Chapter

Article V, Section 2(b): Technical and Financial Services

Author(s):
International Monetary Fund
Published Date:
May 2006
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Technical Services

Enhanced Surveillance: Procedures for Transmittal of Staff Reports

When the Executive Board has approved a request by a member for consultations under the Fund’s policy on enhanced surveillance, the annual and midyear consultation reports prepared by the Fund staff in accordance with that policy in respect of the member may be transmitted by the member to creditor banks and other creditor financial institutions party to the arrangements specified by the member in the request for consultations, on the understanding that the recipients of the reports have assured the member that the reports will not be used for any purpose other than those of the arrangements specified in the member’s request to the Fund and will be kept confidential; and that the reports shall not be transmitted by the member earlier than two weeks after their circulation to members of the Executive Board.

Decision No. 8222-(86/45)

March 12, 1986

Enhanced Surveillance: Midterm Review

The midterm review of a member’s economic policy program under enhanced surveillance shall be conducted in accordance with the following procedure. A staff report will be circulated to the Executive Directors under cover of a note from the Secretary specifying a tentative date for Executive Board discussion which will be at least 15 days later than the date upon which the report is circulated. The Secretary’s note will also set out a draft decision taking note of the staff report and completing the review without discussion or approval of the views contained in the report; the decision will be adopted upon the expiration of the two-week period following the circulation of the staff report to the Executive Directors unless, within such period, there is a request from an Executive Director or a decision of the Managing Director to place the report on the agenda of the Executive Board. If the staff report is placed on the agenda, the Executive Board will discuss the report and will reach conclusions which will be reflected in a summing up.

Decision No. 10365-(93/67)

May 10, 1993

Summing Up by the Chairman—Biennial Review of the Fund’s Surveillance Policy Executive Board Meeting 93/15, January 29, 1993

The Executive Board agreed that the criteria relating to enhanced surveillance set out on pages 28 and 29 of SM/92/234 [below] would be appropriate. In sum, these provide that the procedures, which would normally be initiated by the authorities in the context of Article IV discussions, would involve submitting a quantified annual economic program, generally formulated with the assistance of the staff, and also half-yearly reports to the Board; both the Article IV reports (as appropriately modified) and the half-yearly reports could be made available to creditors. Application of the procedures would be approved by the Executive Board until the next Article IV consultation or for a 12-month period. These procedures should be reviewed within two years, and in the interim, they will be applied with a view to the concerns noted by you today and during the discussion of January 27.

SM/92/234

The principal features of the proposed revised enhanced surveillance procedures are summarized below.

1. Enhanced surveillance procedures would be initiated by a member with a request for Fund monitoring of its macroeconomic and structural policies, usually at the time of the Article IV consultation.

2. The Executive Board would respond to the member’s request on a case-by-case basis, taking into account among other things a member’s track record of adjustment.

3. In recognition of a concern of Executive Directors at the time of the 1989 review of enhanced surveillance, each Executive Board approval of the application of the procedures would be only until the time of the next Article IV consultation with the member (or a 12-month period), when a further request for application of the procedures could be presented. Limiting the duration of the procedures to a relatively short period should reduce the need for unilateral termination of such procedures by the Fund.

4. The member’s request for enhanced surveillance would be granted on the strength of a quantified economic policy program, which had been discussed with the Fund staff, usually as part of the consultation discussions. It is expected that there would be a mid-term review of progress under the economic program before the next scheduled Article IV consultation, irrespective of the actual performance; failing which, Directors would be informed of the absence of the review and the reasons. The review report would be issued by the staff under the same procedures as for interim consultations and the Executive Board would take note of the report on a lapse-of-time basis unless a discussion was requested by a Director or the Managing Director.

5. As before, enhanced surveillance would not involve Executive Board approval or endorsement of the macroeconomic program presented by the member.

6. Information on the economic program and its implementation, as well as the staff’s assessment of the situation as contained in the staff reports, could be made available by the authorities to donors and creditors on a timely basis. In addition to the staff report, official creditors/donors would also receive the Chairman’s summing up of the Executive Board discussion.

Summing Up by the Acting Chairman—Settlement of Disputes Between Members Relating to External Financial Obligations—Role of the Fund Executive Board Meeting 84/99, June 22, 1984

I shall begin by outlining four general points that were made in the course of the Board discussion. First, Executive Directors generally endorsed the approach that the Fund has taken in the three major aspects of the subject dealt with in the staff paper.

Second, Directors agreed that the functioning of the international monetary system depended on members’ fulfilling their international financial obligations promptly and according to the terms of those obligations. Therefore, the Fund had a direct interest in the settlement of overdue obligations and a role to play in accordance with the Articles of Agreement.

Third, there was a consensus that the circumstances surrounding overdue financial obligations typically were complex, and that there were often important differences among individual cases. Thus, Directors preferred not to codify the Fund’s approach in each of the three main areas discussed. Instead, most of them supported the idea that the Fund should continue to fulfill its responsibilities under the Articles on a case-by-case basis within the context of the present policies and procedures, which could be expected to continue to evolve as individual cases of overdue financial obligations and related general policy matters were discussed. There was a strong feeling among Directors that the Fund should show caution and restraint in making judgments on issues involving claims on such overdue obligations.

Fourth, Directors stressed the importance of the Fund’s helping member governments to improve their statistical base and to increase the supply of information on their external debt obligations, particularly in cases involving overdue claims. Where necessary, the Fund could provide the technical resources to help sort out the frequently complex circumstances surrounding the debt situation, including individual cases.

Let me turn now to more specific comments on the three major areas dealt with in the staff paper. With respect to the Fund’s jurisdiction under Article VIII and Article XIV, there was strong support for the policies and practices that the Fund had followed to date. Directors generally agreed that, in exercising its functions under Article VIII and Article XIV, the Fund was entitled to examine the context in which nonpayment of a financial obligation had occurred in order to determine whether or not it involved an exchange restriction and, as such, was subject to Fund approval, and that members were obliged to provide the information that the Fund required to make such a determination. The Fund has developed a substantial body of principles and practices for determining which measures were and were not within its jurisdiction and when approval under Article VIII was appropriate. These judgments were inherent in the exercise of the Fund’s jurisdiction.

Executive Directors also generally endorsed the Fund’s existing policies and practices for dealing with disputed financial obligations in members using Fund resources. This concerned primarily the identification and treatment of payments arrears. Directors accepted the general premise that, to restore its financial position, a member country must reduce and eliminate its external payments arrears. In that context, there was broad support for the approach that the Fund had taken to the problems involving countries with large external payments arrears. It was noted that the degree of involvement by the Fund in helping countries to deal with their arrears had varied depending, in part, upon the severity of the case. Some Directors noted that the pivotal role that it had been necessary for the Fund to play in helping some member countries should be the exceptional practice, not the general practice. Nevertheless, the Fund should stand ready to provide technical and analytical expertise to help a member country to negotiate a financing agreement with its external creditors.

Most Directors attached importance to the principle that a member country should give comparable treatment to all its creditors, although there was not broad support for trying to define that principle in detail. There was a strong feeling that responsibility for the enforcement of the principle of comparable treatment was ultimately in the hands of creditors, and that the Fund should take into account the actions of the creditors when assessing the viability of, and progress under, a Fund-supported program. In that connection, Directors felt that the debt relief to help to close the financing gap of a member could best be dealt with through a Paris Club negotiation, which usually involved a large number of a country’s creditors. A Paris Club Agreed Minute could be seen as satisfying a member country’s need for debt relief and could be used for judging whether or not a country’s financing gap has been closed. A Paris Club Agreement also has implications for official creditors not participating in the Paris Club because of the commitment of the debtor to seek and to accord comparable treatment to those creditors. Some Directors stressed that it would be helpful to know about a Paris Club meeting well in advance of its occurrence, although it was also accepted that such notification was ultimately the responsibility of the debtor country in consultation with its creditors. At the same time, it was clearly desirable for as many of a country’s creditors as possible to participate in a Paris Club meeting

Directors also generally agreed that, if an anticipated bilateral agreement required by the Paris Club, between a debtor and one of its official creditors, were not ratified within the specified period, the amount of arrears involved should be included in the calculation of arrears for purposes of the debtor country’s Fund-supported program. While there was general support for that approach, there was a call for flexibility and the exercise of judgment by the Fund when making such decisions during the course of a Fund-supported program. If a debtor country had made its best efforts to comply with a Paris Club requirement to conclude a bilateral agreement but had been unable to do so, the arrears involved should not be included in the calculation of arrears for purposes of the debtor country’s Fund-supported program. However, such judgments should be made on a case-by-case basis.

Decisions on whether or not a country’s financing gap had been closed, and on whether or not rescheduling and refinancing agreements were being fulfilled, should be made by the Fund itself. The Fund should take into account the particular circumstances of a member, such as the preconditions on the provision of debt relief by other agencies.

There was a strong consensus on three general matters relating to the use of the Fund’s good offices. First, in the light of the Fund’s primary responsibilities concerning the international monetary system and of its specific authority under the Articles to provide financial and technical services, management and staff should stand ready to use their good offices in helping members engaged in a particular dispute over an external financing obligation. Second, such good offices should, however, be limited in scope and frequency, although in that connection there were differences in emphasis among Directors. Some felt that the Fund should be more active, others that the Fund must be quite cautious. In short, the use of good offices should be consistent with available resources and should be substantially technical. Third, all Directors attached great importance to the Fund’s remaining neutral in issues of debt dispute. It should be clearly understood that the Fund’s good offices were meant to bring the parties to a dispute together. Fourth, there was agreement that the Fund should act in such cases only if both parties wished to have the Fund provide its good offices.

The Chairman’s Summing Up of the Discussion of the Role of the Fund in Assisting Members with Commercial Banks and Official Creditors Executive Board Meeting 85/132, September 4, 1985

General Remarks

The procedures relating to enhanced surveillance that have been discussed by Directors were developed in response to the need to help members make progress toward addressing their debt problems and improving their relations with their creditors in an orderly manner and in a broader framework.

It was noted by many Directors that by adapting some of its policies, the Fund had played a central role in helping to limit the disruptions associated with the debt crisis and in promoting a normalization of debtor/creditor relations. Most Directors, however, observed that the practice of enhanced surveillance that had developed involved some risks. Some Directors stressed the risk of a possible weakening of Fund conditionality. Others feared that the Fund might tend to become too deeply and too specifically involved in relations with the commercial banks, and that generalized reliance on the Fund’s judgment by the international community could affect the Fund’s credibility and interfere with the normal functioning of the markets, which should rely eventually on the banks’ own assessments. In other words, enhanced surveillance in the view of most Directors should not become a substitute for stand-by and extended arrangements and should not “crowd out” or “dilute” the Fund’s normal procedures and transform the institution into a kind of universal credit-rating agency. In that vein, a majority of Directors, while recognizing the usefulness of the practices that have evolved, considered that enhanced surveillance should be used on a limited basis under the guidance and control of the Executive Board, essentially to help promote MYRAs (multi-year rescheduling arrangements), although all MYRAs might not be associated with enhanced surveillance

Criteria and Procedures

a. Criteria for the adoption of enhanced surveillance

While several Directors insisted on the need for flexibility and on the importance of avoiding too rigid criteria, most Directors felt that enhanced surveillance could be undertaken when the four following conditions are met:

First, at the request of a member country, who must initiate the procedures;

Second, in cases where a good record of adjustment has been shown;

Third, in cases in which a MYRA is needed to normalize market relations and to facilitate the return to voluntary or spontaneous financing;

Fourth, in cases where the member is in a position to present an adequate quantified policy program in the framework of consultations with the Fund staff, which are part of the procedure of enhanced surveillance.

b. Length of the Fund’s involvement

Directors thought that, on the whole, the early cases of enhanced surveillance had covered rather too long periods. They felt that in the future the Fund should try to limit the procedure to about the consolidation period of a MYRA. I would suggest that we should retain some flexibility and remain open to the possibility of extending enhanced surveillance a little beyond the consolidation period. If the Fund were to cut off enhanced surveillance at the end of the consolidation period, the communication of reports to the banks would be halted at a delicate time in the normalization of relations between the country and its creditors; i.e., at the time when the country will need more voluntary financing to meet external payments falling due. While we should try to limit enhanced surveillance as much as possible to the consolidation period, there might be occasions when an extension of enhanced surveillance into the period after consolidation may be necessary and warranted.

c. Trigger mechanisms

A number of Directors feared that staff involvement in the design and the negotiation of trigger mechanisms between the commercial banks and the member country risked diluting the banks’ responsibility in the monitoring process under MYRAs and risked engaging the Fund in providing on/off signals to the banks. Most Directors felt that the staff should not negotiate or take responsibility for designing and assessing trigger mechanisms. But, if the member wished, the Fund staff would not refuse to give its views on the purely technical merits or drawbacks of such mechanisms. It is important to emphasize that the Fund should take no active part in the negotiation of the design of these trigger mechanisms.

d. Contents and distribution of staff reports

Directors stressed the need to ensure that staff reports to be issued to creditor banks under the policy of enhanced surveillance continue to provide full and frank assessments of the policies and economic prospects of member countries. While a number of Directors were of the view that staff reports should be made available to creditor banks under the enhanced surveillance procedures only after the Executive Board had met to discuss the reports, most Directors agreed that countries would be authorized to release these staff reports to their creditor banks not earlier than two weeks after their issuance to the Executive Board. The majority of Directors were of the view that authorization to release staff reports should be provided by a general decision pertaining to all cases for which enhanced surveillance is agreed rather than by an individual decision in each case. The reports to be released to creditor banks would reflect only the staff’s views and would not contain any references to the discussions and views of the Executive Board. No amendments to the staff report other than the deletion of references to Board discussions would be made.

e. Involvement of the Executive Board

I understand that the procedure would be as follows: First, request by a member for enhanced surveillance; second, management assesses the case in accordance with the policies agreed by the Executive Board today and determines whether to submit the request for the endorsement of the Board. In cases where the criteria raise delicate problems of interpretation, management would continue to consult informally with Executive Directors at the earliest opportunity.

g. Review of the policy on enhanced surveillance

A number of Directors suggested that in view of the need to assess changing circumstances and the possible effects of the procedures for enhanced surveillance on the Fund and its policies, the Board should engage in a periodic review of the policy of enhanced surveillance, with an initial review to be held in about one year.

Summing Up by the Acting Chairman—Financial Sector Assessment Program—A Review—Lessons from the Pilot and Issues Going Forward Executive Board Meeting 00/123, December 13, 2000

Overview

Executive Directors welcomed the opportunity to review the Financial Sector Assessment Program (FSAP) in light of the further experience that has been gained with the FSAP pilot since the review in the spring of this year. Directors agreed that based on the completion of the missions to all 12 pilot countries, the work to date with the second round of country cases, and the feedback and support received from participating countries and cooperating institutions, it is timely to establish guidelines for a continuation of the FSAP program for the period ahead.

Directors agreed that the FSAP process provides a coherent and comprehensive framework to identify financial system vulnerabilities and strengthen the analysis of domestic macroeconomic and financial stability issues, to identify development needs and priorities, and to help authorities develop appropriate policy responses. They welcomed the broad range of information and analysis that the FSAP process brings to financial sector assessments, and noted in particular that this process provides the overall macroprudential and institutional context necessary for a thorough assessment of observance of international standards, codes, and good practices in the financial sector.

Directors observed that the Financial System Stability Assessments (FSSAs) derived from FSAP findings and Article IV consultations have appropriately focused on the stability issues of relevance to Fund surveillance. The comprehensive coverage of FSSAs, drawing on a broad range of information, helps to deepen the quality and scope of coverage of Article IV consultations. Accordingly, Directors agreed that the FSSAs are the preferred tool for strengthening the monitoring of financial systems under the Fund’s bilateral surveillance.

Directors underscored that an underlying objective of the FSAP is to encourage national authorities to implement measures to redress identified vulnerabilities and development needs. In that context, they believed that the Fund (as well as the Bank) should ensure that the strategic components of the assessment be reflected in other aspects of country programming, and that appropriate technical assistance and other support be provided to national authorities that request it.

Directors welcomed the steps taken in the Fund and the Bank to ensure consistency and quality in their joint FSAP work, as well as in the separate related work in the two institutions, including for the monitoring in the Fund of financial systems under Article IV surveillance. They encouraged the staff to press ahead with the work being undertaken in the context of the FSAP to develop analytical techniques, including macroprudential indicators, the use of stress tests and scenario analysis, and the assessment methodologies of financial sector standards in collaboration with standard-setting bodies.

Standards and Codes

Directors emphasized that assessments of observance of international standards, codes, and best practices have an important role to play in the FSAP. When considered with the other analysis undertaken in the FSAP, they help to identify vulnerabilities, gaps in regulatory structures and practices, and medium-term reform and development needs and priorities. They also help country authorities to evaluate their own systems against international benchmarks.

Directors noted that the summary standards assessments that flow from the detailed assessments are presented as an input into the overall stability assessment in the FSSA, and become financial sector modules of the Reports on Observance of Standards and Codes (ROSCs). While agreeing that the FSAP/FSSA process provides the proper context within which to assess standards, a number of Directors suggested that financial sector standards assessments carried out outside the FSAP also have a highly useful role to play, both to support implementation of standards by member countries, and as part of the preparatory work for a future FSAP assessment. Some Directors noted that, although central to the FSAP, the assessment of observance of standards and codes is resource-intensive and that the relevant standards to assess should be carefully selected in order to avoid stretching costs and procedures.

Bank-Fund Collaboration

Directors noted that the collaborative nature of the FSAP has ensured that the best expertise is mobilized to undertake the diagnostic work of joint Bank-Fund FSAP missions. At the same time, most Directors agreed that the division of responsibilities, once the joint work is completed, ensures that clear accountability for the Fund’s and the Bank’s separate work is maintained. While noting the interrelationship between financial system stability and financial sector development, Directors stressed that the Fund’s primary responsibility is in the area of systemic stability issues, while that of the Bank is in the development aspects.

Coverage and Frequency of FSAP

Directors had an extensive discussion of prioritization in the FSAP process. They considered that a variety of criteria could appropriately be employed to establish priorities in selecting country cases in the face of limited resources, including a country’s systemic importance; its external sector weakness or financial vulnerability; the nature of its exchange rate and monetary regime; and geographical balance among countries. All in all, Directors agreed that the country selection should be such as to help maximize the program’s contribution to the strengthening of national and international financial stability. Most Directors noted that within any one year, giving a higher priority in the FSAP country selection process, to systemically important countries would be warranted.1 It was noted that prioritization in this sense means a difference in timing, not treatment. At the same time, Directors continued to stress the merit in maintaining a broad country coverage in the program. They felt that members should have the opportunity to participate in the FSAP to help them strengthen and develop their financial sectors, to prevent costly financial sector crises, and, where relevant, to prepare the ground for financial market liberalization and greater access to the international capital markets.

Directors considered how to maintain adequate monitoring of financial systems under Fund surveillance in years between full assessments, given the voluntary nature of the program and the limited frequency with which full assessments of an individual member can be undertaken. This is particularly important for countries identified as vulnerable, or systemically important, and whose financial systems are evolving at a rapid pace. Directors agreed that, for surveillance purposes, focused updates of FSSA findings could be undertaken by Fund staff in the context of subsequent Article IV consultations.

Directors agreed that the country’s choice of whether or not to participate in the FSAP does not alter the Fund’s responsibility to conduct financial sector monitoring. If a country volunteered to participate in the FSAP, but could not be accommodated by the program immediately, or if a country chose not to participate in the FSAP, Directors noted that the Article IV mission team for that country could be reinforced with financial sector expertise, and some assessment in key areas of concerns could be undertaken. Nevertheless, Directors believed that the full exercise remains the preferred vehicle for conducting financial sector assessments as input to Fund surveillance, and they agreed that, when relevant, the staff should be prepared to recommend—for instance, in discussions with authorities or in the staff appraisal in the Article IV staff report—that the country participate in the FSAP.

Directors noted that the scope of FSSAs, particularly for countries with significant offshore financial centers, should be extended beyond domestic stability considerations to encompass possible cross-border effects and consideration of international repercussions, while maintaining its country-specific focus.

Offshore Financial Centers (OFCs)

Directors also noted that FSAP assessments covered both the cross-border activities of financial institutions, and the activities of financial institutions operating in an off-shore center within the country. The FSAP assessment of such countries would generally be expected to result in “module three” assessments—which comprise financial risks, relevant financial sector standards and codes, and cross-border effects of the relevant OFC. Separate “module three” assessments could, however, still take place for OFCs that are not members of the Fund and the Bank, as well as, in some cases, for OFCs within a member country. In the latter case, these OFC assessments could provide input into a subsequent full FSAP assessment for the country.

Resource Implications

Directors considered the potential budgetary implications of the staff proposals on the FSAP for fiscal year 2002 and beyond. They noted that the pace of the FSAP will depend on a number of factors, including how the suggested prioritization of FSAP country cases is translated into practice. Directors broadly agreed that the Fund should keep the effective implementation of priorities in view in aiming for the suggested pace of up to 30 assessments per year. Both the pace of the FSAP and its new resource implications will be subjected to further assessments by the Fund and the Bank in the context of their respective upcoming budget discussions.

Publication and Circulation

On publication and circulation issues, Directors noted that, under the existing arrangements, FSAP reports are prepared as confidential documents for national authorities, since some information needed to carry out the diagnostic aspects of an FSAP mission’s work, especially that related to individual financial institutions, is highly sensitive. Directors agreed that the current policy of the management of the Fund and Bank not to provide authorization for the publication of the main volume of FSAP reports and the associated confidential documents should be continued. They also endorsed the management’s intended policy to provide authorization for the publication by the authorities of the detailed assessments of observance of standards and codes that are included in FSAP reports.

When discussing publication and circulation policies for FSSAs, most Directors agreed that the policy of voluntary publication was appropriate. They noted that several national authorities have requested that the Fund allow publication of FSSAs. Some Directors felt, however, that the current policy, whereby publication of FSSAs is not permitted, should be continued.

On balance, most Directors agreed to authorize Fund publication of FSSAs after the associated Article IV consultation has been concluded. Such publication will be subject to: (i) the consent of the respective member concerned; (ii) the same deletions policy regarding highly market-sensitive information that applies to Article IV staff reports; and (iii) the same rules on internal circulation and release to outside agencies that apply to Article IV staff reports. It was agreed that publication of an FSSA could proceed even if the member concerned did not consent to the publication of the relevant Article IV consultation report. While some Directors supported publication of the initial assessments for the 12 pilot countries, it was also agreed that the new publication policy for FSSAs should not apply to these cases. For a participant in the FSAP pilot project in the process of accession to the European Union, it was agreed that the member’s FSSA could be circulated to the European Commission.

Confidentiality

The importance of adequate procedures to ensure the confidentiality of sensitive information provided to FSAP missions, especially on individual financial institutions, has been stressed in previous Board discussions. Directors noted that the confidentiality procedures that must be followed by staff, as well as experts from cooperating institutions, as laid out in the confidentiality protocol are working well.

Next Review

Directors agreed that the further review of the experience under the FSAP should take place in 18 months’ time.

The Acting Chair’s Summing Up—Financial Sector Assessment Program—Review, Lessons, and Issues Going Forward Executive Board Meeting 05/26, March 18, 2005

Executive Directors reviewed the experience with the Financial Sector Assessment Program (FSAP) since the last Board review of the program. They noted that the program remains a cornerstone of financial sector work by the Fund and the Bank in member countries, and commended the staff on its continuing success. They observed that about 120 countries, two-thirds of the membership, have participated or requested participation in the program.

Directors noted that assessments continue to be comprehensive and to highlight a broad range of financial sector vulnerabilities, while heightening awareness of international financial standards in member countries. Greater expertise developed in the assessment process has also improved the quality of Fund and Bank advice with regard to the financial sector. In addition, especially in assessments of underdeveloped financial systems, FSAPs have rightly devoted more effort to explaining why specific markets are missing and broad access to financial services is limited. Directors were pleased that feedback from country authorities underscores the usefulness of the program in diagnosing stability and development issues in financial systems and in charting appropriate policy responses. They also took note of the authorities’ suggestions of areas for further improvement, as key input into the ongoing process of strengthening the FSAP.

Directors discussed the advantages and disadvantages of two key features of the program—its joint Bank-Fund character and voluntary nature. Most Directors agreed that these features should remain unchanged. Directors observed that the FSAP exercise is a good example of effective Fund-Bank collaboration. The joint nature efficiently pools resources from the two institutions, contributes to a broad perspective of financial issues in low- and middle-income countries, and leads to greater consistency in policy advice. Directors agreed that voluntary participation results in greater country ownership, and agreed that the program should remain voluntary. They stressed the importance of maintaining the case-by-case design of FSAPs to make the exercise useful to countries, within limits that preserved the program’s integrity.

Directors were pleased to note that the streamlining measures adopted since the last review have been effective. Improved prioritization and streamlining have resulted in assessments that are better tailored to country circumstances. Along with the smaller average size of financial systems undergoing initial assessments in the last two years, this has contributed to lower average costs per FSAP. For the Fund, this has freed up resources for other work in financial sector surveillance such as FSAP updates and participation in Article IV missions, as envisioned in the previous Board review. For the Bank, more emphasis has been placed on development issues. As a result, the balance of resources used in the program has become more equally distributed between the two institutions. While encouraging the staff of the Bank and Fund to keep down the cost of the program, some Directors cautioned against FSAPs that are too narrow, thereby negating the benefits of the comprehensive assessment. Several Directors noted that the increasing share of resources devoted to AML/CFT assessments, while important, could crowd out other important assessments.

Directors welcomed the discussion of the size and scope of FSAP updates, especially as the number of these exercises is on the rise and will eventually account for the bulk of the program. They endorsed the definition of the minimum element of an update as comprising an assessment of financial sector developments and progress in implementing earlier FSAP recommendations. An update should contain a financial stability analysis, reassessments of key development and structural issues raised in the initial assessment, and factual updates of key standards and codes. At the same time, Directors agreed that updates can include additional elements if justified by new developments or particular risks. Flexibility would maximize the program’s usefulness to country authorities and its contribution to surveillance.

Directors agreed that, given the pace of financial sector development and the need to keep the staff’s institutional knowledge current enough for effective financial sector work, an average frequency of FSAP updates of about five years seems reasonable. However, in any particular country, the frequency will depend on financial sector developments, the country’s willingness to participate, its systemic importance, resource availability for the program, and its track record in implementing recommendations from the previous FSAP.

Directors welcomed efforts to deepen the treatment of developmental issues in low-income countries. They thought that in-depth fact-finding carried out, generally by Bank staff, before the main assessment or update mission can help identify the priority development issues. Directors said, however, that this should not affect the speed with which the main assessment report is prepared and should avoid being burdensome to the country authorities.

Directors welcomed the broad country coverage that the program has achieved, especially of systemically-important countries, but noted the wide differences in coverage by region. Many Directors expressed concern that, some five years after the program’s inception, several systemically-important countries have still not requested an initial assessment, and encouraged those countries to do so. Most Directors urged the staff to promote the program more actively, focusing on initial assessments in the under-represented regions and on updates in other regions. In this context, most Directors endorsed the proposal to institute annual reporting to the Board on country participation in the FSAP as a way to increase awareness of the program. Some Directors pointed out that some countries that have not yet undertaken FSAPs have opted for self-assessments and reform of their financial systems as an initial step, and considered that such efforts should be welcomed.

Directors welcomed steps being taken by staff to strengthen follow up monitoring of financial systems. They observed that more needs to be done to ensure that issues identified during the FSAP are followed-up through Fund surveillance. Thus, Directors welcomed and encouraged more systematic participation in Article IV consultations by financial sector specialists and more technical support from headquarters. To facilitate this process, Directors also suggested ways for authorities to report to staff on progress achieved. They encouraged staff to continue to strengthen financial sector work, as called for in the recent biennial surveillance review. In this connection, several Directors saw scope for integrating FSAPs more closely with Article IV surveillance, noting the crucial importance of the financial sector for a country’s overall macroeconomic stability.

Directors also urged staff to continue to make technical assistance follow-up more systematic. They agreed that to improve country ownership, flexibility is needed in the way this is accomplished. They supported the idea of organizing, in appropriate country cases, follow-up meetings on technical assistance among the authorities, staff, and possibly other donors.

Directors discussed the publication policy. They noted that about two-thirds of countries have volunteered to publish the Financial Sector Stability Assessments (FSSAs) arising out of the FSAP. A range of views was expressed with regard to the suggestion of moving to a policy of presumed publication of the FSSA. A number of Directors agreed that such a move contributes to the effectiveness of the program, not least through building support for reforms, and signals that the benefits of transparency are recognized. Many other Directors, however, noted that a move to presumed publication for the FSSA is not consistent with the voluntary nature of the program. In the absence of a clear consensus by the Board, we will return to this issue at a later time.

Directors encouraged staff to continue research on developmental and stability issues, to better underpin policy advice in the financial sector. Directors saw great potential value in regional financial exercises for regions with substantial cross-border links. They agreed that countries can gain from deepening such linkages while addressing related vulnerabilities, since enhanced trading of financial products can help overcome structural weaknesses and shallow financial systems.

Directors noted that further proposals may arise from the upcoming reviews of the program by the Independent Evaluation Office (IEO) and the Bank’s Operations Evaluation Department (OED). These studies, together with the Fund’s own strategic review, will provide an opportunity to make a more in-depth and critical assessment of the progress so far and the program’s overall effectiveness. In this context, Directors agreed that the next review of the FSAP should take place in three years, to allow for the implementation of recommendations from those reviews, and the upcoming Board review of the standards and codes initiative.

Confidentiality Protocol—Protection of Sensitive Information in the Financial Sector Assessment Program

Purpose

1. The World Bank (the “Bank”) and the International Monetary Fund (the “Fund”)1 have agreed to cooperate in the implementation of a Financial Sector Assessment Program (the “FSAP”), designed to assist the authorities of members of the Bank and Fund in determining the condition of their financial sectors, identifying strengths, vulnerabilities and risks in these sectors, assessing the observance and implementation of internationally accepted financial sector standards, and elaborating reforms that would address vulnerabilities and risks, and position the sectors to contribute more effectively to financial stability, economic growth and the reduction of poverty.

2. For the FSAP to be effective, it is critical that financial institutions and governmental entities feel comfortable sharing relevant market-sensitive information and documents with the FSAP teams, which will include staff members of the Bank and Fund as well as consultants engaged for the FSAP. To encourage the sharing of such sensitive information and documents, staffs of the Bank and Fund have prepared this Protocol to describe procedures aimed at preventing unauthorized access to and disclosure of sensitive information obtained through the FSAP. This Protocol is an application of the existing policies and guidelines of the Institutions concerning the safeguarding of sensitive information and documents, which are listed in Appendix I, and does not represent the adoption of new policies or guidelines.

Classification and handling of sensitive information

3. Three levels of classification will be used for sensitive information provided to the Institutions in connection with the FSAP: (a) STRICTLY CONFIDENTIAL; (b) CONFIDENTIAL; and (c) for OFFICIAL USE ONLY (NOT for PUBLIC USE).1

STRICTLY CONFIDENTIAL

Information and documents that are deemed to be of a highly sensitive nature or to be inadequately protected by the CONFIDENTIAL classification shall be classified as STRICTLY CONFIDENTIAL and access to them shall be restricted solely to persons with a specific need to know. The staffs of the Institutions shall establish a control and tracking system for documents classified as STRICTLY CONFIDENTIAL, including the maintenance of control logs. Documents classified as STRICTLY CONFIDENTIAL shall be (i) marked with such classification on each page; (ii) kept under lock and key or given equivalent protection when not in use; and (iii) in the case of physical documents, transmitted by an inner sealed envelope indicating the classification marking and an outer envelope indicating no classification, or, in the case of documents in electronic form, transmitted by encrypted or password-secured files.

For purposes of this Protocol, the following individuals are deemed to have a specific need to know: (i) the FSAP team leader and deputy leader; (ii) FSAP team members directly involved with the substance of the sensitive information; (iii) immediate supervisors of FSAP team members who are staff members of the Institutions, who need the information to fulfill their management function; and (iv) the Managing Director of the Fund, the President of the World Bank Group, or their respective designated representatives; and (v) other individuals by agreement between the FSAP team leader or deputy leader and the provider of the sensitive information.

CONFIDENTIAL

Information and Documents that must be restricted to persons with a need to know or a legitimate interest in the information, shall be classified as CONFIDENTIAL. A document classified as CONFIDENTIAL shall be (i) marked with such classification on the cover and first page; (ii) kept out of view of unauthorized individuals when not in use; and (iii) transmitted in appropriately marked envelopes.

For purposes of this Protocol, the following individuals are deemed to have a need to know or a legitimate interest in information and documents classified as CONFIDENTIAL: (i) all FSAP team members; (ii) immediate supervisors and department heads of FSAP team members who are staff members of the Institutions; (iii) the relevant Country Directors and Sector Leaders in the Bank, and the relevant Area Department Mission Chiefs and MAE Country Managers in the Fund;1 (iv) the Managing Director of the Fund, the President of the World Bank Group, or their respective designated representatives; and (v) other individuals by agreement between the FSAP team leader or deputy leader and the provider of the sensitive information. Authorization is not required for further distribution on a need-to-know basis, within a specific office of one of the Institutions, but any such further disclosure must include notice to each additional recipient that the information is CONFIDENTIAL.

FOR OFFICIAL USE ONLY (NOT for PUBLIC USE)

A document classified as “FOR OFFICIAL USE (NOT for PUBLIC USE)” shall be marked with such classification on the cover and first page and no other specific restrictions on the handling or transmission of such documents shall be imposed other than the general requirement to prevent public access.1

4. In general, the lowest appropriate category of classification should be used, and will be decided by the FSAP team leader in consultation with the provider of the sensitive information. It is expected that the majority of sensitive information will be classified as either NOT for PUBLIC USE or CONFIDENTIAL, and that the STRICTLY CONFIDENTIAL classification will need to be used only sparingly.

Transmitting and referencing sensitive information

5. Cover letters or transmittal forms shall bear the classification of the most restricted attached documents. Documents that quote from, or otherwise contain sensitive information from classified documents shall be marked with the same security classification as the original information with the most restricted classification contained in the records, and shall be treated in the same way as the original information. E-mail messages that convey sensitive information from classified records shall have distribution lists reflecting the restrictions of the relevant classification.

Downgrading of security classifications

6. At the time of classifying as “STRICTLY CONFIDENTIAL” or “CONFIDENTIAL” sensitive information entrusted to the FSAP team, the recipient will make a good faith effort to reach agreement with the provider on specific downgrading instructions, such as when, in what circumstances or under what conditions it might receive a lower classification.

Participation of staff in FSAP teams

7. FSAP team leaders shall be responsible for providing each member of their respective teams a copy of this Protocol and attachments hereto. The policies and guidelines of the Institutions in Appendix 1 provide for procedures and measures in the event of breach by their respective staff members of the applicable policies and guidelines.

Participation of consultants in FSAP teams

8. FSAP team leaders shall, prior to fielding the first FSAP mission, consult with the relevant authorities of the country concerned regarding the participation of any consultant, from either the private or public sectors, in the FSAP team. In choosing consultants to be included in such team, FSAP team leaders will take into account concerns expressed by the relevant authorities about the security of sensitive information in connection with the participation of any particular consultant. The same procedure shall apply if a consultant is proposed to be added to the team after the first mission.

9. A consultant that participates in an FSAP team shall execute a confidentiality letter in the form of Appendix II (which may be modified from time to time), except when the requisite elements of such letter have been incorporated in the relevant consulting contracts. Such elements are: (i) acknowledgment of receipt of a copy of this Protocol and its attachments; (ii) agreement not to disclose or use to private advantage sensitive information known to the consultant by reason of his participation in the FSAP team; and (iii) agreement that confidentiality obligations undertaken in connection with the FSAP shall survive the termination of the consultant’s contract, unless the obligations refer to sensitive information that have been declassified for public use.

10. In the event of a breach of confidentiality by a consultant in connection with the FSAP, the Institution with which the consultant has a contract will address the matter, in accordance with such Institution’s rules and procedures. Sharing of sensitive information and FSAP-related documents between the institutions and with authorities

11. Sensitive information entrusted to the staff and consultants of either Institution, as well as FSAP-related documents generated by the staff and consultants of either Institution, will be shared with identified counterparts in the other institution, subject to the restrictions on access and procedures described or referred to in this Protocol. Nothing in this Protocol shall limit the staffs of the Institutions from sharing sensitive information entrusted to them through the FSAP with the relevant country authorities that are authorized to receive the information.

Disclosure of Protocol

12. This Protocol and attachments thereto shall not be classified. Prior to the commencement of the initial FSAP mission, copies will be provided to the appropriate authorities and will be made available on request to representatives of financial institutions participating or proposing to participate in the FSAP.

APPENDIX I: General Policies and Guidelines

The security procedures set forth in this Protocol have been prepared particularly for the FSAP in accordance with the following policies and guidelines of the Institutions (Attachments I(a) to-I(i)), as amended from time to time, concerning the safeguarding of confidential information and documents:

(a) Guidelines for Bank-Fund Collaboration in the Financial Sector (June 1999);

(b) World Bank Principles of Staff Employment, paragraph 3.1(d);

(c) World Bank Staff Rule 3.01, Section 4.02, Disclosure and Use of Non-public Information (April 1999);

(d) World Bank Policy on Disclosure of Information (March 1994);

(e) World Bank Administrative Manual Statement 10.20, Security of Records (September 1996);

(f) World Bank Administrative Manual Statement 10.20B, Confidentiality in Financial Sector Work (January 1998);

(g) International Monetary Fund Staff Regulations N-4, N-5, N-6, and N-11;

(h) International Monetary Fund Staff Code of Conduct, Section 20, Use and Disclosure of Information (July 1998);

(i) International Monetary Fund, General Administrative Order No. 26, Rev. 2 and Supplement 1, Records, September 5, 1990; and,

(j) International Monetary Fund, General Administrative Order No. 35, Information Security (September 1990).

APPENDIX II

[Date]

[International Monetary Fund or World Bank Address]

Re: FSAP—Confidentiality Obligations

In connection with my participation as a [World Bank/IMF] consultant in the Financial Sector Assessment Program for [country], I hereby confirm that I have received and read copies of the Protocol on Protection of Sensitive Information in the Financial Sector Assessment Program and attachments thereto (the “Documents”). I agree to observe the procedures described in the Documents and, in particular, not to disclose or use for private advantage sensitive information known to me by reason of my participation in the FSAP. I also agree that my confidentiality obligations under the FSAP shall survive termination of my FSAP assignment, unless the obligations refer to sensitive information (as defined in the protocol) that have been declassified for public use.

SM/00/54

March 15, 2000

Reports on Observance of Standards and Codes1

Individual hard copies of Reports on the Observance of Standards and Codes that are to be published shall no longer be circulated to Executive Directors.

Decision No. 12662-(02/6)

January 22, 2002

The Acting Chair’s Summing Up—Offshore Financial Centers—The Assessment Program—A Progress Report and the Future of the Program Executive Board Meeting 03/101, November 5, 2003

Executive Directors welcomed the opportunity to review the offshore financial center (OFC) assessment program in light of the experience gained since it was initiated in June 2000. They also discussed the future role of the Fund in OFCs, in the context of the Fund’s work on financial sectors.

Directors recognized that OFCs could pose risks, associated with prudential and financial integrity concerns, to the international financial system. While effective consolidated supervision in the home country can mitigate prudential risks, there remain weaknesses and gaps in supervision. Also, combating money laundering and the financing of terrorism (AML/CFT) requires worldwide implementation of the relevant international standards.

Directors commended the significant progress made by the OFC assessment program since it was initiated in 2000, noting that all major jurisdictions contacted since the start of the program have now been assessed. They welcomed the improvements made to the supervisory and regulatory systems of a number of OFCs as a result of the program. However, Directors noted that supervision and regulation of the non-banking sector, in particular, needed to be strengthened in many OFCs.

Directors agreed with the proposed evolution of the OFC program as outlined in the staff paper. They emphasized that the Fund’s role should continue to be guided by the Fund’s mandate and expertise in this area, and that the future program should be based on the following four broad elements:

  • regular monitoring of OFCs’ activities and compliance with supervisory standards;

  • improved transparency of OFC supervisory systems and activities;

  • technical assistance in collaboration with bilateral and multilateral donors;

  • collaboration with standards-setters and the onshore and offshore supervisors to strengthen standards and exchanges of information.

Directors stressed that participation in OFC assessments and monitoring should continue to be voluntary.

Directors agreed that the monitoring of OFCs’ activities and their compliance with supervisory and integrity standards should become a standard component of the financial sector work of the Fund. Ongoing monitoring of OFCs would help to ensure that well-managed jurisdictions maintain good supervisory practices and to monitor progress in the development of supervisory systems in other jurisdictions. Nevertheless, Directors considered it important to maintain an appropriate distribution of resources in monitoring offshore and onshore centers. Some Directors noted that some onshore financial centers potentially pose greater risks to international financial stability.

Directors agreed that it would be appropriate to continue periodic monitoring of OFCs’ compliance with relevant international regulatory standards. Module 2 assessments every 4–5 years of supervisory and regulatory systems’ compliance with international standards, focusing mainly on those jurisdictions that are not covered by FSAPs, would generally be appropriate, but the program should be sufficiently flexible to allow for more frequent targeted assessments to address areas of immediate concern. Some Directors felt that the scope of OFC assessments should be consistent with that of ROSCs and FSAPs. Directors agreed that, for the time being, the OFC program should remain separate from the FSAP, and that the next review of the OFC program should reevaluate the need for a separate program. Some Directors, however, noted that the objective should be to integrate the program into the Fund’s regular FSAP/ROSC procedures.

Directors welcomed the decision by many jurisdictions to publish their OFC assessment reports, as this has helped to improve transparency of OFC activities and their supervisory systems and contributed to promoting market discipline. Directors encouraged all jurisdictions to publish their reports, noting that this was in their interest since failure to do so would send an adverse signal to the market. Directors supported a continued policy of voluntary publication.

Directors endorsed reclassifying the Module 2 main report (which would contain a description of the activities of a financial center and the supervisory system, ROSCs, and prioritized recommendations) as a staff report, and circulating these to the Board. Board members, as usual, would have the option to request a Board discussion. Directors were of the view that the detailed assessment reports should remain a confidential document and would not be circulated to the Board unless the authorities chose to have it published.

Directors agreed that technical assistance should continue to be extended to OFCs, focusing on those OFCs that have the resources and commitment to benefit most from technical assistance or that experience the greatest shortcomings in complying with international standards. Directors underlined that all OFCs should meet minimum international financial regulatory standards. However, they stressed that the Fund should limit itself to identifying areas where further guidance from the relevant standards-setters would be useful—the Fund should not itself set financial supervisory standards. Furthermore, meeting international standards carries significant costs and thus creates particular challenges in small, low-income jurisdictions. Directors encouraged the staff to explore with other bilateral and multilateral donors how best to assist these jurisdictions. However, they reiterated the agreed principle that collaboration with other organizations should continue to be based on their commitment to work within a cooperative framework.

Directors recognized that information sharing arrangements play a key role in effective cross-border supervision. In this context, they indicated that the Fund should help strengthen information sharing mechanisms through increased collaboration with standards-setters and supervisors, while noting that institutions would need to protect the confidentiality of information.

Directors welcomed the staff’s proposal on rebalancing the use of resources within the existing budget envelope. In particular, most Directors supported the introduction of offsite monitoring of OFC activities and risk-focused assessments, which would be less resource-intensive compared to full assessments.

Directors noted that while the initial Fund OFC program has helped to improve the information available on OFCs’ supervisory systems, the jurisdictions need to disseminate more information themselves. They encouraged jurisdictions to work with the Fund to develop data on OFCs for general dissemination.

Directors agreed that the staff should continue to provide periodic updates on the progress with the OFC program, and that the Board should conduct its next review of the OFC program in 2–3 years.

The Acting Chair’s Summing Up on Intensified Fund Involvement in Anti-Money Laundering and Combating the Financing of Terrorism Executive Board Meeting 01/116, November 12, 2001

In particular, Directors supported:

  • circulating to all Fund members over time in the context of Article IV consultations a voluntary questionnaire (based on the expanded AML methodology). This exercise should be seen as a complement and not as a substitute to FSAPs and OFC assessments, and should inform the Article IV discussions and help set priorities for technical assistance. The results of the exercise could, with the agreement of the member, be made available to the Board;

Summing Up by the Acting Chair—Anti-Money Laundering and Combating the Financing of Terrorism—Proposals to Assess a Global Standard and to Prepare ROSCs Executive Board Meeting 02/80, July 26, 2002

Executive Directors welcomed the opportunity to discuss proposals that would significantly advance the Fund’s contribution to international efforts to combat money laundering and the financing of terrorism. They noted that the Fund has begun a new chapter in its work in this area by taking two key steps:

  • conditionally adding the Financial Action Task Force (FATF) 40 Recommendations on an effective anti-money laundering framework and the 8 Special Recommendations on Terrorism Financing (FATF 40+8) to the list of areas and associated standards and codes useful to the operational work of the Fund; and

  • endorsing a 12-month pilot program of AML/CFT assessments and accompanying Reports on the Observance of Standards and Codes (ROSCs) that would involve participation of the Fund and the World Bank, the Financial Action Task Force, and FATF-Style Regional Bodies (FSRBs).

Directors expect that such assessments and ROSCs will play an important role in the further development of an effective global AML/CFT framework.

Directors noted that, in its Communiqué of April 20, 2002, the International Monetary and Financial Committee (IMFC) stated that the Fund’s AML/CFT efforts should now be focused on completing the comprehensive AML/CFT methodology being developed jointly by Fund/Bank staff and the FATF, based on a global standard covering the FATF 40+8 Recommendations; on the development of assessment procedures compatible with the uniform, voluntary, and cooperative nature of the ROSC process; and on enhancing the delivery of related technical assistance. Directors had committed the staff to work collaboratively with the FATF and other financial sector standard setters to implement these goals.

In moving forward, Directors emphasized that the following four key principles should guide the Fund’s role in AML/CFT assessments and accompanying ROSCs:

  • the staff’s involvement in assessing non-prudentially-regulated financial sector activities should be confined to those that are macroeconomically relevant and pose a significant risk of money laundering/terrorism financing;

  • all assessment procedures should be transparent and consistent with the mandate and core expertise of the different institutions involved, and compatible with the uniform, voluntary, and cooperative nature of the ROSC exercise;

  • the assessments should be followed up with appropriate technical assistance at the request of the countries assessed in order to build their institutional capacity and develop their financial sectors; and

  • the assessments would be conducted in accordance with the comprehensive and integrated methodology.

Directors considered the staff paper to have set out a pragmatic and forward-looking framework by which the Fund can begin to operationalize its intensified work on AML/CFT and cooperation with relevant international bodies. For this reason, they endorsed adding AML/CFT to the list of 11 areas where standards and codes are useful to the operational work of the Fund and for which assessments are undertaken, and to adopt the FATF 40+8 Recommendations as the associated standard, provided that four conditions are met:

i. The FATF Secretariat, in consultation with Fund/Bank staff, satisfactorily completes the draft of the comprehensive and integrated assessment methodology by the Annual Meetings for consideration at the October FATF Plenary;

ii. The FATF endorses in its October Plenary the comprehensive and integrated assessment methodology and its use in undertaking FATF/FSRB mutual evaluations and Fund/Bank staff-led assessments;

iii. The FATF agrees in its October Plenary to undertake its mutual evaluations consistent with the ROSC process as elaborated in Section II of SM/02/227; and

iv. The FATF does not undertake a further round of the non-cooperative countries and territories (NCCT) initiative, at least during the period of the 12-month pilot project.

Directors endorsed the proposal to use two approaches to conduct the assessments:

  • FATF and FSRBs-led assessments and associated ROSCs, which would be undertaken in the context of FATF/FSRB mutual evaluations and would not include Fund/Bank staff; and

  • Fund/Bank staff-led assessments and associated ROSCs, which would be undertaken by both Fund/Bank staff (including experts under staff supervision), who would assess and take responsibility for part of each assessment and associated ROSC, and other experts not affiliated with Fund/Bank staff who would assess and take responsibility for the rest of the assessment and associated ROSC.

In the case of Fund/Bank-led assessments, a number of Directors would have preferred a more unified approach under which the Fund/Bank would have responsibility for the whole process.

Most Directors, in order to enhance cooperation further with the FATF, agreed that reports on observance associated with FATF-led assessments would be considered ROSCs provided that there is compliance with the conditions outlined above. However, several Directors expressed concern that condition 4 did not go far enough. They preferred that the FATF also state that it did not expect to undertake a further round of the NCCT process after the end of the 12-month pilot program. These Directors also preferred that reports on observance associated with FATF-led assessments not be designated ROSCs unless the FATF undertook a blanket commitment not to undertake any further country assessments without the consent of the country, and acknowledge that it would accept the results of any Fund/Bank-led assessments. Directors hoped that the Fund/Bank’s cooperative relationship with the FATF on AML/CFT assessments based on the ROSC principles would continue even after the 12-month pilot program had expired. It was generally agreed that duplication of assessments should be avoided, to the extent possible. However, some Directors felt that instances of duplication could allow comparison of the two methods and be a source of useful information on the assessment procedure. It was also noted that these assessments are meant to be an ongoing process, and it is possible that over a period of time countries may undergo assessment under both approaches. At the same time, a few Directors also considered it important to avoid creating the impression that the two approaches implied that there are two tiers of membership: those countries eligible for FATF/FSRB-led assessments and others eligible for Fund/Bank-led assessments.

Directors agreed that, while both approaches would encompass a comprehensive treatment of AML/CFT covering all FATF 40+8 Recommendations, Fund staff (and experts under staff supervision) would not be involved in assessing implementation of criminal laws and the activities of those parts of the non-prudentially-regulated financial sector that are not macro-relevant and do not pose a significant risk of money laundering or financing of terrorism. Although it would not be responsible for assessing these areas, several Directors underscored that the Fund would need to select the outside experts who would be assessing them in a manner that ensures the independence of the assessors and the confidentiality of information.

Directors supported the proposed process for reviewing the assessments and associated ROSCs, while emphasizing the need to ensure that they conform with the principle of uniformity. Some Directors, however, advocated a higher level of substantive review of assessments and associated ROSCs prepared by the FATF and FSRBs so as to ensure uniformity with those prepared by the Fund and the Bank. They saw the 12-month pilot program as a sensible and practical vehicle to learn lessons about the assessment methodology, the two assessment approaches, and coordination. A comprehensive review at the end of the pilot study was expected, focusing, inter alia, on the various lessons learned, and the consistency and quality of assessments.

Directors emphasized the importance of the delivery of technical assistance to help countries address gaps in the AML/CFT frameworks that are identified in assessments, and the associated allocation of additional resources to this effort. However, it was stressed that this should not come at the expense of more traditional core technical assistance.

Given the high priority that the international community has attached to the Fund’s AML/CFT efforts, Directors supported the assignment of additional resources to AML/CFT work as outlined in the supplementary paper, noting that resource costs will need to be further refined in light of experience with the 12-month pilot program as part of the FY 2003–2004 budget preparation process.

Directors noted that a timetable for completion of the draft comprehensive and integrated assessment methodology for circulation to the Board by the time of the Annual Meetings and endorsement at the FATF October Plenary was agreed to by the staff and representatives from the FATF, other financial standard setters, and the Egmont Group at a meeting held in Basel on July 23, 2002. The comprehensive and integrated assessment methodology would be presented to the Fund’s Executive Board for its endorsement following endorsement at the FATF Plenary.

Directors looked forward to a report from the staff on the completion of the four conditions prior to the commencement of the 12-month pilot program.

Report on Outcome of Fatf Plenary Meeting and Endorsement of Methodology for Assessing Compliance with Anti-Money Laundering and Combating Financing of Terrorism Standard

Executive Directors take note that the conditions set forth in BUFF/02/1221 are met and add the FATF 40+8 Recommendations to the list of areas and associated standards and codes useful to the operational work of the Fund for which assessments will be undertaken and reports on the Observance of Standards and Codes (ROSCs) will be prepared.

Executive Directors endorse the comprehensive and integrated methodology that was endorsed at the FATF October 2002 Plenary. (SM/02/349, 11/8/02)

Decision No. 12884-(02/114),

November 15, 2002

The Acting Chair’s Summing Up—Twelve-Month Pilot Program of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Assessments—Joint Report on the Review of the Pilot Program Executive Board Meeting 04/29, March 24, 2004

Executive Directors welcomed the opportunity to review the experience of the joint Fund/Bank program for assessments and technical assistance for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). They commended the Fund/Bank staffs on the overall success of the pilot program, noting that AML/CFT assessments and technical assistance have now become an important component of the Fund and the Bank’s work to strengthen the integrity of financial systems and deter financial abuse.

Directors welcomed the participation by the Financial Action Task Force (FATF) and FATF-style regional bodies (FSRBs) in the pilot program. Although a full review of the quality and consistency of their reports will take place at a later date, Directors were encouraged by the initial finding that the FATF/FSRBs’ assessments were prepared in accordance with the principles of the Reports on the Observance of Standards and Codes (ROSCs) and were linked to the Financial Sector Assessment Program (FSAP), and that the reports received to date were generally of good quality. They underlined the importance of coordinating the Fund/Bank’s work with that of the FATF and the FSRBs to avoid duplication of assessments. Directors looked forward to receiving the full review of the quality of the FATF/FSRBs’ assessments and their consistency with the ROSC principles, as well as the effectiveness of coordination efforts, in about 18 months’ time.

Directors noted that the pilot program had achieved the initial objectives agreed to by the Executive Board and, in particular, that it had led to a considerable deepening of international attention to AML/CFT issues and to the provision of substantial technical assistance in this area. They were encouraged that most jurisdictions have responded positively to assessments. Directors commended the generally high level of compliance with the FATF recommendations in higher- and middle-income countries, while noting that many lower-income countries face a challenge in implementing the FATF standard owing in part to shortages of resources to devote to this purpose. While observing that there are more general weaknesses regarding compliance with the eight special recommendations on terrorist financing, Directors welcomed the increased awareness among jurisdictions of the need for strong legislative and institutional frameworks in this area.

Directors emphasized that a key element of raising global compliance with the FATF standard is the delivery of technical assistance. In this regard, they welcomed the significant and increased contribution by the Fund in the delivery of technical assistance on AML/CFT in legislative drafting, support to supervisory bodies, establishment of financial intelligence units, and training. At the same time, Directors recognized that the Fund is only one of many technical assistance providers, and emphasized the Fund’s need to work closely with bilateral and other multilateral donors, while respecting their different mandates and expertise. They agreed that the delivery of technical assistance to strengthen the capacity of FSRBs to conduct assessments was a cost-effective way of strengthening the global efforts on AML/CFT.

Directors noted that the Fund/Bank had conducted the great majority of assessments during the pilot program, reflecting the late start of the FATF/FSRBs in conducting assessments during the pilot program. Further, they observed that the Fund had conducted a greater share of the assessments, in part reflecting the intensified work on Offshore Financial Centers (OFCs), in which the Bank is not involved. Looking ahead, Directors welcomed the commitment by the FATF President to ensure that the FATF takes on a more equitable sharing of the burden. They noted that the FATF and the FSRBs combined are expected to conduct assessments of 15 to 20 countries per year. They requested the staff to ensure close collaboration and coordination with the FATF/FSRBs on assessment schedules. Directors also welcomed the commitment by the Bank to share the assessment burden equally with the Fund during the transition period and later.

In view of the success of the pilot program and the importance attached to AML/CFT work, Directors agreed that it should be a regular part of the Fund’s work, and that AML/CFT assessments, whether prepared by the Fund/Bank or the FATF/FSRBs, should continue to be included in all FSAP and OFC assessments. Going forward, the Executive Board endorsed the revised FATF standard that expands the scope of activities, and the revised assessment methodology for the Fund’s operational work, in view of the international acceptance that the revised FATF 40+8 is the relevant standard for the preparation of the AML/CFT ROSCs. Directors, moreover, agreed on the importance of continuing collaboration with the FATF in light of its indication that it has no plans at present to conduct a further round of the Non-Cooperative Countries and Territories (NCCT) exercise. In addition, in this regard, some Directors expressed concern that the FATF had left open the possibility of further rounds of the NCCT exercise, and noted that if the FATF were to resume the NCCT exercise, the Fund would need to reconsider collaboration with the FATF, as the exercise is at odds with the uniform, voluntary, and cooperative nature of the ROSC exercise. They indicated that the suspension of the exercise should continue to be a condition for the Fund’s joint work.

Directors acknowledged that some areas of the assessment process could be improved, particularly with regard to the integration of the work now carried out by the independent AML/CFT experts (IAEs) into the overall assessment process. They stressed that the need to ensure effective integration and quality control of the IAEs’ work would become more pressing with the adoption of the new FATF recommendations, and therefore supported the adoption of measures to strengthen the contribution of IAEs in Fund assessments, within resource constraints.

In considering the options for advancing the Fund’s work on AML/CFT, many Directors expressed a preference for continuing the status quo, as outlined under Option 1 in the staff paper, which they thought is working well and limits the staff’s involvement in the assessments to those areas that they felt were within the core mandate and expertise of the Fund. They considered that extending the Fund’s involvement to law enforcement issues would risk jeopardizing the cooperative nature of the Fund’s relations with its members and the support of the membership for AML/CFT. These Directors also felt that the identified need to improve the work of the independent AML/CFT experts (IAEs) could be accommodated without expanding the areas of involvement of the Fund and the Bank in AML/CFT. However, the majority of the Executive Board agreed to support the Fund becoming fully accountable, together with the Bank, for AML/CFT assessments and for providing technical assistance, including in the sectors covered by IAEs, as outlined under Option 3 in the staff paper. These Directors agreed that assessing whether countries have the capacity to implement AML/CFT laws effectively is part of the core mandate of the Fund and does not contravene the prohibition of the Fund to exercise law enforcement powers. They supported a more comprehensive and integrated approach to conducting AML/CFT assessments in order to enhance the efficiency and quality of the process.

In considering Option 3, which calls for the costs of assessments to be borne by the Fund/Bank, Directors noted that there is uncertainty about the eventual cost of taking on the additional assessment and technical assistance work. In particular, they noted that developing more precise cost estimates for assessments will require practical experience with implementation of the new standard in the transition period in fiscal year 2005. Directors also noted that actual experience will help refine estimates of the resource costs. Some Directors indicated that without better estimates of the costs, it was difficult for them to assess fully the merits of the different options, and thought it appropriate to introduce a cap in the fiscal year 2005 budget for the assessments. Directors emphasized, however, that the extension of this work should not crowd out other essential activities, including ongoing technical assistance. They noted that specific redeployment and allocation of the additional resources and staff positions to undertake the expanded assessment and technical assistance work in the next year will be taken up as part of the fiscal year 2005 budget discussion. In this regard, Directors urged bilateral and multilateral donors of financing and of expert resources to support this initiative generously.

Directors indicated their interest in receiving reports on (i) the review of the quality and consistency of the FATF/FSRBs’ assessments and coordination in about 18 months’ time; and (ii) a comprehensive review of the overall effectiveness of the Fund/Bank program in about three years’ time.

Technical Assistance—Establishment of Framework Administered Account

1. Pursuant to Article V, Section 2(b), the Fund adopts the Instrument to establish an account for the administration by the Fund of resources to be contributed by: (i) governments or other official agencies of countries and (ii) intergovernmental organizations, in accordance with the terms and conditions of the Instrument set forth in the Annex to EBS/01/202.

2. The provisions of the Instrument may only be amended by a decision of the Fund and with the concurrence of the contributors that are financing activities through the account at the time of such decision.

Decision No. 10942-(95/33), April 3, 1995,

as amended by Decision Nos. 11162-(95/121), December 19, 1995, and 12641-(01/126)

December 6, 2001

ANNEX TO EBS/01/202

Instrument for a Framework Administered Account for Technical Assistance Activities

To help fulfill its purposes, the International Monetary Fund (the “Fund”) has adopted this Instrument to establish an account in accordance with Article V, Section 2(b) which shall be governed by, and administered in accordance with, the provisions of this Instrument.

1. The Fund hereby establishes an account (the “Framework Account”) for the purpose of the administration of resources to be contributed by: (i) governments or other official agencies of countries and (ii) intergovernmental organizations (individually referred to as a “Contributor,” collectively referred to as “Contributors”), in order to finance technical assistance activities of the Fund.

2. The resources provided by Contributors to the Framework Account shall be: (i) grants, or (ii) proceeds of grants or loans that have been received by the Contributor from entities other than the Fund for the purpose of financing technical assistance to the Contributor. The resources may be used by the Fund only for technical assistance activities consistent with its purposes, in accordance with the procedures specified in paragraph 3 of this Instrument.

3. (a) The financing of technical assistance activities shall be implemented through the establishment and operation of subaccounts within the Framework Account. A subaccount may be established with resources from one or more Contributors; with the agreement of the Managing Director and after consultation with the Contributors of such a subaccount, a Contributor may be added to the subaccount following the subaccount’s establishment.

(b) The establishment of a subaccount shall be subject to prior approval by the Fund, upon the recommendation of the Managing Director. When recommending approval of the establishment of a subaccount, the Managing Director shall specify the essential terms of the understandings that have been reached between the Contributor(s) and the Managing Director regarding (i) the nature, design and implementation of the technical assistance activities to be financed from the subaccount in question and (ii) the method by which the costs of the technical assistance activities will be financed from resources contributed to the subaccount by the Contributor(s). Further understandings between the Managing Director and the Contributor(s) shall determine the conditions governing and methods used for the disposition of any net contributions for purposes of paragraph 13. Following the establishment of a subaccount, the Fund shall be authorized to use the resources in the subaccount in accordance with the understandings reached between the Contributor(s) and the Managing Director.

4. Costs charged to a subaccount of the Framework Account as a result of costs incurred by the Fund in the performance of technical assistance activities shall be based on standard costs as determined by the Fund, unless otherwise agreed between the Fund and the Contributor(s). A subaccount shall also be charged an amount equivalent to a percentage of such costs so as to help cover the expenses incurred by the Fund in the administration of the technical assistance activities financed from the subaccount in question.

5. Resources in a subaccount may be used to make disbursements to the Fund’s General Resources Account as required to reimburse the Fund for expenditures incurred by the Fund on account of any technical assistance activity financed by resources from such subaccount.

6. All transactions and operations of the Framework Account shall be denominated in U.S. dollars.

7. Resource held in a subaccount of the Framework Account pending disbursement shall be invested at the discretion of the Managing Director. Earnings net of any costs associated with such investments shall accrue to the subaccount and shall be available for the purposes of the subaccount.

8. Subject to the requirement of Fund approval specified in paragraph 3, the Managing Director is authorized (i) to make all arrangements, including establishment of accounts in the name of the Fund, as he deems necessary to carry out the operations of the Framework Account; and (ii) to take all other measures he deems necessary to implement the provisions of this Instrument.

9. Assets held in the Framework Account shall be accounted for separately from the assets and property of other accounts of, or administered by, the Fund. The assets and property held in such other accounts shall not be used to discharge or meet any liabilities, obligations, or losses of the Fund incurred in the administration of the Framework Account nor shall the assets of the Framework Account be used to discharge or meet any liabilities, obligations, or losses incurred by the Fund in the administration of such other accounts. The assets and property held in each subaccount of the Framework Account shall not be used to discharge or meet any liabilities, obligations, or losses of the Fund incurred in the administration of any other subaccount of the Framework Account.

10. (a) The Fund shall maintain separate financial records and prepare separate financial statements for the Framework Account. Such records and statements, which shall include a breakdown with respect to each subaccount, will be maintained in accordance with generally accepted accounting principles. The financial statements for the Framework Account shall be expressed in U.S. dollars. For each subaccount, a report on the subaccount’s expenditures and a review of the activities financed by it shall be prepared by the Fund and furnished to the subaccount’s Contributor(s) annually, or more often if agreed between the Contributor(s) and the Managing Director.

(b) The External Audit Firm selected under Section 20 of the Fund’s By-Laws shall audit the operations and transactions conducted through the Framework Account. The audit shall relate to the financial year of the Fund.

(c) The Fund shall report on the position of the Framework Account, including a breakdown with respect to each subaccount, in the Annual Report of the Executive Board to the Board of Governors and shall include in that Annual Report the report of the External Audit Firm on the Framework Account.

11. Subject to the provisions of this Instrument, the Fund, in administering the Framework Account, shall apply, mutatis mutandis, the same rules and procedures as apply to the operation of the General Resources Account of the Fund.

12. The Framework Account or any subaccount thereof may be terminated by the Fund at any time; the termination of the Framework Account shall terminate each subaccount thereof. A subaccount may also be terminated by the Contributor of the resources to the subaccount or, in the case of a subaccount comprising resources from more than one Contributor, by all the Contributors participating in the subaccount at the time of termination, provided that a Contributor to such a subaccount may cease its own participation in the subaccount at any time without termination of the subaccount. Termination shall be effective on the date that the Fund or the Contributor(s), as the case may be, receives notice of termination, or such later date, if any, as may be specified in the notice of termination.

13. The Managing Director and the Contributor(s) shall reach understandings under paragraph 3(b) of this Instrument on the disposition upon termination of the subaccount of any balances, net of the amounts of continuing liabilities and commitments under the activities financed, that may remain in the subaccount with respect to the Contributor or, in the case of a subaccount comprising resources from more than one Contributor, the Contributors participating in the subaccount at the time of termination. The Managing Director and the Contributor(s) may also reach understandings with respect to retransfer to the Contributor of its contribution, net of the amounts of continuing liabilities and commitments under the activities financed, prior to termination of the subaccount; absent such understandings, any net contribution shall be retransferred to the Contributor only upon termination of the subaccount.

Framework Administered Account for Technical Assistance Activities—Pacific Financial Technical Assistance Centre Subaccount

In accordance with the terms and conditions of the Instrument establishing the Framework Administered Account for Technical Assistance Activities (Decision No. 10942-(95/33)), as amended, the Fund hereby approves the establishment of the “Pacific Financial Technical Assistance Centre Subaccount,” which shall be used by the Fund to administer resources to be contributed by the Government of Australia, and any subsequent Contributors, as described in EBS/02/84, 5/15/02.

Decision No. 12751-(02/52)

May 22, 2002

Framework Administered Account for Technical Assistance Activities—Africa Regional Technical Assistance Centers Subaccount

In accordance with the terms and conditions of the Instrument establishing the Framework Administered Account for Technical Assistance Activities (Decision No. 10942-(95/33)), as amended, the Fund hereby approves the establishment of the Africa Regional Technical Assistance Centers Subaccount, which shall be used by the Fund to administer resources to be contributed by the Governments of France, the Federal Republic of Germany, Italy, the Netherlands, Norway/Ministry of Foreign Affairs, Sweden, and the United Kingdom, and any subsequent Contributors, as described in EBS/02/135 (7/26/02).

Decision No. 12832-(02/88)

August 9, 2002

Policy Support Instrument—Framework

General

1. Upon request, the Fund will be prepared to provide the technical services described in this Decision to members that are eligible for assistance under the Poverty Reduction and Growth Facility (PRGF), i.e., included in the list of members annexed to Decision No. 8240-(85/56), as amended, and that: (a) have a policy framework focused on consolidating macroeconomic stability and debt sustainability, while deepening structural reforms in key areas in which growth and poverty reduction are constrained; and (b) seek to maintain a close policy dialogue with the Fund, through the Fund’s endorsement and assessment of their economic and financial policies under a Policy Support Instrument (PSI).

2. A PSI is a decision of the Executive Board setting forth a framework for the Fund’s assessment and endorsement of a member’s economic and financial policies. A PSI may be approved for a duration of one to three years, and may be extended up to an overall maximum period of four years.

3. Members with overdue financial obligations to either the Fund’s General Resources Account (GRA) or to the PRGF Trust are not eligible for a PSI.

The Member’s Documents

4. Program Documents. The member’s program of economic and financial policies for the period of a PSI will be described in a letter and/or memorandum that may be accompanied by a technical memorandum (“Program Documents”). The initial Program Documents will include: (a) a macroeconomic policy framework, including a quantified framework for at least the first 12 months under the PSI, with quarterly or semi-annual quantitative targets, and proposed assessment criteria for the first and second scheduled reviews, and (b) key structural measures that are needed to meet the objectives of the program. The Program Documents will be updated from time to time, as appropriate, in the context of reviews under the PSI.

5. Poverty Reduction Strategy (PRS) Documents. The member’s program will be based on the member’s poverty reduction strategy, which will be set forth in a Poverty Reduction Strategy Paper (“PRSP”), PRSP Preparation Status Report, Interim PRSP (“IPRSP”), or Annual Progress Report (“APR”).

Approval

6. A member’s request for a PSI may be approved only if the Fund is satisfied that:

(a) the policies set forth in the member’s Program Documents meet the standards of upper credit tranche conditionality; (b) the member’s program will be carried out, and in particular, that the member is sufficiently committed to implement the program; and (c) the member has a poverty reduction strategy evidenced by a PRS Document that has been issued to the Executive Board within the previous 18 months, accompanied by a Joint Staff Advisory Note (“JSAN”), provided, however, no JSAN will be required in connection with a PRSP preparation status report, in which case staff’s analysis of the PRSP preparation status report will be included in the staff report on a request for a PSI or a review under a PSI.

7. A member may be expected to adopt measures prior to the Executive Board’s approval of a PSI when it is critical for the successful implementation of the program that such actions be taken.

Program Reviews

8. The implementation of the member’s program under a PSI will be assessed through program reviews, which will normally be scheduled semi-annually. A review can be completed only if the Executive Board is satisfied that the member’s program is on-track and that the conditions for the approval of a PSI, noted in paragraph 6, above, continue to be met. Having conducted, but not completed, a scheduled review, the Executive Board may subsequently return to that review, unless the previous scheduled review was not completed. Documentation supporting a return to the uncompleted review must be issued to the Executive Board prior to the earliest test date of the periodic quantitative assessment criteria linked to the next scheduled review.

9. Implementation of the program will be monitored, in particular, on the basis of assessment criteria, indicative targets, structural benchmarks and prior actions:

(a) Assessment criteria.

  • (i) For the purposes of each review, the Fund shall establish assessment criteria, which may include: (a) assessment criteria linked to that review; and (b) assessment criteria that will apply on a continuous basis. Assessment criteria will apply to clearly-specified quantitative variables or structural measures that can be objectively monitored and are critical for the achievement of program goals or for monitoring implementation and whose nonobservance would normally signify that the program is off-track. In principle, quantitative assessment criteria shall be established with test dates at six month intervals. Documentation with respect to the conduct of a scheduled review would normally be issued to the Executive Board within 4 months of the earliest test date for the periodic quantitative assessment criteria linked to that review and shall in any event be issued before the earliest test date of the periodic quantitative assessment criteria linked to the next scheduled review.

  • (ii) A review will not be completed unless each assessment criterion related to that review is observed or a waiver for the nonobservance is granted. A review will not be completed where the member does not provide information necessary for the Fund to conclude that: (a) an assessment criterion related to that review is observed, or (b) a waiver of nonobservance is warranted. The Fund will grant a waiver for the nonobservance of an assessment criterion only if it is satisfied that, notwithstanding the nonobservance, the program will be successfully implemented, either because of the minor or temporary nature of the nonobservance or because of corrective actions taken by the authorities.

  • (iii) In order to complete a review, assessment criteria must be established for the shorter of: (a) the next two scheduled reviews, or (b) the remaining period of the PSI.

(b) Indicative targets and structural benchmarks. Variables and measures may also be established as quantitative indicative targets or structural benchmarks that will be examined in a review’s assessment of program performance.

(c) Prior actions. A member may be expected to adopt measures prior to the Executive Board’s completion of a review.

Misreporting

10. Any decision approving a PSI or completing a review will be made conditional upon the accuracy of information provided by the member regarding implementation of prior actions or performance under related assessment criteria.

11. Whenever evidence comes to the attention of the staff indicating that the member’s reporting of information noted in paragraph 10 above was inaccurate, the Managing Director shall promptly inform the member concerned.

12. If after consultation with the member, the Managing Director finds that, in fact, the member had reported such inaccurate information to the Fund, the Managing Director shall promptly notify the member of this finding.

13. In any case where a PSI was approved, or a review was completed, no more than three years prior to the date on which the Managing Director informs the member, as provided for in paragraph 11 above, the Executive Board shall decide whether misreporting has occurred and shall reassess program performance in the light of that determination.

14. The Fund shall proceed to make relevant information public in every case following an Executive Board decision under paragraph 13 above that misreporting has occurred, with prior Executive Board review of the text for publication.

Applicability of Certain UFR Policies

15. The Guidelines on Conditionality (Decision No. 12864-(02/102), September 25, 2002) shall apply where relevant and except where this Decision sets forth different or more specific provisions.

16. In addition, the Fund’s policies on the following subjects shall apply by analogy to PSIs: (a) requirement of full program financing; (b) arrears to official sector and external private creditors; and (c) use of side letters.

Termination of a PSI

17. A member may cancel a PSI at any time by notifying the Fund of such cancellation.

18. A PSI for a member will terminate upon: (a) the relevant member incurring overdue financial obligations to the GRA or PRGF Trust; or (b) noncompletion of two consecutive PSI scheduled reviews.

Miscellaneous

19. For purposes of this decision: (a) the terms PRSP, PRSP Preparation Status Report, I-PRSP, and APR shall have the meaning given to each of them in Section I, Paragraph 1 of the PRGF-HIPC Trust Instrument (Annex to Decision No. 11436-(97/10), adopted February 4, 1997, as amended); and (b) the term JSAN shall have the meaning given to it in Section I, Paragraph 1 of the PRGF-HIPC Trust Instrument (Annex to Decision No. 11436-(97/10), adopted February 4, 1997, as amended).

Periodic Review

20. The Fund will review application of this Decision at intervals of three years. (SM/05/343, Sup. 2, 9/30/05)

Decision No. 13561-(05/85),

October 5, 2005

Financial Services

Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust1

1. The Fund adopts the Instrument to Establish the Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust that is annexed to this decision.

2. The Fund is committed, if it appeared that any delay in payment by the Trust to lenders would be protracted, to consider fully and in good faith all such initiatives as might be necessary to assure full and expeditious payment to lenders.

Decision No. 8759-(87/176) ESAF

December 18, 1987,

as amended by Decision Nos. 9115-(89/40) ESAF, March 29, 1989,

9488-(90/106) ESAF, July 2, 1990,

9555-(90/146) ESAF, September 24, 1990,

9585-(90/161) ESAF, November 15, 1990,

10092-(92/94) ESAF, July 23, 1992,

10287-(93/23) ESAF, February 22, 1993,

10515-(93/162) ESAF, November 29, 1993,

10530-(93/170) ESAF, December 15, 1993,

10532-(93/170) ESAF, December 15, 1993,

11114-(95/110) ESAF, November 20, 1995,

11395-(96/110) ESAF, December 9, 1996,

11434-(97/10), February 4, 1997,

11435-(97/10), February 4, 1997,

11533-(97/67) ESAF, July 2, 1997,

11610-(97/113), December 19, 1997,

11832-(98/119) ESAF, November 20, 1998,

12087-(99/118) PRGF, October 21, 1999,

effective November 22, 1999,

12206-(00/55) PRGF, May 31, 2000,

12228-(00/66) PRGF, June 30, 2000,

12252-(00/77) PRGF, July 27, 2000,

12279-(00/86), August 25, 2000,

12326-(00/111) PRGF, November 10, 2000,

12344-(00/117) PRGF, November 28, 2000,

12545-(01/84) PRGF, August 22, 2001,

12560-(01/85) PRGF, August 23, 2001,

effective September 19, 2001,

13374-(04/105) PRGF, November 9, 2004

13588-(05/99) MDRI, November 23, 2005,

effective January 5, 2006,

and 13590-(05/99) ESF, November 23, 2005,

effective January 5, 2006

ANNEX: Instrument to Establish the Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust

Introductory Section

To help fulfill its purposes, the International Monetary Fund (hereinafter called the “Fund”) has adopted this Instrument establishing the Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust (hereinafter called the “Trust”), which shall be administered by the Fund as Trustee (hereinafter called the “Trustee”). The Trust shall be governed by and administered in accordance with the provisions of this Instrument.

Section I. General Provisions

Paragraph 1. Purposes

The Trust shall assist in fulfilling the purposes of the Fund by providing loans on concessional terms (hereinafter called “Trust loans”) to low-income developing members that qualify for assistance under this Instrument in order to:

(a) support programs under the Poverty Reduction and Growth Facility (hereinafter called the “PRGF”) to strengthen substantially and in a sustainable manner their balance of payments position and to foster durable growth, leading to higher living standards and a reduction in poverty; and

(b) support programs under the Exogenous Shocks Facility (hereinafter called the “ESF”) to facilitate an adjustment to a sudden and exogenous shock.

Paragraph 2. Accounts of the Trust

The operations and transactions of the Trust shall be conducted through a Loan Account, a Reserve Account, a PRGF Subsidy Account, an ESF Subsidy Account and a PRGF-ESF Subsidy Account (the latter three accounts collectively referred to herein as “Subsidy Accounts”). The resources of the Trust shall be held separately in each Account.

Paragraph 3. Unit of Account

The SDR shall be the unit of account for commitments, loans, and all other operations and transactions of the Trust, provided that commitments of resources to the Subsidy Accounts may be made in currency.

Paragraph 4. Media of payment of contributions and exchange of resources

(a) Resources loaned or donated to the Trust shall be received in a freely usable currency, subject to the provisions of (c) below, and provided that resources may be received by the Subsidy Accounts in other currency.

(b) Payments by the Trust to lenders or donors shall be made in U.S. dollars or such other media as may be agreed between the Trustee and such lenders or donors.

(c) Loans or donations to the Trust may also be made in or exchanged for SDRs in accordance with such arrangements as may be made by the Trust for the holding and use of SDRs.

(d) The Trustee may exchange any of the resources of the Trust, provided that any balance of a currency held in the Trust may be exchanged only with the consent of the issuers of such currencies.

Section II. Trust Loans

Paragraph 1. Eligibility and Conditions for Assistance

(a) The members on the list annexed to Decision No. 8240-(86/56) SAF, as amended, shall be eligible for assistance from the Trust.

(b) Assistance under the PRGF

(1) Assistance under the PRGF shall be committed and made available to a qualifying member under a single three-year arrangement (hereinafter called a “PRGF arrangement”) in support of a three-year macroeconomic and structural adjustment program presented by the member. The member shall also present a detailed statement of the policies and measures it intends to pursue for the first twelve months of the arrangement, in line with the objectives and policies of the three-year program. The PRGF arrangement will prescribe the total amount of resources committed to the member, the amount to be made available during the first year of the arrangement, the phasing of disbursements during that year, and the overall amounts to be made available during the second and third years of the arrangement. In principle, disbursements shall be phased at semiannual intervals (one upon approval and at approximately six-monthly intervals thereafter) with semiannual performance criteria and appropriate monitoring of key financial variables in the form of quarterly quantitative benchmarks and structural benchmarks for important structural reforms. The PRGF arrangement shall also provide for reviews by the Trustee of the member’s program to evaluate the macroeconomic and structural reform policies of the member and the implementation of its program and reach new understandings if necessary. In cases where closer monitoring is needed, the PRGF arrangement may provide for quarterly performance criteria and reviews and quarterly disbursements. The determination of the phasing of, and the conditions applying to, disbursements during the second and third years of the PRGF arrangement will be made by the Trustee in the context of a review of the program with the member, and of a detailed statement presented by the member describing progress made under the program, and the policies it will follow during the subsequent year of the arrangement to further the realization of the objectives of the three-year program, with such modifications as may be necessary to assist it to achieve its objectives in changing circumstances. After the expiration of a PRGF arrangement for an eligible member, or the cancellation of the PRGF arrangement by the member, the Trustee may approve additional PRGF arrangements for that member in accordance with the Instrument.

(2) Before approving a PRGF arrangement, the Trustee shall be satisfied that the member has a protracted balance of payments problem and is making an effort to strengthen substantially and in a sustainable manner its balance of payments position.

(3) The Trustee shall not approve a new PRGF arrangement or complete a review under a PRGF arrangement unless it finds that (i) the member concerned has a poverty reduction strategy set out in an I-PRSP, PRSP preparation status report, PRSP, or APR, that has been issued to the Executive Board normally within the previous 12 months but in any case within the previous 18 months, (ii) the IPRSP, PRSP preparation status report, PRSP, or APR has been the subject of an analysis in a Joint Staff Advisory Note also issued to the Executive Board, provided, however, that no Joint Staff Advisory Note will be required in connection with a PRSP preparation status report, in which case the analysis of the PRSP preparation status report will be included in the staff report on a new PRGF arrangement or a review under a PRGF arrangement, and (iii) if there are any weaknesses in the member’s poverty reduction strategy, such as those identified in the Joint Staff Advisory Note, and they are critical to Fund support under a PRGF arrangement, they have been addressed. For purposes of this Instrument, the terms I-PRSP, PRSP preparation status report, PRSP, APR and Joint Staff Advisory Note shall have the meaning given to each of them in Section I, Paragraph 1 of the PRGF-HIPC Trust Instrument (Annex to Decision No. 11436-(97/10), adopted February 4, 1997).

(c) Assistance under the ESF1

(1) Assistance under the ESF shall be committed and made available to a qualifying member under an arrangement (hereinafter called an “ESF arrangement”) in support of a macroeconomic and structural adjustment program presented by the member. The period for an ESF arrangement shall range from one to two years. In cases where the period of an ESF arrangement exceeds one year, the member shall present a detailed statement of the policies and measures it intends to pursue for at least the first twelve months of the arrangement, in line with the objectives and policies of the overall program. The ESF arrangement will prescribe the total amount of resources committed to the member and the phasing of disbursements during the period of the arrangement; provided that in cases where the period of an ESF arrangement exceeds one year, the arrangement may prescribe the amount to be made available only during the first year of the arrangement and the phasing of disbursements during that year. Disbursements may be phased (i) at semiannual intervals (one upon approval and at approximately six-monthly intervals thereafter) with semiannual performance criteria and with appropriate monitoring of key financial variables in the form of quarterly quantitative benchmarks and structural benchmarks for important structural reforms, or (ii) at quarterly intervals (one upon approval and at approximately three-monthly intervals thereafter) with quarterly performance criteria. The phasing of disbursements in any particular case shall be determined on the basis of an assessment by the Trustee taking into account factors such as the duration of the arrangement, the balance of payments need of the member, the volatility of its economic situation and its administrative capacity constraints. The ESF arrangement shall also provide for reviews by the Trustee of the member’s program to evaluate the macroeconomic and structural reform policies of the member and the implementation of its program and reach new understandings if necessary. In cases where the period of an ESF arrangement exceeds one year, the determination of the phasing of, and the conditions applying to, disbursements during the period of the arrangement following the first year may be made by the Trustee in the context of a review of the program with the member, and of a detailed statement presented by the member describing progress made under the program, and the policies it will follow during the remaining period of the arrangement to further the realization of the objectives of the program, with such modifications as may be necessary to assist it to achieve its objectives in changing circumstances. After the expiration of an ESF arrangement for an eligible member, or the cancellation of the ESF arrangement by the member, the Trustee may approve additional ESF arrangements for that member in accordance with the Instrument, provided that a member may not have more than one ESF arrangement for the same shock.

(2) Before approving an ESF arrangement, the Trustee shall be satisfied that the member has a balance of payments need whose primary source is a sudden and exogenous shock. ESF arrangements will normally be approved only where the Trustee determines that, in order to adjust to the shock, the member does not need to implement structural reforms of the type that would normally be supported by a PRGF arrangement.

(3) The Trustee shall not approve a new ESF arrangement or complete a review under an ESF arrangement unless it finds that (i) the member concerned has a poverty reduction strategy set out in an I-PRSP, PRSP preparation status report, PRSP or APR, that has been issued to the Executive Board normally within the previous 12 months but in any case within the previous 18 months, and (ii) the IPRSP, PRSP preparation status report, PRSP, or APR has been the subject of an analysis in a Joint Staff Advisory Note also issued to the Executive Board, provided, however, that no Joint Staff Advisory Note will be required in connection with a PRSP preparation status report, in which case the analysis of the PRSP preparation status report will be included in the staff report on a new ESF arrangement or a review under an ESF arrangement. In exceptional circumstances, the Trustee may approve a new ESF arrangement for a member where the conditions set forth in (i) and (ii) above are not met at the time of approval of the arrangement, if the Trustee is assured of the member’s commitment regarding its poverty reduction strategy during the period of the arrangement; provided that in these circumstances, issuance of an I-PRSP, PRSP preparation status report, PRSP, or APR to the Executive Board, together with an analysis in a Joint Staff Advisory Note or in the staff report as the case may be, shall be a condition for completion of the first review under the arrangement. The Trustee will assess, on a case-specific basis, the extent to which any weaknesses in the member’s poverty reduction strategy, such as those identified in the Joint Staff Advisory Note, that are critical to Fund support under an ESF arrangement need to be addressed prior to approval of the arrangement or completion of a review under the arrangement as the case may be.

(d) General Provisions

(1) A member may not obtain assistance from the Trust under the PRGF and the ESF at the same time.

(2) Commitments under arrangements under this Instrument may be made for the period through December 31, 2006.

(3) The Managing Director shall not recommend for approval, and the Trustee shall not approve, a request for an arrangement under this Instrument whenever 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, or while the member is failing to meet a repurchase expectation to the Fund pursuant to Decision No.7842-(84/165) on the Guidelines on Corrective Action, or pursuant to paragraphs 17 or 31 of Decision No. 8955-(88/125) on the Compensatory Financing Facility, or a purchase pursuant to Decision No. 11627-(97/123) on the Supplemental Reserve Facility, or is failing to meet a repayment expectation pursuant to Section II, paragraph 3(c) or the provisions of Appendix I to this Instrument, or is failing to meet a repurchase expectation pursuant to paragraph 1(b) of Decision No 5703-(78/39) or paragraph 10(a) of Decision No. 4377-(74/114).

(4) The Trustee shall not complete a review under an arrangement under this Instrument unless and until all other conditions for the disbursement of the corresponding loan have been met or waived.

Paragraph 2. Amount of Assistance

(a) An initial maximum limit on access to resources under the PRGF shall be established by the Trustee, as a proportion of members’ quotas in the Fund, and provisions shall be made for a limit up to which that maximum limit may be exceeded in exceptional circumstances. A maximum limit on access to resources under the ESF shall be established by the Trustee, as a proportion of members’ quotas in the Fund, and provisions shall be made allowing that maximum limit to be exceeded in exceptional circumstances. These access limits shall be subject to review from time to time by the Trustee in the light of actual utilization of resources available to the Loan Account.

(b) To the extent that a member has notified the Trustee that it does not intend to make use of the resources available from the Trust under the PRGF and ESF, the member shall not be included in the calculations of the access limits on Trust loans.

(c) The access for each member that qualifies for assistance from the Trust under the PRGF or ESF shall be determined on the basis of an assessment by the Trustee of the balance of payments need of the member, the strength of its adjustment program, the amount of the member’s outstanding use of credit extended by the Fund, and its record in using Fund credit in the past. The access for each member that qualifies for assistance under the ESF shall also take into account the size and likely persistence of the shock.

(d) The amount of resources committed to a qualifying member under a PRGF or ESF arrangement may be increased at the time of any review contemplated under the arrangement, to help meet a larger balance of payments need or in the case of a PRGF arrangement, to support a strengthening of the program. The amount committed to a member under a PRGF arrangement shall not be reduced because of developments in its balance of payments, unless such developments are substantially more favorable than envisaged at the time of approval of the arrangement and the improvement for the member derives in particular from improvements in the external environment.

(e) Any commitment shall be subject to the availability of resources to the Trust.

Paragraph 3. Disbursements

(a) Any disbursement shall be subject to the availability of the resources to the Trust.

(b) Disbursements under an arrangement under this Instrument must precede the expiration of the arrangement period. If phased amounts under an arrangement do not become available as scheduled due to delays in program implementation, nonobservance of conditions attached to such disbursements or delays in reaching new understandings when necessary, the Trustee may rephase those amounts over the remaining period of the arrangement. The Trustee may also extend the period of (i) a PRGF arrangement for up to one year to allow for the disbursement of rephased amounts or to provide additional resources, subject to appropriate conditions consistent with the terms of assistance under the PRGF and (ii) an ESF arrangement for up to the overall maximum two-year period referred to in Section II, paragraph (c)(1) to allow for the disbursement of rephased amounts or to provide additional resources subject to appropriate conditions consistent with the terms of assistance under the ESF.

(c) When requesting a disbursement under an ESF arrangement, the member shall represent that it has a need because of its balance of payments or its reserve position or developments in its reserves. The Trustee shall not challenge this representation of need prior to providing the member with the requested disbursement. If, after a disbursement is made, the Trustee determines that the disbursement took place in the absence of a need, the Trustee may decide that the member shall be expected to repay an amount equivalent to the disbursement, together with any interest accrued thereon, normally within a period of 30 days from the date of the Executive Board decision establishing that the member is expected to make an early repayment. If the member fails to meet a repayment expectation within the period established by the Trustee, (i) the Managing Director shall promptly submit a report to the Executive Board together with a proposal on how to deal with the matter, and (ii) interest shall be charged on the amount subject to the repayment expectation at the rate applicable to overdue amounts under paragraph 4 of this Section.

(d) Disbursements shall normally be made on the fifteenth and the last day of the month, provided that if these days are not business days of the Trustee, the disbursement shall be made on the preceding business day. Following a member’s qualification for a disbursement, the disbursement shall be made on the first of these value dates for which the necessary notifications and payment instructions can be issued by the Trustee.

(e) No disbursement under any commitment to a member shall be made after the expiration of the period referred to in Section III, paragraph 3.

(f) In cases of misreporting and noncomplying disbursements of Trust loans, the provisions of Appendix I, which is incorporated at the end of this Instrument, shall apply

(g) Disbursements under an arrangement to a qualifying member shall be suspended in all the cases specified in Paragraph 1(d)(3) of this Section.

Paragraph 4. Terms of loans

(a) Interest on the outstanding balance of a loan under the PRGF and the ESF shall be charged at the rate of one half of one percent per annum subject to the provisions of Section IV, paragraph 5, and provided that interest at a rate equal to the rate of interest on the SDR shall be charged on the amounts of any overdue interest on or overdue repayments of Trust loans.

(b) Trust loans shall be disbursed in a freely usable currency as decided by the Trustee. They shall be repaid, and interest paid, in U.S. dollars or other freely usable currency as decided by the Trustee. 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 for payment of interest or repayments of loans by the member to the Trust.

(c) The Trustee may not reschedule the repayment of loans from the Trust.

(d) Trust loans shall be repaid in ten equal semi-annual installments beginning not later than five and a half years from the date of each disbursement and completed at the end of the tenth year after that date.

Paragraph 5. Modifications

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

Section III. Borrowing for the Loan Account

Paragraph 1. Resources

The resources held in the Loan Account shall consist of:

(a) the proceeds of loans made to the Trust for that Account; and

(b) payments of principal and interest on Trust loans, subject to the provisions of Section V, paragraph 3.

Paragraph 2. Borrowing authority

The Trustee may borrow resources for the Loan Account on such terms and conditions as may be agreed between the Trustee and the respective lenders subject to the provisions of this Instrument.

Paragraph 3. Commitments

Commitments for drawings under loan agreements to the Loan Account of the ESAF Trust that were entered into before November 30, 1993 shall extend through December 31, 1997, and under loan agreements that are entered into after November 30, 1993 shall extend through December 31, 1999. The drawdown period under loan agreements to the Loan Account of the PRGF-ESF Trust for Interim PRGF-ESF financing shall extend through December 31, 2009. The drawdown period may be extended by mutual agreement between the Trustee and the lender. The Managing Director is authorized to conclude such agreements on behalf of the Trustee.

Paragraph 4. Drawings on loan commitments

(a) Drawings on the commitments of individual lenders over time shall be made so as to maintain broad proportionality of these drawings relative to commitments, provided that the Trustee will aim to draw fully all loans entered into prior to August 31, 2001 before calling on loans entered into after that date.

(b) Calls on a lender’s commitment shall be suspended temporarily if, at any time prior to June 30, 1997, in case of a commitment under a loan agreement entered into before November 30, 1993, or prior to June 30, 1999, in case of a commitment under a loan agreement entered into after November 30, 1993, or prior to June 30, 2009, in case of a commitment under a loan agreement entered into after August 31, 2001, the lender represents to the Trustee that it has a liquidity need for such suspension and the Trustee, having given this representation the overwhelming benefit of any doubt, agrees. The suspension shall not exceed three months, provided that it may be extended for further periods of three months by agreement between the lender and the Trustee. No extension shall be agreed which, in the judgment of the Trustee, would prevent drawing of the full amount of the lender’s commitment.

(c) Following any suspension of calls with respect to the commitment of a lender, calls will be made on that commitment thereafter so as to restore proportionality of calls on all lenders as soon as practicable.

Paragraph 5. Payments to lenders

(a) The Trust shall make payments of principal and interest on its borrowing for the Loan Account from the payments into that account of principal and interest made by borrowers under Trust loans. Payments of the authorized subsidy shall be made from the Subsidy Accounts in accordance with Section IV of this Instrument, and, as required, payments shall be made from the Reserve Account in accordance with Section V of this Instrument.

(b) The Trust shall pay interest on outstanding borrowing for Trust loans promptly after June 30 and December 31 of each year, unless the particular modalities of a loan to the Trust make it necessary for the Trustee to agree with the lender on interest payments at other times.

Section IV. Subsidy Accounts

Paragraph 1. Resources

(a) The resources held in the PRGF-ESF Subsidy Account shall consist of:

(i) the proceeds of donations made to the Trust for the Subsidy Account of the PRGF Trust prior to January 5, 2006, unless a donor notifies the Trustee that it wishes to transfer the proceeds of its outstanding donation to another Subsidy Account by March 6, 2006;

(ii) the proceeds of loans made to the Trust for the Subsidy Account of the PRGF Trust prior to January 5, 2006, unless a lender notifies the Trustee that it wishes to transfer the proceeds of its outstanding loan to another Subsidy Account by March 6, 2006;

(iii) the proceeds of donations made to the Trust for the PRGFESF Subsidy Account;

(iv) the proceeds of loans made to the Trust for the PRGF-ESF Subsidy Account;

(v) transfers from the Special Disbursement Account in accordance with Decision No. 10531-(93/170);

(vi) transfers from the Special Disbursement Account in accordance with paragraph 5(c) of Decision No. 13588-(05/99) MDRI; and

(vii) net earnings from investment of resources held in that Account.

(b) The resources held in the ESF Subsidy Account shall consist of:

(i) the proceeds of donations made to the Trust for that Account;

(ii) the proceeds of loans made to the Trust for that Account; and

(iii) net earnings from investment of resources held in that Account.

(c) The resources held in the PRGF Subsidy Account shall consist of:

(i) the proceeds of donations made to the Trust for that Account;

(ii) the proceeds of loans made to the Trust for that Account;

(iii) transfers from the Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations (PRGF-HIPC Trust) in accordance with Section III bis of the Instrument establishing that Trust; and

(iv) net earnings from investment of resources held in that Account.

Paragraph 2. Donations

The Trustee may accept donations of resources for any of the Subsidy Accounts on such terms and conditions as may be agreed between the Trustee and the respective donors, subject to the provisions of this Instrument. To the extent possible, annual contributions should be made before May 30 of each year.

Paragraph 3. Borrowing

The Trustee may, in exceptional circumstances, borrow resources for any of the Subsidy Accounts from official lenders on such terms and conditions as may be agreed between the Trustee and the lenders; in order:

(a) to prefinance an amount that is firmly committed to be donated to the Trust for the relevant Subsidy Account; repayment of principal and any payments of interest on such borrowing shall be contingent upon the receipt by the relevant Subsidy Account of the donation that has been prefinanced; and

(b) that the relevant Subsidy Account may benefit from net investment earnings on the proceeds of a loan extended at a concessional interest rate; repayment of principal and any payment of interest on such borrowing shall be made exclusively from the proceeds of liquidation of the investment and the earnings thereon.

Paragraph 4. Authorized subsidy

(a) The Trustee shall draw upon the resources available in the PRGF-ESF Subsidy Account to pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the PRGF or the ESF, provided that resources available in the PRGF-ESF Subsidy Account shall be drawn upon for these purposes only if there are no other resources immediately available in the PRGF Subsidy Account or the ESF Subsidy Account, as the case may be, for these purposes. For purposes of the preceding sentence, resources in the PRGF-HIPC Trust that are transferable to the PRGF Subsidy Account shall not be considered resources immediately available in the PRGF Subsidy Account.

(b) The Trustee shall draw upon the resources available in the ESF Subsidy Account to pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the ESF.

(c) The Trustee shall draw upon the resources available in the PRGF Subsidy Account to pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for loans under the PRGF.

Paragraph 5. Calculation of subsidy

(a) The amount of the subsidy shall be determined by the Trustee in the light of (i) the objective of ensuring that the PRGF and ESF are highly concessional facilities and, to the extent possible, of reducing the rate of interest charged on Trust loans to 0.5 percent, (ii) the rate of interest on resources available to the Loan Account, and (iii) the availability and prospective availability of resources to the

Subsidy Accounts.

(b) The Trustee shall keep the operation of the Subsidy Accounts under review. If at any time it determines that resources available or committed are likely to be insufficient to reduce the rate of interest on either PRGF or ESF loans to 0.5 percent throughout the operation of the Trust, the Trustee shall seek such additional resources as may be necessary to achieve this objective.

(c) Should adequate additional resources not be forthcoming to reduce the rate on either PRGF or ESF loans to 0.5 percent, the Trustee shall recalculate the subsidy with a view to reducing that interest rate to the lowest feasible rate that could be applied throughout the remaining life of the Trust. The rate of interest charged on all outstanding loans by the Trust under the relevant facility shall be adjusted accordingly in the succeeding interest periods. Borrowers shall be notified promptly of such adjustments. Further recalculations and adjustments shall be made in subsequent interest periods, as necessary in light of developments with respect to the rate of interest on resources available to the Loan Account and the availability of resources to the Subsidy Accounts.

(d) If the interest due to lenders under the PRGF or ESF for an interest period has exceeded the interest due by borrowers under the relevant facility, together with the authorized subsidy under paragraph 4 of this Section for that period, and payment to lenders of that difference has been made from the Reserve Account in accordance with Section V, paragraph 2, then an amount equivalent to that difference shall be added to the interest due by the relevant borrowers for the succeeding interest period. Payment of that amount shall be made to the Reserve Account in accordance with Section V, paragraph 3. The additional interest due shall not be taken into account in the calculation of the authorized subsidy for that same interest period.

Paragraph 6. Termination arrangements

(a) Upon completion of the subsidy operations authorized by this Instrument, the Fund shall wind up the affairs of the Subsidy Accounts.

(i) Any resources remaining in the PRGF-ESF Subsidy Account shall be used in a manner consistent with paragraph 4(a) of this Section to reduce to the fullest extent possible, in accordance with this Instrument, to 0.5 percent the interest rate paid by borrowers on PRGF and ESF loans, by means of payments to such borrowers. Any resources remaining after that subsidization shall be distributed to the Fund, donors, and lenders that have contributed to the PRGF-ESF subsidy operation, in proportion to their contributions. The resources representing the Fund’s share in such distribution shall be transferred to the Special Disbursement Account.

(ii) Any resources remaining in the ESF Subsidy Account shall be used to reduce to the fullest extent possible, in accordance with this Instrument, to 0.5 percent the interest rate paid by borrowers on ESF loans, by means of payments to such borrowers. Any resources remaining after that subsidization shall be distributed to donors and lenders that have contributed to the ESF subsidy operation, in proportion to their contributions.

(iii) Any resources remaining in the PRGF Subsidy Account shall be used to reduce to the fullest extent possible, in accordance with this Instrument, to 0.5 percent the interest rate paid by borrowers on PRGF loans, by means of payments to borrowers. Any resources remaining after that subsidization shall be distributed to donors and lenders that have contributed to the PRGF subsidy operation, in proportion to their contributions.

(iv) For the purposes of the distributions provided for in this paragraph 6, account will be taken of donations, the net earnings from investment of the proceeds of concessional loans extended to the Subsidy Accounts under paragraph 3(b) above, and the subsidy element of concessional loans extended to the Trust under Section III; the subsidy element associated with such loans shall be calculated as the difference, if positive, between the SDR rate of interest and the interest on such loans, applied to the amount of the loans during the period they were outstanding.

(b) Prior to the termination of the PRGF-ESF Subsidy Account in accordance with (a)(i) above, the equivalent of SDR 1.12 billion of the resources in that Account that are not derived from the Special Disbursement Account shall be transferred from the Subsidy Account to the Multilateral Debt Relief Initiative-II Trust established pursuant to paragraph 2 of Decision No. 13588-(05/99) MDRI, upon the notification by sufficient contributors that up to the full amount of their outstanding contributions may be used for such a transfer.

Section V. Reserve Account

Paragraph 1. Resources

The resources held in the Reserve Account shall consist of:

(a) transfers by the Fund from the Special Disbursement Account in accordance with Decision No. 8760-(87/176), adopted December 18, 1987, as amended by Decision No. 10531-(93/170), adopted December 15, 1993;

(b) net earnings from investment of resources held in the Reserve Account;

(c) net earnings from investment of any resources held in the Loan Account pending the use of these resources in operations;

(d) payments of overdue principal or interest or interest thereon under Trust loans, and payments of interest under Trust loans to the extent that payment has been made to a lender from the Reserve Account;

(e) transfers by the Fund from the Special Disbursement Account in accordance with Decision No. 10286-(93/23) ESAF, adopted February 22, 1993; and

(f) repayments of the principal under Trust loans, to the extent that resources in the Reserve Account have been used to make payments to a lender due to a difference in timing between scheduled principal repayments to the lender and principal repayments under Trust loans.

Paragraph 2. Use of resources

The resources held in the Reserve Account shall be used by the Trustee to make payments of principal and interest on its borrowing for Trust loans, to the extent that the amounts available from receipts of repayments and interest from borrowers under Trust loans, together with the authorized subsidy under Section IV, paragraph 4, are insufficient to cover the payments to lenders as they become due and payable.

Paragraph 3. Payments to the Reserve Account

Any repayment of principal under Trust loans, to the extent that repayment to a lender has been made from the Reserve Account due to differences in timing between scheduled principal repayments to the lender and principal repayments under Trust loans, any payments of overdue principal or interest or interest thereon under Trust loans, and any payments of interest under Trust loans to the extent that payment has been made to a lender from the Reserve Account, shall be made to the Reserve Account.

Paragraph 4. Review of resources

If resources in the Reserve Account are, or are determined by the Trustee likely to become, insufficient to meet the obligations of the Trust that may be discharged from the Reserve Account as they become due and payable, the Trustee shall review the situation in a timely manner.

Paragraph 5. Reduction of resources and liquidation

(a) Whenever the Trustee determines that amounts in the Reserve Account of the Trust exceed the amount that may be needed to cover the total liabilities of the Trust to lenders that are authorized to be discharged by the Reserve Account, the Trustee shall retransfer such excess amount to the Fund’s Special Disbursement Account.

(b) Notwithstanding (a) above, the equivalent of up to SDR 250 million may be transferred from the Reserve Account to the Special Disbursement Account to be used to provide Trust grants or Trust loans, as defined in the Instrument to Establish a Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations. Transfers will be made only when and to the extent that the Trustee of the Trust established by that Instrument determines that there are no other resources immediately available for this purpose.

(c) Upon liquidation of the Trust, all amounts in the Reserve Account remaining after discharge of liabilities authorized to be discharged by the Reserve Account shall be transferred to the Special Disbursement Account.

Section VI. Transfer of Claims

Paragraph 1. Transfers by lenders

(a) Any lender shall have the right to transfer at any time all or part of any claim to any member of the Fund, to the central bank or other fiscal agency designated by any member for purposes of Article V, Section 1 (“other fiscal agency”), or to any official entity that has been prescribed as a holder of SDRs pursuant to Article XVII, Section 3 of the Fund’s Articles of Agreement.

(b) The transferee shall, as a condition of the transfer, notify the Trustee prior to the transfer that it accepts all the obligations of the transferor relating to the transferred claim with respect to renewal and new drawings, and shall acquire all the rights of the transferor with respect to repayment of and interest on the transferred claim.

Paragraph 2. Transfers among electing lenders

(a) Any lender to the Loan Account (“electing lenders”) may inform the Trustee that it stands ready, upon request by the Trustee, to purchase claims on the Trust from any other electing lender, provided that the holdings of claims so acquired shall at no time exceed the amount communicated to the Trustee and subject to the other provisions of this section. A list of electing lenders and the amounts communicated by them shall be established separately by the Trustee. This list may be extended and the amounts therein increased in accordance with communications received subsequently.

(b) An electing lender shall have the right to transfer temporarily to other electing lenders part or all of any claim arising from its loans to the Trust under Section III, if the electing lender represents to the Trustee that it has a liquidity need to make such transfer and the Trustee, having given this representation the overwhelming benefit of any doubt, agrees.

(c) The Trustee shall allocate each transfer by an electing lender under this provision to all other electing lenders in proportion to the amounts by which the respective maximum holdings listed in the attachment exceed actual holdings of claims acquired under this provision; provided, however, that no allocation shall be made to an electing lender if it represents to the Trustee that it has a liquidity need for exclusion from an allocation and the Trustee agrees, in which case allocations to the remaining electing lenders shall be adjusted accordingly.

(d) The purchaser of any claim transferred under this provision shall assume, as a condition of the transfer, any obligation of the transferor, relating to the transferred claim, with respect to the renewal of drawing on loans to the Trust and to new drawings on loans in the event a renewal, having been requested, is not agreed by the transferor.

(e) Transfers of claims under this provision shall be made in exchange for freely usable currency and shall be reversed in the same media within three months, provided that such transfers may be renewed, by agreement between the transferor and the Trustee, for further periods of three months up to a total of one year. Notwithstanding the above, the transferor shall reverse a transfer under this provision not later than the date on which the transferred claim is due to be repaid by the Trust.

(f) Interest on claims transferred under this Section shall be paid by the Trust to the transferor in accordance with the provisions of the transferor’s lending agreement with the Trust. The transferor shall pay interest to the transferee(s) on the amount transferred, so long as the transfer remains outstanding, at a daily rate equal to that set out in Rule T-1 of the Fund’s Rules and Regulations; such interest shall be payable three months after the date of a transfer or of its renewal, or on the date the transfer is reversed, whichever is earlier.

Section VII. Administration of the Trust

Paragraph 1. Trustee

(a) The Trust shall be administered by the Fund as Trustee. Decisions and other actions taken by the Fund as Trustee shall be identified as taken in that capacity.

(b) Subject to the provisions of this Instrument, the Fund in administering the Trust shall apply the same rules as apply to the operation of the General Resources Account of the Fund.

(c) The Trustee, acting through its Managing Director, is authorized:

(i) to make all arrangements, including establishment of accounts in the name of the International Monetary Fund, which shall be accounts of the Fund as Trustee, with such depositories of the Fund as the Trustee deems necessary; and

(ii) to take all other administrative measures that the Trustee deems necessary to implement the provisions of this Instrument.

Paragraph 2. Separation of assets and accounts, audit and reports

(a) The Resources of the Trust shall be kept separate from the property and assets of all other accounts of the Fund, including other administered accounts, and shall be used only for the purposes of the Trust in accordance with this Instrument.

(b) The property and assets held in the other accounts of the Fund shall not be used to discharge liabilities or to meet losses arising out of the administration of the Trust. The resources of the Trust shall not be used to discharge liabilities or to meet losses arising out of the administration of the other accounts of the Fund.

(c) The Fund shall maintain separate financial records and prepare separate financial statements for the Trust.

(d) The audit committee selected under Section 20 of the Fund’s By-Laws shall audit the financial transactions and records of the Trust. The audit shall relate to the financial year of the Fund.

(e) The Fund shall report on the resources and operations of the Trust in the Annual Report of the Executive Board to the Board of Governors and shall include in that Annual Report the report of the audit committee on the Trust.

Paragraph 3. Investment of resources

(a) Any balances held by the Trust and not immediately needed in operations shall be invested.

(b) Investments may be made in any of the following: (i) marketable obligations issued by an international financial organization and denominated in SDRs or in the currency of a member of the Fund; (ii) marketable obligations issued by a member or by a national official financial institution of a member and denominated in SDRs or in the currency of that member; and (iii) deposits with a commercial bank, a national official financial institution of a member, or an international financial institution that are denominated in SDRs or in the currency of a member. Investment which does not involve an exchange of currency shall be made only after consultation with the member whose currency is to be used, or, when an exchange of currencies is involved, with the consent of the issuers of such currencies.

Section VIII. Period of Operation and Liquidation

Paragraph 1. Period of operation

The Trust established by this Instrument shall remain in effect for as long as is necessary, in the judgment of the Fund, to conduct and to wind up the business of the Trust.

Paragraph 2. Liquidation of the Trust

(a) Termination and liquidation of the Subsidy Accounts shall be made in accordance with the provisions of Section IV, paragraph 6.

(b) All other resources, if any, shall be used to discharge any liabilities of the Trust, other than those incurred under Section IV, and any remainder shall be transferred to the Special Disbursement Account of the Fund.

Section IX. Amendment of the Instrument

The Fund may amend the provisions of the Instrument, except this Section and Section I, paragraphs 1 and 2; Section III, paragraphs 4 and 5; Section IV, paragraphs 4 and 6; Section V; Section VI; Section VII, paragraph 2(a) and (b); Section VIII, paragraph 2(b).

APPENDIX I1

Misreporting and Noncomplying Disbursements in Arrangements Under the Poverty Reduction and Growth Facility and the Exogenous Shocks Facility—Provisions on Corrective Action

a. A noncomplying disbursement occurs when (i) the Trustee makes a disbursement to a member under an arrangement approved in accordance with the Instrument on the basis of a finding by the Trustee or the Managing Director that all applicable conditions established for that disbursement under the terms of the decisions on the arrangement have been observed, and (ii) that finding later proves to be incorrect. For the purposes of these provisions, a condition established under the terms of a decision on an arrangement means a condition specified in the arrangement, or in a decision approving the arrangement, completing a review, or granting a waiver of applicability or for the nonobservance of a performance criterion under the arrangement.

b. Whenever evidence comes to the attention of the staff of the Trustee indicating that a member may have received a noncomplying disbursement, the Managing Director shall promptly inform the member concerned.

c. If, after consultation with the member, the Managing Director determines that the member did receive a noncomplying disbursement, the Managing Director shall promptly notify the member and submit a report to the Executive Board together with recommendations.

d. In any case where the noncomplying disbursement was made no more than four years prior to the date on which the Managing Director informed the member, as provided for in paragraph (b), the Executive Board may decide either (i) that the member will be called upon to make an early repayment, or (ii) that the nonobservance will be waived.

e. If the decision of the Executive Board is to call upon the member to make an early repayment as provided for in paragraph (d)(i), the member will be expected to repay an amount equivalent to the noncomplying disbursement, together with any interest accrued thereon, normally within a period of 30 days from the date of the Executive Board decision.

f. A waiver under paragraph (d)(ii) will normally be granted only if the deviation from the relevant performance criterion or other condition was minor or temporary, or if, subsequent to the disbursement, the member had adopted additional measures appropriate to achieve the objectives of the program supported by the arrangement under which the disbursement was made.

g. If a member fails to meet a repayment expectation under these guidelines within the period established by the Executive Board, (i) the Managing Director shall promptly submit a report to the Executive Board together with a proposal on how to deal with the matter, and (ii) interest shall be charged on the amount subject to the repayment expectation at the rate applicable to overdue amounts under Section II, Paragraph 4 of the Instrument.

APPENDIX II1

Procedures for Addressing Overdue Financial Obligations to the Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust

The following procedures aim at preventing the emergence or accumulation of overdue financial obligations to the Poverty Reduction and Growth Facility (“PRGF”) and Exogenous Shocks Facility (“ESF”) Trust (the “Trust”) and at eliminating existing overdue obligations. These procedures will be implemented whenever a member has failed to make a repayment of principal or payment of interest to the Trust (“financial obligation”).

1. Whenever a member fails to settle a financial obligation on time, the staff will immediately send a cable urging the member to make the payment promptly; this communication will be followed up through the office of the Executive Director concerned. At this stage, the member’s access to the Fund’s resources, including PRGF, ESF and HIPC resources, will have been suspended.

2. When a financial obligation has been outstanding for two weeks, management will send a communication to the Governor for that member stressing the seriousness of the failure to meet obligations to the Trust and urging full and prompt settlement.

3. The Managing Director will notify the Executive Board normally one month after a financial obligation has become overdue, and will inform the Executive Board of the nature and level of the arrears and the steps being taken to secure payment.

4. When a member’s longest overdue financial obligation has been outstanding for six weeks, the Managing Director will inform the member concerned that, unless all overdue obligations are settled, a report concerning the arrears to the Trust will be issued to the Executive Board within two weeks. The Managing Director will in each case recommend to the Executive Board whether a written communication should be sent to a selected set of Fund Governors, or to all Fund Governors. If it were considered that it should be sent to a selected set of Fund Governors, an informal meeting of Executive Directors will be held to consider the thrust of the communication. Alternatively, if it were considered that the communication should be sent to all Fund Governors, a formal Board meeting will be held to consider a draft text and preferred timing.

5. A report by the Managing Director to the Executive Board will be issued two months after a financial obligation has become overdue, and will be given substantive consideration by the Executive Board one month later. The report will request that the Executive Board limit the member’s use of Trust resources. A brief factual statement noting the existence and amount of arrears outstanding for more than three months will be posted on the member’s country-specific page on the Fund’s external website. This statement will also indicate that the member’s access to the Fund’s resources, including PRGF, ESF and HIPC resources, has been and will remain suspended for as long as such arrears remain outstanding. A press release will be issued following the Executive Board decision to limit the member’s use of the Trust resources. A similar press release will be issued following a decision to lift such limitation. Periods between subsequent reviews of reports on the member’s arrears by the Executive Board will normally not exceed six months. The Managing Director may recommend advancing the Executive Board’s consideration of the reports regarding overdue obligations.

6. The Annual Report and the financial statements will identify those members with overdue obligations to the Trust outstanding for more than six months.

Removal from the list of PRGF-ESF-eligible countries

7. When a member’s longest overdue financial obligation has been outstanding for six months, the Executive Board will review the situation of the member and may remove the member from the list of PRGF-ESF-eligible countries. Any reinstatement of the member on the list of PRGF-ESF eligible countries will require a new decision of the Executive Board.

The Fund shall issue a press release upon the decision to remove a member from the list of PRGF-ESF-eligible countries. A similar press release shall be issued upon reinstatement of the member on the list. The information contained in such press releases, where pertinent, shall be included in the Annual Report for the year concerned.

Declaration of noncooperation with the Trust

8. A declaration of noncooperation with the Trust may be issued by the Executive Board whenever a member’s longest overdue financial obligation has been outstanding for twelve months.

The decision as to whether to issue such a declaration would be based on an assessment of the member’s performance in the settlement of its arrears to the Trust and of its efforts, in consultation with the Fund, to follow appropriate policies for the settlement of its arrears. Three related tests would be germane to this decision regarding (i) the member’s performance in meeting its financial obligations to the Trust taking account of exogenous factors that may have affected the member’s performance; (ii) whether the member had made payments to creditors other than the Fund while continuing to be in arrears to the Trust; and (iii) the preparedness of the member to adopt comprehensive adjustment policies. The Executive Board may at any time terminate the declaration of noncooperation in view of the member’s progress in the implementation of adjustment policies and its cooperation with the Fund in the discharge of its financial obligations.

Upon a declaration of noncooperation, the Fund could also decide to suspend the provision of technical assistance. The Managing Director may also limit technical assistance provided to a member, if in his judgment that assistance was not contributing adequately to the resolution of the problems associated with overdues to the Trust.

The Fund shall issue a press release upon the declaration of noncooperation and upon the termination of the declaration. The information contained in such press releases shall be included in the Annual Report(s) for the year(s) concerned.

Poverty Reduction and Growth Facility Trust—Other Provisions

2. All the provisions applying to assistance under the Poverty Reduction and Growth Facility Trust Instrument, other than those amended or deleted pursuant to Part I1 of this Decision, shall continue to apply to assistance committed after November 20, 1998 under such Instrument, including the maturity of loans, which will continue to be repaid in ten equal semiannual installments beginning not later than five and a half years from the date of each disbursement and completed at the end of the tenth year after that date.

3. The Managing Director shall not recommend, and the Fund shall not approve, a request by a member for the use of the Fund’s general resources, Special Disbursement Account resources, or resources administered by the Fund as Trustee, whenever the member is in arrears, or is failing to meet a repayment expectation, to the Poverty Reduction and Growth Facility Trust.

4. Provision shall be made in Stand-By and Extended Arrangements for the suspension of further purchases whenever a member fails to meet a repayment obligation to the PRGF Trust or a repayment expectation to that Trust within the period established by the Executive Board pursuant to Section II, paragraph 3(c) of the PRGF-ESF Trust Instrument the provisions of Appendix I to the PRGF Trust Instrument.

Decision No. 11832-(98/119) ESAF

November 20, 1998,

as amended by Decision. No. 13592-(05/99) ESF,

November 23, 2005,

effective January 5, 2006

Transformation of the Enhanced Structural Adjustment Facility

1. The name of the Enhanced Structural Adjustment Facility established by Decision No. 8757 (87/176) SAF/ESAF, adopted December 18, 1987, shall be changed to the “Poverty Reduction and Growth Facility.”

2. The following changes shall be made to the Enhanced Structural Adjustment Facility Trust established by Decision No. 8759-(87/176) ESAF, adopted December 18, 1987:

(a) The name of the Trust shall be changed to the “Poverty Reduction and Growth Facility Trust”; accordingly, Paragraph 1 of Decision No. 8759 and the Title and Introductory Section of the ANNEX to that Decision, containing the Trust Instrument, shall be amended by substituting “Poverty Reduction and Growth Facility Trust” for “Enhanced Structural Adjustment Facility Trust;”

(b) Section I, Paragraph 1 of the Trust Instrument shall be amended to read as follows:

The Trust shall assist in fulfilling the purposes of the Fund by providing loans on concessional terms (hereinafter called “Trust loans”) to low-income developing members that qualify for assistance under this Instrument, in order to support programs to strengthen substantially and in a sustainable manner their balance of payments position and to foster durable growth, leading to higher living standards and a reduction in poverty.

3. The name of the “Trust for Special ESAF Operations for the Heavily Indebted Poor Countries and Interim ESAF Subsidy Operations” shall be changed to the “Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations.” Accordingly,

(a) Paragraphs 1 and 2 of Decision No. 11436-(97/10), adopted February 4, 1997, and the title and Introductory Section of the ANNEX to that Decision containing the Trust Instrument, shall be amended by substituting “Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations” for “Trust for Special ESAF Operations for the Heavily Indebted Poor Countries and Interim ESAF Subsidy Operations.”

(b) All references to “ESAF” in Section I, paragraphs 1(viii) and 1(ix), Section I, paragraph 2(b), Section III, Paragraphs 1(a) and 1(b), and Section III, Paragraph 2(c) of the Trust Instrument shall be changed to references to “PRGF.”

4. References in other Fund decisions, instruments, agreements or documents related to the Enhanced Structural Adjustment Facility, the Enhanced Structural Adjustment Facility Trust, or any of its Accounts, the ESAF, the ESAF Trust, the Trust for Special ESAF Operations for the Heavily Indebted Poor Countries and Interim ESAF Subsidy Operations, or the ESAF-HIPC Trust shall be understood to be to the Poverty Reduction and Growth Facility, the Poverty Reduction and Growth Facility Trust, or any of its Accounts, the PRGF, the PRGF Trust, the Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations, or the PRGF-HIPC Trust, respectively.

5. This Decision shall become effective when all contributors to the ESAF Trust have consented to the changes.

Decision No. 12087-(99/118) PRGF, October 21, 1999

effective November 22, 1999

Establishment of General Policy to Condition Decisions Under the Poverty Reduction and Growth Facility on Accuracy of Information Regarding Implementation of Prior Actions

Any decision on the use of resources under the Poverty Reduction and Growth Facility (including decisions approving an arrangement, completing a review, or granting a waiver either of applicability or for the nonobservance of a performance criterion) will be made conditional upon the accuracy of information provided by the member regarding implementation of prior actions specified in the decision.

Decision No. 12253-(00/77)

July 27, 2000

Establishment of General Policy to Condition Waiver Decisions Under the Poverty Reduction and Growth Facility on Accuracy of Information Regarding Performance Criteria

Any decision granting a waiver for the nonobservance of a performance criterion under an arrangement under the Poverty Reduction and Growth Facility will be made conditional upon the accuracy of data or other information provided by the member to assess observance of the performance criterion in question.

Any decision waiving the applicability of a performance criterion under an arrangement under the Poverty Reduction and Growth Facility will be made conditional upon (i) the accuracy of the member’s representation that the information necessary to assess observance of the relevant performance criterion is unavailable, and (ii) the accuracy of data provided by the member to assess observance of the same performance criterion for a preceding period (if applicable for that period).

Decision No. 12254-(00/77)

July 27, 2000

Poverty Reduction and Growth Facility and Exogenous Shocks Facility—Access Limits

The Fund as Trustee under the Instrument to Establish the Enhanced Structural Adjustment Facility Trust decides:

1. In accordance with Section II, paragraph 2(a) of the Instrument to Establish the Enhanced Structural Adjustment Facility Trust, the initial maximum limit on access of each eligible member to the resources of the Trust under a three-year commitment under the Poverty Reduction and Growth Facility shall be set at 140 percent of the member’s quota in the Fund, minus resources committed to the member for loans in association with Trust loans.

2. The maximum limit in paragraph 1 may be increased in exceptional circumstances not to exceed 185 percent of the member’s quota in the Fund, subject to the same deductions as in paragraph 1.

3. In accordance with Section II, paragraph 2(b) of the Instrument to Establish the Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust, the maximum limit on total outstanding access for each eligible member under the ESF shall be 50 percent of a member’s quota in the Fund, provided that this limit may be exceeded in exceptional circumstances.

4. The Fund shall review the maximum access limit and the exceptional maximum limit under the PRGF, and the maximum access limit under the ESF

Decision No. 8845-(88/61) ESAF

April 20, 1988,

as amended by Decision Nos. 9988-(92/48) ESAF, April 7, 1992,

10185-(92/132) ESAF, November 3, 1992,

10533-(93/170) ESAF, December 15, 1993,

11879-(99/2) ESAF,

January 6, 1999,

and 13591-(05/99) ESF, November 23, 2005,

effective January 5, 2006

Access Limits Under Poverty Reduction and Growth Facility—Review

1. Pursuant to BUFF/03/28 (3/5/03),1 the Fund as Trustee of the Poverty Reduction and Growth Facility Trust (PRGF Trust) has reviewed the maximum limit and the exceptional maximum limit on access to the resources of the PRGF Trust established by Decision No. 8759-(87/176), adopted December 18, 1987, as amended, and decides that these limits remain appropriate. The Fund shall review these limits no later than April 1, 2007. (EBS/05/42, Sup. 1, 3/16/05)

Decision No. 13463-(05/32),

April 1, 2005

Poverty Reduction and Growth Facility and Exogenous Shocks Facility—Interest Rate on Trust Loans

The Fund as Trustee under the Instrument to Establish the Enhanced Structural Adjustment Facility Trust decides:

In accordance with Section II, paragraph 4(a) and Section IV, paragraph 5 of the Instrument to Establish the Enhanced Structural Adjustment Facility Trust, the interest rate on loans from the Trust shall be set at 0.5 percent effective April 20, 1988.

Decision No. 8846-(88/61) ESAF

April 20, 1988

Contributions to PRGF and PRGF-HIPC Trusts—Value Date for Operations and Transactions

All operations and transactions under borrowing agreements, administered accounts or in connection with any other form of contribution to the PRGF Trust and the PRGF-HIPC Trust shall be changed to a two business day valuation rule. (EBS/03/54, 4/18/03)

Decision No. 13004-(03/39) PRGF

April 25, 2003

Poverty Reduction and Growth Facility Trust—Borrowing for Loan Account—Consultation with Creditors, 2001

The Managing Director, after having consulted with all creditors in accordance with Decision No. 12032-(99/87) PRGF, adopted August 2, 1999, is authorized to confirm that he does not intend to propose to the Executive Board borrowing of more than SDR 16 billion for the Loan Account of the Poverty Reduction and Growth Facility Trust except after consultation with all creditors regarding the justification for such additional borrowing and the adequacy of the Trust’s Reserve in relation thereto. (EBS/01/132, 8/8/01)

Decision No. 12559-(01/85) PRGF, August 23, 2001,

effective September 23, 2001

The Chairman’s Summing Up of the Discussion on the Enhancement of the Structural Adjustment Facility—Operational Arrangements Executive Board Meeting 87/171, December 15, 1987

Let me summarize the agreed position on a number of important points.

1. Establishment of the enhanced adjustment facility and review of the existing facility

Directors reviewed the existing Structural Adjustment Facility and agreed that it should continue to operate as in the past. The existing facility will continue to be available to eligible members that al-ready have arrangements under the facility as well as to those that have not yet requested use of the facility’s resources.

Directors agreed that a new lending facility—the Enhanced Structural Adjustment Facility—should be established and that it will operate concurrently with the existing Structural Adjustment Facility. The Enhanced Facility will be financed from two Fund-related sources—the Special Disbursement Account and the Enhanced Structural Adjustment Facility Trust—and will also include the possibility that other lenders might support enhanced structural adjustment arrangements through loans to qualifying members in association with loans under the enhanced facility. For a member qualifying for an arrangement under the enhanced facility, resources will be provided from the Special Disbursement Account to the extent that the member has not exhausted its potential access under the existing facility; resources made available in excess of these amounts will be provided from the Trust and from associated sources.

Until the cutoff date for commitment of resources, eligible members that have not yet made use of the resources of the Structural Adjustment Facility will have the option to request a full three-year arrangement under either the existing facility or the enhanced facility. Members currently making use of the resources of the existing facility may request a new three-year arrangement under the enhanced facility or continue their current arrangement to its conclusion. If a member currently using the resources of the Structural Adjustment Facility chooses to request a new three-year arrangement under the enhanced facility, that request should normally be made at the time of expiration of an annual arrangement under the existing facility. However, earlier replacement of an existing arrangement by a three-year arrangement under the enhanced facility could also be permitted in exceptional cases.

2. Terms and conditions of loans under the Enhanced Structural Adjustment Facility

Commitments of resources under the enhanced facility will be made upon approval of a three-year arrangement. All commitments and disbursements will be subject to the availability of resources. Commitments may be made at any time until the cutoff date. Most Directors agreed, taking into account the limited period of time during which the resources would be made available by contributors, that the cutoff date should be November 30, 1989. At the same time, most Directors considered that the final date for disbursements should not now be extended beyond June 30, 1992, although it was recognized that maintenance of this date would imply that there would be little flexibility to accommodate delays under annual programs in arrangements that were agreed later in the commitment period. This matter will be kept under review as experience is gained with the facility.

Disbursements from the Special Disbursement Account in conjunction with enhanced structural adjustment arrangements will be provided under the financial terms applying to loans under the existing facility, as amended. To the extent possible, the financial terms applying to loans from the Enhanced Structural Adjustment Facility Trust will be the same as those under the existing facility. In particular, it was agreed that the maturities of loans will be five and a half to ten years. Most Directors also believed that it would be appropriate to set the initial interest rate charged on loans from the Trust at 0.5 percent per annum, even if the amount of firmly committed resources in the Subsidy Account was initially not fully sufficient for this purpose, but additional resources were confidently expected. These Directors indicated that if it appeared, because of inadequate contributions or future adverse developments in interest or exchange rates, that resources available or committed to the Subsidy Account were likely to be insufficient to maintain the rate of interest at 0.5 percent throughout the period of operation of the Trust, the Fund should seek the additional resources necessary to achieve this objective. This issue is to be kept under review, and the interest rate will be adjusted as necessary at the beginning of each six-month interest period whenever resources available to the Subsidy Account are judged insufficient to maintain a rate of 0.5 percent on loans under the enhanced facility.

The intended terms for the Trust’s lending, with which you have agreed, determine the essential features of the borrowing arrangements that will have to be concluded by the Fund as Trustee for the Enhanced Structural Adjustment Facility Trust and the lenders to it. These have been set out in a prototype circulated to potential lenders and annexed to EBS/87/245. While there will need to be comparability in substance among agreements, there will no doubt need to be alterations to the form and structure of this prototype to meet the particular legal and institutional requirements of individual lenders, and we will be flexible in meeting these requirements. There was further discussion of the security to be provided to the claims on the Trust. Directors accepted that the proposals that had been put forward to safeguard the resources lent to the Trust were adequate to provide the necessary assurance to potential creditors. Although noting the views of some Directors, I have repeated that the phrase “all such initiatives as might be necessary” had to be understood to include the possible use of gold.

I should also comment on a few specific financial issues raised in the papers. First, most Directors did not favor the inclusion of a provision on rescheduling because, inter alia, it was considered that this would create undue complications in light of the limited period for which resources were being committed by contributors and also because it was felt that such a provision could threaten the integrity of the Reserve that most contributors find to be an essential component of the facility. Second, most Directors did not find it appropriate to provide for temporary encashment of claims through the use of the Reserve, given the relatively small amounts that will be available in the early years and the importance of the Reserve as security for claims. Third, it appeared generally acceptable to most Directors that the provision for temporary suspension of calls should apply to all lenders. I should note in this connection that we appreciate the position of several contributors who are providing support to the enhanced facility, despite a very difficult balance of payments situation of their own.

3. Framework for lending under the Enhanced Structural Adjustment Facility

Resources to be made available under the enhanced facility will be committed upon Board approval of a three-year arrangement and disbursements will be made semiannually in accordance with the provisions specified in annual arrangements. The preparation of policy framework papers will be an essential element of the enhanced facility, and the policy framework process will be strengthened to reflect the summing up of the June 1987 review of the structural adjustment facility (EBM/87/93, 6/19/87), as well as continuing discussions with eligible recipient countries, the World Bank, and the interested donors.

Directors were in broad agreement that the objectives of programs under the enhanced facility should be to promote, in a balanced manner, both balance of payments viability and growth through mobilization of domestic and external resources, improvements in resource allocation, and the removal of structural impediments. Such programs should involve a substantial effort to strengthen the external payments position in a sustainable manner, and in particular to assure substantial progress during the three-year program period toward an overall position and structure of the balance of payments that is consistent with orderly relations with creditors and a reduction in restrictions on trade and payments, while permitting the timely servicing of obligations to the Fund.

Directors agreed that monitoring of enhanced programs supported by arrangement under the enhanced facility will be conducted through benchmarks. Most Directors favored the establishment of quarterly quantitative benchmarks for the key financial variables, and the use of structural benchmarks to monitor implementation of the most important structural policy measures. Most Directors supported the establishment of some benchmarks, including, where appropriate, some structural benchmarks, as semiannual performance criteria in all cases. In addition, midyear reviews will also be required in most cases. I have fully noted the reservations expressed by a number of Directors regarding the treatment of benchmarks as performance criteria, and I assure you that performance criteria will be limited in number and will generally involve only a subset of the benchmarks. Similarly, prior actions will be required sparingly, but when necessary to lay the basis for a long or difficult adjustment process, and particularly where arrangements involve a front-loading of disbursements. In the event of a substantial delay in completion of a midyear review or in agreeing on an annual program, the total amount of resources to be made available to a member could be reduced or rephased over the remaining period of the arrangement.

Most Directors agreed that access to the resources of the enhanced facility will be differentiated according to the strength of the member’s adjustment program and its financing need. The structure of the member’s external debt and its prospective debt service burden, along with the expected evolution of other macroeconomic aggregates, will be important elements in this assessment. Directors generally agreed that access under three-year enhanced structural adjustment arrangements will be subject to a maximum limit of 250 percent of quota. However, Directors stressed again that the access limits do not constitute entitlements, and they agreed that access should normally be below the maximum and that the guidelines should be applied so that the rate of access for all qualifying members would average about 150 percent of quota. It was also indicated that, in highly exceptional circumstances, the maximum could be exceeded, but it was not envisaged that access would exceed 350 percent of quota even in these cases. These access limits, along with the operation of both the enhanced facility and the existing facility, will be subject to review in light of experience and the utilization of the available resources.

Directors agreed that the amount of resources committed to an individual qualifying member under a three-year enhanced structural adjustment arrangement and the amounts for the second- and third-year arrangements will be reviewed at the time of consideration of each annual program. However, most Directors indicated that, subject to the availability of resources, the amounts committed to a member would not normally be reduced because of developments in its balance of payments. However, in the event that balance of payments developments were markedly more favorable than envisaged at the time of approval of the three-year arrangement, and particularly because of improvements in the external environment, it would be suggested that the member reduce voluntarily its use of enhanced resources, either by requesting lower access at the time of approval of an annual arrangement or by forgoing in whole or in part a midyear disbursement.

Directors agreed that disbursements of loans under enhanced structural adjustment arrangements will be made semiannually, upon approval of an annual arrangement, and subsequently, on the basis of observance of performance criteria and, in most cases, completion of a midyear review. A range of views was expressed regarding the possibility of a limited front-loading of disbursements in some cases. Nonetheless, there seems to be a consensus that, subject to the availability of resources, the guideline should be that a uniform distribution of disbursements would be preferable and that any front-loading should not result in first-year disbursements exceeding 40 percent of the total amount to be made available under the three-year enhanced structural adjustment arrangement. However, I take it that there may be scope for a higher first-year disbursement in some very exceptional cases. Existing policies regarding members with overdue obligations to the Fund will be retained; how best to deal with cases of large and protracted arrears is a question to which we will return soon, but in a different context.

4. Relationship with other Fund facilities

Directors noted that members qualifying for loans under the enhanced structural adjustment facility would retain eligibility for access to the Fund’s general resources. Access to those resources will have to be examined carefully on a case-by-case basis, taking into account a range of factors envisaged in the present guidelines, including past performance and use of Fund resources, terms, the possible availability of financing from the enhanced facility and other sources, and the speed and time profile of the anticipated balance of payments adjustment.

The Chairman’s Remarks at the Conclusion of the Discussion on the Enhancement of the Structural Adjustment Facility—Legal Documentation Executive Board Meeting 87/176, December 18, 1987

Two issues of substance raised during this meeting deserve special mention. First, it was reconfirmed that lending to the ESAF Trust could be considered as part of a member’s official reserves by the Fund. Second, it was explained that access to the Fund’s general resources could be provided for members that had extended loans to the Trust and that needed liquidity in an amount not exceeding their claim. Purchases under these circumstances would be allowed if the member represented that it had a need, because of developments in its reserves in the sense of Article V, Section 3(b)(ii), and that the Fund agreed that the purchase was justified taking into account the amount of the requested purchase and the existence of a claim on the Trust. If the liquidity problem can be addressed on its own, there would be no need for an adjustment program to solve the balance of payments problem. Moreover, those purchases could be given certain characteristics by a decision to be taken when required. For instance, it could be decided, with respect to such purchases, to provide for special repurchase periods and for their exclusion from the definition of reserve tranche purchases. Those decisions would need to be adopted by an 85 percent majority. On the occasion on which this question was discussed, I heard no objections by an Executive Director to this approach, which had been suggested in the staff papers that have been discussed by the Board.

Summing Up by the Acting Chair—Review of the Poverty Reduction and Growth Facility—Issues and Options Executive Board Meeting 02/24, March 8, 2002

1. Directors welcomed the opportunity to review the implementation of the Poverty Reduction and Growth Facility (PRGF) after its first two years, and broadly agreed with the staff assessment. They noted that, since the introduction of the PRGF at the end of 1999, more than 40 countries have had new PRGF arrangements or had ESAF arrangements transformed to reflect the new features of the PRGF. They also noted that the PRGF is well on its way to adopting the program design goals of the Poverty Reduction Strategy Paper (PRSP) approach as they relate to the Fund’s areas of expertise. Directors considered that the basic structure and goals of the facility set out in 1999 remain appropriate, and that the Key Features of the Poverty Reduction and Growth Facility issued in August 2000 can continue to serve as a useful summary and guidance document.

2. Directors concurred that PRGF-supported programs show substantial progress in the implementation of the PRSP approach. In many such programs, budgetary resources for poverty-reducing spending have increased; fiscal frameworks are more flexible in accommodating higher spending to support country-defined poverty reduction objectives; public expenditure management has been strengthened; and macroeconomic frameworks are generally consistent with, or derived from, the supporting Interim PRSPs and PRSPs. Directors also noted that the review found substantial streamlining of structural conditionality in PRGF-supported programs towards areas of Fund expertise or measures deemed critical to the success of the program. They urged, however, continued improvements in coordination and definition of roles between the IMF and the World Bank. They also called for more comprehensive reporting of the conditionalities of other donors, especially the World Bank, in order to provide a better picture of total donor conditionality.

3. Directors emphasized that there is a need to sustain and even strengthen these efforts going forward. They saw an increased focus on the sources of growth in PRGF-supported programs as being of particular importance in this regard. They noted that growth is critical for achieving poverty reduction, and attention to the sources of growth is essential in developing appropriate policies and projections. They stressed the importance of incorporating into PRGF-supported programs structural reforms to develop the private sector, increase foreign direct investment, enhance external competitiveness, and increase labor productivity, where they are critical to the success of the Fund program. They also stressed the need for increased market access for the exports of low-income countries.

4. Directors also agreed that there is scope for more systematic application of best practices in other areas. They noted the need for further efforts on a variety of public expenditure issues, including improving the quality and efficiency of government spending, and further steps to strengthen public expenditure management systems. For HIPCs, the latter would involve implementing the action plans designed in collaboration with the Bank and the Fund for strengthening the capacity to track poverty-reducing spending and spending more widely, and regular reporting on implementation in PRGF documents. In view of the uncertainties regarding external financing flows, Directors also stressed the importance of domestic revenue mobilization through strengthening of tax administration and widening of the tax base.

5. Directors welcomed the progress made in incorporating poverty and social impact analyses (PSIA) into PRGF-supported programs and staff documents, but indicated that there was scope for a more systematic treatment of this issue in PRGF documents. They requested that documents for PRGF-supported programs routinely provide a description of the PSIA being carried out in the country, including a qualitative description of the likely impact of major macroeconomic and structural measures on the poor and a summary of countervailing measures being implemented to offset any adverse effects.

6. Directors noted the progress made in achieving greater ownership and flexibility in PRGF-supported programs. However, they also saw the need to encourage broader and deeper discussion and analysis of macroeconomic frameworks and policies for PRGF-supported programs, including on alternative policy choices and the constraints and trade-offs involved. Directors noted that documentation for PRGF-supported programs should clearly set out the program’s role in the context of the overall poverty reduction strategy, as well as the options that were considered and the commitments made by the authorities in the context of the program. However, this should be done in a manner consistent with the staff’s support for the program while respecting the need for frank and confidential discussions between the staff and the authorities. A few Directors stressed that limited PRGF resources should be targeted to countries that truly demonstrate—through actions not promises—ownership and commitment to credible reform programs.

7. Directors observed that there is scope for more extensive and effective communications with the authorities, development aid partners, and civil society in PRGF countries, and in reporting on these communications in staff reports. They agreed that Fund staff need to more actively explain to a broad audience their views and analysis regarding the links between the macroeconomic framework and growth and poverty reduction outcomes in the context of work on PRGF-supported programs.

8. Directors welcomed the increased transparency of PRGF-supported programs and discussed options for its further enhancement which will be taken up in the context of the upcoming review of Fund transparency. In particular, Directors saw merit in publishing LOI/MEFPs and PRSPs in original languages when original language versions of these documents are provided by the authorities.

9. The need for further capacity building to develop and assess macroeconomic frameworks, analyze the profile of poverty, and conduct poverty and social impact analyses has been noted by a wide array of internal and external commentators. In this context, Directors emphasized the importance of additional efforts at capacity building as a key to ensuring full ownership of the reform agenda in PRGF countries. They also emphasized the importance of ongoing efforts by the Fund and others to increase technical assistance to PRGF countries, including through the proposed new regional technical assistance centers in Africa. They also welcomed additional efforts on analyzing macroeconomic policies in the specific context of low-income countries as part of the Fund’s research agenda.

10. Directors took note of the diverse circumstances of low-income countries including countries with little or no balance-of-payments need for Fund resources, countries affected by commodity price or other shocks, or countries emerging from conflict. In this context, they agreed that staff should report back to the Board by the end of 2002 on issues relating to the current structure of Fund financial assistance for the poorest countries, keeping in mind that the available financing resources are limited. There was mixed support for post-program monitoring to apply to PRGF resources, but Directors agreed to take up this matter in the context of the broader review of concessional Fund assistance to low-income countries.

11. Finally, Directors agreed that the experience with the PRGF and PRGF-supported programs should be reviewed again at the latest before the Spring Meetings in 2005, though some would like to see it reviewed by Spring 2004.

Establishment of a Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations

1. The Fund adopts the Instrument to Establish a Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations, which is annexed to this decision.

2. The Fund shall conduct semi-annual reviews of the financing of the Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations.

Decision No. 11436-(97/10)

February 4, 1997,

as amended by Decision Nos. 11492-(97/45), April 24, 1997,

11861-(98/131) ESAF, December 18, 1998,

12087-(99/118) PRGF, October 21, 1999,

effective November 2, 1999,

12132-(00/9) PRGF, January 27, 2000,

12349-(00/118), December 1, 2000,

12561-(01/85) PRGF, August 23, 2001,

effective September 19, 2001,

12680-(02/17) PRGF, February 20, 2002,

12696-(02/27) PRGF, March 15, 2002,

12777-(02/65), June 20, 2002,

12874-(02/110), October 25, 2002,

13224-(04/33), April 1, 2004,

13367-(04/98) PRGF, October 18, 2004,

13373-(04/105) PRGF, November 9, 2004,

and 13588-(05/99) MDRI and 13590-(05/99) ESF,

November 23, 2005,

effective January 5, 2006

ANNEX: Instrument to Establish a Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations

Introductory Section

To help fulfill its purposes, and in furtherance of the purposes of the Poverty Reduction and Growth Facility (“PRGF”) and Exogenous Shocks Facility (“ESF”) Trust as described in the Instrument to Establish the Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust adopted by Decision No. 8759-(87/176) PRGF, December 18, 1987, as amended (“the 1987 PRGF-ESF Instrument”), the International Monetary Fund (“the Fund”) has adopted this Instrument to Establish a Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and for Interim PRGF Subsidy Operations (“the Trust”), which shall be administered by the Fund as Trustee (“the Trustee”). The Trust shall be governed by and administered in accordance with the provisions of this Instrument.

Section I. General Provisions

Paragraph 1. Definitions

Wherever used in this Instrument, unless the context otherwise requires:

(i) “Initiative” means the program of action endorsed by the Fund, the International Bank for Reconstruction and Development and the International Development Association (hereinafter jointly referred to as “the Bank”) in September 1996 and the enhancement of this program agreed in September 1999 for reducing the external debt burden of heavily indebted poor countries to a sustainable level;

(ii) “DSA” means a debt sustainability analysis jointly prepared by the staffs of the Fund and the Bank and the concerned member to provide the basis for determining the member’s qualification for assistance under the Initiative;

(iii) “decision point” means the time when the Trustee decides whether a member qualifies for assistance under the Initiative, that is, normally at the end of the initial three-year performance period and decides on the amount of assistance to be provided under the Initiative;

(iv) “completion point” means the time when a decision will be taken by the Trustee to disburse remaining undisbursed assistance committed for a qualifying member, excluding any additional amount committed for a member pursuant to the second sentence of Section III, paragraph 3(e);

(v) “debt sustainability” means the achievement of a sustainable level of external debt which shall be 150 percent for the present value of debt-to-exports ratio calculated on the basis of data available at the decision point. In the special case of a country that has, at the decision point, (i) an exports-to-GDP ratio of at least 30 percent, and (ii) a fiscal revenues-to-GDP ratio of at least 15 percent, a “debt sustainability” target of below 150 percent for the present value of debt-to-exports ratio at the decision point may be set with the specific target determined so as to reduce the present value of debt-to-revenue ratio to 250 percent at the decision point. For the purposes of these calculations, amounts that are subject to an early repurchase or repayment expectation established under the Misreporting Guidelines shall not constitute external debt.

(vi) “traditional debt relief mechanisms” means the application of Naples terms by Paris Club creditors, including the assumption of a stock-of-debt operation, involving a 67 percent present value reduction of the eligible debt of a member at the decision point, and at least comparable treatment by other official bilateral and commercial creditors;

(vii) “interim PRGF subsidy operations” means operations to subsidize the interest rate on interim PRGF financing to be made following full commitment under PRGF arrangements of resources available under borrowing agreements for the current phase of PRGF operations which is expected by about December 31, 2001; interim PRGF operations are expected to take place during the period 2001/02–2006;

(viii) “self-sustained PRGF operations” means PRGF-type operations financed on a revolving basis from Special Disbursement Account (SDA) resources through the retransfer of resources from the PRGF Trust Reserve Account, when they are no longer needed to cover the total liabilities of the 1987 PRGF Trust to lenders;

(ix) “PRSP” means a Poverty Reduction Strategy Paper prepared by the member concerned in a participatory process involving a broad range of stakeholders and setting out a comprehensive three-year poverty reduction strategy; and

(x) “I-PRSP” means an Interim Poverty Reduction Strategy Paper prepared by the member concerned setting out a preliminary reduction strategy as a precursor to a full PRSP; and

(xi) “PRSP preparation status report” means a report prepared by the member concerning updating the preliminary poverty reduction strategy set out in an I-PRSP in anticipation of a full PRSP; and

(xii) “APR” means an Annual Progress Report prepared by the member concerned reporting on the implementation of a PRSP and updating it as appropriate; and

(xiii) “Joint Staff Advisory Note” means a document prepared by the staff of the Bank and the Fund containing an analysis of the strengths and weaknesses of the poverty reduction strategy of the member concerned and identifying priority action areas for strengthening the poverty reduction strategy during implementation; and

(xiv) “Misreporting Guidelines” means the Guidelines on Corrective Action for Misreporting and Noncomplying Purchases in the General Resources Account (Decision No. 12249-(00/77), adopted July 27, 2000), and the Provisions on Corrective Action for Misreporting and Noncomplying Disbursements in Arrangements under the Poverty Reduction and Growth Facility and the Exogenous Shocks Facility (Appendix I of the Instrument to Establish the Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust annexed to Decision No. 8759-(87/176) ESAF, adopted December 18, 1987).

Paragraph 2. Purposes

The Trust shall assist in fulfilling the purposes of the Fund by providing balance of payments assistance to low-income developing members by:

(a) making grants (“Trust grants”) and/or loans (“Trust loans”) to eligible members that qualify for assistance under the terms of this Instrument for purposes of the Initiative; and

(b) subsidizing the interest rate on interim PRGF operations to PRGF-eligible members.

Paragraph 3. Trust Account and resources

The operations and transactions of the Trust shall be conducted through an account (“the Account”). Within the Account, the Trustee may establish such sub-accounts as it deems necessary for the administration of the resources in the Account.

The resources held in the Account shall consist of:

(a) grant contributions made to the Trust for the purposes of paragraph 2;

(b) loans, deposits and other types of investments made by contributors with the Trust to generate income to be used for the purposes of paragraph 2;

(c) transfers from the Special Disbursement Account for the purposes of paragraph 2; and

(d) net earnings from investment of resources held in the Account.

Paragraph 4. Unit of account

The SDR shall be the unit of account for commitments and all other operations and transactions of the Trust, provided that commitments for contributions may also be made in currency.

Paragraph 5. Media of payment of contributions and exchange of resources

(a) Resources provided to the Trust may be received in any currency.

(b) Payments by the Trust shall be made in U.S. dollars or such other media as may be agreed between the Trustee and the payee.

(c) Contributions to the Trust may also be made in or exchanged for SDRs in accordance with such arrangements as may be made by the Trust for the holding and use of SDRs.

(d) The Trustee may exchange any of the resources of the Trust, provided that any balance of a currency held in the Trust may be exchanged only with the consent of the issuer of such currency.

Section II. Contributions to the Trust

The Trustee may accept contributions of resources for the Account on such terms and conditions as may be agreed between the Trustee and the respective contributors, subject to the provisions of this Instrument. For this purpose, the Managing Director of the Trustee is authorized to accept grants and enter into loan, deposit or other types of investment agreements with the contributors to the Trust.

Section III. Trust Grants and Loans

Paragraph 1. Eligibility for assistance

In order to be eligible for assistance from the Trust under Section I, paragraph 2(a) of this Instrument, a member shall meet the following requirements:

(a) the member is PRGF-ESF eligible, i.e., it is included in the list of members annexed to Decision No. 8240-(86/56) SAF, as amended;

(b) the member was pursuing a program of adjustment and reform by October 1, 1996, or the member shall have adopted such a program in the period beginning October 1, 1996 and ending December 31, 2006, supported by the Fund through PRGF, ESF, or Extended Arrangements, or, on a case-by-case basis as determined by the Trustee, a Stand-By Arrangement, a decision on rights accumulation, or financial support under the Fund’s emergency assistance policy in post-conflict countries; and

(c) in support of the member’s adjustment and reform program, the member shall have received or is eligible to receive assistance to the full extent available under traditional debt relief mechanisms.

(d) after the assumed full application of traditional debt relief mechanisms, the member’s external debt situation, based on end-2004 data, is unsustainable, as determined by the debt sustainability thresholds in Section I, Paragraph 1(v) of this Instrument.

Paragraph 2. Qualification for assistance

The Trustee shall determine whether an eligible member qualifies for assistance under the Initiative in accordance with the criteria set out below:

(a) At the decision point, the DSA shall indicate that the member’s external debt situation, even after the assumed full application of traditional debt relief mechanisms, would not be sustainable. Moreover, the member shall have in place a satisfactory poverty reduction strategy set out in an I-PRSP, PRSP preparation status report, PRSP, or APR, that has been issued to the Executive Board normally within the previous 12 months but in any case within the previous 18 months, and has been the subject of an analysis in a Joint Staff Advisory Note also issued to the Executive Board.

(b) The member has not agreed on an exit operation with Paris Club creditors on Naples terms after September 1999.

(c) The member has established a track record of strong policy performance under Fund-supported programs, covering macroeconomic policies and structural and social policy reforms. This requirement shall normally be satisfied by an initial three-year performance period leading up to the decision point, followed by a second performance period leading up to the completion point, which shall be satisfied when a member has satisfactorily implemented a set of predefined key policy reforms, has a stable macroeconomic position, and has kept on track with its Fund-supported program. In addition, the member country concerned shall have prepared a PRSP and implemented satisfactorily the strategy therein described for at least one year by the completion point as evidenced by an APR that has been issued to the Executive Board normally within the previous 12 months but in any case within the previous 18 months, and has been the subject of an analysis in a Joint Staff Advisory Note also issued to the Executive Board. In the case of the first three-year period, such programs shall be programs supported by PRGF, ESF, or Extended Arrangements, or, on a case-by-case basis as determined by the Trustee, Structural Adjustment Facility (SAF) arrangements, Stand-by Arrangements, decisions on rights accumulations, or programs supported by the Fund under the policy on emergency assistance for post-conflict countries. In the case of the second performance period, such programs shall be programs supported by PRGF, ESF, or Extended Arrangements. It is expected that the member shall have a track record of strong and sustainable policy performance when the completion point is reached. The required period shall be evaluated flexibly by the Trustee. Members could receive credit toward the decision point for programs that were underway prior to the adoption of the Initiative.

(d) Notwithstanding the provisions of subparagraph (c) above and paragraph 6 below, for a member that has reached a decision point or a completion point prior to January 27, 2000, a commitment of assistance under the revised provisions of this instrument, and delivery of that assistance, may be made by the Trustee on the basis of assessments by the Trustee regarding satisfactory adjustment and reform efforts and overall progress in poverty reduction that is broadly acceptable.

(e) All other creditors (holding debt claims above a de minimis amount) of the member shall have agreed to take action under the initiative.

Paragraph 3. Amount of assistance

(a) At the decision point, and in consultation with the Bank, the eligible member and its other creditors, the Trustee shall make a determination of the amount of resources that could be made available from the Trust to achieve a reduction in the present value of debt owed to the Fund by the member. The amount to be committed shall be confirmed by the Trustee in the context of satisfactory assurances regarding the exceptional assistance to be provided under the initiative by the member’s other creditors.

(b) At the decision point, based on the external debt sustainability targets established for the member, the Trustee shall commit the amount to be provided from the Trust to a member to permit a reduction in the present value of debt owed by it to the Fund. The specific amount of assistance to be committed by the Trustee will be based on (i) the Fund’s share in the present value of the multilateral debt of the member at the decision point; and (ii) the assistance to be provided by multilateral creditors, in terms of a reduction in the present value of the debt owed to them by the member sufficient to achieve the debt sustainability targets, taking into account the exceptional assistance to be provided by Paris Club creditors and at least comparable action by other official bilateral and commercial creditors under the Initiative.1 The Trustee shall, subject to the conditions specified below, adjust the amount of assistance committed to a member under this provision, whether or not disbursed to the account established under paragraph 5 below, if the Trustee, on the basis of revised information, recalculates the member’s debt sustainability position used for the purposes of reaching the decision point and determines that the recalculated amount of relief to be provided under the Initiative exceeds or falls short of the amount originally committed by more than one percentage point of the targeted net present value of debt as defined in section I paragraph 1(v) above. In such circumstances, the amount of the commitment shall be increased or reduced as necessary to reach the amount to which the member, on the basis of such recalculation, would be entitled under the terms of this Instrument. No such adjustment shall be made: (i) after the completion point; or (ii) in the case of an excess of more than one percentage point, if such excess is attributable to incorrect information on exports, gross domestic product, or fiscal revenues that was not provided by or at the behest of the member. If the amount already disbursed by the Trustee to the account established under paragraph 5 below for the benefit of the member exceeds the adjusted amount of assistance, the Trustee shall retransfer to the Trust any amount remaining in the account equivalent to such excess.

(c) In case of protracted delays by a member in reaching the completion point because of problems in policy implementation, the Trustee may reassess that member’s eligibility and qualification for assistance, including the amount of assistance committed at the decision point.

(d) Following commitment of the assistance at the decision point, the Trustee may advance to the member as interim assistance a portion of such committed assistance not to exceed (i) 20 percent of the total assistance committed for each 12-month period following the decision point, and (ii) a maximum of 60 percent of the total assistance committed prior to the member reaching the completion point, provided that the amount of such assistance in any 12-month period does not exceed the amount of debt service falling due to the Fund during that period. In exceptional circumstances, interim assistance could be raised to 25 percent and 75 percent, respectively.1 Where the Trustee has made a disbursement of resources under this paragraph to the account established under paragraph 5 below for the benefit of the member on the understanding that all performance-related conditions specified for such disbursement have been met and subsequently determines that any such condition was not met, the Trustee shall retransfer to the Trust any amount remaining in such account from such disbursement up to the total amount of such disbursement as well as all net investment income accrued on the amounts disbursed on the basis of incorrect information provided, however, that no retransfer shall be made if (i) the member’s completion point has been reached, or (ii) the Trustee decides that such disbursement remains appropriate in view of the member’s record of policy implementation and its poverty reduction efforts. The retransfer of these amounts will not affect the amount of commitment in NPV terms to the member as established at the decision point. The Fund shall issue press releases on its decisions regarding the circumstances of the misreporting and the applicable remedies.

(e) At the completion point, the Trustee shall disburse the amount committed to the member at the decision point, as such amount may have been subsequently adjusted on the basis of revised information on the member’s debt sustainability position, less any disbursements made after the decision point. To the extent that the Trustee, in determining the amount committed to the member under paragraph 3(b) above, included in the member’s external debt amounts that, after the decision point, were found to be subject to an early repurchase or repayment expectation under the Misreporting Guidelines, the Trustee shall recalculate and adjust the amount of its commitment, excluding from the member’s external debt the amount that was subject to the repurchase or repayment expectation. The Trustee retains the right to commit additional assistance at the completion point, beyond that already committed, but only so as to bring the ratio of the net present value of debt-to-exports to 150 percent (or debt-to-fiscal revenue to 250 percent), if the deterioration in the member’s debt sustainability is primarily attributable to a fundamental change in the member’s economic circumstances due to exogenous factors. The disbursement of any such additional assistance shall be approved at the completion point or thereafter, whenever the assurances specified in subparagraph (f) below with respect to such assistance have been obtained.

(f) Approval of the disbursements shall be given in the context of satisfactory assurances regarding the exceptional assistance to be provided under the Initiative by the member’s other creditors.

Paragraph 4. Terms of assistance

(a) The assistance to be provided by the Trust to a qualifying member shall be either through a Trust grant or a Trust loan, or both. The choice of a Trust grant, a Trust loan, or a combination thereof, shall be made by the Trustee on a case-by-case basis, taking into account the objective of bringing the debt-service-to-exports ratio (after assistance under the Initiative from the Fund and other creditors) to the debt sustainability target agreed for the member at the decision point. The maturity of a Trust loan shall be determined by the Trustee on a case-by-case basis, subject to paragraph 4(c) below, taking into account the need to smooth the time profile of the member’s total external debt service and its debt service to the Fund (after assistance under the Initiative from the Fund and other creditors). The schedule for using the proceeds of the Trust grant or the Trust loan by the member shall be agreed by the Trustee and the member taking into account the same criteria for deciding among a Trust grant, a Trust loan, or a combination thereof and the maturity of such loan.

(b) Trust grants and Trust loans (including any income from investment of their proceeds) advanced to a member as interim assistance shall be used to meet the member’s debt service payments on its existing debt to the Fund as they fall due, in accordance with the schedule for using the proceeds of such grants and loans as determined under the provisions of (a) above. Trust grants and Trust loans (including any income from investment of their proceeds) disbursed to a member at the completion point, along with any amounts previously advanced to the member as interim assistance that remain unused at the completion point, shall be used to effect the early repayment of the member’s qualifying debt to the Fund, in accordance with the schedule for using the proceeds of such grants and loans as determined under the provisions of (a) above. Notwithstanding paragraph 6 below, the preceding sentence shall also apply to Trust grants and Trust loans (including any income from investment of their proceeds) that, prior to January 5, 2006, had been disbursed to a member at the completion point or had been advanced to the member as interim assistance and remained unused at the completion point, once agreement is reached between the Trustee and the member on a modified schedule for using the proceeds of the Trust grant or Trust loan as provided for in (a) above.

(c) Trust loans shall be provided to members interest-free and shall have a maturity of no less than ten (10) years and up to twenty (20) years, including a grace period of no less than five-and-a-half (5½) years and up to ten-and-a-half (10½) years. The Trustee may not reschedule the repayment of Trust loans.

Paragraph 5. Disbursements

(a) Any disbursement of Trust grants and Trust loans shall be subject to the availability of resources to the Trust.

(b) The proceeds of a Trust grant or Trust loan (or both) shall be paid into a separate account for the benefit of the member and administered by the Trustee. The Trustee shall use these proceeds (including any income from investments of such proceeds) in accordance with paragraph 4(b) above. The terms and conditions for the operation of such account shall be determined by the Trustee.

Paragraph 6. Modifications

Any modification of these provisions will affect only Trust grants or Trust loans made after the effective date of the modification, provided that any modification of the interest rate shall apply to interest accruing after the effective date of the modification.

Section III bis. Subsidies for Interim PRGF Operations

For purposes of Section I, paragraph 2(b) of this Instrument, and to the extent that resources in the PRGF Subsidy Account and the PRGF-ESF Subsidy Account of the PRGF-ESF Trust are insufficient for interim PRGF subsidy operations, the Trustee shall transfer to the PRGF Subsidy Account of the PRGF-ESF Trust, as needed, resources in the Trust Account not earmarked for assistance under Section III of this Instrument. Any such transfers shall be limited to the amounts needed for subsidy payments.

Section IV. Administration of the Trust

Paragraph 1. Trustee

(a) The Trust shall be administered by the Fund as Trustee. Decisions and other actions taken by the Fund as Trustee shall be identified as taken in that capacity.

(b) Subject to the provisions of this Instrument, the Fund in administering the Trust shall apply the same rules as apply to the operation of the General Resources Account of the Fund.

(c) The Trustee, acting through its Managing Director, is authorized:

  • (i) to make all arrangements, including establishment of accounts in the name of the International Monetary Fund, which shall be accounts of the Fund as Trustee, with such depositories of the Fund as the Trustee deems necessary; and

  • (ii) to take all other administrative measures that the Trustee deems necessary to implement the provisions of this Instrument.

Paragraph 2. Separation of assets and accounts, audits and reports

(a) The resources of the Trust shall be kept separate from the property and assets of all other accounts of the Fund, including other administered accounts, and shall be used only for the purposes of the Trust in accordance with this Instrument.

(b) The property and assets held in the other accounts of the Fund shall not be used to discharge liabilities or to meet losses arising out of the administration of the Trust. The resources of the Trust shall not be used to discharge liabilities or to meet losses arising out of the administration of the other accounts of the Fund.

(c) The Fund shall maintain separate financial records and prepare separate financial statements for the Trust.

(d) The audit committee selected under Section 20 of the Fund’s By-Laws shall audit the financial transactions and records of the Trust. The audit shall relate to the financial year of the Fund.

(e) The Fund shall report on the resources and operations of the Trust in the Annual Report of the Executive Board to the Board of Governors and shall include in the Annual Report the report of the audit committee on the Trust.

Paragraph 3. Investment of resources

(a) Any balance held by the Trust and not immediately needed in operations shall be invested.

(b) Investments may be made in any of the following: (i) marketable obligations issued by international financial organizations and denominated in SDRs or in the currency of a member of the Fund; (ii) marketable obligations issued by a member or by a national official financial institution of a member and denominated in SDRs or in the currency of that member; and (iii) deposits with a commercial bank, a national official financial institution of a member, or an international financial institution that are denominated in SDRs or in the currency of a member. Investment which does not involve an exchange of currency shall be made only after consultation with the member whose currency is to be used, or, when an exchange of currency is involved, with the consent of the issuers of such currencies.

Section V. Period of Operation and Liquidation

Paragraph 1. Period of operation

The Trust established by this Instrument shall remain in effect for as long as is necessary, in the judgment of the Fund, to conduct and to wind up the business of the Trust.

Paragraph 2. Liquidation of the Trust

If the Trustee decides to wind up the operations of the Trust, the resources in the Account shall be used first to discharge all the liabilities of the Trust. Any amount remaining in the Account after the discharge of all the liabilities of the Trust shall be used first to reimburse the SDA for transfers made in accordance with Decision No. 11434-(97/10), adopted February 4, 1997, and any remaining amount shall then be made available for self-sustained PRGF operations, except that at the request of the contributor, its pro rata share in any unused resources contributed to finance the operations referred to in Section I, Paragraph 2(a) of this Instrument, after the completion of such operations, shall be distributed to the contributor.

Section VI. Amendment of the Instrument

The Fund may amend the provisions of the Instrument, except that any amendment of Section I, paragraph 2, Section IV, Section V and this Section shall require the consent of all contributors to the Trust.

Trust for Special Esaf Operations for Heavily Indebted Poor Countries and Interim Esaf Subsidy Operations—Terms and Conditions for Administration of Account Provided Under Section III, Paragraph 5(b) of Trust

Pursuant to Section III, Paragraph 5(b) of the Instrument to Establish a Trust for Special ESAF Operations for the Heavily Indebted Poor Countries and Interim ESAF Subsidy Operations (ESAF-HIPC Trust), the Fund, as Trustee of the ESAF-HIPC Trust, establishes the following terms and conditions for the administration of the Account provided for under that provision:

1. The resources of the Account shall consist of (i) the proceeds of grants and/or loans paid into the Account for the benefit of a member by the ESAF-HIPC Trust, and (ii) contributions by other donors to the reduction of a member’s debt service payments on its existing debt to the Fund, and (iii) net earnings from the investment of resources held in the Account.

2. Within the Account, the Trustee shall establish a separate sub-account for the administration of the resources paid into the Account for the benefit of each member for which the resources have been paid. The Trustee shall establish a sub-account within the Account whenever the Fund as Trustee of the ESAF-HIPC Trust grants final approval of a Trust grant and/or Trust loan under the ESAF-HIPC Trust.

3. Following the establishment of a sub-account, the Fund, as Trustee, shall be authorized to use the resources of the sub-account (including any net income from the investment of such resources) to repay the member’s existing debt to the Fund, in accordance with the Schedule for using the proceeds of grants and loans as determined under the provisions of Section III, Paragraphs 4(a) and 4(b) of the Instrument to Establish the PRGF-HIPC Trust.1 The Trustee shall also be authorized to retransfer back to the Trust an amount equivalent to (i) resources disbursed from the Trust into a sub-account in excess of the amount needed to meet the Fund’s share of debt reduction in accordance with Section III, paragraph 3(b) of the Instrument to Establish the PRGF-HIPC Trust, or (ii) resources disbursed as interim assistance from the Trust into a sub-account on the incorrect understanding that all performance-related conditions specified for such disbursement were met, in accordance with Section III, paragraph 3(d) of the Instrument to Establish the PRGF-HIPC Trust.

4. (a) Resources held in a sub-account of the Account and not immediately needed for operations shall be invested.

(b) Investments may be made in any of the following: (i) marketable obligations issued by international financial organizations and denominated in SDRs or in the currency of a member of the Fund; (ii) marketable obligations issued by a member or by a national official financial institution of a member and denominated in SDRs or in the currency of that member; and (iii) deposits with a commercial bank, a national official financial institution of a member, or an international financial institution that are denominated in SDRs or in the currency of a member. Investment which does not involve an exchange of currency shall be made only after consultation with the member whose currency is to be used, or, when an exchange of currency is involved, with the consent of the issuers of such currencies. Earnings, net of any transactions costs, shall accrue to the sub-account and shall be available for the purposes of the sub-account.

(c) The Managing Director of the Trustee is authorized (i) to make all arrangements, including establishment of accounts in the name of the Trustee, with such depositories as may be necessary to carry out the operations of the Account, and (ii) to take all measures necessary to implement the provisions of this decision.

5. The SDR shall be the unit of account.

6. (a) Resources received into a sub-account may be in U.S. dollars or such other media as may be determined by the Trustee.

(b) Resources held in a sub-account may be currencies or currencies exchanged for SDRs in accordance with such arrangements as may be made by the Trustee for the holding and use of SDRs.

(c) The Trustee may exchange any of the resources held in a sub-account provided that any balance of a currency held in the sub-account may be exchanged only with the consent of the issuer of such currency.

(d) Payments made from a sub-account shall be made in U.S. dollars or such other media as may be determined by the Trustee.

7. Assets held in the Account shall be kept separate from the assets and property of all other accounts of, or administered by, the Trustee. The assets of the Account shall not be used to discharge or meet any liabilities, obligations, or losses incurred by the Trustee in the administration of such other accounts. The assets and property held in a sub-account of the Account shall not be used to discharge or meet any liabilities, obligations, or losses of the Trustee in the administration of any other sub-account of the Account.

8. Subject to the provisions of this decision, the Trustee, in administering the Account, shall apply, mutatis mutandis, the same rules and procedures as apply to the operations of the General Resources Account of the Fund.

9. No charge shall be levied for the services rendered by the Trustee in the administration, operation, and termination of the Account.

10 (a) The Trustee shall maintain separate financial records and prepare separate financial statements for the Account. Such records and statements will be maintained in accordance with generally accepted accounting principles. The financial statements for the Account shall be expressed in SDRs.

(b) The External Audit Committee selected under Section 20 of the Trustee’s By-Laws shall audit the operations and transactions conducted through the Account. The audit shall relate to the financial year of the Trustee.

(c) The Trustee shall report on the resources and operations of the Account in the Annual Report of the Executive Board to the Board of Governors and shall include in that Annual Report the report of the External Audit Committee on the Account.

11. (a) The Account shall remain in effect for as long as is necessary, in the judgment of the Trustee, to conduct and to wind up the business of the Account. A sub-account for a particular member would be wound up when the resources of that sub-account have been exhausted in servicing the member’s obligations to the Fund.

(b) Any balance remaining in a sub-account upon termination and after the discharge of all obligations of that sub-account shall be transferred promptly to the member for which the sub-account had been established.

Decision No. 11698-(98/38) ESAF, April 1, 1998,

as amended by Decision Nos. 12697-(02/27) ESAF, March 15, 2002

and 13589-(05/99) MDRI, November 23, 2005,

effective January 5, 2006

The Chairman’s Summing Up at the Conclusion of the Discussion on the Modalities for Special ESAF Operations in the Context of the HIPC Initiative and Other ESAF Issues Executive Board Meeting 97/10, February 4, 1997

We have now established the structure and modalities for special ESAF operations under the HIPC Initiative, based on the agreement reached in the September Board meetings and the endorsement of the Interim and Development Committee meetings. The decisions to establish the ESAF-HIPC Trust will allow us to place to that account the resources that have already been accumulating for these purposes. The additional decision to allow an early transfer of Reserve Account resources to the Special Disbursement Account (SDA) for the financing of special ESAF operations—to the extent that sufficient resources for this purpose are not immediately available from other sources—responds to the Interim Committee’s request to proceed quickly with the implementation of the HIPC Initiative. Together with consents to an early transfer from all ESAF Trust Loan Account creditors, which will be sought during the coming weeks, these decisions will permit the Fund to commit its resources as a participant in the Initiative, as the first countries reach their decision points and are judged to require assistance under the Initiative.

This exercise has been technically complex and has surfaced very genuine and legitimate differences of view regarding how best to provide the assistance needed by our poorest and most heavily indebted members. All of you want to assure that the resources used for this purpose produce the best results—and views can differ on how to accomplish that. I appreciate the spirit all of you brought to this and your willingness to compromise.

In agreeing to the authorization for an early transfer of Reserve Account resources, some Directors stressed the need for maintaining a maximum effort by all to secure bilateral contributions and, if necessary, to consider the optimization of the management of the Fund’s reserves for the financing of interim ESAF subsidies and special ESAF operations. We will certainly maintain this effort and the financing of the Trust will be kept under regular review.

****

While some of the operational details will need to be developed on a case-by-case basis as specific country cases are presented to the Boards of the Fund and the Bank, a number of issues have been raised by Directors that will need to be taken into account when implementing the HIPC Initiative and the Fund’s participation therein.

First, Directors considered that there should be a presumption that ESAF arrangements with HIPC-eligible countries, and especially arrangements during the second stage, would be among the stronger ESAF arrangements. This is appropriate in light of the seriousness of the problems confronting these countries, the need to progress as rapidly as possible with structural reform, and the need to protect Fund resources. We can thus expect to see more frontloading of policy reform and forceful action on critical structural measures in these arrangements.

Second, Directors emphasized that under the agreed framework endorsed by the Interim and Development Committees any shortening of the second stage would be on an exceptional basis for countries which have already sustained records of strong performance and for which the adjustment and reform effort has become firmly rooted. This matter would be decided on a case-by-case basis by the Boards of the Fund and the Bank.

Third, some Directors expressed the view that approval of more than two three-year ESAF arrangements, including for HIPCs having reached their completion points, should be on an exceptional basis. However, most Directors were of the view that the continued ESAF should in principle be open to all ESAF-eligible members, given the protracted nature of the problems faced by many of them, their vulnerability to external shocks, and the risk of a recurrence of problems even after a sustained period of successful adjustment. Directors stressed that the continuation of ESAF is intended to maintain the Fund’s ability to respond to eligible members’ needs as they arise, and not to provide a source of continuous financing for individual countries. Directors also agreed that countries having benefited from exceptional assistance under the HIPC Initiative at the completion point would in most cases be expected to have made major progress toward a viable balance of payments position or achieved it, although they were likely to remain dependent on development aid flows. I have also noted the interest expressed by some Directors in exploring the scope for precautionary ESAF arrangements and we will return to that matter.

Fourth, Directors agreed that any reduction at the completion point of the assistance committed to a member at the decision point, would be taken only in concert with all other creditors and only where a major windfall transforms the economic circumstances of the member concerned and not when the improvement in its circumstances is the result of more ambitious adjustment and reform efforts undertaken by the member.

Fifth, Directors discussed the vulnerability factors that should be taken into account at the decision point in determining the debt sustainability targets. These might include a range of factors in addition to those mentioned in the decision, including, as suggested by some Directors, the present value of external debt-to-GDP ratio.

Sixth, the reference to extended arrangements as satisfying the requirement of a track record of strong policy performance in the case of the second three-year period is intended only to cover the possibility that interim ESAF operations could take the form of extended arrangements in the General Resources Account.

Finally, regarding the amounts of Fund assistance under the HIPC Initiative, Directors reiterated the importance of one of the guiding principles of the Initiative, i.e., that the assistance provided by the Fund and other multilateral creditors should preserve the financial integrity of the institutions and their preferred creditor status. Directors emphasized that before deciding on commitments or disbursements, the Fund would need to have satisfactory assurances concerning the actions and decisions to be taken—on their own responsibilities and in accordance with their own procedures—by other involved creditors. It would not be productive to try to formulate these considerations in mechanical terms in the abstract, but we will have them clearly in mind in considering individual cases.

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Several Directors asked for an early report to the Board on progress on financing the ESAF/HIPC initiatives, including through bilateral contributions. The staff will discuss this issue in the context of a paper on the use of SCA-2 resources, to be presented to the Board in the coming weeks.

The Acting Chair’s Summing Up—HIPC Initiative—Status of Implementation; Background Papers on the Achievement of Long-Term External Debt Sustainability and External Debt Management in HIPCs; and Update on Financing of PRGF and HIPC Operations and Subsidization of Post-Conflict Emergency Assistance Executive Board Meeting 02/40, April 9, 2002

1. Directors considered the HIPC Initiative to be an important part of a comprehensive strategy to eradicate poverty. They therefore welcomed the steady progress that has been made to date under the enhanced HIPC Initiative, especially in bringing new countries to the decision point. They noted that 26 countries have reached their decision points, of which 4 countries have reached their completion points, by end-March 2002. The committed debt relief under the enhanced HIPC Initiative would lower the outstanding stock of external debt of these countries by two thirds. This relief would also lower, on average, debt-service payments during 2001–05, compared to 1998–99, by about one third relative to exports and by almost one half relative to government revenue thus allowing for significant increases in social and poverty-related spending. However, Directors emphasized that HIPC debt relief should not displace other forms of development aid, either to HIPCs or to non-HIPCs.

2. Directors urged the staff to continue to work with the remaining HIPCs, most of which are conflict-affected, to bring them to decision points as soon as conditions permit. Directors noted that progress has been slow in bringing countries that have reached their decision points to the completion point, when the remaining debt relief could be provided on an irrevocable basis. Directors underscored the need for these countries to remain on track with their economic reform and poverty reduction programs in order to reach their floating completion points, while acknowledging that this will require additional effort in the context of the current global economic slowdown and the decline in primary commodity prices.

3. Directors regretted that the participation so far in the delivery of HIPC Initiative assistance by non-Paris Club official and commercial creditors has been poor, and expressed concern about repeated attempts by some official bilateral creditors to sell their claims on HIPCs to the secondary market with attendant risk of litigation. They stressed that participation by all creditors is necessary for the successful implementation of the HIPC Initiative and urged the creditors that have not yet agreed to participate in the Initiative to do so as soon as possible. Directors called on the staff to take all possible measures, within the existing institutional constraints, to help secure a more effective participation of all creditors. In this regard, most Directors welcomed the new supplementary measures proposed by the staff. Some Directors expressed concern about the proposal that non-Paris Club creditors with Fund-supported programs be allowed to include the amount of their debt relief to HIPCs in their financing gaps.

4. Directors stressed that a track record of strong policy performance under Fund- and Bank-supported programs is central to the success of the HIPC Initiative. It was agreed, therefore, that the Bank and the Fund should retain the requirement of at least one-year of satisfactory PRSP implementation before the completion point under the HIPC Initiative (except as provided for in retroactive cases). Many Directors were of the view, however, that some flexibility in timing could be allowed in cases where there has been satisfactory progress in implementing the PRSP, the other completion point triggers have been met, and the financial cost of delaying the completion point is significant. In such cases, they considered that countries’ completion point requests could be submitted for Board consideration without waiting for a full year of PRSP implementation; this would require an amendment of the HIPC Instrument. In interpreting the practical modalities of ascertaining the observance of the standard completion point condition on track record performance under a PRGF-supported program, most Directors agreed that, in the case of extended interruptions of policy performance (more than six months), a satisfactory track record in the form of the completion of one review of a PRGF-supported program covering a period of policy implementation of at least six months would be required immediately before the completion point. While agreeing that a satisfactory macroeconomic performance prior to the completion point is essential, many Directors felt that some flexibility should be applied in judging performance to take into account factors beyond the control of the authorities.

5. Directors expressed concern that the recent global slowdown, coupled with a significant decline in primary commodity prices, has weakened HIPCs’ growth and export performance over the past two years and led to a deterioration of external debt indicators for many of them. Continued export volume growth in most HIPCs has moderated the slowdown in real GDP growth, and the overall impact of recent changes in the international economic environment has varied considerably across HIPCs. Of the four countries that have reached their completion points, two seem to be in a good position to maintain long-term debt sustainability, but the situation of the other two is more mixed. For the 20 countries that reached their decision points by end-2001, 8 to 10 are likely to have NPV of debt-to-exports ratios at the completion point above the 150 percent threshold; for 6 of these countries, such deviations were anticipated at the time of their decision points, but to a lesser degree. Directors recognized that these projections would necessarily be modified in the light of the actual developments in these countries before their completion points are attained.

6. Directors recalled that the enhanced HIPC Initiative provided for the consideration on a case-by-case basis of additional debt relief at the completion point in cases where exceptional exogenous shocks have caused fundamental changes in a country’s economic circumstances. They stressed that the potential additional HIPC relief is not meant to compensate for slippages in policy reform and/or imprudent new external borrowing, nor could it be provided on an ongoing basis to deal with future economic shocks. In this context, they also noted the need for greater recognition of downside risks in debt sustainability analyses and in projections for growth and exports at the decision point. Directors recognized that any additional debt relief at the completion point would increase the overall costs of the HIPC Initiative. The financing implications of this would need to be explored in due course.

7. Overall, Directors noted that virtually all HIPCs are heavily dependent on primary commodities for their export earnings and government revenue, and, as a result, they would remain vulnerable to adverse developments in the external environment. Directors agreed that the objective of the enhanced HIPC Initiative is to achieve a lasting exit from unsustainable debt for eligible countries. But many emphasized that HIPC debt relief was not the only factor in ensuring debt sustainability. They emphasized that the achievement of long-term debt sustainability would require, on the one hand, a combination of continued policy reforms aimed at accelerating growth and diversifying the export base, as well as a strengthened external debt management capacity by the HIPCs themselves, and on the other hand, improved access for their exports to world markets and external financing on appropriate terms.

8. Directors underscored that given HIPCs’ limited repayment capacity, almost all new financing should be in the form of highly concessional loans and grants. Directors encouraged HIPCs to significantly strengthen their debt management capacities during the HIPC process, especially in increasing transparency and accountability on new borrowing and on the use of borrowed resources. Directors stressed the importance for HIPCs, as well as the Fund and the Bank, to closely monitor HIPC country debt indicators in order to detect potential debt-servicing problems at an early stage.

9. Directors welcomed the progress made in securing financing for the interim PRGF and the Fund’s participation in the HIPC Initiative. They were pleased to note that new PRGF loan resources of SDR 4.4 billion had been pledged, of which SDR 4.1 billion are now available, and that nearly all the pledged bilateral subsidy contributions to the PRGF-HIPC Trust have become effective. Directors urged that the remaining bilateral contributions to the PRGF-HIPC Trust be made effective soon to ensure full funding of PRGF-HIPC operations.

10. Directors welcomed contributions by several countries to subsidize post-conflict emergency assistance and encouraged further pledges by other members to ensure that resources remain sufficient to subsidize charges by the poorest members beyond 2002.

11. Directors were in broad agreement with staff analysis that available and pledged loan and subsidy resources appeared sufficient to finance PRGF operations and the Fund’s share of HIPC Initiative assistance. They also agreed that accumulated balances in the Reserve Account adequately protected providers of both current and new loans to the PRGF Trust. They noted, however, that consideration might need to be given to mobilizing additional loan and subsidy resources should the recent high demand for PRGF resources continue. Over the long term, the adequacy of the level of self-sustained PRGF operations would also need to be assessed. Directors also noted that any expansion of the list of eligible countries under the HIPC Initiative, or significant topping up at the completion points, if warranted, would increase the cost of the Fund’s HIPC Initiative assistance, necessitating the mobilization of additional resources. Some Directors also called for a fuller assessment of the potential costs of topping up going forward. Directors looked forward to a further discussion later this year of the Fund’s concessional assistance to low-income countries.

Summing Up by the Chairman—Enhanced Initiative for Heavily Indebted Poor Countries (HIPCs) and Poverty Reduction Strategy Papers (PRSPs)—Progress Reports and Review of Implementation Executive Board Meeting 00/90, September 5, 2000

Executive Directors welcomed the HIPC and PRSP progress reports and, in particular, the enhanced cooperation between the Fund and the World Bank, reflected in the draft statement by the Managing Director and the President of the World Bank to the International Monetary and Financial Committee (IMFC) and the Development Committee (DC). They were pleased to note the progress made so far in implementing the HIPC Initiative, which—together with traditional debt relief mechanisms and with further action by bilateral creditors—is already reducing substantially the debt burden of a good number of poor countries.

Directors favored the measures being taken to accelerate the implementation of the enhanced HIPC Initiative and to progress further toward the objective of 20 countries reaching their decision points in 2000. In this regard, some Directors noted that an updated country-by-country status would be useful to provide the international community with an overview of the main factors that stand in the way of some countries reaching their decision point before end-2000.

Directors agreed that an overall track record of three years of Bank- and Fund-supported programs prior to the decision point should in general be maintained, but that this should be interpreted flexibly on a case-by-case basis. Most Directors also agreed that the track record requirements immediately preceding a decision point may need to be applied flexibly, especially for countries that have experienced significant program interruptions. They emphasized, however, that countries need to demonstrate strong commitment to reform programs, particularly in the areas of governance and accountability, and that the link between debt relief and poverty reduction should be clearly maintained. In this regard, Directors stressed the importance of establishing a clear framework for the tracking of public expenditure on poverty reduction. A few Directors favored the maintenance of a track record requirement under Fund-supported programs immediately prior to the decision point, particularly for the most difficult cases, to ensure a prospect for a durable resolution of countries’ debt problems.

A number of Directors questioned the extent of floating completion point structural conditionality. They urged the staff to continue to focus floating completion point requirements on a key number of policy actions on poverty reduction, as well as requiring a stable macroeconomic position, and that the country has kept on track with its Fund-supported program.

Directors urged potential HIPC countries that have not yet embarked on IDA- and IMF-supported adjustment programs to do so expeditiously, and thus to begin to establish their eligibility for HIPC debt relief. In this context, most Directors favored that the current end-2000 sunset date for countries to enter into such programs and be eligible for assistance under the Initiative be extended by a further two years to end-2002.

Directors underscored the critical importance of pursuing prudent debt management and of securing adequate concessional financing for the successful implementation of the HIPC Initiative. Several Directors emphasized the importance for calculations of debt relief to take into account the impact of recent adverse terms of trade developments; it was noted that the existing framework is flexible in this regard. Directors agreed that debt relief is only one element of a comprehensive strategy to support poverty reduction in HIPC countries, and noted, in particular, that increased access to industrial country markets is also critical.

Directors welcomed the efforts of the staff to seek participation and contributions from all creditors, including non-Paris Club bilateral creditors. Some Directors noted the financing problems faced by non-Paris Club creditors, especially those that were themselves HIPC countries, and called on the international community for a more innovative and flexible solution for this category of creditors. They expressed their clear expectation that all donors will take the necessary steps to fulfill early pledges of contributions in a timely manner. The issue of Fund financing will be discussed separately on September 13th, 2000.

On PRSPs, Directors welcomed the progress that has been achieved to date. They were encouraged by the favorable response in countries engaged in preparing nationally owned poverty reduction strategy documents and the extent to which countries have drawn on their own prior experience. They noted that, in many cases, the information provided, the degree of participation and the level of political authority involved in the preparation of interim PRSPs was much higher than had been envisaged.

At the same time, Directors acknowledged the challenges facing countries as they move to preparing full PRSPs and attempt to develop well-specified and prioritized programs from what were, in some cases, only broad statements of intent in their interim PRSPs. These challenges include, inter alia, reliance on inadequate poverty data and limited institutional and analytical capacity on the part of both governments and civil society, and the need to ensure that broad-based participation does not undermine the authority of national parliaments and existing democratic processes. Directors therefore welcomed the current or planned involvement of multilateral and bilateral development partners in supporting countries’ efforts to upgrade data and to build institutional capacity. They considered that efforts need to be redoubled to ensure that the views of the poor are taken into account in developing poverty reduction strategies. Further analytical work is also needed, particularly with regard to the link between growth and poverty reduction, and Directors noted with approval that the Bank and Fund staff are intensifying their research efforts in this area. They looked forward to the Board review of this work in the near future.

Directors recognized that there is a tension between, on one hand, accelerating debt relief and maintaining the pace of IDA and IMF concessional assistance and, on the other hand, ensuring that HIPC resources and concessional financing are linked to country-owned poverty reduction strategies. While the introduction of interim PRSPs and of interim assistance under the HIPC Initiative has proven to be helpful in this respect, Directors cautioned that this inherent tension will intensify as countries move to full PRSPs. Moreover, while the quality of PRSPs will develop and improve through successive cycles, a wide range should be expected for the first PRSPs. Directors welcomed the World Bank’s intention to strengthen the links between PRSPs and IDA assistance through the use of a Poverty Reduction Support Credit.

Directors also recognized that there is a tension between country ownership and the requirements on the part of IDA and the IMF to assess whether the content of individual country strategies provide an adequate basis for the institutions’ concessional lending. While concluding that the need to make such judgments is inescapable, they supported the approach outlined in the Board paper for amplifying guidance to staff on the assessment of the core content of poverty reduction strategies, and the participatory process, noting this guidance would enhance transparency without infringing on the principle of country ownership. However, they stressed that such guidance should not be overly prescriptive.

Directors acknowledged that the originally envisaged one-year interval between discussion of an interim PRSP and completion of a full PRSP may be too short. They endorsed the staff’s recommendation whereby countries unable to complete a full PRSP within a year of their initial interim PRSP could provide a progress report, accompanied by an updated Joint Staff Assessment, as a basis for obtaining continued access to concessional assistance and, where applicable, interim debt relief. A few Directors, however, favored a fuller update of the PRSP document, including progress being made with regard to the participatory process and where appropriate the planned use of HIPC debt relief resources.

Directors welcomed the background staff paper on the key features of PRGF-supported programs (SM/00/193). They endorsed it as providing useful guidance that will help ensure that macroeconomic policies and other aspects of a country’s poverty reduction strategy are effectively integrated, and that PRGF-supported programs are formulated in ways that support increased national ownership. They looked forward to the changes described in the paper becoming increasingly included in new PRGF arrangements. They also welcomed the intention to make the paper publicly available, as a way of clarifying expectations and fostering public debate on the issues.

Summing Up by the Acting Chairman—Initiative for Heavily Indebted Poor Countries—Proposal for Streamlining Preliminary Documents Executive Board Meeting 00/108, November 3, 2000

Directors considered the proposals for streamlining preliminary HIPC documents in EBS/00/207. They agreed that preliminary documents should be streamlined as proposed in paragraph 7 of the paper to focus on a few key issues, notably: eligibility; track record; summary debt sustainability analysis; timing of possible decision points; possible triggers for the floating completion point; and likely assistance under the Initiative. A number of Directors emphasized that streamlining should not be allowed to compromise the quality and coverage of the information presented to the Board. Some Directors considered that reaching a decision point before the end of the year may be premature for some of the country cases currently envisaged for consideration within that time frame. Accordingly, requests were made that the preliminary documents also include the rationale for the choice of completion point triggers, details on the debt service profiles before and after HIPC Initiative assistance, more information on expenditure tracking and monitoring of debt relief, plans for interim relief, and policies on transparency. Directors also stressed that adequate information on a country’s performance under the PRGF, and the justifications for any shortening of the required track record—where appropriate—should be included. The staff will take these factors into account when preparing these papers.

Directors also supported the proposal that, for the remainder of this year, the streamlined preliminary documents be discussed by the Board on a case-by-case basis, after a review period of five working days.

Directors generally supported a review of the experience with these arrangements early in 2001.

The Acting Chair’s Summing Up—Heavily Indebted Poor Countries (HIPC) Initiative—Status of Implementation Executive Board Meeting 05/78, September 9, 2005

Executive Directors reiterated their strong support for the Enhanced HIPC Initiative, and welcomed the continued progress being made under this Initiative in providing debt relief to the world’s poorest countries. They noted that twenty-eight countries have reached their decision points and that eighteen of them have now reached the completion point. HIPC Initiative debt relief committed to the countries that have reached the decision point, together with additional debt forgiveness, represents a two-thirds reduction of their overall debt stock. As a result, debt-service payments for most HIPCs are expected to decline to less than 10 percent of exports—below the debt service ratio for non-HIPC low-income countries—and thus to help HIPCs to increase their poverty-reducing expenditures substantially. In the twenty-eight countries that have reached the decision point, such expenditures were almost four times as great as debt-service payments in 2004. Directors underscored that continued adherence to a strong policy framework and appropriate debt management remain essential after the completion point, for ensuring a lasting exit from unsustainable debt and maximizing the benefits for poverty reduction and attainment of the Millennium Development Goals.

Notwithstanding these achievements, Directors recognized that many countries have yet to progress to the completion point. They noted that, for these countries in the interim period between the decision and completion points, progress toward reaching the completion point will depend on satisfactory performance under their PRGF arrangements and on the development and implementation of their poverty reduction strategies. Directors welcomed the new PRGF arrangements approved in recent months for a number of countries, and encouraged them to stay on track with their economic, social, and structural reform programs in order to reach their completion points without delay. Directors urged staff to continue to work with the authorities of the other HIPCs in the interim period to help them, where possible, build a satisfactory record of performance towards their completion points. In this regard, Directors attached high priority to assisting countries in improving their institutional capacity and policy processes. In particular, the importance of improved public expenditure management and adequate tracking of poverty outlays was emphasized.

Directors acknowledged that the majority of HIPCs’ bilateral creditors have agreed to provide debt relief, but stressed that ensuring the full participation of non-Paris Club and commercial creditors remains an important challenge. They reiterated their call to creditors that have not yet joined the international community to do so, and to contribute their share toward reducing HIPCs’ debt to sustainable levels. Directors regretted that a number of non-Paris Club creditors have withdrawn participation from the Initiative. While welcoming the contribution of IDA’s Debt Reduction Facility to reduce commercial debt, Directors expressed concern over the increase in lawsuits initiated by private creditors against HIPCs. Underscoring the crucial importance of equitable participation and burden sharing in the HIPC Initiative, they strongly urged staff to take all possible measures, within the existing institutional constraints, to help increase creditor participation in the Initiative and facilitate cooperation between creditors and HIPCs. Directors’ recommendations included actions to enhance the transparency of creditor participation, more explicit attention to these issues in Article IV consultations, targeted technical assistance to improve debt management systems, intensified moral suasion, and creditor education of the HIPC methodology. Some Directors also suggested that the staff explore further the legal possibilities of reducing litigation at an international level. Several Directors observed that some of the HIPCs themselves could do more to promote contacts with non-Paris Club creditors.

Directors welcomed the preliminary list provided by staff to identify countries that could be eligible for HIPC assistance under the extended sunset clause. They supported the methodological approach taken by staff in carefully reviewing available data before reaching firm conclusions on HIPC eligibility. Directors encouraged staff to advance this work promptly and looked forward to receiving the final list of potentially eligible countries early in 2006. A robust and reliable list was seen as particularly important, given the eligibility of new HIPC entrants for one hundred percent debt relief from the IMF, IDA, and AfDF under the G-8 debt cancellation proposal. Some Directors called for caution in publishing the list of eligible countries, given the implications for credit flows to these countries and the still preliminary nature of eligibility assessments. At the same time, financing these additional HIPC cases will also be critical.

Bringing eligible, or potentially eligible, HIPCs to the decision point will be a challenging goal, as these countries are mostly conflict-affected, and a number of them have substantial arrears to official creditors. Directors urged the staff to continue to work with the authorities in these countries, wherever possible, to develop strategies to move ahead. They encouraged eligible countries to establish a track record of policy performance and a satisfactory poverty reduction strategy so that they could qualify and begin receiving debt relief under the enhanced HIPC Initiative. Potentially eligible countries that have not had an IMF- or IDA- supported program in place since the beginning of the Initiative should make every effort to start one before the expiry of the sunset clause at end-2006 so as to become eligible for debt relief under the enhanced HIPC Initiative. At the same time, Directors reiterated the importance of ensuring the high quality of these programs and of preserving the key principles of the HIPC Initiative.

The Acting Chair’s Summing Up—2005 Review of the Poverty Reduction Strategy Approach—Balancing Accountabilities and Scaling Up Results—Synthesis Executive Board Meeting 05/78, September 9, 2005

Executive Directors commended the staff of the Fund and the Bank for an excellent report that reflects in a comprehensive and balanced way the progress made under the poverty reduction strategy (PRS) approach during the past five years, while highlighting the remaining challenges. In particular, they welcomed the focus on cross cutting issues supported by wide-ranging case studies and extensive outreach efforts. Directors encouraged the Fund and Bank to continue incorporating the views and assessments of different stakeholders so as to identify best practices and recommendations that can be of relevance for all parties involved in the PRS process.

Directors welcomed the continued widening acceptance of the PRS approach by low-income countries and the donor community. They noted that several countries have already completed, or are in the process of completing, the revision of their original strategies. Directors encouraged countries that have not yet completed a poverty reduction strategy to do so.

Directors underscored that the core principles underlying the PRS approach—of country ownership, participation, results-orientation, and partnership—remain relevant and continue to provide a useful framework for further strengthening this approach and achieving sustainable results. They reiterated that developing countries themselves should continue to take the lead in the fight against poverty. The main responsibility of the international community, including the Fund and the World Bank, remains to support the countries’ own efforts and to contribute to enhanced aid effectiveness, including through improved donor coordination. These actions were seen as particularly important as the international community steps up its efforts to provide development assistance and debt relief.

Directors agreed that the PRS approach should be strengthened in ways that reinforce the mutual accountability for development results embodied in the Monterrey Consensus. They considered that the proposed improvements in the PRS process would support a better balance between domestic and external accountabilities. The PRS approach should also provide the framework for scaled-up efforts to achieve the Millennium Development Goals (MDGs) at the country level.

Directors observed that the PRS approach continues to provide a useful operational framework for governments to set their development priorities, and to mobilize domestic and external support. They agreed that the priority going forward should be to renew the focus on the PRS core principles and ensure their even application. Directors stressed the importance of tailoring emerging good practice to individual country circumstances.

Directors supported the focus of the PRS approach on addressing country-specific constraints to development by strengthening domestic processes and systems. Domestic accountability would be reinforced by embedding the PRS process into existing domestic decision-making processes and systems, including the annual budget; strengthening monitoring and evaluation systems; and engaging in an open discussion of national priorities with domestic stakeholders and external partners.

Directors stressed the importance of clearly defined and prioritized goals in the PRS, and of linking them to specific policy actions. These goals could be derived from a longer-term vision for development, such as the MDGs, appropriately customized to reflect the specific country circumstances. In this regard, several Directors noted that poverty reduction strategies often describe economic and political objectives in general terms without indicating specifically how these goals can be achieved. Directors agreed, therefore, that the PRSs should be made more operational, with clearer links between the goals and the policies intended to achieve them. These considerations point to the need for further analytical work to define these links. Given the long-term nature of many of the PRS’s goals, Directors noted the importance of defining appropriate intermediate indicators to measure and evaluate progress, so that policies could be adapted and refined in implementation.

Directors considered that closer attention should be given to deepening the country-specific understanding of the sources of growth and its relationship to poverty reduction. They therefore welcomed the increasing centrality of growth in PRSs, and considered it important to sharpen the pro-poor focus of PRSs. Directors also called on countries to step up efforts to improve their national monitoring systems, particularly their statistical systems. Development partners, including the Fund, should provide well-coordinated support for building this capacity, as well as for filling analytical gaps.

Directors underscored the importance of linking the PRS to the medium-term expenditure framework and to the annual budget. This would help translate the goals of the PRS into concrete, monitorable, and prioritized public actions. Such linkages would also make the government’s policy intentions clear to parliaments and to other domestic stakeholder groups, as well as to external development partners.

Directors welcomed the increasing involvement of parliaments in the PRS process. Their active engagement in all stages of the PRS process would contribute to a more active debate on national development objectives and policy priorities. Directors encouraged the country authorities to pursue efforts to involve other stakeholder groups more actively in the PRS process, including business and other private sector representatives.

Directors saw scope for broader dialogue and debate on macroeconomic issues and alternative policy options in PRSPs. Governments should establish an appropriate framework for dialogue on macroeconomic policy. Directors welcomed the increasing use of PSIAs to inform the debate on, and design of, macroeconomic policies. Together with their development partners, governments should work to strengthen the capacity of the public to understand policy constraints and formulate feasible alternatives.

Directors took note of continued progress in efforts to improve the effectiveness of aid and to align it with the objectives of PRSs. They called on donors to make firm and early commitments of their support, including where possible over the medium term, and to disburse their assistance in a predictable and timely manner. PRSPs should be strengthened as the framework for mobilizing external assistance and to enable closer donor alignment with country priorities. Countries should also take a strong leadership role in their relations with donors.

Directors concurred that the PRS should provide the operational framework for scaling up efforts to reach the MDGs. At the same time, PRSs must be grounded in realism to be a useful basis for policy formulation and day-to-day implementation. Directors considered that the use of alternative scenarios in PRSs could bridge the gap between realism and ambition, and provide a credible framework for scaling up assistance at the country level. They concurred that Fund staff should help those countries that sought assistance in preparing such scenarios. Scaled up assistance heightens the importance of more predictable and coordinated aid from donor countries.

Directors stressed that effective scaling up would require improvements in the ability of countries to absorb more aid effectively. Donors would need to provide effective support for country efforts to overcome human, physical, and institutional capacity constraints. Directors considered that the Fund would play a critical role in helping countries to analyze this impact and adapt the macroeconomic framework appropriately to accommodate higher aid inflows.

Directors agreed that the PRS approach should be carefully tailored to the special requirements of fragile or conflict-affected states. In such countries, coordinated and sustained donor support would be critical, but capacity constraints would be particularly binding, as governments would have only limited capacity to organize participatory processes, and to formulate and implement prioritized PRSs. These countries would also need to integrate political, humanitarian, and security concerns into their PRSs. In tailoring their interventions to these specific circumstances, development partners should be careful not to create unsustainable dependencies and parallel structures.

Finally, Directors considered that further improvements are necessary to make PRSs a more effective framework for guiding country and donor efforts to foster growth and reduce poverty. They suggested that the important lessons from the present review and from previous reviews be taken on board in developing and refining PRSs. At the same time, Directors highlighted specific aspects of the PRS process that should be strengthened. In particular, good practices and lessons that emerge from PRS implementation across countries should be identified and applied more widely. Directors therefore considered that selective and targeted reviews of specific aspects of the PRS process would be of greater value for effective implementation than periodic comprehensive reviews of the PRS approach as a whole.

The Acting Chair’s Summing Up—Multilateral Debt Relief Initiative and Exogenous Shocks Facility—Proposed Decisions Executive Board Meeting 05/99, November 23, 2005

Today’s adoption by the Executive Board of the decisions to implement the Multilateral Debt Relief Initiative (MDRI) marks an important step in strengthening the Fund’s ability to assist its poorest member countries in addressing their protracted balance of payments problems and reach the Millennium Development Goals (MDGs). In addition, today’s adoption by the Executive Board of the decisions to establish an Exogenous Shocks Facility (ESF) within the PRGF Trust will enable the Fund to provide financing on more appropriate terms to low-income countries confronting sudden and exogenous shocks.

Directors reaffirmed the broad consensus reached on various elements of the MDRI at the last Executive Board meeting on the subject, including eligibility, qualification requirements, and financing arrangements. Directors noted that upon a determination of qualification of an eligible member for debt relief, the Fund would use resources from the applicable MDRI Trust to repay, on behalf of the qualifying member, its eligible debt to the Fund (including to the Fund as Trustee). Debt relief under the MDRI would only be provided to a qualifying member upon its request.

Directors discussed the conditions that non-HIPCs should meet to qualify for debt relief under the MDRI. They agreed that satisfactory performance in the same three key areas applicable to HIPCs should be a requirement. These areas are: (i) macroeconomic performance; (ii) implementation of a poverty reduction strategy or a similar framework; and (iii) the public expenditure management (PEM) system. The proposed specific qualification requirements will be: a track record of at least 6 months of sound macroeconomic policies and satisfactory implementation of a poverty reduction strategy (or equivalent framework) in the period immediately prior to the assessment, and an assessment that the quality of the PEM system would allow resources freed by debt relief to help meet the MDGs. Directors noted that, unlike HIPCs, for non-HIPCs no formal comprehensive assessment of their PEM systems has been undertaken. They underscored that performance in the area of PEM systems should be assessed drawing from a variety of sources to ascertain that PEM systems in these countries are, and are expected to remain, sufficiently strong to provide comfort that resources freed by MDRI debt relief will be used productively. Should a country fail that test, staff would propose remedial actions involving a sustained strengthening of its PEM system.

Directors also reaffirmed the consensus reached at the last Executive Board meeting on the purpose and modalities of the ESF, including with respect to eligibility, qualification, conditionality, access guidelines, and financing terms.

Directors agreed to rename the current PRGF Subsidy Account as the PRGF-ESF Subsidy Account. The resources in this account will be used flexibly to subsidize either PRGF or ESF loans. They noted that such a fungible use of resources in the new PRGF-ESF Subsidy Account will allow for an early activation of the ESF using existing resources. Directors supported the creation of two new subsidy accounts—one to receive earmarked contributions and provide subsidies for PRGF loans only, and the other to receive earmarked contributions and provide subsidies for ESF loans only. They agreed that the resources in the PRGF-ESF Subsidy Account will be used only if there are no resources in the PRGF Subsidy Account or in the ESF Subsidy Account, as the case may be.

Directors recognized that the use of PRGF Subsidy Account resources for the MDRI will require the consent of all contributors to such account, and that the amendments to the PRGF Trust to establish the ESF will also require the consent of such contributors and, in addition, the consent of all lenders to the Loan Account. To address the contingency that a contributor may refuse to consent to such amendments, Directors agreed to authorize the Managing Director to return the remaining resources attributable to such dissenting contributor in full. To that effect, it was understood that the letter requesting contributors’ consents to the amendments should also elicit their consent for the Managing Director to take this action. Directors urged contributors and lenders to provide early consent, so that MDRI debt relief can be provided to qualifying countries in early January 2006 as planned.

Directors agreed that consistent with the current policy, members with arrears to the Fund in the GRA or to the Fund as Trustee will not be eligible for debt relief under the MDRI until such arrears are cleared. They looked forward to a follow-up paper on the issues related to the three protracted arrears cases (Liberia, Somalia, and Sudan).

Multilateral Debt Relief Initiative (MDRI) and Related HIPC Initiative Amendments

1. Pursuant to Article V, Section 2(b), the Fund adopts the Instrument to Establish the Multilateral Debt Relief Initiative-I Trust (“MDRI-I Trust”) that is annexed as Attachment I to this decision. The Fund shall conduct semi-annual reviews of the financing of the MDRI-I Trust.

2. Pursuant to Article V, Section 2(b), the Fund adopts the Instrument to Establish the Multilateral Debt Relief Initiative-II Trust (“MDRI-II Trust”) that is annexed as Attachment II to this decision. The Fund shall conduct semi-annual reviews of the financing of the MDRI-II Trust.

3. 1

4. 2

5. Of the resources held in the Special Disbursement Account (SDA) as of January 5, 2006:

(a) the equivalent of SDR 530 million, which shall include all the proceeds from investment of the profits of the 1999/2000 gold sales held in the SDA as of January 5, 2006, shall be transferred to the HIPC subaccount of the PRGF-HIPC Trust Account and shall be used exclusively to provide debt relief from the Fund under the HIPC Initiative to members that qualify for such relief or, if not needed for such purpose, shall be used to replenish resources from other sources that have been used for such relief;

(b) the equivalent of SDR 1.5 billion shall be transferred to the MDRI-I Trust established pursuant to paragraph 1 of this decision, and shall be used exclusively to provide debt relief from the Fund in accordance with the provisions of the Instrument establishing that Trust; and

(c) the remaining balance shall be transferred to the Subsidy Account of the PRGF Trust.

6. In accordance with Article V, Section 12(i), the General Resources Account of the Fund shall be reimbursed annually by the MDRI-I Trust, from resources transferred to the MDRI-I Trust from the SDA, in respect of the expenses of administering SDA resources in the MDRI-I Trust, other than expenses already attributed to other accounts or trusts administered by the Fund or to the General Resources Account.

7. 1

8. This decision shall become effective when all third party contributors to the Subsidy Account of the PRGF Trust have consented to the amendments set forth in paragraph 3 above, and the Trustee has received notifications of consent from contributors for transfers to the MDRI-II Trust for the equivalent of SDR 1.12 billion.

Decision No. 13588-(05/99) MDRI, November 23, 2005,

effective January 5, 2006

Attachment I: Instrument to Establish the Multilateral Debt Relief Initiative-I Trust

Introductory Section

To help fulfill its purposes, the International Monetary Fund (“the Fund”) has adopted this Instrument to Establish the Multilateral Debt Relief Initiative-I Trust (“the Trust”), which shall be administered by the Fund as Trustee (“the Trustee”). The Trust shall be governed by and administered in accordance with the provisions of this Instrument.

Section I. General Provisions

Paragraph 1. Definitions

Wherever used in this Instrument, unless the context otherwise requires:

(a) “decision point” and “completion point” shall have the meaning given to each of them in Section I, Paragraph 1 of the PRGF-HIPC Trust Instrument that is annexed to Decision No. 11436-(97/10), adopted February 4, 1997 (“the PRGF-HIPC Trust Instrument”); and

(b) “eligible or potentially eligible for HIPC Initiative assistance” means the relevant member either (i) meets the eligibility criterion set forth in Section III, paragraph 1(d) of the PRGF-HIPC Trust Instrument, or (ii) had reached a decision point under the HIPC Initiative as of December 31, 2004.

Paragraph 2. Purposes

The Trust shall assist in fulfilling the purposes of the Fund by providing balance of payments assistance to low-income developing members by making grants (“Trust grants”) to eligible members that qualify for assistance under the terms of this Instrument.

Paragraph 3. Trust Account and resources

(a) The operations and transactions of the Trust shall be conducted through an account (“the Account”). Within the Account, the Trustee may establish such sub-accounts as it deems necessary for the administration of the resources in the Account.

(b) The resources held in the Account shall consist of:

(i) transfers from the Special Disbursement Account in accordance with paragraph 5(b) of Decision No. 13588-(05/99) MDRI;

(ii) grant contributions made to the Trust for the purposes set forth in paragraph 2;

(iii) loans, deposits and other types of investments made by contributors with the Trust to generate income to be used for the purposes set forth in paragraph 2; and

(iv) net earnings from investment of resources held in the Account.

Paragraph 4. Unit of account

The SDR shall be the unit of account for commitments and all other operations and transactions of the Trust, provided that commitments for contributions may also be made in currency.

Paragraph 5. Media of payment of contributions and exchange of resources

(a) Resources provided to the Trust may be received in any currency.

(b) Payments by the Trust shall be made in U.S. dollars or such other media as may be agreed between the Trustee and the payee.

(c) Contributions to the Trust may also be made in or exchanged for SDRs in accordance with such arrangements as may be made by the Trust for the holding and use of SDRs.

(d) The Trustee may exchange any of the resources of the Trust, provided that any balance of a currency held in the Trust may be exchanged only with the consent of the issuer of such currency.

Section II. Contributions to the Trust

The Trustee may accept contributions of resources for the Account on such terms and conditions as may be agreed between the Trustee and the respective contributors, subject to the provisions of this Instrument. For this purpose, the Managing Director of the Trustee is authorized to accept grants and enter into loan, deposit or other types of investment agreements with the contributors to the Trust.

Section III. Trust Grants

Paragraph 1. Eligibility for assistance

In order to be eligible for assistance from the Trust under Section I, paragraph 2 of this Instrument, a member shall meet the following requirements:

(a) the member is PRGF-eligible (i.e., it is included in the list of members annexed to Decision No. 8240-(86/56) SAF), adopted March 26, 1986;

(b) the member had an annual per capita income of US$380 or less on the basis of the 2004 gross national income (Atlas method) from the World Bank’s Operational Manual as updated on July 21, 2005;

(c) the member had debt outstanding to the Fund, including to the Fund as Trustee, as of December 31, 2004; and

(d) in the case of a member that is eligible or potentially eligible for HIPC Initiative assistance, the member has reached the completion point under the HIPC Initiative.

Paragraph 2. Qualification for assistance

The Trustee shall determine whether an eligible member qualifies for assistance under this Instrument in accordance with the criteria set out below:

(a) Each member eligible for assistance from the Trust that is also eligible or potentially eligible for HIPC Initiative assistance and that reaches the completion point on or after January 5, 2006, shall qualify for assistance under this Instrument when it reaches the completion point.

(b) Each member eligible for assistance from the Trust that is also eligible or potentially eligible for HIPC Initiative assistance and that reached the completion point prior to January 5, 2006 shall qualify for assistance under this Instrument when the Trustee determines that, since the member reached the completion point, its performance has not deteriorated substantially with respect to: (i) macroeconomic performance, (ii) implementation of a poverty reduction strategy or similar framework, and (iii) the state of its public expenditure management systems. A member will be deemed to have met the requirement set forth in (i) and (ii) of the preceding sentence if the member has a track record of satisfactory macroeconomic performance and satisfactory implementation of a poverty reduction strategy for the six month-period immediately preceding the determination of qualification.

(c) Each member eligible for assistance from the Trust that is not eligible or potentially eligible for HIPC Initiative assistance shall qualify for assistance under this Instrument when the Trustee determines that the member’s performance is satisfactory with respect to: (i) macroeconomic performance, (ii) implementation of a poverty reduction strategy or similar framework, and (iii) the state of its public expenditure management systems. A member will be deemed to have met the requirement set forth in (i) and (ii) of the preceding sentence if the member has a track record of satisfactory macroeconomic performance and satisfactory implementation of a poverty reduction strategy for the six month-period immediately preceding the determination of qualification.

Paragraph 3. Amount and delivery of assistance

(a) Upon a determination that a member qualifies for assistance pursuant to paragraph 2 above, the Trustee shall repay to the Fund, on behalf of the member, an amount equivalent to the member’s eligible debt.

(b) For purposes of this paragraph 3, eligible debt is defined as that portion of a member’s debt to the Fund (including to the Fund as Trustee) that was outstanding as of December 31, 2004 and that, as of the date of the Trustee’s determination that the member qualifies for assistance pursuant to paragraph 2 above, (i) has not been repaid by the member or with assistance disbursed to the member under the HIPC Initiative, and (ii) is not scheduled to be repaid by assistance committed or disbursed to the member under the HIPC Initiative.

Paragraph 4. Terms of assistance

(a) The assistance to be provided by the Trust to a qualifying member shall be in the form of a Trust grant.

Paragraph 5. Disbursements

(a) Any disbursement of Trust grants shall be subject to the availability of resources to the Trust.

Paragraph 6. Modifications

Any modification of these provisions will affect only Trust grants made after the effective date of the modification.

Section IV. Administration of the Trust

Paragraph 1. Trustee

(a) The Trust shall be administered by the Fund as Trustee. Decisions and other actions taken by the Fund as Trustee shall be identified as taken in that capacity.

(b) Subject to the provisions of this Instrument, the Fund in administering the Trust shall apply the same rules as apply to the operation of the General Resources Account of the Fund.

(c) The Trustee, acting through its Managing Director, is authorized:

(i) to make all arrangements, including establishment of accounts in the name of the International Monetary Fund, which shall be accounts of the Fund as Trustee, with such depositories of the Fund as the Trustee deems necessary; and

(ii) to take all other administrative measures that the Trustee deems necessary to implement the provisions of this Instrument.

Paragraph 2. Separation of assets and accounts, audits and reports

(a) The resources of the Trust shall be kept separate from the property and assets of all other accounts of the Fund, including other administered accounts, and shall be used only for the purposes of the Trust in accordance with this Instrument.

(b) The property and assets held in the other accounts of the Fund shall not be used to discharge liabilities or to meet losses arising out of the administration of the Trust. The resources of the Trust shall not be used to discharge liabilities or to meet losses arising out of the administration of the other accounts of the Fund.

(c) The Fund shall maintain separate financial records and prepare separate financial statements for the Trust.

(d) The external audit firm selected under Section 20 of the Fund’s By-Laws shall audit the financial transactions and records of the Trust. The audit shall relate to the financial year of the Fund.

(e) The Fund shall report on the resources and operations of the Trust in the Annual Report of the Executive Board to the Board of Governors and shall include in the Annual Report the report of the external audit firm on the Trust.

Paragraph 3. Investment of resources

(a) Any balance held by the Trust and not immediately needed in operations shall be invested.

(b) Investments may be made in any of the following: (i) marketable obligations issued by international financial organizations and denominated in SDRs or in the currency of a member of the Fund; (ii) marketable obligations issued by a member or by a national official financial institution of a member and denominated in SDRs or in the currency of that member; and (iii) deposits with a commercial bank, a national official financial institution of a member, or an international financial institution that are denominated in SDRs or in the currency of a member. Investment which does not involve an exchange of currency shall be made only after consultation with the member whose currency is to be used, or, when an exchange of currency is involved, with the consent of the issuers of such currencies.

Section V. Period of Operation and Liquidation

Paragraph 1. Period of operation

The Trust established by this Instrument shall remain in effect for as long as is necessary, in the judgment of the Fund, to conduct and to wind up the business of the Trust.

Paragraph 2. Liquidation of the Trust

If the Trustee decides to wind up the operations of the Trust, the resources in the Account shall be used first to discharge all the liabilities of the Trust. Any amount remaining in the Account after the discharge of all the liabilities of the Trust shall be distributed to the Fund and contributors that have provided resources to the Trust, in proportion to their contributions. The resources representing the Fund’s share in such distribution shall be transferred to the SDA.

Section VI. Amendment of the Instrument

The Fund may amend the provisions of the Instrument, except that any amendment of Section I, paragraph 2, Section IV, Section V and this Section shall require the consent of all contributors to the Trust.

Attachment II: Instrument to Establish the Multilateral Debt Relief Initiative-II Trust

Introductory Section

To help fulfill its purposes, the International Monetary Fund (“the Fund”) has adopted this Instrument to Establish the Multilateral Debt Relief Initiative-II Trust (“the Trust”), which shall be administered by the Fund as Trustee (“the Trustee”). The Trust shall be governed by and administered in accordance with the provisions of this Instrument.

Section I. General Provisions

Paragraph 1. Definitions

Wherever used in this Instrument, unless the context otherwise requires:

(a) “decision point” and “completion point” shall have the meaning given to each of them in Section I, Paragraph 1 of the PRGF-HIPC Trust Instrument that is annexed to Decision No. 11436-(97/10), adopted February 4, 1997 (“the PRGF-HIPC Trust Instrument”); and

(b) “eligible or potentially eligible for HIPC Initiative assistance” means the relevant member either (i) meets the eligibility criterion set forth in Section III, paragraph 1(d) of the PRGF-HIPC Trust Instrument, or (ii) had reached a decision point under the HIPC Initiative as of December 31, 2004.

Paragraph 2. Purposes

The Trust shall assist in fulfilling the purposes of the Fund by providing balance of payments assistance to low-income developing members by making grants (“Trust grants”) to eligible members that qualify for assistance under the terms of this Instrument.

Paragraph 3. Trust Account and resources

(a) The operations and transactions of the Trust shall be conducted through an account (“the Account”). Within the Account, the Trustee may establish such sub-accounts as it deems necessary for the administration of the resources in the Account.

(b) The resources held in the Account shall consist of:

(i) transfers from the Subsidy Account of the PRGF Trust in accordance with paragraph 3 of Decision No. 13588-(05/99) MDRI;

(ii) grant contributions made to the Trust for the purposes set forth in paragraph 2;

(iii) loans, deposits and other types of investments made by contributors with the Trust to generate income to be used for the purposes set forth in paragraph 2; and

(iv) net earnings from investment of resources held in the Account.

Paragraph 4. Unit of account

The SDR shall be the unit of account for commitments and all other operations and transactions of the Trust, provided that commitments for contributions may also be made in currency.

Paragraph 5. Media of payment of contributions and exchange of resources

(a) Resources provided to the Trust may be received in any currency.

(b) Payments by the Trust shall be made in U.S. dollars or such other media as may be agreed between the Trustee and the payee.

(c) Contributions to the Trust may also be made in or exchanged for SDRs in accordance with such arrangements as may be made by the Trust for the holding and use of SDRs.

(d) The Trustee may exchange any of the resources of the Trust, provided that any balance of a currency held in the Trust may be exchanged only with the consent of the issuer of such currency.

Section II. Contributions to the Trust

The Trustee may accept contributions of resources for the Account on such terms and conditions as may be agreed between the Trustee and the respective contributors, subject to the provisions of this Instrument. For this purpose, the Managing Director of the Trustee is authorized to accept grants and enter into loan, deposit or other types of investment agreements with the contributors to the Trust.

Section III. Trust Grants

Paragraph 1. Eligibility for assistance

In order to be eligible for assistance from the Trust under Section I, paragraph 2 of this Instrument, a member shall meet the following requirements:

(a) the member is PRGF-eligible (i.e., it is included in the list of members annexed to Decision No. 8240-(86/56) SAF, adopted March 26, 1986);

(b) the member had an annual per capita income of more than US$380 on the basis of the 2004 gross national income (Atlas method) from the World Bank’s Operational Manual as updated on July 21, 2005;

(c) the member had debt outstanding to the Fund, including to the Fund as Trustee, as of December 31, 2004; and

(d) the member has reached the completion point under the HIPC Initiative.

Paragraph 2. Qualification for assistance

The Trustee shall determine whether an eligible member qualifies for assistance under this Instrument in accordance with the criteria set out below:

(a) Each member eligible for assistance from the Trust that reaches the completion point on or after January 5, 2006, shall qualify for assistance under this Instrument when it reaches the completion point.

(b) Each member eligible for assistance from the Trust that reached the completion point prior to January 5, 2006 shall qualify for assistance under this Instrument when the Trustee determines that, since the member reached the completion point, its performance has not deteriorated substantially with respect to: (i) macroeconomic performance, (ii) implementation of a poverty reduction strategy or similar framework, and (iii) the state of its public expenditure management systems. A member will be deemed to have met the requirement set forth in (i) and (ii) of the preceding sentence if the member has a track record of satisfactory macroeconomic performance and satisfactory implementation of a poverty reduction strategy for the six month-period immediately preceding the determination of qualification.

Paragraph 3. Amount and delivery of assistance

(a) Upon a determination that a member qualifies for assistance pursuant to paragraph 2 above, the Trustee shall repay to the Fund, on behalf of the member, an amount equivalent to the member’s eligible debt.

(b) For purposes of this paragraph 3, eligible debt is defined as that portion of a member’s debt to the Fund (including to the Fund as Trustee) that was outstanding as of December 31, 2004 and that, as of the date of the Trustee’s determination that the member qualifies for assistance pursuant to paragraph 2 above, (i) has not been repaid by the member or with assistance disbursed to the member under the HIPC Initiative, and (ii) is not scheduled to be repaid by assistance committed or disbursed to the member under the HIPC Initiative.

Paragraph 4. Terms of assistance

(a) The assistance to be provided by the Trust to a qualifying member shall be in the form of a Trust grant.

Paragraph 5. Disbursements

(a) Any disbursement of Trust grants shall be subject to the availability of resources to the Trust.

Paragraph 6. Modifications

Any modification of these provisions will affect only Trust grants made after the effective date of the modification.

Section IV. Administration of the Trust

Paragraph 1. Trustee

(a) The Trust shall be administered by the Fund as Trustee. Decisions and other actions taken by the Fund as Trustee shall be identified as taken in that capacity.

(b) Subject to the provisions of this Instrument, the Fund in administering the Trust shall apply the same rules as apply to the operation of the General Resources Account of the Fund.

(c) The Trustee, acting through its Managing Director, is authorized:

(i) to make all arrangements, including establishment of accounts in the name of the International Monetary Fund, which shall be accounts of the Fund as Trustee, with such depositories of the Fund as the Trustee deems necessary; and

(ii) to take all other administrative measures that the Trustee deems necessary to implement the provisions of this Instrument.

Paragraph 2. Separation of assets and accounts, audits and reports

(a) The resources of the Trust shall be kept separate from the property and assets of all other accounts of the Fund, including other administered accounts, and shall be used only for the purposes of the Trust in accordance with this Instrument.

(b) The property and assets held in the other accounts of the Fund shall not be used to discharge liabilities or to meet losses arising out of the administration of the Trust. The resources of the Trust shall not be used to discharge liabilities or to meet losses arising out of the administration of the other accounts of the Fund.

(c) The Fund shall maintain separate financial records and prepare separate financial statements for the Trust.

(d) The external audit firm selected under Section 20 of the Fund’s By-Laws shall audit the financial transactions and records of the Trust. The audit shall relate to the financial year of the Fund.

(e) The Fund shall report on the resources and operations of the Trust in the Annual Report of the Executive Board to the Board of Governors and shall include in the Annual Report the report of the external audit firm on the Trust.

Paragraph 3. Investment of resources

(a) Any balance held by the Trust and not immediately needed in operations shall be invested.

(b) Investments may be made in any of the following: (i) marketable obligations issued by international financial organizations and denominated in SDRs or in the currency of a member of the Fund; (ii) marketable obligations issued by a member or by a national official financial institution of a member and denominated in SDRs or in the currency of that member; and (iii) deposits with a commercial bank, a national official financial institution of a member, or an international financial institution that are denominated in SDRs or in the currency of a member. Investment which does not involve an exchange of currency shall be made only after consultation with the member whose currency is to be used, or, when an exchange of currency is involved, with the consent of the issuers of such currencies.

Section V. Period of Operation and Liquidation

Paragraph 1. Period of operation

The Trust established by this Instrument shall remain in effect for as long as is necessary, in the judgment of the Fund, to conduct and to wind up the business of the Trust.

Paragraph 2. Liquidation of the Trust

If the Trustee decides to wind up the operations of the Trust, the resources in the Account shall be used first to discharge all the liabilities of the Trust. Any amount remaining in the Account after the discharge of all the liabilities of the Trust shall be transferred to the PRGF Trust for use in any current or future subsidy operations authorized for that Trust, except that at the request of a contributor, its pro rata share in any unused resources shall be distributed to the contributor.

Section VI. Amendment of the Instrument

The Fund may amend the provisions of the Instrument, except that any amendment of Section I, paragraph 2, Section IV, Section V and this Section shall require the consent of all contributors to the Trust.

Administered Account to Subsidize Post-Conflict Emergency Assistance to Poverty Reduction and Growth Facility—Eligible Members—Establishment

Pursuant to Article V, Section 2(b), the Fund adopts the Instrument to Establish an Account (“The Post-Conflict Emergency Assistance Subsidy Account for PRGF-Eligible Members”) to subsidize the rate of charge on post-conflict purchases made by PRGF-eligible members under Decision No. 12341-(00/117), November 28, 2000, which is annexed to this decision (EBS/01/63, 4/27/01).

Decision No. 12481-(01/45), May 4, 2001,

as amended by Decision No. 12848-(02/94),

September 6, 2002

Instrument to Establish the Post-Conflict and Natural Disaster Emergency Assistance Subsidy Account for PRGF-Eligible Members

To help fulfill its purposes, the International Monetary Fund (the “Fund”) has adopted this Instrument to establish an account in accordance with Article V, Section 2(b) (the “Account”) which shall be governed by, and administered in accordance with, the following provisions:

Paragraph 1. Purpose of the Account

The purpose of the Account shall be the administration and disbursement of resources provided to the Account by Contributors for the subsidization of the rate of charge on post-conflict and natural disaster emergency assistance purchases made by PRGF-eligible members under Decision No. 12341-(00/117), November 28, 2000 (“eligible purchases”). A member is PRGF-eligible if it is included in the list of members annexed to Decision No. 8240-(86/56) SAF.

Paragraph 2. Sub-accounts

(a) The Account shall have at least three separate sub-accounts to hold and administer

(i) resources contributed for the subsidization of the rate of charge on post-conflict emergency assistance only;

(ii) resources contributed for the subsidization of the rate of charge on natural disaster emergency assistance only; and

(iii) resources contributed for both the subsidization of the rate of charge on post-conflict emergency and natural disaster emergency assistance.

(b) Further sub-accounts may be established to hold and administer resources for the purposes of the Account contributed for a specific eligible member. Resources contributed to subsidize post-conflict emergency assistance prior to [date of amendment] will be placed into the sub-account referred to under (i) of this paragraph, unless otherwise specified, by the Contributor, and used only for the subsidization of the rate of charge on post-conflict emergency assistance purchases by eligible members.

Paragraph 3. Resources of the Account

The resources held in the Account shall consist of:

(i) grant contributions made to the Account for the purposes of paragraph 1;

(ii) loans, deposits and other types of investments made by Contributors to the Account to generate income to be used for the purposes of paragraph 1; and

(iii) net earnings from the investment of resources held in the Account.

Paragraph 4. Contributions to the Account

The Fund may accept contributions of resources to the Account on such terms and conditions as may be agreed between the Fund and the respective Contributors, subject to the provisions of this Account. For this purpose, the Managing Director is authorized to accept grants and enter into loan, deposit or other types of investment agreements with the Contributors to the Account.

Paragraph 5. Unit of Account

The SDR shall be the unit of account.

Paragraph 6. Media of payment of contributions and exchange of resources

(a) Resources provided to the Account shall be in any freely usable currency or such other media as may be agreed by the Fund and the Contributor.

(b) Resources held in the Account may be currencies or currencies exchanged for SDRs in accordance with such arrangements as may be made by the Fund for holding and use of SDRs.

(c) The Fund may exchange any of the resources held in the Account provided that any balance of a currency held in the Account may be exchanged only with the consent of the issuer of such currency.

(d) Payments made from the Account shall be made in SDRs or such other media as may be determined by the Fund.

Paragraph 7. Use of the Resources

(a) The resources of the Account (including any net income from the investment of such resources) shall be used to provide grants to PRGF-eligible members that have made post-conflict and/or natural disaster emergency assistance purchases under Decision No. 12341-(00/117) (“eligible recipients”), in order to subsidize to an annual rate of 0.5 percent the rate of charge payable to the Fund on the Fund s holding of the member’s currency resulting from those purchases. Only charges payable after the establishment of the Account will be eligible for subsidization. An otherwise eligible recipient will not be eligible for grants under this provision while in arrears to the General Resources Account, the Special Disbursement Account, the SDR Department, or to a Trust administered by the Fund as Trustee. Once arrears are cleared, only charges payable after such clearance will be eligible for subsidization. The subsidization of emergency natural disaster assistance will be provided upon request by eligible recipients.

(b) The grants will be made available to eligible recipients at the same time as quarterly charges on eligible purchases fall due, subject to the availability of adequate resources in the Account, in an amount sufficient to reduce that quarterly rate of charge to 0.5 percent on an annual basis. If, in any quarter, the resources of the Account are insufficient to subsidize the rate of charge on all eligible purchases to 0.5 percent for that quarter, the subsidy to each eligible recipient shall be pro-rated to bring the effective rate of charge paid after subsidization to the closest common percentage to 0.5 percent.

(c) Earmarked resources contributed to the Account shall be used in accordance with the terms agreed with the Contributor and shall not be taken into consideration in the determination of the grant subsidy under subparagraph (b) above. An eligible recipient beneficiary of earmarked resources shall not receive a lower grant subsidy than provided under subparagraph (b) above.

Paragraph 8. Authority to Invest Resources in the Account

(a) Resources held in the Account and not immediately needed for operations of the Account shall be invested at the discretion of the Managing Director, subject to the provisions of subparagraph (c).

(b) The Managing Director is authorized (i) to make all arrangements, including the establishment of accounts in the name of the Fund, with such depositories as he deems necessary to carry out the operations of the Account, and (ii) to take all other measures he deems necessary to implement the provisions of this Instrument.

(c) Investments may be made in any of the following: (i) marketable obligations issued by an international financial organization and denominated in SDRs or in the currency of a member of the Fund; (ii) marketable obligations issued by a member or by a national official financial institution of a member and denominated in SDRs or in the currency of that member; and (iii) deposits with a commercial bank, a national official financial institution of a member, or an international financial institution that are denominated in SDRs or in the currency of a member.

Paragraph 9. Administration of the Account

(a) Assets held in the Account shall be kept separate from the assets and property of all other accounts of, or administered by, the Fund. The assets and property held in such other accounts shall not be used to discharge or meet any liabilities, obligations or losses of the Fund incurred in the administration of the Account; nor shall the assets of the Account be used to discharge or meet any liabilities, obligations or losses incurred by the Fund in the administration of such other accounts.

(b) The Fund shall maintain separate financial records and prepare separate financial statements for the Account. The financial statements for the Account shall be expressed in SDRs and prepared in accordance with International Accounting Standards.

(c) The external audit firm selected under Section 20 of the Fund’s By-Laws shall audit the operations and transactions conducted through the Account. The audit shall relate to the financial year of the Fund.

(d) The Fund shall report on the resources and position of the Account in the Annual report of the Executive Board to the Board of Governors and shall include in that Annual report the audit report of the external audit firm on the Account.

(e) Subject to the provisions of this Instrument, the Fund, in administering the Account, shall apply, mutatis mutandis, the same rules and procedures as apply to operations of the General Resources Account of the Fund.

Paragraph 10. Fees

(a) No charge shall be levied in respect of the services rendered by the Fund in the administration, operation, and termination of this Account.

(b) All investment costs, including but not limited to costs associated with the exchange of currencies, purchase of securities, and hiring of external asset managers and custodian banks, shall be borne by, and deducted from, the Account.

Paragraph 11. Termination

(a) The Account may be terminated at any time by the Fund.

(b) Termination shall be effective on the date that all Contributors have received a notice of termination or on such later date, if any, as may be specified in the notice of termination.

(c) Any balance remaining in the Account on the date of its termination and after discharge of all obligations of the Account shall be transferred promptly to each of the Contributors in the proportion that the SDR equivalent of its respective contribution bears on the total contributions; except that

(i) in the case of earmarked contributions that have been fully used no such transfer shall be made, and

(ii) a Contributor may instruct that its share or a specified portion thereof be utilized for such other purposes as may be mutually agreed between the Contributor and the Managing Director.

Paragraph 12. Amendments

The provisions of this Instrument may be amended by a decision of the Fund. Should the Fund amend the terms and conditions of this Instrument in a manner that changes the purpose for which contributions are to be used, each Contributor shall have the right to withdraw its individual unused contribution in the proportion that the SDR equivalent of its respective contribution bears to the total contributions.

Paragraph 13. Settlement of Questions

Any questions arising under this Instrument shall be settled by mutual agreement between the Fund and the Contributors. (EBS/05/4, 1/10/05)

Administered Account to Subsidize Post-Conflict Emergency Assistance to Poverty Reduction and Growth Facility—Eligible Members—Use of SDRs

In accordance with Article XVII, Section 3, the Fund prescribes that (i) a participant or a prescribed holder, by agreement with a participant or a prescribed holder and at the instruction of the Fund, may transfer SDRs to that participant or prescribed holder in effecting a transfer to or from “the Post-Conflict Emergency Assistance Subsidy Account for PRGF-Eligible Members” or in effecting a payment due to or by the Fund in connection with financial operations under “the Post-Conflict Emergency Assistance Subsidy Account for PRGF-Eligible Members,” (ii) operations pursuant to these prescriptions shall be recorded in accordance with Rule P-9. (EBS/01/63, 4/27/01)

Decision No. 12482-(01/45) S

May 4, 2001

Establishment of the Post-SCA-2 Administered Account

1. Pursuant to Article V, Section 2(b), the Fund adopts the Instrument to Establish the Post-SCA-2 Administered Account that is annexed to this decision [see Attachment].

2. The provisions of the Instrument may be amended by a decision of the Fund with the concurrence of the members that have transferred resources remaining in the account at the time of such decision.

Decision No. 12061-(99/130)

December 8, 1999

Attachment: Instrument to Establish the Post-SCA-2 Administered Account

To fulfill its purposes, the International Monetary Fund (the “Fund”) has adopted this Instrument to establish an account in accordance with Article V, Section 2(b), which shall be governed and administered by the Fund in accordance with the terms and conditions of this Instrument.

1. The Fund hereby establishes an account (“the Account”) for the temporary administration of resources transferred to the Account by a member following the termination of the SCA-2, while deciding on the final disposition of those resources.

2. The SDR shall be the unit of account. Transfers may be made in or exchanged for SDRs in accordance with such arrangements as may be made by the Managing Director for the holding and use of SDRs by the Account.

3. The resources of the Account shall be invested, and the proceeds of investments reinvested, at the discretion of the Managing Director. The Managing Director is authorized (i) to make all arrangements, including establishment of accounts in the name of the International Monetary Fund, with such depositories of the Fund as may be necessary to carry out the operations of the account, and (ii) to take all measures necessary to implement the provisions of this Instrument.

4. The Fund shall transfer all or part of the resources received from a member, together with the member’s pro rata share of the investment returns, to the PRGF-HIPC Trust, or otherwise in accordance with the member’s instructions.

5. The assets held in the Account shall be kept separate from the assets and property of all other accounts of, or administered by, the Fund. The assets in the Account shall not be used to discharge or meet any liabilities, obligations, or losses incurred by the Fund in the administration of such other accounts.

6. Subject to the provisions of this Instrument, the Fund, in administering the Account, shall apply mutatis mutandis the same rules and procedures as apply to operations of the General Resources Account of the Fund.

7. No charge shall be levied on the members for the services rendered by the Fund in the administration, operation, and termination of this Account.

8. The Fund shall maintain separate financial records and prepare separate financial statements for the Account.

9. The external audit firm selected under Section 20 of the Fund’s By-Laws shall audit the operations and transactions of the Account. The audit shall relate to the financial year of the Fund.

10. The Fund shall report on the assets and property and on the operations and transactions of the Account in the Annual Report of the Executive Board to the Board of Governors and shall include in that Annual Report the report of the external audit firm and the External Audit Committee.

11. The Account shall be terminated upon completion of the transfers contemplated in paragraph 4.

12. Any questions between a member and the Fund arising hereunder shall be settled by mutual agreement.

Ed. Note: Paragraph 71 of SM/00/263 defines systemically important countries as those countries whose capital markets intermediate the bulk of global financial transactions and emerging economies whose financial systems have the potential to cause, or be subject to, undue volatility in cross-border flows and financial system contagion.

Hereinafter, the World Bank and the Fund are referred to as the “Institutions.”

General Administration Order 35 in the Fund also provides for a classification category of SECRET; however, this classification category is currently under review in the Fund, and it is likely to be abolished in the near future.

The term “provider” means an individual or entity that retains the right to restrict the disclosure of information or documents entrusted by the provider to the staffs or FSAP consultants of the Institutions.

Documents receiving this classification in the Fund are normally made available to certain international organizations as identified in decisions of the Executive Board.

Ed. Note: The IMF Executive Board reviewed the standards and codes initiative in The Acting Chair’s Summing Up—The Standards and Codes Initiative—Is It Effective? And How Can It Be Improved? EBM 05/66, July 25, 2005.

Ed. Note: See Summing Up by the Acting Chair—Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)—Proposals to Assess a Global Standard and to Prepare ROSCs, EBM 02/80, July 26, 2002, at p. 108

Ed. Note: References in other Fund decisions, instruments, agreements or documents to Poverty Reduction and Growth Facility, Poverty Reduction and Growth Facility Trust, Subsidy Account, PRGF, or PRGF Trust shall be understood to be, respectively, references to Poverty Reduction and Growth Facility and Exogenous Shocks Facility, Poverty Reduction and Growth Facility and Exogenous Shocks Facility Trust, PRGF-ESF Subsidy Account, PRGF-ESF and PRGF-ESF Trust. On the transfer of resources from the Special Disbursement Account to the Enhanced Structural Adjustment Facility Trust and retransfer to the Special Disbursement Account, see Decision No. 8760-(87/176), p. 422. On the establishment of the Enhanced Structural Adjustment Facility, see Decision No. 8757-(87/176) SAF/ESAF, p. 421. On modalities of gold pledge for use of ESAF Trust resources under the rights approach, see Decision No. 10286-(93/23) ESAF, p. 425.

Ed. Note: Pursuant to Decision No. 13590-(05/99) ESF, adopted November 23, 2005, and effective January 5, 2006, the Fund shall review the application of the decision establishing the ESF at intervals of three years and at such other times as consideration of it is placed on the agenda of the Executive Board.

Ed. Note: This Appendix was originally adopted by Decision No. 11832-(98/119) ESAF, November 20, 1998, as amended by Decision No. 12252-(00/77), July 27, 2000.

This Appendix was adopted by Decision No. 12545-(01/84) PRGF, August 22, 2001, as amended by Decision No. 13590-(05/99) ESF, November 23, 2005, effective January 5, 2006.

Ed. Note: Part I amended Sections II and V of the PRGF Instrument and added Appendix I.

Ed. Note: See The Acting Chair’s Summing Up—Review of Access Policy Under the Credit Tranches and the Extended Fund Facility, and Access Policy in Capital Account Crises—Modifications to the Supplemental Reserve Facility and Follow-Up Issues Related to Exceptional Access Policy, February 26, 2003, EBM 03/16, at p. 341.

Ed. Note: The remaining text of Paragraph 3(b) was added by Decision No. 12696-(02/27) and will only apply to commitments approved after March 15, 2002.

Ed. Note: The remaining text of Paragraph 3(d) was added by Decision No. 12696-(02/27) and will apply to disbursements of interim assistance approved after March 15, 2002, including the disbursements made under existing commitments.

Ed. Note: The remaining text of Paragraph 3 was added by Decision No. 12697-(02/27) ESAF and will apply to disbursements of interim assistance approved after March 15, 2002, including the disbursements made under existing commitments.

Ed. Note: Paragraph 3 revised Section IV, paragraph 6 of the PRGF Trust Instrument annexed to Decision No. 8759-(87/176).

Ed. Note: Paragraph 4 rescinded Decision No. 12330-(00/118) and modified Decision No. 12063-(99/130).

Ed. Note: Paragraph 7 revised Section III, paragraph 4(b) of the Instrument to Establish the PRGF-HIPC Trust annexed to Decision No. 11436-(97/10).

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