Too Much Of A Good Thing?

The IMF is in danger of becoming a 'deficit institution'. With large debtors like Argentina and Brazil steadliy paying off their outstanding loans, and few new clients knocking on their doors, they are having difficulty earning the one billion dollar cost outlay they run-up every year. Of course, as Ken Rogoff says, "The fund has the reserves to pay for its operations for the next several years", the problem really only becomes important if "It is only if the good times go on for another five to seven years and there are no major financial crises, then it is going to become a significant issue." Well, if I have to chose, maybe I prefer that the good times go on and that there are no financial crises.

A decision by Brazil and Argentina to repay their loans to the International Monetary Fund ahead of schedule raises the question of whether the institution needs a new business model.

Brazilian and Argentine repayments of about $15.5bn and $10bn respectively will wipe out another big chunk. Those repayments mean that Uruguay’s much smaller loan will be the fund’s largest exposure in Latin America. In Asia, following the financial crises of the late 1990s, governments built up huge financial reserves, in part to ensure that they never again had to go cap in hand to the IMF...

Low demand for IMF credit is mainly the result of emerging market countries’ good economic performance, and very favourable conditions in international financial markets.

But lower lending raises the questions of how the fund is going to pay its annual expenses of close to $1bn in the most recent financial year.