GAO report says IMF has plenty of $

[Robert Weissman <rob@essential.org>]

Copyright 1999 The Financial Times Limited   
                   Financial Times (London) 

            October 5, 1999, Tuesday USA EDITION 1 

SECTION: WORLD NEWS: US & CANADA; Pg. 06 

HEADLINE: IMF 'fails to make best use of its resources' 

BYLINE: By Stephen Fidler and Gerard Baker in Washington 

DATELINE: Washington 

   A report from a US government watchdog accusing the International
Monetary Fund of failing to make the greatest use of its resources is
expected to give ammunition to opponents of the body in Congress.

The report last week from the US General Accounting Office has already
been cited by IMF adversaries to suggest the Fund overstated its
difficulties last year when it sought a capital increase from
shareholders.

The Fund defends its conservative accounting, saying that is what many of
its government members want. But the report may add fuel to a debate over
the way it finances itself through periodic calls to member governments
for "quota increases".

Jim Saxton, a Republican lawmaker and vice-chairman of the Joint Economic
Committee of Congress, said the report supported claims during the fight
over the IMF quota increase last year that "the IMF's destitution was
being exaggerated by the IMF and US Treasury".

The report says the Fund may underestimate its available resources by
deducting a $ 19bn working balance before calculating them. This had not
been drawn on for more than 20 years.

Also, it suggests there is "no analytical basis" for the Fund's argument
that it needs a further cushion of available resources of at least 30 per
cent of its liquid liabilities (the so-called liquidity ratio). If a big
increase in lending to distressed countries depleted the fund's resources
to a level considered too low, it could supplement them by using the $
46bn in credit lines it has from member countries, the report says.

The report also raises questions about the Fund's decision to hold $ 30bn
in gold reserves.

Copyright 1999 The Financial Times Limited   
                   Financial Times (London) 

         October 2, 1999, Saturday LONDON EDITION 3 

SECTION: THE AMERICAS; Pg. 07 

HEADLINE: IMF castigated for understating its lending capacity 
US GENERAL ACCOUNTING OFFICE INVESTIGATION SAYS
FUND IS TOO CONSERVATIVE IN ASSESSING HOW MUCH IT HAS
AVAILABLE: 

BYLINE: By Gerard Baker and Stephen Fidler in Washington 

BODY: 
   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 (GAO), a draft copy of which
has been obtained by the Financial Times, is likely to provoke further
attacks on the Fund by critical US legislators.

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

Many legislators queried 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 facing financial crisis.

The IMF claims that, after its current lending commitments, it has about $
77bn (£47bn) 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
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 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 behind in
assessing some internal systems. "By completing the assessment so late in
the year, the IMF will not be fully aware of any problems until after the
date change - too late to take pre-emptive action," it 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
fin-ancial demands on the Fund.

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

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 soon to vote 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.