Press Release: Eminent Persons Group Outlines Long-Term Revenue Plan to Finance IMF Activities
IMF News, January 31, 2007
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- Published: January 31, 2007
Background and purpose
- Managing Director Rodrigo de Rato submitted to the IMF Executive Board a report by a Committee of Eminent Persons recommending an income model for the IMF "that would be more appropriate for the various activities undertaken by the Fund, and would be more responsive to evolving conditions in the world economy and in the role of the Fund itself."
- The Committee was appointed in May 2006 as part of the IMF's Medium-Term Strategy (MTS) and broader efforts to adapt to the evolving needs of its 185 member countries.
- A set of formal proposals will be submitted for consideration to the Executive Board in the next months and a progress report will be provided to the International Monetary and Financial Committee during its meeting in April 2007.
Committee membership
- Chaired by Andrew Crockett, former Director General of the Bank for International Settlements (BIS) and President of JPMorgan Chase International.
- Members included Mohamed A. El-Erian; Alan Greenspan; Tito Mboweni; Guillermo Ortiz; Hamad Al-Sayari; Jean-Claude Trichet; and Zhou Xiaochuan.
- Mr. de Rato emphasized appreciation for the Committee's work and the importance of addressing the income model issue expeditiously.
Main conclusion
- The Committee's report concludes that the IMF's current income model—which relies primarily on the income generated from lending to member countries—is not appropriate and recommends a new set of revenue measures.
- Mr. Crockett: "This package of measures, which is unanimously supported by the Committee, is designed to align better the Fund's income model with the variety of functions the Fund currently performs. If adopted, the measures would set the Fund's finances on a sustainable basis, and ensure a solid financial foundation for the Fund's important role in the international community."
Key recommendations (package of measures)
- Expanding investment operations:
- Broaden the IMF's investment mandate, along the lines of the multilateral development banks.
- For existing reserves, this could produce additional income of SDR 30 million (US$45 million) a year.
- Invest part of the quota resources subscribed by members. If these resources could be invested using the same broadened investment mandate recommended for existing reserves, an investment of SDR 20 billion (US$30 billion) could yield some SDR 200 million (US$300 million) a year.
- Creating an endowment from limited IMF gold sales:
- Limited sale of Fund gold should be ring-fenced to exclude further sales and subject to strong safeguards to limit their market impact.
- Of its total stock of 3,217 metric tons of gold, the IMF could sell the gold sold and repurchased in the 1999-2000 off-market operations, amounting to about 400 metric tons.
- This 400 metric tons has an approximate current market value of SDR 4.4 billion (US$6.6 billion).
- Investment of profits from its sale could yield a real return of some SDR 130 million (US$195 million) a year.
- The Committee emphasizes coordination with current and future central bank gold agreements to avoid adding to the volume of sales from official sources.
- Charging for services to member countries:
- The Committee recognizes capacity building as a fundamental contribution and acknowledges public policy reasons for not discouraging its use.
- The Committee supports charging for services in principle to enhance IMF transparency and accountability, and to ensure providers and beneficiaries take a disciplined approach to costs and benefits.
- The Committee proposes resuming reimbursement to the IMF for the administrative costs of managing the program of financial assistance to low-income members, which could yield SDR 60 million (US$90 million) a year.
Additional observations and scenarios
- The Committee's report recognizes the possibility that renewed lending activity in the future could generate substantial surpluses.
- While this scenario is not currently foreseen, the Committee urges the IMF to explore ways in which such excess resources could be redistributed to members after taking into account necessary reserve accumulations to protect against potential credit losses.
- In parallel with the income review, the IMF continues to pursue cost effectiveness and firm expenditure restraint as a core element of the MTS.
Press Release No. 07/18 — January 31, 2007. International Monetary Fund.