International Monetary Fund: Observations on the IMF's Financial
Operations (Letter Report, 09/30/1999, GAO/NSIAD/AIMD-99-252).

Pursuant to a legislative requirement, GAO provided information on the
International Monetary Fund's financial operations, focusing on the: (1)
Fund's liquidity position as of April 30, 1999, including its experience
with borrowed resources to meet its members' financing needs; (2) role
of gold holdings in the Fund's operations; and (3) Fund's process for
determining the amount of quota contributions required from its members.

GAO noted that: (1) for the financial year ended April 30, 1999, the
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; (2) these
resources were primarily obtained from members' quota contributions; (3)
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 for fund operations; (4) 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 Fund members and to meet
members' drawings on their reserve assets held by the Fund; (5) the Fund
has not drawn from its working balance reserve in over 20 years, as of
April 30, 1999; (6) its resources available for lending, as of April 30,
1999, may be greater than reported; (7) with the end of the gold
standard in the early 1970s and the passage of the second amendment to
the Fund's Articles of Agreement in April 1978, gold's formal role in
the Fund and in international currency transactions was eliminated; (8)
the Fund's gold holdings as of April 30, 1999, had a market value of $30
billion; (9) the decision to hold gold has resulted in tens of billions
of dollars in forgone realized gains and investment income since 1980;
(10) the 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; (11) the Executive Board uses
several factors to decide on members' quota levels; (12) as part of its
role in the international monetary system, the Fund provides
balance-of-payments assistance to members when needed; (13) 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; and (14) 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.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD/AIMD-99-252
     TITLE:  International Monetary Fund: Observations on the IMF's
	     Financial Operations
      DATE:  09/30/1999
   SUBJECT:  Foreign governments
	     International economic relations
	     Foreign financial assistance
	     Balance of payments
	     Precious metals
	     Foreign loans
	     International organizations
	     Economic analysis
	     Financial management

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Report to Congressional Committees

September 1999

International Monetary Fund

Observations on the IMF's Financial Operations
*****************

*****************

GAO/NSIAD/AIMD-99-252

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

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 1947-9854

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, 1962-9871

Table 9:  GAB Participants and Credit Amounts, as of April 30, 199973

Table 10:  NAB Participants and Credit Amounts, as of April 30, 199975

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, 199921

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, 199935

Figure 6:  IMF Quota Resources, 1948-April 30, 199945

Figure 7:  IMF Member Voting Shares, 1948-April 30, 199950

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, 199972

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

Articles 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
Current 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
                                                      National Security and
                                             International Affairs Division

B-283253

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,/Footnote1/ 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 lending/Footnote2/ 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. 

Much of the information reported is as of April 30, 1999, and to the
extent possible, we used data audited/Footnote3/ 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
Account/Footnote4/ 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./Footnote5/ See appendix
VI for a full description of our objectives, scope, and methodology.

Results in Brief

The International Monetary Fund's financial operations are supported by
quota contributions of its members, Special Drawings Rights,/Footnote6/
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./Footnote7/ 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 

for Fund operations. The remaining $92 billion was considered
unusable./Footnote8/ 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 liquidity/Footnote9/ 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./Footnote10/ 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
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 Board/Footnote11/ 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 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 

facilities/Footnote12/ 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./Footnote13/ 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
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./Footnote14/ 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 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./Footnote15/ 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./Footnote16/ 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./Footnote17/ The balance may be paid either in a
country's domestic currency or with noninterest-bearing promissory
notes./Footnote18/ The portion paid in freely usable currency, or SDR, is
referred to as the member's "reserve asset" or "initial reserve tranche
position."

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 

o currencies of members that were using IMF resources and were therefore
  in a weak balance-of-payments or reserve position;

o 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;

o 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 

o 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****Helvetica:x11****1:    Calculation of the IMF's Available and
                                Uncommitted Resources as of
                                April 30, 1999

-----------------------------------------------------------------------
| 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  |
-----------------------------------------------------------------------

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

aThis includes currencies of members with relatively weak external
positions, the IMF's gold holdings, and other nonliquid assets.

bAmounts 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 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./Footnote19/ 

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./Footnote20/ 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) remuneration/Footnote21/ 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 

the IMF, can also be used for working balances./Footnote22/ 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./Footnote23/ 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)./Footnote24/ 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./Footnote25/ 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 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
position./Footnote26/ 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.)

Figure****Helvetica:x11****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./Footnote27/ The Fund has not borrowed from
private capital markets, although the IMF's Articles of Agreements permit
it to do so./Footnote28/ 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 GAB/Footnote29/ 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,/Footnote30/ 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./Footnote31/ 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 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

o gold provides a "fundamental strength" to the IMF;

o gold provides operational maneuverability in the IMF's use of its
  resources and adds credibility to its precautionary balances;

o gold should be held to meet unforeseen contingencies; 

o the IMF has a responsibility to avoid disruption to the functioning of
  the gold market; and

o 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 holders/Footnote32/ 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 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./Footnote33/  Under the IMF's Articles of Agreement, members
may have residual rights to the gold in two instances: if the Fund elects
to restitute/Footnote34/ 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./Footnote35/ In the latter case, gold may be distributed to members
on the same basis after the Fund's liabilities have been
satisfied./Footnote36/ 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./Footnote37/ 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 previously sold to the United States.  Appendix II provides
additional details on the sources and uses of the Fund's gold holdings.

Figure****Helvetica:x11****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 

monetized but not sold its gold holdings./Footnote38/  Beginning in 1988,
this consensus began to weaken among certain official holders, with the
sale of official gold holdings by Canada./Footnote39/ 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
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,/Footnote40/ 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,/Footnote41/ 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 

be used./Footnote42/ 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./Footnote43/ The selective
element was distributed in proportion to members' shares, based on the
quota calculations of IMF staff./Footnote44/ 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 not
have sufficient access to capital markets, particularly in periods of
financial distress, and continue to rely upon the IMF for financial support.

Figure****Helvetica:x11****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:

o 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.

o 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.

o 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-of-
payment 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-
****ITCCentury Book:xba**** 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 

quota./Footnote45/ 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****Helvetica:x11****4:    Growth in Use of IMF GRA Credit by the 10
                                 Largest Users, 1983-99

*****************

*****************

Source: GAO analysis of IMF annual report data.

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****Helvetica:x11****2:    IMF Borrowing Arrangements That Exceeded
                                300 Percent of Quota, as of April 30, 1999

-------------------------------------------------------------------------
| Dollars in billions          :               :             :          |
|-----------------------------------------------------------------------|
|                              :   Arrangement :   Amount of : Percent  |
|                              :               : arrangement :      of  |
| Member                       :          date :             :   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  |
-------------------------------------------------------------------------

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./Footnote46/
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

o declaring members ineligible for further lending until arrears are
  cleared,

o   adopting a burden-sharing mechanism that created additional funds to
  share the cost of overdue obligations to the IMF between debtors and
  creditors,

o   developing a Strengthened Cooperative Strategy (including a rights
  accumulation program)/Footnote47/ that included communications with
  international financial institutions if a member fails to fulfill its
  financial obligations to the Fund, 

o   issuance of a public declaration of noncooperation/Footnote48/ when a
  member does not actively cooperate with the Fund, 

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

o   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./Footnote49/ 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,/Footnote50/ three were issued
declarations of noncooperation,/Footnote51/ two have had their voting
rights suspended,/Footnote52/ and one member is under consideration for
compulsory withdrawal from the Fund as of April 30, 1999./Footnote53/

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 critical/Footnote54/ 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 "user-
developed 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 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.

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 

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

--------------------------------------
/Footnote1/-^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).
/Footnote2/-^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."
/Footnote3/-^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.
/Footnote4/-^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.
/Footnote5/-^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.
/Footnote6/-^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.
/Footnote7/-^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.
/Footnote8/-^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.
/Footnote9/-^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.
/Footnote10/-^The underpinnings for the Fund's liquidity threshold derives
  from its unique nature among the international financial institutions.
/Footnote11/-^The 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.
/Footnote12/-^The 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.
/Footnote13/-^Refer to appendix IV for details.
/Footnote14/-^The 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.
/Footnote15/-^These 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.
/Footnote16/-^An 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).
/Footnote17/-^Articles of Agreement, Art. III, Sec. 3(a).
/Footnote18/-^24 hours to receive members' domestic currency. IMF members
  are obligated to maintain the SDR value of their quotas.
/Footnote19/-^The 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. 
/Footnote20/-^The 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.
/Footnote21/-^Remuneration is interest paid to a member for use of its
  currency.
/Footnote22/-^According 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.
/Footnote23/-^"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.
/Footnote24/-^The 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.
/Footnote25/-^Articles 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.
/Footnote26/-^Articles of Agreement, Art. V, Sec. 3.
/Footnote27/-^The 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. 
/Footnote28/-^Articles of Agreement, Art. VII, Sec. 1 (i). However, a
  member can object to its currency being borrowed from whatever source.
/Footnote29/-^The 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.
/Footnote30/-^The 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.
/Footnote31/-^As of August 30, 1999, the market value of the Fund's gold
  holdings had declined to about $26 billion.
/Footnote32/-^The United States, the official holder with the largest
  amount of gold reserves, continues to view gold as a valuable reserve
  asset.
/Footnote33/-^IMF Executive Board, Dec. No. 170-3 (5/20/47).
/Footnote34/-^According 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.
/Footnote35/-^Articles of Agreement, Art. V, Sec. 12 (e).
/Footnote36/-^Articles of Agreement, Schedule K.
/Footnote37/-^In 1992, the Fund accepted 21,396 fine ounces of gold from
  Cambodia as payment for repurchase obligations.
/Footnote38/-^The 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.
/Footnote39/-^Canada reduced its official gold reserve from 17 million
  ounces to 4 million ounces, between 1988 and 1995.
/Footnote40/-^The amount of funds that a member may borrow from the IMF is
  typically limited to a certain percentage of that member's quota. 
/Footnote41/-^Equiproportional 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.
/Footnote42/-^The 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.
/Footnote43/-^In 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.
/Footnote44/-^The quota calculations are based on formulas, which take
  into account each member's GDP, current payments and receipts,
  variability of current receipts, and reserves.
/Footnote45/-^300 percent, unless exceptional circumstances exist.
/Footnote46/-^The 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.
/Footnote47/-^The 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
  burden-sharing mechanism.)
/Footnote48/-^A declaration of noncooperation is a prelude to suspending
  the member's voting rights.
/Footnote49/-^The five countries are Congo (DRC), Liberia, Somalia, Sudan
  and the portion of the former Yugoslavia pertaining to Serbia/Montenegro.
/Footnote50/-^The four countries are Congo (DRC), Liberia, Somalia, and
  Sudan.
/Footnote51/-^The three countries are Congo (DRC), Liberia, and Sudan. In
  August 1999, the IMF lifted the declaration of noncooperation for Sudan.
/Footnote52/-^The two countries are Congo (DRC) and Sudan.
/Footnote53/-^The country is Sudan.
/Footnote54/-^These systems include the financial and administrative
  system, the member country account system and the payroll system.

THE IMF'S LIQUID RESOURCES AND LIQUIDITY POSITION
=================================================

The liquid resources of the International Monetary Fund (IMF) consist of
national currencies and Special Drawing Rights (SDR)./Footnote1/ 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./Footnote2/
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./Footnote3/ 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./Footnote4/

Figure****Helvetica:x11****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. 

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****Helvetica:x11****3:    Eleventh General Review's Quota Increase
                                and Related Reserve Tranche Drawings
                                Through April 30, 1999, for Certain Members

                                       Continued from Previous Page
------------------------------------------------------------------------
| Dollars in millions                                                  |
|----------------------------------------------------------------------|
| Country               :  Eleventh General :         Reserve tranche  |
|                       :          Review's :        contribution and  |
|                       :    quota increase :  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       :                20 :                       5  |
| Republic              :                   :                          |
|----------------------------------------------------------------------|
| Chad                  :                20 :                       5  |
|----------------------------------------------------------------------|
| Comoros               :                 3 :                       1  |
|----------------------------------------------------------------------|
| Congo, Republic of    :                36 :                       9  |
|----------------------------------------------------------------------|
| Cote d'Ivoire         :               118 :                      29  |
|----------------------------------------------------------------------|
| 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         :               566 :                     141  |
| Republic of           :                   :                          |
|----------------------------------------------------------------------|
| 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     :                26 :                       7  |
| Yugoslav Republic of  :                   :                          |
|----------------------------------------------------------------------|
| 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  |
|----------------------------------------------------------------------|
| 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                   :                 3 :                       1  |
| Tom****Helvetica:x8e* :                   :                          |
| *** &                 :                   :                          |
| Pr****Helvetica:x92** :                   :                          |
| **ncipe               :                   :                          |
|----------------------------------------------------------------------|
| 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  |
|----------------------------------------------------------------------|
| Zimbabwe              :             $ 124 :                      31  |
|----------------------------------------------------------------------|
| Total                 :           $14,348 :                  $3,587  |
------------------------------------------------------------------------

aLess than $1 million.

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

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

--------------------------------------
/Footnote1/-^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.
/Footnote2/-^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. 
/Footnote3/-^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.
/Footnote4/-^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.

THE IMF'S GOLD HOLDINGS
=======================

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./Footnote1/ Among other changes, the second amendment abolished
the official price for gold, eliminated its use as the common denominator
in the par value system,/Footnote2/ 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./Footnote3/

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./Footnote4/ 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. 

When the IMF sells gold, the original capital value of the gold of SDR 35
per fine ounce is deposited in the GRA/Footnote5/ 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),/Footnote6/ 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./Footnote7/ 

Specifically, the Articles of Agreement state that, based on majority
votes by the Executive Board, assets held in the SDA may be used/Footnote8/

o to make transfers to the GRA for immediate use in the IMF's operations
  (70 percent of total voting power required);

o 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);

o 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

o to transfer SDA resources to the investment account (85 percent of
  total voting power required)./Footnote9/

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./Footnote10/ 

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:

o 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.

o Payment of charges. Originally, all charges, that is, interest on
  members' outstanding use of IMF credit, were normally payable in gold.

o Repurchases. Members were permitted--and in some circumstances could be
  required--to use gold to repay the IMF for credit previously extended.

o 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: 

o 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. 

o 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.

o 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. 

o 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.

--------------------------------------
/Footnote1/-^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.
/Footnote2/-^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.
/Footnote3/-^In the face of the development of worldwide currency
  exchange markets, the SDR has never achieved the preeminence anticipated
  by the IMF.
/Footnote4/-^Articles of Agreement, Art. V, Sec. 12(b)
/Footnote5/-^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.
/Footnote6/-^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.
/Footnote7/-^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.
/Footnote8/-^Articles of Agreement, Art. V, Sec. 12(f).
/Footnote9/-^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.
/Footnote10/-^Articles of Agreement, Art. V, Sec. 12(h).

THE IMF'S QUOTA REVIEWS
=======================

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 recommendations/Footnote1/ 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,/Footnote2/
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.

Figure****Helvetica:x11****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.

Comparison of Staff's Recommendations and the Board of Governors' Approved
Quota Increases
---------------------------------------------------------------------------

From our review of IMF documents,/Footnote3/ 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.

Table****Helvetica:x11****4:    General Reviews of IMF Quotas

                                       Continued from Previous Page
----------------------------------------------------------------------------
| Review/Da : Quota     : Recommend :   Final : Percentag :  : Some        |
| te        : increase  : ed quota  : decisio :    e real :  : reasons     |
|           : suggested : increase  :    n by :    growth :  : cited for   |
|           :  from     : from IMF  :   Board :        in :  : increase    |
|           : formulas  : staff     :      of :  approved :  : or no       |
|           :           :           : Governo :   quotasb :  : increase    |
|           :           :           :     rsa :           :  : in quotas   |
|--------------------------------------------------------------------------|
| First     : N/A       : 100%      :      0% :      -24% :  : N/A         |
| Review    :           :           :         :           :  :             |
|           :           :           :         :           :  :             |
| 1950      :           :           :         :           :  :             |
|--------------------------------------------------------------------------|
| Second    : N/A       : Graduated :      0% :       -4% :  : Quotas      |
| Review    :           :  scale    :         :           :  : were        |
|           :           : of        :         :           :  : considered  |
| 1955      :           : revisionc :         :           :  :  large      |
|           :           :           :         :           :  : and had     |
|           :           :           :         :           :  : remained    |
|           :           :           :         :           :  : relatively  |
|           :           :           :         :           :  :  unused.    |
|--------------------------------------------------------------------------|
| Special   : N/A       : N/A       :   60.7% :       46% :  : Growth in   |
| General   :           :           :         :           :  : the world   |
| Increase  :           :           :         :           :  : economy.    |
|           :           :           :         :           :  :             |
| 1959      :           :           :         :           :  : Large       |
|           :           :           :         :           :  : amount of   |
|           :           :           :         :           :  : IMF         |
|           :           :           :         :           :  : drawings    |
|           :           :           :         :           :  : and         |
|           :           :           :         :           :  : arrangemen  |
|           :           :           :         :           :  : ts.         |
|--------------------------------------------------------------------------|
| Third     : N/A       : N/A       :      0% :       -1% :  : N/A         |
| Review    :           :           :         :           :  :             |
|           :           :           :         :           :  :             |
| 1960      :           :           :         :           :  :             |
|--------------------------------------------------------------------------|
| Fourth    : N/A       : 50% plus  :   30.7% :       30% :  : Concerns    |
| Review    :           : selective :         :           :  : over a      |
|           :           :           :         :           :  : possible    |
| 1965      :           : increases :         :           :  : deficiency  |
|           :           :  to       :         :           :  :  in         |
|           :           : reduce    :         :           :  : internatio  |
|           :           : dispariti :         :           :  : nal         |
|           :           : es in     :         :           :  : liquidity.  |
|           :           : the       :         :           :  :             |
|           :           : quotas    :         :           :  : Address     |
|           :           : of some   :         :           :  : some        |
|           :           : members.  :         :           :  : members'    |
|           :           :           :         :           :  : larger      |
|           :           :           :         :           :  : positions   |
|           :           :           :         :           :  : in the      |
|           :           :           :         :           :  : world       |
|           :           :           :         :           :  : economy.    |
|--------------------------------------------------------------------------|
| Fifth     : N/A       : A         :   35.4% :       11% :  : To better   |
| Review    :           : general   :         :           :  : reflect     |
|           :           : increase  :         :           :  : some        |
| 1970      :           : of        :         :           :  : members'    |
|           :           : reasonabl :         :           :  : stronger    |
|           :           : e size.   :         :           :  : economic    |
|           :           :           :         :           :  : positions.  |
|           :           :           :         :           :  :             |
|           :           :           :         :           :  : Reduce      |
|           :           :           :         :           :  : IMF's       |
|           :           :           :         :           :  : reliance    |
|           :           :           :         :           :  : on          |
|           :           :           :         :           :  : borrowing.  |
|--------------------------------------------------------------------------|
| Sixth     : 75%       : 70-100%   :   33.6% :      -14% :  : Emerging    |
| Review    :           :           :         :           :  : high        |
|           :           :           :         :           :  : balance-    |
| 1976      :           :           :         :           :  : of-         |
|           :           :           :         :           :  : payment     |
|           :           :           :         :           :  : deficits.   |
|           :           :           :         :           :  : Better      |
|           :           :           :         :           :  : reflect     |
|           :           :           :         :           :  : some        |
|           :           :           :         :           :  : members'    |
|           :           :           :         :           :  : stronger    |
|           :           :           :         :           :  : economic    |
|           :           :           :         :           :  : positions.  |
|           :           :           :         :           :  :             |
|           :           :           :         :           :  : Reduce      |
|           :           :           :         :           :  : IMF's       |
|           :           :           :         :           :  : reliance    |
|           :           :           :         :           :  : on          |
|           :           :           :         :           :  : borrowing.  |
|--------------------------------------------------------------------------|
| Seventh   : 90%       : 75-100%   :   50.9% :       31% :  : Many        |
| Review    :           :           :         :           :  : members     |
|           :           :           :         :           :  : with        |
| 1978      :           :           :         :           :  : small       |
|           :           :           :         :           :  : quotas      |
|           :           :           :         :           :  : reluctant   |
|           :           :           :         :           :  : to ask      |
|           :           :           :         :           :  : the Fund    |
|           :           :           :         :           :  : for         |
|           :           :           :         :           :  : assistance  |
|           :           :           :         :           :  :  because    |
|           :           :           :         :           :  : of their    |
|           :           :           :         :           :  : limited     |
|           :           :           :         :           :  : access to   |
|           :           :           :         :           :  : credit.     |
|           :           :           :         :           :  : Reduce      |
|           :           :           :         :           :  : IMF's       |
|           :           :           :         :           :  : reliance    |
|           :           :           :         :           :  : on          |
|           :           :           :         :           :  : borrowing.  |
|--------------------------------------------------------------------------|
| Eighth    : 106%      : A         :   47.5% :        3% :  : Adjust      |
| Review    :           : relativel :         :           :  : members'    |
|           :           : y large   :         :           :  : quotas      |
| 1983      :           : general   :         :           :  : relative    |
|           :           : increase  :         :           :  : to their    |
|           :           : plus      :         :           :  : economic    |
|           :           : selective :         :           :  : positions   |
|           :           :           :         :           :  : in the      |
|           :           : increases :         :           :  : world       |
|           :           :  for      :         :           :  : economy.    |
|           :           : many      :         :           :  :             |
|           :           : members.  :         :           :  :             |
|--------------------------------------------------------------------------|
| Ninth     : 58%       : 50% with  :     50% :       19% :  : Persistent  |
| Review    :           : a         :         :           :  :  debt       |
|           :           : proportio :         :           :  : problem     |
| 1990      :           : nate      :         :           :  : in Latin    |
|           :           : increase  :         :           :  : America.    |
|           :           : in IMF's  :         :           :  :             |
|           :           : borrowing :         :           :  : Reduce      |
|           :           :           :         :           :  : IMF's       |
|           :           : authority :         :           :  : reliance    |
|           :           :  or by    :         :           :  : on          |
|           :           : about     :         :           :  : borrowing.  |
|           :           : 100% if   :         :           :  :             |
|           :           : IMF's     :         :           :  :             |
|           :           : borrowing :         :           :  :             |
|           :           :           :         :           :  :             |
|           :           : authority :         :           :  :             |
|           :           :  is not   :         :           :  :             |
|           :           : included. :         :           :  :             |
|--------------------------------------------------------------------------|
| Tenth     : 34%       : Selective :      0% :       -5% :  : The         |
| Review    :           :           :         :           :  : overall     |
|           :           : increases :         :           :  : size of     |
| 1995      :           :  based    :         :           :  : the IMF     |
|           :           : on        :         :           :  : was         |
|           :           : members'  :         :           :  : considered  |
|           :           : shares    :         :           :  :             |
|           :           : in        :         :           :  : sufficient  |
|           :           : calculate :         :           :  :  to         |
|           :           : d quotas. :         :           :  : effectivel  |
|           :           :           :         :           :  : y promote   |
|           :           :           :         :           :  : its         |
|           :           :           :         :           :  : purposes.   |
|--------------------------------------------------------------------------|
| Eleventh  : 23%       : 100%      :     45% :       40% :  : Increased   |
| Review    :           :           :         :           :  : demand      |
|           :           :           :         :           :  : for IMF     |
| 1998      :           :           :         :           :  : resources.  |
|           :           :           :         :           :  :  Growth     |
|           :           :           :         :           :  : in world    |
|           :           :           :         :           :  : trade and   |
|           :           :           :         :           :  : payments.   |
|           :           :           :         :           :  : Increased   |
|           :           :           :         :           :  : volatility  |
|           :           :           :         :           :  :  of         |
|           :           :           :         :           :  : balance-    |
|           :           :           :         :           :  : of-         |
|           :           :           :         :           :  : payments    |
|           :           :           :         :           :  : stemming    |
|           :           :           :         :           :  : from        |
|           :           :           :         :           :  : sharp       |
|           :           :           :         :           :  : changes     |
|           :           :           :         :           :  : in          |
|           :           :           :         :           :  : private     |
|           :           :           :         :           :  : capital     |
|           :           :           :         :           :  : flows.      |
----------------------------------------------------------------------------

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. 

aPercentage increases of Board of Governors reflect overall increases at
the date the quota increase was adopted. 

bA GAO-constructed SDR deflator is used to calculate real growth in
approved quotas.

cGraduated 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 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./Footnote4/ 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,/Footnote5/
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 form a voting bloc and oppose certain decisions, such as the
raising of the interest rate charged for the use of IMF resources. 

Figure****Helvetica:x11****7:    IMF Member Voting Shares, 1948-April 30,
                                 1999

*****************

*****************

Source: GAO analysis of IMF data.

--------------------------------------
/Footnote1/-^The IMF's staff recommendations included comments from IMF's
  Managing Director.
/Footnote2/-^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.
/Footnote3/-^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.
/Footnote4/-^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.
/Footnote5/-^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).

THE IMF'S LENDING ACTIVITIES
============================

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./Footnote1/ 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./Footnote2/ 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:

o 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.

o 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.

o 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.

o 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.

o 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.

o 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. 

o 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.

o The Systemic Transformation Facility (STF) was available from 1993 to
  1995 to provide funding to 28 countries to transition/Footnote3/ 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.

o 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-****ITCCentury Book:xba****
  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-****ITCCentury Book:xba**** 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-****ITCCentury Book:xba****
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.

Table****Helvetica:x11****5:    IMF Members With 20 or More Years of IMF
                                GRA Lending, Calendar Years 1947-98

                                                 from Previous Page
---------------------------------------------------------------------------
| Dollars in millions                                                     |
|-------------------------------------------------------------------------|
| Number: Country        :    Number : Cumulativ :           :            |
|       :                :  of years :         e :           :            |
|       :                :       of  : purchases :   Longest :    Second  |
|       :                : purchases :           :    period :   longest  |
|       :                :           :           :           :    period  |
|-------------------------------------------------------------------------|
| 1     : Philippines    :        30 :    $9,870 : 12 (1970- :  7 (1983-  |
|       :                :           :           :       81) :       89)  |
|-------------------------------------------------------------------------|
| 2     : Pakistan       :        25 :     7,906 : 12 (1972- :  8 (1991-  |
|       :                :           :           :       83) :       98)  |
|-------------------------------------------------------------------------|
| 3     : Argentina      :        24 :    20,928 : 13 (1985- :  5 (1959-  |
|       :                :           :           :       97) :       63)  |
|-------------------------------------------------------------------------|
| 4     : Turkey         :        24 :     8,374 :  7 (1978- :  6 (1966-  |
|       :                :           :           :       84) :       71)  |
|-------------------------------------------------------------------------|
| 5     : Chile          :        23 :     7,625 :  7 (1983- :  7 (1963-  |
|       :                :           :           :       89) :       69)  |
|-------------------------------------------------------------------------|
| 6     : Haiti          :        23 :       518 :  7 (1961- :  5 (1980-  |
|       :                :           :           :       67) :       84)  |
|-------------------------------------------------------------------------|
| 7     : Sri Lanka      :        23 :     3,053 : 21 (1965- :  1 (1988)  |
|       :                :           :           :       84) :            |
|-------------------------------------------------------------------------|
| 8     : Jamaica        :        21 :     3,064 : 15 (1981- :  4 (1976-  |
|       :                :           :           :       95) :       79)  |
|-------------------------------------------------------------------------|
| 9     : Mali           :        21 :       405 :  9 (1964- :  5 (1982-  |
|       :                :           :           :       72) :       86)  |
|-------------------------------------------------------------------------|
| 10    : Bolivia        :        20 :       916 :  8 (1956- :  3 (1971-  |
|       :                :           :           :       63) :       73)  |
|-------------------------------------------------------------------------|
| 11    : Sudan          :        20 :     2,879 :  7 (1978- :  6 (1964-  |
|       :                :           :           :       84) :       69)  |
|-------------------------------------------------------------------------|
|       : Subtotal of    :       254 :    65,538 :           :            |
|       : 11 countries   :           :           :           :            |
|       : above          :           :           :           :            |
|-------------------------------------------------------------------------|
|       : Total all      :     1,219 :  $394,159 :           :            |
|       : borrowers      :           :           :           :            |
---------------------------------------------------------------------------

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,/Footnote4/ 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 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./Footnote5/ 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,/Footnote6/
for a total rate/Footnote7/ 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 points/Footnote8/ 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./Footnote9/ 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 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. 

o 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.

o 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.

o 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.

o 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.

o 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.

The Evolution of Remuneration 
------------------------------

A summary of remuneration paid to members as a percentage of their
remunerated reserve tranche position follows.

o From 1947 to 1969, remuneration was not paid to members.

o From 1970 to 1974, remuneration of 1.5 percent was paid.

o For 1975 and 1976, remuneration from a low of 1.5 percent to a high of
  about 5 percent was paid.

o 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.

o 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.

o 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.

Table****Helvetica:x11****6:    The 10 Largest GRA Borrowers, 1983-99

                                                from Previous Page
-------------------------------------------------------------------------
| Dollars in billions                                                   |
|-----------------------------------------------------------------------|
| Member       :   Number of :         10 :      Members :     Members  |
|              :       years :    largest :         with :  with fully  |
|              :   among the :   balances :    partially :    paid-off  |
|              :  10 largest :            :     paid-off : balances as  |
|              :   borrowers :            : balances as  :    of April  |
|              :             : outstandin :     of April :    30, 1999  |
|              :             :      g as  :     30, 1999 :              |
|              :             :   of April :              :              |
|              :             :   30, 1999 :              :              |
|-----------------------------------------------------------------------|
| Algeria      :           6 :       $1.8 :              :              |
|-----------------------------------------------------------------------|
| Argentina    :          17 :        4.9 :              :              |
|-----------------------------------------------------------------------|
| Brazil       :          11 :        9.5 :              :              |
|-----------------------------------------------------------------------|
| Chile        :           7 :            :              :           X  |
|-----------------------------------------------------------------------|
| Czechoslovak :           2 :            :            X :              |
| iaa          :             :            :              :              |
|-----------------------------------------------------------------------|
| 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,  :           7 :            :            X :              |
| SFRa         :             :            :              :              |
|-----------------------------------------------------------------------|
| Zambia       :           4 :            :              :           X  |
|-----------------------------------------------------------------------|
| Total        :             :      $70.8 :            9 :           6  |
-------------------------------------------------------------------------

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

aThese member balances have accrued to successor countries.

Source: GAO analysis of IMF annual reports.

Arrears by Country Since 1983 

Since 1983, there were 15 IMF members/Footnote10/ 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:

o 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. 

o 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.

o 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 assistance from a support group co-chaired by France and
  Japan and then became eligible for additional IMF lending.

o 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. 

o 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.

o 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.

o 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
  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.

o 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.

o 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.

o 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.

o 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.

o 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.

o 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

o 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.

o 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.

Additionally, two other members were in arrears to IMF's SDR Department
for amounts owed for quarterly charges on their allocation of SDRs:

o 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.

o 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 

o technically does not make a loan as members purchase currencies from
  the IMF with an equivalent amount of their national currency;

o determined that it could not write off any currency holdings while a
  country is an IMF member;

o determined that potential losses were neither probable nor estimable;

o extends lending only to members; and 

o 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. 

o 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.

o 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. 

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****Helvetica:x11****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

o 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

o 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 

encashment/Footnote11/ of rights following the completion of the rights
accumulation program/Footnote12/ 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.

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.

--------------------------------------
/Footnote1/-^The IMF's reported amounts have been adjusted to 1998 dollars
  using an SDR price deflator and the average 1998 dollar/SDR exchange rate.
/Footnote2/-^An additional two members, Iraq and Afghanistan, are also in
  arrears to IMF's SDR Department.
/Footnote3/-^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.
/Footnote4/-^The commitment fee is payable upon agreement on an
  arrangement, but the fee is refundable as purchases are made.
/Footnote5/-^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.
/Footnote6/-^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.
/Footnote7/-^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.
/Footnote8/-^100 basis points equal 1 percent interest.
/Footnote9/-^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).
/Footnote10/-^Includes remaining amounts of the former Yugoslavia
  pertaining to Serbia/Montenegro, which is not an IMF member.
/Footnote11/-^To provide liquid resources when the members are considered
  eligible to receive the funds.
/Footnote12/-^This 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.

THE IMF'S BORROWING AND CREDIT LINES
====================================

The IMF has relied mainly on quota resources as its primary source of
financing but has used borrowing and its credit lines from official
sources/Footnote1/ 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****Helvetica:x11****7:    IMF Outstanding Borrowing as a Percent of
                                Outstanding IMF Credit 1964-April 30, 1999

 

Continued from Previous Page
-------------------------------------------------------------------------
| 1998 dollars in billions                                              |
|-----------------------------------------------------------------------|
|                                      :           :  Outstanding IMF   |
|                                      :           :     borrowing      |
|-----------------------------------------------------------------------|
| Year-end December                    : Amount of :        :     As a  |
|                                      :           :        :  percent  |
|                                      : outstandi : Amount :       of  |
|                                      :    ng IMF :        : outstand  |
|                                      :    credit :        : ing IMF   |
|                                      :           :        :  credit   |
|-----------------------------------------------------------------------|
| 1964                                 :     $10.1 :        :     27.7  |
|                                      :           :  $ 2.8 :           |
|-----------------------------------------------------------------------|
| 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  |
|-----------------------------------------------------------------------|
| 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  |
-------------------------------------------------------------------------

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.

o 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).

o 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.

o 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.

o 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.

Table****Helvetica:x11****8:    IMF Borrowing Arrangements and Agreements,
                                1962-98

                                                                    
-------------------------------------------------------------------------
| Dollars in billions                                                   |
|-----------------------------------------------------------------------|
| Borrowing arrangement or       :        Number of :  Total amount of  |
| agreement                      :        countries :        borrowing  |
|                                :                  :        authority  |
|                                :  or central banks:                   |
|-----------------------------------------------------------------------|
| Current borrowing arrangements::                  :                   |
|                                :                  :                   |
| The GAB (1983)a                :               11 :            $23.0  |
|                                :                  :                   |
| Associated borrowing           :                  :                   |
| agreement with                 :                  :                   |
|                                :                1 :             2.0   |
|    Saudi Arabia (1983)b        :                  :                   |
|                                :               25 :             23.0  |
| The NAB (1998)                 :                  :                   |
|-----------------------------------------------------------------------|
| Past borrowing agreements:     :                  :              6.4  |
|                                :                  :                   |
| The GAB (1962-83)a             :               10 :              3.4  |
|                                :                  :                   |
| Oil facility (1974)c           :                7 :              3.5  |
|                                :                  :                   |
| Oil facility (1975)c           :               12 :                   |
|                                :                  :                   |
| Supplemental Financing         :                  :             10.1  |
|                                :                  :                   |
|    Facility (SFF) (1979-84)    :               14 :                   |
|                                :                  :                   |
| Enlarged Access to Resources   :                  :                   |
| (EAR):                         :                  :                   |
|                                :                  :                   |
|    Medium term (1981-87)       :                  :                   |
|                                :                  :              9.4  |
|        Saudi Arabian Monetary  :                  :                   |
| Agency                         :                1 :                   |
|                                :                  :                   |
|        (SAMA)                  :                  :                   |
|                                :                  :                   |
| Short term (1981)              :                  :              1.5  |
|                                :                  :                   |
|     Bank for International     :               19 :                   |
| Settlement                     :                  :                   |
|                                :                  :                   |
|        (BIS) and others        :                  :                   |
|                                :                  :              6.2  |
| Short term (1984)              :                  :                   |
|                                :       4          :              3.5  |
|      SAMA, BIS, Government of  :                  :                   |
| Japan,                         :              1   :                   |
|                                :                  :                   |
|         and National Bank of   :                  :                   |
| Belgium                        :                  :                   |
|                                :                  :                   |
|    Government of Japan (1986-  :                  :                   |
| 91)                            :                  :                   |
-------------------------------------------------------------------------

aThe GAB was revised and enlarged in 1983.

bUnder 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

cThe 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.

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****Helvetica:x11****9:    Outstanding IMF Borrowing, 1962-April 30,
                                 1999

*****************

*****************

Source: IMF's International Financial Statistics.

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****Helvetica:x11****9:    GAB Participants and Credit Amounts, as of
                                April 30, 1999

                                                                    
------------------------------------------------------------------------
| 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  |
------------------------------------------------------------------------

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
SDR interest rate. Since its inception, the GAB has been activated 10
times, with total drawings of about $7.2 billion.

o 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.

o 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.

o 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. 

Table****Helvetica:x11****10:    NAB Participants and Credit Amounts, as
                                 of April 30, 1999

                                                  from Previous Page
------------------------------------------------------------------------
| 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      :                                       459  |
| Authority               :                                            |
|----------------------------------------------------------------------|
| Korea                   :                                       459  |
|----------------------------------------------------------------------|
| Luxembourg              :                                       459  |
|----------------------------------------------------------------------|
| Malaysia                :                                       459  |
|----------------------------------------------------------------------|
| Singapore               :                                       459  |
|----------------------------------------------------------------------|
| Thailanda               :                                       459  |
|----------------------------------------------------------------------|
| Total                   :                                   $45,942  |
------------------------------------------------------------------------

aAlso 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
those specified in the GAB. However, under the NAB, activation for a non-
participant is not subject to more stringent criteria related to the IMF's
liquidity situation. Nevertheless, 

o 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

o 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.

--------------------------------------
/Footnote1/-^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.

OBJECTIVES, SCOPE, AND METHODOLOGY
==================================

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 

o liquidity position as of April 30, 1999, including the Fund's
  experience with borrowed resources to meet its members' financing needs;

o gold holdings and its role in the IMF's financial operations; and

o 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:

o 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.

o 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./Footnote1/

o 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.

o 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.

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:

o 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. 

o 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
  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.

o 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.

o 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. 

o 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
  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.

--------------------------------------
/Footnote1/-^See Developing Countries: Status of the Heavily Indebted Poor
  Countries Debt Relief Initiative (GAO/NSIAD-98-229, Sept. 30, 1998).

GAO CONTACTS AND STAFF ACKNOWLEDGMENTS
======================================

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)

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 1947-9854

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, 1962-9871

Table 9:  GAB Participants and Credit Amounts, as of April 30, 199973

Table 10:  NAB Participants and Credit Amounts, as of April 30, 199975

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, 199921

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, 199935

Figure 6:  IMF Quota Resources, 1948-April 30, 199945

Figure 7:  IMF Member Voting Shares, 1948-April 30, 199950

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, 199972

*** End of document. ***