Friday, January 30, 2009

The IMF runs out of cash

Guillermo Ortiz, the governor of the Mexican central bank said at Davos the other day,

The IMF does not have enough money for what is coming.
Turns out he’s right.

Whereas two years ago the viability of the IMF was coming into question because it simply wasn’t making any money (no one wanted a loan), now the situation has been somewhat precariously reversed. Reports the WSJ this morning:

The International Monetary Fund is finalizing a $100 billion loan from Japan and is considering issuing bonds for the first time in its history, as part of an effort to double the financial resources it has to fight the deepening global recession.

The IMF currently has a lending ability of about $250bn. As the Journal notes, it’s wanted to double that for quite a while now. The problem though, is that the normal revenue for IMF financing - being lent money by member states - isn’t very practicable at the moment for obvious reasons.

Notwithstanding Japan’s putative $100bn commitment, the IMF certainly seems to be considering issuing its own bonds.

This though, is a bit of a political minefield. The US and the UK have blocked plans for IMF bond issues before, and may yet do again. If the IMF began issuing bonds, it would gain significant fiscal independence from its erstwhile masters in Washington.

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