GAO says IMF underestimates its resources (fwd)

[Robert Weissman <rob@essential.org>]

Yet more evidence explaining how unnecessary it would be to give the IMF
more resources.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org

Saturday October 2 1999
 FINANCIAL TIMES

IMF under fire over cash levels
Fund faces scathing attack over plea for more liquidity and plans for Y2K,
write Gerard Baker and Stephen Fidler in Washington

An independent US investigation has delivered a scathing report on the
International Monetary Fund for understating its lending capacity and being
poorly prepared for the millennium date change.

The report, by the General Accounting Office, a draft copy of which has been
obtained by the Financial Times, is likely to provoke further attacks on the
Fund by critical US lawmakers.

While the report may be altered before final publication, it casts light on
last year's controversial agreement by the US Congress to back an IMF
capital increase, which the Fund said was necessary because of a shortage of
lending capacity.

Many legislators questioned the IMF's calculations of its financing needs at
the time, and congress commissioned the GAO to investigate.

The report says the Fund is far too conservative in assessing how much it
has available to lend to countries which face financial crisis.

The IMF claims that, after its current lending commitments, it has about
$77bn in liquid resources available for further loans to IMF members.

But the GAO argues that the figure is probably higher, because the Fund
discounts $19bn in a working balance reserve it says it needs. The GAO
report notes that the reserve has not been drawn down in more than 20 years.

The report is critical of the Fund's argument that it needs available
resources of at least 30 per cent of its liquid liabilities (the so-called
liquidity ratio).

The GAO says that there is "no analytical basis" for the minimum ratio and
that the IMF can supplement its resources by using $46bn in credit lines
from member countries.

On the Year 2000 issue, the report says the IMF has lagged in assessing some
internal systems.

"By completing the assessment so late in the year, IMF will not be fully
aware of any problems until after the date change - too late to take
pre-emptive action", the GAO says.

It also says the IMF was "slow in recognising the potential impact" of
dislocation on its member countries, a factor that might increase the
financial demands on the Fund.

An IMF spokesman said that the Fund believed it was "fully up to date" on
the millennium question, and that it had announced a special facility for
governments that face financing problems because of Y2K.

He said many IMF members would be uncomfortable with a liquidity ratio that
fell below 30 per cent for a sustained period and that the IMF's
conservative financing approach was a policy of long standing.

The next scheduled IMF quota review is due in 2002, but congress is expected
to vote soon on whether to allow the Fund to revalue some of its gold
reserves to take part in a debt relief initiative for the poorest countries.