[stop-imf] IMF Board of Governors Approves Key Element of IMF's New Income Model

[robert weissman]

http://www.imf.org/external/np/sec/pr/2008/pr08101.htm

IMF Board of Governors Approves Key Element of IMF's New Income Model
Press Release No. 08/101
May 6, 2008

On May 5, the Board of Governors of the International Monetary Fund
(IMF) overwhelmingly approved a broadening of the Fund's investment
authority, a key element of the proposed new income model for the Fund
that will allow the institution to generate revenues from a variety of
sources. Governors from 176 of the Fund's 185 member countries cast
their votes. Of these, all voted in favor of the Resolution. Approval of
the Resolution required a majority of the votes cast.

"With this decisive endorsement, the Fund's members have once again
demonstrated their support for reforming key components of the
institution's framework, including its financial structure," IMF
Managing Director Dominique Strauss-Kahn said. "Together with the
resounding vote last week to change the representational structure of
the Fund, this vote further reinforces the legitimacy of the Fund. I
thank the membership for this vote of confidence in the institution's
future."

The Board of Governors' approval of a broader investment mandate will
enable the Fund to increase the average expected return and adapt its
investment strategy over time. The investment policies will reflect the
public nature of the funds to be invested and include safeguards to
ensure that the broadened investment authority does not lead to actual
or perceived conflicts of interest. The Resolution proposes an amendment
of the Fund's Articles of Agreement, which will need to be accepted by
at least three-fifths of IMF members representing 85 percent of the
total voting power in order to become effective. Most member countries
will need the approval of domestic legislatures to accept the proposed
amendment.

This approval is a key component of the new income model, which also
includes the creation of an endowment funded by limited gold sales. Once
established, the endowment with profits from the gold sales will be
invested as part of the Fund's broadened investment strategy, with the
objective of generating income while preserving the long-term real value
of these resources.

The new income model, recommended by the IMF Executive Board on April 7
(see Press Release No. 08/74), will be based on more robust and diverse
sources of revenue in line with the Fund's multiple functions. It will
replace the current model that primarily relies on income earned on Fund
lending. On April 7, the IMF Executive Board also approved a new
budgetary framework, which reduces net spending by 13=BD percent in real
terms over the next three years. The new income and expenditure
framework is expected to cover the US$400 million shortfall projected in
the medium term.

"The new income model is predictable and in line with other financial
institutions. In combination with sharp expenditure cuts, it will put
the Fund's finances on sustainable footing," Mr. Strauss-Kahn said.
"Once fully implemented, we will have an integrated budget process that
will enable the Fund to work more efficiently and cost-effectively by
focusing its resources and work on its areas of expertise."

Other key elements of the new income model:

=95 Creating an endowment with the profits from the limited sale of 403.3
metric tons of the Fund's gold holdings. If approved, gold sales would
be conducted in a transparent manner with strong safeguards to ensure
they do not add to official sales and avoid any risk of market
disruption. U.S. Congressional approval is needed before the U.S.
Executive Director can vote in favor of gold sales.

=95 Resuming the long-standing practice of reimbursing the Fund's budget
for the cost of administering the trust fund for concessional lending to
low-income countries-the PRGF-ESF Trust-beginning in the financial year
in which the Fund adopts a decision authorizing the gold sales. This
cost recovery will not affect the Fund's ability to provide concessional
lending to low-income countries.

ANNEX

The Board of Governors is the highest decision-making body of the IMF
and consists of one governor and one alternate governor appointed by
each member country. The governor is usually the minister of finance or
the governor of the central bank. Most powers of the IMF are vested in
the Board of Governors. The Board of Governors may delegate to the
Executive Board all except certain reserved powers. The Board of
Governors normally meets once a year

The Executive Board functions in continuous session and is responsible
for conducting the business of the IMF. It is composed of 24 Directors,
who are appointed or elected by member countries or by groups of
countries, and the Managing Director, who serves as its Chairman. The
Board usually meets several times each week. It carries out its work
largely on the basis of papers prepared by IMF management and staff.

The IMF holds 103.4 million ounces (3,217 metric tons) of gold at
designated depositories. The IMF's total gold holdings are valued on its
balance sheet at about US$9.2 billion on the basis of historical cost.
As of April 30, 2008, the IMF's holdings amounted to US$90.1 billion (at
then current market prices). A portion of these holdings were acquired
since the Second Amendment of the IMF's Articles of Agreement in April
1978, amounting to 12.97 million ounces (403.3 metric tons), with a
market value of US$11.3 billion as of April 30, 2008. This part of the
Fund's gold holdings is not subject to restitution to members.