For those thinking the IMF could bail out Spain , think again.....

Where the IMF Gets its Money

March 30, 2012

Most resources for IMF loans are provided by member countries, primarily through their payment of quotas. Since early 2009, the IMF has signed a number of new bilateral loan and note purchase agreements to bolster its capacity to support member countries during the global economic crisis. Multilateral borrowing arrangements provide a further backstop to IMF resources. Concessional lending and debt relief for low-income countries are financed through separate contribution-based trust funds.

The quota system

Each member of the IMF is assigned a quota, based broadly on its relative size in the world economy, which determines its maximum contribution to the IMF’s financial resources. Upon joining the IMF, a country normally pays up to one-quarter of its quota in the form of widely accepted foreign currencies (such as the U.S. dollar, euro, yen, or pound sterling) or Special Drawing Rights (SDRs). The remaining three-quarters are paid in the country’s own currency.

Quotas are reviewed at least every five years. Ad hoc quota increases of 1.8 percent were agreed in 2006 as the first step in a two-year program of quota and voice reforms. Further ad hoc quota increases were approved by the Board of Governors in April 2008, resulting in an overall increase of 11.5 percent. The 2008 reform came into effect in March 2011 following ratification of the amendment to the IMF’s Articles by 117 member countries, representing 85 percent of the IMF’s voting power.

The Fourteenth General Review of Quotas was completed two years ahead of the original schedule in December 2010, with a decision to double the IMF’s quota resources to SDR 476.8 billion.

Earlier reviews concluded in January 2003 and January 2008 resulted in no change in quotas.

The IMF’s lending capacity

The IMF can use its quota-funded holdings of currencies of financially strong economies to finance lending. The Executive Board selects these currencies every three months. Most are issued by industrial countries, but the list also has included currencies of lower income countries such as Botswana, China, and India. The IMF’s holdings of these currencies, together with its own SDR holdings, make up its own usable resources. If needed, the IMF can temporarily supplement these resources by borrowing (see below).

The amount the IMF has readily available for new (non-concessional) lending is indicated by its forward commitment capacity. This is determined by its usable resources (including unused amounts under loan and note purchase agreements and amounts available under the IMF’s two standing multilateral borrowing arrangements (see below)), plus projected loan repayments over the subsequent twelve months, less the resources that have already been committed under existing lending arrangements, less a prudential balance.

Borrowing arrangements

The IMF maintains two standing multilateral borrowing arrangements—the expanded New Arrangements to Borrow (NAB) and the General Arrangements to Borrow (GAB)—currently with a total borrowing capacity of SDR 370.0 billion (about $570 billion). If the IMF believes that its forward commitment capacity might fall short of its member countries’ needs—for example, in the event of a major financial crisis—it can activate these arrangements.

In April 2010, the Executive Board adopted a proposal on an expanded and more flexible NAB, by which the NAB was expanded to SDR 367.5 billion (about $560 billion), with the addition of 13 new participating countries, including a number of emerging market countries with significant contributions to this large expansion. The expanded NAB came into effect on March 11, 2011 and was activated shortly after for a period of six months in the amount of SDR 211 billion (about $320 billion). The NAB was most recently activated for the maximum period of six months commencing on October 1, 2011. On November 15, 2011, the National Bank of Poland joined the NAB, bringing its total size to SDR 370.0 billion (about $570 billion) (see factsheet on IMF Standing Borrowing Arrangements).

So , what is the status of the New Arrangements to Borrow ? Note the following from the IMF :

http://www.imf.org/external/np/exr/facts/gabnab.htm

Decision to triple the IMF’s lending resources by expanding the NAB

As part of efforts to overcome the global financial crisis, in April 2009, the Group of Twenty industrialized and emerging market economies (G 20) agreed to increase the resources available to the IMF by up to $500 billion (which would triple the total pre-crisis lending resources of about $250 billion) to support growth in emerging market and developing countries.

This broad goal was endorsed by the International Monetary and Financial Committee (IMFC) in its April 25, 2009 communiqué. The increase was made in two steps:

• First, through bilateral financing from IMF member countries;
• Second, by incorporating this financing into an expanded and more flexible NAB. On September 25, 2009 the G-20 announced it had delivered on its promise to contribute over $500 billion to a renewed and expanded NAB.

Currently, the Fund has sixteen active bilateral loan agreements worth about $200 billion and two active bilateral note purchase agreements for about $60 billion. For NAB participants with bilateral credit lines, these credit lines do not add to the total resources available to the Fund under their NAB credit arrangements.

Hmm , despite the talk of 500 billion - the actual amount presently is about 260 billion ! Well , what about the forward lending capacity of the IMF ? Once again , here's what the IMF has to say - but I just see 391.3 billion : 

IMF's Financial Resources and Liquidity Position,
2010 - January 2012

(In billions of SDRs unless otherwise indicated; end-of-period)

Explanatory Note Liquidity Home

					Jan. 2012
			2010	2011	SDRs	US$
I.	Total resources		405.5	540.5	540.6	838.5
		Members' currencies	233.0	261.1	261.1	404.9
		SDR holdings	3.8	9.4	9.7	15.0
		Gold holdings	3.2	3.2	3.2	4.9
		Other assets	6.6	14.2	14.1	21.8
		Available under NAB activation 1/	-	201.8	201.8	313.0
		Other borrowing arrangements 2/	158.9	50.8	50.8	78.8
II.	Less: Non-usable resources		100.7	143.6	143.5	222.6

Of which: Credit outstanding 55.6 87.3 87.3 135.3                   III. Equals: Usable resources 304.8 396.9 397.1 615.9                   IV. Less: Undrawn balances under GRA arrangements 103.8 116.0 116.0 179.9                   V. Equals: Uncommitted usable resources 201.0 280.8 281.1 436.0                   VI. Plus: Repurchases one-year forward 2.0 10.8 11.4 17.7                   VII. Less: Repayments of borrowing due one-year forward - 0.4 0.6 0.9                   VIII. Less: Prudential balance 3/ 70.8 39.6 39.6 61.5                   IX. Equals: Forward commitment capacity (FCC) 132.1 251.7 252.3 391.3                     Memorandum items:                               Credit Lines under GAB/NAB 34.0 367.5 367.5 570.0       Quotas of members that finance IMF transactions 180.6 196.5 196.5 304.8       Liquid liabilities 54.6 98.3 98.3 152.5       Encashable immediately 4/ 48.8 98.3 98.3 152.5       Encashable within 12 months 5/ 5.8 - - -       Borrowing outstanding 14.6 34.1 34.1 52.9       NAB - 33.9 33.9 52.6       Bilateral borrowings   0.2 0.2 0.3       Loan agreements 10.8 0.2 0.2 0.3       Notes purchase agreements 3.8 - - -                       US$ per SDR 1.54003 1.53527 1.55108         Note: Details may not add due to rounding.   1/ Reflects second activation of the enlarged NAB on October 1, 2011 (SDR 189 billion) and undrawn committed resources from the first enlarged NAB activation.   2/ As of April 1, 2011, amounts available under Fund bilateral borrowing and note purchase agreements of NAB participants needed to cover financing of undrawn balances under pre-NAB approved Fund arrangements based on the current 1:1 bilateral borrowed to quota resources financing ratio and undrawn balances under bilateral agreements of non-NAB participants fully available to finance both pre- and post-NAB commitments.   3/ Prudential Balance reflects inclusion of Fund bilateral borrowings, except as noted (in attached definition) following activation of the NAB on April 1, 2011.   4/ Reserve tranche positions, immediately encashable bilateral borrowing, and NAB calls.   5/ Bilateral borrowing and Series B notes, which are encashable as soon as practicable within 12 months. Now here is the really kicker - how much of this has been approved by the requisite number of countries ? Go to the link , but  the Expanded  New Arrangements to Borrow has not been approved by the requisite number of participants - therefore it is not operational. Furthe rnote the IMF has not made a spefic committement to the ESM. http://www.house.gov/apps/list/hearing/financialsvcs_dem/crs_statement_for_the_record_5.20.10.pdf and further note the paper lion that the IMF New Arrangement to Borrow actually is .... http://usmarines.einnews.com/pr_news/89160135/imf-executive-board-approves-activation-of-standing-borrowing-arrangements-for-a-further-six-month-period IMF Executive Board Approves Activation of Standing Borrowing Arrangements for a Further Six-Month Period The Executive Board of the International Monetary Fund (IMF) has approved activation of the New Arrangements to Borrow (NAB) for a further six-month period from April 1, 2012 to September 30, 2012. The NAB is subject to activation for periods of up to six months and was last activated effective October 1, 2011 for a six-month period through end-March 2012. (see Press Release No. 11/342). The NAB is a standing set of credit lines under which 38 IMF member countries, or their institutions, have committed to provide supplementary resources to the IMF totaling up to SDR 366.5 billion (about US$566.92 billion1). Activation requires the consent of participants representing 85 percent of total credit arrangements eligible to vote, and the approval of the IMF’s Executive Board. Since the expanded NAB was first activated effective April 1, 2011, some SDR 52 billion (about US$81.04 billion) has been committed to Fund-supported programs for which NAB resources could be drawn, and actual drawings under the NAB have amounted to SDR 9.7 billion (about US$15.01 billion). The NAB supplements the IMF’s quota resources, which are the Fund’s primary source of lending resources and are made up of the quota subscriptions each member pays upon joining the Fund and through quota increases thereafter. The IMF is a quota-based institution and each member’s quota is broadly based on its relative size in the world economy. In the context of the agreement in December 2010 to double the Fund’s quota resources under the 14th General Review of Quotas, it was also agreed that there should be a corresponding rollback of the NAB, resulting in a shift in the composition of the Fund’s lending resources from NAB to quotas while not reducing the overall lending capacity. The necessary technical decisions to implement the agreement on the rollback were taken in December 2011. The membership has committed to make best efforts to complete the steps required for the doubling of quota no later than the Annual Meetings in late 2012. Consents and acceptances to the related reforms are listed online here. The expanded NAB, which became effective in March 2011 (see Press Release No. 11/74), was renewed by the Executive Board in November 2011 for a further period of five years from November 17, 2012. This renewal reflects the membership’s commitment to ensure the IMF has adequate lending capacity. As part of the renewal, the maximum maturity of NAB claims will be extended from five to 10 years to conform with the IMF lending facilities that it is used to fund.