The IMF and The Economist

An economist at The Economist weighed in on the subject of the IMF's budgetary problems with this story($) in the current issue.

It appears that the situation is dire - fittings and fixtures in complete disarray.

Putting the IMF's own house in order
THE financial missionaries of the IMF unpack their suitcases in some of the finest hotels in the world, but their offices in Washington, DC, are in need of refurbishment. An overhaul of the fund's fittings and fixtures was stopped halfway recently, leaving its interior stuck between the 1970s and a sleeker, modern era.

This is just one sign of the IMF's straitened circumstances. This fiscal year it must endure a freeze, in real terms, in its $980m budget for staff, travel and other administrative costs. By 2010 it projects a budget shortfall of about $370m a year. Last May the fund's managing director, Rodrigo de Rato, invited eight “eminent persons”, led by Andrew Crockett, former head of the Bank of International Settlements, to dream up new ways to fund the fund. On January 31st they offered their answers.
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What should the new TMF do? Mr Crockett's committee thinks three fingers will more or less suffice to plug the dyke. First, the fund has squirreled away almost $9 billion of reserves, set aside when business was booming. It should invest these reserves “slightly less conservatively”, Mr Crockett says, thereby raising an extra $45m a year. Second, instead of waiting for a crisis before tapping the hard-currency quotas promised by member governments, it should dip into them as a matter of course, investing the proceeds in safe securities and creaming off a slice of the returns for itself. If it invested $30 billion of its quotas, it could raise another $300m.

The third proposal is likely to be the most controversial. The IMF has long sat on a pot of gold: 3,217 tonnes of it, the third-biggest official hoard in the world. Mr Crockett thinks it should sell about 400 tonnes, which would raise about $6.6 billion. This would not disturb the gold market, he says, as long as central banks agree to cut their own bullion sales. With the money it raises, the fund could set up an endowment and live off the income, envisaged at $195m a year in real terms.

The fund cannot sell its gold without a vote of approval from an 85% majority of its board. America thus holds a veto, and its Congress may not be sympathetic to such schemes. Governments gave gold to the fund in the first place to underpin its lending, not to pay its salaries. If it no longer needs the bullion, perhaps it should repatriate some to its members. And if it needs money for an endowment, it should ask for one directly: as a gift from its members, accounted for in their budgets.

The suggestion offered here last Friday still seems to be the most sensible approach to filling the funding gap - just sell enough gold to make ends meet for 2007, then revisit the situation next year.

If gold goes up like it has in recent years, they'll come out way ahead.

ooo

This week's BusinessWeek cartoon - a definite improvement.