Bundesbank Says IMF’s Weaker Conditionality Increases Risks

Germany’s Bundesbank said the International Monetary Fund has weakened its standards for loans and taken on more risk since the start of the financial crisis.

“Since the beginning of the global financial crisis in 2008 and the European debt crisis in 2010, the IMF has been more active than ever before,” the Bundesbank said in its monthly report published today in Frankfurt. “Risks associated with financial aid by the IMF have substantially increased.”

The Bundesbank said 20 percent of current IMF loans are for one country, while five countries account for 74 percent of outstanding loans. A worsening risk profile may eventually draw into question the treatment of countries’ contributions to the IMF as currency reserves, it said.

“Given the tendency toward ever larger engagements and a higher regional concentration as well as the more frequent use of long-term IMF programs, the concentration risks have risen noticeably in the recent past,” the Bundesbank said. “Should the IMF’s policy lead to higher risks, the financial contributions by its member countries would no longer be considered highly liquid and risk free. This would jeopardize their character as currency reserves.”

The IMF and the World Bank will hold their annual meetings in Tokyo Oct. 9-14.

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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