Funding the Fund: Will Mexico Join Brazil?

Russia and Brazil, seeking to reduce their dependence on the dollar, announced plans to buy $20 billion of bonds from the International Monetary Fund and diversify foreign-currency reserves. I was under the impression that Mexico was suffering a lot with the crisis and that would a country who would receive financial aid from the IMF. For me it makes little sense that Mexico is willing to lend money to the IMF. The country should instead be receiving funds.

The IMF’s board may consider in late June or July a proposal to issue bonds. The Fund probably will sell the bonds only to member states and central banks. The debt will pay a yield similar to U.S. Treasuries and will be denominated in the fund’s basket of currencies, known as Special Drawing Rights. The IMF calculates the value of SDRs daily, with 44 percent weighted towards the dollar, 34 percent to the euro and the remainder split between the yen and the pound .Brazil’s central bank will decide which assets to sell from its reserve portfolio to free up the funds needed to purchase the IMF securities. This is an investment that Brazil is doing with part of its reserves and making available financing so that the IMF may help emerging countries.