetary Fund (IMF) has approved a package of far-reaching reforms of the Fund’s quotas and governance. When voting ended on December 15, 2010, Governors representing 95.32 percent of the total voting power had cast votes in favor of a Resolution on Quota and Reform of the Executive Board, exceeding the 85 percent required. Following the Board of Governors’ approval, the next step is for member countries to accept the proposed quota increases and the amendment to the Articles of Agreement. Members will make best efforts to complete this by the Annual Meeting of the Board of Governors in October 2012. In many cases this involves parliamentary approval.

“This vote demonstrates the widespread support of our membership for these landmark reforms,” IMF Managing Director Dominique Strauss-Kahn said. “I urge all our members to proceed rapidly with the steps required to implement this package within the agreed timeframe.”

The Resolution, which had been recommended by the IMF's Executive Board to the IMF Board of Governors on November 5 (see Press Release No. 10/418), is a package of reforms on quotas and governance in the IMF. These reforms will lead to a major overhaul of the Fund’s voice and governance, strengthening the Fund’s legitimacy and effectiveness.

With the adoption of the Resolution, the 14th General Review of Quotas has been completed with an unprecedented doubling of quotas to approximately SDR 476.8 billion (about US$733.9 billion)1 and a major realignment of quota shares among members. Once in effect, it will result in a shift of more than 6 percent of quota shares to dynamic emerging market and developing countries and more than 6 percent from over-represented to under-represented countries, while protecting the quota shares and voting power of the poorest members. The Board of Governors also supported an amendment to the Articles of Agreement that would facilitate a move to a more representative, all-elected Executive Board.

The reforms build on those initiated in 2008 (see Press Release No.08/93) and, combined with the earlier steps, the voting shares of emerging market and developing countries as a group will rise by over 5 percentage points. The 10 Fund members with the largest voting share will consist of the United States, Japan, plus the so-called “BRICs” (Brazil, China, India, the Russian Federation), and the four largest European countries (France, Germany, Italy, the United Kingdom--click here for table). The major realignment in the ranking of quota shares under this reform will result in a Fund that better reflects global realities.

Reform of the Fund's governance debated

On July 28, 2010, the Executive Board of the International Monetary Fund (IMF) discussed reform of the Fund’s governance.


At its April 2010 meeting, the International Monetary and Financial Committee (IMFC) called on the Fund to accelerate discussions on quotas and the full range of governance reforms. The latter topic, the focus of today’s discussion, builds on previous Board discussions on IMF governance, which have benefitted from inputs by the Independent Evaluation Office, outside experts and civil society in recent years. The related issue of quotas is being discussed on a parallel track of the Fourteenth General Quota Review.

Executive Board Assessment

Executive Directors welcomed the opportunity to advance the discussion of IMF governance reform. At today’s meeting, while a few conclusions emerged, Directors expressed a range of views on key issues. Views remained divided on the package approach to governance and quota reforms. Nevertheless, all Directors underscored the importance of moving to a shared vision of reforms to enhance the Fund’s legitimacy and effectiveness.

Enhancing ministerial engagement and oversight. Directors agreed that engagement by ministers and governors is essential to the effective discharge of the institution’s responsibilities, including to promote multilateral cooperation and coherence of policies.

However, views on the best means of delivering such engagement—whether through reform of the advisory IMFC or a shift to a decision-making entity—continued to differ. On the proposal for a new decision-making ministerial body, illustratively titled the “International Monetary and Financial Board (IMFB):”

  • Many Directors remained unconvinced of the need for a ministerial-level decision-making body. They saw little difference between the IMFB and the Council, and felt that the decisions proposed to be taken up by such bodies require an understanding of institutional detail and process beyond the time and inclination of ministers and governors. These Directors cautioned against weakening the Board of Governors and the Executive Board, or upsetting the current accountability framework, which they viewed as appropriate. In addition, some of these Directors noted that IMFC members were already very much engaged in the formulation of the Fund’s policies and multilateral coordination.
  • A number of Directors welcomed the IMFB proposal, noting that it strikes a balance between securing deeper ministerial engagement in decisions of strategic importance and preserving the role of the Executive Board in the operational work of the Fund. Most of these Directors preferred broadening further the scope of ministerial involvement to include, for instance, the accountability of the Managing Director and setting the guidelines for the Fund’s lending framework. But others considered that a more limited number of key strategic decisions, including importantly some decisions currently reserved for the Board of Governors, would be more appropriate.
  • Finally, a few Directors saw the IMFB proposal as addressing concerns raised previously with respect to the “Council” envisaged in the Articles of Agreement. However, they were not in a position to express any firm views ahead of consensus on the scope of responsibilities that would be transferred to such a body. The process of amending the Articles of Agreement was also seen as challenging.
  • Against this background, many Directors called for further reforms of the IMFC, including its procedures—through shorter term limits of the IMFC chair, more interactive plenary discussions, and earlier circulation of communiqué drafts. Other Directors agreed on the need for continuing IMFC reforms, but did not see only procedural reforms as a substitute for a more fundamental shift to a decision-making body.

Board size, composition, and decision making

Directors agreed that a strong Board has been vital to the effective functioning of the institution, but views varied on the need for change in its size, composition, and decision-making majorities.

  • Size. Most Directors reiterated that the current size of the Board strikes an appropriate balance between representation and effectiveness, and reverting to the size implied by the Articles of Agreement is unlikely to yield significant gains. In this context, a number of these Directors called for amending the Articles to set the size of the Executive Board at 24. On the other hand, a few Directors maintained that reducing the size of the Board could enhance efficiency, and a few remained open to considering this option.
  • Composition. Directors stressed that representation at the Board must respect the principle of voluntary constituency formation. Some Directors also reiterated the importance of increasing the relative presence of emerging market and developing countries at the Board. A few Directors called for a third chair for sub-Saharan Africa at the Board.
  • All-elected Board. Many Directors viewed a move to an all-elected Board, together with steps to avoid further concentration in voting power, as useful to level the playing field among Executive Directors. However, a number of others argued against changing well-established rules, noting that the present system provides appropriate limits to the concentration of voting power, critical to an effective Board. A few Directors called for raising the upper limit on the voting power of elected chairs to facilitate greater consolidation, while a few others favored lowering it to ensure a more even distribution of voting power.
  • Second Alternate Executive Director. Most Directors noted that greater leeway to appoint a second Alternate Executive Director for multi-country constituencies could facilitate a re-composition of the Board, with a few regarding it as an effective tool to strengthen the representation of smaller members. A few Directors considered it premature to move in this direction at this stage, and a few others pointed to the budgetary implications of such a move.
  • Decision making. A few Directors favored lowering the threshold for special majorities, thereby removing the veto power of the largest shareholders and placing all chairs on an equal footing. Some Directors called for greater, albeit selective, use of double majorities.

Management selection and staff diversity

Directors reiterated their commitment to an open and transparent process for selecting management, and many agreed that a political commitment to end the unwritten understandings that govern the selection of management would be necessary. A number of Directors stressed that any such commitment would need to apply to the selection of the heads of all the international financial institutions. Some Directors also reaffirmed their support for an opening up of the nomination process, although the question of how much to expand the circle of those who should be eligible to nominate a candidate remained unresolved. Directors took note of the progress to date in ensuring that the Fund’s staff reflects its diverse membership, and urged management to continue to pay close attention to these efforts. They emphasized, however, that more needs to be done to promote staff diversity—with respect to nationality, gender, and background—particularly at senior levels, and a number called for more ambitious targets and initiatives. Directors looked forward to keeping abreast of efforts to strengthen results.

Next steps

The next formal opportunity to take up these issues will be in the context of the Executive Board’s Report to the IMFC on the Reform of Fund Governance, scheduled for late September.

(In percent)] IMF

IMF seeks to revise mandate

The IMF is rethinking its role in the post-crisis world to ensure it is working most effectively for its 186 member countries and helping them avoid another global recession—with all that implies for trade, jobs, and living standards.

The October 2009 communiqué of the International Monetary and Financial Committee (IMFC) of the Board of Governors of the IMF asked the Fund “to review its mandate to cover the full range of macroeconomic and financial sector policies that bear on global stability, and to report back to the Committee by the time of the next 2010 Annual Meetings.”

The process calls for the Fund to adopt a more systemic perspective, and for members to support this effort with the requisite data and dialogue that will strengthen the institution’s capacity to help prevent and manage crises. Reconsideration of the institution’s mandate is part of a broader reform effort underway at the Fund, including on governance, which is key to its long-term legitimacy and effectiveness.

As part of the review process, the Strategy, Policy and Review Department (SPR), in coordination with the External Relations Department (EXR), is initiating a broad discussion of background notes on the mandate topic and a public consultation effort requesting views from a range of stakeholders on three key areas: surveillance, financing, and the stability of the international monetary system.

IMF interactions with member countries

Executive Summary

This evaluation assesses the degree to which IMF interactions with member countries were effective and well managed in 2001–08, with particular attention paid to 2007–08. It contains a number of findings that are relevant to the tasks that lie ahead for the Fund in implementing the new responsibilities it has recently been given to help members deal with the global financial crisis. Overall, the evidence is mixed. While one may be tempted to take solace from relatively high perceptions of overall effectiveness in some country groupings, such reaction needs to be tempered by clear evidence of lack of agreement between the authorities and staff on the scope of interactions in some cases, and of widely varying effectiveness in particular roles.

Interactions were effective in a program and technical assistance context, and, in general, in contributing to a good exchange of views and in providing objective assessments. However, in other areas, including in the international dimensions of its surveillance and other work, where one would expect the IMF to excel, effectiveness and quality were not rated highly.

The evaluation evidence shows that IMF interactions were least effective with advanced and large emerging economies. They were most effective with PRGF-eligible countries, and, to a lesser extent, with other emerging economies. Particularly troubling was the continuing strategic dissonance with large advanced economies, especially about the Fund’s role in international policy coordination, policy development, and outreach. The authorities did not give the Fund high marks for its effectiveness in these areas. Neither did staff, who nevertheless aimed to do more. The evidence also points to limited effectiveness with large emerging economies, many of whom saw the surveillance process as lacking value and/or evenhandedness.

The evaluation found that outreach with stakeholders beyond government contributed little to the effectiveness of IMF interactions. The Fund’s transparency policy did less than staff had hoped to increase the Fund’s traction, as some authorities blocked timely dissemination of mission findings. Dissemination initiatives designed to gain influence in domestic policy debates by repositioning the Fund as an informed analyst—and distancing it from the negative legacy of past engagement—remain work in progress.

The evaluation found that interactions were undermanaged, although some individuals managed particular interactions very well. The Fund’s strategy was ineffective in enhancing traction with surveillance-only countries. The Fund paid too little attention to the technical expertise and other skills that might have added value, and neglected to manage pressures that staff felt to provide overly cautious country assessments—a finding of major concern, especially in respect to staff work on systemically important countries.

In PRGF-eligible countries, an institutional strategy replete with attractive financing, debt relief, and strong links to donor funding made for an abundance of traction. But in some cases it also led to what authorities perceived to be arrogant and dictatorial staff behavior—though they saw evidence of progress in recent years. Staff incentives and training largely ignored interactions, and responsibilities and accountabilities for relationship management were not clear. The following recommendations aim at enhancing the effectiveness of IMF interactions with members:

  • To make the Fund more attractive to country authorities and promote traction:
    • (i) improve the quality of the international dimensions of the Fund’s work;
    • (ii) recruit specialist skills and bring more experts on country visits, especially where traction is waning;
    • (iii) articulate menus of products and services for emerging-market and advanced economies; and
    • (iv) replace the now defunct country surveillance agendas with strategic agendas to enhance country focus and accountability.
  • To improve the effectiveness of outreach: (v) clarify the rules of the game on outreach; and (vi) decide how to handle the Fund’s negative reputational legacy in countries where it is a factor undermining interactions, and equip staff with the skills and resources to follow through.
  • To improve the management of interactions: (vii) develop professional standards for staff interactions with the authorities on country assessments; (viii) increase mission chief and staff tenure and training, and improve incentives for interactions; and (ix) clarify relationship management responsibilities and accountabilities.

IMF financial activities

  • I. Introduction
  • II. Key IMF Financial Statistics
  • III. Current Financial Arrangements
  • IV. Status of Commitments of HIPC Assistance
  • V. Status of Multilateral Debt Relief Initiative Assistance

Introduction The following tables, which are updated weekly, provide information on the IMF's financial activities. Definitions for the terms contained in the tables are provided below each table. The data are based on the most current information available at the time and are provided for the reader's convenience. The information is not intended to replace other official IMF financial reports and statements.

Key IMF Financial Statistics (Table 1) A summary of financial assistance to members, available resources, arrears, and key IMF rates.

Current Financial Arrangements (Tables 2a and 2b) Current Stand-By, Extended and Poverty Reduction and Growth (PRGF) arrangements. The tables do not include members whose financial arrangements with the IMF have expired, but may have outstanding credit to the IMF. For a list of current arrangements since May 1996 (month-end), see here. For a list of all members with outstanding financial obligations to the IMF, see here.

Status of Commitments of HIPC Assistance (Table 3) Status of the IMF's commitments to members under the Heavily Indebted Poor Countries Initiative (HIPC).

Status of Multilateral Debt Relief Initiative Assistance (Table 4) Status of the MDRI debt relief to eligible member countries that qualified for the assistance.

IMF Standing Borrowing Arrangements

While quota subscriptions of member countries are the IMF's main source of financing, the Fund can supplement its resources through borrowing if it believes that resources might fall short of members' needs. Through the General Arrangements to Borrow (GAB) and the New Arrangements to Borrow (NAB), a number of member countries and institutions stand ready to lend additional funds to the IMF.

The GAB and NAB are credit arrangements between the IMF and a group of member countries and institutions to provide supplementary resources of up to SDR 34 billion (about US$53 billion) to the IMF to forestall or cope with an impairment of the international monetary system or to deal with an exceptional situation that poses a threat to the stability of that system. Agreement to triple the IMF's lending resources by expanding the NAB.

On April 2, 2009, the Group of Twenty industrialized and emerging market economies (G 20) agreed to increase the resources available to the IMF by up to $500 billion (which would triple the total pre-crisis lending resources of about $250 billion) to support growth in emerging market and developing countries. This broad goal was endorsed by the International Monetary and Financial Committee in its April 25, 2009 communiqué.

This resource increase is to be made in two steps:

  • first, through immediate bilateral financing from IMF member countries
  • second, by subsequently incorporating this financing into an expanded and more flexible NAB increased by up to $500 billion.

On September 25, the G-20 announced it had delivered on its promise to contribute over $500 billion to a renewed and expanded IMF New Arrangements to Borrow (NAB).

Six countries have already signed bilateral loan agreements with the IMF worth US$169 billion. China has also signed a $50 billion bilateral note purchase agreement, and the list is still growing. In addition, NAB representatives have already agreed on many reform elements to make the NAB more flexible and progress towards a final agreement is expected in the near future.

Why the GAB was established and how it works

The GAB enables the IMF to borrow specified amounts of currencies from 11 industrial countries (or their central banks), under certain circumstances, at market-related rates of interest. The potential amount of credit available to the IMF under the GAB totals SDR 17 billion (about $27 billion), with an additional SDR 1.5 billion available under an associated arrangement with Saudi Arabia.

The GAB, established in 1962, has been renewed ten times, most recently in November 2007 for a five year period from December 2008. In response to the growing pressures on the IMF's resources caused by the emergence of the debt crisis in Latin America in 1982, a broad review was undertaken in 1983. It resulted in a substantial increase in the credit lines, from about SDR 6 billion to SDR 17 billion. Other major amendments to earlier GAB provisions permit the IMF to use it to finance lending to nonparticipants in the GAB, if the IMF faces a situation where it has inadequate resources of its own. The earlier GAB carried a rate of interest below market rates; this rate was raised at the time of the GAB enlargement and made equal to the SDR interest rate.

Financing IMF Transactions Quarterly Report

IMF credit is extended to its members in both foreign exchange and SDRs. Credit extended in foreign exchange is financed from the quota resources made available to the IMF by members, and essentially involves a transfer of foreign exchange from creditor members to borrowing members. These transfers reduce the available quota resources from creditors and increase their positions with the IMF by the same amount. Members receive a market-related return on their creditor positions with the IMF.

When extending credit in SDRs, the IMF transfers reserve assets directly to borrowing members by drawing on the IMF's own holdings of SDRs in the General Resources Account. The SDRs are placed in the SDR accounts of borrowing members with the IMF; the member can either maintain or convert them into foreign exchange. The amount of SDRs available for these transactions is generally limited, because the IMF normally seeks to maintain part of its usable resources in the form of SDRs—its most liquid asset.

By the same token, the repayment and servicing of IMF credit results in the receipt of both foreign exchange and SDRs from borrowing members. In this case, the SDRs received by the IMF are added to its holdings in the General Resources Account, while the foreign exchange is passed on to IMF creditor members, reducing their creditor positions with the IMF.

IMF "New Arrangements to Borrow"

The 26 current Participants in the International Monetary Fund’s New Arrangements to Borrow (NAB) met today in Washington D.C. with representatives of 13 potential new Participants and agreed to expand the NAB, including new Participants and increasing credit arrangements to up to US$600 billion. They also agreed to introduce more flexibility to the NAB, a standing set of credit arrangements under which participants commit supplementary resources for International Monetary Fund (IMF) lending when needed.

“This commitment to deliver on the pledge made by G20 leaders to contribute over US$500 billion to an expanded and more flexible NAB demonstrates the continuing multilateral support for the Fund’s response to both this and possible future crises. Today’s agreement is a strong step forward and will help boost confidence and reduce global risks, just as the announcement of the intention to expand and enlarge the NAB was critical in stemming contagion risks and bolstering global financial market confidence earlier this year.

The additional flexibility introduced into the NAB is designed to make it an effective tool of crisis management as a backstop for the international monetary system. A formal decision on the expanded NAB is expected to be taken by the Executive Board of the IMF in the coming weeks. Current and potential NAB participants agreed to work quickly to take the necessary measures to make the new enhanced NAB effective as soon as possible,” said Mr. Daisuke Kotegawa, the Chair of the NAB for Japan.

The NAB is reviewed on a regular basis. Agreement was reached that the next review would be conducted following the completion of the 14th Review of Quotas. “It was emphasized that the IMF is a quota-based institution, and NAB participants look forward to the completion of the next quota review by January 2011,” added Mr. Kotegawa, who is also Executive Director for Japan in the IMF.

Mr. Dominique Strauss-Kahn, Managing Director of the IMF, welcomed the accord. “Today's agreement on an enlarged NAB marks an important moment for multilateralism and the Fund, which will help the IMF’s effectiveness in its response to crises and help strengthen the international financial architecture” Mr. Strauss-Kahn said. Under the NAB agreement, the Chair rotates annually among participants according to alphabetical order. Thus Japan relinquishes this position as of this meeting in favor of the Republic of Korea.


The NAB is a credit arrangement between the IMF and a group of members and institutions to provide supplementary resources to the IMF when these are needed to forestall or cope with an impairment of the international monetary system or to deal with an exceptional situation that poses a threat to the stability of that system. It is reviewed on a regular basis.

The unprecedented shock confronting the global economy has led to a sharp increase in the demand for IMF financing. To ensure that the IMF continues to have sufficient resources to meet demand, the Group of 20 economies (G20) reaffirmed their commitment on September 25, 2009 to tripling of the resources available to the IMF, from a pre-crisis level of about US$250 billion. At its meeting in October 2009, the International Monetary and Financial Committee (IMFC) welcomed the expected agreement to expand and enhance the NAB.

The G20 Leaders agreed in April 2009 that immediate financing from members of US$250 billion would subsequently be folded into an expanded and more flexible NAB, increased by up to $500 billion.

IMF seeks borrowing expansion to $1 trillion

"...Some more on the IMF's feeble attempt at justifying the need for its exploding funding requirements, as well as its own attempt to validate that all is well:

South Korea, as this year’s president of the Group of 20 leading economies, is helping craft the plan. Seoul hopes to convince the G20 countries to back the increased IMF funding at a summit in South Korea in November. The G20 meeting in London in 2009 tripled IMF resources from $250bn. A US official said Washington was sympathetic to improved safety nets but needed more details on the Korean-IMF plan.

South Korean economists forged the plan because of their own bitter experience of their currency and stock market plunging in 2008. In spite of robust economic fundamentals, Seoul needed to be rescued from a dangerous liquidity shortfall by swaps from the US, Japan and China.

To avoid a repetition of this, markets need to know there are pre-arranged facilities at the IMF backing a country up, said Shin Hyun-song, adviser on international economy to South Korea’s president.

“This is meant to mitigate the type of liquidity spiral that we saw after the Lehman episode of 2008,” Mr Shin said.

He said a “global stabilisation mechanism” being discussed could involve drawing up a risk curve for nations, with the least risky enjoying a status akin to platinum or gold credit card holders. These would be entitled to financing such as the IMF’s flexible credit lines, already used by Mexico, Poland and Colombia. They could be deployed before a crisis struck and would impose practically no conditions.

Countries further down the curve would face tougher conditions. Loans to them would be called “precautionary credit lines”.

Still, Mr Shin added that tighter regulation would be needed to avoid the moral hazard of countries taking greater risks because of the safety net. He also said discussions would need to resolve how not to put certain countries in speculators’ sights by revealing that they only had second tier protection.

IMF broadens lending terms

On August 30, 2010, the Executive Board of the International Monetary Fund (IMF) approved a set of reforms to further strengthen its capacity to assist member countries in preventing crises:

  1. the Flexible Credit Line (FCL) has been refined with a view to increasing its effectiveness and predictability; and
  2. a new Precautionary Credit Line (PCL) has been established to broaden the availability of crisis prevention instruments to countries that have sound fundamentals and policies but do not yet meet the qualification standard of the FCL.

Directors also had an initial discussion on how to enhance the Fund’s capacity to deal with contagion in systemic crises.

Currency Composition of Official Foreign Exchange Reserves (COFER)

The COFER database

COFER is an IMF database that keeps end-of-period quarterly data on the currency composition of official foreign exchange reserves. The currencies identified in COFER are:

  • U.S. dollar,
  • Euro,
  • Pound sterling,
  • Japanese yen,
  • Swiss francs, and
  • Other currencies.

Before the euro was introduced in 1999, the European currencies identified separately were:

  • European Currency Unit (ECU),
  • Deutsche mark,
  • French franc, and
  • Netherlands guilder.

Foreign exchange reserves in COFER consist of the monetary authorities’ claims on nonresidents in the form of:

  • foreign banknotes,
  • bank deposits,
  • treasury bills,
  • short- and long-term government securities, and
  • other claims usable in the event of balance of payments needs.

Foreign exchange reserves in COFER do not include holdings of a currency by the issuing country. For instance, the U.S. dollar assets of the Federal Reserve and the euro assets of the European Central Bank and member countries of the European Economic and Monetary Union are not foreign exchange reserves. The definition of foreign exchange reserves in COFER is the same as that in the IMF’s International Financial Statistics (IFS).

COFER data are reported on a voluntary basis. At present, there are 140 reporters, consisting of member countries of the IMF, non-member countries/economies, and other foreign exchange reserves holding entities. The classification of countries in COFER (as advanced economies or emerging and developing economies) follows that currently used in IFS world tables.

The COFER presentation

COFER data for individual countries are strictly confidential. The data presented in the attached tables (CSV and PDF) are aggregated data for each currency for three groupings of countries:

  • World
  • Advanced economies, and
  • Emerging and developing economies

In addition to the lines for the five major currencies and “other currencies” there are two other lines in the tables:

  • Unallocated Reserves, and
  • Allocated Reserves.

The Unallocated Reserves line captures the difference between the total reserves data reported to IFS (for the world table on Foreign Exchange) and to COFER, for each of the country groupings mentioned above. It consists of two components:

  • The total reserves of nonreporting countries, i.e., the countries within each grouping, which do not report currency composition data to COFER, and
  • any discrepancy between reporters’ data on total reserves as reported to COFER and to IFS.

The Allocated Reserves line equals the reporters’ data on total reserves as reported to COFER.

Very little estimation is used in producing the COFER tables. Estimation is undertaken only for data gaps of four quarters or less.

Country coverage (of Allocated Reserves)

Advanced economies

At the present, 33 advanced economies report to COFER.

Emerging and developing economies

At the present, 107 emerging and developing economies report to COFER.

Other characteristics of reporters

Historically, a moving sample of countries report to COFER in the sense that the data include some countries that did not report on all the dates indicated. Overall, country coverage of the sample has increased over the years.

Although the sample varied (as countries either stopped, started, or resumed reporting to COFER), the changes for the most part have involved countries with negligible reserves relative to the total for advanced economies or emerging and developing economies. To identify major changes, the COFER presentation will flag the dates whenever the sample changes involve countries whose combined reserves exceed 5 percent of the total allocated reserves of advanced economies or emerging and developing economies. There have been two such dates, 1996 and 1997, which are flagged in the attached tables.

The reporting sample is not random by construction because it depends on the willingness of individual country authorities to report to COFER. On a geographical basis, the rate of reporting compliance—measured in terms of the percentage of regional reserves accounted for by the reporters—is highest for countries from Europe and the Western Hemisphere. Queries on COFER may be sent to

IMF in support of EU's actions to stabilize the Euro

Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), issued the following statement today on the European Union’s announcement of sweeping measures to stabilize its economic and financial system:

“I strongly welcome the far-reaching steps unveiled today by the European Union and the European Central Bank (ECB) to restore confidence and financial stability in the euro area. These are strong measures that will help to secure global economic and financial stability, and preserve the global economic recovery. Implementation of actions to put public finances on a sustainable footing is key to restoring economic health in Europe.

“The IMF will play its part, in the interests of the international community, in addressing the current challenges. In particular, we stand ready to support our European members’ individual adjustment and recovery programs through the design and monitoring of economic measures as well as through financial assistance, when requested, in conjunction with the new European Stabilization Mechanism (ESM). Our contribution will be on a country-by-country basis, through the whole range of instruments we already have at our disposal. We expect our financial assistance to be broadly in the proportion of our recent European arrangements.”

IMF approves €30B stand-by arrangement for Greece

The Executive Board of the International Monetary Fund (IMF) today approved a three-year SDR 26.4 billion (€30 billion) Stand-By Arrangement for Greece in support of the authorities’ economic adjustment and transformation program. This front-loaded program makes SDR 4.8 billion (about €5.5 billion) immediately available to Greece from the IMF as part of joint financing with the European Union, for a combined €20.0 billion in immediate financial support. In 2010, total IMF financing will amount to about €10 billion and will be partnered with about €30.0 billion committed by the EU.

The Stand-By Arrangement, which is part of a cooperative package of financing with the European Union amounting to €110 billion (about US$145 billion) over three years, entails exceptional access to IMF resources, amounting to more than 3,200 percent of Greece’s quota, and was approved under the Fund's fast-track Emergency Financing Mechanism procedures.

Greece reached agreement with the International Monetary Fund, the European Commission and the European Central Bank on a focused program to stabilize its economy, become more competitive, and restore market confidence with support of a €110 billion financing package.

Document outlines the economic and financial policies that the Greek government and the Bank of Greece, respectively, will implement during the remainder of 2010 and in the period 2011–2013 to strengthen market confidence and Greece’s fiscal and financial position during a difficult transition period toward a more open and competitive economy.

IMF to conduct reviews of countries financial systems

The Executive Board of the International Monetary Fund (IMF) has approved making financial stability assessments under the Financial Sector Assessment Program (FSAP) a regular and mandatory part of the Fund’s surveillance for members with systemically important financial sectors. While participation in the FSAP program has been voluntary for all Fund members, the Executive Board’s decision will make financial stability assessments mandatory for members with systemically important financial sectors under Article IV of the Fund’s Articles of Agreement.

The decision adopted on September 21, 2010 to raise the profile of financial stability assessments under the FSAP for members with systemically important financial sectors is a recognition of the central role of financial systems in the domestic economy of its members, as well as in the overall stability of the global economy. It is a major step toward enhancing the Fund’s economic surveillance to take into account the lessons from the recent crisis, which originated in financial imbalances in large and globally interconnected countries.

The FSAP provides the framework for comprehensive and in-depth assessments of a country’s financial sector, and was established in 1999, in the aftermath of the Asian crisis. FSAP assessments are conducted by joint IMF-World Bank teams in developing and emerging market countries, and by the Fund alone in advanced economies. FSAPs have two components, which may also be conducted in separate modules: a financial stability assessment, which is the responsibility of the IMF and, in developing and emerging market countries, a financial development assessment, the responsibility of the World Bank.

These mandatory financial stability assessments will comprise three elements:

  1. An evaluation of the source, probability, and potential impact of the main risks to macro-financial stability in the near term, based on an analysis of the structure and soundness of the financial system and its interlinkages with the rest of the economy;
  2. An assessment of each countries’ financial stability policy framework, involving an evaluation of the effectiveness of financial sector supervision against international standards; and
  3. An assessment of the authorities’ capacity to manage and resolve a financial crisis should the risks materialize, looking at the country’s liquidity management framework, financial safety nets, crisis preparedness and crisis resolution frameworks.


7. Scope of financial stability assessments. The financial stability assessments undertaken under this Decision will consist of the following elements:

a. An evaluation of the source, probability, and potential impact of the main risks to macro-financial stability in the near-term for the relevant financial sector. Such an evaluation will involve:

  • an analysis of the structure and soundness of the financial system;
  • trends in both the financial and nonfinancial sectors;
  • risk transmission channels; and
  • features of the overall policy framework that may attenuate or amplify financial stability risks (such as the exchange rate regime).

Both quantitative analysis (such as balance sheet indicators and stress tests) and qualitative assessments will be used to evaluate the risks to macro-financial stability.

b. An assessment of the authorities’ financial stability policy framework. Such an assessment will involve:

  • an evaluation of the effectiveness of financial sector supervision;
  • the quality of financial stability analysis and reports;
  • the role of and coordination between the various institutions involved in financial stability policy; and
  • the effectiveness of monetary policy.

c. An assessment of the authorities’ capacity to manage and resolve a financial crisis should the risks materialize. Such an assessment will involve

  • an overview of the country’s liquidity management framework;
  • financial safety nets (such as deposit insurance and lender-of-last-resort arrangements);
  • crisis preparedness and
  • crisis resolution frameworks; and
  • the possible spillovers from the financial sector onto the sovereign balance sheet.

IMF tells regulators to toughen up control of banking sector

The International Monetary Fund (IMF) has criticized international regulators for not going far enough with new proposals designed to prevent a repeat of the financial crisis.

In its biannual report on financial stability across the world, the IMF said plans to create new agencies to regulate systemic risk would not work unless such organizations are given powers to intervene in markets.

"Without such tools, regulators will have the tendency to be more lenient with systemic institutions in distress," it warned.

The IMF paper stated its support for more stringent measures, including the implementation of risk-based levies on banks.

It added that it may "perhaps" be a sensible idea to consider "limiting the size of certain business activities" to prevent banks becoming too big to fail and requiring bailouts from the state once again.

IMF economist Juan Sole told AFP that the large amount of proposals drawn up with the intention of properly regulating the banking sector in the wake of the financial crisis were a "welcome development".

However, he stated the IMF is concerned that while many of these plans are good in principle, they are also deficient in other respects.

"One characteristic that we found in most of these proposals was a lack of details regarding the design and the implementation of the measures that these reform proposals were calling for," he said.

Earlier this month, Dominique Strauss-Kahn, managing director of the IMF, stated that it had taken a massive combined effort from policymakers around the world to prevent the financial crisis turning into a second version of the Great Depression.

He said that further cooperation between different governments remains equally important in ensuring that stable and sustainable economic growth can occur.

Mr Strauss-Kahn added that he was concerned about the fact that countries are operating at different speeds in terms of regulatory reform, raising the prospect of uncoordinated policies, regulatory arbitrage and distorted capital flows.

IMF suggests reviewing the monetarist inflation target

IMF economists – Olivier Blanchard, Giovanni Dell’Ariccia, and Paolo Mauro – have written a new paper on rethinking about macroeconomic policy.

I have not read the paper but the contents say it all:

II. What We Thought We Knew

  • A. One Target: Stable Inflation
  • B. Low Inflation
  • C. One Instrument: The Policy Rate
  • D. A Limited Role for Fiscal Policy
  • E. Financial Regulation: Not a Macroeconomic Policy Tool
  • F. The Great Moderation

III. What We Have Learned from the Crisis

  • A. Stable Inflation May Be Necessary, but Is Not Sufficient
  • B. Low Inflation Limits the Scope of Monetary Policy in Deflationary Recessions
  • C. Financial Intermediation Matters
  • D. Countercyclical Fiscal Policy Is an Important Tool
  • E. Regulation Is Not Macroeconomically Neutral
  • F. Reinterpreting the Great Moderation

IV. Implications for the Design of Policy

  • A. Should the Inflation Target Be Raised?
  • B. Combining Monetary and Regulatory Policy
  • C. Inflation Targeting and Foreign Exchange Intervention
  • D. Providing Liquidity More Broadly
  • E. Creating More Fiscal Space in Good Times
  • F. Designing Better Automatic Fiscal Stabilizers

This is a very neat index. It summarises most of the issues and lessons from the crisis in one go.

But some policy solutions are different from the ones you get to read. Especially the proposal for a higher inflation target, designing automatic stabilizers for downturns and understanding why some central banks prefer to target exchange rates despite being called inflation targeters.

WSJ interview:

You suggest that before the global recession, policy makers had become too complacent and relied too much on a single tool, monetary policy.

Blanchard: Yes. Even monetary policy had become extremely simplified. There was sense all we had to look at the policy interest rate and that was it. We thought we had come to a level of detail. That wasn’t quite right.

The most striking suggestion you make is that nations should consider aiming for a higher rate of inflation,

Blanchard: Before the crisis, if you talked to policy makers, the idea of being stuck at zero interest rate would have struck them as very unlikely. That happened in Japan. But most people convinced themselves that the Japanese didn’t know what they were doing.

Now we realize that if we had a few hundred extra basis points to rely on, that would have helped. We would have had to rely less on fiscal policy. So it would have been good to start with a higher nominal rate. The only way to get there is higher inflation.

Policy makers have generally chosen a 2% (inflation rate target). But there was no very good reason to use 2% rather than 4%. Two percent doesn’t mean price stability. Between 2% and 4%, there isn’t much cost from inflation.

So should we change the inflation target?

Blanchard: If I were to choose inflation target today, I’d strongly argue for 4%. But we have started with 2%, so going from 2% to 4% would raise issues of credibility. We should have a discussion about it.

What’s an inflation level we should fear?

Blanchard: When you get to high numbers – 10% and above– people see uncertainty. They don’t know to know what’s gong to happen. You don’t how to plan from retirement.

Would you need to get an international agreement among central bankers on a higher inflation target?

Blanchard: Going international would increase credibility. It’s probably not needed but it would be helpful.

This is very interesting stuff – a higher inflation target. In this crisis, 2-3% inflation target is seen as very low and not helpful in zero bound rates. A higher inflation target (around 4%) makes sense both ways. first it does not hurt growth and second helps in zero bound rates. But so far, I have mostly seen inflation targeting central banks of developed economies defend their 2-3% inflation target. At most I have read Janet Yellen saying she would prefer inflation target for US to be raised from 1.5% to 2%!

Adam Posen said he did not see inflation of 4,5,6% hurting growth. And like Blanchard says inflation above 8%-10% is what hurts growth.

IMF Survey Magazine also has an interview of Blanchard:

IMF Survey online: What are your conclusions so far?

Blanchard: The basic elements of the pre-crisis policy consensus still hold. Keeping output close to potential and inflation low and stable should be the two targets of policy. And controlling inflation remains the primary responsibility of the central bank. But the crisis forces us to think about how these targets can be achieved.

The crisis has made clear, however, that policymakers have to watch many other variables, including the composition of output, the behavior of asset prices, and the leverage of the different participants in the economy. It has also shown that they have potentially many more instruments at their disposal than they used before the crisis. The challenge is to learn how to use these instruments in the best way. The combination of traditional monetary policy and regulatory tools, and the design of better automatic stabilizers for fiscal policy, are two promising routes.

IMF survey online: Central banks have chosen low inflation targets, around 2 percent. In your paper, you argue that maybe we should revisit this target. Why?

Blanchard: The crisis has shown that interest rates can actually hit the zero level, and when this happens it is a severe constraint on monetary policy that ties your hands during times of trouble.

As a matter of logic, higher average inflation and thus higher average nominal interest rates before the crisis would have given more room for monetary policy to be eased during the crisis and would have resulted in less deterioration of fiscal positions. What we need to think about now if whether this could justify setting a higher inflation target in the future.

IMF survey online: You argue that we should understand why, in many countries, central banks care more about the exchange rate than they admit, and we should draw policy conclusions. Can you explain?

Blanchard: In many emerging market countries, while monetary authorities describe themselves as inflation targeters, they clearly care about the exchange rate beyond its effect on inflation.

They probably have good reasons to do so. Isn’t it time to reconcile practice with theory, and to think of monetary policy more broadly, as the joint use of the interest rate and sterilized intervention, to protect inflation targets while reducing the costs associated with excessive exchange rate volatility?

IMF proposes "global insurance fund"

A Strengthened International Monetary System, with A Global Lender of Last Resort

Finally, let me put forward a third important principle for the post-crisis global economy, which is the need for a stable international monetary system that is anchored by a global lender of last resort. In recent years, we have seen a very large increase in official foreign reserves, primarily in the emerging economies, but also in developing countries.

Overall, foreign reserve holdings have risen from about $2 trillion in the late 1990s, to over $8 trillion today. What has driven this accumulation? In my view, the absence of adequate insurance to guard against sudden stops in private capital flows has played a major role.

In theory, the IMF should have been able to provide the financial insurance demanded by these countries. However, concerns about the amount of financing available from the Fund, and also the conditions attached to this financing, caused countries to self-insure instead.

But such self-insurance—as opposed to collective financial insurance—is costly. At the country level, investing in foreign reserves is inefficient because of foregone alternative investments, such as education or infrastructure, which could have a much higher social return. It also complicates monetary and exchange rate policy, since accumulating reserves means injecting domestic liquidity into the system, which can stoke inflation.

There have also been costs at the international level. Countries wishing to build up their reserves—to protect themselves from capital outflows—have tended to follow export-led growth strategies, which have produced current account surpluses. These, in turn, have contributed to ever-widening global imbalances, with damaging consequences for the sustainability of economic growth and the stability of the international monetary system.

The recent experience has demonstrated that fast-paced and hard-hitting financial crises can lead to an extraordinarily large demand for official resources. And given the costs associated with reserves accumulation, there is clearly a need for reliable emergency financing—and hence for a global lender of last resort.

I believe that the Fund has the potential to serve as an effective and reliable provider of such insurance.

The global community has already provided a strong endorsement of the IMF as the key institution for meeting the financial needs of economies in crisis. At their summit in April, the G-20 called for a tripling of IMF lending resources to $750 billion. I am pleased to report that we have already received commitments to meet this target, and even expect to exceed it.

This has allowed us to deploy financial resources in unprecedented amounts to support a broad array of countries, thus erasing earlier doubts about the Fund’s ability to meet financing needs. To date, we have already committed more than twice the amount that we lent during the Asian crisis.

We have also made important changes to our lending instruments that improve their reliability. With the introduction of the Flexible Credit Line, the so-called FCL, the IMF now offers a pre-emptive insurance facility for members with strong policies. So far, Mexico, Poland and Colombia have used this facility.

Their decision to take out financial insurance with the IMF was well-received by markets, as reflected in the decline in their sovereign spreads. More generally, IMF lending instruments have been made more responsive to conditions in member countries.

Finally, to boost global liquidity, our membership agreed a $283 billion SDR allocation. Of this, about $110 billion has gone to emerging and developing economies, thus providing a welcome boost to their reserve holdings.

The resources made available and pledged to the IMF were extremely helpful in stabilizing markets at the peak of the crisis. But they are temporary or contingent. Specifically, the $500 billion in new lending resources have been made available through the so-called New Arrangements to Borrow, a system of credit arrangements with a number of member countries and institutions. These arrangements are temporary, requiring approval every five years. They are also contingent, because they are activated only when a crisis is either clearly looming or already underway.

These conditions could add an element of uncertainty to the availability of Fund crisis financing. And while our new lending resources have proved sufficient so far, they may not be enough to reassure our members and financial markets that they would be sufficient to meet future crises.

This uncertainty means that the IMF cannot yet serve as a credible global lender of last resort. And because providing global financial insurance is so critical for crisis resolution and crisis prevention, the resource base of the IMF should be increased further. How much is needed is of course a difficult question—some have said $1 trillion, while others think the resource base should be far larger than that.

There is also the question of how additional resources would be provided. To ensure credibility, a quota increase—which entails securing permanent additional resources—would be an important part of the solution. At the same time, we should also assess the role that regional reserve pooling arrangements could play as additional providers of financial insurance, and of possible cooperation between the IMF and such arrangements.

We could also do more to explore other options to enhance the stability of the international monetary system. For example, to address global liquidity pressures, SDR allocations could be made more responsive to global developments and flexible to country circumstances.

Finally, we should find ways to make our resources serve our members better. One possibility is to build on the success of the FCL and enhance predictability of access to IMF crisis financing.

A specific option here would be to make consideration of FCL eligibility an automatic part of regular surveillance. And for members that do not qualify for the FCL, we could consider designing alternative contingent instruments that also have an element of automaticity.

IMF reduces forecast of losses to $3.4T

The International Monetary Fund cut its projection for global writedowns on loans and investments by 15 percent to $3.4 trillion, citing improvements in credit markets and initial signs of economic growth.

The tally, released in a semiannual report today, was based on a new methodology after criticism of an April estimate of about $4 trillion. Banks’ losses on bad assets are projected to increase from July 2009 through next year by $470 billion in the euro area, $420 billion in the U.S. and $140 billion in the U.K., the report said.

As firms from Bank of America Corp. to BNP Paribas SA repair their balance sheets, the report said banks that already have written down $1.3 trillion may have another $1.5 trillion in toxic debt on their books. The result will be impaired credit markets that may stifle the recovery through next year and require sustained attention from policy makers to avoid reigniting the crisis, the IMF said.

“Systemic risks have been substantially reduced following unprecedented policy actions and nascent signs of improvement in the real economy,” the IMF said in its Global Financial Stability Report. “Even so, credit channels are still impaired and the economic recovery is likely to be slow.”

For the period from 2007 through 2010, banks’ writedowns on nonperforming assets will be $2.8 trillion worldwide, with $1 trillion originating in the U.S., $814 billion in the euro area and $604 billion in the U.K.

The IMF said U.S. banks have recognized about 60 percent of their expected losses, compared with 40 percent in both the euro area and in the U.K. Bank earnings will not be enough to offset future losses, the IMF said in the report. It added that the euro area needs to raise more capital than the U.S. or U.K. and “further reforms may be needed to strengthen banks before central banks can fully exit from extensive liquidity support.”

IMF adopts enhanced transparency policies

  • Source: IMF


IMF to Increase Amount and Timeliness of Information

January 8, 2010

Global crisis has increased interest in the Fund's decisions Fund aiming at wider and faster publication of documents Shift from "why" publish to "why not?" Greater transparency in the IMF’s policies and decisions makes it more accountable to the people and governments at the center of its work, the organization concluded after a policy review.

The global economic crisis has brought the IMF’s policy advice and analysis into the broader public debate, and this has meant both increased demand for information about the Fund’s work and increased scrutiny of the organization’s assessments and recommendations.

After 10 years of increasing the number and variety of documents it publishes, as part of its review of the Fund’s Transparency Policy on December 17, 2009, the IMF’s Executive Board renewed its commitment to transparency on a broad scale, and changed the focus of “why” information should be disclosed to “why not?”--while maintaining the principle that publication of documents relating to member countries is subject to the consent of the member.

Most country reports produced by IMF staff are now published, with 88 percent of member countries reports publicly available, the IMF said. These reports include requests for funding as well as the annual reviews of member countries’ economic health, commonly known as Article IV reports.

Increasing the amount and timeliness of information

To strengthen its policies and make them more consistent, the IMF’s Executive Board approved a series of changes, which include

  • Publication of documents unless a member country objects, shifting the focus away from explicit permission to publish, which was required until the review
  • Extending the scope of documents that the country authorities would be encouraged to publish to include reports on the health of a country’s financial sector and its compliance with international codes and standards
  • Establishing an expectation, in cases involving Fund lending, that the country authorities would indicate intent to publish before the relevant Executive Board meeting
  • Extending presumed publication to all policy documents, including papers relating to the Fund’s income, financing, or budget (unless these involve market-sensitive information).

Archives to be opened earlier

Interest in the Fund’s archives has also increased in recent years, and, together with other measures to enhance the IMF’s accountability, the Board decided to shorten the wait for archived documents to be made available to the public. The main changes will

  • Reduce lag time for public access to Board papers from 5 to 3 years
  • Reduce lag time for public access to Board minutes from 10 to 5 years
  • Enable web posting of selected digitized, archived material
  • Establish as a general rule that documents classified as Strictly Confidential will be declassified when they otherwise would become available under the time lag
  • Help the public find its way on the Fund web site, including development of a guide to IMF information for the public.

The changes approved by the Executive Board will come into effect on March 17, 2010.

IMF struggles at reinvention

As the world economy has become engulfed in the worst crisis in many generations, the IMF has mobilized on many fronts to support its member countries, increasing its lending, using its cross-country experience to advise on policy solutions, and introducing reforms to modernize its operations and become more responsive to member countries’ needs.

Stepping up crisis lending. The IMF has responded quickly to the global economic crisis, with lending commitments reaching a record level of more than $160 billion, including a sharp increase in concessional lending to the world’s poorest nations. Providing analysis and targeted advice. The Fund’s monitoring, forecasts, and policy advice, informed by a global perspective and by experience from previous crises, have been in high demand and have been extensively used by the Group of Twenty (G-20).

Becoming more flexible. The IMF has overhauled its general lending framework to make it better suited to country needs and streamlined conditions attached to loans.

Creating a financial safety net. The IMF is creating a broad financial safety net to limit the spread of the crisis by garnering pledges for a tripling of IMF resources, as endorsed by the G-20.

Drawing lessons from the crisis. The IMF is contributing to the ongoing effort to draw lessons from the crisis for policy, regulation, and reform of the global financial architecture.

The IMF’s new lending framework

  • Doubling of member countries’ access to Fund resources
  • Streamlined approach aims to remove stigma of borrowing
  • New flexible credit line for strong-performing economies
  • Reform does away with “hard” structural conditionality
  • New focus on objectives rather than specific actions

Overhaul of lending framework. As part of moves to support countries during the global economic crisis, the IMF is beefing up its lending capacity and has HUapproved a major overhaul of how it lends money by offering higher amounts and tailoring loan terms to countries’ varying strengths and circumstances.

New credit line for well-run emerging market economies. Disbursements are not phased and there are no conditions to meet once a country has been approved for the IMF’s Flexible Credit Line. Colombia, Mexico, and Poland have been provided credits totaling $78 billion.

New rules for terms of IMF lending. Starting May 1, 2009, structural performance criteria have been discontinued for all IMF loans, including for programs with low-income countries. Structural reforms will continue to be part of IMF-supported programs, but only when they are seen as critical to a country’s recovery. And the monitoring of these policies will be done in a way that reduces stigma, because countries will no longer need formal waivers if they fail to implement an agreed measure by a specific date.

More flexibility, fewer conditions. IMF-supported programs have been tailored to individual country circumstances and focus on the most immediate issues to resolve the crisis.

"The push to reinvent the International Monetary Fund took a significant step forward this week, with nations agreeing to a rough timetable to come up with plans to reform its governance and expand its role in the global economy.

The agreements, reached during the IMF's semi-annual meeting in Istanbul that ends Wednesday, come as the mission of the 65-year-old Washington-based institution is being re-examined in the wake of the global financial crisis. The fund's 186 member nations agreed to draft a new and broader mandate for the fund before its meeting in Washington next spring. The nations also preliminarily agreed to reshape the fund's voting structure, promising a blueprint for giving more clout to emerging giants like Brazil and China by January 2011.

Yet if the past few days in Turkey were any gauge, the IMF's road to change may also be a rocky one.

Since the meetings opened on Saturday, nations have clashed over the scope of change at the fund, with some, like Germany, warning against the creation of a kind of global central bank armed with massive assets and influence over world economic affairs. It has set the stage for a tug of war of ideas and a battle for influence within the Fund as it seeks to reinvent itself in the months and years ahead.

Dominique Strauss-Kahn, the IMF's managing director, urged countries in Istanbul on Tuesday to "seize this opportunity to shape the post-crisis world," adding that all nations "need to adapt and change."

"In this modern globalized world, it no longer makes sense for global economic policy to be the concern of just a small group of countries," he said.

At a major summit in Pittsburgh last month, leaders from the Group of 20 major economies, including President Obama, reiterated calls for an enhanced global role for the IMF. One fundamental change would be in the ranks of nations that call the shots there.

Founded in the wake of World War II, the IMF has served as a lender of last resort to countries in financial crisis -- most often developing nations -- through rescue packages that often came with strict demands for fiscal restraint and free-market reforms. The United States, Europe and Japan -- the major contributors to the IMF -- have held the most sway over those decisions, including what countries received money, how much they got and with what kind of strings attached.

Though the IMF has already begun easing its lending restrictions and conditions to cope with the global economic crisis, the "new fund" would give emerging economies more long-term say over the IMF's policies and lending practices. It would do that by redistributing voting rights within the Fund, giving a roughly 50-50 split to the developing and developed worlds.

Yet who gains, and who loses, is in hot contention. Those set to suffer most are smaller European nations -- such as Belgium -- which currently hold about as much voting rights within the IMF as China. But even larger powers, such as Britain, voiced a measure of alarm this week at the notion of their clout being diluted, while China and others fiercely argued that they should be awarded even more power.

"It is a nonsense to continue with a situation where representation is modeled on the economic realities of the immediate postwar years rather than those of the early 21st century," Alistair Darling, Britain's financial chief, told reporters in Istanbul. "But those that make substantial donations and contributions to the IMF should remain represented."

Just as divisive is how to recraft the IMF's mission in the wake of the crisis.

Over the past two years, the IMF has been the center of the effort to more closely monitor economies around the world to prevent a repeat of the current crisis that started in the United States. To beef up the fund's ability to cope with meltdowns from Eastern Europe to Africa, leading nations have committed hundreds of billions of dollars to the fund's war chest in recent months. Diplomats, however, agreed in Istanbul to study whether the IMF should now be armed with far more, perhaps even allowing it to serve as a depository for world reserves.

Such changes, however, would take years to unfold. What could come more quickly, though, is a heightened mandate for the fund as a global monitor of economic policies both in the developed and developing worlds.

It has been key to coordinating national efforts thus far to combat the crisis, coming up, for instance, with targets for fiscal stimulus spending. This week, world financial chiefs asked the IMF to draft new guidelines for an "orderly and cooperative exit" from that spending when the time is right. The fund is also being asked to study offering more bank-like services to well-run developing nations, perhaps allowing them to pay a fee for the right to access quick and easy loans.

Yet many nations, including the United States, remain cautions of vesting too much power with the fund, and few in Istanbul this week were talking about granting it any powers to enforce its decisions.

"The key problem the Fund faces in getting its advice taken seriously by major economies, both advanced and emerging, is the lack of even a symbolic enforcement mechanism," said Eswar Prasad, senior fellow at the Brookings Institute. "None of the major economies seems enthused about giving the Fund any real power."

IMF and G-20 Mutual Assessment Process


In St. Andrews, G-20 Finance Ministers and Central Bank Governors agreed on how this mutual assessment process will work, and adopted a timetable for the first year of implementation (Figure 1).2 1 In particular, they agreed to: (i) set out their medium-term (next 3–5 years if possible) national and regional policy frameworks, plans, and projections; (ii) conduct the initial phase of the mutual assessment process; (iii) develop a basket of policy options to deliver those objectives; and (iv) refine the mutual assessment and develop more specific policy recommendations for the G-20 Leaders.

G-20 members also agreed on the template for setting out policy frameworks and plans. They have agreed to share their medium-term policy frameworks, plans, and projections in the agreed template (in as much detail as they can) with each other and the Fund. The template, which would be the main input into the Fund’s analysis and assessment, includes all salient policy commitments as well as projections for key economic variables. Where appropriate, regional inputs would also be provided, for example, the European institutions would provide inputs on regional policy frameworks in line with their areas of competence.

What will be the nature of the Fund’s analytical input?

5. The Fund staff’s analysis would involve: (i) identifying the inconsistencies and incoherence of national assumptions in G-20 submissions;3

6. The staff’s contribution would be both quantitative and qualitative, covering short-term as well as medium-term aspects. Some of the policy plans would need to be assessed more qualitatively, for example, macro-financial reforms (e.g., regulatory capital and liquidity cushion requirements, frameworks for handling systemically-important institutions, (ii) analyzing the multilateral compatibility of country submissions; (iii) analyzing the aggregate impact of national policies on global economic prospects; and (iv) identifying what additional policy commitments might be needed to reach the G-20 members’ objectives. Box 1 provides more details on the indicative timetable and the Fund’s analysis. Of course, while the overall framework for Fund involvement in the G-20 process is relatively clear, the specific modalities regarding its implementation may need to be modified to take into account ongoing developments.

EU works on IMF-style lender

European leaders are in talks to establish a lender of last resort and limits on credit-default swaps to bolster the euro area and prevent a repeat of the Greek financial crisis.

Plans for what may become the European Monetary Fund and a German-French push to curb “speculators” using derivatives to bet against Greece’s debt are to be ready by June, officials in Berlin and Brussels said today.

German Finance Minister Wolfgang Schaeuble “believes we must learn from the crisis,” his spokesman Michael Offer told reporters in Berlin. Greece is “the trigger” for efforts to avoid similar crises in the future, he said.

German Chancellor Angela Merkel and her fellow European leaders are shifting from rhetoric in support of Greece to regulation as they seek to defend the euro and rally behind coordinated measures in the wake of the global financial crisis.

“Speculators and the markets should know that solidarity means something and that, if there’s a problem, we are there,” French President Nicolas Sarkozy said in Paris yesterday after talks with Greek Prime Minister George Papandreou. “The sooner we say that and the more firmly we say that, the more rapidly we settle the problem.”

The euro strengthened and Greek bonds rose after Sarkozy’s comments. The currency shared by 16 nations added 0.2 percent to $1.3649 at 1:20 p.m. in Brussels. The yield on the two-year Greek note fell 11 basis points to 4.78 percent, while the yield on the five-year bond dropped 14 basis points to 5.83 percent.

Merkel, Sarkozy and Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro-area finance ministers, are jointly working on proposals to limit the use of derivatives in light of the Greek fiscal crisis, Merkel’s spokesman, Ulrich Wilhelm, said in Berlin. Merkel travels to Luxembourg tomorrow for talks with Juncker, he said.

France seeks additional oversight from IMF and G20

"Although the situation is still too shaky to allow us to withdraw our stimulus plans, we need to start working as of now to develop new growth models for after the crisis.

Devising new growth models is essential, because the crisis has affected the growth potential of our economies. France is currently engaged in an intense process of designing new investment priorities that can significantly raise the country’s growth potential.

Implementation should begin next year.

In global terms as well, we need to find new sources of growth. The traditionally consumer- driven U.S. economy is unlikely to retain its former status as the engine of world growth. Over an extended period, American consumers will have to rein in their spending in order to bring their debt down to a more sustainable level and rebuild the savings they lost to plummeting housing prices and financial markets.

A return to sustainable global growth requires other sources of growth. Countries with significant savings generated by high current account surpluses should now move to boost domestic demand. This is essential to rebalancing and strengthening growth, especially since the crisis has only partially reduced global imbalances.

Once this objective has been set, we need to develop strategies that lead us out of an economy on life support. Those strategies must be implemented in a coordinated way as soon as recovery becomes firmly secured. The IMF and the Financial Stability Board must help us with this process, cooperatively designing the right sequencing for scaling back fiscal, monetary and financial sector support programs, both in each country and across the international community.

With these upcoming challenges in mind, France welcomes the establishment by the G20 of a framework for coordinating economic policy, whether it involves fiscal, monetary, structural or trade issues. The IMF has a vital role to play in this area by providing assessments as to the relevance and consistency of our national economic policies. The Fund must also advise the G20 countries to ensure that their policies are consistent with our shared commitment to balanced national and international growth.

The IMF must continue to alert us to the risks facing our economy, both in the current situation of fragile recovery, and subsequently on an ongoing basis The Early Warning Exercise conducted by the IMF and the FSB, whose purpose is to identify potential risks and their probable impact if they were to materialize, and advise the authorities on corrective measures likely to mitigate that impact, is a most welcome development, not only in the current situation of fragile recovery, but also going forward.

The EWE fits perfectly with the IMF’s surveillance mandate, and we are entirely in favor of it.

Although the fragile nature of the recovery under way quite understandably dominates current thinking, the Early Warning Exercise should not be halted once the crisis is behind us.

The crisis serves as a reminder, if we needed one, of how important it is to have an institution at the center of our international financial architecture that can monitor economies and support us including financially whenever required."

Cross-Country Fiscal Monitor

  • Mixed news on the fiscal front. Underlying fiscal trends in advanced economies are weaker than previously projected, but lower expected costs of financial sector support in the United States mean that 2009 headline numbers are better. Among emerging markets, 2009–10 headline deficit forecasts are better than July projections. The fiscal policy stance is projected to remain supportive of economic activity in advanced countries in 2009–10, but a tightening is projected for emerging economies next year.
  • New evidence on underlying fiscal weakening in advanced countries during the last few years. Many advanced economies entered the crisis with relatively weak structural fiscal positions, and these have been eroded further, not only by anticrisis measures but also by underlying spending pressures. This will raise the bar on fiscal adjustment. The outlook for emerging economies is stronger, if fiscal tightening plans materialize in 2010. But these countries remain exposed to considerable risks, which are quantified through new statistical analysis.
  • New estimates of needed medium-term fiscal adjustment in advanced economies. Government debt in advanced G-20 economies is projected to reach 118 percent of GDP in 2014, even assuming some discretionary tightening next year. Getting debt below 60 percent by 2030 will require raising the average structural primary balance by 8 percentage points of GDP relative to 2010 (10½ percentage points for the headline primary balance). Action will be needed on entitlement spending, on other spending, and on revenues. Japan, the United Kingdom, Ireland and Spain are projected to require the largest fiscal adjustment. Only Denmark, Korea, Norway, Australia and Sweden among advanced economies will require little or no medium-term adjustment to keep debt stocks at safe levels.
  • A fresh look at previous large adjustment episodes. Many G-20 economies have achieved big declines in debt ratios in the past. Improvements in the primary balance were at the core of these efforts. Faster growth can also help. Faster inflation is not an effective debt-reducing strategy: raising inflation to 6 percent for five years would erode less than one fourth of the projected trend increase in debt ratios.
  • New IMF research on government debt, deficits and interest rates. Fiscal deficits and government debt levels both affect interest rates. Stabilizing debt at post-crisis levels would imply higher interest rates (perhaps by 2 percentage points). Moreover, there are important nonlinearities: the impact on interest rates of each additional percentage point of debt or deficit increases as the initial debt or deficit level rises, pointing to a risk that government debt could snowball without corrective action. This underscores the need for governments to announce credible exit strategies now, even if it is premature to begin exiting from fiscal support.

Financial sector surveillance and the IMF

The global financial crisis has magnified the role of Financial Sector Surveillance (FSS) in the Fund’s activities. This paper surveys the various steps and initiatives through which the Fund has increasingly deepened its involvement in FSS.

Overall, this process can be characterized by a preliminary stage and two main phases. The preliminary stage dates back to the 1980s and early 1990s, and was mainly related to the Fund’s research and technical assistance activities within the process of monetary and financial deregulation embraced by several member countries.

The first “official” phase of the Fund’s involvement in FSS started in the aftermath of the Mexican crisis, and relates to the international call to include financial sector issues among the core areas of Fund surveillance. The second phase focuses on the objectives of bringing the coverage of financial sector issues “up to par” with the coverage of other traditional core areas of surveillance, and of integrating financial analysis into the Fund’s analytical macroeconomic framework.

By urging the Fund to give greater attention to its member countries’ financial systems, the international community’s response to the global crisis may mark the beginning of a new phase of FSS.

China buys first IMF bonds

Source: China to buy first IMF bonds for 50 billion dollars AFP, September 2, 2009

"China has agreed to buy the first International Monetary Fund bonds for about 50 billion dollars, the IMF said Wednesday.

IMF managing director Dominique Strauss-Kahn and the deputy governor of the People's Bank of China, Yi Gang, signed the agreement Wednesday at IMF headquarters in Washington, the multilateral institution said.

Under the agreement, the Chinese central bank "would purchase up to SDR 32 billion (around 50 billion dollars) in IMF notes," it said.

An SDR is an interest-bearing IMF asset based on a basket of international currencies -- the dollar, yen, euro and pound -- that is calculated daily and which members can convert into other currencies.

"The note purchase agreement is the first in the history of the fund," the 186-nation institution said.

The IMF executive board approved the plan to issue notes to governments on July 1.

The issuance of bonds is an unprecedented step to boost IMF resources as the institution struggles to provide financing to help member nations cope with the global financial and economic crises.

"The agreement offers China a safe investment instrument. It will also boost the fund's capacity to help its membership -- particularly the developing and emerging market countries -- weather the global financial crisis, and facilitate an early recovery of the global economy," the IMF said."

Special drawing rights

Source: General and Special SDR Allocations IMF, August 28, 2009

General and Special SDR Allocations

A general allocation of Special Drawing Rights (SDRs) equivalent to US$250 billion became effective on August 28, 2009.

The allocation is designed to provide liquidity to the global economic system by supplementing the Fund’s member countries’ foreign exchange reserves.

The general SDR allocation was made to IMF members that are participants in the Special Drawing Rights Department (currently all 186 members) in proportion to their existing quotas in the Fund, which are based broadly on their relative size in the global economy.

Separately, the Fourth Amendment to the IMF Articles of Agreement providing for a special one-time allocation of SDRs entered into force on August 10, 2009. The special allocation will be made to IMF members on September 9, 2009. The total of SDRs created under the special allocation would amount to SDR 21.5 billion (about US$33 billion; see column 3 in the table here).

Source: Special Drawing Rights (SDRs) IMF, August 27, 2009

The role of the SDR

The SDR was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets—gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.

However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime. In addition, the growth in international capital markets facilitated borrowing by creditworthy governments. Both of these developments lessened the need for SDRs.

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR, serves as the unit of account of the IMF and some other international organizations.

Basket of currencies determines the value of the SDR

The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollar-value of the SDR is posted daily on the IMF’s website. It is calculated as the sum of specific amounts of the four currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market.

The basket composition is reviewed every five years by the Executive Board to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems. In the most recent review (in November 2005), the weights of the currencies in the SDR basket were revised based on the value of the exports of goods and services and the amount of reserves denominated in the respective currencies which were held by other members of the IMF. These changes became effective on January 1, 2006. The next review will take place in late 2010.

The SDR interest rate

The SDR interest rate provides the basis for calculating the interest charged to members on regular (non-concessional) IMF loans, the interest paid and charged to members on their SDR holdings, and the interest paid to members on a portion of their quota subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.

SDR allocations to IMF members

Under its Articles of Agreement, the IMF may allocate SDRs to members in proportion to their IMF quotas. Such an allocation provides each member with a costless asset. However, if a member’s SDR holdings rise above its allocation, it earns interest on the excess; conversely, if it holds fewer SDRs than allocated, it pays interest on the shortfall.

There are two kinds of allocations:

General allocations of SDRs.

General allocations have to be based on a long-term global need to supplement existing reserve assets. Decisions to allocate SDRs have been made three times.

  • The first allocation was for a total amount of SDR 9.3 billion, distributed in 1970-72 in yearly installments.
  • The second allocation, for SDR 12.1 billion, was distributed in 1979–81 in yearly installments.
  • The third general allocation was approved on August 7, 2009 for an amount of SDR 161.2 billion and will take place on August 28, 2009. The allocation would mean a simultaneous increase in eligible members’ SDR holdings and in their cumulative SDR allocation by about 74.13 percent of their quota.

Special allocations of SDRs.

A proposal for a special one-time allocation of SDRs was approved by the IMF’s Board of Governors in September 1997 through the proposed Fourth Amendment of the Articles of Agreement. Its intent is to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund after 1981—more than one-fifth of the current IMF membership—have never received an SDR allocation. This allocation would increase members' cumulative SDR allocations by SDR 21.5 billion using a common benchmark ratio as described in the amendment.

The Fourth Amendment became effective for all members on August 10, 2009 when the Fund certified that at least three-fifths of the IMF membership (112 members) with 85 percent of the total voting power accepted it. On August 5, 2009, the United States joined 133 other members in supporting the Amendment. The special allocation will be implemented on September 9, 2009. Buying and selling SDRs

IMF members often need to buy SDRs to discharge obligations to the IMF, or they may wish to sell SDRs in order to adjust the composition of their reserves. The IMF acts as a broker between members and prescribed holders to ensure that SDRs can be exchanged for freely usable currencies. For more than two decades, the SDR market has functioned through voluntary trading arrangements. Under these arrangements a number of members and one prescribed holder have volunteered to buy or sell SDRs within limits defined by the arrangement. In view of the expected increase in the volume of transactions following the 2009 SDR allocations, the number and size of the voluntary arrangements is being expanded to ensure continued liquidity of the voluntary SDR market.

In the event that there is insufficient capacity under the voluntary trading arrangements, the Fund can activate the designation mechanism. Under this mechanism, members with sufficiently strong external positions are designated by the Fund to buy SDRs with freely usable currencies up to certain amounts from members with weak external positions. This arrangement serves as a backstop to guarantee the liquidity and the reserve asset character of the SDR.

This paper sets out a framework for issuing notes to the official sector in order to facilitate a broadening of the Fund’s sources of supplementary resources.

Under the proposed framework the Executive Board would approve a common set of General Terms and Conditions (GTC) for two series of IMF notes (“Series A” and “Series B”). The Executive Board would further authorize the Managing Director to conclude individual Note Purchase Agreements (NPAs) with qualifying members or their central banks that are consistent with the terms of the Form NPA set forth in the Attachment, 2 ** up to a cumulative ceiling on total commitments under NPAs, as well as a ceiling on the maximum amount of Series A notes issued under a single NPA; the latter limit is consistent with the general per agreement limit on immediate encashability of borrowing that has been proposed for adoption by the Executive Board.


iMFdirect is a weblog covering the global economy and policy issues, posted by the International Monetary Fund (IMF) headquartered in Washington D.C., United States. iMFdirect posts content related to the IMF’s work in economics and finance at global or national level, and posts currently highlight the debate over policy responses to the biggest global recession since the Great Depression.

IMF Datamapper

IMF policies deepened financial crisis, says CEPR

Policies implemented by the International Monetary Fund (IMF) during the global downturn further exacerbated the crisis in many countries, a leading thinktank said today.

In a paper analysing the IMF's agreements with 41 borrowing countries during the crisis, the Washington-based Centre for Economic and Policy Research (CEPR) found that 31 of the agreements contained so-called "pro-cyclical" macroeconomic policies, which – in the face of a significant slowdown in growth or in a recession – would be expected to exacerbate the downturn.

"In many cases the fund's pro-cyclical policies were based on over-optimistic assumptions about economic growth," said the thinktank. This means the measures proposed were too restrictive for the countries involved and did not produce the longer-lasting economic growth predicted.

In nearly half of the countries that have had at least one review, the IMF's analysts had to lower their previous forecasts of real GDP growth by at least three percentage points, and in a few cases they had to correct forecasts that were at least seven percentage points overestimated. "Most likely there will be more downward revisions to come," the CEPR said.

"The fund might respond that it could not be expected to anticipate the depth of the world recession and its impact on developing countries through exports, capital inflows, remittances, access to trade credits and other channels.

"But the fund should have been more careful in its projections and should have anticipated a severe downturn that would have serious effects on low- and middle-income countries."

The CEPR suggested the IMF had learned few lessons from the past. For example, in Latvia the fund had encouraged the government to preserve a pegged exchange rate. This is similar to the IMF-supported policy in Argentina during its steep recession of 1998-2002, "where a fixed, overvalued exchange rate was supported with tens of billions of dollars of loans until it inevitably collapsed".

"In cases such as Argentina and Latvia, maintaining the peg means that adjustment must take place through shrinking the economy and real wage declines. Latvia's GDP is projected to shrink by 18% this year," the thinktank reports.

The CEPR also criticised the IMF for failing to foresee the cause of the US recession, which officially began in December 2007.

"Some economists began writing about the housing bubble in 2002, and while no one could anticipate exactly when it would burst, [co-director of the CEPR, Dean] Baker continuously tracked the magnitude of the bubble; and well before it peaked in 2006, it was clear that this would have a huge impact on both the US and world economy."

Special Data Dissemination Standard

Countries that subscribe to the IMF's Special Data Dissemination Standard make a commitment to observe the standard and to provide information about their data and data dissemination practices--metadata--for the DSBB.

Observance Status As of the end of the third quarter of 2009, all 64 SDDS subscribers were in observance of the SDDS requirements for the coverage, periodicity, and timeliness of the data and for the dissemination of advance release calendars (ARCs) (Table 1). The IMF's Dissemination Standards Bulletin Board (DSBB) disseminates a complete list of SDDS subscribers. Recording the observance of SDDS metadata requirements for summary methodologies is discontinued; it has become obsolete because all metadata are presented using the Data Quality Assessment Framework structure.

Countries that subscribe to the IMF's Special Data Dissemination Standard make a commitment to observe the standard and to provide information about their data and data dissemination practices--metadata--for the DSBB.

Australia and the International Financial Institutions report

Source: Australia and the International Financial Institutions 2007-2008 Australian Treasury, 21 December 2009


This publication reports on Australia's interaction with the International Monetary Fund, Asian Development Bank and the World Bank during the 2007-2008 financial year.

This document combines three publications previously titled Australia and the IMF, Australia and the World Bank and Australian and the Asian Development Bank.


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