The Cost of the U.S. Commitment to the IMF

The Director of the Congressional Budget Office, Douglas W. Elmendorf, takes a look at the  costs — on present-value basis and adjusted for market risk — of U.S. commitments to the IMF.

From Director’s Blog: The President recently requested that the Congress provide an increase of about $8 billion in the U.S. quota for participation in the International Monetary Fund (IMF) and an increase of additional line of credit for the IMF of approximately $100 billion…
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“CBO [Congressional Budget Office] estimates that the present-value risk-adjusted cost of the proposed increase in U.S. participation in the IMF is $5 billion. In forming this estimate, CBO envisioned various potential states of the world economy. In the most likely situations, the IMF would draw against only a small portion of the U.S. commitment and, CBO assumes, the likelihood of those funds being promptly repaid would be high. Thus, the cost of the U.S. commitment would be close to zero in those cases. In less likely situations where the IMF would need to loan out most or all of the new $100 billion line of credit, the odds of all funds being repaid are much lower and the cost would therefore be relatively high. CBO combined those different possibilities using standard options-pricing techniques to estimate the market value of the U.S. commitment. The $5 billion estimate captures the small chance that the IMF will experience some significant losses in the future, and an additional amount reflecting the premium that financial market participants demand for bearing losses associated with global economic deterioration.”

The administration’s contribution of $108 billion to the IMF, is part of a $500 billion global boost to the Fund’s resources.

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