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.

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.

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.

Nobody knows when the politician man is talking truth, when is talking nonsence

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