With $2 Trillion In 3 Year Funding Needs By the PIIGS, The IMF Is Helpless To Do Anything But Sit Back And Watch

Total PIIGS funding needs (defined as the sum of debt maturities and budget deficits) over the next 3 years amount to $2 trillion. Total PIIGS funding needs in 2010 alone amount to $600 billion. Total IMF bail out capacity: around $700 billion. Sorry - it simply does not compute.

Below is a table summarizing the funding needs of just the PIIGS.

On Tuesday all the PIIGS had essentially entered the unfundable zone as each's cost of funding surged, meaning the IMF would have to guarantee or bail them all out. We will certainly see this contagion again as the PIIGS now commence spending with unprecedented profligacy, knowing full well they will be bailed out when the time comes.

So just how equipped is the IMF to deal with this funding requirement?

From Bank Of America:

The IMF primarily funds itself through payments of quotas from member countries, which is based on the country’s relative size in the world economy. Currently, the amount of quotas totals SDR 217 billion, or $328 billion. The IMF additionally supplements quota subscriptions through two credit arrangements between the IMF and a group of member countries – New Arrangements to Borrow (NAB) and General Arrangements to Borrow (GAB). The NAB totals approximately $550 billion from 38 participants, recently expanded from $50 billion and 26 participants, and is used as a credit facility intended to backstop quota resources. The GAB enables the IMF to borrow from participant countries or their central banks under certain circumstances at market-related interest rates.

In reality, the amount the IMF has readily available for new lending is primarily determined by the one-year forward commitment capacity (though this figure is not a rigid maximum). The amount equals usable resources, including unused amounts under loan and note purchase agreements, plus projected loan repayments over the subsequent twelve months, less the resources that have already been committed under existing lending arrangements, less a prudential balance. Currently, the one-year forward capacity stands at SDR 165 billion, or $248 bilion.

In case you missed it, the top two countries on the hook to fund the World bailout are the US and Japan, the two countries caught in the greatest deflationary throes since the great depression. Coincidence, or willful dollar(yen)slaughter: you decide. The only solution for world bailout v2: raise the ceiling for the NAB from 500 billion to 5 trillion. That should do miracles for the deflation... But it probably won't.

But stepping back to look at the big picture, in one hand you have $2 trillion, in the other one third of that: which one is heavier? And why does the IMF lie each and every day when it says it can keep the situation under control. Again - it does not compute. Just keep rolling the Quanto CDS in, Goldman.


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