IMF Trust and Administered Accounts
In its 66 year history, the financial organization of the IMF has evolved to meet the ever-changing needs of the global economic and financial system. In doing so, the organization has offered a relatively wide spectrum of options in terms of risk and flexibility in the deployment of the financial resources made available by its international membership.
To date, the IMF's financial organization includes three key departments: the General Department, the Special Drawing Rights Department, and the Trust and Administered Accounts Department. The majority of the IMF's financial transactions with members are handled within the General Department, specifically the General Resources Account (GRA). The latter is financed mostly from members' capital subscriptions to the IMF and is subject to the strictest safeguards in terms of the IMF's own oversight. In case of default by a borrowing country, IMF-related claims would have privileged creditor status, while any residual burden would be shared by the membership in proportion to their quotas.
The Trust and Administered Accounts Department is the least well-known of the three departments. The establishment of an account in the Trust and Administered Department requires executive board approval by a simple majority. The legal authority for the IMF to establish such accounts is based on Article V, Section 2b, of the Articles of Agreement:
"If requested, the fund may decide to perform financial and technical services, including the administration of resources contributed by members that are consistent with the purposes of the fund. Operations involved in the performance of such financial services shall not be on the account of the fund. Services under this subsection shall not impose any obligation on a member without its consent."
As their financing includes voluntary resources that are independent on IMF capital subscriptions as well as the institution's own resources, trust and administered accounts are legally and financially separate from the IMF's General and SDR Departments. They provide for a wide spectrum of accounts, ranging from those involving heavier executive board involvement (trust accounts) to those preserving substantial discretion of contributors (administered accounts).
Up until now, trust and administered accounts are known mostly for their role in providing resources to low-income members of the IMF. Beginning in the 1970s, the institution recognized that these members needed financial assistance on a concessional basis. This led to the establishment of the first trust account-the Trust Fund -- within the IMF, in 1976. The Trust Fund was financed solely from IMF profits generated from gold sales -- providing $3.3 billion for concessional loans. The original Trust Fund terminated in 1981; however, over the past 30 years other such arrangements have been established to provide assistance to low-income countries or members with special needs with resources from both IMF profits and bilateral member contributions. Examples include the Poverty Reduction and Growth Facility Trust (1987-2009); the more recent Extended Credit Facility (2009-present); and the joint IMF-World Bank Heavily-Indebted Poor Countries debt-relief initiative (1996-present).
There are some key differences between trust and administered accounts. In the case of trust accounts, the executive board regularly overviews the allocation of their underlying resources. Typically, this entails board appraisal of a proposed lending program with its conditionality framework, as well as regular reviews of a member's performance with respect to the latter.
Administered accounts involve a lighter role for the IMF's executive board while preserving the greatest discretion to the contributors of the account. The first such account was created in 1989 following a request from Japan that the IMF set up a pool of resources to assist members with overdue financial obligations to the fund. The IMF acted as the trustee and the resources -- made available by Japan and other countries -- were distributed in amounts determined by Japan and the other members that Japan had identified.
In the context of the euro-area crisis, the creation of similar trust or administered accounts would provide a rapid response mechanism and increase the financial resources that could be mobilized under the IMF umbrella. By potentially providing unprecedented latitude, the IMF could use those resources in a highly precautionary manner, even by intervening in secondary markets to stabilize bonds prices, subject to the parameters set by the contributors to the trust and administered accounts.
The unparalleled flexibility potentially afforded by these accounts would allow the IMF to develop a full-fledged regional approach to the euro crisis by rapidly reallocating resources across national markets with the objective of stabilizing the euro area. The accounts could also be used as "equity" in a "vehicle," which would then be leveraged to increase its overall financial capability.
While the IMF would be serving as a coordinating agency for these accounts, this "pooling" function would be broadly consistent with the traditional catalytic role that the institution has been typically acknowledged to provide -- albeit, in this case through highly unconventional instruments. Trust and administered accounts would also allow the contributing membership to leverage on the highly sought-after staff expertise of the IMF. In the case of trust accounts, this would include the fund's immunities and privileges, including its status as a privileged creditor. To date, trust claims have been recognized as having preferred-creditor status by the Paris Club and other creditors, although that could conceivably change, particularly if a trust were to engage in lending decisions quite different from standard IMF programs.
In the case of administered accounts, however, any default risk would be borne out exclusively by contributing members. Related claims have, in fact, never been given preferred-creditor status, even when all they did was disburse resources alongside an IMF program -- as in the case of the Spanish-administered account attached to the Argentina program in 2000-2001.