International Monetary Fund. External Relations Dept.
The rules governing access to the IMF’s general resources apply uniformly to all members. Access is determined primarily by a member’s balance of payments need, the strength of its adjustment policies, and its ability to repay the IMF. With the exception of access under the Supplemental Reserve Facility (SRF) and the Contingent Credit Lines (CCL), annual and cumulative access limits under other facilities and policies are set in proportion to members’ quotas. The Executive Board reviews the access limits annually in light of, among other considerations, the extent of members’ payments problems and developments in the IMF’s liquidity.
After increasing more than threefold between 1990 and 1996, total net resource flows to developing countries have since halved, despite a brief recovery in 1999 (Figure 1.1).1, 2 Resource flows from private sources, comprising foreign direct investment (FDI), portfolio investment, bank lending, and international bond issuance by developing countries, dominated these developments. Private flows accounted for nearly 80 percent of the total net resource flows to these countries in 1996 and have remained around 60–70 percent since 1997. However, the overall dominance of private flows masked a vast difference in the composition of flows across income groups in developing countries. While private flows contributed the bulk of the resource flows to middle-income and transition economies, they accounted for less than 10 percent of net financing to low-income countries in the last two years. These countries, particularly the heavily indebted poor countries (HIPCs), have relied primarily on official development finance (ODF), absorbing about half of the net official development assistance (ODA) flows to developing countries (Figure 1.2).
Over 90 percent of world trade is conducted on the basis of cash or short-term credit, with the remainder supported by medium- and long-term credit and other means of financing. Trade financing therefore is an important component of external financing for developing countries. Export credits supported by official export credit agencies (ECAs) are a key element of nonconcessional financing from bilateral sources to developing countries and economies in transition (Box 2.1).7 The Berne Union of ECAs accounted for more than 16 percent of the total indebtedness of these countries and almost half of their indebtedness to official creditors in 2001.8
Gross multilateral development bank (MDB) lending to developing countries remained relatively flat over the second half of the 1990s and through 2001 (Table 3.1). Lending did increase briefly, in 1998, as MDBs expanded financing to Brazil following its crisis. This trend of MDB gross financing is reflected in the nearly constant share of MDB disbursements in total disbursements to developing countries. However, unlike trends in gross financing over 1998–2001, net financing to developing countries exhibited a much lumpier pattern mainly on account of repayments to MDBs following the Asian and Russian crises, namely by Korea. Overall, the pattern of MDB lending to all developing countries reflected that of middle-income countries (Table 3.2).
During 2001–02, Paris Club creditors concluded 30 rescheduling or deferral agreements, involving debt-service obligations and arrears amounting to about 44 billion (Table 4.1). As in previous years, most of the rescheduling agreements were concluded with low-income countries, usually on concessional terms17 (Table 4.2). Most middle-income countries have graduated from rescheduling agreements with Paris Club creditors, as evidenced by the fact that there were only three rescheduling agreements with debtor countries in this category during the period under review: Jordan, Ukraine, and the Federal Republic of Yugoslavia18 (Table 4.3). Although the possibility of further reschedulings with middle-income countries cannot be excluded, the debt treatment offered by official creditors, as well as the progress many of these countries are making in stabilizing their economies, should make this less likely.
Excessively high levels of external debt have been a serious obstacle to economic growth and poverty alleviation in heavily indebted poor countries. A high external debt-service burden can directly reduce resources available for social expenditures and adversely affect economic growth, hence indirectly leading to increases in poverty (Box 5.1). The HIPC Initiative, launched in 1996 and enhanced in 1999, aims to reduce heavily indebted poor countries’ external debt to sustainable levels, removing this obstacle to poverty reduction and growth in these countries.
This paper examines compensatory financing facility in the IMF. Compensatory financing facilities are easy to administer and can give immediate relief to primary exporting countries when their export earnings fall. The IMF’s compensatory financing facility was established in 1963, but only 57 drawings, totaling SDR 1.2 billion, were made during its first 13 years. A turning point was the liberalization of the facility in December 1975, which occurred when commodity prices were at their trough because of the severe recession in 1975. From January 1976 to March 1980, there were 107 drawings totaling SDR 4.0 billion under the facility.