The International Monetary Fund is considering selling bonds to several developing countries to raise money to combat the global economic slump.
China and Brazil are among a handful of nations that have expressed interest in purchasing the securities, which would give member states a different way to contribute to the Washington-based fund. The IMF has never before issued bonds.
The IMF is seeking more cash to finance loans and aid to member countries during worst economic slump in the fund’s 64- year history. As the institution taps some of its 185 members for additional cash injections, emerging economies say they want more decision-making power at the fund, setting up a possible clash with the rich nations that run it.
“I’m sure that this vehicle will be used,” IMF Managing Director Dominique Strauss-Kahn told reporters yesterday in Washington during meetings of the IMF and World Bank, referring to the bonds. “Now we’re discussing with different creditors the way to implement it and the amount that we put in it.”
Bonds would offer “flexibility,” he said, and their interest rate would be pegged to the value of the IMF’s basket of currencies, known as Special Drawing Rights or SDRs. Still, Brazilian Finance Minister Guido Mantega on April 24 dismissed the substance of the IMF’s capital-raising bond sale proposal as “insufficient” and “premature.”
Brazil would want higher yields than those attached to U.S. Treasuries to buy the new IMF securities, Mantega said after meeting with his counterparts from Russia, India and China at the IMF’s headquarters. The yield on the benchmark 10-year Treasury note rose five basis points, or 0.05 percentage point, last week to 3 percent, according to BGCantor Market Data.
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Mantega said any contribution by the four largest developing nations would be “provisional,” pending reforms that increase their say in IMF decisions.
Contributions should be directed mainly to help emerging markets weather the global credit crisis, Mantega said, rather than to simply “strengthen the current structure of the fund.”
Less than a month after the Group of 20 advanced and emerging economies pledged to boost funding for the IMF, some officials say member states aren’t making adequate contributions. Canadian Finance Minister Jim Flaherty yesterday said some G-20 nations aren’t doing their “share” to provide new emergency assistance funding for the IMF.
The IMF said it has received $324.5 billion in commitments from G-20 members since mid-March. Leaders of the G-20 agreed to triple the fund’s lending capacity to $750 billion when they met in London on April 2.
The IMF’s policy steering committee yesterday agreed to a $250 billion increase in the fund’s resources through “immediate financing” from members, according to the group’s communique released in Washington.