Fund Financing and Financing the Fund

It should be made plain at the outset what this chapter sets out to examine and what it ignores. First of all it examines the rationale of lending by the International Monetary Fund. This is an aspect of Fund activity that has recently been called into question with some observers suggesting that the Fund should be purely and simply an adjustment institution and should not be lending any of its own resources.1 If this view is accepted the Fund does not need any resources of its own and the question of how to finance the Fund’s lending operations does not arise. However the conclusion reached here is that the Fund should play a financing as well as an adjustment role. This then leads on to the second issue on which the chapter focuses namely the best way of providing the Fund with resources. The issue is topical since, while the Fund itself claims that its activities are effectively constrained by a lack of resources, there have been problems in persuading some of its members to accept an increase in quotas. Moreover suggestions that it should become more heavily involved in rather longer term lending presuppose that it will be able to raise the necessary finance.2 Finally there has been considerable discussion, both within the Fund and outside it, concerning the possibility of borrowing from the private capital markets.3