Fun with Accounting: How the IMF avoids admitting that it regularly makes bad loans financed by US taxpayers
By Andrew West, CFA
Accounting is no fun to me. In business school, it struck me as the dullest and most tedious part of the curriculum. Throughout the Chartered Financial Analyst program, accounting studies kept me up past an acceptable bedtime. So while I'm proud to say that I'm no accountant, I do know their language.
The International Monetary Fund (IMF), while criticizing the accounting methods of various organizations around the world (e.g. Russian and Indonesian banks), has been having a bit of fun with its own creative accounting recently.
In the IMF ?loan? and ?loan repayment? transaction IMF accountants in Washington simply moved some numbers from one IMF account named ?funds going to Russia? to an account named ?funds coming from Russia?. There was no actual movement of cash.
Consider what our repelling Treasury Secretary Larry Summers said about the IMF?s most recent $640 million ?loan? to Russia, followed by an immediate $640 million dollar ?loan repayment? to the IMF:
The IMF did in that context resume lending to Russia in the middle of this summer, but it did so on a very specific basis. It did so on the basis of the provision of funds that represented a partial refinancing of the debt that Russia owed the IMF with the means of that financing designed so as to assure, as a safeguard, that the funds lent to Russia would be used directly to repay the IMF.
Hey Larry, you?ve confused all of us including yourself, so let me clear things up for you by turning our eyes to the cash. In this ?loan? and ?loan repayment? transaction IMF accountants in Washington simply moved some numbers from one IMF account named ?funds going to Russia? to an account named ?funds coming from Russia?. There was no actual movement of cash. Nothing happened except on paper. The IMF didn?t make a loan to Russia, and the IMF didn?t get paid by Russia. They just covertly postponed repayment.
Do you know why?
Because Russia can?t pay the money back, and the IMF can?t bear to admit that it regularly makes bad loans financed by US taxpayers. Thus, this little bookkeeping entry covers the IMF?s and Russia?s collective behinds.
OK Larry, class is over and now you can go out and play with your little ?committee to save the world? friends.(cont)
capitalismmagazine.com |
