IMF and Japan’s Bilateral Borrowing Agreement

The IMF has a nice fact sheet that explains how they get their financing. Inside it you’ll find this paragraph (emphasis added):

In February 2009, the IMF signed a bilateral borrowing agreement with Japan to temporarily bolster its capacity to support members during the current global economic and financial crisis. Under this agreement Japan committed to lend up to US$100 billion (about SDR 68 billion) to the IMF. Supplementary resources available under this loan will help ensure that the Fund can continue to provide timely and effective balance of payments assistance to its members.

US$100 billion, Japan? That reminds me of… so lets look more closely here.
The IMF provides some more detail about this bilateral agreement:

The formal signing of the agreement in Rome, Italy, follows the IMF Executive Board’s approval of the terms on February 12, 2009. Taro Aso, Japanese Prime Minister, announced in November 2008 that Japan would be willing to provide supplemental funding to the IMF, to help overcome the current global crisis (see Press Release No. 08/284).

Now we have US$100 billion, Japan, Italy. That rings some bells does it. How did the Japanese pay, could it be that they tried to bring some bonds over the Italian-Swiss border, to bring them to the Bank of International Settlements in Basel? The BIS is the central banks’ bank and provides money market services among other things to its members.

The following, not really related, article on Alternet, sheds some light on the functions and workings of the IMF (emphasis added):

In 1982, JPMorgan, Bank of America and Citibank were all facing financial ruin. They had made billions in expensive, high-interest loans to developing nations in Latin America, and the nations simply could not afford to repay them. These loans accounted for more than double the amount of money that the banks had set aside as a cushion against losses, according to FDIC data. Accounting for the loans accurately would have meant filing for bankruptcy.

“They were a lot like subprime mortgage loans,” says William Black, a senior bank regulator from the 1980s, who now teaches law and economics at the University of Missouri at Kansas City. “They were never very good loans to begin with, so the borrowing never made a whole lot of sense.”

But compliant U.S. regulators didn’t make the banks record losses on the loans that were never going to be paid back. Between 1982 and 1987, no major money center bank realized any loss on a loan to a nation in Latin America. As the crisis dragged on, the International Monetary Fund eventually stepped in, amid heavy negotiations between foreign governments, the banks and the U.S. Treasury Department.

“The banks were permanently in conversation with IMF or the Treasury, it was part of the game,” says Luiz Carlos Bresser-Pereira, who served as finance minister for Brazil during the height of the debt crisis. “The debtors had to negotiate with this coalition.”

The Treasury Department was intensely devoted to protecting the interests of U.S. banks and refused to sign off on rescue plans that required banks to reduce the amount that foreign governments owed. To make sure that banks were paid, the Treasury and the IMF worked out a plan where the IMF served as a bailout conduit, funneling money from the U.S. Treasury to the major banks such as Citi and Bank of America.

“Whenever the accountants are about to say to Citi, ‘you have to recognize a loss,’ the U.S. increases its contribution to the IMF, the IMF promptly makes a loan to Brazil, and Brazil promptly makes a payment to Citi,” Black says.

“In a lot of ways, the IMF really can be blamed for this whole story,” says economist Dean Baker, co-director of the Center for Economic and Policy Research. “They always wanted to lay down the law for everyone else, but when it comes to the banks, they’re happy to come to the rescue.”

Eventually the Treasury and the IMF began orchestrating “troubled-debt restructurings” between banks and overburdened nations. The result was an under-the-table bailout achieved by exploiting weak accounting rules.

I like this  theory. However, I also have no proof for it and if I am to give any credibility to the US Treasury, then the smuggled papers were fakes.

I will try to learn from the IMF and Japan how and when this commitment of $100 billion was honored, or, if it hasn’t been honored yet,¬† how and when it will be honored.

Advertisements