The International Monetary Fund


Denmark cooperates with the other Nordic and Baltic countries, which jointly appoint an Executive Director to represent Nordic-Baltic interests in the International Monetary Fund (IMF). In 2017, the IMF had borrowed a total of kr. 2.7 billion from Denmark, inter alia to finance loans to European programme countries.

In cooperation with the Ministry of Finance, Danmarks Nationalbank handles Denmark's membership of the IMF. Denmark is represented in the three IMF's decision-making bodies: the Board of Governors, the International Monetary and Financial Committee (IMFC) and the Executive Board.

The IMF's Board of Governors
The Board of Governors is the highest decision-making body of the IMF. It consists of one representative from each IMF member country, typically the central-bank governor or the minister for finance. Denmark's representative is Governor Lars Rohde, Danmarks Nationalbank, with the permanent secretary of the Ministry of Finance as the alternate representative. The Board of Governors is mainly involved in overall decisions, e.g. concerning the level of IMF staff salaries, new member countries, amendments to the IMF's Articles of Agreement and changes in voting powers and financial contributions to the IMF (i.e. quota changes).

The IMFC
The IMFC was set up by the Board of Governors and is an advisory committee that provides strategic guidance on the general issues dealt with by the IMF. Most member countries are represented as part of a group of countries (a constituency) that jointly appoint a member, but a number of large countries, such as the USA, the United Kingdom, Germany, France, China and Japan, have their own IMFC members. In the IMFC, Denmark shares a member with the other Nordic and the Baltic countries, which jointly make up the Nordic-Baltic Constituency, NBC. The NBC countries take turns at appointing an IMFC member on a rotation basis. The IMFC meets twice a year and at the end of each meeting the IMFC issues a communiqué that reflects the IMFC's views and provides guidance for the IMF's work. See the latest communique here.

The IMF's Executive Board
The Executive Board takes care of the daily business of the IMF and meets several times a week. As on the IMFC, member countries are represented either individually or in constituencies. Denmark is represented on the Executive Board via the NBC, where Danmarks Nationalbank and the Ministry of Finance coordinate Denmark's views with those of the other members of the constituency. The NBC countries take turns at appointing a member of the Executive Board on a rotation basis. The coordinated opinion on the various issues is usually based on consensus.

Denmark's loans to the IMF
The IMF's loans to countries in economic difficulties and the IMF's operating expenses are primarily funded via member countries' financial contributions, also known as quotas. Each country's financial contributions reflects its position in the world economy. In addition, some of the world's wealthiest countries have provided additional loans or bilateral loans to the IMF to cover the extraordinarily large borrowing requirement resulting from the financial crisis and the European sovereign debt crisis.

Denmark's loan commitment to the IMF totalled kr. 88.7 billion (excluding the SDR holding) at end-2017, of which the IMF had drawn kr. 2.7 billion according to Danmarks Nationalbank's Annual Report 2017. Considering the extent of the financial crisis, the IMF's drawings on Danmarks Nationalbank in recent years have not been extraordinarily large, but Denmark's total loan commitment has risen considerably, as have those of a number of other countries, cf. Chart 1. The reason is that the IMF wished to expand its lending capacity since the number of countries requiring financial assistance might increase.

 

In theory, there is a credit risk on loans to the IMF, but it is very small as the IMF has built up reserves over the years by charging a lending rate that is higher than the deposit rate (interest-rate margin). In addition, the IMF in most cases demands reforms in return for granting loans to countries experiencing economic problems, and it is a condition that the IMF loans are repaid before other loans (the IMF is the primary creditor). Consequently, the IMF has never inflicted financial losses on its members.

For an in-depth review, see the analysis Denmark contributes to a strong IMF, and Danmarsk Nationalbank's Annual Report 2016.

Coordination between Danish authorities and within the NBC

Together with the Ministry of Finance, Danmarks Nationalbank coordinates day-to-day aspects of Denmark's relations with the IMF via the Nordic-Baltic constituency, which – besides Denmark – comprises Norway, Sweden, Finland, Iceland, Estonia, Latvia and Lithuania. The constituency coordinates its view on issues to be discussed by the IMF's Executive Board. In addition, other authorities provide input for the day-to-day work if specific issues are of particular importance to the relevant authority or lies within its remit. For example, development aid to a number of developing countries gives the Ministry of Foreign Affairs an interest in IMF-related issues in these countries.

In connection with Article IV consultations, the IMF holds a number of meetings with Danish authorities, institutions, firms and organisations such as the Ministry of Finance, large Danish banks, the Economic Councils, the Danish Confederation of Trade Unions, the Confederation of Danish Industry and political committees of the Folketing (parliament). Before the report is published, it is customary to give the relevant authorities an opportunity to comment on it.

The IMF in brief

The International Monetary Fund was established after World War II with a view to monitoring the international monetary system and ensuring stable exchange rates (under the Bretton Woods system) and encouraging countries to lift currency restrictions in order to support international trade.

Today, the IMF works to promote global growth and financial stability. This is achieved e.g. by preparing annual analyses of member countries' economic and financial sectors and proposing economic reforms. Loans are also provided to member countries that are struggling to meet their international payment obligations due to economic imbalances. In addition, the IMF offers technical assistance to its member countries, especially the low- and medium-income countries, with a view to effective management of their economies.

For further information, see IMF at Glance.