As the central institution in the international monetary and payments system, the IMF must be in a position to assist any of its member countries having balance of payments difficulties. It must also be prepared, at all times, to guard against unexpected events that might threaten the stability of the system. The IMF needs adequate financial resources to carry out these responsibilities. This is particularly important now, given the fundamental political and economic changes that are taking place in the former Soviet Union, Eastern Europe, and in many other parts of the world. This pamphlet takes a brief look at the functions of the IMF, why it needs more resources, and how these resources will be used.
Quota resources are the basic source of the financing the IMF provides, although it can borrow temporarily to supplement them. Each member of the IMF has a quota, which is determined in a manner that broadly reflects the member’s economic position relative to other members. A member’s quota is the most important element in its financial and organizational relationship with the IMF. The subscription payment by a member, its voting power, its maximum access to financing from the IMF, and its share in allocations of SDRs—all depend on its quota.
On June 28, 1990, the IMF’s Board of Governors adopted a resolution calling for a 50 percent increase in IMF quotas, from SDR 90,132.55 million to SDR 135,214.7 million (from about $125 billion to about $185 billion). (Since then, a number of countries have joined the IMF, and quotas of current members as of June 1, 1992 amount to SDR 96,053.05 million. Proposed quotas of current members under the Ninth Review would amount to SDR 143,969.1 million.) The agreed increase in the size of the IMF reflects the Interim Committee’s restatement at its September 1989 meeting of the central role of the IMF in the international monetary system, the need for the IMF to be adequately endowed so as to maintain an effective presence at the center of the system, and to preserve its basic monetary character. The IMF’s Executive Board agreed that this character must be preserved by ensuring that the IMF would continue to provide balance of payments assistance on a temporary basis, that its resources revolve, and that it would continue to hold a level of usable assets sufficient to protect the liquidity and immediate usability of members’ claims, thereby maintaining members’ confidence in and support of the institution. The accompanying table indicates the amounts of Eighth Review quotas and those proposed under the Ninth Review for current members and prospective members with approved membership resolutions as of June 1, 1992.
This chapter presents several papers included in the Bretton Woods conference. The Bretton Woods Conference of 1944 had left many issues of development finance unresolved. In fact, very early, the World Bank took a different direction from that envisaged by its founders. The IMF came into existence on December 27, 1945. The eventual growth in the Fund's activities led to the disappearance of the nonresident Executive Director. A teleological approach in the examination of the IMF’s authority was inspired not only by the principle that the Fund must be effective in the pursuit of its purposes but also by the belief that the Articles, and especially the provisions on the par value system, constituted an international monetary system. In the 1950s, the Bank made an important contribution to helping countries cope with the external debt problems left over from the 1930s. Moreover now it is trying, in cooperation with the IMF, to help countries make necessary adjustments on a case-by-case basis.
It would seem unlikely that in order to provide this new facility for its members the Fund would have found it necessary to split itself into two Departments and to require each member to make a contribution equal to its quota, with one fourth normally payable in SDRs and the remainder in the member’s own currency.12 Rather, the following approach would have seemed natural.
This is the fourth in our series of articles commemorating the fortieth anniversary of the Bretton Woods conference. Edward Bernstein is eminently qualified to write on this topic. He was a participant at Bretton Woods as a member of the U.S. delegation, after having played a leading role in the technical elaboration of the White Plan—the U.S. proposal for the Fund—as Assistant Director of Monetary Research at the U.S. Treasury. In 1946, he became the Director of the Fund’s Research Department, a post he held for 12 years. As architect and builder, he had a profound influence on the institution and its staff in the formative years. After leaving the Fund in 1958, he established the consulting firm of EMB Ltd. and became its President. Among many other activities, he was Chairman of the U.S. government-appointed Review Commission for Balance of Payments Statistics and a member of the U.S. Advisory Committee on International Monetary Arrangements. Since 1982, he has been a guest scholar at the Brookings Institution. In this essay, he addresses a question that has been on the minds of many in recent years.
If the credit activities of the Fund were run on an SDR basis, the present separation of the two Departments would no longer be necessary, or indeed convenient. In a unified Fund all members that extended credit through the Fund, even if they did not participate in the SDR allocation facility, would have to hold SDRs. That, however, would be predominantly a formal change. All members are now obliged to make their currencies available for sale; hence all members must stand ready, when their reserve and payments position permits, to acquire creditor positions in the Fund. Such positions are denominated in SDRs. Thus, in an economic sense, members are already bound to acquire SDRs.
The financial structure and operations of the IMF are described in this pamphlet, as well as the sources of IMF financing, the policies associated with the use of IMF resources, and the role of the IMF as trustee to various accounts that are administered by it.