[stop-imf] IMF reviews options as its income declines

[Robert Weissman]

IMF reviews options as its income declines
Thu Jan 26, 2006 7:25 PM ET

WASHINGTON, Jan 26 (Reuters) - The International Monetary Fund is
considering several options to increase its shrinking income, including
investing some of its reserves, a senior official said on Thursday, as
the number of its borrowing countries decline.

A decision by Brazil and Argentina -- two of the IMF's biggest borrowers
-- to pay back their IMF debts ahead of schedule has contributed to the
decline, according to a review of the fund's income position for 2006
released this week.

In the report, the IMF now projects that it will likely have a shortfall
in net income of $116.3 million mainly because of the early repayments
by the two Latin American countries.

Previously it projected a small shortfall of $26 million from a
"regular" net income target of $273.4 million.

Apart from a short period in 1990, the IMF's loan book is at its lowest
level since the 1980s.

With economic crises all but disappeared and borrowers repaying their
debts early, the IMF's liquidity is stronger than it has been in years.

Still, because the IMF lends at a slightly higher interest rate to cover
expenses, the decline in lending has implications for its operating
budget and has forced it to review its financial structure.

The main measure of the IMF's liquidity -- the one-year forward capacity
-- was at a record high at $162 billion, according to IMF data. Fund
credit outstanding -- or money owed by borrowing countries -- declined
to about $31 billion this month from $56 billion at the end of November
2005.

EXPLORING OPTIONS

Thomas Dawson, the IMF's director of external relations, said the IMF's
comfortable liquidity position reflected "unambiguously good news for
the global economy" because it meant that countries did not need to
borrow from the fund.

"The current state of play is that the fund's income and reserve
position is adequate enough for us to continue as we are doing now and
taking a look at what medium-term implications there are," Dawson said.

"There are possibilities of investing the fund's reserves. They're not
doing it now and, frankly, it has not been necessary but it is an issue
that has been addressed in the past in the fund and proven not to be
necessary," he added.

Some analysts have suggested that the IMF could invest its reserves --
projected to grow by $305 million this year -- in higher yield
government securities.

Dawson said the IMF hoped to release more details of its income plans
ahead of the fund's bi-annual meeting of member countries in April.