Press Release No. 08/74

Press Release: IMF Managing Director Strauss-Kahn Applauds Executive Board's Landmark Agreement on Fund's New Income and Expenditure Framework

April 7, 2008

Managing Director Dominique Strauss-Kahn of the International Monetary Fund (IMF) applauded today's decisions by the Executive Board to propose a new and sustainable income and expenditure framework for the Fund, calling it "a landmark agreement that will put the institution on solid financial footing and modernize the IMF's structure and operations."

"We have made difficult, but necessary choices to close the projected income shortfall and put the Fund's finances on a sustainable basis, but in the end, it will make the Fund more focused, efficient, and cost-effective in serving the needs of our members," Mr. Strauss-Kahn said.

In a discussion on the Fund's income and expenditure, the Executive Board agreed to revamp the Fund's income model from one that primarily relies on lending to one that generates funds from various sources. At the same time, the Board considered the institution's medium-term budget for the Financial Years 2009-2011, which includes deep spending cuts, and approved the administrative budget for FY2009 (May 1, 2008-April 30, 2009). With these measures the Fund expects to close the projected income-expenditure gap of US$400 million within a few years.

"Today, the Fund's membership took a fundamental step that will enable the institution to remain an independent, astute, and dynamic international organization that facilitates global cooperation and action to ensure financial stability and prosperity for all," Mr. Strauss-Kahn said. "Following the recent decision to overhaul the Fund's quota and voice structure, this agreement is another major step toward concluding the Fund's reform process and strengthening the Fund's focus on the areas where it has comparative advantage."

"The Fund's membership again proved its commitment to enhancing the institution's credibility and strengthening its efficiency," he added. "We agreed to replace an obsolete and unviable income model with a modern and more predictable model in line with other international financial institutions. We also agreed on a medium-term budget proposal with sharp spending cuts of US$100 million over the next three years."

Key elements of the income proposal—in particular a proposed amendment of the Fund's Articles of Agreement to expand the Fund's investment authority—will require legislative action in most member countries. In addition, approval by the U.S. Congress is needed before the U.S. Executive Director can vote in favor of gold sales. Mr. Strauss-Kahn commended "Executive Directors for their commitment to seek expeditious approval by their legislatures to enable these important components of the new income model to come into effect."

Key elements of the new income model:

• The Fund's unsustainable income model will be replaced with a model that is based on more robust and diverse sources of revenue in line with the Fund's multiple functions. If approved, the new model could generate an additional US$300 million in income within a few years.

• An endowment would be created with the profits from the limited sale of 403.3 metric tons of the Fund's gold holdings. If approved, gold sales would be conducted in a transparent manner with strong safeguards to ensure that they do not add to official sales and avoid any risk of market disruption.

• The Fund's investment authority would be broadened to enhance the average expected return on the Fund's investments and enable the Fund to adapt its investment strategy over time. The investment policies would reflect the public nature of the funds to be invested and include safeguards to ensure that the broadened investment authority does not give rise even to perceived conflicts of interest.

• The long-standing practice of reimbursing the Fund's budget for the cost of administering the trust fund for concessional lending to low-income countries-the PRGF-ESF Trust, will be resumed in the financial year in which the Fund adopts a decision authorizing the gold sales. This cost recovery will not affect the Fund's ability to provide concessional lending to low-income countries.

Key elements of the medium-term budget:

• The strategic plan that forms the backbone of the budget is focused on five goals: strengthening multilateral surveillance, sharpening bilateral surveillance, refocusing work on low-income countries, streamlining capacity building, and modernizing the Fund. The budgetary strategy is centered on reshaping the institution so it delivers more focused and cost-effective outputs.

• The administrative budget proposal includes expenditure cuts of US$100 million in FY2009-11. Including savings of US$27 million already allotted in the budget plan for FY2008-2010, real net administrative expenditures will decrease about 14 percent to US$796 million in FY2011 from US$922 million in FY2008.

• Even with sharp expenditure cuts, the budget allows for an increase in the level of resources allocated to multilateral and regional surveillance by shifting resources from non-core to core business of the institution.