Squaring Off With the IMF In Madrid

MADRID -- A regular bullfight was played out at last week's meeting of the International Monetary Fund and the World Bank in Madrid. The old conflicts between the rich and poor countries of the IMF flared up again and remained unresolved.


The main object of contention were special drawing rights (SDR) for funds that are released by the IMF to members in correspondence with their quota of the Fund's basic capital. SDR credits are especially attractive to borrowers because, even though interest must be paid, there is no specified term for repayment.


In the history of the IMF, SDR credits have only been issued twice -- once at the end of the 1960s and again at the end of the 1970s. Since then, the neediest members of the IMF have been using the funds, but the richest countries have not touched them. Naturally, the poor countries have been insistently proposing for some time that the IMF release new SDR credits, while the rich countries have been adamantly refusing to do so.


This debate over SDR has already gone on for more than 10 years and probably would have continued at least that long again if a number of new members from the former Soviet Union had not entered the IMF. Now a new note has been sounded in this old discussion: The countries that were accepted as full members of the IMF in 1992-3 have not received any SDR credits.


The rich nations have turned out to be rather more sensitive to the claim that new members are being discriminated against and the argument brought forward by Russia and the so-called newly independent states is sound. On one hand, the rich countries understand that it is necessary to help the reforms in the East and are, in principle, ready to do so. But, on the other hand, even the richest among them have their own domestic problems that are demanding their resources. Helping the new countries by releasing new SDR will go some way toward solving this problem without raising the ire of voters in these countries.


Russia played a rather active role in the new discussion of this old problem. After all, it was Russia that six months ago raised the question of finding additional financial sources for new members of the IMF. Russia called for increased access to regular IMF credits, thereby coming to the defense of all developing countries and those with transitional economies.


Until recently, standard IMF stand-by credits have been limited to 60 percent of a country's quota. Russia proposed that the figure be increased to 100 percent. Credits under the systemic transformation facility (or STF, which was created last spring especially for Russia as a credit for countries with transitional economies that were not able to meet all the IMF's requirements) equal 50 percent of the quota. Russia has proposed they be increased to 85 percent.


As far as standard IMF credits -- those that must be relatively quickly repaid -- are concerned, the Madrid conference did indeed increase them, though not as much as Russia had hoped. Nonetheless, Russia now has an opportunity to receive an additional $3-4 billion.


For now, though, the question of a new release of SDR credits remains open, since no compromise could be found in Madrid, although the Fund's director pledged to untangle this knot quickly. Russia, though, will continue to push to have as much money as possible released as quickly as possible.