How are interest payments on IMF loans apportioned among member countries?

[nobahar]

Hello!
Not sure of this is the right place for this question, but here it is anyway:
It concerns the International Monetary Fund, I was wondering how the interest on IMF loans are apportioned. I suppose a consideration of how loans are provided is necessary. For example, I do not know if all members of the IMF have to contribute money to the loan. If this is not the case, then I am guessing the interest payment on loans provided by the IMF are apportioned according to the portion contributed by the involved countries. I would think this is the case, but I cannot find any information stating this to be true.
Does anyone know?, citations would also be appreciated.
Thanks in advance,
Nobahar.

 

[talk2glenn]

http://www.imf.org/external/np/fin/data/sdr_ir.aspx

The SDR interest rate provides the broad basis by which interest is assessed on Fund loans and credited to Fund investors. Individual rates on special, emergency loans for eligible countries are more flexible; these are defined by contract, and vary largely depending on local factors - ability to pay, financial need, willingness to make other concessions, etcetera.

In practice, members are allocated an SDR quota by wealth. This determines that states interest liability to the IMF, which is then payed by the Fund to actual bearers of the SDR. So the United States might initially be allocated $1 million worth of IMF bonds (and the IMF gets $1 million in dollar currency). The US now holds all of the SDR's, and all of the SDR allocations - if the interest rate were 1%, it would pay itself $10,000 every year.

Now imagine that the US sells $500,000 worth of IMF bonds to Mexico. Mexico now holds half a million in SDR's, while the United States has an allocation of $1 million worth but only holds half a million dollars worth; it must pay $5,000 in interest to the IMF, which distributes that $5,000 to Mexico.

Make sense?

The IMF, in the mean time, is freely making loans with the $1M in capital invested by the United States to other member states, and collecting interest on the same to finance its operations and cover losses.

 

[nobahar]

Thanks for the reply talk2glenn.
I am confused by this, as it suggests that a country can only borrow upto it's quota.
If there are three countries: A, B and C.
A has the biggest economy, then B, then C.
A contributes 1 million.
B contributes 750,000.
C contirbutes 200,000.
If they all held on to their own, then, as you say, they pay interest to themselves; they essentially pay no interest.
If C needs to borrow 300,000, it can sell its bonds. It only has 200,000 in bonds, which means it cannot raise enough money.
I found the following: "The amount that a country can borrow from the Fund, known as its access limit, varies depending on the type of loan, but is typically a multiple of the country’s IMF quota".
Does this mean it can have a negative quota? If so, then this raises the issue of voting, as I believe the quota determines voting, also.
Any further help appreciated.

 

[talk2glenn]

The bonds are one means by which member countries can invest excess or borrow scarce capital, but not the only. The IMF is still free to make emergency loans to needy countries using the capital it gets from member countries when allotting the SDR's initially.

So going back to my example, Mexico and the United States now hold half a million dollars in SDR's, the US has the worlds only bond allocation worth $1 million, and a third country, Ghana, is facing a $750,000 budget shortfall and cannot find any new investors to buy its public debt. It turns to the IMF, which agrees to provide stabilization funds if Ghana takes steps to close the gap over the next 12 months. It then loans Ghana $750,000 out of the $1M initially received from the US.

This happens even though Ghana has zero dollars in allocated Fund bonds.

 

[nobahar]

Forgot to thankyou.
Thankyou!