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GAO: The IMF is NOT in a Liquidity Crisis

© Bryan Johnson

[ Editor's Note: This is the 13th article on the IMF to appear in Political Economy. This series of article has been tracking the progress of the IMF funding request. For previous articles on the IMF, see Bretton Woods Revisited: IMF; Congress Gears Up For IMF Funding Debate; Congress Deals IMF Major Setback; IMF Skepticism Grows in Congress; New IMF Strategy Emerges in Congress; Congress Tackles IMF Tax Subsidy Issue; American Farmers Fall In Love With IMF; Congress Requests More Information on IMF ; Congress Moves Closer to IMF Funding ; Russia Likely to be next IMF Recipient ; A Checklist of IMF Reforms ; and IMF Dealt Second Major Setback

- Editor - BTJ .]

The International Monetary Fund (IMF) is seeking a 45-percent increase in the level of contributions that its 182 members provide the international organization. For America, the IMF's largest donor, this request equals about $14.5 billion in new U.S. funding for the IMF. In addition to the contribution increase, the IMF also is seeking to create a new lending arm within the organization. This new lending arm is called the "new arrangements to borrow," or NAB. The U.S. portion of this new program is about $3.4 billion. Thus, the total amount of money the IMF is seeking from the U.S. is almost $18 billion.

One of the reasons the IMF is asking for this new money is because it argues that with the onslaught of the Asian financial crisis, it needs this new money to replenish its lending capabilities. Moreover, with the new IMF loan packages to Russia and now Ukraine, the IMF argues that it is suffering from a major liquidity crisis.

Just prior to the Russia/IMF loan package, the IMF had been arguing that it had only $43 billion in currency holdings that it could lend to other countries. Much of the money it had over a year ago has been spent trying to stabilize the economies in East Asia. Thus, the IMF argued that this $43 billion was dangerously low and that it needed more resources. Then, the IMF engaged in three new and major loans programs: one each for Russia, Ukraine and Tanzania. Moreover, the IMF has leant billions more on smaller programs throughout Eastern Europe, Asia and Africa.

Needless to say, the IMF's resources have been further depleted. Thus, it has been pressing the U.S. for new money. In addition, the Clinton Administration, which made the formal request for the money last year, now is engaging in a full court press to get the money. Moreover, with an election year at hand, and many U.S. farmers beginning to feel the economic pinch of a loss of exports to Asian and now Russia, politicians opposed to the IMF are getting a bit squeamish. Thus, the chances for the IMF getting more money from the are greater today than they have been in the last several months (see previous articles).

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