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The IMF's loans to member countries with balance-of-payments problems are financed via the IMF's quota resources. Quota resources are subscriptions paid from member countries' currency reserves. Payment is usually effected by the central bank of a member country. A member country must pay 25 per cent of its quota in "hard", i.e. widely accepted, foreign currency, e.g. dollars, and the remaining 75 per cent in its own currency. The foreign currency paid in is still at the disposal of the member country and included in its foreign exchange reserve as the "reserve position". In practice, the financing of IMF lending is managed through the financial transactions plan, which is a mechanism through which IMF members with a sufficiently strong balance-of-payments and reserve position are selected to contribute in IMF transactions.
The IMF's lending is based on an exchange system which is simple in principle, but complex in practice. The IMF's quota resources enable countries in need of hard currency to exchange with countries having excess funds at their disposal. When a country draws on the IMF's resources, the borrowing country pays an amount in its own currency to the IMF in exchange for "hard" currency, which the IMF acquires from another member country. A hard currency is defined as a widely accepted currency from a country with a sound economy and a strong balance-of-payments position, e.g. dollar or SDR (Danish kroner are also regarded as a hard currency in this respect).
The lending operation implies that the country providing hard currency acquires a claim on the IMF. This claim is included directly in the country's foreign-exchange reserve, which remains unchanged by the transaction, since it leads to an increase in the country's reserve position at the IMF and an equivalent temporary decrease in the currency holdings. The size of the global currency reserves also remains unchanged by the transaction, in that the decline in the IMF's "usable" resources is offset by the increase in the foreign-exchange reserve of the borrowing country.
Interest is payable on resources drawn on the IMF.
The IMF's total quota resources are as of end-April, 2010, SDR 237 billion. SDR is a unit of calculation based on a basket of currencies comprising 0.66 US dollars, 0.423 euro, 12.1 Japanese yen and 0.111 pounds sterling. SDRs may also be issued by the IMF in accordance with specific guidelines.
As of end-March, 2011, the value of one SDR was kr. 8.32 and the IMF's total quota resources thus corresponded to approximately kr. 1,972 billion. Denmark's quota is payable from Danmarks Nationalbank's foreign-exchange reserve. The quota is SDR 1.9 billion, corresponding to kr. 16.3 billion.
Loans from the IMF are available to all member countries with balance-of-payments problems, subject to certain conditions. A special group of poor and heavily indebted member countries are granted loans at a concessional rate of interest and debt relief via special anti-poverty initiatives. Financing of these initiatives are kept separate from the IMF's ordinary resources and are primarily financed via bilateral assistance from the member countries' governments. From Denmark, DANIDA provides assistance for interest and debt relief. In addition, Danmarks Nationalbank lent SDR 200 million in total to the Poverty Reduction and Growth Trust (PRGT), backed by a state guarantee. |
