Chapter

Appendix II

Author(s):
International Monetary Fund
Published Date:
September 1980
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Principal Policy Decisions of the Executive Board

A. Borrowing Arrangements in Connection with Supplementary Financing Facility: Payment of Interest

The Managing Director shall make arrangements for consultations with lenders in order to agree with them on the means of payment of interest under the borrowing agreements concluded in accordance with Executive Board Decision No. 5509-(77/127), 1 adopted August 29, 1977. Payments of interest shall be made in accordance with the procedure set forth [below]. Executive Directors shall be informed promptly of the interest paid and the assets used.

Decision No. 6163-(79/96)

June 21, 1979

Procedure

Paragraph 6 of each of the borrowing agreements in connection with the supplementary financing facility provides that the Fund shall consult the lender in order to agree on the means with which interest will be paid. If agreement is not reached the Fund has the option to pay with the means indicated in the individual borrowing agreements. Interest payments shall be made promptly after June 30 and December 31 of each year on the average daily balances which were outstanding during the preceding six months and which the Fund is obliged to repay; the first payments will be made at the beginning of July 1979.

This paper deals with the procedure that is to be followed when consulting with lenders regarding the means that would be offered by the Fund for the payment of interest.

The rate of interest on amounts of outstanding claims under the supplementary financing facility for a period of six months is the average of the daily yields during these six months on actively traded U.S. Government securities, determined on the basis of a constant maturity of five years, as published by the Federal Reserve Board, Washington, D.C. This average rate is rounded up to the nearest ⅛ of 1 per cent.

In accordance with the policy guiding the selection of means for the payment of interest on borrowings for the financing of transactions under the oil facility, which was approved by the Executive Board, the lender has been offered its own currency, if the Fund’s holdings of this currency were sufficient for this purpose, one or more currencies from the operational budget or SDRs, or a combination of these means,2 the means most generally used in the payment of interest on borrowing by the Fund has been the U.S. dollar. Although U.S. dollars were not included for use in payments by the Fund in the last three operational budgets, the Executive Directors agreed, for the convenience of lenders, to the use of this currency in the payment of interest on borrowings. It seems reasonable to follow the same procedures regarding the payment of interest under the supplementary financing facility.

It is proposed that the Managing Director be instructed to make arrangements, as necessary, for consultations with lenders in order to agree on the means for the payment of interest and to effect these payments in accordance with this procedure. Executive Directors would be informed promptly of the interest payments made and the means used.

B. Trust Fund: Second Period

(a) Timing of Loan Disbursements

The timing of the loan disbursements in the remainder of the Trust’s second two-year period (July 1, 1978-June 30, 1980) shall be in accordance with the schedule [below].

Decision No. 6201-(79/121) TR

July 23, 1979

[… the interim disbursements be made hereafter at quarterly intervals instead of half-yearly. … The more frequent disbursements would add to the existing half-yearly schedule two other interim disbursements, one at the end of October 1979 and the other at the end of April 1980.]

(b) Extension of Period for Qualification

In Section II, Paragraph 3(c) (ii), of the Trust Fund Instrument, the word “predominantly” is changed to “partly” and “November 30, 1979” is changed to “…May 1, 1980.”

Decision No. 6202-(79/121) TR

July 23, 1979

(c) Extension of Second Period

1. The date “December 31, 1980” shall be substituted for the date “June 30, 1980” in

  • (i) Decision No. 5069-(76/72),3 paragraph 2, May 5, 1976, and

  • (ii) the Instrument to Establish the Trust Fund, annexed to Decision No. 5069-(76/72), Section II, paragraph 1.

2. The date “November 1, 1980” shall be substituted for the date “May 1, 1980” in paragraph 3(c) (ii) of the Instrument referred to in l(ii) above, as amended by Decision No. 6202-(79/121) TR,4 July 23, 1979.

3. Loan disbursements in the remainder of the Trust’s second period shall be made as follows: interim disbursements at end-April and end-July 1980, and the final disbursement in January 1981.

Decision No. 6466-(80/68) TR

April 9, 1980

C. Review of Rules for Designation and Method of Calculating Designation Amounts

The Executive Directors approve the summary and conclusions set out [below] on the understanding that if during the first year after a participant receives an allocation for the first time, designation would bring the participant close to the acceptance limit, the staff will take steps to moderate the rate at which the limit is approached.

Decision No. 6209-(79/124) S

July24, 1979

Summary and Conclusions

1. The designation system has a key role in guaranteeing the usability of the SDR. However, provided that the SDR is regarded as an attractive reserve asset, participants may make less use of their SDR holdings in transactions with designation and may rely more on transactions and operations by agreement between participants, as well as payments to the Fund. The volume of transactions with designation would then depend mainly on the extent to which the Fund transfers SDRs to purchasing members that use the SDRs to obtain foreign exchange in transactions with designation.

2. The general structure of the more important provisions relating to designation is as follows:

  • (a) The major principles of designation are contained in Article XIX, Section 5. A participant whose balance of payments and gross reserve position is sufficiently strong shall be subject to designation; and the Fund shall designate these participants “in such manner as will promote over time a balanced distribution of holdings of special drawing rights among them.” These principles can be supplemented by other principles that the Fund may adopt at any time.

  • (b) To promote a balanced distribution of SDR holdings, the Fund implements the rules for designation in Schedule F. These rules embody the so-called “excess holdings” principle, which aims to promote over time equality in participants’ “excess holdings ratios”, i.e., their holdings of SDRs in excess of their net cumulative allocations as a proportion of their gold and foreign exchange holdings. The rules for designation can be reviewed at any time and changed, if necessary, by a decision of the Executive Board taken by a majority of votes cast.

3. The following conclusions are suggested as regards the principles on which the calculation of the designation amounts is based.

  • (a) The choice of “excess holdings” rather than total holdings of SDRs tends to concentrate designation on net users of SDRs to restore their holdings to the level of their allocations. The alternative “holdings” principle would tend to shift the incidence of designation away from participants that have used SDRs to those that have relatively large holdings of gold and foreign exchange. The latter approach may become more suitable as the attractiveness of the SDR increases, but it is not recommended at this time.

  • (b) Participants’ gold and foreign exchange holdings are used as a basis for harmonizing excess holdings of SDRs, consistent with the approach that the staff has suggested for preparing the operational budgets. An alternative technique would be to distribute amounts of designation on the basis of participants’ unused acceptance obligations in relation to their allocations. It would seem preferable, however, not to divorce the designation amounts from participants’ reserve holdings as these are considered to be the best available measure of the ability of participants to provide currency when designated by the Fund.

  • (c) The speed at which the harmonization of ratios proceeds depends importantly on the particular method adopted for calculating designation amounts for individual participants. The present method has promoted harmonization at a moderate pace, striking a balance between the objective of restoring the holdings of net users of SDRs and the desire to maintain a fairly broad list of participants for designation. The method has the advantage of flexibility and has been adjusted successfully from time to time to meet changing circumstances.

4. Under the Articles of Agreement, the amount of SDRs a participant can be required to accept in designation is restricted to the point where its excess holdings are twice its allocation, i.e., the acceptance limit. For certain participants, this limit is reached rather more rapidly than for others because their reserves are very large in relation to their SDR allocations. While it would be possible to conceive of arrangements that would slow down the approach to the acceptance limit, the staff’s view is that such action is neither necessary nor desirable.

5. The method of executing designation plans is established for each quarterly period at the time the plan is adopted by the Executive Board. It is proposed that this procedure be continued. The approach generally followed in the execution of designation plans has been to designate participants in broad proportion to the maximum amounts for which they are included in the plan, while avoiding undue fragmentation of individual transactions. From time to time exceptions may be proposed, such as have been agreed by the Executive Board in the past when circumstances warranted. If during the quarterly period covered by a designation plan a proposal is pending with the Executive Board for the exclusion of a participant from designation, further designation of the participant concerned would be avoided to the extent practicable.

6. Over more than nine years of actual experience, the designation mechanism has functioned satisfactorily. Actual designations have borne out the general emphasis that was expected to result from the “excess holdings” principle. About four fifths of total designation has been directed to participants whose holdings of SDRs were below their allocations as a result of prior uses. At the same time, a wide range of both developed and less developed countries has been called upon to provide currency in the designation process.

7. The major volume of transactions with designation over the last two and a half years has resulted from transfers of SDRs to participants making purchases from the General Resources Account; these participants have generally used the SDRs in transactions with designation, although a not insignificant proportion has been retained by the recipients, mainly to meet the reconstitution obligation or to make payments to the Fund.

8. In the future, the attractiveness of the SDR, and the increasing scope for transactions and operations by agreement, may reduce the use of SDRs from participants’ own holdings in transactions with designation. However, with the Fund receiving approximately SDR 5 billion as a result of quota increases under the Seventh Review, there is likely to be a continuing volume of transactions with designation as a result of transfers of SDRs by the Fund to members making purchases, as a way of channeling SDRs back into participants’ reserves.

9. In the light of the generally satisfactory experience with the designation system, the staff does not feel it necessary to propose any changes in the present principles and procedures for designation.

D. Use of Currencies and SDRs in the General Resources Account and Principles and Procedures for Designation

(a) Assessment of Strength of Member’s Balance of Payments and Gross Reserve Position for the Purposes of Designation Plans, Operational Budgets and Repurchases Under Article V, Section 7 (b)

This decision sets forth guidelines for the assessment of the strength of the balance of payments and gross reserve position of a participant under Article XIX, Section 5 (a)(i) (designation plans), and of the balance of payments and reserve position of a member under Article V, Section 3 (d) (operational budgets) and, in accordance with Executive Board Decisions No. 5704-(78/39) 5 and No. 6172-(79/101), 6 under Article V, Section 1 (b) (early repurchases).

1. Assessments of strength for the purposes of Article V, Sections 3 (d) and 1 (b) will be based on a member’s balance of payments and gross reserve position, and shall take into account developments in the exchange markets.

2. A member’s “balance of payments and gross reserve position” is a combined concept, under which strength in one element may compensate for moderate weakness in the other.

3. In the Fund’s assessment whether a member’s balance of payments and gross reserve position is sufficiently strong for the purposes of the designation plans, operational budgets, and early repurchases, all relevant factors and data on the member’s position shall be considered, including the following: recent and prospective movements in gross reserves, balance of payments developments, the relationship of gross reserves to a member’s imports and Fund quota, and developments in exchange markets. To the extent that recent data on changes in a member’s net reserves are available, these shall be taken into account as an indicator of the member’s balance of payments position.

4. If a member has outstanding purchases in the General Resources Account, the assessment of its balance of payments and gross reserve position will include judgments on whether the member’s position shows an improvement in comparison with the position at the time it made its last purchase from the Fund, on the extent of the improvement, and on whether it is likely to be sustained in the foreseeable future. Special attention will be given to the recent and prospective evolution in the various components of the member’s balance of payments, including developments in the member’s net reserves to the extent that data are available.

Decision No. 6273-(79/158) G/S

September 14,1979

(b) Specification of Currencies by the Fund

This decision sets forth guidelines for the selection of currencies in purchases under Article V, Section 3(d), in repurchases under Article V, Section 7(i), and in transfers of SDRs by the Fund under Article V, Section 6(b) pursuant to decisions adopted prior to the date of this decision.

1. Normally, the Fund will select a member’s currency for use in the operations and transactions of the General Resources Account in amounts that result in a net reduction of the Fund’s holdings of the currency only if the member’s balance of payments and gross reserve position is judged to be sufficiently strong. Accordingly this will not preclude the possibility that the Fund will make net reductions in its holdings of the currency of a member with a strong reserve position even though it has a moderate balance of payments deficit.

2. Under procedures to be adopted, the currency of a member with outstanding purchases subject to repurchase, whose balance of payments and gross reserve position is judged sufficiently strong for the purposes of operational budgets and designation plans, normally will be sold by the Fund under Article V, Section 3(d) only if the member and the Fund agree.

3. The desirability of promoting over time balanced positions in the Fund (“harmonization”) will be taken into account in the following way:

  • a. A member’s “position in the Fund” shall be defined as its reserve tranche position plus any outstanding loans to the Fund by the member or an institution of a member under credit arrangements that are judged by the Fund to provide it, on a continuing basis, with the ability to finance uses of its resources by members on terms comparable to those applicable to the Fund’s use of its currency holdings for this purpose.

  • b. Subject to (c) and (d) below, currencies shall be selected for use in purchases and repurchases, and in transfers of SDRs by the Fund under decisions adopted prior to the date of this decision, in such a way as to promote, over time, the equalization of the ratios of members’ positions in the Fund, as defined under (a) above, to their gold and foreign exchange holdings.

  • c. The application of the principle in (b) above will not be carried beyond the point where the Fund’s holdings of a member’s currency are substantially below the average level, expressed as a percentage of quota, at which the Fund holds the currencies of members that do not have purchases outstanding and whose balance of payments and gross reserve position is sufficiently strong in accordance with paragraph 1 above. In addition, the Fund will seek to maintain adequate working balances of a currency.

  • d. If the currency of a member whose balance of payments and gross reserve position is not judged sufficiently strong in accordance with paragraph 1 above can be accepted in repurchase under Article V, Section 7(/), the Fund, at the request of the member, will give special emphasis to the use of that currency for repurchases.

4. The guidelines in this decision will be applied in a manner that will allow the Fund to retain the flexibility necessary to ensure that (i) the use of currencies can be adapted to the needs and circumstances of members and of the Fund, and (ii) the transactions and operations of the Fund can be executed expeditiously and in a manner that pays due regard to the convenience of members. Considerations that are relevant under (i) may include the need for members to purchase certain currencies in order to stabilize exchange markets, the effects of the use or receipt of currencies on the Fund’s financial position, the Fund’s liquidity, and the fact that in respect of the issuer of a reserve currency the ratio of its Fund position to its gold and foreign exchange holdings may not provide an appropriate measure of the amounts of the currency that might be used by the Fund. Considerations under (ii) may include the need to avoid the use of an excessive number of currencies in single transactions and operations.

Decision No. 6274-(79/158)

September 14, 1979

(c) Transfers of SDRs Under Article V, Section 3(f)

Pursuant to Article V, Section 3(f), the Fund shall provide SDRs instead of the currencies of other members to a participant making a purchase in accordance with decisions on the operational budgets taken under Rule O-10. For this purpose, the Executive Board shall keep under review the amount of the Fund’s holdings of SDRs in the General Resources Account in the light of all relevant considerations, including the relationship of SDR holdings to its other assets, and will determine from time to time the approximate range within which the Fund will aim to maintain these holdings.

Decision No. 6275-(79/158) G/S

September 14, 1979

E. Compensatory Financing of Export Fluctuations: Revised Decision

Decision No. 4912-(75/207), adopted December 24, 1975, as amended by Decision No. 5348-(77/33),7 adopted March 11, 1977, is amended to read as follows:

1. The financing of deficits arising out of export shortfalls, notably those of primary exporting member countries, has always been regarded as a legitimate reason for the use of Fund resources, which have been drawn on frequently for this purpose. The Fund believes that such financing helps these members to continue their efforts to adopt adequate measures toward the solution of their financial problems and to avoid the use of trade and exchange restrictions to deal with balance of payments problems, and that this enables these members to pursue their programs of economic development with greater effectiveness.

2. The Fund has reviewed its policies to determine how it could more readily assist members, particularly primary exporters, encountering payments difficulties produced by temporary export shortfalls, and has decided that such members can continue to expect that their requests for drawings will be met where the Fund is satisfied that

  • (a) the shortfall is of a short-term character and is largely attributable to circumstances beyond the control of the member; and

  • (b) the member will cooperate with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties.

3. Drawings outstanding under this decision may amount to 100 per cent of the member’s quota, provided that requests for drawings which would increase the drawings outstanding under this decision beyond 50 per cent of the member’s quota will be met only if the Fund is satisfied that the member has been cooperating with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties.

4. When a member makes a request under this decision and if, in the opinion of the Fund, adequate data on receipts from travel and workers’ remittances are available, the member shall specify whether the receipts shall be included or excluded in the calculation of the shortfall. The choice by a member shall continue to apply for a period of five years, except in the case of a member that makes a request under this decision prior to January 1, 1980 and elects to exclude these services at the time of the request.

5. The existence and amount of an export shortfall for the purpose of any drawing under this decision shall be determined with respect to the latest 12-month period preceding the drawing request for which the Fund has sufficient statistical data, provided that a member may request a drawing in respect of a shortfall year for which not more than 6 months of the data on merchandise exports, and 12 months of the data on travel and workers’ remittances, are estimated.

6. In order to identify more clearly what are to be regarded as export shortfalls of a short-term character, the Fund, in conjunction with the member concerned, will seek to establish reasonable estimates regarding the medium-term trend of the member’s exports based partly on statistical calculation and partly on appraisal of exports prospects. For the purposes of this decision, the shortfall shall be the amount by which the member’s export earnings in the shortfall year are less than the geometric average of the member’s export earnings for the five-year period centered on the shortfall year. In computing the five-year geometric average, the Fund, in conjunction with the member, will use an estimate based on a judgmental forecast for the two post-shortfall years. When the Fund allows a member to draw under the proviso in paragraph 5 above, the Fund may use such methods of estimating exports during the period for which sufficient statistical data are not available as it considers reasonable.

7. A member requesting a drawing under the proviso in paragraph 5 above will be expected to represent that, if the amount drawn on the basis of estimated data exceeds the amount that could have been drawn on the basis of actual data for the full 12-month period under paragraph 6 above, the member will make a prompt repurchase in respect of the outstanding drawing, in an amount equivalent to the excess.

8. Whenever the Fund’s holdings of member’s currency resulting from a drawing under this decision are reduced by the member’s repurchase or otherwise, the member’s access to this facility, in accordance with its terms, will be restored pro tanto.

9. In order to implement the Fund’s policies in connection with compensatory financing of export shortfalls, the Fund will be prepared to waive the limit on the Fund’s holdings of 200 per cent of quota, where appropriate. In particular, the Fund will be prepared to waive this limit (i) where a waiver is necessary to permit compensatory drawings to be made under this decision or (ii) to the extent that drawings in accordance with this decision are still outstanding.

Moreover, the Fund will apply its tranche policies to drawing requests by a member as if the Fund’s holdings of the member’s currency were less than its actual holdings of that currency by the amount of any drawings outstanding under this decision. When drawings are made under this decision, the Fund will so indicate in an appropriate manner.

Decision No. 6224-(79/135)

August 2, 1979

F. Guidelines on Performance Criteria with Respect to Foreign Borrowing

The Executive Board approves the Chairman’s summing up on external debt management policies as set forth [below].

Decision No. 6230-(79/140)

August 3, 1979

The Chairman’s Summing up on External Debt Management Policies

In the context of a general discussion of the issues relating to external debt management policies, the Executive Board considered the following guideline on the performance criteria with respect to foreign borrowing:

When the size and the rate of growth of external indebtedness is a relevant factor in the design of an adjustment program, a performance criterion relating to official and officially guaranteed foreign borrowing will be included in upper credit tranche arrangements. The criterion will include foreign loans with maturities of over one year, with the upper limit being determined by conditions in world capital markets; in present conditions, the upper limit will include loans with maturities in the range of 10 to 12 years. The criterion will usually be formulated in terms of loans contracted or authorized. However, in appropriate cases, it may be formulated in terms of net disbursements or net changes in the stock of external official and officially guaranteed debt. Normally, the performance criterion will also include a sub-ceiling on foreign loans with maturities of over one year and up to five years. Flexibility will be exercised to ensure that the use of the performance criterion will not discourage capital flows of a concessional nature by excluding from the coverage of performance criteria loans defined as concessional under DAC criteria, where sufficient data are available.

Adoption of this guideline will be subject to the understanding that the staff will be guided also by the following points:

1. The above guideline will be applied with a reasonable degree of flexibility while safeguarding the principle of uniformity of treatment among members. The external debt guideline should be interpreted in the light of the general guidelines on conditionally (Decision No. 6056-(79/38)),8 especially guideline No. 4, which states:

  • In helping members to devise adjustment programs, the Fund will pay due regard to the domestic social and political objectives, the economic priorities, and the circumstances of members, including the causes of their balance of payments problems.

Also, guideline No. 9 includes the following:

  • The number and content of performance criteria may vary because of the diversity of problems and institutional arrangements of members. Performance criteria will be limited to those that are necessary to evaluate implementation of the program with a view to ensuring the achievement of its objectives.

Furthermore, guideline No. 8 states:

The Managing Director will ensure adequate coordination in the application of policies relating to the use of the Fund’s general resources with a view to maintaining the nondiscriminatory treatment of members.

2. While uniformity of treatment indicates a need for a common upper-maturity limit, this limit will be reviewed annually by the Executive Board at the time of its consideration of staff papers on conditions in international capital markets. In analyzing the amount and terms of new borrowing that would be appropriate—in the member’s circumstances—over the medium term, the staff will take into account prospective developments in the member’s external payments situation and the profile of its external indebtedness.

3. In formulating external debt criteria, the staff will be mindful of the need to ensure consistency between external debt management policies and domestic financial policies. Where external debt per se is not a matter for concern, but adjustment programs have as a main objective to reduce excess demand pressures and restore overall balance to the public sector finances, the credit ceiling for the public sector would cover both domestic and foreign financing of the overall public sector deficit.

4. Normally the performance criterion will relate to official and officially guaranteed foreign borrowing. The coverage will include official entities for which the government is financially responsible as well as private borrowing for which official guarantees have been extended and which, therefore, constitute a contingent liability of the government.

5. In cases where the member’s external debt management policy covers private sector borrowing without official guarantee and there is an established regulatory machinery to control such borrowing, it will be proposed that the performance criterion on foreign borrowing should be adapted accordingly.

6. Normally, loans of less than one-year maturity will be excluded from the borrowing limitations. In exceptional circumstances where nontrade-related loans of less than one year of maturity become a source of difficulty, such loans will be included in the limitations. The Managing Director will inform Executive Directors ‘ in an appropriate manner of the reasons for including such loans in the limitation.

7. The last sentence of the guideline provides for excluding from the coverage of performance criteria those loans defined as concessional under DAC criteria. Available information on loans by multilateral development institutions indicates that all of the recent loans of the IBRD and the Inter-American Development Bank have been outside the 10 to 12-year limit and that most of the loans by the Asian and African regional development banks have also been outside the upper limit. In discussing with member countries the total amounts of permissible borrowing of less than 10 to 12 years’ maturity, the staff would take into account possible lending of less than this maturity range by multilateral development institutions. In some cases, member countries utilize credits associated with concessional loans. The staff will take into account these developments in discussing the appropriate amount of borrowing.

G. General Arrangements to Borrow: Renewal and Modifications

A. Executive Board Decision No. 1289-(62/l),9 as amended, on the General Arrangements to Borrow, is hereby renewed for a period of five years from October 24, 1980 subject to the following modification:

Paragraph 11 (b) shall be made to read as follows:

Before the date prescribed in Paragraph 11(a), the Fund, after consultation with a participant, may make repayment to the participant in part or in full. The Fund shall have the option to make repayment under this Paragraph 11(b) in the participant’s currency, or in special drawing rights in an amount that does not increase the participant’s holdings of special drawing rights above the limit under Article XIX, Section 4, of the Articles of Agreement unless the participant agrees to accept special drawing rights above that limit in such repayment, or, with the agreement of the participant, in other currencies that are actually convertible.

B. Reference in Executive Board Decision No. 1289-(62/l), as amended, to “the period prescribed in Paragraph 19(a)” shall be understood to include the period of the renewal under this decision.

Decision No. 6241-(79/144)

August 24, 1979

H. Guidelines on Payment of Reserve Assets in Connection with Subscriptions

The Executive Board approves the draft “Guidelines for Determining the Amount of Reserve Assets to Be Paid in Connection with Subscriptions” set forth [below].

Decision No. 6266-(79/156)

September 10, 1979

Guidelines for Determining the Amount of Reserve Assets to Be Paid in Connection with Subscriptions

The following are proposed for adoption by the Executive Board as guidelines for Committees of the Executive Board when considering the amount of a subscription that should be paid in reserve assets:

1. These guidelines shall be taken into account by a Committee of the Executive Board established to consider an application for membership in the Fund or to consider a request for an increase in quota that is made outside the framework of a general review of quotas. In applying the guidelines, a Committee shall pay due regard to present and prospective economic and financial circumstances of the country concerned.

2. In view of the requirement of Article II, Section 2, that the terms for membership, including the terms for subscriptions, shall be based on principles consistent with those applied to other countries that are already members, new members will be expected to pay a part of their initial subscription in reserve assets. The payment of reserve assets in connection with the initial subscription of a new member is largely a matter of exchanging one form of reserves for another.

3. The amount of the subscription to be paid in reserve assets shall be determined in the light of all the payments of reserve assets made by existing members and the country’s external reserve position at the time of membership.

4. A reasonable approximation of the amount of the subscription that has been paid in reserve assets in the past is the average of all reserve assets actually paid in terms of the quotas of all members, rather than the proportions paid in the past by individual members. In making the calculation of the reserve assets to be paid, account will be taken of the repurchases made in the past by members, including those made in accordance with Schedule B of the amended Articles, and of sales of the currencies of members made to reduce to that level the amounts of the member’s currency paid in excess of 75 per cent of quota by a member that had joined the Fund before the date of the Second Amendment.

Taking into account the asset payments made by all members in connection with the Sixth General Review of Quotas and adding them to the sum of asset payments taken as the equivalent of 25 per cent of total quotas as of the date of the Second Amendment, the reserve asset payments made by all members average 20 per cent of present quotas. In the event that all eligible members consent to the full increases in their quotas approved under the Seventh General Review of Quotas and taking into account that 25 per cent of any increase in quotas is to be paid in SDRs (or acceptable currency for nonparticipants), the reserve asset payment made by eligible members will average 21.7 per cent of total quotas.

Consequently, for the period prior to the coming into effect of the quotas approved under the Seventh General Review of Quotas, the reserve asset payment for a country applying for membership can normally be expected to be of the order of 20 per cent of its initial quota; after the Seventh General Review is completed, the reserve asset payment for a country applying for membership would rise to the order of 21.7 per cent of its initial quota.

5. Normally, countries joining the Fund would be expected to make a payment of reserve assets in the amount, in terms of quota, calculated along the lines outlined in paragraph 3 above. However, consideration may be given, at the request of a prospective new member, for a payment of reserve assets smaller than the average size of such payments in terms of all quotas. In exceptional circumstances, and in light of the actual and prospective balance of payments and gross reserve position of the prospective member (including its ability to acquire or mobilize external financial assets and also any allocations of SDRs that might be in prospect) at the time its application is being considered, the size of the reserve asset payment may be reduced, provided that it is not less than the equivalent of 10 per cent of the member’s gross reserves or 10 per cent of initial quota, whichever was the higher.

6. In determining the amount of the reserve asset payment, account should also be taken of the effect the size of such payment would have on the remuneration that might be payable to the new member. This factor would ameliorate a higher reserve asset payment in terms of quota because the acquisition of a remunerated reserve tranche position would tend to ease the loss of interest income involved in the payment of a reserve asset. However, there may be circumstances where the new member has a reserve level somewhat below the average level of all members or when other features of its external financial position would seem to call for some mitigation of the payment. In such circumstances, the norm for remuneration could be applied for the new member rather than the average of reserve asset payments made in the past noted in paragraph 3 above. As the norm for remuneration is likely to rise over time, the applicability of this approach would need to be kept under review and would be subject to the minimum payment in paragraph 5 above.

7. As regards the amount of reserve asset payments to be made in connection with ad hoc increases in quotas which occur outside a general review of quotas, and to the extent that such increases are effectively a “catching up” of the quota increases already granted to other members in past general reviews, the amount of the reserve assets to be paid shall be based on the amount of reserve assets required as a result of such past general reviews. For other ad hoc increases, if any, the amount of the reserve asset payment shall be equivalent to 25 per cent of the increase in quota.

8. As regards the media of payment, payments of reserve assets shall be made in SDRs to the maximum extent practicable or in a currency that is acceptable to the Fund and which is included in the operational budget as a currency that could be sold on a net basis for the foreseeable future.

I. Special Drawing Rights: Additional Uses

(a) Use in Swap Operations

In accordance with Article XIX, Section 2(c) the Fund prescribes that:

1. A participant, by agreement with another participant, may engage in an operation by which (a) one of the parties transfers to the other party SDRs in exchange for an equivalent amount of currency or another monetary asset, other than gold, in respect of which arrangements have been completed for determination by the Fund of equal value in terms of the SDR on the basis of Article XIX, Section 1(a) and Rule 0-2, and (b) the parties undertake to reverse the exchange within a period and at an exchange rate agreed by them.

2. Calculations for the purpose of 1(a) above shall be made at the exchange rate of the third business day preceding the date of the transfer or of the second business day preceding the date of the transfer if agreed by the parties.

3. The parties may agree on the terms of the operation, and may modify those terms, provided that the terms and any modification of them would be consistent with this prescription.

4. The parties may agree on the payment of compensation in the event that, for any reason, the reversal of the transfer in accordance with 1(b) above is not carried out.

5. Participants intending to use or receive SDRs pursuant to this prescription shall inform the Fund of

  • (a) the amount of SDRs and the period of the operation;

  • (b) the monetary asset, the exchange rate and the value date for the exchange under 1(a) above;

  • (c) the monetary asset, the exchange rate and the value date for the reversal of the exchange;

  • (d) any agreement for the payment of interest, or compensation in accordance with 4 above; and

  • (e) any modification of these terms.

6. As required by Rule P-7 the parties to an operation pursuant to this prescription shall declare that the intended use of SDRs will be in accordance with this prescription.

7. Transfers of SDRs pursuant to this prescription shall be made only upon the receipt by the Fund of instructions from the transferor and the transferee.

8. If the Fund decides to change any of the terms and conditions of this prescription, any outstanding operation that is inconsistent with the new terms and conditions shall be completed within 12 months from the date of the Fund’s decision.

9. The Fund shall record operations pursuant to this prescription in accordance with Rule P-9.

Decision No. 6336-(79/178) S

November 28, 1979

(b) Use in Forward Operations

In accordance with Article XIX, Section 2(c) the Fund prescribes that:

1. A participant, in agreement with another participant, may engage in an operation by which the participant undertakes to transfer to the other participant SDRs at a specified future date more than three business days after the date of the agreement, in exchange for an agreed amount of currency or another monetary asset, other than gold.

2. The parties may agree on the terms of the operation, and may modify those terms, provided that the terms and any modification of them would be consistent with this prescription.

3. Participants intending to use or receive SDRs pursuant to this prescription shall inform the Fund of

  • (a) the amount of SDRs and the period of the operation;

  • (b) the monetary asset, the exchange rate and the value date for the exchange; and

  • (c) any modification of these terms.

4. As required by Rule P-7 the parties to an operation pursuant to this prescription shall declare that the intended use of SDRs will be in accordance with this prescription.

5. Transfers of SDRs pursuant to this prescription shall be made only upon the receipt by the Fund of instructions from the transferor and the transferee.

6. If the Fund decides to change any of the terms and conditions of this prescription, any outstanding operation that is inconsistent with the new terms and conditions shall be completed within 12 months from the date of the Fund’s decision.

7. The Fund shall record operations pursuant to this prescription in accordance with Rule P-9.

Decision No. 6337-(79/178) S

November 28, 1979

(c) Use in Donations

In accordance with Article XIX, Section 2(c) the Fund prescribes that:

1. A participant, by agreement with another participant, may donate SDRs to the other participant.

2. Participants intending to donate or receive SDRs pursuant to this prescription shall inform the Fund of the amount of SDRs and the value date for the transfer.

3. As required by Rule P-7 the parties to an operation pursuant to this prescription shall declare that the intended use of SDRs will be in accordance with this prescription.

4. Transfers of SDRs pursuant to this prescription shall be made only upon the receipt by the Fund of instructions from the transferor and the transferee.

5. The Fund shall record operations pursuant to this prescription in accordance with Rule P-9.

Decision No. 6437-(80/37) S

March 5, 1980

J. Special Drawing Rights: Allocations to New Participants

Pursuant to Article XVIII, Section 2(d) members that have, or will, become participants in the Special Drawing Rights Department by December 31, 1979 and have informed the Fund that they are willing to receive allocations of special drawing rights during the third basic period shall receive allocations in accordance with Board of Governors Resolution No. 34-3,10 adopted December 11, 1978.

Decision No. 6368-(79/191) S

December 26, 1979

K. Special Drawing Rights: Other Holders

The terms and conditions on which other holders prescribed by the Fund may accept, hold or use SDRs are as follows:

1. Acceptance, Holding, and Use by Prescribed Holders

(a) Acceptance and use

  • A prescribed holder may accept or use special drawing rights (i) in exchange for an equivalent amount of a monetary asset other than gold in a transaction entered into by agreement with a participant, or another prescribed holder, or (ii) in an operation entered into by agreement with a participant or another prescribed holder in accordance with and on the same terms and conditions established at that time for participants by decisions of the Fund under Article XIX, Section 2(c).

(b) Holding

  • A prescribed holder may hold special drawing rights, subject to the provisions of this decision, accepted in accordance with (a) above or received as interest paid on its holdings of special drawing rights in accordance with Article XX, Section 1.

2. Acceptance and Use by Participants in Transactions and Operations with Prescribed Holders

Participants may enter into transactions and operations by agreement with a prescribed holder in accordance with the prescriptions in paragraph 1(a) of this decision.

3. Application of General Provisions

The holding of special drawing rights and the acceptance and use of them in transactions and operations by a prescribed holder shall be governed by the provisions of the Articles, By-Laws, Rules and Regulations, and decisions of the Fund that apply from time to time to all holders of special drawing rights.

4. Exchange Rates

The Rules and Regulations and decisions of the Fund that determine the exchange rates applicable at the time of each use or acceptance of special drawing rights by a participant shall apply to each use or acceptance of them by a prescribed holder. A prescribed holder shall not levy any charge or commission in respect of a transaction involving special drawing rights.

5. Information and Recording

The Fund shall inform prescribed holders of matters relevant to the acceptance, holding, and use of special drawing rights by them. A prescribed holder shall inform the Fund promptly of the facts necessary to record any transactions or operations in which a prescribed holder accepts or uses special drawing rights.

6. Consultation and Review

  • (a) Consultation between the Fund and a prescribed holder shall be held at the request of the Fund or the prescribed holder with respect to the application of this decision or the decision prescribing the holder or with respect to transactions or operations entered into involving special drawing rights.

  • (b) The Executive Board shall review periodically this decision and decisions prescribing holders.

7. General Undertaking

Each prescribed holder shall collaborate with the Fund, participants, and other prescribed holders with respect to its acceptance, holding, and use of special drawing rights in order to facilitate the effective functioning of the Special Drawing Rights Department and the proper use of special drawing rights in accordance with the Articles and the terms and conditions prescribed by the Fund now or in the future for the acceptance, holding, and use of special drawing rights by prescribed holders.

8. Suspension

During any period in which a suspension is in effect under Article XXIII, Section 1 with respect to participants, the suspension shall apply to the same extent to prescribed holders.

9. Termination

  • (a) The prescription of a holder of special drawing rights may be terminated by the Fund by a decision of the Executive Board or by a notice from the prescribed holder in writing to the Fund at its principal office. Termination shall become effective on the date specified in the decision of the Executive Board but not earlier than the date of the decision, or when notice from the prescribed holder is received by the Fund at its principal office.

  • (b) A prescribed holder whose status as such has been terminated may continue to hold the special drawing rights it held on termination and to receive special drawing rights as interest on its holdings and may continue to use special drawing rights to dispose of them in transactions or operations in accordance with paragraph 1(a) above. A prescribed holder whose status has been terminated shall make arrangements, with the concurrence of the Fund, to dispose of its holdings of special drawing rights as expeditiously as possible, and shall exchange special drawing rights for a freely usable currency selected by the prescribed holder when requested by the Fund.

Decision No. 6467-(80/71) S

April 14, 1980

L. Extended Fund Facility: Extension of Maximum Repurchase Period

1. Paragraph 5 of Decision No. 4377-(74/114), 11 adopted September 13, 1974, is amended to read:

A member that has obtained an extended arrangement under this decision will make repurchases corresponding to purchases under the extended arrangement to the extent that such purchases are still outstanding, as soon as its balance of payments problems have been overcome and, in any event, within an outside range of four to ten years after each purchase. Not later than four years after the first purchase under the extended arrangement the member will propose to the Fund a schedule of repurchases for all purchases outstanding under the extended arrangement. Normally, schedules under this paragraph will provide for repurchases in respect of each purchase in 12 equal six-monthly installments.

2. Paragraph 5 as amended above shall apply also to repurchases to be made in respect of purchases under extended arrangements approved prior to the date of this decision.

Decision No. 6339-(79/179)

December 3, 1979

M. Procedures for the Sale of Currencies at the Request of Members with Outstanding Purchases

Pursuant to paragraph 2 of Executive Board Decision No. 6274-(79/158),12 the Executive Board approves the procedures set out [below].

Decision No.6352-(79/183)

December 12, 1979

Procedures

1. Executive Board Decision No. 6274-(79/158) on the selection of currencies by the Fund contains the following paragraph:

2. Under procedures to be adopted, the currency of a member with outstanding purchases subject to repurchase, whose balance of payments and gross reserve position is judged sufficiently strong for the purposes of operational budgets and designation plans, normally will be sold by the Fund under Article V, Section 3(d) only if the member and the Fund agree.

This present memorandum discusses the circumstances in which the Fund could be expected to agree to the sales of currencies pursuant to this decision and proposes the adoption of certain procedures in connection with such sales.

  • 2. It is envisaged that repurchases in accordance with the Fund’s policy on early repurchases under Article V, Section 7(b) would be the principal means by which reductions are made in the Fund’s holdings of the currency of a member with outstanding purchases whose balance of payments and gross reserve position is judged sufficiently strong. Thus, the Fund would not normally take the initiative to sell the currency of such a member; a proposal for sales of the currency would be expected to come from the member. Of course, a member has the right to make a repurchase at any time, and—in the staff’s view—a repurchase would normally be the most expeditious and convenient way for a member to reduce its indebtedness to the Fund. This is because the timing and the amount of any repurchase undertaken at the initiative of the member concerned can be chosen by the member making the repurchase. By contrast, the timing and the amounts of sales of a currency are not certain; they depend on the decisions of other members and the Fund itself. For this reason, it can be generally expected that few members will prefer sales of their currency to’; repurchases as a means of reducing their outstanding purchases

  • 3 There are four main aspects of the sale of the currencies of members with out-standing purchases:

  • a. Effects on “harmonization.” If the Fund sells the currency of a member with fi outstanding purchases as an alternative to the member making a repurchase, the Fund’s ability to “harmonize” the Fund positions of creditor members is diminished in two ways.13 First, it will sell less of the currencies of those creditor members whose positions the Fund is aiming to increase. Second, because the volume of repurchases will be less, the Fund will receive in repurchases less of the currencies of those members whose positions it is aiming to reduce. Thus, the larger the “amounts of sales of currencies of members with outstanding purchases, the more the harmonization of members’ positions is likely to be slowed down. Particularly if such sales constituted a large proportion of the operational budget, they would run counter to the aim of harmonization, which was incorporated in the recent decision on the selection of currencies by the Fund.

  • b. Use of SDRs in purchases. The Fund is likely to be selling SDRs under the operational budgets, and in some future budgets it may sell SDRs exclusively, especially after the substantial rise in the Fund’s SDR holdings that will occur following the payments for quota increases under the Seventh Review. Sales of the currencies of members with outstanding purchases may make it more difficult to maintain the SDR holdings in the General Resources Account within a particular range.14 This suggests that any sales of the currencies of members with outstanding purchases should take into account the aim that is being pursued at the time as regards the Fund’s holdings of SDRs.

  • c. Repayment of borrowing. In connection with the oil facility and the supplementary financing facility, the Fund has adopted decisions under which it is required to make “best efforts” to achieve a so-called “pass through” of repurchases by members and repayments of borrowing under these facilities. The aim is—and it has been achieved in the overwhelming majority of repurchases under the oil facility—for the repurchase and the repayment to be made on the same day and in the same medium. The purpose of this procedure was to leave undisturbed the reserve tranche positions in the Fund of the members whose currencies were used or the Fund’s SDR holdings if SDRs were used.15

If a debtor member’s currency is sold as an alternative to the member making a repurchase, and if the member decides to attribute the sale to a purchase under the oil facility or the supplementary financing facility, as it is entitled to do, the Fund is required under the decisions mentioned above to repay the lenders that made resources available to finance the purchase.16 In these circumstances, as there would be no actual repurchase, the principle of the “pass through” could not be maintained.

In addition to the question of principle, there may also be a problem as regards the convenience of the lenders under the oil facility. It may be less convenient for the lenders to receive repayments in a series of smaller amounts on dates that cannot readily be predicted rather than in a single repayment on a date that could be set in advance.

Thus, both as a question of principle and on grounds of operational convenience, these considerations suggest that the Fund should not normally sell the currency of a member with outstanding purchases if such sales would involve the repayment of borrowing.

  • d. Settlement of obligations. There seems to be very little advantage to the Fund in selling the currency of a member if the sale will be attributed to the settlement of a repurchase obligation falling due during the quarterly period covered by the operational budget. While such sales of currency would advance the repurchase, it would not be advanced by a particularly significant period as the obligation would have to be met anyway in the course of the quarter. In the staff’s view, it would probably be preferable if such obligations were met by repurchases, but this is an aspect of the sales of the currencies of members with outstanding purchases on which the Fund can be flexible.17

4. The procedural guidelines proposed for the sale by the Fund of the currencies of members with outstanding purchases are set out in paragraph 5, below. Two points should be stressed as regards their applicability. First, Executive Board Decision No. 6274-(79/158) on the selection of currencies by the Fund makes it clear that the Fund will normally sell the currency of a member under Article V, Section 3(d) only if its balance of payments and reserve position is judged sufficiently strong. Second, as a consequence of this, the members concerned are likely to be those to which the guidelines for early repurchases apply.18 However, if there is is an expectation of an early repurchase, and the proposed procedures do not result in sales of the currency of the member concerned, or result in sales of less than the amount of repurchase expected under the guidelines, the member will be expected to make a repurchase, either for the full amount or for any balance....

5. In order to take account of the considerations discussed in paragraph 3, the following procedural guidelines are suggested. They place stress on consultations between the Managing Director and the member concerned prior to the submission by the Managing Director to the Executive Board of a proposal agreed with the member on a maximum amount of sales of its currency and on the way in which these sales would be integrated in the operational budget. The guidelines are intended to provide a reasonable degree of flexibility for the Managing Director to make proposals that would be acceptable both to the member that wished its currency to be sold and to the Executive Board.

  • a. As far as practicable, a member with outstanding purchases that wishes its currency to be sold by the Fund would be expected to consult with the Managing Director before the end of the second month of the quarterly period prior to the beginning of the period in which the currency would be sold. This will enable a proposal for the sale of the currency to be incorporated in the next operational budget. However, the Managing Director might also propose an amendment to an existing budget. The qualification “as far as practicable” is included in order to provide some flexibility; one reason for this is that a member may not know that its balance of payments and reserve position is judged “sufficiently strong” for the purposes of the next designation plan and operational budget until the relevant documents are circulated to the Executive Board.

  • b. Following the consultation, and with the agreement of the member concerned, the Managing Director will make a proposal to the Executive Board in accordance with paragraph (c) below that the currency be included in the operational budget. The Managing Director’s proposal will cover the way in which the sales of the currency will be integrated with the sales of other currencies and SDRs in the execution of the operational budget. While in each case the decision on sales of a currency would rest with the Executive Board, there would be a reasonable presumption that a proposal made in accordance with these guidelines would be accepted.

  • c. Proposals by the Managing Director for sales of a currency of a member with purchases outstanding would be guided by the following considerations:

  • (i) Proposals would not normally be made for sales of currencies if such sales would give rise to repayments of borrowing by the Fund, or if they would be attributed by the member to repurchase obligations falling due within the quarterly period of the budget.

  • (ii) The amounts of currency involved should not be such as to detract significantly from the promotion of balanced positions in the Fund or the aim of maintaining the SDR holdings of the General Resources Account within a particular range.

N. Format of Stand-By and Extended Arrangements

Stand-by arrangements and extended arrangements shall normally follow the forms in Annexes B and C [below].

Decision No. 6506-(80/82)

May 20, 1980

Annex B

Typical Stand-By Arrangement

Attached hereto is a letter [, with annexed memorandum,] dated______________ from (Minister of Finance and/or Governor of Central Bank) requesting a stand-by arrangement and setting forth the objectives and policies which the (government) (authorities) of (member) intend to pursue. To support these objectives and policies the International Monetary Fund grants this stand-by arrangement in accordance with the following provisions:

1. For a period [of one year] [from_______to________] (member) will have the right, after making full use of any reserve tranche that it may have at the time of making a request for a purchase under this arrangement, to make purchases from the Fund in an amount equivalent to SDR_, subject to paragraphs 2, 3, and 4 below, without further review by the Fund.

2. Purchases under this arrangement shall not, without the consent of the Fund, exceed the equivalent of SDR_______until_______and the equivalent of SDR_______until_________, but none of these limits shall apply to a purchase under the stand-by arrangement that would not increase the Fund’s holdings of (member’s) currency beyond the first credit tranche.19,20

3. (Member) will not make purchases under this arrangement that would increase the Fund’s holdings of its currency beyond the first credit tranche:19

(a) during any period in which [the data at the end of the preceding period in-cates that]21

  • (i) [the limits on domestic credit described in paragraph _______of the attached letter], or

  • (ii) [the limits on credit to the public sector described in paragraph_______ of the attached letter], or

  • (iii)… [These provisions would incorporate other quantitative performance criteria of the program] are not observed; or

(b) if (member)

  • (i) imposes or intensifies restrictions on payments and transfers for current international transactions, or

  • (ii) introduces or modifies multiple currency practices, or

  • (iii) concludes bilateral payments agreements which are inconsistent with Article VIII, or

  • (iv) imposes or intensifies import restrictions for balance of payments reasons, or

  • [(v) fails to observe the limits on authorizations of new public and publicly guaranteed foreign indebtedness described in paragraph ____________of the attached letter].

When (member) is prevented from purchasing under this arrangement because of this paragraph 3, purchases will be resumed only after consultation has taken place between the Fund and (member) and understandings have been reached regarding the circumstances in which such purchases can be resumed.

4. (Member’s) right to engage in the transactions covered by this arrangement can be suspended only with respect to requests received by the Fund after (a) a formal ineligibility, or (b) a decision of the Executive Board to suspend transactions, either generally or in order to consider a proposal, made by an Executive Director or the Managing Director, formally to suppress or to limit the eligibility of (member). When notice of a decision of formal ineligibility or of a decision to consider a proposal is given pursuant to this paragraph 4, purchases under this arrangement will be resumed only after consultation has taken place between the Fund and (member) and understandings have been reached regarding the circumstances in which such purchases can be resumed.

5. Purchases under this arrangement shall be made in the currencies of other members selected in accordance with the policies and procedures of the Fund, and may be made in SDRs if, on the request of (member), the Fund agrees to provide them at the time of the purchase.

6. (Member) shall pay a charge for this arrangement in accordance with the decisions of the Fund.

7. (a) (Member) shall repurchase the outstanding amount of its currency that results from a purchase under this arrangement, and is subject to charges under Article V, Section 8(b), in accordance with the provisions of the Articles of Agreement and decisions of the Fund, including those relating to repurchase as (member’s) balance of payments and reserve position improves.

(b) Any reductions in (member’s) currency held by the Fund shall reduce the amounts subject to repurchase under (a) above in accordance with the principles applied by the Fund for this purpose at the time of the reduction.

8. During the period of the arrangement (member) shall remain in close consultation with the Fund. These consultations may include correspondence and visits of officials of the Fund to (member) or of representatives of (member) to the Fund. (Member) shall provide the Fund, through reports at intervals or dates requested by the Fund, with such information as the Fund requests in connection with the prpgress of (member) in achieving the objectives and policies set forth in the attached letter [and annexed memorandum].

9. In accordance with paragraph—of the attached letter (member) will consult the Fund on the adoption of any measures that may be appropriate at the initiative of the government or whenever the Managing Director requests consultation

Version A

[because any of the criteria in paragraph 3 above have not been observed or because he considers that consultation on the program is desirable. In addition, after the period of the arrangement and while (member) has outstanding purchases in the upper credit tranches, the government will consult with the Fund from time to time, at the initiative of the government or at the request of the Managing Director, concerning (member’s) balance of payments policies.]

Version B

[because he considers that consultation on the program is desirable.]

Annex C

Typical Extended Arrangement

Attached hereto is a letter [, with annexed memorandum,] dated__________________ from (Minister of Finance and/or Governor of Central Bank) requesting an extended arrangement and setting forth:

  • (a) the objectives and policies that the authorities of (member) intend to pursue for the period of the extended arrangement;

  • (b) the policies and measures that the authorities of (member) intend to pursue for the first year of the extended arrangement; and

  • (c) understandings of (member) with the Fund regarding reviews that will be made of progress in realizing the objectives of the program and of the policies and measures that the authorities of (member) will pursue for the second and third years of the extended arrangement.

To support these objectives and policies the International Monetary Fund grants this extended arrangement in accordance with the following provisions:

1. For a period of [three years] from___________________(member) will have the right, after making full use of any reserve tranche that it may have at the time of making a request for a purchase under this arrangement, to make purchases from the Fund in an amount equivalent to SDR___________, subject to paragraphs 2, 3, and 4 below, without further review by the Fund.

2. (a) Until (end of first year) purchases under this arrangement shall not, without the consent of the Fund, exceed the equivalent of SDR__________, provided that purchases shall not exceed the equivalent of SDR____________until_______________, and the equivalent of SDR_________until________.

  • (b) Until (end of second year) purchases under this arrangement shall not, without the consent of the Fund, exceed the equivalent of SDR____________

  • (c) The right of (member) to make purchases during the second and third years shall be subject to such phasing as shall be determined.22

3. (Member) will not make purchases under this arrangement:

  • (a) throughout the first year, during any period in which [the data at the end of the preceding period indicates that]

    • (i) the limits on, or

    • (ii) or

    • (iii) are not observed; or

  • (b) throughout the second and third years, if before the beginning of the second year and the beginning of the third year of the arrangement suitable performance clauses have not been established in consultation with the Fund as contemplated in paragraph____________of the attached letter or such clauses, having been established, are not being observed; or

  • (c) throughout the duration of the arrangement, if (member)

    • (i) imposes or intensifies restrictions on payments and transfers for current international transactions, or

    • (ii) introduces or modifies multiple currency practices, or

    • (iii) concludes bilateral payments agreements which are inconsistent with Article VIII, or

    • (iv) imposes or intensifies import restrictions for balance of payments reasons.

When (member) is prevented from purchasing under this arrangement because of this paragraph 3, purchases will be resumed only after consultation has taken place between the Fund and (member) and understandings have been reached regarding the circumstances in which such purchases can be resumed.

4. (Member’s) right to engage in the transactions covered by this arrangement can be suspended only with respect to requests received by the Fund after (a) a formal ineligibility, or (b) a decision of the Executive Board to suspend transactions, either generally or in order to consider a proposal, made by an Executive Director or the Managing Director, formally to suppress or to limit the eligibility of (member). When notice of a decision of formal ineligibility or of a decision to consider a proposal is given pursuant to this paragraph 4, purchases under this arrangement will be resumed only after consultation has taken place between the Fund and (member) and understandings have been reached regarding the circumstances in which such purchases can be resumed.

5. Purchases under this arrangement shall be made in the currencies of other members selected in accordance with the policies and procedures of the Fund, and may be made in SDRs if, on the request of (member), the Fund agrees to provide them at the time of the purchase.

6. (Member) shall pay a charge for this arrangement in accordance with the decisions of the Fund.

7. (a) (Member) shall repurchase the amount of its currency that results from a purchase under this arrangement, and is subject to charges under Article V, Section 8(b), in accordance with the provisions of the Articles of Agreement and decisions of the Fund including those relating to repurchase as (member’s) balance of payments and reserve position improves.

(b) Any reductions in (member’s) currency held by the Fund shall reduce the amounts subject to repurchase under (a) above in accordance with the principles applied by the Fund for this purpose at the time of the reduction.

8. During the period of the arrangement (member) shall remain in close consultation with the Fund. These consultations may include correspondence and visits of officials of the Fund to (member) or of representatives of (member) to the Fund. (Member) shall provide the Fund, through reports at intervals or dates requested by the Fund, with such information as the Fund requests in connection with the progress of (member) in achieving the objectives and policies set forth in the attached letter [and annexed memorandum].

9. In accordance with paragraph__________of the attached letter (member) will consult the Fund on the adoption of any measures that may be appropriate at the initiative of the government or whenever the Managing Director requests consultation because any of the criteria under paragraph 3 above have not been observed or because he considers that consultation on the program is desirable. In addition, after the period of the arrangement and while (member) has outstanding purchases in the upper credit tranches, the government will consult with the Fund from time to time, at the initiative of the government or at the request of the Managing Director, concerning (member’s) balance of payments policies.

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