Financial Organization and Operations of the IMF: Overview of the IMF as an International Monetary Institution – part 2

Financial Structure

The financial transactions and operations of the IMF are conducted through the General Department, the SDR Department, and the Administered Accounts (Figure 1). The transactions of the IMF in the General Resources Account are exchanges of monetary assets by the IMF for other monetary assets. The operations of the IMF are other uses or receipts of monetary assets by the IMF.

The IMF is a quota-based institution. When a country becomes a member of the IMF, an amount not exceeding 25 percent of its quota has to be paid in SDRs or usable currencies (“reserve assets”) specified by the IMF and the balance in the member’s own currency, normally in the form of nonnegotiable, non-interest-bearing notes (essentially promissory notes).

The portion of a member’s quota paid in reserve assets becomes its initial reserve tranche in the IMF (known as the “gold tranche” before the Second Amendment of the Articles, when this reserve asset was paid in gold. The reserve tranche position can be defined as the amount by which a member’s quota exceeds the IMF’s holdings of its own currency. A member may draw up to the full amount of its reserve tranche position at any time (subject only to its representation to the IMF that it has a balance of payments need) by transferring to the IMF an equivalent amount of its own currency.

The IMF’s unit of account is the special drawing right (SDR), whose value is calculated daily on the basis of a “valuation basket” comprising five major currencies. The IMF’s financial year runs from May 1 to April 30, with financial quarters starting in May, August, November, and February.

Accounts in Member Countries

Each member is required to designate a fiscal agency and a depository to conduct its financial dealings with the IMF. The fiscal agency may be the member’s treasury (ministry of finance), central bank, official monetary agency, stabilization fund, or other similar entity. The IMF can deal only with, or through, the designated fiscal agency, which is accordingly authorized to carry out on behalf of the member country all operations and transactions authorized under the Articles. In addition, each member is required to designate its central bank as a depository for all IMF holdings of its currency. If it has no central bank, the member can designate another institution such as a monetary agency or even a commercial bank, that is acceptable to the IMF.

A depository is required to pay out of the IMF’s holdings of the member’s currency, on demand and without delay, sums to any payee named by the IMF in the member’s own territory, and hold securities for safe custody on behalf of the IMF if the member issues nonnegotiable, non-interest-bearing notes, or similar instruments, in substitution for part of its currency holdings. In addition, each member guarantees all assets of the IMF against loss resulting from failure or default on the part of the designated depository.

Each depository maintains (without any service charge or commission) two accounts, the IMF No. 1 Account and the IMF No. 2 Account, and some depositories also maintain a Securities Account at the option of the member. The balances in these accounts, which originate, in the first instance, from the payment to the IMF of the member’s quota subscription, do not yield any interest for the IMF.

The No. 1 Account is used for IMF transactions and operations, including subscription payments, purchases, repurchases, repayment of borrowing, and sales of the member’s currency. Provided that a minimum is maintained in the No. 1 Account, as explained below, all these transactions can also be carried out through the IMF Securities Account.

A member may establish an IMF Securities Account to hold nonnegotiable non-interest-bearing notes, or similar obligations, payable to the IMF on demand if the currency is needed for the IMF’s operations and transactions. The depository holds these notes for safekeeping and acts as the agent of the IMF to obtain encashment of the notes in order to maintain at all times the minimum balance in the No. 1 Account. If any payment by the IMF reduces the balance in the No. 1 Account below a minimum of 1/4 of 1 percent of the member’s quota, the balance is to be restored to that level by the next business day through the encashment of sufficient notes.

The No. 2 Account is used for the IMF’s administrative expenditures and receipts (for example, receipts from sales of IMF publications) in the member’s currency and within its territory. Small, out-of-pocket expenses, such as telecommunications charges, may be debited to this account on a quarterly basis.

General Department

Under the Articles, the IMF’s General Department consists of the General Resources Account (GRA), the Special Disbursement Account (SDA), and the Investment Account (not activated as of June 30, 1998). The General Department also includes the Borrowed Resources Suspense Accounts, which were established by a decision of the Executive Board in May 1981 but which have been inactive since 1991 when remaining borrowed resources under the Enlarged Access Policy were disbursed to members.

Most transactions between member countries and the IMF take place through the GRA. This account handles, among other transactions and operations, the receipt of quota subscriptions, purchases and repurchases, receipt and refund of charges, payment of remuneration on members’ creditor positions in the IMF, and repayment of principal to the IMF’s lenders. The assets held in the GRA include currencies of member countries (held in the No. 1 Account, the No. 2 Account, and the Securities Account with each member; see above), the IMF’s own holdings of SDRs, and gold.

The Special Disbursement Account is the vehicle for (1) receiving and investing profits from the sale of the IMF’s gold (that is, the net proceeds in excess of the book value of SDR 35 per fine ounce); and (2) making transfers for special purposes authorized in the Articles. The SDA was activated in 1981 initially to receive transfers from the Trust Fund, which had been funded from gold sales, upon its termination.

The IMF is authorized to establish an Investment Account in the General Department; to date, however, no decision has been taken to this effect.⁴ The assets in the Investment Account would be held separately from the General Resources Account and would not be subject to maintenance-of-value requirements. The Articles envisage that assets in the Investment Account could derive–if authorized by the requisite majority vote–from profits from the sale of the IMF’s gold, from a transfer of currencies held in the GRA, or from the income or proceeds of investments in the account. With the exception of income from the account’s investments, the total amount transferred to the Investment Account may not exceed the resources held in the IMF’s General and Special Reserves. Investments may be made only in income-generating marketable obligations of international financial organizations or of the member whose currency is used for the investment. The income may be reinvested or used to meet the expenses of conducting the business of the IMF, including both operational and administrative expenses.

The Borrowed Resources Suspense Accounts were established to hold, transfer, convert, and invest (1) currencies borrowed by the IMF before they were transferred to the GRA for use in transactions or operations, and (2) currencies received by the IMF in repurchases financed with borrowed resources before repayments to lenders could be made. Members were not obligated to maintain the SDR value of their currencies held by the IMF in the Borrowed Resources Suspense Accounts, and as far as practicable the currencies were invested in SDR-denominated obligations. As mentioned above, since December 1991 no amount has been held in suspense in these accounts.

SDR Department

The IMF’s SDR Department records all transactions and operations involving SDRs. The SDR is an interest-bearing asset allocated by the IMF to each member that is a participant in the SDR Department. As already noted, the IMF uses the SDR as its unit of account. The IMF can hold SDRs in the GRA and can use them in transactions and operations. The GRA receives SDRs in partial payment of quota increases and in the settlement of charges and repurchases; it uses SDRs to finance purchases by members and to pay remuneration to members .

Administered Accounts

The IMF may establish administered accounts for purposes, such as financial and technical assistance, that are consistent with the Articles. Accounts have been established to administer resources for support for the low-income and heavily indebted members (the Enhanced Structural Adjustment Facility and the Heavily Indebted Poor Countries Initiative). There are several other Administered Accounts established for different purposes, including a Framework Administered Account to administer resources to finance technical assistance activities.

Operating Costs

The expenses of conducting the business of the IMF’s General Department along with the IMF’s general overhead are paid from the net operational income of the General Resources Account. The expenses of conducting the business of the SDR Department are also paid from the GRA, which is reimbursed by the participants in the SDR Department at the end of each financial year. For this purpose, the IMF levies an assessment on the participants, at the same rate for all participants, in relation to their net cumulative allocations. Also at the end of each financial year, the ESAF Trust reimburses the GRA for the cost of administering the trust during the year.⁵ The General and SDR Departments and the Administered Accounts are operated, recorded, and accounted for separately, and no assets in one department or administered account may be used to discharge liabilities or to meet losses incurred in the administration of other accounts or departments.

⁴The resources in the GRA are managed in a cost-effective way to either reduce remunerated reserve tranche positions (to lower the IMF’s costs) or increase the IMF’s SDR holdings (to increase the IMF’s revenue). In order to be more profitable than GRA resources, resources in an Investment Account would need to be invested at a rate that exceeds the SDR interest rate after taking into account any exchange risk.
⁵ Except for financial years 1998 and 1999, as explained in Chapter IV.

FIGURE 1. Financial Structure of the IMF

General Department

SDR Department

General Resources Account
(GRA)

Borrowed Resources Suspense Accounts¹

Special Disbursement Account (SDA)

Investment
Account²

SDR
Accounts

Participants

GRA

Other Holders

Subsidy Account

Umbrella Account³

¹ No resources have been held in these accounts since December 1991.
² Account inactive as of June 30, 1995.
³ Account established to receive and administer the proceeds of grants and/or loans made available to eligible members that qualify for assistance under the terms of the ESAF-HIPC Trust.