- International Monetary Fund
- Published Date:
- October 1998
This glossary covers basic operational and financial terms as used in the IMF. Words set in light italics are “see also” references.
Policies that govern the use of IMF resources by its members, including access limits set in terms of members’ quotas. The access policy and limits under the credit tranches and the Extended Fund Facility (EFF) are reviewed each year. Access under other facilities also is reviewed periodically. Access under the Supplemental Reserve Facility (SRF), in effect since late 1997, is not subject to limits in relation to quotas (see Chapter III).
The IMF’s unit of account is the special drawing right, or SDR (see also Chapter V). Members’ currencies are valued by the IMF in terms of the SDR on the basis of their representative rates of exchange, normally against the U.S. dollar at spot market rates if available. Gold held in depositories is valued on the basis that 0.888671 gram of fine gold is equivalent to 1 SDR (SDR 35 per fine ounce), except for 21,396 fine ounces acquired by the IMF on December 14, 1992, at market value and which are valued accordingly.
The IMF operates its financial functions through the General Department, the SDR Department, and the Administered Accounts, which are accounting entities and not organizational units. The financial functions of the IMF are discharged by the Treasurer’s Department, which is an organizational unit of the staff. The IMF has 17 other departments that are organizational units, as well as the Office of the Managing Director, two bureaus, the Joint Vienna Institute, offices in Paris and Geneva and at the United Nations, a Regional Office for Asia and the Pacific located in Tokyo, the IMF-Singapore Regional Training Institute, and resident representative offices in various member countries.
Under the Articles of Agreement, the IMF is to make its general resources temporarily available to members “under adequate safeguards.” The IMF considers that the best safeguard of repayment is a strong economic adjustment program and, thus, it has not been IMF practice to require collateral as a condition for making resources available to its members.
A detailed economic program, usually supported by use of IMF resources, that is based on an analysis of the economic problems of the member country and specifies the policies being implemented or that will be implemented by the country in the monetary, fiscal, external, and structural areas, as necessary, to achieve economic stabilization and set the basis for self-sustained economic growth.
Accounts established for financial and technical services, that are consistent with the purposes of the IMF, including the administration of resources contributed by individual members to provide assistance to other members. All operations and transactions involving the Administered Accounts are separate from those of the IMF’s other accounts (see Chapter IV).
The Articles of Agreement have been amended three times: The First Amendment (July 1969) introduced the special drawing right (SDR). The Second Amendment (April 1978) reflected the change from the par value system based on a fixed price for gold to an international monetary system based on floating exchange rates. The Third Amendment (November 1992) allowed for the suspension of the voting and certain related rights of a member that fails to fulfill any of its obligations under the Articles (other than obligations with respect to SDRs). The Board of Governors in September 1997 adopted a resolution to amend the Articles to allow for a special one-time allocation of SDRs. The Fourth Amendment will become effective when three-fifths of membership having 85 percent of the total voting power have accepted it. In April 1998, the Interim Committee endorsed the concept of a further amendment to the Articles to make the promotion of capital account liberalization a specific purpose of the IMF and to extend, as needed, the IMF’s jurisdiction for this purpose and asked the Executive Board to submit an appropriate proposal to the Committee as soon as possible.
A decision by the IMF that gives a member the assurance that the institution stands ready to provide foreign exchange or SDRs in accordance with the terms of the decision during a specified period of time. An IMF arrangement—which is not a legal contract—is approved by the Executive Board in support of an economic program under which the member undertakes a set of policy actions to reduce economic imbalances and achieve sustainable growth. Resources used under an arrangement carry with them the obligation to repay the IMF in accordance with the applicable schedule, and to pay charges on outstanding purchases (drawings).
An international treaty that sets out the purposes, principles, and financial structure of the IMF. The Articles, which entered into force in December 1945, were drafted by representatives of 45 nations at a conference held in Bretton Woods, New Hampshire. The Articles have since been amended three times, in 1969, 1978, and 1992, as the IMF responded to changes in the world economic and financial structure; see Amendments (to the Articles of Agreement).
Deferring the disbursement of the financial resources available to a member under an IMF arrangement toward the latter part of the arrangement. Compare with Front-Loading.
Each of the consecutive periods of five years (or less) during which a consideration is made whether there is a global need for additional international reserves to justify a new allocation of SDRs. There has not been an allocation since the third basic period (1978–81).
A single unified rate of charge that is applied to the outstanding use of IMF credit financed from the IMF’s general resources. The basic rate of charge, which is set as a proportion of the weekly SDR interest rate, is applied to the daily balance of all outstanding purchases (drawings) during each of the IMF’s financial quarters (see Chapter II under “Schedule of Charges”). A surcharge is added for use of resources under the Supplemental Reserve Facility.
In the context of IMF programs, a point of reference against which progress may be monitored. Benchmarks are not necessarily quantitative and frequently relate to structural variables and policies. In Enhanced Structural Adjustment Facility Arrangements, some benchmarks are designated as semiannual performance criteria and are required to be observed in order to qualify for phased (semiannual) borrowings. In addition, quantitative benchmarks are set for the quarters for which there are no performance criteria, and structural benchmarks are set for any date agreed upon under the arrangement.
Decisions adopted by the Executive Board of the IMF since 1986 regarding the sharing, between members paying charges and members receiving remuneration, of the financial consequences to the IMF of overdue obligations. An amount equal to overdue charges (excluding special charges) and an allocation to the Special Contingent Accounts (currently only the SCA-1) are generated each quarter by an upward adjustment of the rate of charge and a downward adjustment of the rate of remuneration (see Extended Burden Sharing, Special Charges, Remunerated Reserve Tranche, and Remuneration’, see also Chapter II under “Schedule of Charges” and Chapter VI under “Strengthening the IMF’s Financial Position “.)
A charge of ¼ of 1 percent a year payable at the beginning of each period (usually one year) on the resources committed for that period under a Stand-By or Extended Arrangement (see Chapter II under “Schedule of Charges”). This fee is reimbursed when committed resources are drawn.
A special IMF financing facility (window) that was established in 1988 to combine the longstanding Compensatory Financing Facility (retaining its essential features) with elements of contingency financing. The compensatory element provides resources to members to cover shortfalls in export earnings and services receipts, as well as excesses in cereal import costs, that are temporary and arise from events beyond the members’ control. The contingency element may help members with IMF arrangements to maintain their economic programs when faced with a broad range of unforeseen adverse external shocks.
Economic policies that members intend to follow as a condition for the use of IMF resources. These are often expressed as performance criteria (for example, monetary and budgetary targets) or benchmarks, and are intended to ensure that the use of IMF credit is temporary and consistent with the adjustment program designed to correct a member’s external payments imbalance (see Chapter III).
Policies under which members may make use of IMF credit. The amount of such use is related to a member’s quota. Early in its history, the IMF made credit available in four tranches (segments), each equal to 25 percent of a member’s quota. Provided a member is making reasonable efforts to solve its balance of payments problems, it can make use of IMF resources up to the limit of the first credit tranche on fairly liberal terms. Requests for use of more resources (upper credit tranche purchases) requires substantial grounds for expecting that the member’s balance of payments difficulties will be resolved within a reasonable period of time. Such use is almost always made under a Stand-By or Extended Arrangement, entailing phasing of purchases, performance criteria, and reviews—in other words, higher conditionality. (See Chapter III.)
A member has a creditor (or reserve) position in the IMF if it has lent its currency to the IMF under a loan agreement, and/or the member has not purchased its reserve tranche with the IMF, and/or the IMF has used the holdings of the member’s currency—which were acquired by the IMF as part of the member’s quota payment—to provide financial assistance to other members. More precisely, the creditor (or reserve) position is the sum of outstanding borrowing by the IMF from the member, if any, and the member’s reserve tranche position.
To avoid duplication of requirements by the IMF and the World Bank—known as cross-conditionality—there is an understanding that each institution must proceed with its own financial assistance according to the standards laid down in its Articles of Agreement and the policies adopted by its Executive Board. In other words, compliance with the requirements of one institution ought not be made a condition for the availability of financial assistance by the other institution.
The currency holdings of the IMF are the resources held at its disposal in the IMF No. 1 Account, No. 2 Account, and IMF Securities Account in its member countries (see Chapter I).
Each member designates a fiscal agency (ministry of finance, central bank, or similar entity) as a channel for the conduct of financial transactions with the IMF and a depository (central bank or similar agency) to maintain the accounts of the IMF (the IMF No. 1 and No. 2 Accounts and the Securities Account). (See Chapter I.)
A list of participants in the SDR Department whose balance of payments and reserve positions are sufficiently strong for them to be called upon to provide freely usable currency in exchange for SDRs within a financial quarter, together with the amounts they may be called upon to provide. The designation plan is established in advance of each financial quarter (currently only on a precautionary basis) by approval of the Executive Board (see Chapter V).
A repurchase (repayment) made under specific conditions, before the end of the established maximum repurchase period. (See Table 8 in Chapter III for the maximum periods; see also under “Repurchase Policies” in Chapter III and Purchases and Repurchases, below.)
The expectation of repurchase (repayment) in advance of its originally scheduled due date. According to the Articles of Agreement, a member is normally expected to repurchase its currency (make repayment of usable currencies) as its balance of payments and reserve positions improve. The current early repurchase policy has been in effect since June 1979 and establishes amounts expected to be repurchased taking into account the level of a member’s reserves and their growth, as well as other parameters. A separate repurchase expectation applies to purchases made under the Supplemental Reserve Facility. Such repurchases are expected one year before they become due, except that at the request of the member the IMF may decide to extend the expectation period by up to one year, though not beyond the due date. There are other provisions for repurchase expectations. (See Chapter III, under “Repurchase Policies.”).
A set of exceptional procedures to facilitate rapid Executive Board approval of IMF financial support for a member while ensuring the conditionality necessary to warrant such support. These emergency measures are used only in circumstances representing, or threatening to give rise to, a crisis in a member’s external accounts that requires an immediate IMF response.
Since 1962, the IMF has provided emergency assistance in the form of outright purchases to help members overcome balance of payments problems arising from sudden and unforeseeable natural disasters. This assistance was extended in September 1995 to cover certain postconflict situations. Assistance for postconflict situations, as well as for natural disasters, is normally limited to 25 percent of quota and is available only if the member intends to move within a relatively short time to an upper credit tranche arrangement.
Facility established in December 1987 to provide assistance on concessional terms to low-income member countries facing protracted balance of payments problems (see Chapter IV).
Policy introduced in 1985 to help members make progress in addressing their debt problems and improving relations with their creditors. During the enhanced surveillance period, economic developments in the member country are monitored by the IMF. The staff prepares an assessment of the member’s economic program, which may be presented by the member to official and private creditors for consideration. The policy was broadened in 1993 to cover any situation in which a member would find this enhanced monitoring by the IMF helpful (see Chapter I).
In effect from 1981 through November 1992, this policy enabled the IMF to provide additional financing from borrowed resources, in conjunction with ordinary resources.
See Enhanced Structural Adjustment Facility.
The Trust for Special ESAF Operations for the Heavily Indebted Poor Countries (HIPC) and Interim ESAF Operations. The trust was established in February 1997 to channel special assistance to eligible heavily indebted poor countries.
The part of a member’s currency held in the General Resources Account (GRA) that reflects the member’s use of IMF credit and is therefore excluded when determining the member’s reserve tranche position in the IMF. When determining a member’s reserve tranche position, holdings in the IMF No. 2 Account that are less than Mo of 1 percent of the member’s quota also are excluded.
A decision of the IMF under the Extended Fund Facility that gives a member the assurance of being able to purchase (draw) resources from the General Resources Account (GRA) in accordance with the terms of the decision during a specified period, usually three to four years, and up to a particular amount.
The IMF established a second Special Contingent Account on July 1, 1990, and decided to place SDR 1 billion to the account within about five years (through quarterly downward adjustments to the rate of remuneration and upward adjustments to the basic rate of charge). These actions were taken to safeguard against possible losses arising from undischarged repurchase obligations related to purchases financed by the encashment of “rights” following the successful completion of a rights accumulation program (see Chapter VI under “The Rights Approach”). The target of SDR 1 billion was reached in February 1997. (See Burden Sharing; also see Chapter II under “Schedule of Charges” and Chapter VI under “Strengthening the IMF’s Financial Position.”)
A financing facility (window) under which the IMF supports economic programs that generally run for three years and are aimed at overcoming balance of payments difficulties resulting from macroeconomic and structural problems. Typically, an economic program states the general objectives for the three-year period and the specific policies for the first year; policies for subsequent years are spelled out in program reviews (see Chapter III and Extended Arrangement).
An IMF policy developed in response to the external debt crisis of the late 1970s and early 1980s to help mobilize financial support from the international banking community for countries experiencing debt-servicing difficulties. Under the policy, the IMF would not make its resources available to a member undertaking an adjustment program until receiving assurances that the financing for the program would be forthcoming. (See Appendix IV.)
See Credit Tranche Policies.
Purchases (drawings) made under the special facilities (currently the Compensatory and Contingency Financing Facility, the Buffer Stock Financing Facility, and the Supplemental Reserve Facility) are not counted in calculating annual and cumulative access limits. These are therefore termed “floating facilities.” However, for the purpose of determining the level of conditionality (whether first tranche or higher), all purchases are taken into account.
A currency that the IMF has determined is widely used to make payments for international transactions and widely traded in the principal exchange markets. At present, the deutsche mark, French franc, Japanese yen, pound sterling, and U.S. dollar are classified as freely usable currencies.
Placing a more than proportional part of the disbursment of the financial resources available to a member under an IMF arrangement to near the beginning of the arrangement. Compare with Back-Loading.
Long-standing arrangements under which 11 industrial countries stand ready to lend to the IMF to finance purchases (drawings) that aim at forestalling or coping with a situation that could impair the international monetary system. The GAB currently amount to SDR 17 billion, and there is also an associated arrangement with Saudi Arabia for SDR 1.5 billion. Since their establishment in 1962, these arrangements have been renewed every four or five years and have been invoked 10 times.
Comprises the General Resources Account (GRA), the Special Disbursement Account (SDA), the Investment Account (not activated), and the Borrowed Resources Suspense Accounts (inactive since December 1991).
Assets, whether ordinary (owned) or borrowed, maintained within the IMF’s General Resources Account (GRA).
The exchange rate of the member’s currency against the SDR, at which the IMF holds the currency of the member (see Representative Rate and Chapter II under “Valuation of the IMF’s Currency Holdings “).
The ratio of the IMF’s net uncommitted usable resources to its liquid liabilities (see Chapter II).
See Valuation Adjustment.
Cumulative allocations of SDRs less any SDR cancellations. (As of end-April 1998, there have been no cancellations of SDRs.)
Arrangements under which 25 member countries or their financial institutions would be ready to lend to the IMF under circumstances similar to those covered by the General Arrangements to Borrow (GAB). The total amount of the NAB is SDR 34 billion, and the combined amount that can be drawn under the NAB and the GAB also cannot exceed SDR 34 billion. The NAB will become effective when potential participants with credit arrangements totaling SDR 28.9 billion (85 percent of the total credit arrangements) have consented to the decision that approved the NAB instrument, including the participants with the five largest credit arrangements.
A purchase (drawing) made by a member under a Stand-By or an Extended Arrangement that the member is later found not entitled to make—that is, a purchase made on the basis of incorrect information. The IMF has a set of guidelines to apply in such cases. (See Chapter III under “Repurchase Policies. “)
Calculated as the total of (1) 75 percent of a member’s quota before the Second Amendment of the Articles (April 1, 1978), plus (2) any subsequent increases in its quota. For a country that became a member after April 1, 1978, the norm is a percentage of its quota equal to the weighted average relative to quota of the norms applicable to all other members on the date that the member joined the IMF, plus the amounts of any increases in its quota afterwards. At each quota increase, a member’s norm rises, becoming closer to 100 percent of its quota. A member’s norm determines its remunerated reserve tranche position. (See Appendix II).
The Executive Board adopts an operational budget for each upcoming quarter specifying the amounts of SDRs and selected member currencies to be used in purchases and repurchases (transfers and receipts) expected to be conducted through the General Resources Account during that period (see Chapter II).
The use or receipt of monetary assets by the IMF, other than exchanges of monetary assets (that is, other than transactions). Examples are the payment of remuneration and receipt of charges. Operations in SDRs are uses of SDRs other than exchanges of SDRs for monetary assets (that is, other than transactions by agreement or with designation).
Assets held in the General Resources Account (GRA) that derive from members’ quota subscription payments and the undistributed net income from the use of these resources.
A purchase (drawing) for which there is no formal IMF arrangement, such as a purchase under a special policy, e.g., the policy on the emergency postconflict assistance.
Macroeconomic indicators such as monetary and budgetary targets that must be met, typically on a quarterly basis, for the member to qualify for purchases under the phasing schedule for Stand-By Arrangements in the upper credit tranches and Extended Fund Facility (EFF) Arrangements, or on a six-month basis for disbursements under Enhanced Structural Adjustment Facility Arrangements. Some performance criteria are those necessary to implement specific provisions of the Articles of Agreement. (See also under “Stand-By and Extended Arrangements” in Chapter III and Benchmarks.)
Charges (equivalent to interest), payable by a member on its outstanding use of IMF credit (see Chapter II under “Schedule of Charges”).
The practice of making the IMF’s resources available to its members in installments over the period of an arrangement. The pattern of phasing can be even, front-loaded, or back-loaded, depending on the financing needs and the speed of adjustment.
A Stand-By or an Extended Arrangement under which the member agrees to meet specific conditions for use of IMF resources although it has indicated to the Executive Board its intention not to make purchases (drawings) (see Chapter I under “Use of IMF Resources and Other Assistance to Member Countries”).
A nonparticipant in the SDR Department that has been prescribed by the IMF as a holder of SDRs (see Chapter V).
Monitoring by the IMF to determine whether the performance criteria specified and policy commitments made in the context of a Stand-By or an Extended Arrangement are being observed by the member receiving resources.
When the IMF makes its general resources available to a member, it does so by allowing the member to purchase SDRs or other members’ currencies in exchange for its own (domestic) currency. The IMF’s general resources are, by nature, revolving: purchases (or drawings) have to be reversed by repurchases (or repayments) in installments within the period specified for a particular policy or facility.
The capital subscription, expressed in SDRs, that each member must pay to the IMF on joining. Up to 25 percent is payable in SDRs or other acceptable reserve assets and the remainder in the member’s own currency. Quotas, which reflect members’ relative size in the world economy, are normally reviewed every five years (see Chapter II).
A member receives remuneration from the IMF (at a rate determined by the IMF) on any excess of its reserve tranche position over the difference between its quota and its norm for remuneration (see Chapter II, Figure 2).
The interest paid by the IMF every quarter on a member’s remunerated reserve tranche position.
The exchange rate of a member’s currency, normally against the U.S. dollar, that is used in the IMF’s transactions and operations with that member—that is, a currency (other than the U.S. dollar) is valued in accordance with the value of the U.S. dollar in SDR terms and the representative rate of the other currency in terms of the U.S. dollar. If the member has an exchange market where a representative spot rate for the U.S. dollar (against the member’s currency) can be readily ascertained, then that representative rate will be used. If such a market rate cannot be readily ascertained for the U.S. dollar but can be ascertained for another currency for which a representative market rate against the U.S. dollar exists, then that cross rate can be used. Otherwise, the IMF determines a rate for the currency that is appropriate.
The extent to which the IMF’s holdings of a member’s currency (excluding holdings that reflect the member’s use of IMF credit and holdings in the IMF No. 2 Account that do not exceed 1/10 of 1 percent of the member’s quota) are less than the member’s quota. The reserve tranche position is a part of the member’s external reserves (see Chapter II, Figure 2).
An economic program agreed between the IMF and an eligible member in protracted arrears to the IMF that provides a framework for the member to establish a satisfactory track record of policy and payments performance, and permits the member to accumulate rights to future drawings of IMF resources following clearance of arrears to the IMF, up to the level of arrears outstanding at the beginning of the program (see Chapter VI).
A special approach to address the situation of members that were in protracted arrears to the IMF at end-1989, on the basis of a rights accumulation program (see entry above and Chapter VI).
Under a self-sustained Enhanced Structural Adjustment Facility, loans would not be financed by ESAF Trust borrowing (as under the current ESAF), but by IMF resources currently in the ESAF Trust Reserve Account, on a revolving basis.
A fixed charge of Vi of 1 percent levied on each purchase (drawing) of IMF resources in the General Resources Account other than reserve tranche purchases, which carry no charges. The service charge is payable at the time of the transaction (see Chapter II under “Schedule of Charges”).
Accounts established to hold precautionary balances in order to strengthen the IMF’s financial position in connection with members’ overdue financial obligations (see Chapter VI under “Strengthening the IMF’s Financial Position”).
International reserve asset created by the IMF in 1969 as a supplement to existing reserve assets.
SDR Allocation. Distribution of SDRs to members by decision of the IMF. A “general” allocation requires a finding by the IMF that there is a global need for additional liquidity (see Chapter V).
SDR Assessment. An assessment levied by the IMF, at the same rate for all participants in the SDR Department, on a participant’s net cumulative SDR allocations, to cover the expenses of conducting the business of the SDR Department. (See also Chapter I under “Operating Costs” and Chapter V.)
SDR Department. This department, an accounting entity rather than an organizational unit of the IMF, records and administers all transactions and operations involving SDRs (see Chapter I under “Financial Structure” and Chapter V).
SDR Interest and Charges. Interest is paid to each holder of SDRs. Charges are levied, at the same rate, on each participant’s net cumulative SDR allocations. The SDR interest rate is determined weekly by reference to a combined market interest rate. Interest on SDR holdings is paid, and charges on net cumulative allocations are collected, on a quarterly basis, and are settled on the first day of the subsequent quarter (see Chapter V).
SDR Use. Participants in the SDR Department (currently all members of the IMF) and prescribed holders may use SDRs in a variety of voluntary transfers, including transactions by agreement, swap arrangements, forward operations, and so forth. Participants may also use SDRs in operations and transactions involving the General Resources Account (GRA), such as the payment of charges and repurchases (repayments). In addition, the IMF ensures that a participant with a need because of its balance of payments or reserve position is able to use its SDRs to acquire foreign exchange in a “transaction with designation” (see Chapter V).
SDR Valuation. The currency value of the SDR is determined daily by the IMF by summing the values in U.S. dollars, based on market exchange rates, of a basket of five major currencies. The current valuation basket was established on January 1, 1996 (see Chapter V, Table 11). The SDR valuation basket is normally reviewed every five years.
A decision of the IMF by which a member is assured that it will be able to make purchases (drawings) from the General Resources Account (GRA) up to a specified amount and during a specified period of time, usually one to two years, provided that the member observes the terms set out in the supporting arrangement.
A facility (window) established in December 1997 to provide financial assistance to members experiencing exceptional balance of payments difficulties due to short-term financing needs resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and the members’ reserves (see Chapter III).
An essential aspect of the IMF’s responsibilities associated with overseeing the policies of its members in complying with their obligations specified in the Articles of Agreement in order to ensure the effective operation of the international monetary system (see Chapter I under “Role of the IMF”).
A temporary facility (window) established in April 1993 to provide financial assistance to members facing balance of payments difficulties arising from shocks in their economies due to a shift from a centrally planned economy to a market-based economy. No purchases have been possible under this facility since end-December 1995.
An exchange of monetary assets by the IMF for other monetary assets (for example, a purchase or a repurchase).
Transactions in which participants in the SDR Department (currently all members) and/or prescribed holders voluntarily exchange SDRs for currency at the official rate as determined by the IMF. These transactions are usually arranged by the IMF (see Chapter V under “Uses of SDRs”).
See Credit Tranche Policies.
Includes use of IMF resources under the General Resources Account, and loans made to members of resources in the Special Disbursement Account or resources borrowed by the IMF as Trustee for the ESAF Trust. The use of IMF resources (or IMF credit) in the General Resources Account consists of transactions in which a member in need of balance of payments assistance uses its own currency to acquire from the IMF SDRs or the freely usable currency of a member in a strong balance of payments and reserve position. As a result of these transactions, the IMF’s aggregate holdings of SDRs and currencies do not change, but the composition of those holdings changes. The “strong” member whose currency is used to provide assistance gains a larger reserve tranche position, on which it will receive remuneration (to the extent that the IMF holdings of its currency are less than its norm for remuneration).
Each member has the obligation of maintaining the value in terms of the SDR of the balances of its currency held by the IMF. Whenever the holdings of a member’s currency are revalued (for a “strong” member, typically when its currency is used in a transaction or operation; for all members, at the end of the IMF’s financial year), a receivable (for the IMF) or a payable (by the IMF) is established for the amount of currency payable by or to the member (see Chapter II under “Valuation of the IMF’s Currency Holdings”).
The surveillance of the policies of IMF members who are participants in monetary unions presents special characteristics. Such members have transferred certain competencies in the economic and monetary fields to the monetary union and therefore at the individual level they are limited in their ability to conduct independent economic and monetary policies. On January 1, 1999, the European Economic and Monetary Union (EMU) is scheduled to be established, and the special features of the IMF’s surveillance of the policies of its members, as well as operational aspects arising from the adoption of the euro as a common currency for EMU members, are being considered.
A compendium of good practices for the banking sector, with the Core Principles of the Basle Committee included as an annex, is contained in IMF, Toward a Framework for Financial Stability, World Economic and Financial Surveys (Washington, 1997).
See “Code of Good Practices on Fiscal Transparency—Declaration on Principles,” attached to the “Communiqué of the Interim Committee of the Board of Governors of the International Monetary Fund” of April 16, 1998.
The resources in the GRA are managed in a cost-effective way to either reduce remunerated reserve tranche positions (to lower the IMF’s costs) or increase the IMF’s SDR holdings (to increase the IMF’s revenue). In order to be more profitable than GRA resources, resources in an Investment Account would need to be invested at a rate that exceeds the SDR interest rate after taking into account any exchange risk.
Except for financial years 1998 and 1999, as explained in Chapter IV.
See below under “Remuneration.”
Votes are cast by members for various operational and policy decisions of the IMF, and special voting majorities are required for major financial decisions, such as:
|Type of Financial Action||Proportion of Total Voting Power Required to Implement||Power of Action Conferred on|
|Adjustment of quotas||85 percent||Board of Governors|
|Allocation of SDRs||85 percent||Board of Governors|
|Prescription of medium of payment for additional subscription||70 percent||Board of Governors|
|Change in periods for repurchase||85 percent||Executive Board|
|Determination of charges||70 percent||Executive Board|
|Sale of gold||85 percent||Executive Board|
Payment of a quota increase wholly in the member’s own currency was agreed in connection with the quota increase under the Sixth Review.
The IMF also conducted a general review in 1958/59 outside the five-year cycle.
The distribution technique for the selective element in these reviews is one that uniformly and proportionately adjusts all members’ actual quota shares toward their calculated quota shares.
This rearrangement brought Japan’s quota to second largest (equal to that of Germany) and also equalized the quotas of France and the United Kingdom.
The increases in quotas under the Eleventh Review for a few members that have not yet consented to or paid for their proposed increase in quotas under the Ninth General Review were calculated on the basis of their proposed Ninth Review quotas. Members that are unable to make effective their Ninth Review quota increases may, therefore, “catch up” under the Eleventh Review.
The IMF would arrange for some members to borrow SDRs from other members provided that the borrowing member would, on the same day, repay the SDR loan from the proceeds of a drawing on the reserve tranche position in the IMF that had been established by the payment for the quota increase.
Currently there is only one periodic rate of charge, and a surcharge on the use of resources under the Supplemental Reserve Facility established in December 1997.
Net income may also be distributed to the IMF’s members.
Since February 1, 1987, the unadjusted rate of remuneration has been equal to the SDR interest rate. However, refundable adjustments to that rate are made under burden sharing. For more on burden sharing, see Chapter VI, the Glossary, and Appendix II.
The rate of charge on borrowed resources was, until April 30, 1993, equal to the cost of borrowing by the IMF plus a margin. On May 1, 1993, the rate of charge on borrowed resources was made equal to the rate of charge on ordinary resources.
The IMF levies additional special charges on overdue obligations, which are discussed in Chapter VI, “Strengthening the IMF’s Financial Position.”
After exclusion of currency holdings acquired when the member used IMF resources, and of currency holdings in the IMF No. 2 Account that are less than 1/10 of 1 percent of the member’s quota.
Although gold is an asset in the IMF’s balance sheet, it is not regarded as an immediately usable resource and is not used in the IMF’s operations and transactions.
If the IMF determines that its holdings of a member’s currency in the ORA are low, it may replenish its holdings by requiring the member to sell its currency to the IMF for SDRs.
These principles are enumerated in Article V, Section 3(d) (for transfers) and Article V, Section 7(i) (for receipts). The guidelines appear in Selected Decisions under the heading of the associated Articles.
The assessment of external strength in the case of monetary unions poses special issues. For example, the natural economic area for judging balance of payments and reserve strength would be the monetary union as a whole rather than the individual member country, while the IMF’s member continues to be the individual country and not the monetary union. In the case of the European Economic and Monetary Union (EMU) to become effective on January 1, 1999, the necessary adaptations in procedures are being considered.
For a definition of the reserve tranche position, see the Glossary.
For a definition of the norm for remuneration, see “Remuneration” above and the relevant Glossary entry.
The provisions on early repurchases are explained under “Repurchase Policies” in Chapter III.
IMF assistance with other resources has taken the usual form of loans. See Chapter IV.
For analytical, statistical, and reporting purposes, however, a classification of countries as advanced economies, developing countries, and countries in transition is used in IMF publications; see, for example, the introduction to the Statistical Appendix of the World Economic Outlook (Washington: IMF, May and October annually).
In the case of a reserve tranche purchase, which is a use of a member’s own reserve assets, the representation of balance of payments need is not challenged by the IMF. Also, once an arrangement has been approved by the IMF, a member’s representation of balance of payments need to make a purchase is not subject to challenge, under a long-standing policy intended to assure the member of the availability of IMF resources committed to it, subject only to its meeting performance criteria and other conditions specified in the arrangement.
“The Fund shall adopt policies … that will establish adequate safeguards for the temporary use of the general resources of the Fund” (Article V, Section 3(a)). See also Joseph Gold, Conditionality, Pamphlet Series No. 31 (Washington: IMF, 1979); and Manuel Guitián, Fund Conditionality: Evolution of Principles and Practices, Pamphlet Series No. 38 (Washington: IMF, 1981).
The maximum repayment period for loans under the ESAF, also involving medium-term structural adjustment, is the same as the maximum repurchase period for EFF purchases (10 years) but the grace period is 5½ years for the former, compared with 4½ years for the latter (see Table 8 and Chapter IV).
An 85 percent majority of the total voting power in the IMF is required to change the period of repurchase of holdings of currency acquired by the IMF pursuant to its policy on the use of general resources. A 70 percent majority is required in the case of holdings of currency not acquired as a result of purchases and subject to charges under Article V, Section 8(b)(ii)
No such decision has been taken in the last 25 years.
Members have the option of combining all repurchases due within a calendar month, provided that the combined repurchase is completed not later than the last day of the month and that no single repurchase remains outstanding for a period exceeding the maximum permitted under the relevant policy of the IMF.
The member then has the option of making a repurchase or having its currency included for sales in the operational budget. For a description of the operational budget, see Chapter II. For the designation plan, see “Uses of SDRs” in Chapter V. The specified amount of the expected quarterly repurchase would be 1.5 percent of gross reserves plus (or minus) 5 percent of the increase (or decrease) in gross reserves in the latest six-month period for which data are available. However, the IMF does not expect a repurchase in excess of 4 percent of the member’s gross reserves and limits the amount of expected repurchases, so that it does not exceed 10 percent of gross reserves during the year or reduce gross reserves below a level of 250 percent of quota.
Outright purchases without IMF arrangements can take place in the first credit tranche or under certain special policies (for example, for emergency assistance—see below).
For conditionality under ESAF Arrangements, see Chapter IV.
More specifically, these limits applied to purchases under Stand-By and Extended Arrangements, and to outright purchases, excluding those under special facilities.
As noted in the section on repurchase policies, the IMF has adopted guidelines on early repurchases that apply uniformly to all members.
The World Bank has collaborated with the IMF in financial support of debt-reduction operations, in recognition that these operations can be an important element of a country’s financial and development strategy.
For more on debt and debt-service reduction, see Chapter IV under “Structural Adjustment Programs.”
If the associated Stand-By Arrangement has between 12 to 18 months until expiration, then the repurchase obligation/expectation of the CSF purchase in the first tranche would be one year, or the expiration date of the arrangement, whichever is later.
Technically, the Supplemental Reserve Facility (SRF) belongs to the category of special facilities established under Article V, Section 3(a) because assistance under the SRF has been established for special balance of payments problems, and furthermore special charges and a different repurchase schedule apply. However, the SRF does not fit well within the category of other special facilities in existence before its adoption, and it has been treated separately.
For an early account of the SAF and the ESAF, see Joslin Landell-Mills, Helping the Poor: The IMF’s New Facilities for Structural Adjustment (Washington: International Monetary Fund, rev. ed. 1992).
The PFP also plays a central role in the HIPC Initiative; for HIPCs, the PFP includes a summary of the main findings of the country’s latest joint Bank-IMF debt sustainability analysis.
In March 1998 a special disbursement was made to Côte d’Ivoire for this purpose.
See ESAF Evaluation Board, “External Evaluation of the ESAF: Report by a Group of Independent Experts” (Washington: International Monetary Fund, 1998).
However, an additional annual arrangement may be approved after the expiration of the third annual arrangement under a three-year commitment, subject to satisfactory performance by the member. Also, if a three-year commitment has expired with undrawn amounts, a new commitment may be approved under a one-year or two-year arrangement, in order to disburse the undrawn amounts.
The maximum and exceptional maximum access limits are reduced by the amount of ESAF Trust resources committed to the member.
The current cutoff point for IDA eligibility is a 1996 GNP per capita of $925.
In the case of some loans the maturity of drawings is six months, with a provision for renewal in order to achieve the desired maturity of 5½ to 10 years.
Cumulative disbursements of ESAF resources amounted to SDR 6.0 billion, of which SDR 0.6 billion had been repaid by borrowers to the ESAF Trust. In addition, cumulative use of Special Disbursement Account resources for ESAF borrowing amounted to SDR 0.4 million, of which SDR 0.2 million had been repaid by borrowers. Repayments to lenders amounted to SDR 0.7 billion.
As of April 30, 1998, the balance of resources in the Subsidy Account available to pay interest to lenders was SDR 1.6 billion, and cumulative resources used for this purpose amounted to SDR 0.7 billion.
Highly concessional loans could also be provided in cases where there is a need to provide additional cash assistance to smooth debt-service profiles.
The Umbrella Account for HIPC Operations was established to receive and administer the proceeds of grants and/or loans made available to members that qualify for assistance under the terms of the ESAF-HIPC Trust.
“As needed” refers to the sum of the undiscounted subsidy requirements of the Interim ESAF.
The SCA-2 was established in 1990 in the context of the strengthened arrears strategy to provide additional liquidity and to protect the IMF against the risk of arrears on purchases from the GRA for the encashment of rights. The accumulated balance in the SCA-2 of SDR 1 billion, which was generated from adjustments in the rate of charge and the rate of remuneration, must be refunded when all purchases for the encashment of rights have been repurchased and no further rights purchases financed by GRA resources can be made. However, the SCA-2 can be reduced or closed earlier if the IMF decides with a majority of 70 percent of the voting power that all or part of the balances in the account are no longer needed.
For further information on Administered Accounts, see International Monetary Fund, Financial Statements (issued quarterly), section on “Financial Statements of Administered Accounts Established at the Request of Members.”
For more on the SDR, see IMF, Treasurer’s Department, User’s Guide to the SDR: A Manual of Transactions and Operations in SDRs (Washington, 1995).
The Articles of Agreement use only the term allocation, and not general allocation, which is used in this pamphlet to emphasize the difference from the one-time special allocation that will take place when the Fourth Amendment of the Articles becomes effective.
The procedures for cancellations of SDRs are broadly the same as those for allocations, except that cancellations are based on net cumulative allocations rather than quotas. This ensures a uniform proportionate reduction for all members, regardless of the number of allocations in which they have participated.
Future participants are defined as countries that became participants after September 19, 1997, but within three months of the date of their membership in the IMF.
The currencies determining the value of the SDR are the currencies of the five members whose exports of goods and services during the five-year period ending 12 months before the effective date of the revision of the valuation basket had the largest value.
These interest rates are weighted by the same currency units as are used in the calculation of the value of the SDR. These yields or rates are the market yield for three-month U.S. treasury bills, the three-month interbank deposit rate in Germany, the rate on three-month certificates of deposit in Japan, the interest rate on three-month treasury bills in France, and the market yield for three-month U.K. treasury bills. The instrument (or instruments) to be used for the euro (that will replace the deutsche mark and the French franc on January 4, 1999) in the determination of the interest rate of the SDR is currently under review.
According to Article V, Section 6(a), the IMF also may buy SDRs from participants in exchange for other members’ currencies. However, there has been no Board decision to implement this option.
The 15 prescribed holders are three central banks (the Bank of Central African States, the Central Bank of West African States, and the Eastern Caribbean Central Bank); three intergovernmental monetary institutions (the Bank for International Settlements, the Latin American Reserve Fund, and the Arab Monetary Fund); and nine development institutions (the African Development Bank, the African Development Fund, the Asian Development Bank, the East African Development Bank, the International Bank for Reconstruction and Development and the International Development Association—respectively the “hard” and “soft” loan entities of the World Bank Group—the Islamic Development Bank, the Nordic Investment Bank, and the International Fund for Agricultural Development).
See Chapter II under “Usability of the IMF’s Resources.”
Although the designation mechanism has not been used for several years, quarterly designation plans continue to be prepared and approved by the Executive Board. A quarterly plan lists participants subject to designation and sets maximum limits on the amount of SDRs that they can be designated to receive within that quarter. Three basic guidelines are followed in formulating designation plans. First, participants can be subject to designation if their balance of payments and gross reserve positions are “sufficiently strong.” Second, the amounts of designation for individual participants are determined in a manner that would promote, over time, equality in the “excess holding ratios” of participants (that is, SDR holdings above or below allocations as a proportion of the members’ official gold and foreign exchange reserves). Third, a participant’s obligation to provide currency against SDRs in designation is limited to the level at which its excess holdings are twice the level of its net cumulative SDR allocation, unless the participant and the IMF agree on a higher limit.
See Chapter II under “Usability of the IMF’s Resources.”
These organizations are the African Development Bank, African Development Fund, Arab Monetary Fund, Asian Development Bank, Common Fund for Commodities, East African Development Bank, Economic Community of West African States, International Center for the Settlement of Investment Disputes, International Development Association, International Fund for Agricultural Development, Islamic Development Bank, and Nordic Development Fund.
Nevertheless, the future of the rights approach and the Second Special Contingent Account (SCA-2) (see below) would be considered earlier, as appropriate, in light of ongoing discussions on funding for the interim ESAF and the HIPC Initiative.
See Appendix I.
Special charges are limited to members with arrears of less than six months because these charges may have an incentive effect at early stages of arrears, but in the longer run they may add to the problem of members’ overdue obligations, making eventual settlement more difficult.
Since May 1993, the basic rate of charge has exceeded the SDR interest rate. As a result, no special charges on overdue repurchases have been levied.
The IMF may sell gold held on the date of the Second Amendment to countries that were members on August 31, 1975 (and Papua New Guinea) and that agree to buy it in proportion to their quotas on that date. The sale to a member would be in exchange for its currency at the price of SDR 35 per fine ounce and would in effect represent a “restitution” of gold to those members.
According to the Articles, the IMF can only use its gold by selling it (that is, transferring its ownership at a price). Loans, leases, or the use of gold as collateral do not involve the transfer of ownership. A swap would involve the transfer of ownership but also an agreement that gold would be returned to the IMF at a later date at an agreed price, while the acquisition of gold by the IMF is limited in the Articles to the acceptance of gold for payments at a price agreed “on the basis of prices in the market.” Prices are meant to be those prevailing in the market at the time gold is accepted by the IMF (and not, for example, the price that might have prevailed at the time of a swap transaction).
These sales were started before the Second Amendment became effective in 1978, and transitional provisions were included in the Amendment for their completion.
Subsequent repayments of such loans were used in part to subsidize the cost of using the Supplementary Financing Facility (SFF) and in part to finance the Structural Adjustment Facility (SAF). They were also used to help fund the ESAF Subsidy Account, as well as to build up the ESAF Reserve Account.
The membership resolution for Papua New Guinea was adopted by the Board of Governors on August 31, 1975, and the country became a member of the IMF on October 9, 1975.
On April 30, 1998, the price of gold in London was SDR 230.7 an ounce.
Except for about 21,300 ounces that the IMF accepted from Cambodia in 1992 in discharge of its overdue financial obligations.
At the average SDR interest rate during the financial year ended April 1998 of 4.2 percent a year, for each million ounces of gold held by the IMF (1) a remuneration expense of SDR 1.5 million a year would be incurred, and (2) interest income would be forgone on the gold’s unrealized value—that is, the difference between the market price of gold and the IMF’s book value (SDR 35 per ounce) in an amount of about SDR 8 million a year (based on an average market price for gold of $316 an ounce and an average SDR value of $1.36 an SDR).
See Joseph Gold, Order in International Finance, the Promotion of IMF Stand-By Arrangements, and the Drafting of Private Loan Agreements, Pamphlet Series, No. 39 (Washington: International Monetary Fund, 1982), pp. 17–35.