General Terms and Conditions

Access Policy

The policy of the IMF is to encourage members to approach it for assistance at an early stage of their balance of payments difficulties. Members experiencing balance of payments problems can approach the IMF, but are under no obligation to do so at any time. Over the years, it has come to be recognized that the efficacy of the mixture of adjustment polices and financing depends largely on the early adoption of corrective policy measures. Early resort to an adjustment program supported by IMF resources can help to avoid more drastic policy actions that may otherwise be required, thereby limiting the impact of the adjustment on other members.

Quantitative limits on access are used to ensure equal treatment of members. Access limits are set in terms of quota, the basic measure of members’ financial rights and obligations in the IMF. For the credit tranches and the EFF, which account for the lion’s share of IMF lending, the current limits take the form of an annual limit of 100 percent of quota on purchases over any 12-month period and a cumulative limit of 300 percent of quota on the level of IMF credit outstanding. Average annual access under these lending arrangements in recent years has been 40-50 percent of quota (Figure II.2.). Other IMF facilities are subject to separate access limits or, in some cases, no explicit limits (Box II.2.). In exceptional circumstances, these limits can be waived, as they were for members most immediately affected by the severe financial crises of the late 1990s.

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AVERAGE ANNUAL ACCESS UNDER STAND-BY AND EXTENDED ARRANGEMENTS¹

(In percent of quota)

¹Excluding the cases with exceptional access (i.e., exceeding the access limits). Excluded arrangements are Mexico’s 1995 Stand-By Arrangement; Indonesia’s, Korea’s and Thailand’s 1997 Stand-By Arrangements; Brazil’s 1998 Stand-By Arrangement; Indonesia’s 1998 Extended Arrangement; Turkey’s 1999 Stand-By Arrangement; and Indonesia’s 2000 Extended Arrangement.

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The level of access to GRA resources under Stand-By Arrangements and the EFF—that is, the amount that can be borrowed—is based on criteria that are applied uniformly to all members. These criteria seek to balance the needs of members against the overarching responsibility of the institution to safeguard and ensure the temporary use of its resources. The criteria are:

• actual or potential need for resources from the IMF, taking into account other sources of financing and the desirability of maintaining a reasonable level of reserves;

• ability to service indebtedness to the IMF, thereby protecting the revolving character of IMF resources;

• amount of the outstanding use of IMF credit and record in using IMF resoures in the past.

Repurchase Policies

The repurchase policies of the IMF are intended to ensure the revolving character of its resources. All purchases made from the IMF are subject to predetermined repurchase schedules (Table II.2). The length of the repurchase period and the number of repurchase installments differ according to the policy or facility under which the credit was extended.

Table II.2.

FINANCIAL TERMS OF IMF CREDIT

The basic rate of charge is linked directly to the SDR interest rate by a coefficient that is fixed each financial year. The basic rate of charge therefore fluctuates with the market rate for the SDR, which is calculated on a weekly basis. The basic rate of charge is adjusted upward for burden sharing to compensate for the overdue charges of other members (see Box II.9). The surcharge on high levels of credit outstanding under the credit tranches and the EFF is designed to discourage large use of IMF resources. The SRF and CCL surcharges increase with the time elapsed since the first SRF or CCL purchase, which sharpens the incentive for repurchases ahead of the obligation schedule. The annual commitment fee applies to amounts available under an arrangement during the year. The fee is refunded to the extent that available amounts are purchased. Repurchases are made in equal installments at regular intervals over a fixed period. A member is free to repurchase in advance of maturity and to attribute repurchases to any outstanding obligation to the IMF. The repurchase obligation schedule for each type of credit is generally associated with an accelerated schedule, which members are expected to follow. A member not in a position to meet the expectations schedule can request an extension up to the corresponding period in the obligation schedule.

Table II.2.

FINANCIAL TERMS OF IMF CREDIT

	Charges				Repurchases
Instrument	Base	Surcharge	Service	Commitment	Expectation	Obligation	Installments
First credit tranche	Basic rate	100 basis points for credit over 200 percent of quota; 200 basis points for credit over 300 percent of quota	50 basis points	None	2¼4–years	3¼5–years	8 quarterly
Stand-By Arrangement					2¼–4 years	3¼–5 years	8 quarterly
Extended Fund Facility (EFF)					4½–7 years	4¼–10 years	6 semiannual 12 semiannual
Supplemental Reserve Facility (SRF)		300-500 basis points initial surcharge rises by 50 basis points after one year and each subsequent six months		25 basis points plus 10 basis points for amounts in excess of 100% of quota	1–1½ years	2–-2½ years	2 semiannual
Contingent Credit Line (CCL)		150-350 basis points			1–1½ years	2–2½ years	2 semiannual
Compensatory Financing Facility (CFF)	Basic rate	None	50 basis points	None	2¼–4 years	3¼–5 years	8 quarterly
Emergency assistance	Basic rate	None	50 basis points	None	None	3¼–5 years	8 quarterly

The basic rate of charge is linked directly to the SDR interest rate by a coefficient that is fixed each financial year. The basic rate of charge therefore fluctuates with the market rate for the SDR, which is calculated on a weekly basis. The basic rate of charge is adjusted upward for burden sharing to compensate for the overdue charges of other members (see Box II.9). The surcharge on high levels of credit outstanding under the credit tranches and the EFF is designed to discourage large use of IMF resources. The SRF and CCL surcharges increase with the time elapsed since the first SRF or CCL purchase, which sharpens the incentive for repurchases ahead of the obligation schedule. The annual commitment fee applies to amounts available under an arrangement during the year. The fee is refunded to the extent that available amounts are purchased. Repurchases are made in equal installments at regular intervals over a fixed period. A member is free to repurchase in advance of maturity and to attribute repurchases to any outstanding obligation to the IMF. The repurchase obligation schedule for each type of credit is generally associated with an accelerated schedule, which members are expected to follow. A member not in a position to meet the expectations schedule can request an extension up to the corresponding period in the obligation schedule.

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Table II.2.

FINANCIAL TERMS OF IMF CREDIT

	Charges				Repurchases
Instrument	Base	Surcharge	Service	Commitment	Expectation	Obligation	Installments
First credit tranche	Basic rate	100 basis points for credit over 200 percent of quota; 200 basis points for credit over 300 percent of quota	50 basis points	None	2¼4–years	3¼5–years	8 quarterly
Stand-By Arrangement					2¼–4 years	3¼–5 years	8 quarterly
Extended Fund Facility (EFF)					4½–7 years	4¼–10 years	6 semiannual 12 semiannual
Supplemental Reserve Facility (SRF)		300-500 basis points initial surcharge rises by 50 basis points after one year and each subsequent six months		25 basis points plus 10 basis points for amounts in excess of 100% of quota	1–1½ years	2–-2½ years	2 semiannual
Contingent Credit Line (CCL)		150-350 basis points			1–1½ years	2–2½ years	2 semiannual
Compensatory Financing Facility (CFF)	Basic rate	None	50 basis points	None	2¼–4 years	3¼–5 years	8 quarterly
Emergency assistance	Basic rate	None	50 basis points	None	None	3¼–5 years	8 quarterly

The basic rate of charge is linked directly to the SDR interest rate by a coefficient that is fixed each financial year. The basic rate of charge therefore fluctuates with the market rate for the SDR, which is calculated on a weekly basis. The basic rate of charge is adjusted upward for burden sharing to compensate for the overdue charges of other members (see Box II.9). The surcharge on high levels of credit outstanding under the credit tranches and the EFF is designed to discourage large use of IMF resources. The SRF and CCL surcharges increase with the time elapsed since the first SRF or CCL purchase, which sharpens the incentive for repurchases ahead of the obligation schedule. The annual commitment fee applies to amounts available under an arrangement during the year. The fee is refunded to the extent that available amounts are purchased. Repurchases are made in equal installments at regular intervals over a fixed period. A member is free to repurchase in advance of maturity and to attribute repurchases to any outstanding obligation to the IMF. The repurchase obligation schedule for each type of credit is generally associated with an accelerated schedule, which members are expected to follow. A member not in a position to meet the expectations schedule can request an extension up to the corresponding period in the obligation schedule.

In the case of most purchases, a borrower is expected to repurchase earlier than the schedule of repurchase obligations. Such time-based repurchase expectations are aimed at securing early repayment from members in a position to do so, in keeping with a long-standing principle of the IMF that its resources should be used only as long as there is a balance of payments need (Box II.3). A waiver of early repurchase expectations can be provided by the Executive Board upon the request of a member, if the member’s external position is not strong enough for the member to pay early without undue hardship or risk. In case of a waiver, repurchases would fall due according to the original obligation schedule.

Time-based repurchase expectations apply to purchases made after November 28, 2000 in the credit tranches and under the CFF and EFF. For purchases in the credit tranches and under the CFF, the expectation schedule is 1 year in advance of the obligation schedule, beginning 2¼ years after each purchase and ending after 4 years. For the EFF, the expectation schedule

Box II.3.

Evolution of IMF Policies on Repurchases

Under the original Articles of Agreement, there were no fixed repurchase periods for the use of IMF resources: repurchases were calculated annually for each member according to a formula based on their international reserves. This reflected the principle that the IMF’s resources are made available only to members with a balance of payments and reserve need, and was designed to ensure their revolving character.

This approach became unworkable over time, however, and was increasingly supplemented by policies on repurchase periods. The coexistence of these two approaches—one based on explicit schedules and another on reserve strength—was codified under the Second Amendment of the Articles in 1978 with the establishment of fixed repurchase periods (Article V, Section 7(c)) and provision for early repurchase by members as their balance of payments and reserve position improves (Article V, Section 7(b)).

A major change in the repurchase policies was introduced in 1997 with the establishment of the SRF to help members experiencing exceptional balance of payments difficulties owing to a large short-term financing need resulting from a sudden and disruptive loss of market confidence. In line with the short-term nature of this type of balance of payments need, the SRF incorporates much shorter repurchase periods and features repurchase expectations that are legally outside of the framework of Article V, Section 7(b). Repurchases under the SRF are expected to be made in two installments after 1 and 1½ years from the date of the purchase. In order to provide flexibility for cases where the member’s return to capital markets takes longer than anticipated, each repurchase can be extended by up to 1 year, upon request by the member and approval of the request by the Executive Board. The same repurchase profile was adopted for the CCL in 1999.

Repurchase expectations were introduced for purchases in the credit tranches and under the EFF and the CFF in November 2000. These time-based repurchase expectations (see Table II.2) can be extended upon request by the member, in which case repurchases would fall due according to the original obligation schedule. Waivers are considered by the Executive Board if the member’s external position is not strong enough for the member to pay early without undue hardship or risk. Adjustment programs supported by credit tranche or EFF resources are generally designed on the basis of the obligation schedule for repurchases, so that in most cases members will be in a position to meet repurchase expectations only if their external position is stronger than projected at the outset of the program. In contrast, adjustment programs supported by SRF and CCL resources are designed on the basis of the expectation schedule from repurchases.

begins after 4½ years, as with the obligation schedule, but repurchases are doubled, so that the expectation schedule ends after 7 years rather than 10 years under the obligation schedule. Figure II.3 illustrates the mapping of repurchase expectations and the corresponding repurchase obligations.

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Early Repurchase Expectations

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A member can request an extension of time-based repurchase expectations if its external position is not sufficiently strong. If the IMF agrees to an extension, all repurchase expectations during the period covered by the extension would revert back to the corresponding repurchase obligations. There is a presumption that this period would be one year, although a longer or shorter period could be set. If the IMF does not agree to an extension, the member would be expected to make repurchases according to the expectation schedule. Failure to do so would result in a suspension of the right to make further purchases, including prospective purchases under an existing arrangement. However, the member would not be in arrears until it failed to meet a repurchase obligation.

IMF-supported programs are guided by the requirement that the member should be able to meet repurchase obligations. In most cases, therefore, members will be considered to be in a position to meet repurchase expectations only if their external position is stronger than had been projected at the time of approval of the associated IMF arrangement. Similarly, the evaluation of members’ capacity to repay the IMF is based on the obligation schedule.

An early repurchase policy serves as a backstop to the standard repurchase provisions. Members with IMF credit outstanding are normally expected to make repurchases as their balance of payments and reserve position improves.¹⁵ A member could experience an especially rapid and strong turnaround in its balance of payments and reserve position, and may be in a position to make repurchases earlier than under the fixed schedules for time-based repurchase expectations. In addition, there are some purchases for which time-based repurchase expectations are not applicable.¹⁶ Judgments on the appropriateness of early repurchases in individual cases are made by the Executive Board. The amount of such repurchases expected during a given quarter is determined on the basis of a formula that relies heavily on gross reserves (Box II.4).

Box II.4.

Early Repurchase Policy: Minimum Repurchase Amounts

Formula

Under the guidelines for early repurchase, the minimum amount that a member is expected to repurchase each quarter is determined by a formula based on the member’s gross international reserves:

• 1.5 percent of latest reserves plus (minus)

• 5.0 percent of the increase (decrease) in reserves over the previous six months.

For this purpose, the IMF uses the latest data on the member’s gross reserves as reported in the IMF’s International Financial Statistics, with gold valued at SDR 35 an ounce, available when the associated financial transactions plan is prepared for Executive Board consideration. The formula thus ensures a tight link between reserves and repayments to the IMF, with any increase in reserves resulting in larger repurchases and vice versa. The formula is applied anew for every quarter the member is included in the transactions plan for early repurchases.

Limits

The minimum repurchase amount is subject to quantitative limits. This amount cannot

• exceed 4 percent of latest reserves in a quarter,

• exceed 10 percent of latest reserves in a year, or

• reduce latest reserves below 250 percent of quota.

These limits are a means to protect members from having to draw too heavily on their owned reserves to meet IMF repayments. In the two decades since the policy was established, early repurchase amounts generated by the formula have always fallen below these limits.

Credits

In addition to these limits, the minimum repurchase amount is reduced to the extent of any repurchase obligations falling due during the quarter or to give credit for voluntary advance repurchases:

• in the two quarters prior to the member being included for early repurchase, or

• subsequent repurchases in excess of minimum repurchase amounts.

The credits are intended to encourage members to accelerate repurchases voluntarily on their own terms.

Early repurchase expectations can arise in other contexts. Provisions for early repurchase are built into the CFF, Contingent Credit Line (CCL), and Supplemental Reserve Facility (SRF). In addition, a member is required to take corrective action by making an early repurchase in the event that it makes a purchase under an arrangement that it was not entitled to make by the terms of the arrangement—that is, a noncomplying purchase. The requirement of corrective action can be waived if the IMF decides that the circumstances justify continued use of the purchased resources. A noncomplying purchase would arise if a member were permitted to make a purchase because, on the basis of information available at the time, the IMF was satisfied that the conditions applicable to the purchase under the arrangement had been observed but, on the basis of information subsequently available, it became evident that the conditions of the arrangement had not actually been met.¹⁷

The IMF can change the period of repurchases.¹⁸ It has the authority to postpone the date for the discharge of a repurchase by a majority of the votes cast, provided that the postponement does not cause the repurchase to exceed the maximum repurchase period. Postponement beyond the maximum period allowed under the arrangement would be considered only in the event that the IMF determined that discharge on the due date would result in exceptional hardship for the member and if the longer period for repurchase is consistent with the revolving nature of the use of IMF resources. Such a decision requires approval by a 70 percent majority of the total voting power.¹⁹

A member is free to make advance repurchases at any time. At the discretion of the member, advance repurchases can be attributed to any outstanding purchases. In this way, a member is free to reduce the IMF’s holdings of its currency corresponding to prior purchases and thereby reduce or eliminate its obligation to pay interest to the IMF. Repurchases can be made, at the choice of the repurchasing member, in SDRs or in currencies selected by the IMF according to the policies and procedures for the use and receipt of currencies under the quarterly financial transactions plan, as discussed below under “Financial Transactions Plan.”²⁰

Credit Tranche Policies

From its early history, IMF credit was made available in tranches (segments). Members could make purchases in four credit tranches, each equivalent to 25 percent of quota, within the prevailing annual access limit of 25 percent of quota and the cumulative access limit of 100 percent of quota. A purchase in the first credit tranche raises the use of IMF credit to no more than 25 percent of quota. The three subsequent tranches are known as the upper credit tranches. Over time, access to IMF credit substantially above 100 percent of quota under the credit tranches has been permitted; accordingly, the upper credit tranches now refer more generally to any use of IMF credit beyond the first credit tranche. Resources drawn in the credit tranches can be used to meet any balance of payments need.

The segmentation in terms of first and upper credit tranches underscores the basic principle that the IMF requires stronger justification in terms of policy understandings from the member at higher levels of IMF credit outstanding. Conditionality is the mechanism that gives the IMF the needed assurances. The IMF adopts a more liberal attitude in making resources available in the first credit tranche than in the upper credit tranches, provided that the member is making reasonable efforts to solve its balance of payments problems. Requests for use of IMF resources beyond the first credit tranche require substantial justification for the expectation that the member’s balance of payments difficulties will be resolved within a reasonable period of time.

Access to the upper credit tranches is normally made under Stand-By Arrangements. These are lines of credit from the IMF under which a “member is assured that it will be able to make purchases from the General Resources Account in accordance with the terms of the decision during a specified period and up to a specified amount.”²² Stand-By Arrangements have long been the core lending instrument of the institution. They were initially intended as precautionary instruments, to be drawn on only if payments difficulties emerged, but have been used more commonly as a source of external financing. Stand-By Arrangements that are treated by members as precautionary, either at the outset of the arrangement or after immediate financing constraints have eased, have again emerged following the opening of world capital markets.

Stand-By Arrangements typically cover a period of 1-1½ years but can be longer, up to a maximum of 3 years. Performance criteria, the phasing of purchases, and program reviews apply to the use of IMF resources in the upper credit tranches, but not in the first credit tranche, even under a Stand-By Arrangement.²³ Repurchases are expected each quarter 2¼-4 years after each purchase, but these expectations can be extended to a maximum repurchase period of 3¼-5 years. In addition to the charges for the use of IMF credit, members pay a commitment fee for Stand-By Arrangements, which is refunded to the extent that amounts under the arrangement are purchased (Table II.2 summarizes the terms of IMF credit under the various policies and facilities).

Extended Fund Facility

The Extended Fund Facility (EFF) was established in 1974 as a vehicle for longer-term external financing for members undertaking needed structural economic reforms. The EFF is designed for economies:

• suffering serious payments imbalances relating to structural maladjustments in production and trade and where price and cost distortions have been widespread, or

• characterized by slow growth and an inherently weak balance of payments position, which prevent pursuit of an active development policy.

The EFF is especially appropriate for members graduating from the Poverty Reduction and Growth Facility (PRGF) programs or transition economies that lack adequate capital market access. At the same time, the EFF and all other IMF facilities are available in principle to any member that meets the eligibility criteria.

Members drawing under the EFF do so in the context of an Extended Arrangement. These are three-year IMF arrangements, which can be extended for a fourth year. Performance criteria and purchases typically follow a semiannual schedule. Repurchases are also made semiannually, and over a longer period than applies to the credit tranches: repurchases are expected 4½-7 years after each purchase but this can be extended to the maximum repurchase period of 4½-10 years. Members pay a refundable commitment fee for Extended Arrangements, as well as the applicable charges for the use of IMF credit.

Supplemental Reserve Facility

The Supplemental Reserve Facility (SRF) was established at the end of 1997, at the height of the Asian financial crisis. Its purpose is to provide financial assistance to members experiencing exceptional balance of payments difficulties due to a large, short-term financing need following a sudden and disruptive loss of confidence reflected in pressure on the capital account and the member’s foreign reserves. Access under the SRF is separate from the limits that apply to the credit tranches and the EFF, and it has no explicit limits of its own. SRF resources are provided under Stand-By or Extended Arrangements. The conditionality in an arrangement involving SRF resources is that of the associated Stand-By or Extended Arrangement.

The repurchase period for SRF resources is much shorter than that governing the credit tranches and EFF, reflecting the likelihood of a quicker turnaround in the balance of payments. Repurchases are made in two installments and are expected 1-1½ years after each purchase; this period can be extended up to the maximum repurchase period of 2-2½ years. Resources drawn under the SRF are subject to the basic rate of charge applying to all IMF credit and a specific surcharge. During the first year from the date of the first purchase under the facility, the SRF surcharge is set at 300 basis points, and it rises by 50 basis points at the end of the first year and every six months thereafter, up to a maximum of 500 basis points. The standard commitment fee for Stand-By Arrangements applies.

Contingent Credit Lines

The Contingent Credit Line (CCL) is a new type of lending instrument for the IMF. Conceived in the midst of a series of severe financial crises involving large-scale use of IMF resources by a number of members, the CCL was established by the IMF in 1999 as a means of preventing the spread of capital account-driven crises. The CCL is intended to provide members maintaining strong policies with a precautionary line of defense against balance of payments problems arising from international financial contagion. Although it draws on IMF experience over several decades, the CCL has a number of novel features that set it apart from other IMF lending instruments, notably an element of pre-qualification and automaticity in using IMF resources.

The CCL is subject to demanding eligibility requirements:

• the absence of an immediate need to use IMF resources at the time of approval;

• a positive assessment of policies by the IMF, taking into account the member’s adherence to internationally accepted standards (especially the IMF’s Special Data Dissemination Standard or SDDS);

• constructive relations with private creditors, with a view to facilitating appropriate involvement of the private sector, and satisfactory management of external vulnerability; and

• a satisfactory economic and financial program, which the member stands ready to adjust as needed.

As with the SRF, CCL resources are provided under Stand-By Arrangements, in combination with credit tranche resources. Access to CCL resources is expected to be in the range of 300-500 percent of quota, and does not count toward the access limits for the credit tranches and the EFF.

Upon approval of an arrangement with CCL resources, a small amount is made available but is not expected to be purchased. If a crisis strikes, the member may request the completion of an activation review, at which the Executive Board would ascertain that the member is affected by a crisis stemming from contagion and that the member’s own policies had not been a significant cause of the pressures in its balance of payments. There is a presumption that one-third of the amount committed under the CCL would be released at this time. The phasing and conditionality for the remaining CCL resources would be specified in a post-activation review concluded shortly after or together with the activation review; conditionality would be expected to cover macroeconomic rather than structural policies, given the nature of the balance of payments difficulties.

The financial terms for CCL resources are identical to those governing SRF resources, except that the surcharge on CCL resources over the basic rate of charge is 150 basis points lower: the CCL surcharge is 150 basis points initially, rising by 50 basis points one year after the first purchase and every six months thereafter, up to a maximum surcharge of 350 basis points. The commitment fee for the CCL is the same as for the SRF.

Compensatory Financing Facility

The CFF was the first facility aimed at helping members deal with special balance of payments problems. It was established in the 1960s to ensure timely external financing for members experiencing balance of payments difficulties resulting from a temporary decline in export earnings. A cereal import element was added in 1981; two other elements introduced since the establishment of the CFF have been removed (see Box II.5). In addition to having a balance of payments need related to export shortfalls or excess cereal import costs, the eligibility requirements include the following:

• the export shortfall or excess cereal import cost are of a short-term character;

• the shortfall or excess must be largely attributable to factors beyond the member’s control; and

• if the member has balance of payments difficulties beyond the effect of the shortfall or excess, it must have a new or existing arrangement in place at the time of the request for a CFF purchase.

Access under the CFF is subject to its own limits, and does not count toward the access limits under the credit tranches and the EFF. The CFF access limits range from 45 percent of quota for each of the export shortfall and excess cereal import costs elements to a combined limit of 55 percent of quota. Within these limits, actual access is determined by the size of the shortfall or excess, and may be limited by concerns about the member’s ability to repay the IMF. Access under the CFF counts toward the threshold for upper credit tranche conditionality—that is, the CFF does not “float” as regards conditionality.²⁴

Under certain circumstances, purchases under the CFF may be phased, with purchases subsequent to the initial purchase being conditioned on the member’s having an IMF arrangement in place and meeting all the conditions for a purchase or disbursement under that arrangement. They are subject to the same terms as credit tranche resources with respect to charges, repurchase expectations, and repurchase obligations; CFF purchases do not carry a surcharge, however, and do not count toward the calculation of surcharges applying to IMF credit outstanding in excess of 200 percent of quota.

In addition to the time-based early repurchase expectations, the CFF incorporates additional specific early repurchase provisions. If a member makes a purchase on the basis of estimated data for the shortfall in export earnings or excess in cereal import costs, and if the actual data, once they are available, indicate that the purchase exceeded the amount that would have been available had actual data been used, the member is expected to repurchase promptly an amount equivalent to the difference.

Emergency Assistance

The IMF has a long-standing policy of providing financial assistance to members experiencing emergencies. The conditionality associated with IMF lending for this purpose is similar to that required for purchases in the first credit tranche. Two basic types of emergencies are covered by this policy: natural disasters, such as earthquakes, floods, or hurricanes; and post-conflict situations, following social disruptions.

Emergency assistance for natural disasters is available where the member cannot meet its immediate financing needs arising from a natural disaster without serious depletion of its foreign reserves. If this exigency were not present, however, IMF assistance for these members could be provided under the CFF or a Stand-By or an Extended Arrangement. The policy conditions include a statement of the general policies the member intends to pursue, and some assurance that the member will cooperate with the IMF in an effort to find, where appropriate, solutions for its balance of payments difficulties.

In post-conflict situations, emergency assistance can be made available where there is an urgent balance of payments need and a role for the IMF in catalyzing support from others, but where the institutional and administrative capacity of the member has been disrupted as a result of social conflict, so that the member is not yet able to develop and implement a comprehensive economic program that could be supported by an IMF arrangement. In these circumstances, there must nevertheless be sufficient capacity for planning and policy implementation and a demonstrated commitment by the authorities. Support from the IMF in these cases must be part of a concerted international effort to address the aftermath of the conflict situation in a comprehensive way.

IMF assistance in emergency situations was initially provided through the flexible application of policies on the use of the credit tranches, but since 2000 has been subject to a special policy outside the credit tranches. Access is normally limited to 25 percent of quota. Larger amounts can be made available on an exceptional basis: a further 25 percent of quota can be provided in post-conflict situations where progress on capacity rebuilding has been slow and the member is not in a position to move to an IMF arrangement after one year but where there is sufficient evidence of the authorities’ commitment to reform and capacity to implement policies; tranching of disbursements may be appropriate in these cases. Purchases under emergency assistance are subject to the basic rate of charge and a maximum repurchase period of 3¼-5 years, but are not subject to time-based repurchase expectations and do not count toward the calculation of the surcharge on IMF credit in excess of 200 percent of quota. The IMF has set up a special administered account with the purpose of providing PRGF-eligible countries with post-conflict emergency assistance at the concessional rate of interest of ½ of 1 percent a year (see Appendix III.) To achieve this objective, adequate donor resources will need to be mobilized. The amounts of IMF credit outstanding by facility during 1990-2000 are shown in Figure II.4.

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Outstanding IMF Credit by Facility, Financial Years Ended April 30, 1990-2001

(In billions of SDRs)

¹Credit extended under the 1993-95 Systemic Transformation Facility will not be fully repaid until 2005.²Includes a small amount under the credit tranches and emergency assistance.

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Valuation of Currencies

Currencies and securities held in the GRA’s pool of resources are valued in terms of the SDR on the basis of each member’s representative rate of exchange. Each member is obligated to maintain, in SDR terms, the value of the balances of the IMF’s holdings of its currency in the GRA, but not those held elsewhere by the IMF, such as in the SDA or the Administered Accounts.²⁵ The total SDR value of the IMF’s holdings of currencies in the GRA is kept constant through changes to the amount of members’ currency balances. A member has to pay in additional currency if its currency depreciates against the SDR, and the IMF will refund some of these currency holdings if the currency appreciates. This requirement is referred to as the maintenance-of-value obligation. Because of this obligation the IMF’s resources are insulated from exchange rate fluctuations.

A member’s currency held by the IMF is revalued in SDR terms whenever:

• the currency is used by the IMF in a transaction with another member,

• at the end of the IMF’s financial year (April 30),

• at the request of a member during the year, for example, at the end of the member’s financial year; and

• on such other occasions as the IMF may decide.

Whenever it becomes necessary to adjust the rate at which the IMF has recorded the use of a member’s currency, the new rate becomes effective in the IMF’s accounts at the close of business on the date that the new exchange rate is determined. All holdings of a member’s currency in the GRA, including any unsettled obligations resulting from an earlier revaluation, are revalued at the new rate. The new rate is applied to all transactions in that currency, including administrative receipts and payments, until such a time as the rate may again need to be adjusted.

The currency valuation adjustments are part of the IMF’s holdings of members’ currencies. Whenever the IMF revalues its holdings of a member’s currency, reflecting a change in its exchange rate with the SDR, an account receivable or an account payable is established for the amount of currency payable by or to the member in order to maintain the value of holdings of the member’s currency in terms of the SDR.

Gold in the Articles of Agreement

Before the Second Amendment of the Articles in April 1978, the role of gold in the IMF and in the international monetary system was central and pervasive. The Second Amendment contained a number of provisions that, in combination, were intended to achieve a gradual reduction of the role of gold in the international monetary system and in the IMF. The Second Amendment:

• eliminated the use of gold as the common denominator of the par value system and as the basis of the value of the SDR;

• abolished the official price of gold and abolished the obligatory uses of gold in transactions between the IMF and its members;

• required the IMF, in its dealings in gold, to avoid managing its price or establishing a fixed price of gold; and

• included an undertaking by members to collaborate with the IMF and other members with respect to reserve assets to promote better international surveillance of international liquidity.

The Articles now limit the use of gold in the IMF’s transactions. Any transactions in gold by the IMF require a decision by an 85 percent majority of the total voting power in the IMF. The IMF:

• may sell gold outright on the basis of prevailing market prices;

• may accept gold in the discharge of a member’s obligations to the IMF at an agreed price on the basis of prices in the market at the time of acceptance;

• does not have the authority to engage in any other gold transactions, for example, loans, leases, swaps, or use of gold as collateral; and

• does not have the authority to buy gold.

The IMF’s Policy on Gold

The IMF’s policies on gold are governed by the following five principles:

• As an undervalued asset held by the IMF, gold provides fundamental strength to its balance sheet. Any mobilization of IMF gold should avoid weakening its overall financial position.

• Gold holdings provide the IMF with operational maneuverability both as regards the use of its resources and through adding credibility to its precautionary balances. In these respects, the benefits of the IMF’s gold holdings are passed on to the membership at large, including both creditors and debtors.

• The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies.

• The IMF has a systemic responsibility to avoid causing disruptions to the functioning of the gold market.

• Profits from any gold sales should be retained in an investment fund, and only the investment income should be used for any purposes that may be agreed upon by the IMF members.

The IMF’s Gold Since 1980

Uses of the IMF’s gold have occurred on two occasions since 1980 without changing the IMF’s long-term holdings of gold. As was the case with the open-market auctions of gold in 1976-80, these uses of gold were for the benefit of the poorest members of the IMF. Toward this end, the IMF pledged gold in 1993 and decided in 1999 to conduct off-market transactions of gold.

Gold Pledge

To reassure creditors to the Enhanced Structural Adjustment Facility (ESAF) that they would be repaid for ESAF (now PRGF) loans made to encash rights under the “rights accumulation approach,” it was agreed, if necessary, to mobilize some of the IMF’s gold. For this purpose, in 1993 the IMF decided—with the required 85 percent majority of the total voting power—to sell up to 3 million ounces of gold if it were determined that the resources in the PRGF Trust Reserve Account (plus other available means of financing) were insufficient to meet payments to be made from that account to PRGF creditors. The shortfall would be covered by gold sales to the extent of previous drawings on the Reserve Account attributable to overdue repayments by borrowers of loans for the encashment of rights, plus the interest earnings forgone on such drawings.

It is difficult to assess the likelihood that the gold pledge for rights encashments under PRGF arrangements would be drawn on in the future, mainly because of uncertainty about future borrowings under the rights approach. Sierra Leone and Zambia still have loans outstanding to the PRGF Trust under the rights approach, but these loans are rapidly diminishing either because they are coming close to maturity or because they are covered under the enhanced HIPC Initiative. It is, therefore, highly unlikely that the gold pledge would be activated in connection with these loans. Moreover, the gold pledge could not be called upon until after the resources of the Reserve Account of the PRGF Trust were exhausted.²⁶ Nevertheless, three countries—Liberia, Somalia, and Sudan—remain eligible for the rights approach and could conceivably borrow sizable sums from the PRGF in connection with rights encashments at some time in the future, provided the Executive Board continues to extend the availability of the rights approach. Whether these countries will follow the rights approach to arrears clearance is uncertain. In any case, the earliest rights encashments could not take place for a few years and repayment of those PRGF loans would only commence five and half years after such disbursements.

Off-Market Transactions in Gold

To help finance its contribution to the HIPC Initiative, the IMF in 1999–2000 conducted a series of off-market transactions in gold. During December 1999-April 2000, the IMF sold a total of 12.944 million fine ounces of gold to Brazil and Mexico at the prevailing market price on the day of each transaction. The total amount sold was equivalent to SDR 2.7 billion ($3.7 billion). After each sale, the gold was immediately accepted back by the IMF at the same price in settlement of financial obligations of these members to the IMF. The net effect of these transactions left the IMF’s holdings of physical gold unchanged, but the gold accepted back was included in the IMF’s balance sheet at the market price of the transactions, instead of at the original price of SDR 35 a fine ounce.

In accordance with the Articles, the equivalent of SDR 35 a fine ounce from the proceeds of the sales was retained in the GRA. The proceeds in excess of this amount (totaling SDR 2.2 billion, or about $2.9 billion) are held in the SDA and invested. The income from these investments, which will be transferred to the PRGF-HIPC Trust when needed, will be used to help finance the IMF’s contribution to the HIPC Initiative. In this context, the Board of Governors of the IMF adopted a resolution in September 1999 stating that the off-market gold transactions would “be a one-time operation of a highly exceptional nature.”

These gold transactions affected the IMF’s balance sheet and income as follows:

• The IMF’s holdings of usable currencies in the GRA were lower, and reserve tranche positions higher, than they would otherwise have been by the amount of profit (SDR 2.2 billion). This is because Brazil and Mexico paid in gold instead of usable currencies, which would have been used to reduce reserve tranche positions of creditor members.

• The IMF’s net income is affected by the remuneration expense on the continuing enlarged reserve tranche positions. The additional remuneration expense varies with the rate of remuneration, and amounted to an estimated SDR 94 million in FY2001. For comparison, the IMF’s net income target for FY2001, the first year in which the full income effect of the off-market gold transactions was felt, was SDR 48 million, and for FY2002 net income is targeted at SDR 51 million.

While the transactions were successful in that they allowed the IMF to contribute to the resolution of the debt problems of the HIPCs, they resulted in an increase in the IMF’s cost of operations. Since, under standard procedures (see the discussion of “Operational Income” below), this relatively large increase in cost would have resulted in a higher rate of charge, the cost increase was mitigated or offset through the existing burden-sharing mechanism and placed in the SCA-1. In the same way, SDR 94 million is being generated in FY2002.

Quotas

Each member of the IMF is assigned a quota and pays a capital subscription to the IMF that is equal to its quota. As noted earlier, a quarter of a member’s quota subscription is normally paid in reserve assets, with the remainder paid in the member’s own currency.²⁷ Quotas are expressed in SDRs and their size is determined by the IMF’s Board of Governors, broadly on the basis of the economic size of the country, and taking into account quotas of similar countries. To help in this determination, five formulas are used that relate the quota to the size of the country’s GDP, current account transactions, and official reserves. As of April 30, 2001, total quotas of all members amounted to SDR 212.4 billion. A list of members and their quotas is provided in Appendix I.

Members’ quotas constitute the financial base of the IMF and determine its size, as well as serve other functions as determined by the IMF’s Articles.

• Quotas provide the vast bulk of reserve assets that can be used in the provision of foreign reserves by the IMF, despite the availability of borrowed resources and the growing role of administered resources to provide concessional assistance to the IMF’s poorest members.

• Quotas determine the distribution of voting power in the IMF. ²⁸ Quotas determine members’ financial relationships with the IMF and, through the effect on voting power, members’ roles in IMF decision-making and representation on the Executive Board. Many decisions are taken by a simple majority vote, though special voting majorities are required for some important financial decisions (Appendix II).

• Quotas continue to play a crucial role in determining the demand for IMF resources. Quotas serve as the basis for access to such resources in the great majority of IMF-supported programs, subject to limits set by the Articles and the Executive Board.²⁹ Over the years, however, the relationship between quotas and access has become more elastic, especially as the demand for IMF resources has become more unpredictable because of the increased role of capital flows in balance of payments disequilibria. Waivers of the Articles’ limits on access to IMF resources have been granted where necessary to allow access in line with operational requirements.

• Quotas also determine a member’s share in a general allocation of SDRs.³⁰

The initial quotas of the original members of the IMF were determined at the Bretton Woods conference in 1944 (Schedule A of the IMF Articles); those of subsequent members have been determined by the IMF’s Board of Governors, based on principles consistent with those applied to existing members. The IMF has adjusted quotas within the context of five-yearly general reviews and on an ad hoc basis outside of general reviews. An 85 percent majority of voting power is needed to change quotas.

The determination of the quota of a new member of the IMF is based on the principle that a member’s quota should be in the same range as the quotas of existing members of comparable economic size and characteristics. Operationally, this principle has been applied through the use of quota formulas. Since the IMF’s inception, the calculated quotas derived from the quota formulas have been used to help guide decisions regarding the size and distribution of members’ actual quotas.

Quota formulas have evolved over time starting from the formula—containing national income, official reserves, imports, export variability, and the ratio of exports to national income—that was devised at Bretton Woods in 1944 to give support to the broad configuration of initial quotas that was being negotiated.

A multiformula approach was adopted in the early 1960s, when the Bretton Woods formula was revised and supplemented by four other formulas containing the same basic variables but with larger weights for external trade and export variability. The Bretton Woods formula, with its relatively high weight for national income, has generally favored large economies, while the additional four formulas have tended to produce higher quotas than the Bretton Woods formula for smaller, more open economies. The five formulas, which are listed in Box II.7, were last modified in 1982–83.

General Reviews

The IMF conducts general reviews of all members’ quotas normally at five year intervals.³¹ Such reviews allow the IMF to assess the adequacy of quotas in terms of members’ needs for conditional liquidity and the IMF’s ability to finance those needs. A general review also allows for adjustments of members’ quotas to reflect changes in their relative positions in the world economy. Of the general reviews conducted to date, only one (in 1958/59) was outside the five-year cycle.

The main issues addressed in general quota reviews are the size of an overall increase in quotas and the distribution of the increase among the

Box II.7.

The Present Five Quota Formulas

The present five quota formulas, with the Bretton Woods formula listed first, are:

$CQ=(0.01Y+0.025R+0.05P+0.2276VC)(1+C/Y),$

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$CQ=(0.0065Y+0.0205125R+0.078+0.4052VC)(1+C/Y),$

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$CQ=(0.0045Y+0.03896768R+0.07P+0.76976VC)(1+C/Y),$

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$CQ=0.005Y+0.042280464R+0.044(P+C)+0.8352VC,$

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$CQ=0.0045Y+0.05281008R+0.039(P+C)+1.0432VC,$

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where CQ = calculated quota;

• Y = GDP at current market prices for a recent year;

• R = twelve-month average of gold and foreign exchange reserves, including SDR holdings and reserve positions in the IMF, for a recent year;

• P = annual average of current payments (goods, services, income, and private transfers) for a recent five-year period;

• C = annual average of current receipts (goods, services, income, and private transfers) for a recent five-year period; and

• VC = variability of current receipts, defined as one standard deviation from the five-year moving average centered on the third year, for a recent 13-year period.

For each of the four non-Bretton Woods formulas, quota calculations are multiplied by an adjustment factor so that the sum of the calculations across members equals that derived from the Bretton Woods formula. The calculated quota of a member is the higher of the Bretton Woods calculation or the average of the lowest two of the remaining four calculations (after adjustment).

members. Four reviews concluded that no increase in quotas was needed. In the other eight reviews, the overall quota increase ranged from 31 percent to 61 percent (Tables II.3 and Table II.4).

Table II.3.

General Reviews of IMF Quotas

(In percent)

¹Uniform percentage increase for all members participating in the review.

²The February 1959 resolution provided for an equiproportional increase of 50 percent and special increases for 3 countries; the resolution adopted in April 1959 provided for special increases for 14 additional countries.

Table II.3.

General Reviews of IMF Quotas

(In percent)

	Board of Governors’	Equiproportional	Overall Increase
Review of Quotas	Adoption of Resolution	Increase in Quotas1	in Quotas	Entry into Effect
First Quinquennial	No increase proposed	—	—
Second Quinquennial	No increase proposed	—	—
1958/59	February 2,1959 and April 6,19592	50	60.7	April 6,1959
Third Quinquennial	No increase proposed	—	—
Fourth Quinquennial	March 31, 1965	25	30.7	February 23, 1966
Fifth General	February 9, 1970	25	35.4	October 30,1970
Sixth General	March 22,1976	Increases were determined on the basis of different groups of countries	33.6	April 1,1978
Seventh General	December 11,1978	50	50.9	November 29,1980
Eighth General	March 31,1983	19	47.5	November 30,1983
Ninth General	June 28,1990	30	50.0	November 11,1992
Tenth General	No increase proposed	—	—
Eleventh General	January 30,1998	33.75	45.0	January 22,1999

¹Uniform percentage increase for all members participating in the review.

²The February 1959 resolution provided for an equiproportional increase of 50 percent and special increases for 3 countries; the resolution adopted in April 1959 provided for special increases for 14 additional countries.

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Table II.3.

General Reviews of IMF Quotas

(In percent)

	Board of Governors’	Equiproportional	Overall Increase
Review of Quotas	Adoption of Resolution	Increase in Quotas1	in Quotas	Entry into Effect
First Quinquennial	No increase proposed	—	—
Second Quinquennial	No increase proposed	—	—
1958/59	February 2,1959 and April 6,19592	50	60.7	April 6,1959
Third Quinquennial	No increase proposed	—	—
Fourth Quinquennial	March 31, 1965	25	30.7	February 23, 1966
Fifth General	February 9, 1970	25	35.4	October 30,1970
Sixth General	March 22,1976	Increases were determined on the basis of different groups of countries	33.6	April 1,1978
Seventh General	December 11,1978	50	50.9	November 29,1980
Eighth General	March 31,1983	19	47.5	November 30,1983
Ninth General	June 28,1990	30	50.0	November 11,1992
Tenth General	No increase proposed	—	—
Eleventh General	January 30,1998	33.75	45.0	January 22,1999

¹Uniform percentage increase for all members participating in the review.

²The February 1959 resolution provided for an equiproportional increase of 50 percent and special increases for 3 countries; the resolution adopted in April 1959 provided for special increases for 14 additional countries.

Table II.4.

CHANGES IN IMF QUOTAS

(Quotas in millions of SDRs)¹

¹Quotas in the IMF were expressed in U.S. dollars at the equivalent of the 1934 official gold price until the Sixth General Review of Quotas in 1976, when the IMF’s unit of account had switched to the SDR, again valued at the 1934 official gold price. Consequently, the U.S. dollar and SDR, through 1970, are directly comparable at an exchange rate of SDR 1 = US$1.

²Countries that withdrew from membership or whose memberships were conferred to successor countries are shown in parentheses.

³As of the dates of adoption of Board of Governors’ resolutions proposing adjustments in members’ quotas.

⁴Sum of columns (4), (5), and (6).

⁵Excluding Australia, Haiti, Liberia, New Zealand, and the U.S.S.R., which did not join the IMF at the time of the Bretton Woods Agreement (see Schedule A of the Articles of Agreement), and including increases agreed for Egypt, France, the Islamic Republic of Iran, and Paraguay shortly after the IMF began operations.

⁶The quota of Honduras was reduced at its request for 1948 but was restored to the original amount in 1951.

⁷Includes SDR 121.0 million of special allocations for countries with small quotas.

⁸Includes Cambodia, which did not participate in the Ninth General Review.

⁹Includes the Federal Republic of Yugoslavia, which had not yet succeeded to IMF membership. On December 20, 2000, the Executive Board of the IMF determined that the Federal Republic of Yugoslavia had fulfilled the necessary conditions to succeed to membership in the IMF.

¹⁰Ad hoc increase for China.

Table II.4.

CHANGES IN IMF QUOTAS

(Quotas in millions of SDRs)¹

			Changes in Proposed Quotas
	IMF	Proposed	New members2		General	Ad hoc
	Membership	Quotas	Number	Quotas	reviews3	and other	Total4
Year	(1)	(2)	(3)	(4)	(5)	(6)	(7)
19445	40	7,514.00	40	7,514.00	—	—	—
1950	49	8,036.50	10	649.50	—	–2.006	522.50
			(1)	(125.00)	—	—	—
1955	58	8,750.50	10	837.00	—	2.006	714.00
			(1)	(125.00)	—	—	—
1959	69	14,640.25	11	404.50	5,328.75	156.507	5,889.75
1965	102	20,932.00	34	756.75	4,791.75	793.25	6,291.75
			(1)	(50.00)	—	—	—
1970	116	28,776.00	14	204.25	7,393.50	246.25	7,844.00
1976	133	38,976.40	17	445.40	9,755.00	—	10,200.40
1978	141	59,605.50	8	140.10	19,839.00	650.00	20,629.10
1983	146	89,236.30	5	394.40	28,176.50	1,059.90	29,630.80
1990	154	135,214.708	10	1,016.75	45,082.15	—	45,978.40
			(2)	(120.50)
1998	1839	212,029.00	31	12,736.65	65,802.95	40.00	76,814.30
			(2)	(1,765.30)
2001	183	213,711.00	—	—	—	1,682.0010	1,682.00

¹Quotas in the IMF were expressed in U.S. dollars at the equivalent of the 1934 official gold price until the Sixth General Review of Quotas in 1976, when the IMF’s unit of account had switched to the SDR, again valued at the 1934 official gold price. Consequently, the U.S. dollar and SDR, through 1970, are directly comparable at an exchange rate of SDR 1 = US$1.

²Countries that withdrew from membership or whose memberships were conferred to successor countries are shown in parentheses.

³As of the dates of adoption of Board of Governors’ resolutions proposing adjustments in members’ quotas.

⁴Sum of columns (4), (5), and (6).

⁵Excluding Australia, Haiti, Liberia, New Zealand, and the U.S.S.R., which did not join the IMF at the time of the Bretton Woods Agreement (see Schedule A of the Articles of Agreement), and including increases agreed for Egypt, France, the Islamic Republic of Iran, and Paraguay shortly after the IMF began operations.

⁶The quota of Honduras was reduced at its request for 1948 but was restored to the original amount in 1951.

⁷Includes SDR 121.0 million of special allocations for countries with small quotas.

⁸Includes Cambodia, which did not participate in the Ninth General Review.

⁹Includes the Federal Republic of Yugoslavia, which had not yet succeeded to IMF membership. On December 20, 2000, the Executive Board of the IMF determined that the Federal Republic of Yugoslavia had fulfilled the necessary conditions to succeed to membership in the IMF.

¹⁰Ad hoc increase for China.

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Table II.4.

CHANGES IN IMF QUOTAS

(Quotas in millions of SDRs)¹

			Changes in Proposed Quotas
	IMF	Proposed	New members2		General	Ad hoc
	Membership	Quotas	Number	Quotas	reviews3	and other	Total4
Year	(1)	(2)	(3)	(4)	(5)	(6)	(7)
19445	40	7,514.00	40	7,514.00	—	—	—
1950	49	8,036.50	10	649.50	—	–2.006	522.50
			(1)	(125.00)	—	—	—
1955	58	8,750.50	10	837.00	—	2.006	714.00
			(1)	(125.00)	—	—	—
1959	69	14,640.25	11	404.50	5,328.75	156.507	5,889.75
1965	102	20,932.00	34	756.75	4,791.75	793.25	6,291.75
			(1)	(50.00)	—	—	—
1970	116	28,776.00	14	204.25	7,393.50	246.25	7,844.00
1976	133	38,976.40	17	445.40	9,755.00	—	10,200.40
1978	141	59,605.50	8	140.10	19,839.00	650.00	20,629.10
1983	146	89,236.30	5	394.40	28,176.50	1,059.90	29,630.80
1990	154	135,214.708	10	1,016.75	45,082.15	—	45,978.40
			(2)	(120.50)
1998	1839	212,029.00	31	12,736.65	65,802.95	40.00	76,814.30
			(2)	(1,765.30)
2001	183	213,711.00	—	—	—	1,682.0010	1,682.00

¹Quotas in the IMF were expressed in U.S. dollars at the equivalent of the 1934 official gold price until the Sixth General Review of Quotas in 1976, when the IMF’s unit of account had switched to the SDR, again valued at the 1934 official gold price. Consequently, the U.S. dollar and SDR, through 1970, are directly comparable at an exchange rate of SDR 1 = US$1.

²Countries that withdrew from membership or whose memberships were conferred to successor countries are shown in parentheses.

³As of the dates of adoption of Board of Governors’ resolutions proposing adjustments in members’ quotas.

⁴Sum of columns (4), (5), and (6).

⁵Excluding Australia, Haiti, Liberia, New Zealand, and the U.S.S.R., which did not join the IMF at the time of the Bretton Woods Agreement (see Schedule A of the Articles of Agreement), and including increases agreed for Egypt, France, the Islamic Republic of Iran, and Paraguay shortly after the IMF began operations.

⁶The quota of Honduras was reduced at its request for 1948 but was restored to the original amount in 1951.

⁷Includes SDR 121.0 million of special allocations for countries with small quotas.

⁸Includes Cambodia, which did not participate in the Ninth General Review.

⁹Includes the Federal Republic of Yugoslavia, which had not yet succeeded to IMF membership. On December 20, 2000, the Executive Board of the IMF determined that the Federal Republic of Yugoslavia had fulfilled the necessary conditions to succeed to membership in the IMF.

¹⁰Ad hoc increase for China.

Increases in members’ quotas during general reviews typically consist of two elements: (1) an equiproportional element which is distributed to all members according to their existing quota shares; and (2) a selective element which is distributed to either all members or a subset of members. The selective element is used to attain a change in quota shares among members. For any overall increase in quotas, the larger the selective increase, the greater the redistribution of quota shares. In practice, the selective component has tended to be relatively small.

Both the list of members eligible for a selective increase and the way of distributing the selective element are based on the Executive Board’s judgment. The distribution of selective quota increases have generally been based on calculated quotas.³² Calculated quotas are determined by the quota formulas, which have been designed to provide a quantified measure of a country’s relative economic position.³³ The following examples illustrate the methods used.

• During the Sixth Review in 1976, the Executive Board decided to double the quota share of the major oil exporters with the stipulation that the collective share of all the developing countries should not fall. The decision was based on the judgment that such a reallocation would strengthen the IMF’s liquidity. In this instance, the quota formulas played no role in identifying the members eligible for the selective increase.

• Under the Eleventh Review in 1998, 25 percent of the quota increase was selective. The quota formulas helped determine each member’s share of the selective increase as follows: (1) 15 percent of the total increase (three-fifths of the selective element) was distributed to all members; (2) in addition, 10 percent of the total increase was distributed to those countries whose ratio of calculated to actual quotas was considered to be most “out of line.”³⁴

Adjustments of quota shares have tended to take place within general reviews, usually in the context of an urgent need for additional resources on the part of the IMF. This reflects the fact that it has been easier to reach agreement if all members receive an increase in quotas. Agreement is more difficult to reach when only a subset of members receives an increase, as the quotas of all other members would remain unchanged and their quota shares would decline.

Reserve Tranche Positions

In making the reserve asset portion of their quota payment, members acquire a liquid claim on the IMF in exchange for the reserves they provide, much like a demand deposit in a commercial bank. This claim is called the reserve tranche position; it is equal to the member’s quota less the IMF’s holdings of the member’s currency in the GRA (excluding currency holdings that stem from the member’s own use of credit). The share of a member’s subscription maintained in reserve assets varies over time from its initial level of some 25 percent at the time of quota payment. A member’s reserve tranche position increases when the IMF uses its currency to lend to other members, and decreases when borrowing members use the currency to make repayments. Reserve tranche positions are part of members’ liquid international reserves because a member may, subject only to its representation of a balance of payments need, convert its SDR-denominated reserve asset into one or more freely usable currencies by drawing on the IMF (Box II.8). A member is obligated, if necessary, to provide an amount of reserve assets of up to 100 percent of its quota. The amount of reserve assets provided to the IMF has in practice fallen well below this maximum (Figure II. 5.).

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Average Reserve Position of Members in the Financial Transactions Plan, january 1990–pril 2001

(In percent of quota)

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The IMF pays interest, called remuneration, on a member’s reserve position in the IMF, except on a small portion that is provided to the IMF as an interest-free resource. This unremunerated (non-interest-bearing) portion of the reserve tranche position is equal to 25 percent of the member’s quota on April 1, 1978—that part of the quota that was paid in gold prior to the Second Amendment of the IMF’s Articles. The gold tranche was never remunerated historically, so it was natural to set aside this same amount in terms of SDRs on this date as the unremunerated reserve tranche. For a member that joined the IMF after that date, the unremunerated reserve tranche is the same percentage of its initial quota as the average unremunerated reserve tranche was as a percentage of the quotas of all other members when the new member joined the IMF. The unremunerated reserve tranche remains fixed for each member in nominal terms, but because of subsequent quota increases, it is now significantly lower when expressed as a percentage of quota.³⁹ The average is equal to 3.8 percent, but the actual percentage is different for each member.

Precautionary Balances

The IMF’s resources in the GRA increase through additions to its precautionary balances, which comprise reserves and balances that have been set aside in the first Special Contingent Account (SCA-1). The level and rate of accumulation of precautionary balances reflect the IMF’s assessment of the risk of future operational deficits and general credit risk, including that arising from overdue obligations and the risk that debtor members in good standing might at some point fall into arrears. This latter risk increases with the level and concentration of outstanding credit, but is contained by the positive economic effects of members’ adjustment policies and the IMF’s preferred creditor status. Reserves also provide a small amount of liquidity in the GRA. The level and composition of the precautionary balances in the GRA in recent years are shown in Table II.5.

Table II.5.

Level of Precautionary Balances in the GRA

¹Excludes cumulative effects of change in accounting method in FY2000.

²See Box II.9.

Table II.5.

Level of Precautionary Balances in the GRA

			End of Financial Year
			1996	1997	1998	1999	20001	20001
			(In billions of SDRs)
Reserves			1.9	2.0	2.1	2.6	2.8	3.0
SCA-1			0.7	0.8	0.9	1.0	1.1	1.2
SCA-22			0.9	1.0	1.0	1.0	—	—
Precautionary balances			3.5	3.8	4.0	4.6	3.9	4.2
	Less: credit in arrears		-1.1	-1.1	-1.0	-1.0	-1.0	-0.9
		SCA-22	-0.9	-1.0	-1.0	-1.0	—	—
Free reserves			1.5	1.7	2.0	2.6	2.9	3.3
			(In percent)
Free reserves as a percentage of
	credit in good standing		4.2	5.1	4.1	4.3	7.0	8.0
Precautionary balances as a
	percentage of total credit
	outstanding		9.7	10.9	8.1	7.5	9.0	10.0

¹Excludes cumulative effects of change in accounting method in FY2000.

²See Box II.9.

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Table II.5.

Level of Precautionary Balances in the GRA

			End of Financial Year
			1996	1997	1998	1999	20001	20001
			(In billions of SDRs)
Reserves			1.9	2.0	2.1	2.6	2.8	3.0
SCA-1			0.7	0.8	0.9	1.0	1.1	1.2
SCA-22			0.9	1.0	1.0	1.0	—	—
Precautionary balances			3.5	3.8	4.0	4.6	3.9	4.2
	Less: credit in arrears		-1.1	-1.1	-1.0	-1.0	-1.0	-0.9
		SCA-22	-0.9	-1.0	-1.0	-1.0	—	—
Free reserves			1.5	1.7	2.0	2.6	2.9	3.3
			(In percent)
Free reserves as a percentage of
	credit in good standing		4.2	5.1	4.1	4.3	7.0	8.0
Precautionary balances as a
	percentage of total credit
	outstanding		9.7	10.9	8.1	7.5	9.0	10.0

¹Excludes cumulative effects of change in accounting method in FY2000.

²See Box II.9.

Reserves reflect accumulated net income and comprise the Special Reserve and the General Reserve. Resources in the Special Reserve may be used for any purpose for which resources in the General Reserve may be used, except distribution.

• The Special Reserve was established in 1957, initially with the proceeds from a gold investment program, to provide safeguards against operational deficits that were subsequently charged against this reserve. Additions to the Special Reserve have since been financed from net income, other than income derived from the SRF.

• The General Reserve was established in 1958 to meet capital losses or administrative deficits. From FY 1998, SRF net income has been placed in the General Reserve, which is the only income placed in this reserve since 1971. Any distribution of the General Reserve must be made to all members in proportion to their quotas.

Special Contingent Accounts (SCAs) are established and balances accumulated as part of the IMF’s overall strategy to protect itself against the negative financial impact of protracted arrears, that is, obligations that have remained overdue for at least six months.⁴⁰ The SCA-1 was established in 1987 as a safeguard against potential losses resulting from an ultimate failure of members in protracted arrears to settle their financial obligations to the IMF. After an initial placement of SDR 26.5 million of excess income in that year, annual additions to the SCA-1 have been generated through “burden-sharing”

adjustments to the rate of charge and the rate of remuneration (Box II.9). These allocations have amounted to 5 percent of GRA reserves at the beginning of the year up until FY2001, when the allocation was reduced to 3.3 percent. Balances in the SCA-1 are refundable to the contributing debtor and creditor member countries when all overdue obligations have been settled, or earlier if the IMF so decides.⁴¹

The IMF’s objective to date has been to maintain a level of total precautionary balances at least equal to credit to members in protracted arrears, a goal that was first achieved in FY1993, and which has since been maintained.

In addition, to protect itself against general credit risk, the IMF has established a target for precautionary balances in excess of overdue credit. The target range for these “free reserves” is 3-5 percent of the amount of outstanding “credit in good standing.” Free reserves had risen to 8.0 percent of credit in good standing at end-April 2001 (see Table II.5).

Income and Expenses

The amount added to reserves each year is the net income resulting from the difference between operational income and operational and administrative expenses.

Virtually all of the IMF’s operational income is derived from the charges (interest on loans) that are levied on the outstanding use of credit in the GRA. In addition to the basic rate of charge (i.e., the rate of charge before burden sharing), the use of IMF credit under certain circumstances is subject to surcharges, and all IMF credit is subject to service charges, commitment fees on credit lines, and special charges (see Table II.2).⁴² A small amount of income is also generated by receipts of interest on the IMF’s SDR holdings (as explained in Chapter III).

Operational expenses consist of the remuneration (interest) paid on remunerated reserve tranche positions, the allocation to the SCA-1, and the payment of interest on outstanding IMF borrowing, if any. Net operational income (operational income less operational expenses) is used to cover the IMF’s administrative expenses, and the remainder constitutes net income (Table II.6).⁴³

Table II.6.

Income Statement of the General Department, Financial Year Ended April 30, 2001

(In millions of SDRs)

Note: Numbers may not add to totals due to rounding.

Table II.6.

Income Statement of the General Department, Financial Year Ended April 30, 2001

(In millions of SDRs)

GRA operational income
	Interest and charges		2,207.1
	Interest on SDR holdings		112.5
	Other charges and income		68.7
			2,388.3
GRA operational expenses
	Remuneration and financing costs		1,734.3
	Allocation to SCA-1		94.0
			1,828.3
GRA administrative expenses			384.6
		Net GRA income	175.5
SDA income
	Income earned on investments		150.0
	Interest on loans		1.4
		Net SDA income	151.4

Note: Numbers may not add to totals due to rounding.

View Table

Table II.6.

Income Statement of the General Department, Financial Year Ended April 30, 2001

(In millions of SDRs)

GRA operational income
	Interest and charges		2,207.1
	Interest on SDR holdings		112.5
	Other charges and income		68.7
			2,388.3
GRA operational expenses
	Remuneration and financing costs		1,734.3
	Allocation to SCA-1		94.0
			1,828.3
GRA administrative expenses			384.6
		Net GRA income	175.5
SDA income
	Income earned on investments		150.0
	Interest on loans		1.4
		Net SDA income	151.4

Note: Numbers may not add to totals due to rounding.

Operational Income

The IMF aims to achieve a target level of net income each financial year to add to its reserves.⁴⁴ Based on the net income target, the SDR interest rate, projected credit, and the outlook for administrative expenses, the IMF estimates the basic rate of charge that is necessary to achieve the income target.⁴⁵ The basic rate is set for the year as a proportion of the SDR interest rate. For FY2001, this proportion was set at 115.9 percent.

A separate midyear review is undertaken to establish whether an adjustment to the basic rate of charge is required in view of developments during the year.

At the end of the financial year, if net income exceeds the amount projected at the beginning of the year, the Executive Board has, in recent years, decided to reduce the rate of charge retroactively. Alternatively, the Board can decide to:

• place all or part of any excess to reserves; or

• make a distribution of excess income to members; or

• take the excess into account to lower the net income target for the subsequent financial year.

When net income falls short of the target, the Executive Board has generally decided to increase the rate of charge in the subsequent financial year to make up for the shortfall.

Operational Expenses

The IMF pays remuneration (interest) on members’ reserve tranche positions equal to the SDR interest rate, except on a small portion, as indicated earlier (see section on “Reserve Tranche Positions”).⁴⁶ Remuneration payments account for almost all of IMF operational expenses when there is no outstanding IMF borrowing. If borrowing is outstanding, the IMF also pays interest on it. The interest rate on borrowing under the General Arrangements to Borrow (GAB) is equal to the SDR interest rate, while under the New Arrangements to Borrow (NAB), it may be equal to or higher than the SDR interest rate, as explained below under “Borrowing.”

Administrative Expenses

The IMF’s administrative expenses can be divided into personnel, travel, building occupancy, and other such costs. Personnel and travel-related outlays typically account for about 80 percent of total administrative expenses. The GRA is reimbursed for the cost of administering the SDR Department through an assessment levied in proportion to each participant’s allocation of SDRs. The GRA is also to be reimbursed for the expenses incurred in administering the PRGF Trust. However, following the establishment of the SRF and the consequent increase in net income, this reimbursement has been forgone and the amount that would otherwise have been reimbursed has been transferred to the PRGF-HIPC Trust. This arrangement has been in place since 1998 and is expected to continue up to 2004.

Borrowing

The IMF can borrow to supplement its quota resources. It maintains two standing borrowing arrangements with official lenders and can borrow from private markets, although it has not done so to date. Borrowing has played an important role in providing temporary, supplemental resources to the IMF at critical junctures in the past (Table II.7). In recent years, the borrowing arrangements with official lenders have been enlarged and their participation broadened, strengthening IMF liquidity.

Table II.7.

IMF Borrowing

(In billions of SDRs)

Table II.7.

IMF Borrowing

(In billions of SDRs)

			Number of Countries or Central Banks	Agreed Amount
Current borrowing arrangements
General Arrangements to Borrow (1983-2003)			11	17.0
	Associated agreement with Saudi Arabia (1983-2003)		1	1.5
New Arrangements to Borrow (1998-2003)			25	34.0
Past borrowing arrangements
General Arrangements to Borrow (1962-83)			10	6.4
Oil facility (1974)			7	2.8
Oil facility (1975)			12	2.9
Supplementary financing facility (1979-84)			14	7.8
Enlarged access to resources
	Medium-term (1981)
		Saudi Arabian Monetary Agency (SAMA)	1	8.0
	Short-term (1981)		1	8.0
		Bank for International Settlements (BIS) and others	19	1.3
	Short-term (1984)
		SAMA, BIS, Government of Japan, and National
		Bank of Belgium	4	6.0
Government of Japan (1986)			1	3.0

View Table

Table II.7.

IMF Borrowing

(In billions of SDRs)

			Number of Countries or Central Banks	Agreed Amount
Current borrowing arrangements
General Arrangements to Borrow (1983-2003)			11	17.0
	Associated agreement with Saudi Arabia (1983-2003)		1	1.5
New Arrangements to Borrow (1998-2003)			25	34.0
Past borrowing arrangements
General Arrangements to Borrow (1962-83)			10	6.4
Oil facility (1974)			7	2.8
Oil facility (1975)			12	2.9
Supplementary financing facility (1979-84)			14	7.8
Enlarged access to resources
	Medium-term (1981)
		Saudi Arabian Monetary Agency (SAMA)	1	8.0
	Short-term (1981)		1	8.0
		Bank for International Settlements (BIS) and others	19	1.3
	Short-term (1984)
		SAMA, BIS, Government of Japan, and National
		Bank of Belgium	4	6.0
Government of Japan (1986)			1	3.0

Current Borrowing Arrangements

The General Arrangements to Borrow have been in place since 1962. The GAB were originally conceived as arrangements whereby the main industrial (Group of Ten) countries agreed to stand ready to lend the IMF up to specified amounts of their currencies, thereby strengthening its financial position. These loans would be made when supplementary resources were needed by the IMF to help finance drawings by GAB participants in a setting where such financing would forestall or cope with an impairment of the international monetary system. Because the industrial countries have the largest quotas and may, when they need to, claim a large proportion of the IMF’s usable resources, the GAB provide strong support for the IMF’s financial soundness and for ensuring that resources available to other countries are not reduced.

The GAB enable the IMF to borrow specified amounts of currencies from 11 industrial countries or their central banks, under certain circumstances, at market-related rates of interest (Table II.8). The potential amount of credit available to the IMF under the GAB is SDR 17 billion, with an additional SDR 1.5 billion available under an associated agreement with Saudi Arabia.

Table II.8.

General and New Arrangements to Borrow

(In millions of SDRs)

Table II.8.

General and New Arrangements to Borrow

(In millions of SDRs)

Participant	General Arrangements to Borrow	New Arrangements to Borrow
Australia	n.a.	810.0
Austria	n.a.	412.0
Belgium	595.0	967.0
Canada	892.5	1,396.0
Denmark	n.a.	371.0
Deutsche Bundesbank	2,380.0	3,557.0
Finland	n.a.	340.0
France	1,700.0	2,577.0
Hong Kong Monetary Authority	n.a.	340.0
Italy	1,105.0	1,772.0
Japan	2,125.0	3,557.0
Korea	n.a.	340.0
Kuwait	n.a.	345.0
Luxembourg	n.a.	340.0
Malaysia	n.a.	340.0
Netherlands	850.0	1,316.0
Norway	n.a.	383.0
Saudi Arabia	n.a.	1,780.0
Singapore	n.a.	340.0
Spain	n.a.	672.0
Sveriges Riksbank	382.5	859.0
Swiss National Bank	1,020.0	1,557.0
Thailand	n.a.	340.0
United Kingdom	1,700.0	2,577.0
United States	4.250.0	6.712.0
Total	17,000.0	34,000.0
Associated agreement with
Saudi Arabia	1,500.0	n.a.

View Table

Table II.8.

General and New Arrangements to Borrow

(In millions of SDRs)

Participant	General Arrangements to Borrow	New Arrangements to Borrow
Australia	n.a.	810.0
Austria	n.a.	412.0
Belgium	595.0	967.0
Canada	892.5	1,396.0
Denmark	n.a.	371.0
Deutsche Bundesbank	2,380.0	3,557.0
Finland	n.a.	340.0
France	1,700.0	2,577.0
Hong Kong Monetary Authority	n.a.	340.0
Italy	1,105.0	1,772.0
Japan	2,125.0	3,557.0
Korea	n.a.	340.0
Kuwait	n.a.	345.0
Luxembourg	n.a.	340.0
Malaysia	n.a.	340.0
Netherlands	850.0	1,316.0
Norway	n.a.	383.0
Saudi Arabia	n.a.	1,780.0
Singapore	n.a.	340.0
Spain	n.a.	672.0
Sveriges Riksbank	382.5	859.0
Swiss National Bank	1,020.0	1,557.0
Thailand	n.a.	340.0
United Kingdom	1,700.0	2,577.0
United States	4.250.0	6.712.0
Total	17,000.0	34,000.0
Associated agreement with
Saudi Arabia	1,500.0	n.a.

The GAB are reviewed and renewed regularly. A broad review of the GAB was undertaken in 1983, at the outset of the developing country debt crisis. The most important changes to emerge from that review were the substantial enlargement of the GAB to its present size (from about SDR 6 billion), the addition of SDR 1.5 billion under the associated agreement with Saudi Arabia, and the change to permit use of the GAB to finance IMF lending to nonparticipants in the GAB if the IMF faces an inadequacy of resources. Since 1983, the GAB and the associated agreement with Saudi Arabia have been renewed every four or five years without further modification, most recently for a further five-year period from December 26, 1998.

The GAB have been activated ten times. The GAB were last activated in July 1998 for an amount of SDR 6.3 billion (SDR 1.4 billion of which was drawn) in connection with the financing of an Extended Arrangement for Russia. The activation for Russia was canceled in March 1999, when the IMF repaid the outstanding amount following the coming into effect of the Eleventh General Review of Quotas and payment of the bulk of the quota increases. Prior to the activation for Russia, the most recent activation occurred in 1977, when the IMF borrowed for lending to the United Kingdom and Italy under Stand-By Arrangements, and in 1978 to finance a reserve tranche purchase by the United States. A proposal for calls on the GAB by the IMF’s Managing Director can become effective only if it is accepted by the GAB participants, and the proposal is then approved by the Executive Board.

The IMF also has New Arrangements to Borrow to deal with financial crises. Following the Mexican financial crisis in December 1994, concern that substantially more resources might be needed to respond to future financial crises prompted participants in the June 1995 Group of Seven Halifax Summit to call on the Group of Ten and other financially strong countries to develop financing arrangements that would double the amount available to the IMF under the GAB. The NAB became effective on November 17, 1998.

The NAB effectively double the resources available under the GAB. The NAB are a set of credit arrangements between the IMF and 25 members and institutions to provide supplementary resources to the IMF to forestall or cope with an impairment of the international monetary system or to deal with an exceptional situation to the stability of that system. The NAB do not replace the GAB, which remain in force. However, the NAB are the first and principal recourse in the event of a need to provide supplementary resources to the IMF. The total amount of resources available to the IMF under the NAB and GAB combined is SDR 34 billion.

The NAB can be renewed and enlarged. The NAB decision will be in effect for five years from its effective date and may be renewed, at which time an IMF member or institution that is not currently a participant in the NAB may be accepted as a participant, if the IMF and participants representing 80 percent of the total credit arrangements agree to the request. New participants may be accepted at other times by way of an amendment to the NAB adopted by a decision of the IMF’s Executive Board and with the concurrence of participants representing 85 percent of total credit arrangements. Commitments from participants are based on relative economic strength, as measured by actual IMF quotas, as a predominant criterion.

Activation procedures for the NAB are modeled on the GAB. The NAB have been activated once—to finance a Stand-By Arrangement for Brazil in December 1998, when the IMF called on funding of SDR 9.1 billion (SDR 2.9 billion of which was used). This activation was canceled on March 11, 1999, when the IMF repaid the outstanding amount following the entry into effect of the Eleventh General Review of Quotas and payment of the bulk of the quota increases.

Financial Transactions Plan

The IMF manages its usable resources through a financial transactions plan. This is the mechanism through which the IMF selects the members whose currencies are to be used in IMF transactions and allocates the financing of those transactions among members included in the plan. Both currencies and SDRs are included in the financial transactions plan for transfers (credits) from the IMF to borrowing members but only currencies

are included for receipts (repayments) from borrowing members; receipts in SDRs are not managed through the plan as the IMF has little or no discretion over their use by members. The total amount for transfers in the transactions plan is based on the expected volume of credit to be extended to members and operational payments by the IMF (such as interest on official borrowing by the IMF) during the plan period. Receipts in currencies are estimated on the basis of the schedule of forthcoming repayments and the preferences of members with respect to the media of payment (i.e., currencies versus SDRs).

Currency selection is based on judgments about the external positions of members. The currencies of members are selected for inclusion in the financial transactions plan based on a finding by the IMF that the member’s balance of payments and reserve position is sufficiently strong. Specific indicators of external strength are used to maintain a reasonable degree of consistency among members, but the assessment of a member’s combined balance of payments and reserve position is ultimately a matter of judgment. It has not therefore been considered desirable to rely on automatic indicators or to define rigidly the notion of a sufficiently strong external position; the circumstances of members, including their need to hold reserves, differ considerably.

All relevant factors and data are considered in this assessment. Particular emphasis is placed on recent and prospective current account balances, external competitiveness, and external debt indicators, especially those offering insights into the member’s exposure to short-term liquidity strains. Members may be included in the financial transactions plan even though there may be some elements of weakness in their overall balance of payments and reserve position.

Two broader considerations underlying the financial structure of the IMF have guided the staff and the Executive Board in coming to conclusions about a member’s external strength for the purpose of participation in the financial transactions plan.

• First, the IMF draws on a wide range of members—large and small, advanced, developing, and transition—for its financial activities, reflecting first and foremost the cooperative nature of the institution. Broad participation of members in the financial transactions plan also works to maximize the liquidity of the GRA.

• Second, the use of a member’s currency in the financial transactions plan generally entails a change in the composition of the member’s international reserves. For most of these members, IMF transactions involve a reduction (increase) in their foreign exchange holdings, which is fully offset by an increase (decrease) in their reserve tranche position in the IMF. This creditor position is included as part of the member’s international reserves as it is a liquid claim on foreign exchange resources that can be drawn on demand in the event of balance of payments need.

Decisions on the selection of currencies are taken by the Executive Board. The staff proposes a list of members it considers sufficiently strong each quarter, and the Executive Board takes a decision based on this list. It is open to an Executive Director to request the exclusion or inclusion of any member, but the decision rests with the Executive Board as a whole. A member’s consent to its inclusion is not required, although its views on its balance of payments and reserve position are taken into account by the Executive Board before a decision is taken. The outcome of the financial transactions plan is published on the IMF’s website.⁴⁹

Currency allocation aims to maintain broadly even participation among members. The allocation of transfers and receipts among members in the financial transactions plan is based on guidelines established by the Executive Board.⁵⁰ The currencies of all members included in the financial transactions plan are allocated for transfers in direct proportion to their quotas. Receipts are allocated to members’ currencies included in the plan so as to ensure that the creditor positions of members included in the plan remain broadly balanced over time in relation to quota. The net impact of both transfers and receipts on reserve tranche positions is illustrated in Figure II.6

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Reserve Positions, as of April 30,2001

(In percent of quota)

Source: International Monetary Fund, International Financial Statistics.

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If a currency included in the financial transactions plan is not one of the currencies that the IMF has determined to be freely usable in the principal foreign exchange markets, the issuing member is required, if requested by a purchasing member at the time of the purchase, to exchange the amount of its currency sold by the IMF for a freely usable currency (in most cases, the U.S. dollar) at the representative exchange rate as advised by the IMF. Procedures have also been established for the exchange of each freely usable currency into other freely usable currencies. Similar procedures apply to exchanges of currencies related to repurchases.

Disclosure of Financial Position with the IMF in the Member Country⁵³

When a member has designated the central bank as both depository and fiscal agent, the central bank should present the full financial position of the member with the IMF in its balance sheet.⁵⁴ A central bank may choose to indicate this on either a gross or net basis. The position in the General Department is presented on a gross basis if the IMF No. 1, No. 2, and Securities Accounts are shown as liabilities and the member’s quota is shown as an asset. Membership in the SDR Department would be indicated by showing SDR holdings as an asset and the cumulative SDR allocation as a liability.

Members may also choose to reflect their financial position on a net basis. A member who has a net reserve tranche position in the IMF and is not using IMF credit would present the net reserve tranche position as an asset.⁵⁵ Members with a net reserve tranche position who are also using credit in the GRA would disclose the reserve tranche as an asset and currency holdings stemming from the use of IMF credit as a liability, since the IMF is not entitled to demand settlement or offset a member’s use of credit from its reserve tranche position. The members’ position in the SDR Department may also be shown on a net basis. The presentation of IMF-related assets and liabilities should be further elaborated in the explanatory notes to the financial statements and, as a minimum, provide information not available in the balance sheet regarding the member’s quota, the composition of the IMF’s currency holdings, and the maturity structure of IMF credit, if any.

In cases where the central bank acts as depository and the ministry of finance, treasury, or a similar agency is the fiscal agent, it is recommended that the central bank record all IMF-related assets and liabilities and offset these against government accounts.⁵⁶ While practices may differ depending on the relationship between the central bank and the agency acting as fiscal agent, this approach ensures public disclosure of the member’s financial relationship with the IMF, since government agencies typically do not pre-pare financial statements.⁵⁷ Consolidating the IMF position in the balance sheet of the central bank also allows for a simple reconciliation between foreign reserves data monitored under an IMF-supported program or published by a member and the balance sheet of the central bank. Since most central banks are subject to an annual audit, full inclusion of the IMF position provides additional assurance about the accuracy and availability of foreign reserves.

Appendix IV illustrates how IMF membership could be presented on either a gross or net basis in the balance sheet of a central bank that acts as both fiscal agent and depository for the member with the IMF.