IMF Blog,Country Focus,F&D, update

Dear MARIA, We just published a new blog—read the full text below. Explainer: How the IMF Finances Itself and Why it Matters for the Global Economy (Credit: IMF Photo/Alyssa Schukar) By Julie Kozack, Bernard Lauwers The IMF may be best known for lending to crisis-hit countries. But what about its own finances? How does it finance its critical functions and cover its operational expenses?   Let’s remember that the IMF is not only a global financial firefighter. It also provides policy advice and technical support to help members create the right economic conditions and institutions for maintaining economic and financial stability, boosting growth, jobs, and living standards.   Fulfilling this mandate is made possible by a unique mechanism for generating and deploying resources. Think of it as a credit union for countries—with a lending capacity of nearly $1 trillion.   Credit union for countries   Consider how a credit union works. Not only do members put in money to earn interest on their deposits, but they can also tap this pool of resources by taking out a loan.    The IMF works in a similar way. Its 191 member countries are assigned individual “quotas” based broadly on their relative positions in the world economy. These quotas are the primary building blocks of the Fund’s financial structure. They determine the maximum financial contribution of each member, and they also help define how much a country can borrow from the Fund.   It’s a model that benefits borrowers and creditors alike. In exchange for providing resources for IMF lending, member countries receive an interest-bearing, liquid, and secure claim on the IMF. Importantly, that claim counts as part of members’ foreign exchange reserves.    This also means that, unlike many other international organizations, the IMF does not rely on annual fees or grants from budget appropriations by its members.  All this matters for the world economy. By pooling member resources, the IMF plays a central role in the global financial safety net. It supports countries that are struggling to meet their international financial obligations, such as paying for imports or servicing their external debt. Faced with such a balance of payments crisis, countries can seek swift help from the IMF.    To be clear, the Fund does not provide development aid or project financing, such as loans to build infrastructure and so on; other institutions do that. As a lender of last resort, the Fund provides temporary liquidity support to countries under stress. But the benefits of this assistance are no less tangible. IMF loans help soften the impact of a crisis on ordinary people. They restore confidence and provide vital “breathing space” to pursue economic reforms that can help countries get back on their feet.    This benefits everyone, even the strongest economies. Think about it: if instability is left unaddressed in one country, or one region, it could easily spill over to others, including through volatile capital flows and increased migration pressures. In other words, supporting a country in need is in the enlightened self-interest of all countries.    Terms and conditions   When members borrow from the IMF, creditor countries receive fair compensation on resources made available for Fund lending—that is, the market-based interest you would expect to receive on a loan that for all practical purposes is risk-free.    The list of creditors includes those IMF members whose economic positions, especially in their external accounts, are strong enough to support others. In 2024, some 50 creditor countries received a total of about $5 billion in interest on the resources they had provided for non-concessional IMF lending.    Members also benefit from the power of pooled resources. Take, for example, the largest IMF shareholder, the United States: for every dollar the US makes available for lending, the IMF leverages four dollars from other countries. All in all, the Fund’s total lending capacity is close to $1 trillion. Its loans can also serve as a catalyst for vital financing from other international financial institutions and, crucially, from the private sector.    For borrowing countries, the “credit-union membership” provides a macroeconomic lifeline. Loan amounts represent a multiple of their individual quotas. And to address the underlying economic challenges, loans come with IMF program design and conditionality. The benefits of such terms and conditions are reflected in reasonable interest rates on the borrowings from the IMF. These rates are far lower than what crisis-hit countries would face in private capital markets.    Borrowing countries that access the IMF’s general, or non-concessional, lending pay an interest rate that equals the rate paid to creditor members—plus a small margin. In addition, the Fund administers trusts which provide even cheaper, concessional, financing to its poorest members.    IMF member contributions are secure due to the Fund’s strong lending safeguards, rock-solid balance sheet, and substantial reserves. IMF loans have always been repaid. This means the Fund has never incurred a credit loss, and no country has ever experienced a loss on its claim on the Fund.    Administrative expenses   The IMF’s unique financial structure lies at the heart of its lending function. But this is not its only unique feature. With its near universal membership, the IMF is the only global institution empowered by its members to carry out regular “health checks” of their economies, the so-called IMF Article IV consultations.    In addition, the Fund provides cutting-edge research and policy advice, from dealing with debt to fighting money laundering and designing productivity-boosting reforms. It also works with members to build economic institutions, such as tax administration systems and monetary frameworks that support sound policy making and provide accountability of public functions.     To deliver on this work program, the IMF incurs administrative expenses. But the Fund does not rely on annual budget appropriations or any other support from taxpayers to meet these expenses.    Instead, they are fully covered by income from lending and investments. These income streams, and prudent expense management within a flat budget framework, allow the Fund to further build reserves. The IMF’s administrative budget today, adjusted for inflation, is about the same size as it was 20 years ago.  All these elements of the IMF’s financial structure are critical. They are in many ways unique, but the basic principles are simple—and were enshrined at the institution’s birth.    Speaking at the 1944 Bretton Woods Conference, US Treasury Secretary Henry Morgenthau noted: “The actual details of the international monetary and financial agreement may seem mysterious. Yet, at the heart of it lie the most elementary bread and butter realities of daily life.”   These words could not be more relevant today. IMF members pool resources for their individual and overall economic wellbeing. This benefits creditor members and borrowing countries alike—and allows the Fund to promote global economic stability and prosperity. Recent blogs Disclosing Public Debt Boosts Investor Confidence, Cuts Borrowing Costs Greater debt transparency builds investor confidence, helps reduce borrowing costs, and strengthens debt sustainability—reducing the risk of shocks that can lead to a debt crisis How to Spur Economic Growth in Africa’s Fragile and Conflict-Affected States Enhancing institutions, improving governance, strengthening public engagement, and building international partnerships are critical to overcome fragility A United Europe Can Shape the Global Economy The European Union must unite to shape today’s global economy, rather than be shaped by it Thank you again for your interest in the IMF Blog. Please write to us directly and let us know your thoughts. We would love to hear from you.   Jeff Kearns  Managing Editor | IMF Blog  jkearns@IMF.org Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431

 

CHILE Chile Can Grow Faster – But it Won’t Be Like the 1990s Again (Credit: Igor Alecsander/iStock by Getty Images)  Many of Chile’s current socioeconomic debates—such as those related to fiscal sustainability, pension adequacy and college loans—can be attributed to the country’s growth slowdown over the past two decades. Back in the 1990s, Chile grew 6.2 percent per year on average and was Latin America’s posterchild success story. Over time, this robust growth trend steadily waned, and by the 2020s, growth barely went above 2 percent. The IMF’s recent annual economic health check of the country (Article IV consultation) addresses how Chile can reverse this trend. Comparing Chile to its peers, there is scope to grow faster. Higher-income countries that were once at a comparable income level to Chile grew at a rate of around 2.9 percent per year. However, Chile faces challenges that most of those economies did not encounter at the same stage of development: such as an aging population and a global slowdown, both of which will make it more difficult for Chile to reach this pace.   Historical patterns   As countries get richer, sustaining rapid growth simply becomes harder because of diminishing gains from investment and less scope for technology catch-up. To evaluate Chile’s growth potential, we compared its trajectory with other countries when they reached similar income levels, such as Australia in the late 1980s and Korea in the 2000s. According to the Penn World Table and our calculations, Chile’s GDP per person tripled from US$8,200 in 1990 to around US$26,000 in 2025, in constant 2017 U.S. dollars after purchasing power parity (PPP) adjustment. Among 28 economies that crossed the US$26,000 real GDP per capita threshold between 1950 and 2010, median annual GDP growth over the subsequent decade was 2.9 percent. This benchmark is well below Chile’s 1990s boom, but still above its current trend.   Demographic and external drags   While the comparison is useful and offers some optimism, Chile faces an aging population and a less favorable global growth environment – impediments that many of these other higher-income economies did not face during their development stage.   Though still relatively young, Chile’s population is aging. According to the UN’s median population projection, Chile’s working-age population (15-64) will grow by just 0.15 percent per year during 2025-35. With modest gains in labor participation, employment will likely grow by 0.2-0.3 percent annually – below the 0.8 percent seen in the comparison group. This demographic drag alone saps ¼ percentage point from Chile’s potential growth.   Global technological trends could also weigh on Chile’s outlook. In the 1990s, information technology boosted productivity across countries. Our comparison group of countries benefitted from a U.S. GDP growth rate – taken as a proxy for global technological trends – of 3.1 percent per year on average. In contrast, economists now expect more modest U.S. growth of 2.1 percent for the next decade. We estimate that a one-percentage point reduction in 10-year U.S. annual growth translates to a further 0.8 percentage point restraint on Chile’s potential growth.   Transformational reforms   While these are rough estimates, and outcomes could vary widely, the exercise suggests a long-term growth trend of around 1.9 percent, if Chile were to perform in line with the median country and the demographic and external headwinds persisted.   So, how can Chile increase its potential and defy these drags on growth? Short-run macroeconomic stimulus is not the answer, and Chile’s economy is already balanced. The solution lies in deepening supply-side structural measures, consistent with the policy messages in our latest annual review of Chile’s economy (the Article IV consultation).   First, it is critical to make regulatory requirements more efficient. As an extreme example, it can take up to 10 years to sort out permits and navigate bureaucracy to get a large mining project off the ground. Streamlining this lengthy process would help reduce barriers to investment and support technology adoption. Similarly, modernizing regulations related to maritime transport could lower trade costs and improve Chile’s competitiveness.    To address demographic challenges, Chile could stimulate labor participation, for example by improving the access to quality childcare that would enable more women to enter the labor force.   Chile’s R&D spending is also substantially below the OECD average. Greater public-private collaboration here is essential, given limited budgetary resources. The proposed technology transfer bill, enabling university researchers to create tech companies and commercialize their work, could help narrow this gap. Finally, as the world’s largest copper producer, second largest lithium producer, and as a nation richly endowed with solar and wind resources, Chile can benefit from the high global demand for these critical minerals and through use of low-cost renewable energy.   While there is no silver bullet for growth, together these reforms improve the chances of a better outcome. Lifting Chile’s growth potential is critical for improving living standards and addressing social and fiscal pressures. Chile has an established track record of prudent macroeconomic management. Building on this solid foundation, the country can achieve stronger growth in a challenging global environment. **** Si Guo is a senior economist and Andrea Schaechter is an assistant director in the Western Hemisphere Department. Related Links Chile and the IMF Press Release We'd love to hear your thoughts and suggestions. Feel free to contact us.   Peter Walker  Managing Editor | IMF Country Focus  pwalker@IMF.org Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431 Europe’s Elusive Savings and Investment Union JUNE 2025  (Credit: John Hersey) Europe has ample savings but not enough investment. A savings and investment union (SIU)—a pan-European financial market that mobilizes and makes savings available for investment across the European Union—is part of a long-term remedy.   But it will take more than that to generate the amount of investment the EU needs to meet its growth and geopolitical challenges, Ravi Balakrishnan and Mahmood Pradhan write in F&D.   The EU must act on various fronts simultaneously to create a positive feedback loop of lower trade barriers and less red tape, higher rates of return, more unified financial regulation and supervision, and fewer impediments to the cross-border movement of capital.   “It is a formidable task,” the authors say. “But one the EU must overcome to counter increasing growth headwinds.” Read more Europe: From Adversity to Advantage (Credit: Brian Stauffer) Europe’s Integration Imperative | The case for closer economic union has become more compelling as external challenges multiply | Alfred Kammer   Europe’s Innovators Are Waking Up| The continent’s innovation success stories and renewed sense of purpose defy criticism of overregulation | Alessandro Merli   Making Germany Grow Again| Long-term, future-focused investment can rescue Europe’s largest economy from stagnation | Ulrike Malmendier and Claudia Schaffranka   Plus, government ministers from three of Europe’s fastest-growing economies share their perspectives on how to revive growth: Poland’s economic transformation can inspire Europe today, writes Andrzej Domański Greece’s strong reforms have turned it into one of Europe’s fastest-growing economies, according to Konstantinos Hatzidakis Spain’s new economic model of balanced and sustainable growth is overcoming traditional dilemmas, writes Carlos Cuerpo “The European Union must unite to shape today’s global economy, rather than be shaped by it.”— F&D editor-in-chief Gita Bhatt Read more Point of View (Credit: Chantal Jahchan) We Need a New Growth Compact | Innovation and integration can revive growth amid sweeping geopolitical change | Pierre-Olivier Gourinchas   Reclaiming a Policy Role for Economists | Acknowledging missteps, listening well, defending data, and avoiding jargon will help the profession engage | Karen Dynan   Europe’s Future Hinges on Greater Unity | But first the EU must overcome distrust between its member states and in its institutions | Simon Nixon Also Featured (Credit: Hadley Hooper) The Debate over Falling Fertility | A decline in global population later this century may threaten human progress, or it may lead to better lives | David E. Bloom, Michael Kuhn, and Klaus Prettner   The Longevity Dividend | Aging populations should be embraced, not feared | Andrew Scott and Peter Piot   Sustaining Growth in an Aging World | Older populations need not lead to slumping economic growth and mounting fiscal pressures | Bertrand Gruss and Diaa Noureldin   A Moving History | Migration has propelled human progress for hundreds of thousands of years | Ian Goldin   Machine Intelligence and Human Judgment | AI could reverse the widening inequality driven by technology, or aggravate it | Ajay Agrawal, Joshua Gans, and Avi Goldfarb   Stanley Fischer (1944–2025)| His storied career at the IMF, at central banks, and at universities shaped the study of macroeconomics and the next generation of macroeconomists | James Boughton Our Regular Departments (Credit: Sonia Pulido) When controlled by a select few, tech innovation can be self-serving and undermine the institutions that make it possible, Simon Johnson says in Café Economics.   Andreas Adriano profiles Agustín Carstens, finance minister, head of the BIS, and central banker with a start-up mentality, for People in Economics.   Kevin Fletcher explains why productivity, not competitiveness, is the better path to prosperity for Back to Basics.   Picture This shows how stalled trade and rising tariffs are testing global economic resilience.   For books, Mouhamadou Sy reviews Our Dollar, Your Problem: An Insider’s View of Seven Turbulent Decades of Global Finance, and the Road Ahead by Kenneth Rogoff.   Volker Wieland reviews Crisis Cycle: Challenges, Evolution, and Future of the Euro by John H. Cochrane, Luis Garicano, and Klaus Masuch.   And Vivek Arora reviews Entropy Economics: The Living Basis of Value and Production by James K. Galbraith and Jing Chen   For Currency Notes, Salsa Mazlan tells how Macao SAR’s unique history has yielded different yet equally elegant versions of the same banknote.   Nick Owen  Managing Editor | Finance & Development   nowen@IMF.org Stay connected with the International Monetary Fund: