« My favorite things Spain, literature | Main | Why is popcorn so expensive at the movie theater? »
Should the IMF behave like a Sovereign Wealth Fund?
Stephen Jen says yes, here is one media story on his new paper:
With many of its members having already repaid their debts, the IMF's annual income from interest repayments has slumped to new lows recently, forcing it to make major cutbacks. New managing director Dominique Strauss-Kahn has announced a 15pc cut in staff levels and an overhaul of its non-core activities.
Mr Jen said such drastic cutbacks were unwise, since the IMF's role as a monitor of the world economy could be compromised.
"Retrenching now is tantamount to downsizing a fire department when there is a low incidence of fire," he said, adding that the Fund should sell some of its gold to reinvest in instruments with a reliable income. The Fund owns 103.4m ounces of gold, worth around $92bn (£47bn) at current prices - up from just $23bn five years ago. But while the cache of metal has appreciated in value, it does not bring in a regular flow of cash.
"The IMF has a great deal of scope to enhance its investment returns without exposing itself to undue market risk," said Mr Jen.
The result could be the creation of a supra-national fund worth as much as $100bn. Mr Jen predicted that it could be worth $130bn in 10 years' time. This would be of a size similar to Russia and Singapore's funds.
Here is a previous post on the IMF's funding problems. Here is a previous post on whether we should abolish the IMF. Jen's idea may not appeal to many people; the question is whether you can come up with something better.
Posted by Tyler Cowen on February 23, 2008 at 05:27 AM in Economics | Permalink
Comments
Hmmm. Sitting on golden eggs is certainly not a way to raise geese that lay them,; but should the IMF be in the business of maximising profits? Very few fire departments are. The IMF does need unambiguos and massive liquidity, but gold has been a peculiar and essentially risky way to provde that for many years. Consider what would happen to the price of gold if the IMF tried to sell half its stock one day to people other than the central banks: the price would probably get uncomfortably close to the price of lead.
The incentives and disiplines would seem much bettr aligned, and the signals to the IMF's owners clearer, if the Fund had to pay a price for all its funding. An arrangement similar to that whereby many central banks pay real if minimal interest on the deposits which commercial banks are forced to leave with them might meet the case. If something like that were in place, the owners and funders of the IMF would be under pressure to deal seriously, and reasonably promptly, with the issues of enforcement of repayments/forgiveness of debt.
Posted by: David Heigham at Feb 23, 2008 7:12:22 AM
There's a crazy disconnect here between the IMF's problem of having to cut its staffing levels by 15% and talk of a $100 billion investment fund. I don't know how many staff the IMF has, but if they're paying them a total of something like $5 billion a year, then it has too many.
I suspect that talk of staff cuts is a way of justifying something that someone wants for quite different (and probably more sinister) reasons.
Posted by: Radford Neal at Feb 23, 2008 11:37:32 AM
Just abolish the IMF.
If "we" can't bring ourselves to do that common sense move, then at least ought to force the IMF to lend at punitive rates, thus forcing financial discipline on countries in the future without creating moral hazard.
But really, just kill the IMF. Country after country with foreign denominated debt have built up huge reserves to avoid precisely having to deal with currency crises again, or having to deal with the IMF for that matter.
There is simply no reason for the IMF to exist.
Posted by: happyjuggler0 at Feb 23, 2008 1:22:41 PM
The IMF should sell its gold and buy gov't denominated debt of developing countries -- but in ratios dependent on their following of IMF advice.
They should attempt to be like bond raters of risky bonds, but the IMF rating of the bonds means buying more of the bonds from the gov'ts making "good" (IMF defined) policy.
Thus, for two developing countries with the same "need", the one with good policy might get 90% of its "allocation", while the one with poor policy gets only 40%.
Over time, the one with good policy will have less need as it becomes developed, so it might reach 100% of the allocation, and then the IMF stops investing there, but should be "profiting", at essentially (IMF influenced, like rating agency influences) market rates.
Posted by: Tom Grey at Feb 25, 2008 9:30:20 PM
If you have to buy cabal alz, please come to our company.
Posted by: buy cabal alz at Jan 2, 2009 12:29:33 AM
Here suppling of a large number of cheap tiffany Jewelry,tiffany Replica Jewelry,Imitation Tiffany Jewelry and Knockoff Tiffany Jewelry,Silver Jewelry,925 tiffany Jewelry,Tiffany Silver Jewelry,So cheap!!!
Posted by: aion kina at Mar 18, 2009 3:37:48 AM
Is it realistic?
Posted by: green at May 15, 2009 3:50:38 AM
Nobody knows when the politician man is talking truth, when is talking nonsence
Posted by: bluce at May 15, 2009 3:51:13 AM
not bad
Posted by: bluce at May 15, 2009 3:54:34 AM
Every success is based on continuous efforts. It is not possible be done over nigh.
Posted by: wedy at May 15, 2009 3:55:32 AM
We are professional cheap kids shoes online store .We provide Nike shoes cheap ,Nike air jordan,cheap kids clothing
cheap womens clothing,Nike shoes online store,Nike shoes cheap,Nike shoes for kids,air jordan sneakers,nike air jordan,air jordans,brand shoe,shoes brand, dropship Nike shoes , brand clothes,brand clothes ,shoes brand,cheap kids clothing for cheap wholesale Air Jordans shoes for kids & women.
Posted by: air jordan sneakers at Jul 10, 2009 2:51:11 AM
