Chapter

Appendix II: Principal Policy Decisions of the Executive Board

Author(s):
International Monetary Fund
Published Date:
September 1984
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A. Surveillance over Members’ Exchange Rate Policies

(a) Review of Surveillance over Exchange Rate Policies

The Executive Board has reviewed the document “Surveillance over Exchange Rate Policies” as provided in paragraph 2 of Executive Board Decision No. 5392-(77/63),1 adopted April 29, 1977, and will review it again at an appropriate time not later than April 1, 1986.

Decision No. 7645-(84/40)

March 12, 1984

(b) Review of Implementation of Procedures for Surveillance

The Executive Board has also reviewed the procedures relating to the general implementation of the Fund’s surveillance over members’ exchange rate policies, as required by paragraph VI of Procedures for Surveillance in the document “Surveillance over Exchange Rate Policies” referred to in (a) above, including the procedures for the conduct of consultations under Article IV, which consultations shall comprehend the consultations under Article VIII and Article XIV, and approves the continuation of the procedures as described in SM/84/44, in the light of the Managing Director’s summing up, until the next annual review, which shall be conducted not later than April 1, 1985.

Decision No. 7646-(84/40)

March 12, 1984

Attachment to Decision No. 7646-(84/40) Managing Director’s Summing Up

In our review, Directors once again indicated the great importance they attach to the Fund’s role in the field of surveillance. They also stressed that effective surveillance requires the full cooperation of members and that it must be conducted in an effective and evenhanded way.

The discussion encompassed two reviews: the biennial review of the basic document setting out the principles of surveillance and the annual review of the implementation of surveillance. I shall refer first to Directors’ remarks on the key issues encountered in the conduct of surveillance that can be related to the principles and procedures set out in the documents. Second, I shall refer to the remarks relating to the various methods through which surveillance is carried out: the multilateral aspects, Article IV consultations, and exchange rate monitoring.

I. Key Issues in the Conduct of Surveillance

In focusing on the substance of surveillance, a number of Directors stressed that the Fund should be more energetic in its efforts to make surveillance effective, evenhanded, and symmetrical. The following conclusions emerged from the discussions.

First, while many Directors recognized that the assessment of exchange rate policies was a very complex task, they stressed that it was incumbent on the Fund to form a view on the appropriateness of members’ exchange rate policies, irrespective of the exchange arrangements chosen by individual members and of the member’s need for Fund financial support. This principle is the core of Article IV. In practice, it is often difficult to determine with quantitative precision the magnitude of an exchange rate’s “out-of-lineness.” But if the Fund is convinced that a rate is out-of-line, it must express that view in the first instance to the authorities of the countries directly involved. A few Directors held the view that the staff sometimes seemed insufficiently flexible, and somewhat dogmatic in its views with regard to exchange rates, with a tendency to overestimate the effectiveness of exchange rate depreciation, particularly in developing countries and centrally planned economies.

Second, the staffs determination of the adequacy of the exchange rate policy in an individual country is not merely an econometric exercise; it is something that touches on the functioning of the international monetary system. Thus it is important that when the Fund staff is convinced of a maladjustment in exchange rates, it should seek agreement of the membership on that judgment and on the necessary policy changes. It can happen that national authorities have domestic goals and constraints that may result in an inappropriate exchange rate in the judgment of the Fund. In such instances, through Article IV consultations and other reviews, the matter is brought to the attention of the Executive Board; after discussion and Board agreement with the staff position, the country is informed. Beyond that, the effectiveness of the Fund’s surveillance procedures requires that the members of this institution give active and broad support to the positions taken by the Fund.

Third, Directors supported the view that many of the international economic difficulties of recent years have been associated with the pronounced swings in exchange rates between major industrial countries and with the repercussions of the low levels of economic activity and high interest rates prevailing in these countries on the rest of the world. Many Directors noted that to some extent these developments resulted from domestic policy stances in major industrial countries that, in their view, did not sufficiently promote the convergence of favorable economic conditions and that failed to take account of the implications for other countries and for the international monetary system as a whole. Most Directors felt that this failure to integrate international interests, rather than any deliberate attempt to manipulate exchange rates or the international monetary system, was the real problem. Therefore, the Fund had to form a view on the domestic policies needed to foster a smooth working of the system and had to attempt to persuade its members to follow such policies. On the basis of these considerations, Directors agreed that the experience in the implementation of surveillance does not call for a revision of the principles and procedures set out in the documents, but calls for more active implementation.

II. Methods of Surveillance

Multilateral aspects

Directors considered that the world economic outlook provided a valuable framework for analyzing global surveillance issues, and indeed considered it indispensable for evaluating the global effects of the economic policies of major countries. They welcomed the increasing emphasis on a medium-term approach and in particular on the development of medium-term balance of payments scenarios. They also called for increased analysis of the interaction of individual members’ domestic policies, including the regional consequences of individual members’ policies.

Directors considered it important that the Fund continue to place public emphasis on surveillance through different channels, such as publications and statements by the Managing Director. They also considered the more active role of the Fund in looking for solutions to the problems of external debt and protectionism in multilateral contexts to be essential. With regard to trade matters in particular, a number of Directors emphasized that the Fund’s work could usefully enhance the GATT’s activities while fully respecting the responsibilities of that institution.

Article IV consultations

In view of the Fund’s obligation to form a view on the exchange rate policies of members, Directors generally endorsed the practice in staff reports of providing clear appraisals of exchange rate policies. Several Directors felt that the Fund staff was still less explicit in its exchange rate policy pronouncements for large industrial countries than it was in the case of smaller countries. The view was also put forward that an appraisal of the exchange rate policy of a member in an Article IV consultation should be made, whenever appropriate, in a multilateral framework.

Directors welcomed the recent emphasis on medium-term scenarios in the analysis of external debt and encouraged the staff to make further progress in presentation and analysis, with possibly alternative scenarios on debt, and to make more explicit the assumptions that underlie these projections and the sensitivity of the scenarios to changes in assumptions. Directors also called for increased emphasis on the medium term when assessing underlying payments balances as part of the appraisal of members’ policies even when external debt or the financing of external imbalances was not a major concern.

The need for continued development of staff analyses in consultation reports of issues related to protectionism and export subsidies was stressed by many Directors. These analyses should cover the practice not only of individual members but also, if necessary, of groups of countries and customs unions. It was felt that to the extent possible the economic costs of protectionist measures taken by individual countries or groups of countries since the last Article IV consultation should be quantified and that the impact of protectionism on domestic adjustment should be examined in relevant cases.

In the course of the discussion, a number of suggestions were made for further improving the analytical coverage in consultation reports of structural aspects, capital flows, openness of capital markets, the size and structure of government revenue and expenditure, barriers to direct investment, the noncentral government public sector, structural adjustment problems, aid to ailing industries, and labor markets. A number of Directors also proposed that consultation reports should follow up the main points made in the summing up of the previous consultation. These reports should recall the main recommendations of the Board as contained in the summing up and indicate whether appropriate measures had been taken.

As in the recent discussion of “Coverage and Currentness of Data,” Directors emphasized the crucial role of accurate data in consultation reports.

The marked increase in consultation frequency was welcomed by all Directors, who noted particularly the improved coverage of countries with Fund-supported programs. Directors recognized the efforts made in the last 18 months to reduce the backlog of overdue consultations, and considered that at the present time the problem of overdue consultations had been largely solved. Leaving aside cases involving security problems, at present only one member country was significantly behind in the consultation cycle. Directors reiterated their view that consultations should not be delayed on account of discussions on the use of Fund resources. A number of Directors believed that the Board should consider the Article IV consultation before turning to a request for use of Fund resources in those cases where the consultation was overdue. This is a very important policy recommendation.

Directors emphasized the need to carry out consultations on a timely basis in the future. In this regard, the system of advance specification of consultation cycles provides a useful framework. To help ensure that consultations are completed on time, we shall report to the Board on problems that may arise on a semiannual basis.

Directors broadly endorsed current practices in specifying consultation cycles. The suggestion was made that the criteria for the one-year consultation cycle be expanded to include members that wish to be kept on that cycle. Directors recognized that with such a work load, special efforts would be necessary to maintain the quality of consultation work. Therefore, the staff would continue to combine requests for use of Fund resources and periodic reviews with consultation reports. Some Directors supported the practice of selectively shortening, or even omitting, the papers on recent economic developments, particularly for countries on which economic information was amply available; but a number of other Directors stressed the importance of those papers for members individually and collectively, and they were opposed to any reduction in the role or importance of these documents.

Directors encouraged the staff to bring consultations on closely related countries to the Board simultaneously, in order to avoid duplication of effort on common features and to better understand the interaction aspect.

Exchange rate monitoring

Directors considered that both the quarterly reports on indicators of real effective exchange rates and the notices on individual countries provided useful information, although, of course, the developments have to be carefully analyzed before reaching any policy-directed conclusions. Most Directors considered that the threshold for issuing information notices should continue to be 10 percent. Some questions were raised regarding the benchmark date.

Directors welcomed the staffs intention to continue making improvements in the information notice system, and attached importance to making the coverage of the system as comprehensive as possible. In view of the importance of price, exchange rate, and direction of trade data for policy formulation, it is incumbent on country authorities, in consultation with the staff, to obtain the necessary data and to provide it to the Fund.

In sum, the Board felt that surveillance is an essential tool for the stability of the international monetary system. It considers that, despite the progress realized in the Fund’s work in this field, the insufficient convergence of economic conditions throughout the world requires not necessarily changes in Fund procedures but, rather, strong political support from the membership.

There are still large differences of views on the way the exchange rate system is working and even larger differences of views on the way it should function. There are also differences of views on the way economic policies interact and, thus, affect the setting of prescriptions by the Fund. In a collective institution, these prescriptions can sometimes be difficult to express and even more difficult to implement.

We should continue to improve the quality and the persuasiveness of our analysis of policy interactions. It is only through the quality of these analyses that the Fund will enlist support for its recommendations. The Executive Directors can help the staff and management in this task by maintaining the high standards of their interventions relating to all surveillance matters.

B. Adoption of Term “SDR” as Standard Usage by Fund

The following new Rule shall be included in the Rules and Regulations of the Fund as Rule B-6:

B-6 SDR refers to the special drawing right of the Fund. The term “SDR” (or “SDRs,” as appropriate) shall be adopted as standard usage in Fund documents, correspondence, and publications where a reference to special drawing rights is intended, provided that if the text is in a language in which a different usage has become established, that usage may be retained.

Decision No. 7481-(83/112)

July 26, 1983

C. SDR Interest Rate and Related Matters: Amendment of Rules I-9, I-10, and T-1

Rules I-9, I-10, and T-1 of the Rules and Regulations of the Fund shall be amended to read as set forth below. The amended Rules shall apply with effect from August 1, 1983, provided that interest and charges on holdings of SDRs and remuneration accrued during the current financial quarter ending on July 31, 1983 shall be paid as of the commencement of the next financial year.

I—Charges in Respect of General Resources Account Transactions and Remuneration

  • I-9 (a) Remuneration shall accrue daily. The amount that has accrued during each quarter of the financial year of the Fund shall be paid as of the beginning of the following quarter.

    • (b) A member that wishes to receive in its own currency the whole or a specified portion of the remuneration payable to it shall so notify the Fund.

  • I-10 (a) The rate of remuneration shall be equal to 85 percent of the rate of interest on holdings of SDRs under Rule T-l(b), rounded to the two nearest decimal places.

    • (b) The Fund shall review the rate of remuneration on the occasion of the annual review of the rate of interest on holdings of SDRs under Rule T-1(d).

T—Interest, Charges, and Assessments in Respect of SDRs

  • T-1 (a) Interest and charges in respect og SDRs shall accure daily at the rate referred to in (b) below. The amount that has accrued during each quarter of the financial year of the Fund shall be paid promptly as of the beginning of the following quarter. The accounts of participants shall be credited with the excess of interest due over charges or debited with the excess of charges over the interest due. The accounts of holders that are not participants shall be credited with the interest due.

    • (b) The rate of interest on holdings of SDRs for each weekly period commencing each Monday shall be equal to the combined market interest rate as determined by the Fund at the beginning of the period in the manner described in (c) below.

    • (c) The combined market interest rate shall be the sum, rounded to the two nearest decimal places, of the products that result from multiplying each yield or rate listed below, expressed as an equivalent annual bond yield, for the preceding Friday by the value in terms of the SDR on that Friday of the amount of the corresponding currency specified in Rule 0-1, as determined pursuant to Rule 0-2(b). If a yield or rate is not available for a particular Friday, the calculation shall be made on the basis of the latest available yield or rate.

      U.S. dollarMarket yield for three-month U.S. Treasury bills
      Deutsche markThree-month interbank deposit rate in Germany
      French francThree-month interbank money rate against private paper in France
      Japanese yenDiscount rate on two-month (private) bills in Japan
      Pound sterlingMarket yield for three-month U.K. Treasury bills

    • (d) The Fund will review the rate of interest on holdings of SDRs at the conclusion of each financial year.

      Decision No. 7480-(83/112) G/S

      July 26, 1983, effective August 1, 1983

D. Rate of Remuneration: Amendment of Rule I-10

Rule I-10 shall read as follows:

  • (a) The rate of remuneration shall be equal to 85 percent of the rate of interest on holdings of SDRs under Rule T-l (hereafter referred to as the “SDR interest rate”). The relationship of the rate of remuneration to the SDR interest rate will be referred to as the “remuneration coefficient.”

  • (b) Beginning April 30,1984, the remuneration coefficient during each quarter shall be at the level determined under (1), (2), (3), and (4) below, but no higher than permitted by Article V, Section 9(a):

    • (1) During the period May 1, 1984 to April 30, 1987, the remuneration coefficient shall be the higher of (i) or (ii) below:

      • (i) The remuneration coefficient in effect on January 1, 1984 increased by 3.33 percentage points in each of the three financial years beginning May 1, 1984, May 1, 1985, and May 1, 1986;

      • (ii) The remuneration coefficient in effect on January 1, 1984, increased or decreased on the first day of each quarter by 1 percentage point for each ⅙ of 1 percentage point that the SDR interest rate on the day before the beginning of the quarter is below or above the SDR interest rate in effect on April 30, 1984, provided that the remuneration coefficient in any quarter in each of these three financial years shall not be more than 2.5 percentage points above the amount of the coefficient for that year as determined under (i) above.

    • (2) Following the adjustment in the remuneration coefficient on May 1, 1986, the rate of remuneration shall be reviewed before May 1, 1987. This review shall be conducted in the light of all the relevant considerations, including, in particular, the SDR interest rate and the rate of charge.

    • (3) Beginning May 1, 1987, the remuneration coefficient shall be the higher of (i) or (ii) below:

      • (i) The remuneration coefficient existing at the end of the preceding financial year;

      • (ii) A remuneration coefficient of 95 percent, increased or decreased on the first day of each quarter by 1 percentage point for each ⅙ of 1 percentage point that the SDR interest rate on the day before the beginning of a quarter is below or above the SDR interest rate on April 30, 1987, provided that the remuneration coefficient in any quarter of a financial year shall not be more than 2.5 percentage points above the level at the end of the preceding year.

    • (4) The rate of remuneration, while less than 100 percent of the SDR interest rate, shall be rounded to the nearest two decimal places.

  • (c) The operation of (b) above shall be reviewed on the occasion of the reviews of the rate of charge under Rule 1-6(4) and the SDR interest rate under Rule T-l(d).

  • (d) If the rate of charge on holdings specified in Rule I-6(4) should exceed the SDR interest rate, the Executive Board shall review the remuneration coefficient, and, in particular, will consider whether the remuneration coefficient should be set, within the range in Article V, Section 9(a), at such a level as would permit the rate of charge to be set under Rule I-6(4)(a) or (b) at the same level as the SDR interest rate referred to above and still meet the target amount of net income for the financial year.

Decision No. 7603-(84/3)

January 6, 1984

E. Level of Fund’s SDR Holdings

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

Decision No. 7626-(84/23) S

February 13, 1984

E. Policy on Enlarged Access to the Fund’s Resources: Extension of Period

1. The Fund may approve a stand-by or extended arrangement that provides for enlarged access under Decision No. 6783-(81/40) 2 on the policy on enlarged access until the end of 1984, provided that the Fund may extend this period.

2. The Fund will review Decision No. 6783-(81/40)2 not later than December 31, 1984, and annually thereafter as long as the Decision remains in effect, in order to consider the future of the policy on enlarged access in light of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity.

Decision No. 7599-(84/3)

January 6, 1984

G. Policy on Enlarged Access to the Fund’s Resources: Criteria for Amount of Access in Individual Cases

Chairman’s Summary of Executive Board Discussion

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

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

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

2. The access limits of 102 percent or 125 percent of quota set out in paragraph 5(c) of the communiqué of the Interim Committee 3 were not to be regarded as targets or entitlements.

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

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

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

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

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

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

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

December 2, 1983

Attachment to Chairman’s Summary Section II of Staff Paper

II. Considerations Governing Amount of Access

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

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

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

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

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

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

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

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

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

H. Policy on Enlarged Access to the Fund’s Resources: Guidelines on Access Limits

1. Access by members to the Fund’s general resources under Decision No. 6783-(81/40) 4 on the policy on enlarged access during the period ending on December 31, 1984 shall be subject to annual limits of 102 or 125 percent of quota, three-year limits of 306 or 375 percent of quota, and cumulative limits of 408 or 500 percent of quota net of scheduled repurchases, depending on the seriousness of the member’s balance of payments needs and the strength of its adjustment effort. The annual and triennial access limits shall not be regarded as targets. Within these limits, the amounts of access in individual cases will vary according to the circumstances of the member in accordance with criteria established by the Executive Board. The Fund may approve stand-by or extended arrangements that provide for amounts in excess of these access limits in exceptional circumstances.

2. The guidelines will be reviewed before the end of 1984 at the time of the annual review of the Decision on the policy on enlarged access.

Decision No. 7600-(84/3)

January 6, 1984

I. Policy on Enlarged Access to the Fund’s Resources: Use of Ordinary and Borrowed Resources

The Fund, having reviewed the proportions of ordinary and borrowed resources to be used under a stand-by or extended arrangement approved under Decision No. 6783-(81/40)5 on the policy on enlarged access, decides that:

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

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

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

2. In accordance with subparagraph 8(d) of Decision No. 6783-(81/40),5 the proportions in 1 above shall apply to amounts that may be purchased under existing arrangements after the effective date of this decision on the basis of the member’s quota at the time the arrangement for the member was approved.

Decision No. 7601-(84/3)

January 6, 1984

J. Value Date of Purchases Under Arrangements Involving Enlarged Access Resources

(a) Amendment of Rule G-4(b)

Effective July 3, 1984 Rule G-4(b) shall read as follows:

(b) The value date for a purchase that involves resources borrowed by the Fund under the policy on enlarged access, and that is in accordance with the stand-by or extended arrangement, will normally be either the fifteenth or the last day of the month, or the preceding business day if the day selected is not a business day. If the request for the purchase is not received in the Fund in time for its instructions to be issued for the first of these value dates following the date of receipt, the purchase will be executed at the next such value date.

Decision No. 7687-(84/70)

May 1, 1984, effective July 3, 1984

(b) Amendment of Forms of Stand-By and Extended Arrangements

Paragraph 7 of the form of stand-by and extended arrangements under enlarged access policy (attached to Decision No. 6838-(81/70),6 April 29, 1981) shall be amended to read as follows:

7. The value date for purchases under this [stand-by] [extended] arrangement involving borrowed resources will be determined in accordance with Rule G-4(b) of the Fund’s Rules and Regulations. (Member) will consult the Fund on the timing of purchases involving borrowed resources in accordance with Rule G-4(d).

Decision No. 7688-(84/70)

May 1, 1984

K. Overdue Payments to the Fund: Performance Criterion Under Stand-By and Extended Arrangements

1. Paragraph 4(d) of the form of the stand-by arrangement in Attachment A to Decision No. 6838-(81/70),7 April 29, 1981, shall be amended to read as follows:

  • (d) during the entire period of this stand-by arrangement, while (member) has any overdue financial obligation to the Fund, or 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.

2. Paragraph 4(d) of the form of the extended arrangement in Attachment B to Decision No. 6838-(81/70),7 April 29, 1981, shall be amended to read as follows:

  • (d) throughout the duration of the extended arrangement, while (member) has any overdue financial obligation to the Fund, or 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.

3. Other stand-by arrangements involving the use of the Fund’s resources in the upper credit tranches and other extended arrangements granted by the Fund after the date of this decision shall also include the provision in 1 or 2 above.

4. The provision in 1 or 2 above shall also be included in an existing stand-by or extended arrangement when the Fund and the member reach understandings regarding the circumstances in which further purchases may be made under the arrangement.

Decision No. 7678-(84/62)

April 20,1984

L. Oil Facility: Subsidy Account—Final Report on Termination

1. Subsidy payments shall be made to the beneficiaries listed in Table 1 of EBS/83/94, Supplement 3, on the Fund’s holdings of each member’s currency subject to charges that were outstanding under the 1975 oil facility and eligible for subsidy for the period May 1, 1975 to May 11, 1983 at a rate (approximately 0.32 percent) that will fully utilize the remaining resources of the account.

2. These payments shall be made in U.S. dollars as soon as practicable after all charges due at the end of July 1983 in connection with the oil facility have been paid.

3. No charge shall be levied for the services rendered by the Fund in the administration, operation, and termination of the account.

4. After disbursement of subsidy payments under paragraph 2 above, the subsidy account shall be considered terminated.

Decision No. 7484-(83/117)

August 2, 1983

M. Compensatory Financing of Export Fluctuations: Guidelines on Cooperation

The Executive Board approves the guidelines on cooperation under the compensatory financing facility set out in EBS/83/171, Supplement 1 (9/12/83).

Decision No. 7528-(83/140)

September 14, 1983

Attachment to Decision No. 7528-(83/140) EBS/83/171, Supplement 1

Lower tranche

The criterion—namely, that the Fund is satisfied that the member will cooperate with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties—implies a willingness to receive Fund missions and to discuss, in good faith, the appropriateness of the member’s policies and whether changes in the member’s policies are necessary to deal with its balance of payments difficulties. Where the Fund considers that the existing policies of the member in dealing with its balance of payments difficulties are seriously deficient or where the country’s record of cooperation in the recent past has been unsatisfactory, the Fund will expect the member to take action that gives, prior to submission of the request for the purchase, a reasonable assurance that policies corrective of the member’s balance of payments problem will be adopted.

Upper tranche

The additional criterion of the upper tranche—namely, that the Fund is satisfied that a member has been cooperating with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties—means that in the light of the action taken by the member and the balance of payments policies being pursued the Fund is satisfied with the member’s record of cooperation. The existence of a satisfactory balance of payments position (apart from the effects of the shortfall) or the existence of and broadly satisfactory performance under an arrangement with the Fund, or the adoption of such an arrangement at the time the request for a CFF purchase is made, will be considered to provide evidence of cooperation. However, the existence or the adoption of an arrangement is not a prerequisite. If a member’s current and prospective policies were such as would, in the Fund’s view, meet the criteria of the use of resources in the credit tranches, the member would be deemed to have been satisfactorily cooperating with the Fund, even though such use was not contemplated at the time of the CFF request.

N. Compensatory Financing of Export Fluctuations: Access Limits

1. In paragraph 3 of Decision No. 6224-(79/135) 8 “100 percent” shall be changed to “83 percent.”

4. The new percentages of quota under 1 . . . above shall be reviewed not later than December 31, 1984 and annually thereafter in the light of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity.

Decision No. 7602-(84/3)

January 6, 1984

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

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

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

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

4. The new percentages of quota under …2 … above shall be reviewed not later than December 31, 1984 and annually thereafter in the light of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity.

Decision No. 7602-(84/3)

January 6, 1984

P. Buffer Stock Financing Facility: Access Limits

3. In paragraph 2 of Decision No. 2772-(69/47),10 as amended, “50 percent” shall be changed to “45 percent.”

4. The new percentages of quota under … 3 above shall be reviewed not later than December 31, 1984 and annually thereafter in the light of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity.

Decision No. 7602-(84/3)

January 6, 1984

Q. Guidelines for Borrowing by the Fund

Quota subscriptions are and should remain the basic source of the Fund’s financing. However, borrowing by the Fund provides an important temporary supplement to its resources. In present circumstances, it facilitates the provision of balance of payments assistance to its members under the Fund’s policies of supplementary financing and enlarged access.

The confidence of present and potential creditors in the Fund will depend not only on the prudence and soundness of its financial policies but also on the effective performance of its various responsibilities, including, in particular, its success in promoting adjustment.

Against this background the Executive Board approves the following guidelines on borrowing by the Fund.

1. Fund borrowing shall remain subject to a process of continuous monitoring by the Executive Board in the light of the above considerations. For this purpose, the Executive Board will regularly review the Fund’s liquidity and financial position, taking into account all relevant factors of a quantitative and qualitative nature.

2. Subject to paragraph 4 below, the Fund will not allow the total of outstanding borrowing plus unused credit lines to exceed the range of 50-60 percent of the total of Fund quotas. If the total of outstanding borrowing plus unused credit lines reaches the level of 50 percent of quotas, the Executive Board shall assess the various technical factors that determine, at that time, the availability of balances of unused lines of credit. While this assessment is being made, the total of outstanding borrowing plus unused credit lines may rise, if necessary, beyond 50 percent, but shall not exceed 60 percent of total quotas.

3. The total of outstanding borrowing plus unused credit lines under paragraph 2 above shall include, in respect of the GAB and borrowing arrangements associated with the GAB, either outstanding borrowing by the Fund under these arrangements, or two thirds of the total of credit lines under these arrangements, whichever is the greater.

4. In the case of major developments, the Executive Board shall promptly review, and may adjust, the guidelines. In any event, the guidelines shall be reviewed when the Board of Governors has completed the Ninth General Review of Quotas, or when there is a significant change in the GAB or associated arrangements, and may be adjusted as a result of such reviews.

5. The percentage limits specified in paragraph 2 above, or any other limits that may be adopted as a result of a review pursuant to paragraph 4 above, are not to be understood, at any time, as targets for borrowing by the Fund.

Decision No. 7589-(83/181)

December 23, 1983

R. General Arrangements to Borrow: Transferability of Claims

Pursuant to Paragraph 13 of the revised General Arrangements to Borrow (GAB) which became effective on December 26, 1983,11 the Fund consents in advance to the transfer of outstanding claims to repayment under the GAB on the terms and conditions set out below:

1. All or part of any claim under the GAB may be transferred at any time to a participant in the GAB.

2. As from the value date of the transfer, the transferred claim shall be held by the transferee on the same terms and conditions as claims originating under its credit arrangement, except that the transferee shall acquire the right to request early repayment of the transferred claim on balance of payments grounds pursuant to Paragraph 11(e) of the GAB only if, at the time of the transfer, (i) the transferee is a member, or the institution of a member, whose balance of payments and reserve position is considered sufficiently strong for its currency to be usable in net sales in the Fund’s operational budget; or (ii) the transferee is the Swiss National Bank, and the balance of payments and reserve position of the Swiss Confederation is, in the opinion of the Fund, sufficiently strong to justify such acquisition.

3. The price for the claim transferred shall be as agreed between the transferee and the transferor.

4. The transferor of a claim shall inform the Fund promptly of the claim that is being transferred, the name of the transferee, the amount of the claim that is being transferred, the agreed price for the transfer of the claim, and the value date of the transfer.

5. The transfer shall be registered by the Fund if it is in accordance with the terms and conditions of this decision. The transfer shall be effective as of the value date agreed between the transferee and the transferor.

6. If all or part of a claim is tranferred during a quarterly period as described in Paragraph 9(b) of the GAB, the Fund shall pay interest to the transferee on the amount of the claim transferred for the whole of that period.

7. If requested, the Fund shall assist in seeking to arrange transfers.

Decision No. 7628-(84/25)

February 15, 1984, effective April 10, 1984

S. Borrowing Agreement with Saudi Arabia in Association with the General Arrangements to Borrow: Transferability of Claims

Pursuant to Paragraph 9 of the Borrowing Agreement with Saudi Arabia under which Saudi Arabia has agreed to provide supplementary resources in association with the GAB, and which became effective on December 26, 1983 (the Agreement),12 the Fund consents in advance to the transfer of outstanding claims to repayment under the Agreement on the terms and conditions set out below:

1. All or part of any claim may be transferred at any time to any member of the Fund, the central bank or other agency of any member, or any official entity that has been prescribed as a holder of SDRs pursuant to Article XVII, Section 3 of the Articles of Agreement.

2. On the value date of the transfer, all the rights and obligations of Saudi Arabia provided in the Agreement with respect to the claim that is the subject of the transfer shall vest in the transferee, except that

  • (a) the transferee shall acquire the right to request early repayment on balance of payments grounds provided in Paragraph 6(d) of the Agreement only if, at the time of the transfer, (i) the transferee is a member, or the agency of a member, whose balance of payments and reserve position is considered sufficiently strong for its currency to be usable in net sales in the Fund’s operational budget, or (ii) the transferee is the Swiss National Bank, and the balance of payments and reserve position of the Swiss Confederation is, in the opinion of the Fund, sufficiently strong to justify such acquisition;

  • (b) if the transferee is a member or the agency of a member, references in the Agreement to payment in Saudi riyals shall be deemed to be references to payment in the member’s currency, and if the transferee is not a member or the agency of a member such references shall not apply ; and

  • (c) the right to repayment on withdrawal provided in Paragraph 10 of the Agreement shall apply only if the transferee is a member or the agency of a member, and that member withdraws from the Fund.

3. The price for the claim transferred shall be as agreed between the transferor and the transferee.

4. The transferor shall inform the Fund promptly of the claim that is being transferred, the name of the transferee, the amount of the claim that is being transferred, the agreed price for transfer of the claim, and the value date of the transfer.

5. The transfer shall be registered by the Fund if it is in accordance with the terms and conditions of this decision. The transfer shall be effective as of the value date agreed between the transferor and the transferee.

6. If all or part of a claim is transferred during the quarterly period ending on a date specified in Paragraph 5(b) of the Agreement, the Fund shall pay interest to the transferee on the amount of the claim transferred for the whole of that period.

7. If requested by the holder of a claim under the Agreement, the Fund shall assist in seeking to arrange a transfer pursuant to this Decision.

Decision No. 7629-(84/25)

February 15, 1984, effective April 10, 1984

T. Treatment of Reserve Tranche—Attribution of Reduction in Fund’s Holdings of Currencies: Review

The Executive Board has reviewed Decisions Nos. 6830-(81/65), 13 adopted April 22, 1981, effective from May 1, 1981 and 6831-(81/65), 14 adopted April 22, 1981, effective from May 1, 1981, as amended by Decision No. 7059-(82/23), 14 adopted February 22, 1982. It has concluded that the decisions shall remain in effect without any change.

Decision No. 7704-(84/78)

May 14, 1984

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