Chapter

Appendix III Principal Policy Decisions of the Executive Board

Author(s):
International Monetary Fund
Published Date:
September 1986
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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 entitled “Surveillance over Exchange Rate Policies” attached to Decision No. 5392-(77/63),1 adopted April 29, 1977, as required by paragraph 2 of that decision. The next review of the document shall be conducted not later than April 1, 1988.

Decision No. 8248-(86/60)

April 1, 1986

(b) Review of Implementation of Procedures for Surveillance

The Executive Board has reviewed the general implementation of the Fund’s surveillance over members’ exchange rate policies, as required by paragraph VI of Procedures for Surveillance contained in the document entitled “Surveillance over Exchange Rate Policies” attached to Decision No. 5392-(77/63),2 adopted April 29, 1977, 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/86/4, in the light of the Managing Director’s summing up, until the next review, which shall be conducted not later than April 1, 1987.

Decision No. 8249-(86/60)

April 1, 1986

B. Structural Adjustment Facility Within the Special Disbursement Account

(a) Chairman’s Summing Up at Executive Board Meeting

Most Directors wished the new facility to be called the structural adjustment facility and found the general thrust of the staff paper to be acceptable, the staff having on the whole fairly reflected in its paper the spirit of the Board’s February discussion.

1. Eligibility

Members eligible to use the facility will be the low-income countries that are currently eligible to receive IDA loans. Later changes in the list of IDA countries will not have an automatic effect on their eligibility, but will be a matter for decision by the Board. Commitments made will be honored, even if a particular member were to cease to be eligible in the course of a three-year arrangement.

2. Qualification

The resources shall be made available to eligible countries that are facing protracted balance of payments problems and that enter into annual arrangements with the Fund in support of a medium-term program of structural adjustment. In the assessment of a protracted balance of payments problem, the member’s situation will be reviewed against a wide range of indicators, including, as a number of Directors suggested, the recent and the prospective behavior of the current account, reserves, indebtedness, arrears, and growth performance. The assessment should be made on a case-by-case basis, and avoid the mechanical application of statistical indicators. In addition, there will be the assessment of balance of payments need at the time of approval of annual arrangements.

3. Policy framework paper and collaboration with the World Bank

It was agreed, although with a certain reluctance by some Directors, that it would be useful to prepare a policy framework paper which will describe the major economic problems and challenges facing a country; the objectives of a three-year medium-term program; the priorities and the broad thrust of macroeconomic and structural adjustment policies; and references to the likely external financing requirements and, as far as possible, the available sources of such financing.

The framework paper is to be developed in close collaboration with the authorities—who are after all responsible for policy formulation—and the staffs of the Fund and the World Bank, who will work closely on these matters, including through joint missions. It is the expectation of the Fund that these framework papers will be reviewed by the Boards of the two institutions at an early stage before commitments are made on use of the resources of the structural adjustment facility by eligible countries.

The policy framework paper will have to be updated as the program is implemented and normally reviewed by the two Boards, at the time of presentation of the second and the third annual programs, as far as the Fund is concerned.

The suggestions by . . . [an Executive Director] would go a long way toward making the procedures as practical and as flexible as possible. I will take two illustrative cases. When discussions on the formulation of medium-term structural policies with a member country are well advanced, as they are in a number of cases, it may well be possible to present a medium-term framework paper and the program for the first year of an arrangement to the Board at the same time. In such cases the Board of the Bank would be expected to take up the policy framework paper first, which would be followed by appropriate agreements on structural adjustment or sectoral loans. Quite often, when the two institutions are already collaborating deeply on medium-term structural policies in some countries, the joint mission could be extremely short; the essence of the work could even perhaps be conducted at headquarters. The modalities must be kept flexible, not with the intention of bringing the jointness of the operation into question, but to avoid unnecessary delays and to reduce costs and travel.

In the second case . . . of a country that was less advanced in the formulation of medium-term structural policies, a separate set of talks would probably have to be conducted with the country by the two staffs in order to arrive at a common understanding that would lead to a framework paper for review by the two Boards. Later on, the Fund would take up the specific program according to its own schedule and procedures, as hopefully would the World Bank.

These procedures will have to be introduced at the outset... in an experimental fashion with considerable pragmatism and with a view to avoiding rigidities, complications, and undue delays. Of course, each institution will have to be very vigilant to help the other. For instance, to take again the case of a country that has had a series of Fund-supported programs, so that the Fund is well acquainted with its medium-term structural problems and is ready to move quickly forward with a framework paper and a first program. The jointness of the operation . . . would necessitate prior review by the World Bank of the framework paper; the Board of the Bank must be able to have an input based on its review of the country’s framework paper. In such a case, the Fund would hope that the World Bank Board would act in a way that would not delay action by the Fund. The deeper and closer the collaboration, the more each institution will have to be receptive to the schedule, procedures, and constraints of the other, and in particular of the one that happens to be the most advanced in its work.

While closer Fund/Bank collaboration is of the essence, it is fair to say that Directors have stressed that the competence, mandate, and expertise of each of the two institutions must be respected. The Fund would pay particular attention to what it was most well equipped to look at: macroeconomic developments and policies, fiscal policies, monetary policies, exchange rates, exchange systems, tax reforms, and price realignments, but in conjunction with the World Bank, which has particular expertise and competence in development and sectoral policies, investment priorities, microeconomic reforms, and the like.

Cooperation is of the essence, but it will be conducted in a manner that will not give rise to cross-conditionality. I also want to stress that these framework paper procedures will apply only in the case of the structural adjustment facility. There is no intention to set a precedent and extend them to other facilities and arrangements or to countries not using the structural adjustment facility . . . .

4. Conditionality

The first annual program will have to be described in a written document from the authorities to the management, which will contain a request for a commitment of resources from the structural adjustment facility for a three-year period.

The document will describe in general terms the policies to be followed over the medium term, making reference to the policy framework paper, and will delineate more precisely the objectives of the authorities and the policies they will implement during the first year. Subsequent documents will review and update the medium-term policy plans and describe, also in specific terms, the policies to be implemented during the subsequent one-year periods.

We have no intention of overloading this conditionality with prior measures, but it needs to be understood that, especially in some cases where there is much to be done and where performance has been somewhat unsatisfactory, an annual program can be credible and can work only if the country is ready to take some measures that will be consistent with the unfolding of the program.

The question takes on added importance beyond the first year. As there will be no performance criteria governing disbursements and no phasing within a year, it will be necessary to make sure, after the first year, to capture correctly the progress that has been made under the structural program. The whole exercise is designed precisely to help a country to move toward that progress.

If, after the first year, the Fund believes that the program has not worked and that corrective policies are necessary to make the second year consistent, at least with the general architecture of the medium-term framework, stock will have to be taken of those observations in the negotiation with the member country of the second program year.

Benchmarks or indicators will have to be constructed in a flexible way; they will not necessarily all be quantified and will essentially be devised to help monitor progress in policy implementation and in reaching the objectives of the program that have been described in the authorities’ document. I want to make it very clear that these benchmarks or indicators will not be associated with disbursements.

Deviations from benchmarks will of course be noted, and an effort will be made to understand why they have happened. If the reasons are such that they could derail the direction of a program, policy adjustments may well be necessary, and they will be taken up in discussions leading to the arrangement in support of the next annual program.

5. Disbursements

Upon endorsement of the overall policy framework and approval of the program for the first year, the Fund will disburse to the member an amount of resources equivalent to 20 percent of the member’s quota in the Fund and will make a commitment to the member to disburse additional resources in two additional tranches on approval of subsequent programs. Given the flexibility inherent in the procedure, an initial calculation has been made of each of the two additional tranches, at the equivalent of 13½ percent of the member’s quota. These amounts will be recalculated as the program unfolds; in light of the resources available to the facility, the amounts may be enlarged under the procedures described in EBS/86/53. Because of the uncertainties associated with Trust Fund reflows, commitments will have to be made contingent on the availability of resources.

March 26, 1986

(b) Income from Investment and Loans: Availability for Use

Pursuant to Article V, Section 12(f), the income from investment of resources available for the Structural Adjustment Facility within the Special Disbursement Account, and the interest on loans disbursed under the Facility, accruing to the Special Disbursement Account for the period December 17, 1980 to June 30, 1991, shall be available, as they accrue, for use under the Facility.

Decision No. 8237-(86/56) SAF

March 26, 1986

(c) Regulations for Administration

Pursuant to Article V, Section 12(/), the Fund adopts the Regulations set forth in the Annex to this decision for the administration of the Structural Adjustment Facility within the Special Disbursement Account.

Decision No. 8238-(86/56) SAF

March 26, 1986

ANNEX

Structural Adjustment Facility Within Special Disbursement Account

Paragraph 1. Purposes

The Structural Adjustment Facility within the Special Disbursement Account shall provide balance of payments assistance on concessional terms, on a uniform basis, to low-income developing members of the Fund in need of such assistance, in accordance with these Regulations.

Paragraph 2. Resources

The resources of the Special Disbursement Account available for the Structural Adjustment Facility (“the Facility”) shall consist of the assets that have been made, or will be, available for the Facility pursuant to Executive Board Decision No. 6704-(80/185) TR3 and Decision No. 8237-(86/56) SAF.

Paragraph 3. Conditions for Assistance

Balance of payments assistance shall be provided in the form of loans on the terms specified in paragraph 7 to eligible members that qualify for assistance under paragraph 5.

Paragraph 4. Amount of Assistance

(1) The potential access of all eligible members to the resources of the Facility shall be expressed as a uniform proportion of their quotas in the Fund. It shall be determined from time to time, at least annually, by the Fund.

(2) Whenever a member has notified the Fund that it does not intend to make use of the resources available under the Facility, the member shall not be included in the calculations under subparagraph (1) above.

(3) If, after resources have been committed to a member under paragraph 5(2), the member’s potential access is increased or decreased pursuant to subparagraph (1) or (2) above, the total amount available to the member under the three-year commitment will be proportionately modified and subsequent disbursements will be modified accordingly.

(4) Access to the Fund’s resources under other policies of the Fund will remain available in accordance with the terms of those policies.

Paragraph 5. Qualifications for Assistance

(1) An eligible member shall consult the Managing Director before making an initial request for a committment of resources for a three-year period.

(2) Resources shall be committed to a qualifying member, subject to these Regulations, for a three-year period upon approval by the Fund of an arrangement in support of a three-year macroeconomic and structural adjustment program presented by the member. The arrangement will prescribe the total amount, and the annual amounts within the total, available in accordance with the original or any modified terms of the arrangement, subject to these Regulations.

(3) Before approving a three-year arrangement, the Fund shall be satisfied that the member has a protracted balance of payments problem and is making a reasonable effort to strengthen its balance of payments position.

(4) A member shall be deemed to be making a reasonable effort within the meaning of subparagraph (3) of this paragraph if the member has presented to the Fund (i) a three-year adjustment program which seeks to correct macroeconomic and structural problems that have impeded balance of payments adjustment and economic growth, and (ii) the first of three annual programs setting forth the objectives for the year and the policies to be followed during the year to meet those objectives.

(5) Resources under three-year commitments shall be made available annually in the form of loans under three successive, but not necessarily contiguous, annual arrangements approved by the Fund. The approval of an annual arrangement under a three-year commitment must precede the expiration of the commitment period.

(6) An annual arrangement shall be approved only for a member that has submitted a satisfactory program for the corresponding year and has a need for balance of payments assistance.

(7) If, during a three-year commitment period, a member ceases to be eligible for assistance under the Facility, a commitment of resources under the Facility, made to the member for that period, shall remain in effect, subject to these Regulations.

Paragraph 6. Disbursements

(1) One disbursement shall be made for each annual arrangement upon approval of the arrangement.

(2) Disbursements to a member under the Facility shall be suspended while the member has an overdue financial obligation to the Fund in the General Resources Account, the Special Disbursement Account, or the SDR Department, or to the Fund as Trustee under the Trust Instrument. The disbursements shall be made when the overdue financial obligation has been discharged.

(3) No disbursement under a three-year commitment shall be made after the expiration of the commitment period.

Paragraph 7. Terms of Loans

(1) Interest shall be charged at the rate of ½ of 1 percent per annum on the outstanding balance of a loan and shall be paid on June 30 and December 31 of each year, or the next day if the day when payment is due is not a business day.

(2) A member shall repay each loan in ten equal semiannual installments, which shall begin not later than the end of the first six months of the sixth year, and be completed at the end of the tenth year, after the date of the disbursement.

(3) On the request of a member when repayment of an installment is due under a loan, the Fund may reschedule the repayment to a date not later than two years after the due date if the Fund finds that repayment on the due date would result in serious hardship for the member and that such rescheduling would not impair the ability of the Special Disbursement Account to meet the liabilities of the Facility.

Paragraph 8. Unit of Account

The SDR shall be the unit of account for commitments, loans, and all other operations under the Facility.

Paragraph 9. Media of Payment

Loans shall be disbursed and repaid, and interest paid, in U.S. dollars. The Managing Director is authorized to make arrangements under which, at the request of a member, SDRs may be used for disbursements to the member or payment of interest or repayments of loans by it to the Fund.

Paragraph 10. Reimbursement of Expenses

The General Resources Account of the Fund shall be reimbursed annually by the Special Disbursement Account in respect of the expenses of administration of the Facility that are paid from the General Resources Account. Reimbursement shall be made on the basis of a reasonable estimate of these expenses by the Fund.

Paragraph 11. Reserves

The Fund may establish, in the Special Disbursement Account, such reserves for the purposes of the Facility as it deems appropriate.

Paragraph 12. Modifications

Any modification of these Regulations will affect only loans made after the effective date of the modification, provided that a modification of the interest rate shall apply to interest accruing after the effective date of the modification.

Paragraph 13. Identification of Decisions

Decisions and other actions taken by the Fund in the administration of the Facility shall be identified as such.

(d) Use of SDRs in Operations

In accordance with Article XVII, Section 3, the Fund prescribes that:

1. A prescribed holder, by agreement with a participant and at the instruction of the Fund, may transfer SDRs to the participant in disbursement of a loan payable from the Structural Adjustment Facility within the Special Disbursement Account (“the Facility”).

2. A participant, by agreement with a prescribed holder and at the instruction of the Fund, may transfer SDRs to the prescribed holder in repayment of loans, and/or payment of interest on loans, under the Facility.

3. The Fund shall record operations pursuant to these prescriptions in accordance with Rule P-9.

Decision No. 8239-(86/56) SAF

March 26, 1986

(e) List of Eligible Members and Amounts of Assistance

1. The members on the list annexed to this decision are eligible to receive balance of payments assistance under the Structural Adjustment Facility within the Special Disbursement Account (“the Facility”).

2. The potential access of each eligible member to the resources of the Facility as of March 26, 1986 shall be 47 percent of quota; no more than 20 percent of quota shall be disbursed under the first annual arrangement.

Decision No. 8240-(86/56) SAF

March 26, 1986

ANNEX Low-Income Developing Members Eligible for Assistance Under Structural Adjustment Facility Within Special Disbursement Account
MemberQuota

(In SDR

millions)
MemberQuota

(In SDR

millions)
China, People’s Rep. of12,390.9Maldives2.0
India12,207.7Mali50.8
Subtotal4,598.6Mauritania33.9
Mozambique61.0
Nepal37.3
Afghanistan86.7Niger33.7
Bangladesh287.5Pakistan546.3
Benin31.3Rwanda43.8
Bhutan2.5St. Christopher and Nevis4.5
Bolivia90.7St. Lucia7.5
Burkina Faso31.6St. Vincent4.0
Burma137.0Sāo Tomé and Principe4.0
Burundi42.7Senegal85.1
Cape Verde4.5Sierra Leone57.9
Central African Rep.30.4Solomon Islands5.0
Chad30.6Somalia44.2
Comoros4.5Sri Lanka223.1
Djibouti8.0Sudan169.7
Dominica4.0Tanzania107.0
Equatorial Guinea18.4Togo38.4
Ethiopia70.6Uganda99.6
Gambia, The17.1Vanuatu9.0
Ghana204.5Viet Nam176.8
Grenada6.0Western Samoa6.0
Guinea57.9Yemen Arab Rep.43.3
Guinea-Bissau7.5Yemen, People’s Dem. Rep. of77.2
Guyana49.2Zaïre291.0
Haiti44.1Zambia270.3
Kampuchea, Democratic25.0Subtotal4,186.0
Kenya142.0
Lao People’s Dem. Rep.29.3Total8,784.6
Lesotho15.1
Liberia71.3
Madagascar66.4
Malawi37.2

China and India have indicated that they do not intend to make use of the resources of the Structural Adjustment Facility.

China and India have indicated that they do not intend to make use of the resources of the Structural Adjustment Facility.

(f) Review of Operation of Facility

The Fund shall review the operation of the Structural Adjustment Facility within the Special Disbursement Account not later than May 31, 1988.

Decision No. 8241-(86/56) SAF

March 26, 1986

C. Special Disbursement Account: Investment

Pending placement in SDR-denominated investments with the Bank for International Settlements in accordance with Executive Board Decision No. 7990-(85/81),4 adopted May 28, 1985, the Managing Director is hereby authorized to invest with the Federal Reserve Bank of New York the U.S. dollars held by the Special Disbursement Account.

Decision No. 8029-(85/105)

July 11, 1985

D. Policy on Enlarged Access to the Fund’s Resources: Extension of Period, and Access Limits for 1986

The Fund, having reviewed the decisions on the policy on enlarged access and the limits on access to the Fund’s resources under that policy and under the special facilities of the Fund (No. 6783-(81/40),5 No. 7599-(84/3) as amended by Decision No. 7841-(84/165),6 No. 7600-(84/3) as amended by Decision No. 7841-(84/165),7 and No. 7602-(84/3)),8 decides that:

1. In paragraph a. of Decision No. 7599-(84/3) as amended by Decision No. 7841-(84/165),6 “1985” shall be replaced by “1986.”

2. (a) The following sentence shall be added after the second sentence of paragraph a. of Decision No. 7600-(84/3) as amended by Decision No. 7841 -(84/165):7

“Access by members to the Fund’s general resources under arrangements approved under Decision No. 6783-(81/40)5 during 1986 shall be subject to annual limits of 90 or 110 percent of quota, three-year limits of 270 or 330 percent of quota, and cumulative limits of 400 or 440 percent of quota net of scheduled repurchases, depending on the seriousness of the member’s balance of payments need and the strength of its adjustment effort.”

(b) In paragraph b. of Decision No. 7600-(84/3) as amended by Decision No. 7841-(84/165),7 “1985” shall be replaced by “1986.”

Decision No. 8147-(851177)

December 9, 1985

E. Conditionality: Review

1. Pursuant to Decision No. 7857-(84/1 75),9 adopted December 5, 1984, the Fund has reviewed the conditionality that the Fund applies for transactions in the upper credit tranches with particular reference to the Fund’s experience from recent programs supported by stand-by and extended arrangements from the Fund. In the context, the Fund has also reviewed the provisions of the extended Fund facility and the guidelines on conditionality.

2. The Fund finds that the conditionality of the Fund, including provisions of the extended Fund facility and the guidelines on conditionality, remains appropriate in the present circumstances.

3. The Fund will again review the experience relating to programs supported by stand-by and extended arrangements, and the provisions of the extended Fund facility and the guidelines on conditionality, at an appropriate time pursuant to paragraph 12 of the guidelines on conditionality.

Decision No. 8192-(86/13)

January 27, 1986

F. Overdue Financial Obligations to the Fund

Chairman’s Summing Up at Executive Board Meeting

. . . [M]ember countries in arrears should be induced to give priority to actions that are designed specifically to enable them to repay the Fund. In addition, they should introduce corrective measures at an early stage to improve their economic policies and to avoid the emergence and further accumulation of arrears to the Fund.

. . . [T]he Fund should keep open its channels of communication with countries in arrears in order to help them formulate adjustment policies and to catalyze external assistance so that these concerted efforts can ultimately be supported by Fund assistance and lead—prior to the Fund’s formal commitment to providing such assistance—to settlement of the arrears.

. . . [I]ntervals between Board reviews should be put to good use; they should never be seen as grace periods or as periods in which a member is excused from making every effort to settle its arrears to the Fund.

A majority of Directors favor reducing the period between the emergence of arrears and the first substantive consideration of a complaint. These Directors felt that the present five-month period was too long, as it has tended to coincide with a buildup of arrears that has made it more difficult to tackle the matter; earlier involvement by the Board would have been helpful. Although some Directors favor taking a flexible approach to this period, a majority clearly supports limiting the period to three months. Issuing the complaint two months after arrears have arisen instead of three months would certainly be consistent with today’s discussion. The review period following the first substantive consideration would remain three months, but the three months would be considered an outer limit: the decision on the actual timing in each case should take into account the particular circumstances and the performance of the member.

A majority of Directors felt that once a member has been declared ineligible to use the Fund’s resources the Board should not wait as long as the next Article IV consultation to discuss the member’s arrears situation. The majority of Directors would like to review the member’s situation every six months.

November 25, 1985

G. Special Charges on Overdue Financial Obligations to the Fund

I. Overdue Repurchases

1. Pursuant to Rule 1-6(8) the Fund has reviewed the rates of charge to be levied under Article V, Section 8(c) on its holdings of a member’s currency that have not been repurchased in accordance with the requirements of the Articles or decisions of the Fund.

2. Within three business days after (i) the due date for the repurchase by a member of the Fund’s holdings of its currency resulting from purchases of the Fund’s ordinary resources or (ii) the effective date of this Decision, whichever is the later, the Fund shall consult with the member on the reduction of the Fund’s holdings of the member’s currency that should have been repurchased. The consultation shall take place by rapid means of communication.

3. Unless the Fund’s holdings of the member’s currency are reduced within the period referred to in Section IV below by the amount that should have been repurchased, the rate of charge on the holdings that should have been repurchased shall be increased by a percentage equal to the excess, if any, of the rate of interest on the SDR over the rate of charge levied on the holdings under Rule 1-6(4) or (11).

II. Overdue Charges in the General Resources Account

A special charge equal to the rate of interest on the SDR shall be paid by a member on the unpaid amount of charges owed by it under Article V, Section 8(a) and (b).

III. Overdue Interest and Repayments on Trust Fund Loans

The Fund shall levy a special charge on (i) the amount of overdue interest on Trust Fund loans, at a rate equal to one-half of the sum of the rate of interest on Trust Fund loans and the rate of interest on the SDR, and (ii) the overdue amounts of repayments of Trust Fund loans, at a rate equal to one-half of the sum of the rate of interest on Trust Fund loans and the rate of interest on the SDR, less ½ of 1 percent.

IV. Waiver of Special Charges

Special charges under Sections I, II, and III above shall be levied in respect of an overdue financial obligation as of the due date or the effective date of this Decision, whichever is the later, unless the obligation is discharged within ten business days after the applicable date.

V. Notification and Payment of Special Charges

1. Special charges levied under this Decision shall be payable following the end of each of the Fund’s financial quarters and the member shall be notified promptly of any special charges due. The charges shall be payable on the third business day following the dispatch of the notification.

2. Special charges in respect of overdue repurchases and charges in the General Resources Account shall be paid in SDRs to that Account. Special charges in respect of overdue repayments and interest on Trust Fund loans shall be paid in U.S. dollars to the Special Disbursement Account.

VI. Entry into Effect and Review

This Decision will enter into effect on February 1, 1986. It will be reviewed shortly after October 31, 1986 at the time of the midyear review of the Fund’s income position for the financial year ending April 30, 1987, and thereafter annually in connection with the annual reviews of the Fund’s income position.

Decision No. 8165-(85/189) C/TR

December 30, 1985, effective February 1, 1986

H. Supplementary Financing Facility: Subsidy Account

(a) Investment

Decision No. 6854-(81/78) SBS,10 May 8, 1981 shall be amended to read: The Managing Director shall place in deposits, denominated in SDRs, with the Bank for International Settlements, or in investments in a call account, denominated in SDRs, with the International Bank for Reconstruction and Development, the currencies received by the SFF Subsidy Account, unless the Managing Director considers that the terms offered are not sufficiently attractive. In that event the Managing Director shall inform the Executive Board promptly and make other proposals to it for investment in SDR-denominated obligations.

Decision No. 8184-(86/9) SBS

January 15, 1986

(b) Means of Subsidy Payments

Subsidy payments made after the effective date of this Decision with respect to charges paid on holdings of currency referred to in Section 7 of the Instrument establishing the SFF Subsidy Account11 may be made, at the discretion of the Fund, in SDRs to beneficiaries agreeing to receive them, or in U.S. dollars, or in a combination of these two assets. Subsidy payments in U.S. dollars shall be made on the basis of the SDR/U.S. dollar exchange rate in effect three business days before the payment date.

Decision No. 8185-(86/9) SBS/S

January 15, 1986

(c) Use of SDRs in Payment of Subsidy

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

1. A prescribed holder, by agreement with a participant, may transfer SDRs to the participant in discharge of subsidy payable from the Supplementary Financing Facility Subsidy Account, at the instruction of the Fund as Trustee of that Account.

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

Decision No. 8186-(86/9) SBS/S

January 15, 1986

I. Valuation of SDR

(a) SDR Valuation Basket: Revised Guidelines for the Calculation of Currency Amounts

(1) Under all circumstances, the currency units will be determined in a manner which would ensure that the value of the SDR calculated on December 31 on the basis of the new basket will be the same as that actually prevailing on that day.

(2) The currency amounts calculated for the new basket will be expressed in two significant digits provided that the deviation of the percentage share of each currency in the value of the SDR, resulting from the application of the average exchange rates for October-December, from the percentage weight as determined under paragraph 3(c) of Executive Board Decision No. 6631-(80/145) G/S12 adopted September 17, 1980 is the minimum on average and will not exceed ½ of 1 percentage point for any currency.

(3) If a solution cannot be obtained by the application of the principles set forth in (2) above, the calculation shall be made applying the same principles but expressing the amount of each currency in three significant digits, and if no solution is found with three significant digits then the calculation shall be made applying the same principles but expressing the amount of each currency in four significant digits.

(4) If more than one solution is found in the calculation at the level of two, three, or four significant digits, the solution that has the smallest average deviation will be employed.

Decision No. 8160-(85/186) G/S

December 23, 1985

(b) Amendment of Rule O-1

Rule 0-1. The value of the SDR shall be the sum of the values of the following amounts of the following currencies:

U.S. dollar0.452
Deutsche mark0.527
Japanese yen33.4
French franc1.02
Pound sterling0.0893

Decision No. 8169-(86/1) G/S

December 31, 1985

J. 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 1 billion by May 31, 1987. Prior to April 30, 1987, the Fund will again review the level of its SDR holdings.

Decision No. 8265-(86/70) S

April 25, 1986

K. Fund’s Income Position

(a) Rate of Charge as of November 1, 1985

The Fund has reviewed the rate of charge on the Fund’s holdings of currency acquired as a result of the purchases referred to in Rule 1-6(4) and decides that the rate shall be reduced to 7 percent per annum, effective November 1, 1985.

Decision No. 8270-(86/74)

April 30, 1986

(b) Setoff in Connection with Retroactive Reduction of Charges Due by Members in Arrears

1. When the Fund decides upon a retroactive reduction in the rate of charge specified in Rule 1-6(4), the amount to be paid to a member that has charges or repurchases overdue in the General Resources Account, on the effective date of the payment by the Fund, shall be set off pro tanto, as of that date, against such overdue obligations in the following manner: the member shall be requested to specify which overdue obligations, among the categories listed in paragraph 2, it wishes to discharge by the setoff; in the absence of a response by the member within seven business days after the request, the setoff shall apply to the member’s overdue obligations, within the categories listed in paragraph 2, in the descending order of maturities.

2. The setoff under paragraph 1 shall apply to:

(a) special charges due on the amount of overdue charges under Executive Board Decision No. 8165-(85/189) G/TR,13 December 30, 1985;

(b) special charges due on the amount of overdue repurchases under Article V, Section 8(c);

(c) charges due under Article V, Section 8(a) or (b);

(d) overdue repurchase obligations.

Decision No. 8271-(86/74)

April 30, 1986

L. Principles of “Burden Sharing,’ the Fund’s Income Target for FY 1987 and 1988, Rate of Charge, and Rate of Remuneration

Section 1. Principles of “Burden Sharing”

1. The financial consequences for the Fund which stem from the existence of overdue financial obligations shall be shared between debtor and creditor member countries.

2. This sharing shall be applied in a simultaneous and symmetrical fashion.

SectionII. Income Target for FY 1987 and FY 1988

1. During financial year 1987 and financial year 1988, the Fund’s net income target shall be raised from 5 percent to 7.5 percent of the Fund’s reserves at the beginning of each year. The additional net income shall be generated in accordance with the provisions of Section V. It shall be recorded separately in the financial statements of the Fund.

2. For financial year 1988, the Fund may decide to add supplemental income to be generated in accordance with the provisions of Section V. It shall be recorded separately in the financial statements of the Fund.

Section III. Rate of Charge

1. (a) The rate of charge referred to in Rule 1-6(4) shall be determined at the beginning of financial year 1987 and financial year 1988. This determination shall be made on the basis of the estimated income and expense of the Fund during the year and the target amount of net and supplemental income for the year, and shall include the adjustment necessary to generate one half of the additional net income and of the supplemental income for the year.

(b) During financial year 1987 and financial year 1988, when estimating income, no deduction shall be made for projected deferred income.

2. During financial year 1987 and financial year 1988, the rate of charge shall be further adjusted in accordance with the provisions of Section V.

3. The rate of charge in force as of the end of a financial year, as adjusted under Section V, shall continue to apply subsequently unless it is otherwise decided.

Section IV. Rate of Remuneration

1. Effective August 1, 1986, Rule 1-10(d) shall cease to apply.

2. Effective February 1, 1987, Rule 1-10 shall read as follows:

  • 1-10. (a) The rate of remuneration shall be equal to 100 percent of the rate of interest on holdings of SDRs under Rule T-1 (hereafter referred to as “SDR interest rate”).

  • (b) The relationship of the rate of remuneration to the SDR interest rate will be referred to as the “remuneration coefficient.”

3. During financial year 1987 and financial year 1988, the rate of remuneration shall be adjusted in accordance with the provisions of Section V.

Section V. “Burden Sharing” in FY 1987 and FY 1988

1. In financial year 1987 and financial year 1988, and notwithstanding Rule I-6(4)(a) and (b) and Rule 1-10, the rate of charge referred to in Rule 1-6(4), and the rate of remuneration prescribed in Rule 1-10 shall be adjusted in accordance with the provisions of this Section.

2. (a) In order to generate the additional net income referred to in Section 11.1, and the supplemental income referred to in Section II.2, the rate of charge shall be adjusted in accordance with the provisions of Section 111.1(a), and the rate of remuneration shall be adjusted, subject to the limitation in (c), in accordance with the provisions of this paragraph, so as to produce equal amounts of income.

  • (b) If income from charges becomes deferred during an adjustment period as defined in (d), the rate of charge and the rate of remuneration shall be further adjusted, subject to the limitation in (c), in accordance with the provisions of this paragraph, so as to generate, in equal amounts, an additional amount of income equal to the amount of deferred charges. For the purposes of this provision, special charges on overdue financial obligations under Decision No. 8165-(85/189)G/TR, adopted December 30, 1985, shall not be taken into consideration.

  • (c) No reduction in the rate of remuneration under this paragraph shall be carried to the point where the average remuneration coefficient would be reduced below 85 percent for an adjustment period.

  • (d) Subject to the provisions of Section 111.1(a), the adjustments under this paragraph shall be made as of May 1 and as of November 1 of each year: shortly after October 31 for the period from May 1 to October 31; shortly after April 30 for the period from November 1 to April 30.

  • (e) Notwithstanding the provisions of (d), any adjustment made in respect of the first half of financial year 1987 shall affect the rate of remuneration only as of August 1, 1986.

  • (f) The operation of this decision shall be reviewed when the remuneration coefficient is reduced to 85 percent under (c).

3. A midyear review of the Fund’s income position shall be held shortly after October 31 of each year. If, after any adjustment under paragraph 2, the actual net income for the first six months of the financial year, on an annual basis, is below the target amount for the year by an amount equal to, or greater than, 2 percent of the Fund’s reserves at the beginning of the financial year, the Executive Board will consider how to deal with the situation. If on December 15 no agreement has been reached as a result of this consideration, the rate of charge shall be increased as of November 1 to the level necessary to reach the target amount of net income for the year.

4. (a) An amount equal to the proceeds of any adjustment made under paragraph 2(a) in order to generate supplemental income in financial year 1988 shall be distributed, in accordance with the provisions of this paragraph, to members that have paid additional charges or have received reduced remuneration as a result of the adjustment, when there are no outstanding overdue charges and repurchases, or at such earlier time as the Fund, may decide.

  • (b) An amount equal to the proceeds of any adjustment made under paragraph 2(b) in financial year 1987 or 1988 shall be distributed, in accordance with the provisions of this paragraph, to members that have paid additional charges or have received reduced remuneration as a result of the adjustment, when, and to the extent that, charges, the deferral of which had given rise to the same adjustment, are paid to the Fund. Distributions under this provision shall be made semiannually.

  • (c) Distributions under (a) or (b) shall be made in proportion to the amounts that have been paid or have not been received by each member as a result of the respective adjustments.

  • (d) If a member that is entitled to a payment under this paragraph has any overdue obligation to the Fund in the General Department at the time of payment, the member’s claim under this paragraph shall be set off against the Fund’s claim in accordance with Decision No. 8271-(86/74), adopted April 30, 1986, or any subsequent decision of the Fund.

Decision No. 8348-(86/122)

July 25, 1986

M. Rate of Charge

Effective May 1, 1986, the rate of charge referred to in Rule 1-6(4), determined in accordance with the provisions of Section 111.1(a) of Decision No. 8348-(86/ 122), adopted July 25, 1986, shall be 6.0 percent.

Decision No. 8349-(86/122)

July 25, 1986

Selected Decisions, Twelfth Issue, pages 9-10.

Ibid.

Selected Decisions, Twelfth Issue, pages 360-61.

See Selected Decisions, Twelfth Issue, page 132.

Selected Decisions, Twelfth Issue, pages 46-49 and 340.

Ibid., pages 49-50.

Ibid., pages 50-51.

See Annual Report, 1984, page 138, and Selected Decisions, Twelfth Issue, pages 83, 91, 92, and 94.

Selected Decisions, Twelfth Issue, page 37.

Selected Decisions, Twelfth Issue, page 369.

Selected Decisions, Twelfth Issue, pages 362-68.

Ibid., pages 307-308.

See item G, pages 100-101, above.

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