This paper discusses the financial organization and operations of the IMF. The policies and activities of the IMF are guided by its charter, known as the Articles of Agreement. The IMF is unique among intergovernmental organizations in its combination of regulatory, consultative, and financial functions, which derive from the purposes for which it was established. The IMF is concerned with not only the problems of individual countries but also the workings of the international monetary system as a whole. Its activities focus on promoting policies and strategies through which its members can work together to ensure a stable world financial system and sustainable economic growth.
No. 45 Fifth Edition
Financial Organization and Operations of the IMF
INTERNATIONAL MONETARY FUND
Fifth Edition, September 1998
Reprinted March 2000
This pamphlet was prepared by the staff of the Treasurer’s Department of the IMF, with assistance from staff members of other departments. The views expressed in this pamphlet, including any legal aspects, are those of the IMF staff and should not be attributed to Executive Directors of the IMF or their national authorities.
Edited by J.R. Morrison
Production: IMF Graphics Section
Cover Design: Luisa Menjivar-Macdonald
Typesetting: Victor Barcelona and Jack Federici
Figures: Suriyun Whitehead
Preface to the Fifth Edition
I. Overview of the IMF as an International Monetary Institution
Role of the IMF
Capital Account Convertibility
Use of IMF Resources and Other Assistance to Member Countries
Accounts in Member Countries
II. General Department: General Resources Account—Resources
Determination of Initial Quotas
Review and Adjustment of Quotas
Eleventh General Review
Schedule of Charges
Accounting Principles and Audit Procedures
Sources and Evolution of IMF Borrowing
Characteristics of Borrowing Arrangements
Current Borrowing Arrangements
Valuation of the IMF’s Currency Holdings
Usability of the IMF’s Resources
III. General Department: General Resources Account—Uses
General Terms and Conditions
Uniformity of Access and Access Limits
Balance of Payments Need
Timing of Access
Phasing of Purchases
Financial Policies and Facilities
Reserve Tranche Policies
Credit Tranche Policies
Stand-By and Extended Arrangements
Emergency Financing Mechanism
Supplemental Reserve Facility
Financing for Debt and Debt-Service Reduction
Currency Stabilization Funds
Emergency Assistance Related to Natural Disasters and Postconflict Cases
IV. Facilities for Low-Income Members and Administered Accounts
Enhanced Structural Adjustment Facility
Structural Adjustment Programs
Internal Review and External Evaluations
ESAF Terms and Access Limits
Eligibility for ESAF Arrangements and Conditionality
Interim ESAF and the HIPC Initiative
Continuation of the ESAF
Other Administered Accounts
V. SDR Department
General Allocations and Cancellations of SDRs
Special Allocation of SDRs
Seminar on the SDR
Fourth Amendment to the IMF’s Articles
Valuation of the SDR
SDR Interest Rate, Charges, and Assessment
Participants and Prescribed Holders
Uses of SDRs
SDR as a Reserve Asset
SDR as a Unit of Account
VI. Measures to Deal with Overdue Financial Obligations to the IMF
Strengthened Cooperative Strategy
Third Amendment of the IMF’s Articles
The Rights Approach
Strengthening the IMF’s Financial Position
Appendix I. Role of Gold in the IMF
Gold Prior to the Second Amendment
Gold After the Second Amendment
IMF’s Gold Sales in 1976–80
Gold Price Developments
Policies on Gold Since the Early 1980s
Appendix II. Some Illustrative Calculations and Concepts
Reserve Tranche Position
Charges and Interest
Currency Valuation Adjustment
Appendix III. IMF Membership, Quotas, and Allocations of SDRs
Appendix IV. Relations with Other Organizations and the Private Sector
Other International Organizations
Official Creditors, Commercial Banks, and Other Creditors
1. General Reviews of IMF Quotas
2. Changes in IMF Quotas
3. IMF Borrowing
4. General Resources Account: IMF Assistance and Borrowing
5. General Arrangements to Borrow: Participants and Credit Amounts
6. New Arrangements to Borrow
7. IMF Financial Activity
8. Terms for Use of Resources in the General Resources Account
9. Access Limits
10. Countries Eligible for SAF and ESAF: Loans Disbursed as of April 30, 1998
11. SDR Valuation on June 30, 1998
12. Transfer of SDRs
A1. Illustrative Calculation of Reserve Tranche Position
A2. Illustrative Calculation of Member’s Remuneration
A3. Illustrative Calculation of Periodic Charges
A4. Illustrative Calculation of Currency Valuation Adjustment
A5. IMF Membership, Quotas, and Allocations of SDRs
1. Financial Structure of the IMF
2. Reserve Tranche Position
A1. IMF Gold Sales Program, 1976–80
A2. Price of Gold
1. Decision-Making Structure of the IMF
2. Purposes of the IMF
3. Quota Formulas
4. Sales of Gold at Market Prices in the Current Articles
Unless indicated otherwise, statistical information is given for financial year 1998, which began May 1, 1997, and ended April 30, 1998.
The following conventions have been used in this pamphlet:
n.a. to indicate not applicable;
… to indicate that data are not available;
— to indicate that the figure is zero or less than half the final digit shown or that the item does not exist;
– between years or months (for example, 1997–98 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years or months (for example, 1997/98) to indicate a fiscal or financial year.
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
Minor discrepancies between constituent figures and totals are due to rounding.
All references to dollars are to U.S. dollars unless otherwise noted; as of April 30,1998, the SDR/U.S. dollar exchange rate was US$1 = SDR 0.742580, and the U.S. dollar/SDR exchange rate was SDR 1 - US$1.34666.
As used in this pamphlet, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
Preface to the Fifth Edition
The IMF’s financial organization and policies have undergone major changes since the fourth edition of this pamphlet was issued in June 1995. These include an agreement on a substantial increase in the IMF’s financial resources and the introduction of new facilities and procedures. While many of the changes are a direct response to specific episodes of financial crisis (Mexico in 1994–95, Asia in 1997–98), they can be better regarded as the IMF’s ongoing response to the pervasive impact of the globalization of financial markets on the working of the international monetary system.
The main changes in this edition are briefly described in the paragraphs that follow.
In early 1997, the IMF decided to establish the New Arrangements to Borrow (NAB), under which it may borrow up to SDR 34 billion from 25 participating lenders. These new arrangements, which do not replace the General Arrangements to Borrow (GAB), will be the facility of first and principal recourse in the event of a need to provide the IMF with supplementary resources. The IMF will not be able to borrow from the GAB and NAB combined more than SDR 34 billion. The NAB had not come into effect as of the date of writing (August 1998), awaiting legislative approval by some of the adherents.
In January 1998, the Eleventh General Review of Quotas was completed when the Board of Governors approved an overall increase in quotas of 45 percent and a substantial restructuring of members’ quotas to reflect changes in their positions in the world economy since the Ninth Review was completed in 1990. (The Tenth General Review was concluded without an increase in quotas.) As of the date of writing, the increases in quotas under the Eleventh Review have not come into effect since many members have not completed the necessary legislative approval procedures.
This edition also describes the Fourth Amendment of the Articles of Agreement, approved by the Board of Governors in September 1997. The amendment of the Articles, which is now undergoing legislative consideration by IMF members, provides for a special one-time allocation of SDRs, so as to equalize members’ ratios of cumulative allocations to their Ninth Review quotas at approximately 29.3 percent. This special allocation will double the amount of SDRs in circulation.
In addition to the significant developments in the area of financial resources, the IMF has since June 1995 developed a number of new facilities and introduced internal procedures aimed at better addressing the needs of members in resolving balance of payments problems.
In September 1995, the Executive Board adopted an “Emergency Financing Mechanism” (EFM) for crisis situations to facilitate rapid approval of IMF support while assuring the conditionality necessary to warrant such support. The IMF has resorted to the EFM in its quick response to the crises in South and East Asia in 1997–98 and for Russia in July 1998.
In 1997, the IMF adopted guidelines for the use of its resources in connection with currency stabilization funds (CSFs). Under these guidelines, the IMF could agree to the establishment of a CSF as an element (or “window”) within an IMF upper credit tranche arrangement, which would have revolving features permitting repeated use under specified conditions. So far, the IMF has not established a CSF for a member.
In September 1997, the IMF agreed to expand the scope of the existing guidelines on emergency assistance to provide for financial help, generally limited to one credit tranche, to countries in postconflict situations.
In December 1997, the Executive Board adopted a new facility—the Supplemental Reserve Facility (SRF)—designed to deal with the circumstances of members experiencing exceptional balance of payments problems owing to a large short-term financing need resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and on members’ reserves. The facility, while available to all members, is likely to be used in cases where the magnitude of the outflows may create a risk of contagion that could pose a threat to the international monetary system. This facility has been used so far by Korea (in December 1997) and Russia (in July 1998).
In early 1997, the IMF decided to establish a new trust arrangement to permit special Enhanced Structural Adjustment Facility (ESAF) operations for the heavily indebted poor countries (HIPCs). These special operations are channeled through the ESAF-HIPC Trust and are aimed at reducing the external debt burden of heavily indebted poor countries to a sustainable level.
These institutional adaptations and the strengthening of its financial resources have been among the initial responses to two recent major crises affecting the stability of the international monetary system. Furthermore, the IMF is exploring ways to prevent, manage, and resolve future crises. In this respect, major steps are being taken to strengthen the IMF’s surveillance activities and increase transparency, including the timely disclosure of information on economic data and policies. In addition, work has continued on issues related to capital account liberalization, including a possible amendment of the IMF’s Articles. Although these issues and developments are not discussed at length in this edition of the pamphlet, the development of such new policies should be seen not only in the context of the institution’s broad response to recent crises but also in the light of the rapid globalization of financial markets and its impact on the working of the international monetary system.
As noted in earlier editions of this pamphlet, the financial organization of the International Monetary Fund has evolved continually in response to changes in the world financial environment. The large number of new topics described in this edition of the pamphlet further attests to the extraordinary capacity of the institution to adapt to changes in the international monetary system.
This new edition of the pamphlet has been prepared by staff members of the Treasurer’s Department under the direction of Mr. Edgardo Decarli, Advisor, with the assistance of Mrs. Leyla Ecevit, Deputy Division Chief in the Treasurer’s Department. In preparing this edition, the Treasurer’s Department has greatly benefited from the skillful and valuable advice of colleagues throughout the IMF and, without implicating them for the publication’s shortcomings, I would like once again to acknowledge that preparation of this edition has been possible only with their collaboration.
This edition attempts to provide a snapshot of the IMF’s financial organization as of June 1998. The pamphlet will be kept current, as warranted by future developments and the interest of readers.