The ammunition dump has been trebled and still it might not be enough, reckons the head of the International Monetary Fund’s ministerial steering committee, the world’s second most famous Mr Boutros-Ghali.
Still, it’s not quite clear what Mr B-G wants to do. He is suggesting increasing the Fund’s firepower by issuing more Special Drawing Rights. But though they are often referred to as the IMF’s currency, SDRs are essentially just a form of accounting unit based on a basket of currencies, and do not represent a claim on the Fund. Creating more helps increase global liquidity, sure, as they count in governments’ foreign exchange reserves. But since they go to the IMF’s member countries in proportion to their financial quota it is the biggest members like the US and the northern European countries who will get the most. In theory they can on-lend them to countries that need them, but it’s not clear to me why this is a better way of funding European bail-outs than the traditional method of having countries lend money to the IMF directly.
Following a whip-round last year, the fund now has about $750bn in total to expend, though a chunk of this is in theoretical commitments by member states which can be drawn down if necessary rather than money on deposit. In terms of cash on hand the IMF has 161.7bn in Special Drawing Rights, about $110bn, on hand over the next year if it needs it. With the roughly 2:1 financing ratio it has agreed with the eurozone authorities, even a Spanish and Portuguese bailout could be financed from existing resources. The fund isn’t about to run out of money just yet.
