IMF Survey: U.S. Congress Vote Marks Big Step For IMF Reform, Funding

IMF News, June 18, 2009

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Approval by the U.S. Congress of a package of measures related to the IMF boosts international funding to combat the global economic crisis and marks a significant step forward in reforming the 185-member intergovernmental institution.
The legislative package clears the way for expanded IMF lending capacity, governance reforms, SDR allocations, a new income model with expanded investment authority, and limited gold sales.

More funding for the IMF under an expanded borrowing arrangement; the United States committed to increase its credit line by up to an additional $100 billion to the IMF.
Reform of country representation at the IMF, including greater representation (quotas) for dynamic emerging markets and enhanced voice and participation for low-income countries.
Go-ahead for the “fourth amendment,” a one-time allocation of Special Drawing Rights (SDRs).
Providing expanded investment authority to the IMF as part of a new income model to finance its activities.
Vote on a proposal for limited gold sales by the IMF, consistent with the agreed framework for the Fund’s new income model.
Legislation urges the use of Fund resources to leverage additional concessional assistance to low-income countries.

The G-20 called for a tripling of the Fund’s pre-crisis lending resources to $750 billion.
Congress authorized and appropriated an expansion of the U.S. NAB credit arrangement by up to about $100 billion.
Currently, the IMF can raise about $50 billion through the NAB, with the U.S. share being about $10 billion.
The envisaged increase in the NAB of up to $500 billion will ensure the Fund has needed resources.
Country commitments and commitments under way:
- Japan: $100 billion credit line.
- Norway: $4.5 billion (expected to be effective shortly).
- Canada: $10 billion (expected to be effective shortly).
- European Union members pledged €75 billion (about $100 billion).
- Switzerland: about $10 billion.
- Several countries’ combined interest in investing in IMF notes totals up to $70 billion.

The April 2008 Resolution on Reform of Quota and Voice included targeted quota increases based on a new quota formula.
Amendments provide for a tripling of basic votes and an additional Alternate Executive Director for large constituencies (benefiting the two sub-Saharan chairs on the Executive Board in the current circumstances).
Congress authorized the U.S. government to agree to an increase in its quota payment to the Fund by around $8 billion, enabling it to maintain its voting share of 16.77 percent.
The IMF plans to begin work on the 14th General Review of Quotas before the 2009 Annual Meetings, aiming to complete the work by January 2011.

Several measures require an 85 percent majority of total voting power for approval.
The United States has a voting power of 16.77 percent.
The IMF’s 24-member Executive Board must approve the decision on gold sales by at least 85 percent of the total voting power.

Acceptance by the U.S. Congress enables a special one-time SDR allocation equivalent to $33 billion across the membership, including about $5 billion for Central and Eastern Europe.
Previously, 132 members with 78 percent of total voting power had accepted the 1997 amendment; U.S. acceptance paves the way for meeting the 85 percent approval threshold.
The IMF is also seeking to implement a general allocation of SDRs before the October IMF Annual Meeting in Istanbul of $250 billion, which would provide low-income countries an extra $19 billion in international reserves.

With 98 percent of the voting power, the IMF’s Board of Governors endorsed an amendment to expand the Fund’s investment authority.
The amendment is a key element of a proposed new income model to generate revenues from a variety of sources and make the IMF less reliant on earning revenue from lending.
A key element of the model is to create an endowment through the limited sale of some IMF gold.

Congress authorized the U.S. Treasury to instruct the U.S. Executive Director to vote to approve the sale of up to 12.96 million ounces of the Fund’s gold (the gold acquired since the second Amendment in April 1978).
The Fund’s total holding: 103.4 million ounces (3,217 metric tons) of gold at designated depositories.
These sales would represent one-eighth of the Fund’s total holdings.
Sales must follow Executive Board guidelines agreed in April 2008 to avoid disrupting the world gold market.
The Executive Board will consider modalities for the gold sales during the summer and could take a decision at that time.

The G-20 called on the Fund to use additional resources from proposed gold sales, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years, consistent with the new income model.
IMF Managing Director Dominique Strauss-Kahn indicated concessional finance could reach some $8 billion and supported making loans to low-income countries on an even more concessional basis during the crisis.
The legislation also urges the use of Fund resources to leverage additional concessional assistance to low-income countries.

The legislation was included in the Supplemental Appropriations Act for fiscal year 2009; final passage by the House on June 16 and the Senate on June 18 followed conference reconciliation by House and Senate appropriators on June 4.
Discussions among NAB participants and potential participants are ongoing; a formal proposal for an amendment and expansion of the arrangement is expected later this summer.

IMF Survey online, June 18, 2009 — IMF Survey: U.S. Congress Vote Marks Big Step For IMF Reform, Funding