Chapter

Article V, Section 7

Author(s):
International Monetary Fund
Published Date:
June 2007
Share
  • ShareShare
Show Summary Details

Repurchases

Guidelines for Early Repurchase

Members that make purchases in the General Resources Account are expected normally to repurchase as their balance of payments and reserve position improves. The Fund affirms the continued need for this general policy on early repurchase under the first sentence of Article V, Section 7(b) following the introduction in November 2000 of time-based repurchase expectations for purchases in the credit tranches and under the Extended Fund Facility and the Compensatory Financing Facility. The Fund encourages members to make voluntary advance repurchases in lieu of or in addition to early repurchases under this general policy.

The following provisions set forth guidelines for members regarding early repurchase under the first sentence of Article V, Section 7(b) when the balance of payments and reserve position of members improves. The guidelines apply to the Fund’s holdings of currency that result from the purchases under Article V, Section 3 that are subject to repurchase under the provisions of the Articles and policies of the Fund.

1. A member’s balance of payments and reserve position will be deemed normally to have improved sufficiently for early repurchases to be expected in accordance with these guidelines if the member’s balance of payments and reserve position is judged sufficiently strong for the purposes of a quarterly designation plan and financial transactions plan as determined by the Fund from time to time in the light of the relevant factors. A member that makes a purchase in the credit tranches or under a special policy of the Fund will not be expected, however, to make early repurchases within six months of a purchase.

2. During the quarter following the decisions adopting the designation plan and financial transactions plan, it will be expected that a specified amount of the Fund’s holdings of the member’s currency will be repurchased.

3. Subject to paragraphs 4 and 5 below, the specified amount for the expected quarterly repurchase will be 1.5 percent of the member’s gross reserves plus (minus) 5 percent of the increase (decrease) in gross reserves over the latest six-month period for which data are available (“latest gross reserves”). The quarterly amount will be subject to a limit of 4 percent of the member’s latest gross reserves. A quarterly repurchase will be limited to an amount that will not (i) reduce the member’s latest gross reserves below 250 percent of the member’s quota, and (ii) exceed, together with the member’s early repurchases during the preceding three quarters, 10 percent of these reserves.

4. The specified amount in accordance with paragraph 3 above will represent the minimum reduction in the Fund’s holdings of the member’s currency expected during the quarter. Repurchases by the member during the quarter will be included in calculating the reductions for this purpose. If the member’s repurchases made during a quarter in advance of repurchase maturities exceed the minimum reduction expected during that quarter, the excess will give rise to a credit that will meet pro tanto the expectations of early repurchase for the next five quarters. At the end of a quarter the credit will be reduced by the larger of (i) the repurchase expectation for the quarter that is deemed to be satisfied by the credit, and (ii) the repurchase obligations that would have matured during the quarter but have been discharged by the advance repurchase.

5. If, during the two quarters prior to the date when a member is added to the list of members whose positions are considered sufficiently strong for the purposes of the quarterly designation plan and financial transactions plan, the member’s repurchases in advance of maturity exceed the minimum reduction expected during those two quarters, a credit will be given in accordance with paragraph 4 above. Any credit still available when a member’s balance of payments and reserve position is no longer considered sufficiently strong for the purposes of a quarterly designation plan and financial transactions plan will continue to apply in accordance with paragraph 4 above.

6. In each financial transactions plan the Managing Director will report on the observance by members of the guidelines for early repurchase.

7. This decision will be reviewed from time to time in light of experience.

Decision No. 6172-(79/101),

June 2, 1979

as amended by Decision No. 12425-(01/14),

February 9, 2001

Repurchase

1 (a) Repurchases of the outstanding amount of a member’s currency that results from a purchase under the credit tranches and is subject to charges under Article V, Section 8(b), or under the decision on Compensatory Financing of Export Fluctuations (Decision No. 4912-(75/207), as amended) or the decision on the Problem of Stabilization of Prices of Primary Products (Decision No. 2772-(69/47), as amended), or the decision on Compensatory Financing of Fluctuations in the Cost of Cereal Imports (Decision No. 6860-(81/81), as amended), or the decision on the Compensatory Financing Facility (Decision No. 8955-(88/126), as amended), or the decision on Emergency Assistance (Decision No. 12341-(00/117)), shall be completed, pursuant to Article V, Section 7(c), five years after the date of the purchase, provided that the repurchase shall be made in equal quarterly installments during the period beginning three years and ending five years after the date of the purchase unless the Fund approves a different schedule.

(b) A member will be expected to repurchase the Fund’s holdings of its currency resulting from purchases in the credit tranches or under the Compensatory Financing Facility made after November 28, 2000 in equal quarterly installments during the period beginning two years and ending four years after the date of the purchase, provided that the Fund may, upon request by the member, amend the schedule of repurchase expectations, if in the judgment of the Fund the member’s external position is not sufficiently strong for repurchases to be made in accordance with the expectation schedule set out in this paragraph. In determining whether to amend the schedule, the Fund may consider all relevant information, including the size of the member’s foreign reserves, the member’s medium-term balance of payments outlook, and the degree of the member’s access to international capital markets.

(c) The Fund shall not approve, and the Managing Director shall not recommend for approval, any request for the use of the Fund’s general resources by a member that is failing to meet a repurchase expectation under paragraph 1(b) above. Provision shall be made in each stand-by and extended arrangement for the suspension of further purchases under the arrangement whenever a member fails to meet a repurchase expectation under paragraph 1(b) above.

2. Decisions with respect to the timing of repurchases shall be understood to permit a member to combine all repurchases to be made within a calendar month and to complete them not later than the last business day of the month, provided however that the maximum period for use of the Fund’s resources according to the policy under which a repurchase is to be made shall not be exceeded.

3. If a member that has an outstanding obligation to pay gold in repurchase has made an equivalent repurchase with special drawing rights in discharge of a commitment the member shall be regarded as having discharged its obligation in accordance with Schedule B, paragraph 2.

4. If a member that has an outstanding obligation to pay gold in repurchase has made an equivalent repurchase with currencies of other members in discharge of a commitment, the member shall be regarded as having discharged its obligation in accordance with Schedule B, paragraph 2, provided that if the currencies paid are not acceptable in repurchase as of the date of the Second Amendment, the member shall substitute an equivalent amount of the currencies of other members specified by the Fund in accordance with Article V, Section 7(i).

5. If a member that has an outstanding obligation to pay gold in repurchase has not made an equivalent repurchase with special drawing rights or with the currencies of other members in discharge of a commitment, within two months after the date of the Second Amendment of the Articles of Agreement, the member shall make a repurchase equivalent to the outstanding obligation in gold with special drawing rights or, at its option, with the currencies of other members specified by the Fund in accordance with Article V, Section 7(i). The repurchase shall be regarded as a discharge of the member’s obligation in accordance with Schedule B, paragraph 2.

6. The dates for the payment of special drawing rights or currencies of other members in discharge of any obligation to pay gold to the Fund in repurchase, and for any substitution under paragraph 5 above, after the date of the Second Amendment of the Articles of Agreement shall be determined in accordance with Schedule B, paragraph 1.

7. Repurchase under Schedule B, paragraph 4 shall be completed four years after the date of the Second Amendment of the Articles of Agreement. If the Fund’s holdings of a member’s currency that are subject to paragraph 4(ii) are in excess of 10 percent of the member’s quota on the date of the Second Amendment, the member shall be requested to agree to make the repurchase in four equal installments beginning not later than one year after that date.

8. The Fund shall review the time-based repurchase expectation scheme set out in paragraph 1(b), no later than November 30, 2005.

Decision No. 5703-(78/39),

March 22, 1978, effective April 1, 1978,

as amended by Decision No. 6862-(81/81), May 13, 1981,

Decision No. 8955-(88/126), August 23, 1988, and

Decision No. 12342-(00/117),

November 28, 2000

Summing Up by the Acting Chairman—Review of Fund Facilities—Proposed Decisions and Implementation Guidelines Executive Board Meeting 00/113, November 17, 2000

Time-Based Repurchase Expectations

4. The Board agreed in September to introduce time-based repurchase expectations for purchases in the credit tranches and under the Extended Fund Facility (EFF). We have agreed on the elements of the decisions to be adopted to put this agreement into effect. For purchases in the credit tranches, members will be expected to begin repurchases 2¼ years after each purchase and complete repurchases after 4 years. Under the EFF, members will be expected to meet repurchase expectations starting from 4½ years and ending 7 years after each purchase. Time-based repurchase expectations will not apply to any purchases made to date, but will apply to purchases made after these decisions are adopted.

5. The member would be expected to meet repurchase expectations, but the Fund could extend them on request by the member, if the Board agreed that the member’s external position was not sufficiently strong for it to repay early without undue hardship or risk. Elements that will be taken into account in assessing the external position are the level of international reserves, the outlook for the balance of payments, and access to international capital markets, and the Board will consider the member’s overall external position, including any relevant special factors, in arriving at a judgment. Fund-supported programs will continue to be guided by the requirement that the member should be able to meet repurchase obligations (rather than expectations), and the meeting of expectations will signal that the member’s external position is stronger than would have been dictated by this requirement. Moreover, since Fund-supported programs will not as a general rule target adjustment sufficiently rapid for members to meet repurchase expectations, it will follow that in most cases members will be considered to be in a position to meet repurchase expectations only if their external position is stronger than had been projected at the time of approval of the arrangement.

6. Members may make a request for an extension of repurchase expectations at any time, although as a practical matter the Board encouraged members to make such requests at least two months before an expectation falls due, in order to avoid the expectation date passing without the Board having considered the request. The Board could agree to extend one, several, or all repurchase expectations at once, but there will be a presumption that extensions would cover repurchase expectations falling due over a period of a year. If necessary, additional extensions of expected repurchases can be requested and granted at a later date. When expected repurchases are extended, the repurchases will become due on the date of the corresponding obligations.

7. Should a member fail to meet a repurchase expectation that has not been extended by the Board, its right to make further drawings, including under ongoing arrangements, would be automatically suspended. The Managing Director would not recommend, and the Board would not approve, new arrangements or outright purchases in these circumstances. The following steps would also be taken when a repurchase expectation is missed, i.e., neither met on schedule nor extended: The Managing Director would be informed immediately; a communication from the Managing Director would be sent to the member after two weeks; the Executive Board would be informed of the incident after one month; and there would be a substantive consideration by the Executive Board of the situation after three months.

8. Directors agreed that recognition will be given to members’ meeting repurchase expectations by mentioning this fact in summings up and, if they are published, Public Information Notices (PINS) following Article IV or post-program monitoring discussions, and by reporting on the member’s country-specific page on the web site. Extensions of expectations will be made public in the form of a factual statement posted on the IMF web site on the member’s country-specific page, and in the next weekly update of “Fund Financial Activities: Week at a Glance.” With regard to the publicity to be given to repurchase expectations that are missed without being extended, Directors agreed that the Board would return to this question in parallel with a review of the transparency aspects of overdue obligations next year.

9. Directors agreed that the Board should review the operation of early repurchase expectations by November 2005, by which time some experience with repurchase expectations under both the credit tranches and the EFF will have been gained.

Attribution of Reductions in Fund’s Holdings of Currencies

1. (a) Subject to paragraphs (b), (c), (d) and (e) below a member shall be free to attribute a reduction in the Fund’s holdings of its currency (i) to any obligation to repurchase, and (ii) to enlarge its reserve tranche.

(b) If the reduction results from the sale of a member’s currency or from operational payments by the Fund, an attribution may not be made to an obligation to repurchase financed from borrowed resources unless the Fund is obligated or entitled immediately to repay the lender on the occasion of such attribution. A member would be able to combine an attribution under this decision to an obligation to repurchase financed with ordinary resources with a repurchase of an outstanding obligation financed with borrowed resources, provided this repurchase and the attribution would result in a joint reduction of repurchase obligations as required under Decision No. 5508-(77/127) and Decision No. 6783-(81/40).

(c) An attribution to create a reserve tranche may only be made if the reduction results from the sale of the member’s currency or from operational payments by the Fund in that currency and if the member’s obligations to repurchase do not include an obligation relating to a purchase financed through borrowing under the GAB.

(d) A reduction resulting from a repurchase made pursuant to a repurchase expectation under paragraph 1(b) of Decision No. 5703-(78/39) shall be attributed to the member’s repurchase obligation arising from the same purchase one year after the original date on which that repurchase expectation was to be met.

(e) A reduction resulting from a repurchase made pursuant to a repurchase expectation under paragraph 10(a) of Decision No. 4377-(74/114) shall be attributed to the member’s repurchase obligation arising from the same purchase three years after the original date on which that repurchase expectation was to be met.

2. A reduction attributed to a reserve tranche position will not discharge an expectation of repurchase under the Guidelines for Early Repurchase.

3. If the member when asked does not make an attribution in accordance with 1 above, it will be deemed to be discharging the first maturing repurchase obligation.

Decision No. 6831-(81/65),

April 22, 1981, effective May 1, 1981,

as amended by Decision Nos. 7059-(82/23), February 22, 1982, and

12345-(00/117),

November 28, 2000

    Other Resources Citing This Publication