Abstract

This paper describes the functions, policies, and operations of the IMF. The IMF is an independent international organization, and is a cooperative of 185 member countries, whose objective is to promote world economic stability and growth. The member countries are the shareholders of the cooperative, providing the capital of the IMF through quota subscriptions. In return, the IMF provides its members with macroeconomic policy advice, financing in times of balance-of-payments need, and technical assistance and training to improve national economic management.

International Monetary Fund Handbook

Its Functions, Policies, and Operations

Bernhard Fritz-Krockow Parmeshwar Ramlogan Editors

January 2007

© International Monetary Fund

Cover Photo: IMF Staff Photographer/Eugene Salazar

Cataloging-in-Publication Data

International Monetary Fund handbook: its functions, policies, and operations / Bernhard Fritz-Krockow and Parmeshwar Ramlogan, editors—Washington, D.C.: International Monetary Fund, Secretary’s Dept., 2007.

p. cm.

Includes bibliographical references.

ISBN 978-1-58906-625-0

1. International Monetary Fund—Handbooks, manuals, etc. 2. Economic policy—Handbooks, manuals, etc. 3. Balance of payments—Handbooks, manuals, etc. 4. Special drawing rights—Handbooks, manuals, etc. 5. Technical assistance—Handbooks, manuals, etc. 6. World Bank—Handbooks, manuals, etc. 7. World Trade Organization—Handbooks, manuals, etc.. I. Fritz-Krockow, Bernhard. II. Ramlogan, Parmeshwar. III. International Monetary Fund. Secretary’s Dept.

HG3881.5.I58 I584 2007

Contents

  • Foreword

  • Abbreviations and Acronyms

    1. Overview of the IMF

      • Mandate

      • Functions

        • Surveillance over Members’ Economic Policies

        • Financing Temporary Balance of Payments Needs

        • Combating Poverty in Low-Income Countries

        • Mobilizing External Financing

        • Strengthening the International Monetary System

        • Increasing the Global Supply of International Reserves

        • Building Capacity through Technical Assistance and Training

        • Dissemination of Information and Research

      • Medium-Term Strategy

      • Origins of the IMF

      • Size and Membership

      • Staff

    2. Surveillance Over Members’ Economic Policies

      • Surveillance in the Articles of Agreement

        • Article IV of the IMF’s Articles of Agreement

        • Articles VIII and XIV of the IMF’s Articles of Agreement

      • Characteristics of Surveillance

        • Universality

        • Uniformity of Treatment

        • Flexibility

        • Cooperation

        • Candor

        • Comprehensiveness

        • Focus

      • Modalities of Surveillance

        • Bilateral Surveillance

        • Multilateral Surveillance

        • Regional Surveillance

      • Strengthening Surveillance to Prevent Financial Crises

        • External Vulnerability Assessments

        • Financial Sector Assessment Program

        • Financial Soundness Indicators

        • Anti-Money Laundering and Combating the Financing of Terrorism

        • Offshore Financial Center Assessments

        • Data Provision to the IMF for Surveillance Purposes

        • Surveillance in Program Countries

    3. Financing Temporary Balance of Payments Needs

      • Sources of IMF Financing

        • Quota Subscriptions

        • Borrowing

        • Grants for Subsidized Interest Rates and Debt Relief

        • Gold Sales

      • The IMF’s Capacity to Lend

      • IMF Financing to Member Countries

        • Purchases and Repurchases

        • Arrangements

        • Outright Purchases

        • Program Design

        • Approval of an Arrangement

        • Program Review

      • General Policies Governing the Use of IMF Resources

        • Reserve Tranche Policies

        • Access Policy

        • Exceptional Access

        • Terms of IMF Lending

        • Conditionality

        • Overdue Financial Obligations to the IMF

        • Lending into Arrears

        • Prolonged Use of IMF Resources and Ex Post Assessments

        • Misreporting and Noncomplying Purchases and Disbursements

        • Safeguards on the Use of IMF Resources

      • Financing Facilities and Arrangements

        • The Credit Tranches

        • Stand-By Arrangement

        • Extended Fund Facility

        • Supplemental Reserve Facility

        • Compensatory Financing Facility

        • Emergency Assistance Policy

        • Poverty Reduction and Growth Facility

        • Exogenous Shocks Facility

        • Trade Integration Mechanism

      • Special Instruments

        • Enhanced Surveillance

        • Rights-Accumulation Programs

        • Staff-Monitored Programs

        • Post-Program Monitoring

        • The Policy Support Instrument

    4. Special Drawing Rights

      • The SDR as an International Reserve Asset

      • Main Characteristics of the SDR System

        • Separation of SDR and GRA Accounts

        • Holders of SDRs

        • Allocation and Cancellation of SDRs

      • Use of SDRs

      • Valuation of the SDR

      • Yield and Cost of SDRs

    5. Combating Poverty in Low-Income Countries

      • Poverty Reduction Strategy Framework

        • Preparation of a Poverty Reduction Strategy Document

        • Content of a PRSP or I-PRSP

        • Joint Staff Advisory Note on the PRS Document

        • Alignment of the PRGF with the PRSP

        • Aid Coordination and Effectiveness

      • HIPC Initiative

        • Operational Aspects of the HIPC Initiative

        • Eligibility Requirements for the HIPC Initiative

        • Definition of Debt Sustainability and Debt Relief

        • Requirement of a Track Record

        • Amount of IMF HIPC Assistance

        • Terms of IMF HIPC Assistance

        • Use of Resources Freed by Debt Relief

      • Multilateral Debt Relief Initiative

    6. Capacity Building: Technical Assistance and Training

      • Role of Capacity Building

        • Technical Assistance

        • Training

      • Types of Technical Assistance and Training

      • Capacity Building Priorities

      • Sources and Uses of Capacity Building Resources

      • Modes of Delivery of Capacity Building

        • Short-Term Visits by Staff and Headquarters-Based Consultants

        • Long-Term Advisors

        • Regional Technical Assistance Centers

        • Training

      • Cooperation with Other Technical Assistance Providers

    7. Strengthening the International Financial System

      • Introduction

      • The Standards and Codes Initiatives

        • Data Dissemination Standards

        • Code of Good Practices on Fiscal Transparency

        • Code of Good Practices on Transparency in Monetary and Financial Policies

        • Reports on the Observance of Standards and Codes

      • Transparency at the IMF

      • Private Sector Involvement in Crisis Prevention and Resolution

        • Rationale for Private Sector Involvement

        • Access to Capital Market Financing

    8. Collaboration with the World Bank and the World Trade Organization

      • Collaboration with the World Bank

      • Overlap of IMF and World Bank Activities

      • Lead Roles of the IMF and the World Bank

      • Principles of IMF-World Bank Collaboration

    9. Collaboration with the World Trade Organization

      • Consultations

      • Trade Liberalization in Least-Developed Countries

    10. Governance and Decision-Making

      • Board of Governors

      • International Monetary and Financial Committee

      • Development Committee

      • Executive Board

        • Size and Composition

        • Board Procedures

        • Board Committees

        • Voting and Consensus Decision-Making

        • Summings Up

      • Managing Director and Deputy Managing Directors

      • Independent Evaluation Office

      • External Audit Mechanism

    11. Internal Organization and Financing

      • Organizational Structure

        • Office of the Managing Director

        • Area Departments

        • Functional and Special Services Departments

        • The External Relations Department and Liaison Offices

        • Support Departments

      • Financing of IMF Operations

  • Boxes

    • 1.1 The IMF’s Quota System

    • 2.1 Article IV Consultation Cycles

    • 5.1 Summary of Key Features of PRGF-Supported Programs

    • 7.1 Internationally-Monitored Standards and Codes

    • 9.1 The IMF’s Voting System

    • 9.2 Voice and Representation

  • Figure

    • 10.1 IMF Organization Chart

  • Tables

    • 3.1 The IMF’s Lending Capacity

    • 3.2 Terms and Conditions of IMF Lending

    • 4.1 Calculation of the SDR Value

    • 4.2 Calculation of the SDR Interest Rate

    • 6.1 Technical Assistance Resources and Delivery, FY2002—FY

    • 6.2 Overview of Regional Technical Assistance Centers in FY 2005

    • 6.3 IMF Institute Training Programs, FY 2002–FY 2006

    • 10.1 General Department, Operational Income

  • Appendix

    • Quotas and Voting Power

    • Endnotes

Foreword

This Handbook is intended to give a general overview of the IMF’s functions, policies and operations, although it is not intended to serve as an authoritative description of the rules governing these functions, policies, and operations. The Handbook provides, without commentary, a general and factual description of the IMF’s mandate, its governance and internal organization, the policies that guide its day-to-day operations and interactions with member countries, and the internal procedures through which these policies are executed. The Handbook should be useful to new IMF staff members, to Executive Directors and their staff, and to members of the public in general who are interested in the IMF’s mandate, policies, and operations. However, it is important to note that the publication provides but a snapshot of the IMF at the time of writing, as the continued evolution in the demands of the global economy and the role of the IMF therein will be persistent forces of change that will continue shaping the IMF’s functions, policies, and operations.

The Handbook draws heavily on IMF documents and, for accuracy, the language is kept as close as possible to the originals. The source documents include the Articles of Agreement, Executive Board decisions, summings up of Executive Board discussions, annual reports of the IMF, staff reports and memoranda, pamphlets, fact-sheets, and IMF staff publications. All of the documents are available to the public and many are also accessible through the IMF’s external website. The Handbook provides references in the endnotes to the relevant IMF documents, while footnotes provide some additional information that could be of interest to the reader.

The authors are grateful for the assistance of Elena Michaels, Antonella Tarantino, Henry Mooney, and Wasima Rahman-Garrett in the preparation of this publication. We also want to thank Celia Zufriategui, Lorna Sibblies, and Choon Hwee Lee for facilitating the production and publication. The present publication has been reviewed by staff from the Secretary’s Department and from other departments, and the authors gratefully acknowledge the extensive comments and suggestions received.

Abbreviations and Acronyms

ACB

Africa Capacity-Building Initiative

ACBF

African Capacity Building Foundation

AFRITAC

African Regional Technical Assistance Center

AML/CFT

Anti-Money Laundering and Combating the Financing of Terrorism

AREAER

Annual Review of Exchange Arrangements and Exchange Restrictions

ASEAN

Association of Southeast Asian Nations

BIS

Bank of International Settlements

CAC

Collective Action Clause

CAM

Committee on Executive Board Administrative Matters

CARTAC

Caribbean Regional Technical Assistance Center

CCL

Contingent Credit Lines

CEMAC

Central African Economic and Monetary Community

CFF

Compensatory Financing Facility

CMCG

Capital Markets Consultative Group

DC

Development Committee

DQAF

Data Quality Assessment Framework

DSA

Debt Sustainability Analysis

DSBB

Dissemination Standards Bulletin Board

ECCB

Eastern Caribbean Central Bank

ECCU

Eastern Caribbean Currency Union

ECOSOC

Economic and Social Council

EFF

Extended Fund Facility

EFM

Emergency Financing Mechanism

ENDA

Emergency Natural Disaster Assistance

EPCA

Emergency Post Conflict Assistance

ESAF

Enhanced Structural Adjustment Facility

ESF

Exogenous Shocks Facility

EU

European Union

EURIBOR

Euro Interbank Offered Rate

FAA

Framework Administered Account for Technical Assistance Activities

FAD

Fiscal Affairs Department

FATF

Financial Action Task Force

FCC

Forward Commitment Capacity

FIRST

Financial Sector Reform and Strengthening Initiative

FSAP

Financial Sector Assessment Program

FSI

Financial Soundness Indicator

FSLC

Bank-Fund Financial Sector Liaison Committee

FSRB

FATF-Style Regional Body

FSSA

Financial System Stability Assessment

FY

Fiscal Year

GAB

General Arrangements to Borrow

SM

Staff Memorandum

SMP

Staff-Monitored Program

SRF

Supplemental Reserve Facility

STA

Statistics Department

TIM

Trade Integration Mechanism

TMU

Technical Memorandum of Understanding

TPRM

Trade Policy Review Mechanism

UN

United Nations

UNDP

United Nations Development Programme

WEMD

World Economic and Market Developments

WAEMU

West African Economic and Monetary Union

WEO

World Economic Outlook

WTO

World Trade Organization