Press Briefing on Russia -- David Williams

July 13, 1998

July 13, 1998, 1:30 P.M.

IMF Headquarters
Washington, D.C.

[This is part 2 of a press briefing on Russia given by Stanley Fischer and IMF Treasurer David Williams. Part 1 is available at]

QUESTION: Have you spun out, or do you have any sense of how much is in ready reserves, how much is under GAB--

MR. WILLIAMS: We have now $31 billion in our own coffers which are usable.

QUESTION: And that is what percent ratio?

MR. WILLIAMS: And we have $70 billion of liquid liabilities. That will give you a liquidity ratio of 44.7 percent.

QUESTION: And how is that $31 billion made up? What are the denominations there?

MR. WILLIAMS: It is all the SDR holdings in the Fund and the various currencies which are currently usable.

QUESTION: No Kenyan shillings.

MR. WILLIAMS: No Kenyan shillings, no.

QUESTION: Does it include gold, or not?

MR. WILLIAMS: No. None of these figures ever include gold.

QUESTION: Where does this $10 to $15 billion figure come from?

MR. WILLIAMS: The U.S. Treasury did a calculation that if we came down to 30 percent liquidity ratio, that would leave us with only $10 to $15 billion, and it was a range because they were giving a range on usable resources.

QUESTION: After Russia and these others, what are you left with?

MR. WILLIAMS: After Russia and these others, without the GAB, we would be down to $17 billion with liquid liabilities of $87 billion, a liquidity ratio of 19.4 percent.

QUESTION: Which means that you would, for all intents and purposes, have no lendable resources?

MR. WILLIAMS: Technically, it would be--however, as Mr. Fischer said, we never say no. The amount that would be literally available with that relationship between ourliabilities would be extremely small.

QUESTION: Now, with the GAB?

MR. WILLIAMS: With the GAB--and after Russia, and the other commitments--we would have $25 billion and the same liabilities, $87 billion of liabilities, with a liquidity ratio of 29 percent.

QUESTION: And you're saying you aren't comfortable with anything less than 30 percent?

MR. WILLIAMS: Basically, because these are liabilities which can be encashed in 3 days' notice.

QUESTION: So even with the GAB activation, you will basically be down to zero usable resources?

MR. WILLIAMS: A little bit more of a margin, but not much, plus, of course, what remains in the GAB--another $14 billion.

QUESTION: Forgive me, but that doesn't really seem so bad as the $10-15 billion figure that Treasury had bandied about and which seems to have become the accepted wisdom--$31 billion doesn't seem so bad.

MR. WILLIAMS: Well, you see, we could not really do Russia out of $31 billion and what else we know is coming down the pike in the next few months. And somebody asked the question what if a very large borrower also came down the pike again. It gives you no operational maneuverability whatsoever.

QUESTION: Legally, you are not prevented from going to the capital markets.


QUESTION: It's just for sort of practical, institutional reasons?

MR. WILLIAMS: No. We are an institution which relies essentially on our capital. When our capital is running a bit low in terms of usable parts of our capital, we have a quota increase, which we have had and is now going through the legislatures. As an intermediate and emergency form of financing, we have things like the GAB to back us up, and of course, the NAB, when that comes into effect. Alternatively, we have in the past gone to members to lend directly to us on a bilateral basis. The largest loan was with the Saudi Arabian Monetary Authority in 1982, for $18 billion.

The market is indeed a technical resource, but the Fund's whole structure is based on cooperation with its members, and they do the financing.

QUESTION: So that suggests you are not preparing a capital market borrowing at this stage.

MR. WILLIAMS: Absolutely not. There is a capital increase coming into effect, and there is the NAB. And as I mentioned earlier, of a capital increase which will amount to about $92 billion, close to $70 billion of that will go into our usable resources.

QUESTION: What if you don't get that?

MR. WILLIAMS: I don't contemplate not getting it. It's a matter of timing.

QUESTION: If the average for quota approval is 18 months, and the clock has now been ticking for about 7 months, if it goes to the average, you are in big trouble.

MR. WILLIAMS: In 1983, the quota increase came into effect in 8 months.

QUESTION: What about gold reserves? Where are they on this chart? I understand the Fund has some gold reserves.

MR. WILLIAMS: We have 103.4 million ounces--the second-largest official holder. They are not reserves; they are gold assets.

The use of the Fund's gold needs a majority of 85 percent of total voting power, and for the United States to vote for any use of the Fund's gold would need either the formal approval or concurrence of Congress. This is a rather complicated and very heavily-weighted procedure.

QUESTION: And you haven't included this gold in these figures?

MR. WILLIAMS: No. Gold is not a usable asset; it is not a liquid asset.

QUESTION: And just to bring it back so I can be crystal-clear on this when editors start asking pesky questions--the $10 to $15 billion comes from where, in your estimation?

MR. WILLIAMS: The U.S. Treasury made a very valid calculation of what we would have available if our liquidity ratio went to 30 percent, which, as Mr. Fischer said, is indeed a very important indicator to us. And it is a range because the volume of usable currencies can change. In fact, the volume of usable currencies at the moment that I have just given you may be a little bit high. It is technically what the amount is, but "usable" currencies depend on the balance of payments and reserve positions of members; they have to be sufficiently strong. Some of those members whose currencies we are using have weakened very considerably in their external positions, so the amount may be a little on the high side.

QUESTION: Can you borrow from the World Bank?

MR. WILLIAMS: No. We borrow from members.

QUESTION: And this $31 billion in your coffers right now, that is in U.S. dollars, that is yen, that is marks?


QUESTION: Bonds, Treasury bonds?

MR. WILLIAMS: No. There are 30 currencies which are usable, plus our holdings of SDRs.

QUESTION: Have you contemplated at this point going to individual members for bilateral loans?

MR. WILLIAMS: No, because we have the quota increase underway, plus the NAB. These are important developments that the Board concluded last year.

QUESTION: Is Russia paying up its quotas?

MR. WILLIAMS: Russia always pays so far.

QUESTION: So it is not in arrears or anything?

MR. WILLIAMS: No, absolutely not, no.

QUESTION: You can't lend to a member in arrears.

MR. WILLIAMS: No. We cannot lend; we cannot even negotiate a program with a member in arrears--Sudan, Somalia, Liberia, Zaire.

QUESTION: I am sorry to keep coming back to this, but this $31 billion right now, that's out there for use.

MR. WILLIAMS: On three days' notice.

QUESTION: Yes, but we should be really working on the $17 billion, since you've already committed to Russia.

MR. WILLIAMS: We are looking at $31 billion of usable resources at the moment, and what happens--there will be other commitments coming up in the next weeks and months. Indonesia will be coming up, which will take some of these resources; Russia will be coming up next week. $31 billion is the amount as of today that is totally uncommitted.

QUESTION: Can you run through, so I can just get clear again, the GAB activation now? The first step is the MD or the IMF saying there is systemic risk and a financial need for the GAB. That has been done. The G-10 Deputies then take it up--

MR. WILLIAMS: No, no, no, no. The Managing Director first--and did on Friday--sees the representatives of the G-10 plus Saudi Arabia, which has an associated agreement with the Fund, to say that he is going to consider making a proposal.

The next step, which would be this afternoon, is that the Managing Director will have an informal consultation with the Executive Directors representing the G-10 and Saudi Arabia to say that he believes the state of our liquidity, and the systemic nature of the Russian crisis, would justify him making a proposal to activate the GAB. The staff has provided a memorandum on this issue.

He will then consult tomorrow with the Executive Board, all of the Board. Depending on the outcome of those consultations, which we expect, as Mr. Fischer said, to be favorable, the Managing Director will then make a formal proposal to call on the GAB, which will be done by telex or whatever communication is appropriate, tomorrow night or early Wednesday morning, making it quite clear that any activation would be dependent on the Executive Board approving the program for Russia and approving the formal borrowing by the Fund. And the decision on the formal borrowing by the Fund from the GAB will come immediately after--after--the Board has agreed to the formal program for Russia, which will be next week.

QUESTION: The formal proposal goes to the governments of the G-10?

MR. WILLIAMS: Yes, to the members--to the members and the institutions, as you know, of the 11 countries which comprise the G-10. Three of them are central banks--the Bundesbank, the Riksbank, and the Swiss National Bank. And we have to consult with the participants of the GAB, so there will be eight ministries of finance and three central banks.

QUESTION: And you would borrow from the individual members in their national currencies; is that correct?


QUESTION: And issue them an SDR claim on--

MR. WILLIAMS: Well, every transaction with the Fund is SDR-denominated.

QUESTION: And what interest rate do you pay to them?

MR. WILLIAMS: The same interest rate as we pay on our rate of remuneration.

QUESTION: And is there some limit to borrow the money--do you have to return the money in 2 years, or--

MR. WILLIAMS: We have to return--repay--the money when we are repaid, but in any event, not later than 5 years from the date of borrowing. The Fund can also make early repayments.

QUESTION: And it's an equal amount from each?

MR. WILLIAMS: The Executive Directors will have to consider how the calls will be distributed among the 11.

QUESTION: So the key event, or one of the key event, really, is this informal consultation, because then the MD will have a sense of whether big roadblocks are being thrown up or not.

MR. WILLIAMS: That's right.

QUESTION: So that is really the hurdle. If it gets through that--

MR. WILLIAMS: Both the consultation with the participants and with the Board--

QUESTION: Right. The participants, obviously; it's their money.

MR. WILLIAMS: It is their money and the Fund's risk.

QUESTION: Right. What does this do to your--I hate to get too technical--but the liquidity rate does have an impact because you are borrowing, right?

MR. WILLIAMS: Yes, absolutely.

QUESTION: So the GAB borrowing actually knocks down your liquidity ratio.

MR. WILLIAMS: That's right. That's why the liquid liabilities go up from $70 billion to $87 billion. And it is repayable on demand if a participant makes a request for the repayment because of its balance of payments and reserve position. So it becomes as much a liquid liability as our reserve tranches.

QUESTION: Then, I'm confused. If, without the GAB, liquid liabilities go to $87 billion, and with the GAB, they go to $87 billion, that doesn’t--wouldn't the figure be higher with the GAB than without?

MR. WILLIAMS: No, because our liquid liabilities comprise two parts--outstanding borrowing (there is no outstanding borrowing at the moment) and our reserve tranche positions. To fund a transaction either would need to go up, with the result that you get thesame amount of liquid liabilities.

[Edited transcript]


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