An independent US inquiry has delivered a scathing report on the International Monetary Fund for understating its lending capacity and being poorly prepared for the millennium date change.

The General Accounting Office report is likely to provoke further attacks on the fund by critical US lawmakers.

While the report may be altered before final publication, it casts light on last year's controversial agreement by the US Congress to back an IMF capital increase, which the fund said was necessary because of a shortage of lending capacity.

Many legislators questioned the IMF's calculations of its financing needs at the time, and Congress commissioned the GAO to investigate.

The report says the fund is far too conservative in assessing how much it has available to lend to countries which face financial crisis.

The IMF claims that, after its current lending commitments, it has about $77 billion (€72 billion) in liquid resources available for further loans to IMF members.

But the GAO argues that the figure is probably higher, because the fund discounts $19 billion in a working balance reserve it says it needs. The report notes the reserve has not been drawn down in more than 20 years.

The report is critical of the IMF argument that it needs available resources of at least 30 per cent of its liquid liabilities (the so-called liquidity ratio). The GAO says there is "no analytical basis" for the minimum ratio and that the IMF can supplement its resources by using $46 billion in credit lines from member countries.

On the Year 2000 issue, the report says the IMF has lagged in assessing some internal systems. "By completing the assessment so late in the year, IMF will not be fully aware of any problems until after the date change, too late to take pre-emptive action," the GAO says.

An IMF spokesman said the fund believed it was "fully up to date" on the millennium question, and that it had announced a special facility for governments that face financing problems because of Y2K.

He said many members would be uncomfortable with a liquidity ratio that fell below 30 per cent for a sustained period and that the IMF's conservative financing approach was a policy of long standing.

The next scheduled IMF quota review is due in 2002, but Congress is expected to vote soon on whether to allow the fund to revalue some of its gold reserves to take part in a debt relief initiative for the poorest countries.