IMF may profit from bailouts

March 10, 2009 (The New York Times)

WASHINGTON — The International Monetary Fund may turn a profit of almost $650 million next year, enriched mostly by emergency loans to East European countries, according to former IMF officials.

The windfall would mark a $1 billion turnaround for an organization forecast two years ago to lose $360 million in 2010. Based on calculations in a 2007 study led by Andrew Crockett, the president of JPMorgan Chase International, interest and fees from at least $55 billion in new loans may refill IMF coffers depleted since the Asian financial crisis.

Written off as increasingly irrelevant before the credit market turmoil started, the IMF is undergoing resurgence in money and influence as countries in recession turn to the world's lender of last resort.

"It is the ultimate countercyclical institution and it will see an enormous increase in profits," said Claudio Loser, former director of the fund's Western Hemisphere department and now a fellow at the Inter-American Dialogue, a policy institute in Washington.

The return to profitability will enable IMF Managing Director Dominique Strauss-Kahn to hire more staff with expertise in international markets, an area he wants to improve. The revival could also lead the institution to shelve plans for a sale of some of its gold reserves, an idea floated a year ago to create an endowment to finance operating costs while loan volumes were low.

In the past six months, the IMF has approved $16.4 billion for Ukraine, $15.7 billion for Hungary, $10.4 billion for Latvia, $2.5 billion for Belarus, $2.1 billion for Iceland, $7.6 billion for Pakistan and $516 million for Serbia - a total of about $55 billion. Turkey is negotiating an IMF loan accord, and Romania has expressed an interest in borrowing.

If all the loans are dispersed, fund income would almost triple from projected levels, boosting profit to $646 million, according to the methodology in the Crockett report and affirmed by the former officials. The calculation assumes the debtor nations make payments on time and in full.

Crockett, the former general manager of the Bank for International Settlements, headed a panel that included then- Federal Reserve Chairman Alan Greenspan, European Central Bank President Jean-Claude Trichet and People's Bank of China Governor Zhou Xiaochuan. The panel projected losses from 2007 to 2010.

The most recent borrowing will reverse that trend, although the lending proceeds may not be realized until next year because loans are dispersed in phases and some money can be withheld if countries fail to live up to IMF conditions.

IMF spokesman William Murray declined to comment. Crockett couldn't be reached for comment.

Serbia and Romania seek loans

Serbia needs a new loan deal with the International Monetary Fund because of the global financial crisis, President Boris Tadic said Tuesday, and the Romanian government said it was in "preliminary" talks with international lenders.

Serbia already secured lending last year from the fund, and is now " ready" to change that package into a $2 billion stand-by agreement, Tadic said at a conference in Madrid. "We need to do that because of our economy, and we have to protect our companies," said Tadic. "We are facing real challenges."

In Bucarest, the Romanian Finance Ministry said it and the central bank had "started preliminary discussions with representatives of the European Commission, the International Monetary Fund and international financial institutions on the macroeconomic framework and potential financing needs." The government has not said how much financing it will seek, but an adviser to the central bank last month said the country needed €10 billion in external financing.

Posted in International Monetary Fund