IMF Might Consider Selling Bonds to Assist Expansion

The International Monetary Fund might consider selling bonds for the first time in an effort to meet its expanding role as the lender of last resort for the world’s troubled economies, money managers and traders said Friday.

Such a move would give the IMF additional resources to meet the growing need for money to assist faltering economies in Asia and the developing world, they said.

“Intuitively, it sounds like a good plan,” said Ben Mayer, who manages $1.3 billion in fixed-income assets at AMR Investments in Fort Worth. He said he would consider buying the securities, which “could be an important gauge of the investor sentiment toward plans administered by the IMF.”

Bond sales would require no additional approval from IMF member countries. Its charter gives it the authority to decide the “sources, timing, magnitude, terms, maturity and techniques of its borrowing.” IMF officials declined to comment about whether they are considering such a move.

The IMF now has about $50 billion in available reserves that can be loaned to member countries for emergency assistance. It also holds about $36.4 billion in gold reserves, which could be sold. And from the central banks of major nations, the IMF could tap about $23.3 billion in emergency lines of credit, which haven’t been used since the 1970s.

Although that sounds like a formidable war chest, analysts say that as demands for assistance grow, selling bonds similar to those offered by the World Bank may look more attractive to the IMF.

Already this year, the IMF has promised more than $14 billion in assistance as part of larger bailout packages for Thailand and Indonesia. South Korea’s request for $20 billion in international aid could mushroom to as much as $80 billion, with a large portion of that likely to come from the IMF, analysts said. And Russia is talking to the IMF about additional loans.

Since it was formed after World War II, the IMF has gotten all of its operating funds from cash contributions from its member nations, which now include the U.S. and 180 other countries. Most of its $198 billion in assets are invested in currencies and securities and are committed, much like in a credit union, for loans that could be drawn against the IMF by member nations.

The World Bank, in contrast, funds its operations--which until recently focused on loans for big infrastructure projects like dams and highways--in large part by selling global bonds. These medium- and long-term debt securities enable the bank to raise large amounts of money from investors around the world, quickly and on good terms even in difficult market environments.

IMF bond sales “could be very constructive if done properly,” said Joseph Whitbread, a money manager at Loomis, Sayles, & Co. in Boston. Yet, “if this is an end-run around the U.S. Congress to increase funding for the IMF, there could be repercussions there.”

The IMF and members of the Asian Pacific Economic Cooperation and Assn. of Southeast Asian Nations agreed this month to create short-term financing facilities if the need arises to assist countries in the region that have seen their currencies and financial markets come under attack.

The IMF and APEC member economies are also considering a proposal to create a short-term financing system for countries that are experiencing an attack on their currencies, yet are still deemed to have a predominantly sound economic system. This financing would be made available for six months in “exceptional circumstances” to augment a country’s reserves.

The proposal will be discussed in Kuala Lumpur next week.