The International Monetary Fund's loss of two of its biggest borrowers last month has left the lender with a widening budget shortfall and renewed questions about its role in the global economy.
In the past six weeks, Brazil made early repayment of $15.5 billion it owed and Argentina repaid $9.5 billion in debt two years ahead of schedule, closing the accounts of the IMF's first- and third-largest borrowers.
The enticement to pay the debt -- foreign reserves that have swelled as Latin American economies rebound from recession and investors' appetites for government bonds grow -- is present in other large borrowing nations, including Pakistan, Serbia and Ukraine, which have hinted they too may sever ties to the lender.
``In good times, nobody goes to the IMF,'' said Liliana Rojas-Suarez, a former IMF economist who is now at the Center for Global Development in Washington.
The result is a loss of interest income that prompted the IMF to lower its earnings forecast by about 40 percent for the fiscal year ending in April. The fund now expects a budget shortfall of more than $116 million this year, emboldening critics who have called on the Washington-based fund to scale back its lending and focus more on dispensing economic guidance.
``This should force the fund to ask what they are doing and what they should be doing,'' said Allan Meltzer, a professor at Carnegie Mellon University in Pittsburgh who led a 2000 U.S. congressional commission that examined the IMF. ``If it is just business as usual, the fund will be becoming less relevant.''
The fund may invest some of its reserves as it looks for ways to make up for the decline in net income, said Thomas Dawson, a spokesman for IMF Managing Director Rodrigo de Rato.
Founded at the end of World War II to promote global economic stability, the IMF typically makes loans to countries on the condition that the borrowers undertake economic policy changes such as adjusting their balance of payments or reducing inflation.
With elections nearing, those conditions grew unpopular in Argentina and Brazil, where the public has blamed their countries' economic crises on IMF-mandated changes. And those countries aren't alone.
Pakistan, the IMF's third-largest debtor now that Argentina has walked away, is carrying $1.51 billion in debt and says it's seeking to cut its dependence on the fund; Ukraine, the fourth- largest debtor, said in 2004 it would probably decline any additional assistance; and Serbia, which owes the IMF about $874 million, said last month it wouldn't borrow any more.
Russia, Thailand Repay
A year ago, Russia repaid early its $3.3 billion debt to the IMF following seven years of economic expansion; in 2003, Thailand finished paying off its obligations two years ahead of schedule.
When the IMF lends to a nation, it often forces changes in fiscal policies that are rarely popular among citizens, said Desmond Lachman, who spent 24 years as an IMF economist and is now a senior fellow at the American Enterprise Institute, a Washington-based think tank.
``This plays very well politically in those countries,'' Lachman said. ``Prepaying the IMF is declaring independence.''
Argentina had been pursuing a new loan with the IMF last year. Talks failed after President Nestor Kirchner rebuffed IMF demands to remove a cap on utility rates, reduce intervention in currency markets that has kept the peso low against the dollar and bolster national savings. Kirchner said the IMF's suggestions would have hurt the nation's economy.
Greater liquidity in capital markets has given nations such as Argentina other places to go for loans, while low interest rates have made new financial emergencies less likely. There hasn't been a worldwide economic crisis that has required the IMF since the Asian and Latin American turmoil of the late 1990s.
Six nations entered into the IMF's main lending program in the fiscal year that ended in April 2005, borrowing about $1.7 billion -- the least amount since 1975. That number has rebounded this year after the IMF granted a $10 billion loan package to Turkey, one of only two fund loans this fiscal year of more than $1 billion.
The IMF's projected budget shortfall for fiscal 2006 has increased to $116 million from $26 million as a result of the interest-payment revenue it will lose because of the early debt repayment by Brazil and Argentina. Its total operating budget is $2.3 billion, almost all of which is funded by interest income.
The IMF is hardly going broke: The lender can access about $139 billion, mostly through the financial commitments of its member countries, a November financial statement showed. The fund also has stockpiled more than 100 million ounces of gold, which would be worth more than $56 billion at today's market prices.
In a cyclical world economy, there will probably be a time when the IMF is relied upon again for loans, IMF spokesman Dawson said. Until then, the IMF is content with less influence, he said.
``If you have a global economy that has been growing rather strongly for a number of years, you would hope that fund exposure declines,'' Dawson said.
Charles Dallara, the managing director of the Institute of International Finance in Washington, said the IMF will still need to monitor the actions of countries that withdraw from the fund to ensure there is no economic regression.
The fund still expects to have an active relationship with non-borrowing countries, including Brazil and Argentina, that will include surveillance of monetary policies, Dawson said.
``This is more good than bad,'' said Michael Mussa, a senior economist at the Institute for International Economics in Washington who was the IMF's research director from 1991 to 2001. ``The fact that these countries don't need IMF financing at this time should be looked at as a positive sign.''