GAO

United States General Accounting Office

Report to Congressional Committees

September 1999 INTERNATIONAL 

MONETARY FUND

Observations on the 

IMF's Financial 

Operations

GAO/NSIAD/AIMD-99-252

Page 1 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Contents

Letter 3

Appendixes Appendix I: The IMF's Liquid Resources and Liquidity Position 34

Appendix II: The IMF's Gold Holdings 40

Appendix III: The IMF's Quota Reviews 44

Appendix IV: The IMF's Lending Activities 51

Appendix V: The IMF's Borrowing and Credit Lines 68

Appendix VI: Objectives, Scope, and Methodology 77

Appendix VII: GAO Contacts and Staff Acknowledgments 81

Tables Table 1: Calculation of the IMF's Available and Uncommitted

Resources as of April 30, 1999 12

Table 2: IMF Borrowing Arrangements That Exceeded 300 Percent

of Quota, as of April 30, 1999 28

Table 3: Eleventh General Review's Quota Increase and Related

Reserve Tranche Drawings Through April 30, 1999, for Certain

Members 36

Table 4: General Reviews of IMF Quotas 47

Table 5: IMF Members With 20 or More Years of IMF GRA Lending, 

Calendar Years 1947-98 54

Table 6: The 10 Largest GRA Borrowers, 1983-99 58

Table 7: IMF Outstanding Borrowing as a Percent of Outstanding

IMF Credit 1964-April 30, 1999 68

Table 8: IMF Borrowing Arrangements and Agreements, 1962-98 71

Table 9: GAB Participants and Credit Amounts, as of April 30, 1999 73

Table 10: NAB Participants and Credit Amounts, as of April 30, 1999 75

Figures Figure 1: Trends in the IMF's Liquidity Ratio, December 31, 1978-98,

and April 30, 1999 17

Figure 2: The IMF's Gold Holdings, 1948-April 30, 1999 21

Figure 3: IMF GRA Lending, 1947-99 25

Figure 4: Growth in Use of IMF GRA Credit by the 10 Largest Users,

1983-99 27

Figure 5: The IMF's Usable and Unusable Quota Resources, End of 

Calendar Years 1978-98 and April 30, 1999 35

Figure 6: IMF Quota Resources, 1948-April 30, 1999 45

Figure 7: IMF Member Voting Shares, 1948-April 30, 1999 50
Contents

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Figure 8: IMF's Precautionary Balances and Arrears as a Percentage

of Total GRA Outstanding Credit, 1983-99 64

Figure 9: Outstanding IMF Borrowing, 1962-April 30, 1999 72

Abbreviations

BIS Bank for International Settlements

BSFF Buffer Stock Financing Facility

CCFF Compensatory and Contingency Financing Facility

CFF Compensatory Financing Facility

DRC Democratic Republic of Congo

EAR Enlarged Access to Resources Facility

EFF Extended Fund Facility

ERM Exchange Rate Mechanism 

ESAF Enhanced Structural Adjustment Facility

GAB General Arrangements to Borrow 

G-7 Group of 7 Industrialized Countries

G-10 Group of 11 Industrialized Countries

GRA General Resources Account

HIPC Heavily Indebted Poor Countries

IMF International Monetary Fund

NAB New Arrangements to Borrow 

SAF Structural Adjustment Facility

SAMA Saudi Arabia Monetary Agency

SCA Special Contingent Account

SDA Special Disbursement Account

SDR Special Drawing Rights

SFF Supplemental Financing Facility

SRF Supplemental Reserve Facility

STF Systemic Transformation Facility
Page 3 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-283253 Letr

September 30, 1999

Congressional Committees

The International Monetary Fund was established to promote international 

monetary cooperation, facilitate international trade by promoting 

exchange stability and orderly exchange arrangements and assist in 

eliminating foreign exchange restrictions. To facilitate congressional 

oversight of U.S. policy concerning the Fund, the Omnibus Appropriations 

Act for fiscal year 1999 required us to report on several matters,1

 including 

the financial operations of the Fund during its current financial year ending 

April 30, 1999, and historical information on its lending activities. This 

report describes (1) the International Monetary Fund's liquidity position as 

of April 30, 1999, including its experience with borrowed resources to meet 

its members' financing needs; (2) the role of gold holdings in the Fund's 

operations; and (3) the Fund's process for determining the amount of quota 

contributions required from its members. The report also includes 

information on how the International Monetary Fund's lending2

 activities 

have evolved since it was founded in 1945 and discusses the status of 

preparedness of the Fund's mission-critical and other key computer 

systems and member country status for the year 2000. 

1

The Omnibus Appropriations Act for fiscal year 1999 (Pub. L. 105-277, Oct. 21, 1998) 

appropriated about $18 billion for the International Monetary Fund and required us to report 

on a seven-point mandate for reviews of the Fund. We are addressing this mandate in three 

reports—this report on financial operations and lending activities; a second that addressed 

the terms and conditions for borrower countries, International Monetary Fund: Approach 

Used to Establish and Monitor Conditions for Financial Assistance (GAO/GGD/NSIAD-99-

168, June 22, 1999); and a third that addressed borrower countries' trade policies, 

International Monetary Fund: Trade Policies of IMF Borrowers (GAO/NSIAD/GGD-99-174, 

June 22, 1999).

2

With the exception of some financing for low-income countries, the International Monetary 

Fund does not loan funds to a country. Rather, the country “purchases” the currency it needs 

from the Fund with an equivalent amount of its own currency and then later “repurchases” 

its own currency on terms established by the Fund. For the purposes of this report, we use 

the terms “financial arrangement,” “disbursement,” and “loan” to refer to “purchases” and 

“repayments” to refer to “repurchases.”
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Much of the information reported is as of April 30, 1999, and to the extent 

possible, we used data audited3

 by the Fund's External Audit Committee. 

To satisfy our objectives, we reviewed and analyzed the International 

Monetary Fund's financial statements, operational budgets, liquidity 

reviews, policy documents, and staff position papers and met with Fund, 

U.S. Treasury, and other officials. We also reviewed information on the 

status of the Fund's efforts to ensure that its mission-critical systems are 

Year 2000 compliant. The scope of our work was focused on a review of the 

International Monetary Fund's General Resources Account4

 and did not 

include a review of the trust accounts for low-income members. Although 

historical data was not available for calculating the weighted average of 

interest rates on the Fund's lending portfolio for each year since its first 

loan in 1947, as the Omnibus Appropriations Act requested, we have 

provided information on the interest rates charged by the Fund over its 

history. An evaluation of Fund's efforts and related management structure 

and processes to address the Year 2000 problem was not within the scope 

of our work.5

 See appendix VI for a full description of our objectives, scope, 

and methodology.

3

The financial statements are audited annually. For the financial year ended April 30, 1999, 

the Fund's External Audit Committee issued on June 24, 1999, an audit opinion that was 

equivalent to an “unqualified” or “clean” audit opinion. The audit report was released on 

September 12, 1999.

4

The General Resources Account is used for most transactions between member countries 

and the International Monetary Fund. These transactions include the receipt of quota 

subscriptions, purchases and repurchases, and the repayment of principal to the Fund's 

lenders. The assets held in this account include members' currencies, the Fund's own 

holdings of Special Drawing Rights and gold.

5

The Year 2000 problem is rooted in the way dates are recorded and computed in automated 

information systems. For the past several decades, systems have used two digits to 

represent the year, such as “99” representing 1999, to conserve electronic data storage and 

reduce costs. With this two-digit format, however, the year 2000 is indistinguishable from 

1900 or 2001 from 1901, etc. As a result, system or application programs that use dates to 

perform calculations, comparison, or sorting may generate incorrect results or not function 

at all.
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Results in Brief The International Monetary Fund's financial operations are supported by 

quota contributions of its members, Special Drawings Rights,6

 and gold 

holdings. To supplement these resources, the Fund has access to credit 

lines with certain member countries, and it can borrow from sovereign 

governments, central banks, or private entities. The Fund uses its 

resources to lend to its members and to meet their requests for drawings on 

their reserve tranche positions.7

 The International Monetary Fund has 

never borrowed from private sources and the use of its gold holdings in its 

financial transactions ended when the Fund amended its Articles of 

Agreement in 1978. Its financial condition is derived from the various 

components of its financial operations, including its liquid and nonliquid 

resources, its resources available from borrowing, and its lending 

practices.

For the financial year ended April 30, 1999, the International Monetary 

Fund had about $287 billion in resources consisting primarily of currency 

holdings of members' national currencies, Special Drawing Rights, and gold 

holdings in the General Resources Account. These resources were 

primarily obtained from members' quota contributions. Of this amount, 

about $195 billion was considered usable, that is, was from members that 

were sufficiently strong economically to permit their currencies to be used 

6

The SDR is a reserve asset that IMF has used since 1969. Its value comprises a weighted 

average of the values of four currencies: the U.S. dollar, yen, euros, and pound sterling. 

Because the value of the SDR relative to these currencies changes daily, the U.S. dollar value 

of amounts converted from SDR also changes daily. The SDR is the unit of account for the 

Fund.

7

Up to 25 percent of members' quota contributions must normally be paid in reserve assets, 

which are currencies that are freely usable in the principal foreign exchange markets (U.S. 

dollars, yen, euros, and pound sterling) or the Special Drawing Rights. The balance may be 

paid either in a country’s national currency or with noninterest-bearing promissory notes. 

The portion paid in freely usable currency, or Special Drawing Rights, is referred to as the 

member’s reserve asset or initial reserve tranche position. This portion can be drawn by the 

member as needed based upon a representation of a balance-of-payments need.
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for Fund operations. The remaining $92 billion was considered unusable.8

Of the $195 billion of usable resources, about $118 billion had been lent, 

committed, or reserved as working balances, leaving about $77 billion in 

liquid resources available for additional credit to International Monetary 

Fund members and to meet members' drawings on their reserve assets held 

by the Fund. The $77 billion in liquid resources gives the Fund a liquidity9

ratio of nearly 89 percent compared to the Fund's historical low liquidity 

ratio, which has ranged between 25 percent to 30 percent. Fund officials 

told us that its financial condition is adequate to meet the projected needs 

of its members until the next scheduled quota review in 2002.

The International Monetary Fund has not drawn from its working balance 

reserve in over 20 years, as of April 30, 1999. Consequently, its resources 

available for lending, as of April 30, 1999, may be greater than reported. In 

addition, the Fund has established a liquidity ratio between 25 percent to

30 percent as a threshold below which it believes it would be imprudent to 

lend.10 While a low-end liquidity threshold appears reasonable, we found no 

analytical basis for the minimum ratio used by the Fund. If the Fund's 

liquidity were to fall to a level considered too low, the Fund could under 

specified conditions supplement its resources by using its $46 billion in 

credit lines or by borrowing from sovereign governments, their central 

banks, or private entities. 

With the end of the gold standard in the early 1970s and the passage of the 

second amendment to the International Monetary Fund's Articles of 

Agreement in April 1978, gold's formal role in the Fund and in international 

currency transactions was eliminated. The Fund's gold holdings as of

8

The International Monetary Fund considers certain currencies and its gold holdings as 

unusable because they cannot be used to finance Fund transactions. Because the Fund 

holds substantial amounts of currencies of members that are indebted to the Fund and are 

experiencing balance-of-payments difficulties, and of other members whose financial 

positions are not strong, a considerable proportion of the Fund's national currency holdings 

is not considered usable. Quarterly, the Fund reassesses the financial strength and reserve 

positions of the members on the operational budget to determine if the members' currencies 

remain strong enough to be used or if other currencies have strengthened sufficiently to be 

included in Fund transactions.

9

The Fund's liquidity ratio is determined by dividing its available and uncommitted liquid 

resources by its liquid liabilities, which consist of members' reserve tranche positions and 

any outstanding Fund borrowings.

10The underpinnings for the Fund's liquidity threshold derives from its unique nature among 

the international financial institutions.
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April 30, 1999, had a market value of $30 billion. The Fund believes that its 

gold holdings add to the “fundamental strength” of its financial condition. 

In addition, the Fund views its gold holdings as being available to (1) meet 

creditors' claims on the Fund in the event of liquidation of the Fund, 

(2) replenish currency holdings if the Fund does not have sufficient liquid 

resources to meet members' drawings on their reserve tranche positions, 

and (3) use during contingencies and for its general operations. The 

International Monetary Fund continues to consider gold an important 

resource despite restrictions under the Articles of Agreement, which the 

Fund interprets as including the lack of authority to invest or manage its 

gold in order to earn an investment return. Moreover, although the Fund 

considers gold to be an important resource, there is a decreased 

willingness of some official institutions to hold gold. In 1995, the Fund 

examined the effect of selling its gold and investing the proceeds in 

interest-bearing financial instruments compared to the decision to hold its 

stock of gold. The decision to hold gold has resulted in tens of billions of 

dollars in forgone realized gains and investment income since 1980.

The International Monetary Fund has never formally adopted a method for 

determining members' initial quotas and subsequent quota increases 

because it believes that quantitative measures cannot fully reflect the 

considerations that appropriately bear on each member's position or on the 

total size of the Fund's resources. Thus, the Executive Board uses several 

factors, including the prospective demand for Fund resources, growth of 

world trade, and trends in the Fund's liquidity position, to decide on 

members' quota levels. Its decisions on quota increases are matters of 

judgment that involve quantitative, qualitative, and political considerations. 

Historically, quota increases have almost always been lower than the 

increase recommended by the Fund's staff. For example, Fund staff 

recommended a quota increase of 100 percent for the most recent review, 

but the Executive Board11 approved an increase of only 45 percent, after 

considering various factors, including whether member governments 

would support such a large increase. 

As part of its role in the international monetary system, the International 

Monetary Fund provides balance-of-payments assistance to members when 

needed. Since its establishment in 1945, the arrangements under which 

11The Fund's Board of Governors votes on the recommendation made by the Executive 

Board for the quota increase. The recommendation is approved upon an 85-percent 

weighted majority of the voting power.
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such assistance has been provided have evolved in response to changing 

world conditions and the needs of its member countries. This included a 

growth in the assistance provided, an expansion of the types of lending 

facilities12 used, and the addition of facilities with longer repayment 

periods. These changes came about to meet the needs of its members as 

the composition of the countries needing assistance moved from a mix of 

industrialized and developing countries to developing countries only. Since 

the late 1970s, there has been an increase in arrears, and the Fund has 

taken various measures that have reduced the number of countries in 

arrears to five as of April 30, 1999. In addition, there has been a greater 

concentration of the Fund's resources provided to a smaller number of 

countries since the late 1970s. As of April 30, 1999, about 86 percent of its 

outstanding loan portfolio had been provided to 10 countries.13 The Fund 

has increased its reserves for potential loan losses and adopted a program 

to share the cost of overdue obligations between debtor and creditor 

members.

The Year 2000 problem affects nearly every aspect of the international 

financial system—from the ability of internal systems that support 

International Monetary Fund operations to function properly to the ability 

of member nations to repay loans. While the Fund recognizes the 

importance of these actions and has taken steps to mitigate potential 

damage, it still faces some challenges in providing more complete 

assurance that its internal business processes will continue to function 

after the date change. Further, the Fund needs to complete its assessment 

of the impact of Year 2000 failures on the potential for increased demand 

for financing by its members.

Background The International Monetary Fund (IMF) was established in 1945 as a 

cooperative, intergovernmental, monetary and financial institution that 

sought to promote currency exchange stability, provide

balance-of-payments assistance, foster trade, and stimulate economic 

growth. Its initial membership of 39 member countries has grown to 182 

12The International Monetary Fund provides resources to its members from the General 

Resources Account up to a specified amount and during a specified period, provided that 

the member observes the terms established in the arrangement.

13Refer to appendix IV for details.
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members as of April 30, 1999. The IMF is managed by a Governing Board 

and a 24-member Executive Board, the IMF's primary decision-making 

body. The IMF's financial year ends on April 30 of each year, and its 

financial statements are audited annually by an external audit committee 

with assistance from an international public accounting firm. Although the 

Fund's financial statements are not bound by any national or international 

accounting principles, the IMF generally follows their concepts while 

taking into account the Fund's unique financial structure and operations. 

The key components of the IMF's financial operations are described in the 

following paragraphs.

Liquid Resources The IMF's liquid resources consist of Special Drawing Rights (SDR) and 

usable national currencies provided primarily from members' quota 

subscriptions. These resources are used to provide financial assistance to 

members with balance-of-payments problems. When a member borrows 

from the Fund, the country purchases the currency it needs from the IMF 

with an equivalent amount of its national currency. The member later 

repurchases its currency using SDR or other currency on terms established 

by the IMF. Because the Fund's financial assistance is in the form of 

currency purchases by member countries, it does not reduce the combined 

total of its currency holdings in terms of SDR equivalents; that is, the funds 

are not lent out.14 Instead, the composition of the IMF's currency holdings 

changes as “borrowers” replace the currency they purchase with their 

national currency. The relationship of the IMF's holdings of a member's 

national currency to the member's quota is an important one because it 

determines whether the member is a creditor, debtor, or in a neutral 

position with the IMF. With some exceptions, currencies of members who 

are creditors are considered usable by the IMF to finance transactions, 

while currencies of countries in a neutral borrowing or a debtor position 

are considered unusable by the IMF. 

Borrowing Authorization The IMF, in certain circumstances, has access to credit lines with groups of 

countries to finance lending to members and has activated these credit 

lines at various times in its history. Its principal credit lines are the General 

14The IMF considers its financing to low-income developing countries on concessional 

(below-market-interest-rate) terms to be lending. This lending is financed from a trust 

account, the Enhanced Structural Adjustment Facility (ESAF) Trust that is administered by 

the IMF outside of its General Department.
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Arrangements to Borrow (GAB), established in 1962, and the New 

Arrangements to Borrow (NAB), established in 1998. As of April 30, 1999, 

the combined amount available to the IMF was $46 billion under the GAB 

and the NAB. The IMF also has had other arrangements to borrow from 

governments and central bank sources. It has authority for private-sector 

borrowing but has never utilized this source of funds.

Gold Holdings The IMF holds about 103 million fine ounces of gold at designated 

depositories in four member countries.15 The IMF values its gold at SDR

35 per fine ounce (about $47 per fine ounce as of April 30, 1999), its value at 

the time of acquisition.16 Therefore, the gold holdings were valued on its 

balance sheet at SDR 3.6 billion (about $5 billion). However, the IMF 

reported in a footnote to its financial statements the market value of its 

gold holdings as of its financial year-end. On April 30, 1999, the market 

value of the IMF's gold holdings was about $30 billion. 

Members' Quotas Quotas are the membership dues that countries pay when they join the IMF 

and when there is an approved increase in such dues (a review of quotas is 

held every 5 years). Quotas comprise the bulk of the Fund's resources for 

providing financial assistance. Up to 25 percent of quotas must normally be 

paid in reserve assets, which are currencies that are freely usable in the 

principal foreign exchange markets (U.S. dollars, yen, euros, or the pound 

sterling) or SDR.17 The balance may be paid either in a country's domestic 

currency or with noninterest-bearing promissory notes.18 The portion paid 

in freely usable currency, or SDR, is referred to as the member's “reserve 

asset” or “initial reserve tranche position.”

15These gold holdings are held in the United States, the United Kingdom, France, and India 

and represent about 9 percent of the world's official gold holdings, as of March 1999.

16An exception is a small amount of gold (21,396 ounces) that Cambodia gave to the IMF in 

December 1992 in partial settlement of an overdue loan obligation. The IMF valued this 

amount at SDR 5.1 million (about $6.8 million as of April 30, 1999).

17Articles of Agreement, Art. III, Sec. 3(a).

18Articles of Agreement, Art. III, Sec. 4. These promissory notes are made payable to the IMF, 

are denominated in the member’s domestic currency, and are held by the member’s 

designated central bank or other designated depository. The IMF views these notes as fully 

equivalent to its currency holdings because the IMF can cash the notes on demand within

24 hours to receive members’ domestic currency. IMF members are obligated to maintain 

the SDR value of their quotas.
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The IMF's Liquidity 

Position

As of April 30, 1999, the IMF estimated that it had about $77 billion 

available to meet members' draws on their reserve tranche positions and 

future lending needs, giving it a liquidity ratio of nearly 89 percent. IMF 

officials told us that its liquid resources are adequate to meet its members' 

projected financing needs until the next quota review, which is scheduled 

to begin in 2002. In calculating its available resources, the IMF deducted 

$19 billion for the maintenance of a working balance reserve, which the 

Fund believed was needed to pay members in specified currencies. Our 

analysis, however, indicates that the Fund has not drawn from this working 

balance in over 20 years, as of April 30, 1999. Consequently, the IMF's 

available and uncommitted resources may have been understated as of that 

date. 

The Fund believes that it is necessary to maintain an amount of available 

and uncommitted resources that bears a reasonable relationship to its 

liquid liabilities to maintain the capacity of the Fund to meet its members' 

requests for their reserve positions. While the IMF does not consider its 

liquidity ratio to have a minimum level below which it should not fall, 

historically, the IMF has managed its resources in a way where this ratio 

has not fallen below 25 percent to 30 percent for an extended period. 

However, we found that the IMF had no formal methodology for deciding 

what the appropriate level should be; consequently, this threshold does not 

provide an analytical basis for determining whether the IMF's resources are 

constrained.

The IMF's Approach for 

Calculating Liquid 

Resources

To estimate the amount of its available and uncommitted resources, the 

IMF started with its total resources of about $287 billion as of April 30, 

1999. This amount was then reduced by the amount of the IMF's holdings of 

unusable resources−$92 billion as of April 30, 1999. The remaining 

$195 billion, or 68 percent, was considered usable by the IMF. These usable 

resources consisted of (1) holdings of currencies of members considered 

by the Executive Board to have sufficiently strong balance-of-payments 

and reserve positions for their currencies to be used in IMF operations and 

(2) the IMF's holdings of SDR. The IMF considered $92 billion of its 

resources to be unusable to finance its transactions because as of April 30, 

1999, they were 

• currencies of members that were using IMF resources and were 

therefore in a weak balance-of-payments or reserve position;
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• currencies of members with relatively weak external positions who may 

have drawn on their reserve tranche position but did not have 

outstanding loans from the IMF;

• gold holdings of the Fund that require an 85-percent vote by the 

Executive Board to be used and were not considered by the IMF as 

liquid resources; or 

• other nonliquid assets, such as buildings and facilities.

After subtracting the unusable portion from its total resources, the IMF 

further reduced total usable resources for the amount of credit already 

extended to members in order to determine its available and usable 

resources. The IMF then reduced its available and usable resources by the 

amount of its estimates for commitments made and the minimum working 

balance reserve, as indicated in table 1.

Table 1: Calculation of the IMF's Available and Uncommitted Resources as of

April 30, 1999

Note: SDR exchange rate = $1.35123 for April 30, 1999, data. 

a

This includes currencies of members with relatively weak external positions, the IMF's gold holdings, 

and other nonliquid assets.

b

Amounts do not add up due to rounding. The $77 billion in liquid resources gives the Fund a liquidity 

ratio of nearly 89 percent. The underpinnings for the IMF's liquidity threshold, which ranges between 

25 percent to 30 percent, derives from its unique nature among the international financial institutions.

Source: The IMF.

Commitments represent lending arrangements in place to member 

countries needing financial assistance. A lending arrangement is a decision 

of the IMF by which a member is assured that it will be able to make 

purchases (drawings) from the General Resources Account (GRA) up to a 

specified amount and during a specified period of time, provided that the 

U.S. dollars in billions

Total resources $287

Less: unusablea

 resources (92)

Total usable resources (before IMF extends credit) 195

Less: resources used (credit extended) (82)

Available and usable resources 114

Less: commitments (18)

Less: working balance reserve (19)

Available and uncommitted liquid resources $77b
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member observes the terms and conditions set out in the arrangement. 

Commitments reflect an estimate of undrawn loan balances through their 

expiration date (which can be up to 3 years) and 50 percent of 

precautionary arrangements.19

Deduction for Working 

Balances

The Fund's approach to estimating its available and uncommitted 

resources, as of April 30, 1999, included a deduction of $19 billion for 

maintaining a minimum working balance reserve. This working balance 

reserve is set at 10 percent of the quotas of members whose currencies are 

on the operational budget.20 According to the IMF, it needs this working 

balance reserve to provide its members with specific currency 

denominations as requested. However, our analysis indicates that the IMF 

has not used this working balance reserve in over 20 years.

According to the IMF, a working balance reserve is needed because of the 

Fund's potential commitment to pay in specific currencies: 

(1) remuneration21 to members, (2) payment commitments from IMF 

borrowing, and (3) requests from members who need foreign exchange to 

buy back their national currencies from other countries. However, we 

found that it was unlikely that the working balance reserve would be 

needed to meet these obligations. For instance, we found that since 1987, 

almost all members have requested that remuneration payments be made 

in SDR rather than in currencies. Members obtain a slightly higher level of 

earnings on their reserve tranche positions when they receive SDR rather 

than a specific currency as payment for remuneration because of the IMF's 

burden-sharing policy. (See app. IV for a description of burden-sharing.) As 

of April 30, 1999, the Fund held about $5 billion in SDR, which, according to 

19The IMF makes precautionary arrangements to assist members interested in boosting 

confidence in the economic management of their country. Under such an arrangement, the 

member agrees to meet certain conditions in exchange for access to the IMF's resources but 

expresses its intention not to draw although it retains the ability to do so. 

20The IMF does not publicly disclose the number of countries on its operational budget, but 

it tends to range between 20 to 35 countries. Quarterly, the IMF reassesses the financial 

strength and reserve positions of the members on the operational budget to determine if the 

members' currencies remain strong enough to be used or if other members' currencies have 

strengthened sufficiently to be included in IMF transactions.

21Remuneration is interest paid to a member for use of its currency.
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the IMF, can also be used for working balances.22 Thus, minimum working 

balances of specific currency denominations were not needed to pay 

remuneration as of April 30, 1999. 

In addition, the second purpose of maintaining a working balance reserve 

is to repay any borrowings by the Fund in the specific currency borrowed. 

When the IMF accesses its GAB or NAB credit lines, it borrows directly 

from the participant providing the credit line and receives the currency of 

the participant. The IMF is obligated to repay any resources drawn from 

these credit lines in the same currency it borrowed.23 Prior to 1998, the IMF 

had not activated its credit lines in 20 years. In July and December 1998, the 

IMF drew on the GAB and the NAB, respectively, borrowing about

$6 billion in members' currencies. However, in March 1999, the IMF repaid 

both the GAB and NAB borrowings using U.S. dollars, SDR, and other 

currencies without using the working balance reserve. 

Further, the IMF's third reason for maintaining a minimum working 

balance reserve is to provide particular currencies for special purposes, 

such as for a member to buy back balances of its national currency to 

intervene in currency markets under the Exchange Rate Mechanism 

(ERM).24 This could happen if a member needed to acquire its national 

currency from another member who held a significant amount of the 

member's currency.25 The last time that an industrial country made any 

reserve tranche position drawing for settlements under the ERM was in 

1988. In the event that a reserve tranche position drawing for an industrial 

country is needed, the IMF has up to $46 billion in resources from its credit 

22According to the IMF, its holdings of SDR were temporarily increased due to the recent 

quota increase and will be reduced to a target level between about $1.5 billion and $2 billion.

23“New Arrangements to Borrow, Paragraph 11, Repayment of the Fund.” Under the 

instrument creating the NAB, the IMF “shall” repay in the participant's currency whenever 

feasible, in SDR or, after consultation with the participant, in convertible currencies.

24The ERM was a feature of the European Monetary System (EMS) by which EMS members 

agreed to maintain the relative prices of their currencies within narrow limits. This was 

done by keeping each country's value in European Currency Units within an agreed range of 

par values.

25Articles of Agreement, Art. V, Sec. 3 (d). The member could then draw on its reserve 

tranche position and obtain from the IMF the currency of the other member. The member 

would use the other member's currency to purchase its own currency from that member. 

The end result would be that the purchasing member would in effect be reducing the supply 

of its currency held internationally and, thus, could strengthen its own currency.
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Page 15 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

lines to accommodate such a request provided the conditions for the use of 

the credit line have been met. 

Moreover, the IMF seeks to maintain a balance in the various types of 

currencies it holds to avoid the overuse of any particular currency. It does 

this by applying a systematic approach through its operational budget that 

allocates the specific currencies it plans to use to finance transactions and 

to receive for repayments. If a currency is overused, the IMF can 

discontinue use of this currency for disbursements and request that 

repayments be made in that currency to replenish the IMF's holdings of 

such currency to a level it considers acceptable. Due to this ability to 

manage the use and replenishment of specific currencies, the IMF is able to 

ensure that it retains sufficient levels of the various types of currencies it 

needs. 

The most recent instance in which the IMF was unable to provide one of its 

members with the specific type of currency it wanted was in 1978. Even 

though the minimum working balance reserve policy had been established 

at 5 percent of quotas and totaled about approximately $3 billion in 1978, 

the Fund did not have sufficient amounts of yen and deutsche marks to 

provide to the United States, which needed about $5 billion worth of those 

currencies to strengthen the U.S. dollar following its depreciation. To 

obtain the needed currencies, the United States sold the equivalent of

$2 billion of its SDR holdings and drew the equivalent of $3 billion from its 

reserve tranche position. Despite the IMF's policy, 5 percent of the quotas 

for Germany and Japan were not set aside as minimum working balances. 

Instead, the Fund provided yen and marks to the United States by 

activating the GAB credit lines with Japan and Germany. If in the future the 

IMF did not have enough of a specified currency on hand to meet a 

member's needs, the IMF could again activate its credit lines to obtain the 

specific currency denominations as it did in 1978. 

Basis for IMF's Liquidity 

Ratio Threshold

The IMF uses its liquidity ratio as a measure of the adequacy of its 

resources to meet members' financing needs, including a member's request 

to draw on its reserve tranche position. The IMF considers such a 

withdrawal to be the first claim on its resources, and as of April 30, 1999, 

this amounted to about $86 billion in potential claims, compared to

$77 billion in available, uncommitted resources. According to the IMF, 

while it is difficult to project the probability that a member will draw on its 

reserve tranche positions at any particular time, the IMF must be in a 

position to meet any member's request for use of its reserve tranche 
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Page 16 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

position.26 The IMF considers the likelihood that all of its liquid liabilities 

would be withdrawn over a short period of time to be relatively small. 

Between January 1999, when the quota increase went into effect, and April 

30, 1999, 92 developing countries withdrew their reserve assets from the 

IMF. Such withdrawals totaled about $3.6 billion. (See app. I for further 

details.) 

The Fund has managed its resources so that historically its liquidity ratio, 

the relationship between its available and uncommitted resources and its 

liquid liabilities, has not fallen below a 25-percent to 30-percent threshold 

for an extended period. The IMF uses the liquidity ratio as a benchmark of 

the adequacy of its resources. The IMF does not have a formal method to 

determine the appropriate minimum level of resources and the prevailing 

threshold was not based upon the IMF's analysis of variables that affect its 

liquidity. Such factors include members' historical reserve tranche 

drawings and/or forecasts of members' future reserve tranche drawings. 

Consequently, this liquidity threshold does not provide an analytical basis 

for determining whether the Fund's resources are, in fact, constrained. 

Moreover, the formula to calculate the liquidity ratio has changed four 

times in the last 20 years, further complicating the historical relevance of 

the ratio in IMF decision-making. (See fig. 1 for the IMF's liquidity ratio 

since 1978.)

26Articles of Agreement, Art. V, Sec. 3.
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Figure 1: Trends in the IMF's Liquidity Ratio, December 31, 1978-98, and April 30, 1999

Note: The liquidity ratios were calculated using the formula that was operational at each date. The 

numbers have not been adjusted to reflect a consistent methodology over time. The date of IMF quota 

increases are reported to help explain periods where the liquidity ratio rose rapidly. The underpinnings 

for the IMF's liquidity ratio threshold derive from its unique nature among the international financial 

institutions.

Source: The IMF.

IMF Borrowing and Credit 

Lines

Historically, the IMF has borrowed to supplement its liquidity, but only 

from official sources. This has included member countries and their central 

banks, one country that was not a member at the time the funds were 

borrowed (Switzerland) and its central bank, and the Bank for 

International Settlements.27 The Fund has not borrowed from private 

capital markets, although the IMF's Articles of Agreements permit it to do 

200

180

160

140

120

100

80

60

40

20

0

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 1999

30

Percent

April

Quota

increase Quota

increase

Quota

increase

Quota

increase

27The Bank for International Settlement is an organization of central banks that is based in 

Basle, Switzerland. It is the principal forum for consultation, cooperation, and information 

exchange among central bankers. 
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Page 18 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

so.28 According to the IMF, the preference for borrowing from official 

rather than private sources reflects the nature of the Fund as a cooperative, 

intergovernmental institution whose basic purpose was to facilitate the 

overall adjustment process by making surpluses of some countries 

available to deficit countries.

The GAB29 credit lines were established in 1962. The first drawing on the 

GAB was in 1964. In the 1970s, during periods of large payment imbalances, 

the IMF continued to use the GAB. In addition, the IMF began other official 

sector borrowings in the mid-1970s, and borrowing financed 45 percent to 

62 percent of IMF credit between 1974 and 1979 and between 40 percent 

and 50 percent between 1980 and 1985. Since 1985, there has been a 

substantial decrease in borrowing, and there was no new borrowing 

between 1992 and 1997. 

Borrowing resumed in July 1998, when about $2 billion was borrowed from 

the GAB to finance credit assistance to Russia. Also, in December 1998, 

about $4 billion was borrowed from the IMF's most recently established 

credit line, the NAB,30 in connection with a 3-year credit arrangement with 

Brazil. Both of these amounts were promptly repaid by the Fund in March 

1999, shortly after the IMF received funds from the recent quota increase. 

(See app. V for a more detailed description of IMF borrowing.)

The IMF's Gold 

Holdings

The IMF held a reserve of about 103 million fine ounces of gold with a 

market value of about $30 billion as of April 30, 1999.31 This gold was 

largely acquired through members' quota reserve payments that up until 

the early 1970s had to be made in gold. With the end of the gold standard in 

28Articles of Agreement, Art. VII, Sec. 1 (i). However, a member can object to its currency 

being borrowed from whatever source.

29The GAB is an arrangement of credit lines that the IMF maintains with the Group of 10 

Industrialized Countries (G-10) for use in emergencies. The G-10 originally comprised 10 

industrialized countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, 

Sweden, the United Kingdom, and the United States. Switzerland became the 11th member 

in 1984.

30The NAB is an enlarged version of the GAB with 25 members. Together, GAB and NAB had 

a combined total of about $46 billion as of April 30, 1999.

31As of August 30, 1999, the market value of the Fund's gold holdings had declined to about 

$26 billion.
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Page 19 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

the early 1970s and the passage of the second amendment to the IMF's 

Articles of Agreement in April 1978, gold's formal role in the IMF and 

international currency transactions was eliminated. While a formal role for 

gold no longer exists, current IMF policy stresses the importance of gold as 

a reserve for the IMF. In 1995, the IMF's Executive Board reviewed the 

IMF's position on holding gold as a reserve asset and established several 

governing principles for managing its gold reserves. These principles state 

that

• gold provides a “fundamental strength” to the IMF;

• gold provides operational maneuverability in the IMF's use of its 

resources and adds credibility to its precautionary balances;

• gold should be held to meet unforeseen contingencies; 

• the IMF has a responsibility to avoid disruption to the functioning of the 

gold market; and

• profits from gold sales should be retained and invested, and only the 

income from such investments should be used for agreed-upon 

purposes such as providing balance-of-payment assistance to 

developing nations.

The IMF continues to view gold as a valuable reserve asset despite events 

over the past 10 years suggesting that a consensus on this point among 

official holders32 has begun to weaken. Several official government holders 

of gold have sold a portion of their holdings, and an estimated 80 official 

holders have lent their gold to the private market to earn a return on their 

holdings. Since the mid-1970s, the Fund has only considered or allowed 

gold sales to support specific balance-of-payment or debt relief proposals. 

The “opportunity costs” associated with this policy are significant. For 

example, in 1995, the IMF examined the effect of its decision to hold its 

stock of gold. The decision to hold gold instead of selling it and investing 

the sales proceeds has resulted in tens of billions of dollars of foregone 

realized gains and investment income.

The Size and Value of the 

IMF's Gold Holdings 

The IMF values its gold at SDR 35 per fine ounce (about $47 per fine ounce 

as of April 30, 1999), its value at the time of acquisition. Therefore, the 

IMF's gold holdings were valued on its balance sheet at SDR 3.6 billion 

(about $5 billion). However, the IMF reported in a footnote to its financial 

32The United States, the official holder with the largest amount of gold reserves, continues to 

view gold as a valuable reserve asset.
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Page 20 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

statements the market value of its gold holdings as of its financial year-end. 

On April 30, 1999, the IMF estimated its gold had a market value of about 

$30 billion.

The IMF treats gold as a “nonliquid” resource that is generally not available 

to finance its operations. Gold is considered nonliquid by the IMF because 

mobilization of this resource must be approved by 85 percent of the 

Executive Board's total voting power. As a result of this fact and the length 

of time required to dispose of gold reserves without significantly disrupting 

the financial markets, gold cannot be easily used to meet near-term 

financial crises. 

The IMF has determined that ownership rights to the Fund's gold reside 

with the IMF.33 Under the IMF's Articles of Agreement, members may have 

residual rights to the gold in two instances: if the Fund elects to restitute34

gold to members or to liquidate the Fund. In the first instance, gold could 

be restituted to all countries that were members on August 31, 1975, based 

on their quotas at that time.35 In the latter case, gold may be distributed to 

members on the same basis after the Fund's liabilities have been satisfied.36

If the IMF elected to restitute its current stock of over 100 million fine 

ounces of gold, the United States would receive almost 24 million fine 

ounces of gold based on the formula described in the Articles.

The IMF's gold holdings have fluctuated over time, peaking in the 1972-75 

period when the Fund held a total of about 153 million fine ounces of gold. 

By 1980, the IMF's total gold holdings had dropped to the current level of 

103.4 million fine ounces.37 No sales of gold have occurred since May 1980. 

The IMF's gold holdings since the Fund's inception are shown in figure 2. 

The large increase in gold holdings between 1969 and 1970 (from about

66 million ounces to 124 million fine ounces) is due to the relatively large 

fifth general quota increase and the repurchase of gold that had been 

33IMF Executive Board, Dec. No. 170-3 (5/20/47).

34According to the IMF, the term "restitute" describes the sale of the IMF's gold holdings to 

members at the official price of SDR 35 per fine ounce instead of at market rates.

35Articles of Agreement, Art. V, Sec. 12 (e).

36Articles of Agreement, Schedule K.

37In 1992, the Fund accepted 21,396 fine ounces of gold from Cambodia as payment for 

repurchase obligations.
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Page 21 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

previously sold to the United States. Appendix II provides additional 

details on the sources and uses of the Fund's gold holdings.

Figure 2: The IMF's Gold Holdings, 1948-April 30, 1999

Source: The IMF's International Financial Statistics.

Trends in Gold Reserve 

Management Practices

For almost a 20-year period after the United States left the gold standard in 

1971, official holders of gold preferred to hold gold as a reserve asset rather 

than dispose of their gold holdings, including the United States, which has 

160

120

80

40

0

April

1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 1999

Millions of fine ounces
 B-283253

Page 22 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

monetized but not sold its gold holdings.38 Beginning in 1988, this 

consensus began to weaken among certain official holders, with the sale of 

official gold holdings by Canada.39 These sales were followed by gold sales 

and gold leasing by several additional countries, including the most recent 

sale of official gold by Great Britain in July 1999. Other sellers include 

Argentina, Australia, Belgium, the Czech Republic, and the Netherlands. In 

addition, a recently approved referendum in Switzerland, which removed 

the Swiss franc from the gold standard, has opened the possibility for a 

Swiss sale of an estimated 1,300 tons (about 42 million fine ounces) of gold, 

or over half of its national reserve.

An Estimate of the Cost of 

Holding Gold

The IMF has continued to examine various scenarios on the possible use of 

gold to produce income for the Fund taking into account its Articles, which 

place certain restrictions on the sale of gold. In addition, the IMF interprets 

its Articles as precluding the trading of gold by the Fund. According to one 

scenario, if the IMF sold 6 million fine ounces of gold each year from May 

1980 to December 1996 (when the stock of the IMF's gold would have been 

fully depleted), and the proceeds were invested in financial instruments 

yielding the SDR rate of interest, the IMF would have received tens of 

billions of dollars in realized gains and investment income. Since gold 

prices fluctuate and have declined since the mid-1990s, the Fund may 

realize less now if it sold its gold than it would have realized at an earlier 

date, but the amount would still be in the billions of dollars. 

Process for 

Determining the IMF's 

Quota Resources

The IMF's Eleventh General Review of Quotas began on August 9, 1995, and 

was completed on January 30, 1998, when the Board of Governors adopted 

a resolution proposing to increase the total of IMF quotas by 45 percent 

from SDR 146 billion to SDR 212 billion (about $288 billion). During this 

process, IMF staff provided quantitative analyses of various factors to the 

Executive Board for its consideration and recommended that the size of 

the quotas be increased by 100 percent as a result of those factors. IMF 

documents showed that the executive directors examined the staff's 

38The Secretary of the Treasury is authorized to issue gold certificates to the Federal 

Reserve, which then issues an equivalent credit (at the official price of gold) to a Treasury 

deposit account. The 1998 Financial Report of the United States notes that $11 billion of the 

U.S. gold reserves of 262 million fine ounces has been monetized in this fashion.

39Canada reduced its official gold reserve from 17 million ounces to 4 million ounces, 

between 1988 and 1995.
 B-283253

Page 23 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

analyses and recommendation but did not reveal any alternative analytical 

basis on which the Executive Board's recommendation to the IMF's Board 

of Governors for a 45-percent increase was made. From the early stage of 

the review process, most directors had favored a much higher increase 

than 45 percent and had maintained that position through April 1997. 

However, between June 1997 and September 1997, a consensus was 

reached among the executive directors on the 45-percent increase and on 

the manner in which the increase would be distributed. 

The IMF has never formally adopted a method for determining members' 

initial quotas and subsequent quota increases because it believes that 

quantitative measures cannot fully reflect the considerations that 

appropriately bear on each member's position or on the total size of the 

Fund's resources. Both the staff and the Executive Board have 

acknowledged that many of the factors that influence the size of the IMF's 

quotas are difficult to quantify. These factors include the prospective 

demand for IMF resources, the growth of world trade, and the trend in the 

IMF's liquidity position. In addition, the Executive Board takes into 

consideration the political feasibility of getting approval for the quota 

increase from the IMF's member governments. Consequently, the process 

for determining the size of the quota increase and the distribution among 

the IMF's members involves a great deal of judgment on the part of the 

Executive Board.

Although the distribution of quotas among the members determines the 

share of voting power in the IMF, the member's representation on the 

Executive Board, and the amount members can borrow from the Fund,40

these issues were not a major source of debate in the Eleventh General 

Review. Most of the executive directors had agreed early in the quota 

review process that the distribution should be predominantly 

equiproportional,41 thus maintaining the quota structure. However, there 

were considerable differences of opinion on the share of selective 

increases to be included in the total as well as on the distribution method to 

40The amount of funds that a member may borrow from the IMF is typically limited to a 

certain percentage of that member’s quota. 

41Equiproportional increases are allocated based on a uniform percentage for members 

participating in the review. They are allocated irrespective of members' relative positions in 

the world economy and by definition, tend to maintain historical shares in quotas.
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Page 24 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

be used.42 In the end, the quota structure remained essentially unchanged, 

and the Eleventh General Review's increase was distributed based on an 

equiproportional element of 75 percent, a selective element of 15 percent, 

and an ad hoc element of 10 percent.43 The selective element was 

distributed in proportion to members' shares, based on the quota 

calculations of IMF staff.44 The ad hoc element focused on those members 

whose quotas were farthest out of line with their relative economic 

positions. A discussion of the history of the IMF's quota review process is 

provided in Appendix III.

The Evolution of IMF 

Lending 

Since 1945, the IMF's GRA lending has evolved due to global events and to 

meet its member countries' needs. The GRA arrangements have expanded 

from short-term currency purchases for balance-of-payment problems to 

nine types of arrangements and facilities that have tended to have longer 

repayment periods. These changes came largely in response to the shift in 

the IMF's lending from a mix of industrialized and developing countries to 

developing countries only.

Developments in the IMF's 

Lending

As indicated in figure 3, industrial countries comprised about half of the 

total amount of the IMF's GRA outstanding credit from 1947 through 1977. 

However, industrial countries use of IMF resources decreased rapidly, and 

by 1988, all users of IMF resources were developing countries. The main 

cause of this change over time is that industrial countries developed 

increased access to funds provided by financial markets to satisfy their 

external financing requirements. However, many developing countries do 

42The various methods include: Method A, which allocates the selective element in 

proportion to members' shares in calculated quotas; Method B, which distributes the 

selective increase to only those members, or subset of members, whose shares in calculated 

quotas exceed their shares in present quotas; and Method C, which combines Method A with 

a technique providing for a further (selective) increase in quotas that becomes progressively 

larger as the discrepancy between the member's shares in calculated and actual quotas 

becomes larger.

43In a voluntary redistribution of quota shares, the quotas of France and the United Kingdom 

were equalized, as established in an agreement reached under the Ninth General Review, 

and there was a further reallocation of the quotas of Italy and Germany.

44The quota calculations are based on formulas, which take into account each member’s 

GDP, current payments and receipts, variability of current receipts, and reserves.
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Page 25 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

not have sufficient access to capital markets, particularly in periods of 

financial distress, and continue to rely upon the IMF for financial support.

Figure 3: IMF GRA Lending, 1947-99

Source: GAO analysis of IMF annual reports amounts adjusted to 1998 U.S. dollars.

Since 1947, the IMF's GRA lending has involved increasingly larger 

amounts of financial assistance in response to the needs of its members, as 

follows:

• From 1947 through 1975, the level of GRA lending was low and 

consisted primarily of currency purchases for balance-of-payments 

assistance, with many transactions paid in gold. The first lending peak 

of about $33 billion (in 1998 U.S. dollars) as of April 30, 1967, reflected a 

high demand for balance-of-payments assistance particularly by the 

United Kingdom, which accounted for about 55 percent of the 

outstanding GRA credit.

Billions of 1998 dollars

0

20

40

60

80

100

1947

1949

1951

1953

19551957

19591961

1963

1965

1967

1969

19711973

1975

1977

1979

1981

1983

1985

1987

1989

19911993

1995

1997

1999

Financial year

Industrial countries

Developing countries
 B-283253

Page 26 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

• From 1976 through 1982, the level of GRA lending was moderate, with 

an expansion of the types of lending facilities and the end of the gold 

standard in 1978. A second lending peak of about $54 billion (in 1998 

U.S. dollars) as of April 30, 1977, was due to Oil Facility loans made in 

response to the worldwide oil crisis of 1974-75, which accounted for 

about 33 percent of the outstanding GRA credit.

• Since 1983, the level of GRA lending has been high, with a further 

expansion of the types of lending facilities and several world events 

requiring extensive IMF economic assistance. This included a third 

lending peak of about $67 billion (in 1998 U.S. dollars) as of April 30, 

1985, for economic assistance to Latin America during its debt crisis of 

1983-90, which accounted for approximately 38 percent of the 

outstanding GRA credit. The fourth lending peak of $82 billion as of 

April 30, 1999, reflected a high demand for lending to Indonesia, Korea, 

and Thailand in response to the 1997 Asian financial crisis and large 

borrowings by Brazil, Mexico, and Russia. These six countries 

accounted for about 73 percent of outstanding GRA credit. 

Since 1947, the IMF has increased the number of its GRA lending 

arrangements and facilities in response to the increased demand for credit. 

This included an expansion of lending arrangements and facilities from 

currency purchases for short-term balance-of-payment problems to 

assistance for longer term structural balance-of-payment problems. Fund 

facilities grew to address shortfalls in export earnings, to finance oil 

purchases and other imports, to provide assistance to low-income 

countries, to fund the transition from centrally planned economies to 

market-based economies, and to give financing for exceptional balance-ofpayment problems that could threaten the international monetary system.

With the expansion of IMF lending facilities, repayment terms have also 

tended to lengthen. This was due to greater extended fund arrangements 

and assistance to countries in transition to market-based economies. An 

exception to this trend was the creation of the Supplemental Reserve 

Facility (SRF) in 1997, with a repayment period of between 1 and 2-1⁄2 years.

Lending Concentration, 

Borrowing Limits, and 

Arrears

As the IMF's lending has shifted exclusively to developing countries, its 

lending portfolio has become more concentrated among fewer borrowers. 

In addition, a number of borrowers have exceeded the IMF's normal limits 

permitting a member to borrow up to a certain percentage of the member's 
 B-283253

Page 27 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

quota.45 Further, some members have been unable to meet their obligations 

to the Fund when due. As indicated in figure 4, the percentage of the IMF's 

GRA lending held by the 10 largest borrowers has grown steadily since 

1983. The 10 largest users of IMF's GRA lending accounted for 55 percent 

of total GRA credit outstanding as of April 30, 1983. This percentage has 

steadily increased to 86 percent of total GRA credit outstanding as of

April 30, 1999, among the highest levels in IMF history. One country, Russia, 

a borrower since 1993, accounted for 21 percent of total GRA credit 

outstanding as of April 30, 1999. See appendix IV, table 6, for a further 

discussion of the 10 largest GRA borrowers from 1983 to 1999.

Figure 4: Growth in Use of IMF GRA Credit by the 10 Largest Users, 1983-99

Source: GAO analysis of IMF annual report data.

45Current rules governing the use of the IMF’s GRA lending permit an IMF member to 

borrow an amount equal to 100 percent of its quota per year, with a cumulative limit of

300 percent, unless exceptional circumstances exist.

40

50

70

90

60

80

100

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Financial year

Percent
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Page 28 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

The limits as to the amount of funds that a member may borrow from the 

IMF were last changed in 1994, when the yearly limit on borrowing was 

increased from 68 percent of quota to 100 percent. In the past 4 years, the 

IMF has provided financing to five large developing countries that have 

experienced financial crises. This financing was in amounts that were all 

well in excess of the IMF's limit on cumulative borrowing (see table 2).

Table 2: IMF Borrowing Arrangements That Exceeded 300 Percent of Quota, as of 

April 30, 1999

Source: GAO analysis of IMF data.

IMF officials have stated that the IMF has never had a lending default or 

write-off since its inception. However, since 1983, 15 IMF members have 

been unable to meet their obligations to the GRA when due.46 Prior to this 

time, only Cambodia had experienced protracted arrears to the Fund. 

Arrears totaled about $26 million from one member as of April 30, 1983, and 

reached a high of $4.5 billion from nine members as of April 30, 1992. In 

response to this situation, the IMF took various measures intended to 

reduce arrearages, increase repayments, and protect the Fund's financial 

position. These measures included

• declaring members ineligible for further lending until arrears are 

cleared,

Dollars in billions

Member

Arrangement

date

Amount of

arrangement

Percent

of quota

Mexico 1995 $17.9 688

Thailand 1997 3.9 500

Indonesia 1997-98 11.4 557

Korea 1997 21.0 1940

Brazil 1998 18.3 600

46The 15 countries are Cambodia, Guyana, Vietnam, Liberia, Sudan, Peru, Zambia, Sierre 

Leone, Somalia, Honduras, Panama, Democratic Republic of Congo, Haiti, 

Bosnia/Herzegovina, and Serbia/Montenegro. See appendix IV for additional details 

regarding these countries' arrears.
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Page 29 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

• adopting a burden-sharing mechanism that created additional funds to 

share the cost of overdue obligations to the IMF between debtors and 

creditors,

• developing a Strengthened Cooperative Strategy (including a rights 

accumulation program)47 that included communications with 

international financial institutions if a member fails to fulfill its financial 

obligations to the Fund, 

• issuance of a public declaration of noncooperation48 when a member 

does not actively cooperate with the Fund, 

• suspending the voting rights of members in arrears to the Fund, and

• requiring compulsory withdrawal of members from the IMF who fail to 

clear their arrears.

Due to the measures taken by the IMF and through financial assistance 

provided by some countries, as of April 30, 1999, only five members were in 

arrears to the GRA, owing about $2.8 billion.49 In addition, none of the other 

10 members formerly in arrears have incurred any subsequent arrears. The 

principal amount owed by these five members of about $1.5 billion 

constituted less than 2 percent of the IMF's GRA credit outstanding as of 

April 30, 1999. Additionally, four of these members were declared ineligible 

for further IMF lending,50 three were issued declarations of 

noncooperation,51 two have had their voting rights suspended,52 and one 

member is under consideration for compulsory withdrawal from the Fund 

as of April 30, 1999.53

47The rights accumulation program enables a member to accumulate rights to draw upon the 

IMF's resources after clearing its arrears and is limited to the 11 countries in protracted 

arrears as of the end of 1989. (See app. IV for a further discussion of the IMF's burdensharing mechanism.)

48A declaration of noncooperation is a prelude to suspending the member’s voting rights.

49The five countries are Congo (DRC), Liberia, Somalia, Sudan and the portion of the former 

Yugoslavia pertaining to Serbia/Montenegro.

50The four countries are Congo (DRC), Liberia, Somalia, and Sudan.

51The three countries are Congo (DRC), Liberia, and Sudan. In August 1999, the IMF lifted 

the declaration of noncooperation for Sudan.

52The two countries are Congo (DRC) and Sudan.

53The country is Sudan.
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Page 30 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

In response to its problems with arrears, the IMF increased its reserves for 

potential loan losses, known as “precautionary balances,” from about

$1.1 billion as of April 30, 1983, to about $6.2 billion as of April 30, 1999. 

This included the adoption of “burden- sharing” in 1986 as a system of 

providing resources to increase precautionary balances to share the cost of 

overdue obligations between debtor and creditor members.

Status of the IMF's and 

Its Members' Year 2000 

Computer Compliance

The Year 2000 problem could affect nearly every aspect of the international 

financial system—from the ability of internal systems that support IMF 

operations to function properly to the ability of member nations to repay 

loans. While the IMF recognizes the importance of the impact that the 

problem may have on its mission-critical systems and has taken steps to 

mitigate potential damage, it still faces some challenges in providing more 

complete assurance that its internal business processes will continue to 

function after the date change. Further, IMF needs to complete its 

assessment of the impact of Year 2000 failures on the potential for 

increased demand for financing by its members.

IMF's Internal System 

Status

IMF officials stated that they have identified three systems as being mission 

critical54 and believe that all three will be Year 2000 compliant by January 1, 

2000. IMF is currently working on developing contingency plans for all 

three systems and expects to have them complete by the end of September 

1999. Our Year 2000 business continuity and contingency planning 

guidance—also adopted by Office of Management and Budget—stresses 

the importance of good business continuity plans to minimize the risk of 

system failures on core business processes. We recommended that such 

plans be prepared by April 30, 1999, and tested by September 30, 1999. 

While the Fund states that it is on target to test the plans by September 30, 

these plans may not account for all key processes. For example, Fund 

officials told us that the IMF has not completed assessment of its “userdeveloped systems” to determine which, if any of these systems, generate 

data for input into the mission-critical systems. However, they plan to 

complete this assessment and report on the results before the end of the 

year. By completing the assessment so late in the year, IMF will not be fully 

54These systems include the financial and administrative system, the member country 

account system and the payroll system.
 B-283253

Page 31 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

aware of any problems until after the date change—too late to take 

preemptive action. 

Member Nation Assessment The IMF has only recently started to assess the Year 2000 status of its 182 

member nations, and the impact that any problems faced by these 

members may have on IMF operations. Such problems could range from 

isolated failures in individual computer systems to larger, more debilitating, 

failures of critical infrastructure processes affecting transportation, public 

utilities, or financial operations. Such failures could in turn generate 

demand for additional financing and/or extensions in IMF repayment 

terms. 

The IMF was slow in recognizing the potential impact and, in turn, was 

slow to initiate such an assessment. Officials told us that IMF delayed 

action because it believed that the issue was best addressed by the World 

Bank because it was better positioned to provide technical assistance. 

However, after the Fund conducted a Year 2000 seminar of the importance 

of member countries' compliance in April 1999, IMF officials became 

convinced that there were economic issues involved that could impact the 

Fund. Shortly afterward, an IMF-World Bank team was established to 

identify the countries that will not be compliant, the resulting impact on the 

IMF, and the contingency plans for worst-case scenarios. IMF officials do 

not know when the team will complete its work but do expect an interim 

report in the near future. 

Depending on the results of the study, the late start by the IMF-World Bank 

team could limit the Fund's ability to effectively plan for actions that could 

limit the impact on its existing loan portfolio and position the IMF to offer 

more financial assistance to impacted nations. 

Agency Comments and 

Our Evaluation

We requested comments on a draft of this report from the Department of 

the Treasury and from the International Monetary Fund. A senior Treasury 

official provided oral comments on behalf of Treasury and the IMF. These 

comments characterized our report as providing a comprehensive 

examination of the significant issues affecting IMF's financial condition 

that should be informative and useful to most readers. In addition, both the 

IMF and the Treasury provided technical and clarifying comments, which 

we incorporated where appropriate.
 B-283253

Page 32 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

We are sending copies of this report to the Honorable Lawrence Summers, 

Secretary of the Treasury; the Honorable Madeleine K. Albright, Secretary 

of State; the Honorable Jacob Lew, Director, Office of Management and 

Budget; and the Honorable Michel Camdessus, Managing Director, IMF. 

Copies will be made available to others upon request. 

This report was prepared under the direction of Harold J. Johnson, 

Associate Director, International Relations and Trade Issues, and Gary T. 

Engel, Associate Director, Governmentwide Accounting and Financial 

Management Issues. Please contact either Mr. Johnson at (202) 512-4128 or 

Mr. Engel at (202) 512-8815 if you or your staff have any questions about 

this report. Other key contacts and staff acknowledgments are in

appendix VII.

Henry L. Hinton, Jr. 

Assistant Comptroller General

National Security and International Affairs Division

Jeffrey C. Steinhoff

Acting Assistant Comptroller General

Accounting and Information Management Division 
 B-283253

Page 33 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

List of Congressional Committees

The Honorable Jesse A. Helms

Chairman

The Honorable Joseph R. Biden, Jr.

Ranking Minority Member

Committee on Foreign Relations

United States Senate

The Honorable Ted Stevens

Chairman

The Honorable Robert C. Byrd

Ranking Minority Member

Committee on Appropriations

United States Senate

The Honorable Jim Leach

Chairman

The Honorable John J. LaFalce

Ranking Minority Member

Committee on Banking and Financial Services

House of Representatives

The Honorable C.W. Bill Young

Chairman

The Honorable David R. Obey

Ranking Minority Member

Committee on Appropriations

House of Representatives
Page 34 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Appendix I

The IMF's Liquid Resources and Liquidity Apendxies

Position ApendxiI

The liquid resources of the International Monetary Fund (IMF) consist of 

national currencies and Special Drawing Rights (SDR).1

 Not all of the 

national currencies held by the IMF are usable all the time (that is, strong 

enough to be lent to other members). As of April 30, 1999, of the IMF's 

$287 billion in resources, $195 billion (68 percent) was considered usable 

by the IMF. National currencies constituted $190 billion of usable 

resources, and the IMF's SDR holdings made up the remainder.2 The IMF 

monitors the usability and actual use of the currencies through semiannual 

liquidity reviews and through its quarterly operational budget. Currencies 

are selected for the operational budget on the basis of an assessment of 

each member, using a range of indicators including members' balance of 

payments, members' reserve positions, and developments in exchange 

markets. As of April 30, 1999, the United States was the single largest 

contributor of usable resources, contributing 26 percent (about $51 billion) 

of the IMF's total usable resources. 

Over the past 20 years, the amounts of the IMF's usable and unusable 

resources have varied, as indicated in figure 5. Usable resources over the 

period averaged about 60 percent of total resources, with a significant 

portion coming from the G-10.3

 During this period, the United States was 

the major contributor of usable resources, except during 1978 and 1979 

when the dollar was not considered strong enough to be used to finance the 

IMF's transactions and, accordingly, was excluded from the IMF's 

operational budgets.4

1

The SDR is a reserve asset that IMF has used since 1969. Its value comprises a weighted 

average of the values of four currencies: the U.S. dollar, yen, euros, and pound sterling. 

Because the value of the SDR relative to these currencies changes daily, the U.S. dollar value 

of amounts converted from SDR also changes daily. The SDR is the unit of account for the 

Fund.

2

SDR can be held by, but not allocated to, the General Resources Account (GRA) of the IMF. 

The GRA receives SDR in partial payment of quotas, from charges on the use of IMF 

resources, and from repurchases. 

3

The G-10 originally comprised 10 industrialized countries: Belgium, Canada, France, 

Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States. 

Switztzerland became the 11th member in 1984.

4

Following the depreciation of the U.S. dollar in the fall of 1978, the United States mobilized 

resources, including $5 billion from the IMF, to defend the dollar.
Appendix I

The IMF's Liquid Resources and Liquidity 

Position

Page 35 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Figure 5: The IMF's Usable and Unusable Quota Resources, End of Calendar Years 1978-98 and April 30, 1999

Source: GAO analysis of IMF data.

Members' Use of 

Reserve Tranche 

Position From the 

Latest Quota Increase

Table 3 identifies 92 countries that, by April 30, 1999, had withdrawn their 

entire $3.6 billion of reserve tranche contributions from the January 1999, 

quota increase. This withdrawal reduced by about 17 percent the amount of 

usable resources obtained through contributions of reserve assets from the 

most recent quota increase. 

100

90

80

70

60

50

40

30

20

10

0

Percent

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

April 1999

United States usable

Other G-10 usable

Other countries usable

Unusable
Appendix I

The IMF's Liquid Resources and Liquidity 

Position

Page 36 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

The IMF's Eleventh General Review's quota increase of $89 billion became 

effective in January 1999. As of April 30, 1999, $84 billion had been paid by 

members, including 25 percent in usable currencies or SDR, totaling about 

$21 billion. Included in this amount were the 92 developing countries that 

had paid their quota subscription of about $14 billion, including 25 percent 

in reserve assets of usable currencies or SDR, totaling about $3.6 billion. 

Between January 1999, when the Eleventh General Review quota became 

effective, and April 30, 1999, these 92 members withdrew the entire

$3.6 billion of usable currencies or SDR, replacing them with their national 

currencies. 

Table 3: Eleventh General Review's Quota Increase and Related Reserve Tranche Drawings Through April 30, 1999, for Certain 

Members

Dollars in millions

Country

Eleventh General Review's

quota increase

Reserve tranche contribution and withdrawal

(25 percent of quota increase)

Angola $107 $27

Antigua & Barbuda 7 2

Argentina 784 196

Azerbaijan 59 15

Bangladesh 190 48

Belarus 143 36

Benin 22 6

Bolivia 61 15

Bosnia & Herzegovina 65 16

Brazil 1,169 292

Bulgaria 237 59

Burkina Faso 22 5

Burundi 27 7

Cambodia 30 8

Cameroon 68 17

Cape Verde 4 1

Central African Republic 20 5

Chad 20 5

Comoros 3 1

Congo, Republic of 36 9

Cote d'Ivoire 118 29

Continued
Appendix I

The IMF's Liquid Resources and Liquidity 

Position

Page 37 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Croatia $ 140 35

Czech Republic 310 78

Dominican Republic 81 20

Ecuador 112 28

El Salvador 62 15

Equatorial Guinea 11 3

Eritrea 6 1

Ethiopia 48 12

Gabon 59 15

Gambia, The 11 3

Georgia 53 13

Guinea 38 10

Guinea-Bissau 5 1

Guyana 32 8

Iran, Islamic Republic of 566 141

Jamaica 98 25

Jordan 66 16

Kazakhstan 160 40

Kenya 97 24

Kiribati 2 1

Kyrgyz Republic 33 8

Latvia 48 12

Lesotho 15 4

Lithuania 55 14

Macedonia, former Yugoslav Republic of 26 7

Madagascar 43 11

Malawi 25 6

Mali 33 8

Mauritania 23 6

Mexico 1,125 281

Moldova 45 11

Mongolia 19 5

Mozambique 40 10

Myanmar 99 25

Nepal 26 7

Dollars in millions

Country

Eleventh General Review's

quota increase

Reserve tranche contribution and withdrawal

(25 percent of quota increase)

Continued from Previous Page
Appendix I

The IMF's Liquid Resources and Liquidity 

Position

Page 38 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Nicaragua $ 46 11

Niger 24 6

Nigeria 637 159

Pakistan 372 93

Palau 1 a

Panama 77 19

Papua New Guinea 49 12

Peru 233 58

Philippines 333 83

Romania 373 93

Russian Federation 2,206 551

Rwanda 28 7

Sao Tomé & Príncipe 3 1

Samoa 4 1

Senegal 58 14

Seychelles 4 1

Sierra Leone 36 9

Slovak Republic 135 34

Solomon Islands 4 1

South Africa 680 170

St. Kitts and Nevis 3 1

St. Lucia 6 1

Syrian Arab Republic 113 28

Tajikistan 36 9

Tanzania 70 18

Thailand 686 172

Togo 26 6

Trinidad & Tobago 120 30

Uganda 63 16

Ukraine 506 127

Uzbekistan 103 26

Vanuatu 6 2

Vietnam 118 30

Yemen, Republic of 91 23

Zambia 170 42

Dollars in millions

Country

Eleventh General Review's

quota increase

Reserve tranche contribution and withdrawal

(25 percent of quota increase)

Continued from Previous Page
Appendix I

The IMF's Liquid Resources and Liquidity 

Position

Page 39 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

a

Less than $1 million.

Note: SDR exchange rate = $1.35123 as of April 30, 1999.

Source: GAO analysis of IMF's International Financial Statistics.

Zimbabwe $ 124 31

Total $14,348 $3,587

Dollars in millions

Country

Eleventh General Review's

quota increase

Reserve tranche contribution and withdrawal

(25 percent of quota increase)

Continued from Previous Page
Page 40 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operationss

Appendix II

The IMF's Gold Holdings ApendxiI

From the IMF's inception through the passage of the second amendment to 

the IMF's Articles of Agreement in 1978, gold played an important role in 

the Fund's operations and the operations of the international monetary 

system. However, with the end of the gold standard in the early 1970s and 

the passage of the IMF's second amendment in April 1978, gold's formal 

role in the IMF and international currency transactions was eliminated.1 

Among other changes, the second amendment abolished the official price 

for gold, eliminated its use as the common denominator in the par value 

system,2 and removed the obligatory use of gold in transactions between 

the IMF and its members. The second amendment anticipated a greatly 

diminished role for gold while seeking to promote an enhanced role for the 

SDR, which was intended to replace gold as the world's principal reserve 

asset.3

The Articles of Agreement specify that, based on an 85-percent majority 

vote of the total voting power of the Executive Board, the IMF may sell its 

gold and it may accept gold, at market prices, in discharge of members' 

obligations to the Fund.4 According to an IMF official, the Fund is not 

authorized to engage in any other gold transactions—including loans, 

leases, or use of gold as collateral—because these uses are not expressly 

allowed under the Articles of Agreement. More specifically, IMF documents 

note that the Articles of Agreement permit only the transfer of ownership 

rights to the gold for a price. According to IMF officials, because loans, 

leases, swaps, or the use of gold as collateral do not require a permanent 

transfer of ownership rights, they are not permitted under the Articles of 

Agreement. 

1

In August 1971, the United States announced that it would no longer buy and sell gold at the 

official rate. This announcement was followed by the effective breakdown of the Bretton 

Woods par value system, with the devaluation of the U.S. dollar in December 1971, and by 

the generalized floating of exchange rates in March 1973.

2

Before the breakdown of the Bretton Woods system in the early 1970s and the subsequent 

amendment of the Articles, the value of each member's currency was expressed in terms of 

gold (par value) or against the U.S. dollar, which was convertible to gold at $35 per fine 

ounce.

3

In the face of the development of worldwide currency exchange markets, the SDR has 

never achieved the preeminence anticipated by the IMF.

4

Articles of Agreement, Art. V, Sec. 12(b)
Appendix II

The IMF's Gold Holdings

Page 41 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operationss

When the IMF sells gold, the original capital value of the gold of SDR 35 per 

fine ounce is deposited in the GRA5 and becomes immediately available for 

the general operations of the IMF. Gold sale profits (that is, the sale price 

above the capital value of the gold) are generally deposited in a separate 

account, called the Special Disbursement Account (SDA),6 which provides 

the primary financial framework for handling such profits. Gold sale profits 

in the SDA may be transferred to specialized accounts (such as the 

Enhanced Structural Adjustment Facility-Heavily Indebted Poor Country 

(ESAF-HIPC) Reserve Trust Account) or they may be transferred to the 

GRA for use in the IMF's general operations.7

Specifically, the Articles of Agreement state that, based on majority votes 

by the Executive Board, assets held in the SDA may be used8

• to make transfers to the GRA for immediate use in the IMF's operations 

(70 percent of total voting power required);

• for operations and transactions that are not authorized by other 

provisions of the Articles of Agreement but are consistent with the 

purposes of the IMF, including balance-of-payments assistance to 

developing members (85 percent of total voting power required);

• for proportionate distribution of resources authorized for the purpose of 

providing balance-of-payments assistance to those developing members 

that were members on August 31, 1975, based on their respective quotas 

on that date (85 percent of total voting power required); and

5

Articles of Agreement, Art. V, Sec. 12(f). Most transactions between member countries and 

the IMF take place in the GRA. This account handles, among other transactions, the receipt 

of quota subscriptions, purchases and repurchases, interest payments to members, and 

repayments of principal to the IMF's lenders.

6

Articles of Agreement, Art. V, Sec. 12(f). The Special Disbursement Account is established 

to receive and invest profits from the sale of IMF's gold (that is, the net proceeds in excess 

of the book value of SDR 35 per fine ounce); and make transfers for special purposes 

authorized in the Articles of Agreement. As of April 30, 1999, the balance in the SDA totaled 

about $924 million.

7

Articles of Agreement, Art. V, Sec. 12(f) (i to iii). In June 1999, the Group of Seven (G-7) 

countries proposed in Cologne, Germany that the IMF to sell up to 10 million fine ounces of 

its gold holdings and to use the investment income from those profits to help finance the 

IMF's contribution to poor country debt relief. The G-7 consists of the seven major 

industrial countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the 

United States) that consult on general, economic, and financial matters.

8

Articles of Agreement, Art. V, Sec. 12(f).
Appendix II

The IMF's Gold Holdings

Page 42 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operationss

• to transfer SDA resources to the investment account (85 percent of total 

voting power required).9

Resources in the SDA, investment account, and specialized trust fund 

accounts (such as the ESAF-HIPC Reserve Trust Account) may be invested 

in income-producing securities of members or of international financial 

organizations.10

Gold Acquisition 

Sources and Uses

The IMF acquired almost all of its gold prior to January 1, 1974, through a 

variety of means. The highest amount of gold holdings occurred in the

mid-1970s, when the IMF held 153 million fine ounces of gold.

Specific acquisition sources for the IMF's gold holdings include the 

following:

• Quota subscriptions. The original Articles of Agreement prescribed that 

25 percent of initial quota subscriptions and quota increases were 

normally to be paid in gold. This represented the largest source of the 

IMF's gold holdings.

• Payment of charges. Originally, all charges, that is, interest on members' 

outstanding use of IMF credit, were normally payable in gold.

• Repurchases. Members were permitted—and in some circumstances 

could be required—to use gold to repay the IMF for credit previously 

extended.

• Purchases. A member wishing to obtain the currency of another 

member could acquire it by selling gold to the IMF. 

From 1976 through 1980, the IMF reduced its gold holdings by one-third but 

has not disposed of any gold since then. Sales of gold on the open market 

or restitution of gold to the members has been used for a variety of 

purposes, such as the following: 

9

Articles of Agreement, Art. V, Sec. 12(g). The IMF has never activated the investment 

account because, according to IMF officials, the Fund has not had the available excess 

liquidity allowing for the transfer of such resources to the investment account.

10Articles of Agreement, Art. V, Sec. 12(h).
Appendix II

The IMF's Gold Holdings

Page 43 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operationss

• Sales for replenishments. On several occasions in the late 1950s and in 

the 1960s, the IMF sold gold to replenish its holdings of usable 

currencies. 

• Sales to offset operating deficits. To generate income to offset 

operational deficits, the IMF sold gold to the United States and invested 

the proceeds in U.S. government securities. A significant buildup of 

reserves through income from charges to members prompted the IMF to 

reacquire the gold from the U.S. government in the early 1970s.

• Gold auctions. Between April 1976 and May 1980, the IMF disposed of 25 

million fine ounces of gold to finance an IMF trust fund, which was 

created in 1976 to support concessional lending by the IMF to

low-income countries. 

• Restitution of gold to members. Between 1977 and 1980, the IMF 

restituted a total of 25 million fine ounces of gold, in four annual 

installments, to members in proportion to their quota shares as of 

August 31, 1975. For the United States, this translated into the 

acquisition of 5.74 million fine ounces of gold.
Page 44 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Appendix III

The IMF's Quota Reviews ApendxiI

Since the inception of the IMF in 1945, total quotas have grown 

substantially—from about $7 billion to about $288 billion currently. There 

have been 11 general reviews of quotas, as well as a special review in 1959. 

Of the 12 reviews, 8 have resulted in increases in total IMF quotas. IMF staff 

recommendations1

 for quota increases have been primarily based on 

formulas and have been generally significantly higher than the quota 

increases approved by the Board of Governors. The Executive Board has 

not generally relied on formulas in its decisions in prior quota reviews, but 

rather has primarily depended on various factors, including the IMF's 

liquidity and the needs of the IMF's members. 

The Growth in IMF 

Quotas

IMF quotas have risen as a result of increased membership,2 eight general 

quota increases since 1959, and several special and ad hoc increases in 

quotas of individual members outside of the general reviews. Figure 6 

shows the growth in IMF quotas in constant 1998 dollars for the United 

States, other industrial countries, and developing countries over the period 

1948 to April 30, 1999. During this period, the annual average real growth in 

quotas was about 2 percent. For the United States the annual average real 

growth was about 0.7 percent, compared to about 1.8 percent for other 

industrial countries and about 3.2 percent for developing countries. While 

inflation has eroded the purchasing power of quotas during certain periods, 

particularly in the 1970s and 1980s, quota increases have tended to restore 

the purchasing power of quotas. However, the quota increases under the 

sixth and seventh general reviews, each of which became effective 2 years 

after approval, did not restore the quota's purchasing power to the 1970 

level.

1

The IMF's staff recommendations included comments from IMF's Managing Director.

2

There were 30 members of the Fund as of December 31, 1945. On March 8, 1946, the Board 

of Governors adopted a resolution extending the period from December 31, 1945, to 

December 31, 1946, in which countries could join as original members. As a result, there 

were 39 original members with total quotas of about $7 billion.
Appendix III

The IMF's Quota Reviews

Page 45 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Figure 6: IMF Quota Resources, 1948−April 30, 1999

Note: Quota values are expressed in 1998 dollars using the average 1998 dollar SDR exchange rate 

and an SDR price deflator.

Source: GAO analysis of IMF data.

300

250

200

150

100

50

0

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

April 1999

Billions of 1998 dollars

1st 

General

Review

1950

2nd

General

Review

1955

Special

Review

1959

4th

General

Review

1965

5th

General

Review

1970

6th

General

Review

1976

7th

General

Review

1978

8th

General

Review

1983

9th

General

Review

1990

10th

General

Review

1995

11th

General

Review

1998

3rd

General

Review

1960

Developing countries

Other industrial countries

United States
Appendix III

The IMF's Quota Reviews

Page 46 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Comparison of Staff's 

Recommendations and 

the Board of 

Governors' Approved 

Quota Increases

From our review of IMF documents,3 we have determined that the staff's 

recommendations for quota increases were generally significantly higher 

than the quota increases that were approved by the Board of Governors. As 

shown in table 4, in five reviews the staff recommended increases of as 

much as 100 percent, but the final approved increases ranged from zero to 

about 51 percent. For two reviews (the Special and Third Reviews), the 

Fund was not able to provide us with the staff's recommendations. In the 

remaining five reviews, while the staff did not always quantify the 

increases, its emphasis was that there should be a sizable general increase 

as well as selective increases to bring members' quotas more in line with 

their relative economic size. 

The predominant factor guiding the staff's recommendations for a more 

enlarged IMF was the amounts derived by the quota formulas (see table 4 

column 2). These formulas calculate the size of the IMF that is consistent 

with the growth in the world economy. However, it has been the position of 

executive directors that there is no single measure of the size of the world 

economy or indicators that are optimal for determining the size of the 

increase in quotas. Consequently, the results derived by the quota formulas 

have not had a significant bearing on the final decision on the appropriate 

size of the IMF.

3

We did not review most official Committee of the Whole on Review of Quota's documents 

for prior quota reviews, as was done for the Eleventh General Quota Review. The majority of 

the information pertaining to the prior reviews was taken from the IMF's historical 

publications.
Appendix III

The IMF's Quota Reviews

Page 47 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Table 4: General Reviews of IMF Quotas

Review/Date

Quota increase 

suggested from 

formulas

Recommended 

quota increase 

from IMF staff 

Final decision

by Board of

Governorsa

Percentage real

growth in approved

quotasb

Some reasons cited 

for increase or no 

increase in quotas

First Review

1950

N/A 100% 0% -24% N/A

Second Review

1955

N/A Graduated scale of 

revisionc

0% -4% Quotas were 

considered large and 

had remained relatively 

unused.

Special General 

Increase 

1959

N/A N/A 60.7% 46% Growth in the world 

economy. 

Large amount of IMF 

drawings and 

arrangements.

Third Review

1960

N/A N/A 0% -1% N/A

Fourth Review

1965

N/A 50% plus selective 

increases to reduce 

disparities in the 

quotas of some 

members.

30.7% 30% Concerns over a 

possible deficiency in 

international liquidity. 

Address some 

members' larger 

positions in the world 

economy.

Fifth Review

1970

N/A A general increase 

of reasonable size.

35.4% 11% To better reflect some 

members' stronger 

economic positions.

Reduce IMF's reliance 

on borrowing.

Sixth Review

1976

75% 70-100% 33.6% -14% Emerging high balanceof-payment deficits. 

Better reflect some 

members' stronger 

economic positions.

Reduce IMF's reliance 

on borrowing.

Seventh Review

1978

90% 75-100% 50.9% 31% Many members with 

small quotas reluctant 

to ask the Fund for 

assistance because of 

their limited access to 

credit. Reduce IMF's 

reliance on borrowing.

Continued
Appendix III

The IMF's Quota Reviews

Page 48 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

N/A = Not Available. Information was not provided by the Fund or was not available in the Fund's public 

documents.

Note: Table reflects reviews where some information was available on suggested increases by IMF 

staff. 

a

Percentage increases of Board of Governors reflect overall increases at the date the quota increase 

was adopted. 

b

A GAO-constructed SDR deflator is used to calculate real growth in approved quotas.

c

Graduated scale of revision is defined as revisions diminishing with the size of the quota, with the 

quota increase proportionately smaller for those countries with greater quota levels.

Source: GAO analysis of IMF data.

As shown in table 4, the IMF has cited many factors as having influenced 

the size of the IMF's quotas in prior reviews. In certain cases, these factors 

justified no change in the IMF's quota size; in other cases, they justified an 

increase. For example, in both the second and tenth reviews, the Board 

decided against any increase in quotas because the IMF's resources were 

considered sufficient. However, in many of the other reviews, the Board 

recommended increases, including the need to (1) address the possible 

deficiency in international liquidity, (2) reduce the IMF's reliance on 

Eighth Review

1983

106% A relatively large 

general increase 

plus selective 

increases for many 

members.

47.5% 3% Adjust members' quotas 

relative to their 

economic positions in 

the world economy. 

Ninth Review

1990

58% 50% with a 

proportionate 

increase in IMF's 

borrowing authority 

or by about 100% if 

IMF's borrowing 

authority is not 

included.

50% 19% Persistent debt problem 

in Latin America.

Reduce IMF's reliance 

on borrowing.

Tenth Review 

1995

34% Selective increases 

based on members' 

shares in calculated 

quotas.

0% -5% The overall size of the 

IMF was considered 

sufficient to effectively 

promote its purposes.

Eleventh Review

1998

23% 100% 45% 40% Increased demand for 

IMF resources. Growth 

in world trade and 

payments. Increased 

volatility of balance-ofpayments stemming 

from sharp changes in 

private capital flows.

Review/Date

Quota increase 

suggested from 

formulas

Recommended 

quota increase 

from IMF staff 

Final decision

by Board of

Governorsa

Percentage real

growth in approved

quotasb

Some reasons cited 

for increase or no 

increase in quotas

Continued from Previous Page
Appendix III

The IMF's Quota Reviews

Page 49 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

borrowing, and (3) adjust members' quotas to better reflect their relative 

position in the world economy. 

Distribution of Quota 

Increases in Prior 

Reviews and 

Significance of Relative 

Shares

The large majority of quota increases in prior reviews were distributed 

equiproportionally, consistent with the strong desire of many countries to 

maintain the existing quota structure. Selective increases in member 

quotas change the relative size and voting shares of members within the 

IMF, increasing the quota share of some members while decreasing others. 

However, selective increases in quotas have taken place with the goal of 

bringing the quotas of members into better alignment with their relative 

economic size, and, in some cases, to strengthen the liquidity position of 

the IMF. 

The overall quota structure between the two main groups of industrial and 

developing countries has been relatively stable over time. Figure 7 shows 

the history of voting shares.4

 As of April 30, 1999, the voting share of the 

industrial countries was about 60 percent, as compared with about 70 

percent in 1948, and the share of the developing countries was about 40 

percent, as compared with 30 percent in 1948. While the United States is 

still the largest contributor to the IMF's resources,5

 its voting share has 

fallen over time. Currently, this voting share is slightly over 17 percent, 

down from 31 percent in 1948. 

The Articles of Agreement often require 70 percent to 85 percent of the 

voting power of the IMF membership for approval of significant decisions. 

Certain decisions such as an increase in quotas or the sale of gold require 

an 85-percent vote of approval. Therefore, the United States can effectively 

veto these types of decisions based upon its voting shares. However, 

certain decisions, such as changing the interest rate paid by borrowers, 

only require a 70-percent vote of approval. The voting and quota shares of 

developing and transition countries have risen steadily throughout the 

IMF's history, increasing to 40 percent as of April 30, 1999. Thus, 

developing and transition countries may have sufficient voting power to 

4

In accordance with IMF’s rules and regulations, the Executive Board rarely reaches 

decisions through formal votes, but instead works to reach a consensus among its members.

5

The absolute size of the U.S. quota has increased from about $2.8 billion in 1945 to the 

current amount of about $50 billion. Other countries with large quotas include Japan and 

Germany (about $18 billion each) and France and the United Kingdom (about $14.5 billion 

each).
Appendix III

The IMF's Quota Reviews

Page 50 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

form a voting bloc and oppose certain decisions, such as the raising of the 

interest rate charged for the use of IMF resources. 

Figure 7: IMF Member Voting Shares, 1948−April 30, 1999

Source: GAO analysis of IMF data.

100

80

60

40

20

0

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

April 1999

Percent

United States

Other industrial countries

Developing countries
Page 51 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Appendix IV

The IMF's Lending Activities ApendxiIV

From the IMF's first financial transaction from its GRA on March 1, 1947, 

through April 30, 1999, the IMF has disbursed about SDR 209 billion, or 

$507 billion in constant dollars.1

 These resources were disbursed through 

reserve tranche drawings, 710 stand-by arrangements, and 67 extended 

arrangements. Since 1947, the IMF's lending has involved successively 

larger amounts of financing and reached about $82 billion as of April 30, 

1999. Additionally, the composition of industrial and developing country 

borrowers had changed so that by 1988, industrial countries were no longer 

users of IMF credit. As the IMF's lending shifted exclusively to developing 

countries, 15 members since 1983 have been unable to meet their 

obligations to the GRA when due.2

 In response to these arrears, the IMF has 

increased its reserves to consider potential loan losses and adopted a 

mechanism to share the cost of overdue obligations between debtor and 

creditor members. As of April 30, 1999, five members were in arrears to the 

GRA.

The Expansion of GRA 

Lending Arrangements 

and Facilities

Since 1947, the IMF has expanded the types of GRA lending arrangements 

and facilities to respond to demands by its members for increased credit 

and generally longer repayment terms. These lending arrangements and 

facilities consisted of the following nine types:

• Stand-by arrangements, used from 1952 to the present, are the most 

common form of IMF lending. Under these arrangements, members 

purchase currency primarily for short-term balance-of-payments 

assistance. Repayment terms were up to 5 years. Interest rates ranged 

from zero percent for the first 3 months to about 9.67 percent per year in 

1985.

• The Compensatory Financing Facility (CFF) was available from 1963 to 

1988 and was expanded in 1988 to the Compensatory and Contingency 

Financing Facility (CCFF). These facilities provided members 

experiencing shortfalls in export earnings or increased costs of cereal 

and oil imports with resources to purchase currency. Repayment terms 

were up to 5 years. Interest rates ranged from zero percent for the first

3 months to about 9.67 percent per year in 1985.

1

The IMF's reported amounts have been adjusted to 1998 dollars using an SDR price deflator 

and the average 1998 dollar/SDR exchange rate.

2

An additional two members, Iraq and Afghanistan, are also in arrears to IMF's SDR 

Department.
Appendix IV

The IMF's Lending Activities

Page 52 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

• The Buffer Stock Financing Facility (BSFF) was available from 1969 to 

1984. The BSFF provided currency purchases for members to reduce the 

variability of export earnings. Repayment terms were up to 5 years. 

Interest rates ranged from zero percent for the first 3 months to about 

9.67 percent per year in 1985. All of these loans were repaid by 1988.

• The Oil Facility was available for one year in 1974 and again in 1975 to 

finance members' purchases of oil during the 1974-75 worldwide oil 

crisis. The IMF borrowed funds from several industrial and

oil-producing members to finance this facility. Repayment terms were 

up to 7 years. Interest rates ranged from about 6.88 percent to 7.88 

percent per year from 1974 to 1983. All of these loans were repaid by 

1983.

• The Extended Fund Facility (EFF), established in 1974, provides 

financing to members experiencing structural balance-of-payment 

problems. Under these extended arrangements, repayment terms are up 

to 10 years. Interest rates ranged from about 4 percent to 6.88 percent 

per year from 1977 to 1981. In 1983, the EFF interest rate became the 

same as that for regular facility loans, which have ranged from about 

3.42 percent per year in 1999 to about 9.67 percent per year in 1985.

• The Supplemental Financing Facility (SFF) was available from 1979 

through 1984 to provide financing for developing country members. The 

IMF borrowed resources from several industrial and developing 

members to fund the SFF. Repayment terms were up to 7 years. The SFF 

was phased out after other facilities, such as the SAF and the ESAF 

became available. Interest rates were up to about 0.33 percent higher 

than regular facility loans until 1984, when the SFF interest rate became 

the same as that for regular facility loans. All of these loans have been 

repaid except for countries in arrears as of April 30, 1999. 

• The Enlarged Access to Resources (EAR) facility was available from 

1981 to 1992 to provide additional financing to developing country 

members. The IMF borrowed resources to fund this facility from several 

industrial and developing members. Repayment terms were up to

7 years. This facility was phased out after other facilities, such as the 

SAF and the ESAF, became available. Interest rates were up to about 

0.20 percent higher than regular facility loans until 1984, when the 

interest rate for the EAR facility became the same as regular facility 

loans.
Appendix IV

The IMF's Lending Activities

Page 53 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

• The Systemic Transformation Facility (STF) was available from 1993 to 

1995 to provide funding to 28 countries to transition3

 from centrally 

planned economies to market economies. Repayment terms were up to 

10 years. Variable interest rates ranged from about 3.42 percent per year 

in 1999 to about 6.33 percent per year in 1993.

• The Supplemental Reserve Facility (SRF) was created in 1997 in 

response to the Asian financial crisis. The SRF provides assistance to 

members experiencing exceptional balance-of-payment problems that 

could threaten the international monetary system. Repayment terms are 

very short-term as amounts are due from 1- to 2-1⁄2 years. Interest rates 

have been about 7 percent in 1998 and 8 percent in 1999. 

As the GRA lending facilities have evolved, their repayment terms have 

expanded from up to 5 years for stand-by arrangements, the CFF, and the 

BSFF; to up to 7 years for the oil and EAR facilities and the SFF; and finally, 

up to 10 years for extended arrangements and the STF. The recent 

exception is the 1- to 2-1⁄2 year repayment terms of the SRF. Of the 

approximately $82 billion of outstanding GRA credit as of April 30, 1999, 

45 percent was under 5-year facilities, 32 percent was under 10-year 

facilities, 21 percent was under the 1- to 2-1⁄2 year SRF facility, and 2 percent 

was under 7-year facilities.

Some Members Have 

Been Regular Users of 

IMF Credit

Of the IMF's 182 member countries as of April 30, 1999, 137 members have 

made currency purchases and 45 members have never used IMF credit. 

Table 5 identifies 11 members that have been regular users of IMF credit for 

20 years or more since 1947. The number of years and the period are noted 

for the longest and second longest periods of continuous borrowing. No 

industrial country has had currency purchases since 1985.

3

The IMF considers 28 of its member countries to be countries in transition, consisting of 11 

countries that comprised the former Soviet Union, 16 former Soviet bloc countries in 

Eastern or Central Europe, and Mongolia.
Appendix IV

The IMF's Lending Activities

Page 54 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Table 5: IMF Members With 20 or More Years of IMF GRA Lending, Calendar Years 1947-98

Note 1: Total does not include years of borrowing from the SAF/ESAF.

Note 2: Total of all borrowers includes purchases by Cuba, which is no longer an IMF member, and 

purchases by the former Yugoslavia that the IMF has allocated to the five successor countries, four of 

which have become IMF members. Serbia/Montenegro will owe the portion that the IMF has allocated 

to it when it becomes an IMF member.

Source: GAO analysis of IMF's International Financial Statistics.

The Evolution of Yields 

on Periodic Charges 

and Remuneration

A member borrowing funds from the IMF pays various charges to cover the 

IMF's operational expenses, including remuneration paid to the member 

whose currency is being borrowed. Presently, a borrower typically pays a 

service charge of one-half of 1 percent of the amount of each transaction at 

the time of disbursement, a commitment fee of one-quarter of 1 percent of 

an amount estimated to be drawn down annually,4

 and periodic charges for 

interest. Under procedures in effect since May 1, 1981, the basic periodic 

charge rate is determined at the beginning of each financial year. The rate 

Dollars in millions

Number Country

Number of years of

purchases

Cumulative

purchases Longest period

Second longest

period

1 Philippines 30 $9,870 12 (1970-81) 7 (1983-89)

2 Pakistan 25 7,906 12 (1972-83) 8 (1991-98)

3 Argentina 24 20,928 13 (1985-97) 5 (1959-63)

4 Turkey 24 8,374 7 (1978-84) 6 (1966-71)

5 Chile 23 7,625 7 (1983-89) 7 (1963-69)

6 Haiti 23 518 7 (1961-67) 5 (1980-84)

7 Sri Lanka 23 3,053 21 (1965-84) 1 (1988)

8 Jamaica 21 3,064 15 (1981-95) 4 (1976-79)

9 Mali 21 405 9 (1964-72) 5 (1982-86)

10 Bolivia 20 916 8 (1956-63) 3 (1971-73)

11 Sudan 20 2,879 7 (1978-84) 6 (1964-69)

Subtotal of 11 countries above 254 65,538

Total all borrowers 1,219 $394,159

4

The commitment fee is payable upon agreement on an arrangement, but the fee is 

refundable as purchases are made.
Appendix IV

The IMF's Lending Activities

Page 55 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

includes an amount designed to allow the IMF to meet its annual 

administrative expenses and net income target and to remunerate members 

whose currencies have been purchased by other IMF members.

On May 1, 1989, the basic periodic charge rate was modified to be based on 

a proportion of the SDR interest rate and changes weekly with fluctuations 

in the SDR interest rate.5

 For the fiscal year ended April 30, 1999, the 

proportion was set at 107 percent of the estimated SDR rate of 3.43 percent, 

or 3.67 percent. Added to this amount is a rate of 0.13 percent to cover 

potential loan losses under burden-sharing,6

 for a total rate7 of 3.80 percent 

for all lending facilities except the SRF. When the first purchase is made 

under the SRF, an annual rate of charge of 300 basis points8

 above the 

regular rate of charge for other IMF lending is assessed on purchases, as 

adjusted for burden-sharing. The rate increases by 50 basis points at the 

end of the first year and every 6 months thereafter, until it reaches 500 basis 

points.

Remuneration was not paid on gold tranche deposits prior to adoption of 

the second amendment of the Articles on April 1, 1978. Subsequently, the 

IMF established an unremunerated reserve tranche for each member that 

was equal to 25 percent of the member's quota before the second 

amendment.9

 For countries that became members after April 1, 1978, an 

unremunerated reserve tranche position amount was fixed. This amount 

was based on the weighted average of the unremunerated reserve tranche 

to the quota of all other members on the date that the member joined the 

5

The SDR interest rate is determined by reference to a combined market interest rate, which 

is a weighted average of yields or rates of 3 month, short-term instruments in the capital 

markets of the five members whose currencies comprise the SDR.

6

The additional charge to borrowers and lower remuneration paid to countries providing the 

funds is known as “burden-sharing.” It was adopted by the IMF in 1986, and it is discussed 

further at the end of this appendix.

7

While the yields for periodic charges and remuneration have been identified for each year, 

historical data was not available for calculating the weighted average of interest rates on the 

Fund's outstanding loan portfolio for each year since its first loan in 1947.

8

100 basis points equal 1 percent interest.

9

The IMF computes a remunerated reserve tranche position, which is effectively the 

complement of the unremunerated reserve tranche position. A detailed description of the 

methodology and an example is found in IMF, Financial Organization and Operations of the 

IMF, Pamphlet Series No. 45, fifth edition (Washington, D.C., IMF, 1998).
Appendix IV

The IMF's Lending Activities

Page 56 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

IMF. The IMF then pays interest on that part of a member's reserve tranche 

position in excess of the unremunerated reserve tranche position.

As quotas increase, the ratio of the unremunerated reserve tranche position 

to quota declines. For example, the unremunerated portion of the United 

States of about SDR 1.7 billion represented 25 percent of the U.S. quota 

subscription prior to April 1, 1978. This percentage has declined with 

subsequent quota increases. After the 1999 quota increase, the 

unremunerated portion of the United States represented about 4.5 percent 

of the U.S. quota. Since the IMF only pays remuneration to members on 

their remunerated reserve tranche position, some members have foregone 

significant amounts of interest income on such balances. For example, 

using the IMF's average remuneration rates, the United States has foregone 

about $2.7 billion since 1980, or almost $150 million annually on its 

unremunerated reserve tranche position.

The Evolution of Periodic 

Charges 

A summary of GRA periodic charges paid by IMF members as a percentage 

of outstanding purchases since March 1947 follows. 

• From 1947 to 1974, periodic charges were fixed at zero percent, for 

amounts outstanding less than 3 months, to a maximum of 5 percent for 

all borrowing.

• For 1975 to 1976, periodic charges ranged from a fixed amount of zero 

percent for amounts outstanding less than 3 months to 6 percent. Higher 

rates were charged by type of loan facility, to a maximum of about

7.88 percent for Oil Facility loans with a 7-year term.

• From 1977 to 1981, periodic charges were fixed from 4 percent to about 

6.38 percent. Higher rates were charged by type of loan facility, to a 

maximum of about 7.88 percent for Oil Facility loans with a 7-year term.

• For 1982, periodic charges were fixed at 6.25 percent, and 1983 rates 

became variable, from about 6.60 percent to about 8.52 percent. Other 

rates were charged by type of loan facility, to a maximum of about

7.88 percent for Oil Facility loans with a 7-year term.

• Since August 1983, periodic charges from a low of about 3.42 percent for 

1999 to a high of approximately 9.67 percent for 1985 have been 

determined weekly for all facilities based upon a proportion of the SDR 

interest rate, unadjusted for burden-sharing. Periodic charges for the 

SRF loans were about 7 percent in 1998 and 8 percent in 1999.
Appendix IV

The IMF's Lending Activities

Page 57 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

The Evolution of 

Remuneration 

A summary of remuneration paid to members as a percentage of their 

remunerated reserve tranche position follows.

• From 1947 to 1969, remuneration was not paid to members.

• From 1970 to 1974, remuneration of 1.5 percent was paid.

• For 1975 and 1976, remuneration from a low of 1.5 percent to a high of 

about 5 percent was paid.

• From 1977 to 1981, remuneration from a low of about 3.5 percent for 

1977 and 1978 to a high of about 9.79 percent for 1981 was paid 

quarterly, based upon 90 percent of a high SDR interest rate of about 

10.88 percent.

• For 1982 and 1983, remuneration from a low of about 7.20 percent to a 

high of about 11.93 percent was paid quarterly, based upon 85 percent of 

a high SDR interest rate of about 14.03 percent.

• Since 1984, remuneration from a high of about 9.32 percent for 1990 to a 

low of about 3.43 percent for 1999 has been determined weekly, based 

upon 85 percent to 100 percent of the SDR interest rate, unadjusted for 

burden-sharing. The financial year 1999 average remuneration rate was 

set at the estimated SDR rate of 3.43 percent, less 0.15 percent to cover 

potential loan losses under burden-sharing, for a rate of 3.28 percent.

The Concentration of 

Fund Credit Has 

Increased Since 1983

As discussed in our letter, the share of the 10 largest users of IMF's GRA 

resources has steadily increased to 86 percent of total GRA credit as of 

April 30, 1999, the highest level since 1970. Table 6 identifies 25 members 

that have been among the 10 largest GRA borrowers from 1983 through 

1999. Besides those remaining among the 10 largest borrowers as of

April 30, 1999, 9 members have partially paid off their balances, and 6 

members have fully paid off their balances. Additionally, 6 members have 

been among the 10 largest borrowers during this 17-year period for 9 or 

more years, or over half of the time.
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The IMF's Lending Activities

Page 58 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Table 6: The 10 Largest GRA Borrowers, 1983-99

Note: SDR exchange rate = $1.35123 as of April 30, 1999.

a

These member balances have accrued to successor countries.

Source: GAO analysis of IMF annual reports.

Dollars in billions

Member

Number of years

among the 10 largest

borrowers

10 largest balances

 outstanding as

of April 30, 1999

Members with partially

paid-off balances as

of April 30, 1999

Members with fully

paid-off balances as

of April 30, 1999

Algeria 6 $1.8

Argentina 17 4.9

Brazil 11 9.5

Chile 7 X

Czechoslovakiaa 2 X

Hungary 7 X

India 15 X

Indonesia 2 9.2

Korea 7 13.2

Mexico 16 7.2

Morocco 7 X

Pakistan 6 X

Peru 5 X

Philippines 12 1.6

Poland 1 X

Romania 5 X

Russia 7 17.5

South Africa 1 X

Sudan 4 X

Thailand 3 3.2

Turkey 5 X

Ukraine 4 2.7

Venezuela 9 X

Yugoslavia, SFRa 7 X

Zambia 4 X

Total $70.8 9 6
Appendix IV

The IMF's Lending Activities

Page 59 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Arrears by Country 

Since 1983 

Since 1983, there were 15 IMF members10 that were 6 months or more in 

arrears to the GRA. The arrears to the GRA started with 1 member in 1983, 

reached a high of 11 members in 1989, 1990, and 1993, and has decreased to 

5 members from 1996 through April 30, 1999. Further, the IMF has 

determined members in arrears to be ineligible for additional GRA lending 

until their arrears have been cleared. As of April 30, 1983, one member was 

ineligible for additional GRA lending. The number of members in arrears 

that were ineligible for GRA lending increased to a high of 10 members by 

April 30, 1990. From 1996 through April 30, 1999, the number of ineligible 

members decreased to four. How these arrears developed, subsequent IMF 

actions, and the resolution of the arrears or its status as of April 30, 1999, 

are discussed in the following paragraphs:

• Cambodia (formerly Democratic Kampuchea before 1990) is a

low-income developing country that began to experience protracted 

arrears in May 1975. The country also was experiencing political and 

civil unrest, and the government was operating under the auspices of the 

United Nations. In December 1978, the IMF's Executive Board, in 

accordance with the Articles of Agreement, declared the country 

ineligible for additional IMF lending. As of April 30, 1993, the country 

had arrears to the GRA totaling about $34 million. In October 1993, 

Cambodia paid all of its arrears with assistance from a support group 

co-chaired by France and Japan, and according to the IMF, then became 

eligible for additional IMF credit. 

• Guyana is a low-income developing country that began to experience 

protracted arrears in May 1983. In May 1985, the IMF's Executive Board 

declared the country ineligible for additional IMF lending. As of April 30, 

1990, the country had arrears to the GRA totaling about $125 million. In 

June 1990, Guyana paid all of its arrears with assistance from a support 

group chaired by Canada, and then became eligible for additional IMF 

credit.

• Vietnam is a low-income developing country that began to experience 

protracted arrears in February 1984. The country also faced bilateral 

economic sanctions from the United States. In January 1985, the IMF's 

Executive Board declared the country ineligible for additional IMF 

lending. As of April 30, 1993, the country had arrears to the GRA totaling 

about $74 million. In October 1993, Vietnam paid all of its arrears with 

10Includes remaining amounts of the former Yugoslavia pertaining to Serbia/Montenegro, 

which is not an IMF member.
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The IMF's Lending Activities

Page 60 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

assistance from a support group co-chaired by France and Japan and 

then became eligible for additional IMF lending.

• Liberia is a low-income developing country that began to experience 

protracted arrears in December 1984. In January 1986, the IMF's 

Executive Board declared the country ineligible for additional IMF 

lending. The country was also experiencing political instability and a 

civil war since 1989. Further actions by the IMF under its Strengthened 

Cooperative Strategy included issuance of a declaration of 

noncooperation in March 1990. As of April 30, 1999, the country had 

arrears to the GRA totaling about $562 million and arrears to IMF's SDR 

Department and Trust Fund of about $65 million. IMF's Executive Board 

has decided not to implement the next step of the strategy to suspend 

Liberia's voting rights because of the country's efforts to make regular 

monthly payments and to implement economic reforms. 

• Sudan is a low-income developing country that began to experience 

protracted arrears in July 1984. The country has been experiencing 

political and internal instability and a civil war since 1983. In February 

1986, the IMF's Executive Board declared the country ineligible for 

additional IMF lending. Further actions by IMF under its Strengthened 

Cooperative Strategy included issuance of a declaration of 

noncooperation in September 1990 and a suspension of the country's 

IMF voting rights in August 1993. A procedure for compulsory 

withdrawal of Sudan from the IMF was initiated in April 1994. However, 

this action has been deferred in light of Sudan's regular monthly 

payments and continued satisfactory implementation of a program of 

economic adjustments. As of April 30, 1999, the country had the largest 

and most protracted arrears to the GRA totaling $1.4 billion and arrears 

to IMF's SDR Department and Trust Fund of about $105 million. In 

August 1999, the IMF lifted the declaration of noncooperation and is 

considering reinstatement of the country's IMF voting rights.

• Peru is a middle-income developing country that began to experience 

protracted arrears in September 1985. The country was also 

experiencing political and internal instability. In August 1986, the IMF's 

Executive Board declared the country ineligible for additional IMF 

lending. As of April 30, 1992, the country had arrears to the GRA totaling 

about $853 million. In March 1993, Peru paid all of its arrears with 

assistance from a support group co-chaired by Japan and the United 

States and bridge loans from both sponsors. Peru then became eligible 

for additional IMF lending.

• Zambia is a low-income developing country that began to experience 

protracted arrears in April 1985 due to adverse economic conditions. In 

September 1987, the IMF's Executive Board declared the country 
Appendix IV

The IMF's Lending Activities

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ineligible for additional IMF lending. As of April 30, 1995, the country 

had arrears to the GRA totaling about $1.3 billion. In December 1995, 

Zambia paid all of its arrears with the help of bridge loans from several 

IMF members and then became eligible for additional IMF lending.

• Sierra Leone is a low-income developing country that began to 

experience protracted arrears in January 1985. In April 1988, the IMF's 

Executive Board declared the country ineligible for additional IMF 

lending. The country was also experiencing political and internal 

instability and a civil war since 1992. As of April 30, 1993, the country 

had arrears to the GRA totaling about $110 million. In March 1994, Sierra 

Leone paid all of its arrears with assistance from an informal donor 

group of major industrial nations and international financial institutions, 

and then became eligible for additional IMF lending.

• Somalia is a low-income developing country that began to experience 

protracted arrears in July 1985. The country was also experiencing 

political instability, a prolonged civil war, and a virtual cessation of a 

functioning government. In May 1988, the IMF's Executive Board 

declared the country ineligible for additional IMF lending. As of April 30, 

1999, the country had arrears to the GRA totaling about $250 million and 

arrears to IMF's SDR Department and Trust Fund of about $20 million. 

According to the IMF, the Executive Board has not taken any further 

actions as political and economic conditions in the country are so 

disrupted that it has not been possible for IMF staff to conduct an 

assessment of the country's position.

• Honduras is a low-income developing country that began to experience 

protracted arrears in November 1987 due to adverse economic 

conditions. In November 1989, the IMF's Executive Board declared the 

country ineligible for additional IMF lending. As of April 30, 1990, the 

country had arrears to the GRA that totaled about $29 million. In June 

1990, Honduras paid all of its arrears with assistance from a consultative 

group chaired by the World Bank, and then became eligible for 

additional IMF lending.

• Panama is a middle-income developing country that began to 

experience protracted arrears in December 1987. In June 1989, the IMF's 

Executive Board declared the country ineligible for additional IMF 

lending. The country was also experiencing political and internal 

instability, including the December 1989 U.S. intervention in Panama 

(Operation Just Cause). As of April 30, 1991, the country had arrears to 

the GRA totaling about $243 million. In early 1992, Panama paid all of its 

arrears with assistance from a support group chaired by the United 

States and through contributions from several governments, and then 

became eligible for additional IMF lending.
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• Congo, Democratic Republic of (DRC, formerly Zaire before May 17, 

1997) is a low-income developing country that began to experience 

protracted arrears in June 1988 and again in November 1990. Arrears of 

about $141 million as of April 30, 1989, were cleared in 1990. However, 

arrears continued and in September 1991, the IMF's Executive Board 

declared the country ineligible for additional IMF lending. Further 

actions by the IMF under its Strengthened Cooperative Strategy 

included issuance of a declaration of noncooperation in February 1992 

and a suspension of the country's IMF voting rights in June 1994. The 

country was also experiencing political and internal instability and a 

civil war since 1996. As of April 30, 1999, the country had arrears to the 

GRA totaling about $477 million, and its arrears to IMF's SDR 

Department were about $11 million. The IMF is considering initiating 

the procedure for compulsory withdrawal from the IMF unless the 

country resumes cooperation with IMF policy implementation and 

payments to the Fund.

• Haiti is a low-income developing country that began to experience 

various periods of protracted arrears in May 1988, November 1988, and 

November 1991. The country also faced international economic 

sanctions. As of April 30, 1994, the country had arrears to the GRA 

totaling about $24 million. In December 1994, a support group 

contributed $65 million in grants to clear Haiti's arrears to the Fund and 

other multilateral institutions. Haiti then became eligible for additional 

IMF lending.

In 1992, the Socialist Federal Republic of Yugoslavia was dissolved in the 

midst of conflict and the IMF allocated its Fund debts and resources to its 

five successor countries: Bosnia/Herzegovina, Croatia, Macedonia, 

Slovenia, and Serbia/Montenegro. As of April 30, 1999, the first four 

countries had become IMF members. In September 1992, 

Bosnia/Herzegovina and Serbia/Montenegro began to experience 

protracted arrears. Subsequently

• Bosnia/Herzegovina had protracted arrears to the GRA of about $31 

million as of April 30, 1995. In December 1995, Bosnia/Herzegovina 

cleared its arrears to the Fund with the help of a bridge loan from 

another IMF member.

• Serbia/Montenegro had protracted arrears to the GRA of about $100 

million, and arrears to IMF's SDR Department of about $24 million as of 

April 30, 1999.
Appendix IV

The IMF's Lending Activities

Page 63 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Additionally, two other members were in arrears to IMF's SDR Department 

for amounts owed for quarterly charges on their allocation of SDRs:

• Iraq has not made payments to the IMF due to international economic 

sanctions under United Nations Security Council Resolution No. 661, 

adopted August 6, 1990. As of April 30, 1999, this amounted to $50 

million.

• Afghanistan has not made payments of $5 million as of April 30, 1999. 

Precautionary 

Balances

International and U.S. accounting standards require lending institutions to 

estimate a provision for loan losses that reduces the amount of outstanding 

lending projected to be collectable, with a corresponding amount charged 

to operations as an expense. The IMF is not required to follow 

international, U.S., or the accounting standards of any country. According 

to the IMF, it has never established a provision for potential loan losses 

because the Fund 

• technically does not make a loan as members purchase currencies from 

the IMF with an equivalent amount of their national currency;

• determined that it could not write off any currency holdings while a 

country is an IMF member;

• determined that potential losses were neither probable nor estimable;

• extends lending only to members; and 

• had no losses historically, even for members that have left the IMF such 

as Cuba.

Rather than establish provisions for potential loan losses, the IMF decided 

to create the following accounts that it refers to as “precautionary 

balances,” which the Fund believes can be used to absorb any potential 

loan losses. 

• General and Special Reserves are provided for in the Articles of 

Agreement. These reserves reflect the IMF's accumulated net income. 

General and Special Reserves totaled approximately $1.1 billion in 1983 

and increased to about $3.5 billion as of April 30, 1999. No loan losses 

have been charged against these reserves.

• Special Contingent Accounts 1 and 2 (SCA-1, SCA-2) were established in 

1987, and 1990, respectively. The amount in the SCA accounts totaled 

about $2.7 billion as of April 30, 1999. 
Appendix IV

The IMF's Lending Activities

Page 64 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Precautionary Balances and 

Arrears

Since 1983, IMF's precautionary balances and arrears have experienced 

significant growth as a percentage of total GRA outstanding credit but have 

declined in recent years as indicated by figure 8.

Figure 8: IMF's Precautionary Balances and Arrears as a Percentage of Total GRA Outstanding Credit, 1983-99

Source: GAO analysis of IMF annual reports.

Specifically

• from 1988 through 1993, total arrears exceeded IMF's precautionary 

balances as a percentage of total GRA outstanding credit, until various 

IMF measures and financial support from certain countries reduced 

those amounts in arrears and

16

14

12

10

8

6

4

2

0

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Percent of outstanding GRA credit

Financial year

Arrears

Precautionary balances
Appendix IV

The IMF's Lending Activities

Page 65 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

• the establishment of the SCAs contributed to the increase in total 

precautionary balances as a percentage of total GRA outstanding credit 

to absorb potential loan losses. 

The Burden-sharing 

Mechanism

In 1986, the IMF developed a burden-sharing mechanism to share the 

potential cost of loan losses between borrower and creditor members. 

Under this mechanism, the IMF generated resources to (1) provide the 

Fund with interest revenue that was not paid by members in arrears to the 

GRA and (2) increase the balance of the two SCAs. For borrowers, the IMF 

increased the quarterly periodic charge for interest to include a calculated 

amount for the burden-sharing portion. For creditor members, the IMF 

calculated a reduction in the quarterly remuneration paid on such 

members' reserve tranche position, subject to a specific floor, for their 

burden-sharing portion.

Deferred Charges Under the burden-sharing mechanism, IMF members have generated 

resources for deferred charges that totaled about $1 billion as of April 30, 

1999. Deferred charges represent foregone interest revenue for loans 

6 months or more in arrears to the IMF. When all arrears are settled, this 

amount can be distributed to members that received reduced remuneration 

or paid higher charges.

SCA-1 Since the initial placement of about $35 million in SCA-1 in 1987, the IMF 

has annually decided the size of SCA-1 additions before the beginning of 

each financial year. Under the burden-sharing mechanism, additions have 

amounted to 5 percent of the IMF's reserves at the start of each financial 

year. Balances in the SCA-1 are to be distributed to the members that 

shared the cost of financing when there are no outstanding overdue 

charges and repurchases, or at any earlier times, as the IMF may decide. As 

of April 30, 1999, the SCA-1 amounted to about $1.3 billion.

SCA-2 On July 1, 1990, the Executive Board established a new cooperative 

strategy for burden-sharing that involved accumulating resources in SCA-2. 

This mechanism provided the IMF with additional liquidity to finance the 
Appendix IV

The IMF's Lending Activities

Page 66 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

encashment11 of rights following the completion of the rights accumulation 

program12 by 11 eligible members. It also provided a safeguard against the 

risk of loss arising from currency purchases made in connection with the 

encashment of rights. As part of this new strategy, the IMF established a 

target to accumulate SDR 1 billion and further adjusted its rates of charge 

and remuneration whereby creditor and debtor countries contributed at a 

ratio of three to one. The SCA-2 account was fully funded at SDR 1 billion 

during 1997, for a total of about $1.4 billion as of April 30, 1999. Refunds of 

SCA-2 contributions are to be made after all repurchases under the rights 

approach have been made (or at an earlier date as the IMF may decide.) 

Burden-sharing 

Contributions by Members

As of April 30, 1999, the IMF reported that its members' burden-sharing 

contributions, net of refunds, had been about $3.7 billion. The 

contributions have (1) strengthened the IMF's financial position by funding 

the foregone income it has not received from members with overdue 

obligations and (2) augmented its liquid resources by increasing IMF's 

precautionary balances. The quantitative effect of burden-sharing on IMF 

members is that creditor members, including the United States, have 

contributed about 60 percent through reduced remuneration, while debtor 

members have contributed about 40 percent through increased charges. 

The G-7, including the United States, are all creditor members. As of 

April 30, 1999, the G-7 had contributed a cumulative amount of about $1.5 

billion, or 41 percent of the net burden-sharing contributions. The United 

States had contributed about $657 million, or about 18 percent of the net 

burden-sharing contribution, which was the largest percentage of all IMF 

members. Debtor members' cumulative burden-sharing contributions as of 

April 30, 1999, totaled about $1.5 billion, which equaled the G-7 

contributions.

The levels of protracted arrears in 1989 have declined steadily since the 

implementation of the rights accumulation programs and the SCA-2. As of 

April 30, 1999, 8 of the 11 members then in protracted arrears were current 

with the IMF due to their participation in the rights accumulation program 

and financial assistance from support groups.

11To provide liquid resources when the members are considered eligible to receive the funds.

12This program allowed a member to accumulate rights to draw upon future Fund resources 

after clearing its arrears and is limited to the 11 members that were in protracted arrears to 

the Fund at the end of 1989.
Appendix IV

The IMF's Lending Activities

Page 67 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Refunds of Burden-sharing 

Adjustments

Under the burden-sharing mechanism, it is the practice of the Executive 

Board to refund burden-sharing adjustments when countries in arrears 

settle amounts owed. These refunds have ranged from a low of zero for 

several quarters in the late 1980s to a high of about $370 million for the 

quarter ended January 31, 1996, in nominal dollars. Through April 30, 1999, 

the United States had received remuneration refunds of about $214 million, 

or about 33 percent of all remuneration refunds made by the IMF. The 

United States is still due a refund of about $657 million for its total

burden-sharing contributions, while other IMF members are due a total of 

almost $3 billion.
Page 68 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Appendix V

The IMF's Borrowing and Credit Lines ApendxiV

The IMF has relied mainly on quota resources as its primary source of 

financing but has used borrowing and its credit lines from official sources1

to supplement quotas when the level of its liquid resources were low. The 

IMF's Articles of Agreement permit borrowing from both official and 

private sources; however, as a matter of policy, the IMF has borrowed only 

from official sources. According to the IMF, this policy reflects the nature 

of the Fund as a cooperative, intergovernmental institution whose basic 

purpose is to facilitate the overall adjustment process by using some 

countries' surpluses to offset other countries' deficits in their

balance-of-payments. 

History of IMF 

Borrowing and Credit 

Lines

Borrowing has played an important role in providing temporary 

supplemental resources to the IMF since the early 1960s, particularly 

during the period of large payment imbalances that persisted from the early 

1970s to the mid−1980s. Table 7 shows the relative share of borrowed 

resources used in financing IMF assistance to member countries from the 

time of its first borrowings in 1964 through April 30, 1999.

Table 7: IMF Outstanding Borrowing as a Percent of Outstanding IMF Credit 1964−April 30, 1999

1

The official sources have included member countries and their central banks, one country 

that was not a member at the time the funds were borrowed (Switzerland) and its central 

bank, and the Bank for International Settlements.

1998 dollars in billions

Outstanding IMF borrowing

Year-end December

Amount of

outstanding IMF

 credit Amount

As a percent of

outstanding IMF

credit

1964 $10.1 $ 2.8 27.7

1965 20.6 6.3 30.6

1966 20.0 7.8 39.0

1967 15.0 4.7 31.3

1968 22.5 7.9 35.1

1969 23.3 5.6 24.0

1970 17.8 4.1 23.0

1971 7.0 0 0

Continued
Appendix V

The IMF's Borrowing and Credit Lines

Page 69 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Source: GAO analysis of IMF data.

Table 7 illustrates the continuous role of quotas in providing resources to 

the IMF. Borrowing and credit lines provided temporary financial support 

to IMF's operations during four periods.

1972 5.4 0 0

1973 4.8 0 0

1974 15.9 7.1 44.7

1975 28.3 17.5 61.8

1976 44.1 22.9 51.9

1977 42.2 25.8 61.1

1978 30.7 19.1 62.2

1979 21.7 10.6 48.8

1980 20.9 10.4 49.8

1981 30.4 14.6 48.0

1982 41.3 17.6 42.6

1983 61.2 26.6 43.5

1984 68.6 27.7 40.4

1985 66.7 26.7 40.0

1986 61.3 24.8 40.5

1987 51.5 18.5 35.9

1988 43.1 11.5 26.7

1989 37.3 6.0 16.1

1990 33.3 5.8 17.4

1991 36.1 6.2 17.2

1992 35.8 5.2 14.5

1993 36.7 4.7 12.8

1994 36.7 4.2 11.4

1995 50.5 1.5 3.0

1996 50.2 0 0

1997 63.8 0 0

1998 82.0 5.9 7.2

April 30, 1999 81.6 0 0

1998 dollars in billions

Outstanding IMF borrowing

Year-end December

Amount of

outstanding IMF

 credit Amount

As a percent of

outstanding IMF

credit

Continued from Previous Page
Appendix V

The IMF's Borrowing and Credit Lines

Page 70 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

• From 1964 to 1970, the IMF financed between approximately 23 percent 

and 39 percent of its outstanding GRA credit with borrowed resources 

from the General Arrangements to Borrow (GAB).

• From 1974 to 1986, the IMF financed between approximately 40 percent 

and 62 percent of its GRA credit with borrowed resources from the GAB 

and other agreements.

• The IMF's GRA credit financed with borrowed resources from the GAB 

and other agreements declined from 36 percent in 1987 to none in 1996 

and 1997.

• In 1998, about 7 percent of the IMF's GRA credit was financed with 

borrowed resources from the GAB and the New Arrangements to 

Borrow (NAB). This amount was fully repaid in March 1999.

Since its inception, the Fund has entered into 11 borrowing arrangements 

or agreements, as shown in table 8.
Appendix V

The IMF's Borrowing and Credit Lines

Page 71 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Table 8: IMF Borrowing Arrangements and Agreements, 1962-98

a

The GAB was revised and enlarged in 1983.

b

Under the associated borrowing agreement, Saudi Arabia will stand ready to lend Saudi riyaals to the 

IMF up to an equivalent of about $2 billion. These funds are to assist the IMF in the financing of 

currency purchases by members for the same purposes and in the same cirumstances as are 

prescribed in the GAB

c

The first Oil Facility was created in 1974 and was funded by seven entities. A second Oil Facility was 

created in 1975 and funded by 12 entities.

Source: GAO analysis of IMF data.

The IMF's 11 borrowing arrangements include 3 current credit lines from 

which it can borrow, with the 2 largest being the GAB, initially established 

in 1962, and the NAB, established in 1998. Amounts available under these 

credit lines have expanded from $6 billion under the GAB in 1962 to the 

combined total of the GAB and the NAB of about $46 billion as of April 30, 

1999. Additionally, another $2 billion is available under an associate credit 

agreement with Saudi Arabia.

Dollars in billions

Borrowing arrangement or agreement

Number of

countries

 or central banks

Total amount of

borrowing authority

Current borrowing arrangements:

The GAB (1983)a

Associated borrowing agreement with

 Saudi Arabia (1983)b

The NAB (1998)

11

 1

 25

$23.0

2.0

23.0

Past borrowing agreements:

The GAB (1962-83)a

Oil facility (1974)c

Oil facility (1975)c

Supplemental Financing

 Facility (SFF) (1979−84)

Enlarged Access to Resources (EAR):

 Medium term (1981−87)

 Saudi Arabian Monetary Agency

 (SAMA)

Short term (1981)

 Bank for International Settlement

 (BIS) and others

Short term (1984)

 SAMA, BIS, Government of Japan,

 and National Bank of Belgium

 Government of Japan (1986-91)

10

 7

 12

 14

1

19

4

 1

6.4

3.4

3.5

10.1

9.4

1.5

6.2

3.5
Appendix V

The IMF's Borrowing and Credit Lines

Page 72 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

The IMF's eight past borrowing agreements were used to finance lending 

under the GAB in 1962 and the Oil Facility, SFF, and EAR facilities, as 

discussed in appendix IV. In addition, the IMF borrowed from the 

government of Japan under an agreement that began in 1986, with drawings 

terminating in 1991. Figure 9 illustrates the IMF's borrowing sources and 

trends since the establishment of its first borrowing arrangement in 1962 

through its most recent borrowings under the GAB and the NAB in 1998.

Figure 9: Outstanding IMF Borrowing, 1962−April 30, 1999

Source: IMF's International Financial Statistics.

30

25

20

15

10

5

0

1962

1964

1966

19681970

1972

19741976

1978

1980

19821984

1986

1988

1990

19921994

1996

1998

April 1999

EAR

SFF

Japan

GAB

Oil Facility

NAB

Billions of 1998 dollars
Appendix V

The IMF's Borrowing and Credit Lines

Page 73 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

The GAB The GAB was originally conceived and designed as an arrangement 

whereby 11 of the main industrial countries agreed to strengthen the IMF's 

financial position by standing ready to loan the Fund up to specified 

amounts of their respective national currencies. These loans could be made 

when the IMF needed supplemental resources to help forestall or cope with 

an impairment of the international monetary system. 

The potential amount of credit under the GAB totaled about $6 billion (in 

lenders' currencies) from its inception until December 1983. In response to 

the growing pressure on the IMF's usable currencies caused by the Latin 

America debt crisis in mid-1982, the amount of credit available under the 

GAB was enlarged to about $23 billion, with an additional $2 billion 

associate credit agreement with Saudi Arabia. Table 9 shows a listing of 

current GAB participants and credit amounts. 

Table 9: GAB Participants and Credit Amounts, as of April 30, 1999

Note: SDR exchange rate = $1.35123 as of April 30, 1999.

Source: IMF.

At the time of the GAB's enlargement in 1983, the interest rate was raised 

from below market levels used in the earlier GAB, to 100 percent of the 

Dollars in millions

Participant Amount

United States $5,743

Deutsche Bundesbank 3,216

Japan 2,871

France 2,297

United Kingdom 2,297

Italy 1,493

Swiss National Bank 1,378

Canada 1,206

Netherlands 1,149

Belgium 804

Sveriges Riksbank 517

Total $22,971

Associate credit agreement with Saudi Arabia $2,027
Appendix V

The IMF's Borrowing and Credit Lines

Page 74 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

SDR interest rate. Since its inception, the GAB has been activated 10 times, 

with total drawings of about $7.2 billion.

• From 1964 through 1970, the GAB was activated six times, primarily for 

drawings by the United Kingdom for balance-of-payments assistance. 

Total amounts borrowed by the IMF under the GAB activations were 

about $2.2 billion. All of these borrowings have been repaid.

• In 1977, the GAB was activated twice for drawings by the United 

Kingdom and Italy, and once in 1978 by the United States for reserve 

tranche purchases for balance-of-payments assistance. Total amounts 

borrowed by the IMF under the GAB activations were about $3 billion. 

All of these borrowings have been repaid.

• In July 1998, the GAB was activated for the 10th time for about $2 billion 

drawn as part of an extended arrangement with Russia totaling about 

$8.4 billion. This was the first activation of the GAB in 20 years, and the 

first time it has been used for a non-participant. This activation was 

canceled in March 1999 when the IMF repaid the $2 billion shortly after 

it received funds from the recent Eleventh General Review's quota 

increase. 

The NAB Following the Mexican financial crisis in 1994-95, IMF members were 

concerned that substantially more resources might be needed by the IMF to 

respond to future financial crises. This concern prompted the G-10 and 

other financially strong countries to develop financing arrangements that 

would double the amount available under the GAB. The NAB is a set of 

credit arrangements between the IMF and 25 members and institutions 

established in November 1998. The NAB is available to provide 

supplemental resources to the IMF to forestall or cope with an impairment 

of the international monetary system or to deal with an exceptional 

situation that poses a threat to the stability of that system. 

Funds available under the GAB are also available under the NAB, and 

together they constitute a combined credit line of about $46 billion 

available for lending. The NAB can be activated when eligible participants 

representing 80 percent of the total credit arrangements determine there is 

a threat to the international monetary system and agree to the request. The 

NAB became effective in November 1998 for 5 years and may be renewed. 

A list of NAB participants and their credit arrangements is shown in table 

10. 
Appendix V

The IMF's Borrowing and Credit Lines

Page 75 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Table 10: NAB Participants and Credit Amounts, as of April 30, 1999

a

Also a participant in, or associated with the GAB. 

Note: SDR exchange rate = $1.35123 as of April 30, 1999.

Source: IMF.

The activation requirements for the NAB are not as strict as the 

requirements for the GAB. Specifically, the credit arrangements under the 

NAB may be activated for the benefit of an IMF member that is a 

participant or non-participant in the NAB, under circumstances similar to 

Dollars in millions

Participant Amount

United States $ 9,070

Deutsche Bundesbanka 4,807

Japana 4,807

Francea 3,482

United Kingdoma 3,482

Saudi Arabiaa 2,405

Italya 2,394

Swiss National Banka 2,104

Canadaa 1,887

Netherlandsa 1,778

Belgiuma 1,307

Sveriges Riksbanka 1,161

Australia 1,095

Spain 908

Austria 557

Norway 518

Denmark 501

Kuwait 466

Finland 459

Hong Kong Monetary Authority 459

Korea 459

Luxembourg 459

Malaysia 459

Singapore 459

Thailanda 459

Total $45,942
Appendix V

The IMF's Borrowing and Credit Lines

Page 76 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

those specified in the GAB. However, under the NAB, activation for a nonparticipant is not subject to more stringent criteria related to the IMF's 

liquidity situation. Nevertheless, 

• the maximum combined amount drawn under the GAB and the NAB 

cannot exceed SDR 34 billion (about $46 billion as of April 30, 1999); and

• the NAB will be the facility of the first and principal recourse in the need 

to provide supplementary resources to the IMF except that (1) in the 

event of a request for drawing on the IMF by a participating member (or 

a member whose institution is a participant) in both the GAB and the 

NAB, a loan request may be made under either the GAB or the NAB and 

(2) in the event that a loan request under the NAB is not accepted, the 

request may be made under the GAB.

In December 1998, the NAB was first activated for about $4 billion drawn 

on an extended arrangement with Brazil totaling about $18.3 billion. This 

activation was canceled in March 1999 when the IMF repaid the $4 billion 

shortly after it received funds from the recent Eleventh General Review's 

quota increase.
Page 77 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Appendix VI

Objectives, Scope, and Methodology ApendxiVI

As required under the Omnibus Appropriations Act for fiscal year 1999, we 

are reporting on several matters relating to the IMF's financial operations. 

In this report, we reviewed the IMF's 

• liquidity position as of April 30, 1999, including the Fund's experience 

with borrowed resources to meet its members' financing needs;

• gold holdings and its role in the IMF's financial operations; and

• process for determining the amount of quota contributions required 

from its members.

We also included information on how the IMF's lending activities have 

evolved since the Fund was founded in 1945. In addition, we discussed the 

status of preparedness of the IMF's mission-critical and key computer 

systems for the year 2000.

The scope of our work had the following limitations:

• Although we obtained the U.S. Executive Director's position papers 

pertaining to quota reviews, we did not have access to nonpublic 

statements of the other IMF executive directors, the Executive Board 

minutes, or information on how final quota decisions were reached by 

the IMF's Executive Board.

• With the agreement of Committee staff, our review of the IMF's lending 

did not include facilities for low-income members and administered 

accounts that included various trust accounts that operated from 1976 

to 1986, the Structural Adjustment Facility that was established in 1986, 

and the Enhanced Structural Adjustment Facility that was established in 

1987. Outstanding loans under these facilities amounted to about $8.8 

billion as of April 30, 1999, and were discussed in a previous GAO 

report.1

• Historical data was not available for calculating the weighted average of 

interest rates on the Fund's lending portfolio for each year since the 

Fund's inception, as the Omnibus Appropriations Act requested.

• An evaluation of the IMF's efforts and related management structure 

and processes to address the year 2000 problem was not within the 

scope of our work.

1

See Developing Countries: Status of the Heavily Indebted Poor Countries Debt Relief 

Initiative (GAO/NSIAD-98-229, Sept. 30, 1998).
Appendix VI

Objectives, Scope, and Methodology

Page 78 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Our work also included numerous interviews with IMF officials and U.S. 

Treasury officials and a meeting with the Fund's certified public accounting 

firm. Much of the information reported is as of April 30, 1999, the end of the 

IMF's financial year, and to the extent possible, we used data audited by the 

IMF's auditors. Additionally, to meet our objectives, we did the following:

• To review the IMF's liquidity position as of April 30, 1999, we reviewed 

the IMF's approach for calculating and reporting on its liquid resources 

and analyzed the reported amount of its liquid resources to determine 

whether adjustments the IMF made to the reported amount were 

practical and relevant. This included reviewing the various components 

that have evolved to determine the IMF's liquidity position as of April 30, 

1999; the IMF's quarterly operational budgets and semiannual review 

papers on the Fund's liquidity and financing needs; and the IMF's 

methodology used in its reviews of liquidity and financing needs. In 

addition, we reviewed the Fund's documentation to determine if there 

was an analytical basis to support the liquidity ratio threshold that the 

IMF uses to determine when it is imprudent to lend. We also queried IMF 

officials about their rationale for the liquidity ratio percentage used as a 

minimum threshold for its lending activities. 

We also analyzed the IMF's experience with borrowed resources, including 

its use of credit lines, to identify the amounts and periods, financing 

arrangements, and participants. This analysis included a ratio and trend 

analysis of the circumstances that led the IMF to borrow from its GAB, 

NAB, and other financing arrangements and agreements. In our work, we 

(1) reviewed the Fund's annual reports, which included its audited 

financial statements, books on the history of the Fund, and papers on the 

IMF's financing needs and (2) analyzed the IMF's data base of International 

Financial Statistics on outstanding borrowing. 

• To review the IMF's gold holdings and its role in IMF's financial 

operations, we reviewed the history of IMF's acquisition and use of gold 

from 1946 to the present period, and conducted a detailed review of the 

Fund's governing principles and explanations for holding gold. We 

compared the Fund's policies to evolving gold management practices by 

several other official holders of gold and analyzed gold acquisition and 

use data over the history of the Fund's operations. We reviewed 

historical accounts and related IMF documentation that described the 

evolution of gold management practices. We also reviewed published 

reports on alternative uses for gold and the evolving nature of gold 

management practices. Finally, we discussed all of these issues with 
Appendix VI

Objectives, Scope, and Methodology

Page 79 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Fund staff from the Treasurer's office and gold experts from the U.S. 

Treasury, two U.S. mining companies, the World Gold Council, and the 

Gold Institute.

• To review the IMF's process for determining quota contributions from 

members, we obtained and reviewed the Fund's policies and procedures 

supporting its quota increase from the Eleventh General Review in 1999. 

We also reviewed information on the quota review and more general 

information on 11 other quota reviews since 1950. In our review, we 

gained an understanding of the quantitative and qualitative factors the 

IMF takes into consideration to determine a quota increase. These 

factors included (1) if and when a quota increase is needed, (2) the size 

of a quota increase, (3) how the quota increase was distributed among 

member countries, and (4) what formulas were used to calculate 

members' quotas. In doing so, we reviewed the U.S. Executive Director's 

position papers pertaining to quota reviews. We also reviewed the IMF's 

(1) documents on the official Committee of the Whole on Review of 

Quotas for the Eleventh General Review, (2) semiannual review papers 

on liquidity and financing needs, (3) annual reports, (4) the IMF 

pamphlet, Financial Organization and Operations of the IMF, and (5) 

historical publications. In addition, we queried IMF officials and the U.S. 

Executive Director to obtain their comments on the IMF's quota review 

process.

• To review the evolution of the IMF's GRA lending activities since the 

first transaction in 1947, we identified the types and terms of lending 

facilities, regular users of IMF credit, and the 10 largest users of IMF 

credit. We also reviewed the evolution of yields on periodic charges and 

interest remuneration, members in arrears, the funding of precautionary 

balances, and the effect of the burden-sharing mechanism on the Fund's 

financial operations and on its members. To conduct our review, we 

analyzed the IMF's (1) data base of International Financial Statistics; (2) 

annual reports from 1947, which included audited financial statements; 

(3) key publications, including its Articles of Agreement of the 

International Monetary Fund and Financial Organization and Operations 

of the IMF; (4) various policy documents and staff position papers; and 

(5) data on financial transactions for member countries. We also 

discussed the Fund's lending activities with IMF officials, the U.S. 

Executive Director, and the Fund's certified public accounting firm to 

gain an understanding of the GRA lending activities. 

• To review the status of preparedness of the IMF's mission-critical 

computer systems for the year 2000, we reviewed information from 

IMF's web site and held discussions with Fund officials and the IMF's 

certified public accounting firm. We met with IMF's Management 
Appendix VI

Objectives, Scope, and Methodology

Page 80 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Information Systems specialists and discussed the Fund's status for 

testing its mission-critical computer systems and developing and testing 

its contingency plans. We also queried other IMF officials about the 

status of its members' year 2000 readiness and the potential impact on 

the IMF's operations if the members were not compliant. Additionally, 

we met with the Fund's certified public accountants for their 

assessment of the IMF's year 2000 readiness. 

We conducted our review between December 1998 and August 1999 in 

accordance with generally accepted government auditing standards.
Page 81 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations

Appendix VII

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Phyllis Anderson (202) 512-7364

Thomas Melito (202) 512-9601

Acknowledgments In addition to those named above, Roger Stoltz, Bruce Kutnick, Charles 

Norfleet, Barbara Shields, Michael ten Kate, Norman Thorpe, and Katharine 

Woodward made key contributions to this report.

(711401) Letr
Appendix VII

GAO Contacts and Staff Acknowledgments

Page 82 GAO/NSIAD/AIMD-99-252 IMF’s Financial Operations
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