IMF Flip-Flops, Admits It Has Funds, Misled Public
|January 9, 2007||Posted by Staff under Archive, Progress Report, The Progress Report|
IMF Failures Pile Ever Higher
IMF Flip-Flops, Admits It Has Funds
by Adam Entous
With financial turmoil spreading fast, the International Monetary Fund has toned down months of warnings it could be crippled by a cash shortage, hoping to soothe markets but risking a congressional rebuff as it seeks new U.S. funding.
IMF Managing Director Michel Camdessus told a news conference Friday the lending agency could arrange new loan packages to bail out countries in crisis despite past warnings to Congress that its cash reserves might be too low.
“”Much has been said about the remaining usable resources of the IMF and the IMF’s response to future requests for assistance,” Camdessus said.
“”Let me be absolutely clear. We still have both normal fund resources available to help our members as well as, under appropriate circumstances, resources from the GAB (General Arrangements to Borrow, the IMF emergency fund tapped in July to aid Russia).”
Assurances that the IMF could arrange new bailouts may comfort panic-stricken markets and countries affected by the crises in Russia and Asia, but they could also give ammunition to the IMF’s congressional critics.
These critics have accused the Washington-based agency and the U.S. administration of exaggerating the IMF’s financial problems to persuade Congress to support a massive increase in funding.
The administration has asked Congress to approve an $18 billion package for the IMF, saying it would replenish reserves drained by multibillion-dollar rescue deals for Russia and three Asian countries and arm the agency with enough cash for the next global financial emergency.
The package, approved by the Senate in March, has stalled in the House of Representatives.
Analysts say with emerging markets in turmoil, lawmakers returning from their August recess have a new incentive to approve the IMF package and new reason to fear they will be blamed for U.S. stock market losses if they do not.
“”I believe the United States should pass the increased level of funding for the IMF,” Senate Budget Committee Chairman Pete Domenici, a New Mexico Republican, told ABC’s “”This Week” program.
But major pitfalls remain.
The financial meltdown in Russia has further undermined confidence in the IMF, already accused in Congress of using the wrong recipes to help Asia’s troubled economies.
“”The International Monetary Fund resources provided to Russia have been squandered,” Republican Rep. Jim Saxton of New Jersey, chairman of the Joint Economic Committee, said in a terse statement.
Despite his support for the IMF, Domenici said he did not want any more of its money going to Russia at this time.
Camdessus’ promise to support future rescue packages if needed could also give fuel to the IMF’s opposition.
Saxton has argued for months that the agency has more than enough cash on hand, contrary to estimates by fund officials and the U.S. Treasury Department. Saxton has said that the IMF holds $43 billion in usable quotas and $32 billion in gold and that it could borrow billions more under the General Agreements to Borrow.
By contrast, Camdessus’ deputy, Stanley Fischer, warned in July that the fund was tapped out. “”Even with the GAB, we don’t regard ourselves as having lendable resources. … It cannot continue this way,” Fischer said.
U.S. Deputy Treasury Secretary Lawrence Summers has also repeatedly warned that the IMF’s low reserves might jeopardize its ability to respond to future financial crises.
“”Its lack of resources could well become a constraint to action in case further problems arise, and by reducing confidence, its lack of resources make future problems more likely,” Summers told the National Governors’ Association back on Aug. 4.
But with global financial markets on edge and investors prone to panic, the IMF and the U.S. administration are now under pressure to play down the risk that the IMF will run out of money, letting crises spread unchecked to Latin America and emerging markets in other parts of the world.
“”If a country asks for our assistance in support of a strong program, we will recommend to the (IMF) executive board the normally justified level of support,” Camdessus told reporters Friday.
“”If at some point, we run out of resources, the international community will have to face its responsibilities and decide whether countries that are helping themselves should be abandoned by the international community. I expect that these countries will receive the necessary assistance,” he said.
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