The funding of regular IMF activities
76. In addition to discussing the need for a clearer
separation of lending and surveillance activities. However, we
also heard evidence about the need to separate funding and lending
decisions. Witnesses called for such separation on the basis that
the IMF earns its income from the difference between the interest
rates charged in its lending activities and money paid out to
those who hold shares in it. This means that the IMF relies on
its lending activities to fund its operations, and therefore lending
decisions may be, or at least appear to be, skewed by the desire
to maintain a steady stream of income for the Fund's operations.
The Governor of the Bank of England told us that "It is very
important to have an institution like the IMF which does not benefit
from financial crises, either financially or in terms of the culture
and excitement of the work".
77. The Committee heard that several possible solutions
to the future financial difficulties at the IMF are being discussed.
The Managing Director's Report on Implementing the Fund's Medium
Term Strategy also suggested different possibilities were under
consideration "be it conversion of gold into earning assets
or an annual fee linked to quota or anything else".
Professor Miller suggested to us that in some degree there should
be reform of the Fund's processes, such as on debt restructuring,
before it tries to find further finance. He told us "I feel
it is about improving the financial mechanisms rather than suddenly
finding a pot of gold".
However, Professor Portes indicated that he could not see any
reason why the IMF, much like central banks across the world,
may not wish to divest part of its gold holdings.
Rachel Lomax, Deputy Governor at the Bank of England, suggested
that there were several options under consideration, but that
there were many different variables to consider: "You can
move towards something which involves annual subscriptions or
contributions of some sort; lots of disadvantages in doing that,
in terms of assuring the Fund a steady flow of income which is
not too dependent on political pressure. Or you could give the
Fund a kind of endowment, which would generate an income over
a period of time."
In its supplementary written evidence to us, HM Treasury discussed
further the possibility of either an annual contribution or an
endowment to fund the IMF's operations. Its evidence also outlines
some potential methods of funding such an endowment, such as by
gold sales or voluntary contributions.
78. The search
for a solution to the long-term financing of IMF operations should
be considered against two criteria. The first is that poorer nations
should not have to pay to gain access to the range of services
the IMF can provide. The second is that funding for surveillance
should be seen to be as independent as the actual analysis, especially
where the IMF may also be a lender to a specific country. We therefore
recommend that the UK Government further consider and report on
the feasibility of the different options for the funding of an
endowment for the financing of surveillance activities, as an
endowment would ensure both the actuality and perception of the
independence of surveillance.