Extended Fund Facility: Review

1. Pursuant to Decision No. 7157-(82/93), adopted July 7, 1982, the Fund has reviewed the provisions of the extended Fund facility further, together with a review of the Fund’s stand-by arrangements, and decides that the provisions of the extended Fund facility remain appropriate in present circumstances.

2. The Fund will again review programs supported by standby and extended arrangements, not later than December 31, 1984. This review will examine the appropriateness of the provisions of the extended Fund facility and the guidelines on conditionality, with particular reference to the importance of ensuring the revolving character of the Fund’s resources.

Decision No. 7558-(83/156)

November 16, 1983

Policy on Enlarged Access: Review

1. The Executive Board has reviewed Executive Board Decision No. 6783-(81/40), adopted March 11, 1981, entitled “Policy on Enlarged Access,” in accordance with paragraph 15 of that Decision.

2. The Executive Board will consider further various aspects of the application of the Decision before the next meeting of the Interim Committee.

Decision No. 7414-(83/76)

May 25, 1983

Policy on Enlarged Access: Period and Annual Review

a. The Fund may approve a stand-by or extended arrangement that provides for enlarged access under Decision No. 6783-(81/40) on the Policy on Enlarged Access until the end of 1984, provided that the Fund may extend this period.

b. The Fund will review Decision No. 6783-(81/40) not later than December 31, 1984, and annually thereafter as long as the Decision remains in effect, in order to consider the future of the Policy on Enlarged Access in light of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity.

Decision No. 7599-(84/3)

January 6, 1984

Policy on Enlarged Access: Guidelines on Access Limits

a. Access by members to the Fund’s general resources under Decision No. 6783-(81/40) on the Policy on Enlarged Access during the period ending on December 31, 1984 shall be subject to annual limits of 102 or 125 percent of quota, three-year limits of 306 or 375 percent of quota, and cumulative limits of 408 or 500 percent of quota net of scheduled repurchases, depending on the seriousness of the member’s balance of payments needs and the strength of its adjustment effort. The annual and triennial access limits shall not be regarded as targets. Within these limits, the amounts of access in individual cases will vary according to the circumstances of the member in accordance with criteria established by the Executive Board. The Fund may approve stand-by or extended arrangements that provide for amounts in excess of these access limits in exceptional circumstances.

b. The guidelines will be reviewed before the end of 1984 at the time of the annual review of the Decision on the Policy on Enlarged Access.

Decision No. 7600-(84/3)

January 6, 1984

Policy on Enlarged Access: Use of Ordinary and Borrowed Resources

The Fund, having reviewed the proportions of ordinary and borrowed resources to be used under a stand-by or extended arrangement approved under Decision No. 6783-(81/40) on the Policy on Enlarged Access, decides that:

1. The proportions after the effective date of this decision will be as follows:

• (a) Under a stand-by arrangement, purchases will be made with ordinary and borrowed resources in the ratio of 2 to 1 in the first credit tranche, and 1 to 1 in the next three credit tranches. Thereafter, purchases will be made with borrowed resources only.

• (b) Under an extended arrangement, purchases will be made with ordinary and borrowed resources in the ratio of 1 to 1 until the outstanding use of the upper credit tranches and the extended Fund facility equals 140 percent of quota. Thereafter, purchases will be made with borrowed resources only.

2. In accordance with subparagraph 8(d) of Decision No. 6783-(81/40), the proportions in (1) above shall apply to amounts that may be purchased under existing arrangements after the effective date of this decision on the basis of the member’s quota at the time the arrangement for the member was approved.

Decision No. 7601-(84/3)

January 6, 1984

The Chairman’s Summing Up at the Conclusion of the Discussion on Criteria for the Amount of Access in Individual Cases—December 2, 1983

The thoughtful and frank comments of Executive Directors during the discussion were of great benefit to the staff and management. As has been suggested by a number of Directors, I will sum up the discussion rather than attempt to reformulate the proposed criteria in Section V of the staff paper EBS/83/233.

A number of Executive Directors noted that the broad thrust of the staff paper, particularly Section II, “Considerations Governing Amount of Access,” was acceptable to them. I will now try to summarize the discussion; in doing so, I will note the reservations and nuances that have been expressed by several Directors, without referring back to the staff paper in detail. I have noted, in particular, the following nine points that were emphasized by Executive Directors:

1. The criteria for the use of the Fund’s resources contained in the decision on the policy on enlarged access remained valid and would continue to be applied on a case-by-case basis.

2. The access limits of 102 percent or 125 percent of quota set out in paragraph 5(c) of the communiqué of the Interim Committee were not to be regarded as targets or entitlements.

3. The considerations pertaining to the use of Fund resources under the existing decision on enlarged access would continue to be applied in determining the amounts of individual access in what several Executive Directors had called the continuum going from 0 to 102 or 125 percent of quota. Clearly, the criteria of the member’s need and the strength of the adjustment program would be major guiding factors in setting those individual amounts. In response to comments made by some Directors, I can state that the staff did not intend to make use of the Fund’s resources in the range between 102 percent and 125 percent of quota subject to a finding of “exceptional circumstances,” in the sense of what governs access beyond the upper limit. In bringing forward requests by members for the use of the Fund’s resources under the enlarged access policy, the staff will try to explain more fully how it had come to the access limits proposed in each case, in light of the framework that has emerged from the views expressed by the Executive Board.

4. The Fund should apply its criteria with the necessary flexibility and not in a mechanical way. Rather, the policy should be applied on the basis of experience and taking into account the analytical studies of the staff and the Board discussions of the staff papers. Today’s staff paper was part of that background material.

5. The Executive Board preferred not to codify the exceptional circumstances that might entail utilization of the Fund’s resources beyond the upper limit of 125 percent. In particular, the Board was opposed to singling out the impairment of the international monetary system as a criterion, because it might imply special treatment for larger countries. Several Directors had noted that, in their view, there might well be a good case for emphasizing the circumstances of smaller countries with no access to financial markets.

6. After a thorough discussion of the concept of the Fund’s role as a catalyst, a number of Directors expressed the fear that this concept could lead to withholding the support of the Fund for countries with large problems and little or no access to financial markets. A number of other Directors stressed that in providing assistance to member countries where the process of reaching balance of payments viability would be lengthy, the Fund should be guided by the principle of the revolving and temporary character of the use of the Fund’s resources. Directors would have another opportunity to discuss that issue when they considered the paper that the staff was preparing on continuous use of Fund resources for long periods. A number of Directors stressed the importance of adapting the adjustment period to the circumstances of the country. All Directors agreed that the Fund should continue to concern itself with the type of cases referred to in this paragraph, and develop even closer links with the World Bank for this purpose.

7. A number of Directors expressed the view that the problem of small-quota, low-income countries had been dealt with inadequately in the staff paper, and that the Fund should carry out the injunction of the Interim Committee in paragraph 5(f) of its communiqué that, “in implementing its policies on access to its resources, the Fund should be particularly mindful of the very difficult circumstances of the small-quota, low-income member countries.” A number of Directors felt that in considering such cases, the Fund should bear in mind that the limit of SDR 25 million for a small quota was outdated, and should be the subject of further consideration.

8. A number of Directors felt that the staff paper was biased against the use of the extended Fund facility. I wish to emphasize that that had not been the intention; on the occasion of the recent discussion in the Executive Board on the review of past programs under stand-by and extended arrangements, I stated that the staff and management had the firm intention of continuing to make use of the extended Fund facility, which had a valuable role to play but, of course, conditions would have to be adequate.

9. Several Directors called for a review of the Fund’s borrowing requirements for 1984 and beyond, and for more of an indication of the methods of financing them. The methods of financing the resources that the Fund might need to borrow in 1984 could not be decided until the scale of the commitments to members and the size of the present commitment gap were better known. When they came to consider the liquidity position of the Fund in the first months of 1984, Executive Directors would be asked to express their views on how the Fund should meet its borrowing needs, in light of the amounts required. Some Directors emphasized that if requests for augmentation of existing arrangements on the basis of the new quotas and the new access limits were to be received, they would have to be dealt with on a case-by-case basis, in the light of needs and the merits of particular cases.

Attachment

EBS/83/233

II. Considerations Governing Amount of Access

Under the decision on enlarged access, a request for the Fund’s resources will be met only if the Fund is satisfied that the payments imbalance that the member faces is large in relation to its quota, that the member’s financing need from the Fund exceeds the amount available to it in the credit tranches or under the extended Fund facility, and that its problem requires a relatively long period of adjustment and a period of repurchases longer than three-to-five years. The decision further states that the period of a stand-by arrangement involving enlarged access will normally exceed one year and may extend to three years, and the period of an extended arrangement will be normally three years. In practice the Fund has considered successive one-year stand-by arrangements, formulated within a medium-term strategy of steady progress toward a sustainable balance of payments position to be consistent with this decision, when the amount of the arrangement is greater than that available in the credit tranches.

The considerations that need to be taken into account in determining the amount of access in individual arrangements and current practice on access have been discussed in recent staff papers, in particular in EBS/83/132 (6/27/83), and may be briefly recapitulated here. The first important consideration is the member’s actual or potential need for resources from the Fund, taking into account other sources of financing and the desirability of maintaining a reasonable level of reserves; in no circumstances can access be greater than this need. The second important consideration stems from the need to preserve the revolving character of the resources that the Fund provides, i.e., the ability of the member to service its indebtedness to the Fund. In determining the case for Fund support and the amount involved, the timing and extent of the expected improvement in the member’s balance of payments are relevant factors. It follows that adjustment policies in support of which the Fund’s resources are to be used must be designed and implemented in such a manner as to lead to a strengthening of the balance of payments by the time the repurchases begin to fall due and of a sufficient extent to allow the member to make the repurchases without strain. Finally, the amount of the member’s outstanding use of Fund credit and its record in using Fund resources in the past must enter into the judgment on the appropriate scale of further use of the Fund.

Under the policy on enlarged access, repurchases of borrowed resources begin three-and-one-half years after the purchase, whether under a stand-by or extended arrangement. Repurchases of ordinary resources under a stand-by arrangement must be made during the regular 3 to 5 year period after the purchase, while repurchases of ordinary resources under an extended arrangement must be made during a 4 to 10 year period after the purchase. For stand-by arrangements, it should therefore be expected that substantially all adjustment measures would be implemented at an early stage and there would be significant progress to balance of payments viability by the end of the three years, in order that repurchases could be made as scheduled.

To ensure that the program allows repurchases to be made, a balance of payments projection well into the repurchase period must show that progress toward a viable balance of payments position is being achieved. This can be indicated by a diminishing need for exceptional finance in general, and that to be provided by the Fund in particular, over the period. The policy measures already in place or being introduced must be commensurate with those needed to continue this progress at the required rate. This subject is discussed in the recent paper reviewing upper credit tranche stand-by arrangements and conditionality (EBS/83/215, 10/4/83).

These basic principles have to be applied in a flexible way because of the great variety of the member’s circumstances and the uncertainties that attend economic projections and programming. Access at or close to the annual limit of 102 percent of quota is justified where the member’s outstanding use of the Fund’s resources is not large, where the member has undertaken a comprehensive adjustment program adequate to bring about a rapid turnaround in the balance of payments, and where the Fund is satisfied that on the basis of the member’s past record and its present circumstances, it has the ability and willingness to implement the program. The Fund support might appropriately be given in the form of an extended arrangement in some of these cases. Substantial Fund financing may frequently be a critical element in restoring confidence of the international financial community in the policies of the country and thus reviving capital flows.

In these cases where the member has an especially large need for financing from the Fund, and where, based on all relevant information, the strength of the adjustment effort is such that the balance of payments improvement will be quick, sufficient, and durable, Fund financing could exceed the 102 percent limit and reach up to the 125 percent limit. Moreover, as reaffirmed by the Interim Committee, the Fund should have the flexibility in exceptional cases of going beyond the latter limit.

The Fund has recognized that even full implementation of a program or programs may not necessarily guarantee the achievement of the desired balance of payments outcome; moreover, even if the outcome were to turn out to be fully as planned, new problems could arise before repurchases were completed, calling for a supplementary adjustment effort. The Fund should continue to have the flexibility to provide financial support in these circumstances, even though this might prolong the period of use of its resources by a member. This policy approach is implicit in the fact that the cumulative limit allows additional Fund financing even when a member has obtained the maximum possible amount of support for a period of three years.

There are also circumstances where it is clear at the outset that the adjustment period will have to be stretched beyond three years. In these cases Fund support should normally be in the form of successive shorter-term stand-by arrangements, each arrangement being formulated within the framework of a medium-term strategy of balance of payments adjustment. In view of the possible association of the Fund over a number of years, Fund financing in each individual year should be in moderate amounts, that is, well below the limit of 102 percent. Moreover, such support must be associated with the prospect of a significant reduction in balance of payments pressures within a reasonable period so that the member will be in a position to make the repurchases on schedule and in less straitened circumstances than when the corresponding drawings were made.

In a quite different category are situations where the Fund’s role is likely to be primarily that of a catalyst. The weakness of a member’s balance of payments may be such that it is questionable whether a sustainable position not requiring exceptional finance can be achieved over the medium term. A principal factor causing this weakness is often the existing burden of debt service. In some of these cases the debt service problem may be due in part to the large outstanding use of the Fund by the member and further substantial purchases from the Fund would only aggravate the difficulties. In other cases, a substantial improvement in the balance of payments may call for fundamental economic changes which cannot be achieved within a medium-term time frame. In all these situations Fund financing on a limited scale is justified if the member is taking appropriate steps to deal with its situation and such support will maintain the confidence of other creditors. The great bulk of the external financing must normally be provided on appropriate terms from sources other than the Fund. If sufficient external financing cannot be obtained, the Fund cannot be the residual source of finance, and there would thus be no basis for the Fund to support the adjustment program. The amount of the financing need that can be met from the Fund must be closely related to the expected rate of improvement in the overall balance of payments, and there should be a clear prospect of the member making net repurchases with a view to restoring its credit tranche position, thus preventing the use of Fund resources acquiring a semipermanent character.

Compensatory Financing of Export Fluctuations: Access Limits

(a) In paragraph 3 of Decision No. 6224-(79/135) “100 percent” shall be changed to “83 percent.”

…

(d) The new percentages of quota under (a), (b), and (c) above shall be reviewed not later than December 31, 1984 and annually thereafter in the light of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity.

Decision No. 7602-(84/3)

January 6, 1984

Compensatory Financing of Export Fluctuations: Guidelines on Cooperation

The Executive Board approves the guidelines on cooperation under the compensatory financing facility set out [below].

Decision No. 7528-(83/140)

September 14, 1983

Attachment

EBS/83/171, Supplement 1

Compensatory Financing of Fluctuations in the Cost of Cereal Imports: Review

1. The Executive Board has conducted a review in accordance with paragraph 17 of Decision No. 6860-(81/81), adopted May 13, 1981, “Compensatory Financing of Fluctuations in the Cost of Cereal Imports,” and decides to maintain the Decision unchanged.

2. A further review of the Decision at the time when quota increases under the Eighth General Review of Quotas become effective is not called for, but the Decision shall be reviewed prior to its expiration on May 13, 1985.

Decision No. 7490-(83/105)

July 18, 1983

Compensatory Financing of Fluctuations in the Cost of Cereal Imports: Access Limits

(b) The following changes shall be made in paragraphs 9 and 14(a) of Decision No. 6860-(81/81):

• (i) “125 percent” shall be changed to “105 percent”; and

• (ii) “100 percent” shall be changed to “83 percent.”

…

(d) The new percentages of quota under (a), (b), and (c) above shall be reviewed not later than December 31, 1984 and annually thereafter in the light of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity.

Decision No. 7602-(84/3)

January 6, 1984

Buffer Stock Financing Facility: Access Limits

(c) In paragraph 2 of Decision No. 2772-(69/47), as amended, “50 percent” shall be changed to “45 percent.”

(d) The new percentages of quota under (a), (b), and (c) above shall be reviewed not later than December 31, 1984 and annually thereafter in the light of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity.

Decision No. 7602-(84/3)

January 6, 1984

Sales of SDRs and Currencies in the General Resources Account: Level of Fund SDR Holdings

In determining the amounts of SDRs to be transferred in purchases under the operational budgets, the Fund will be guided by the aim of reducing the Fund’s SDR holdings to a level of approximately SDR 4.0 billion by May 31, 1985. Prior to April 30, 1985, the Fund will review the level of its SDR holdings to determine whether and to what extent they should be further reduced.

Decision No. 7626-(84/23) S

February 13, 1984