Selected Decisions and Selected Documents of the International Monetary Fund
Chapter

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

Author(s):
International Monetary Fund
Published Date:
May 2003
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Financial Services

Poverty Reduction and Growth Facility Trust1

1. The Fund adopts the Instrument to Establish the Poverty Reduction and Growth 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, and

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

effective September 19, 2001

ANNEX

Instrument to Establish the Poverty Reduction and Growth 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 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 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.

Paragraph 2. Accounts of the Trust

The operations and transactions of the Trust shall be conducted through a Loan Account, a Reserve Account, and a Subsidy Account. 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 Account 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 Account 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.

(aa) The provisions of subparagraphs 1(b), 2(d), and 3(b) of this Section shall apply to assistance committed to qualifying members through November 20, 1998. The provisions of subparagraphs 1(bb), 2(dd), and 3(bb) of this Section shall apply to assistance committed after that date.

(b) This assistance shall be committed to a qualifying member, subject to this instrument, for a three-year period upon approval by the Fund of a three-year arrangement in support of a three-year macroeconomic and structural adjustment program presented by the member. The three-year arrangement will prescribe the total amount, and the annual amounts within the total, committed to the member. Resources so committed shall be made available in the form of loans under three annual arrangements approved by the Fund. An annual arrangement may not be approved before the expiration of the preceding annual arrangement, other than under exceptional circumstances. After the expiration of a three-year commitment period for an eligible member, or the cancellation of a three-year arrangement by the member, the Trustee may approve additional three-year commitments for that member in accordance with the Instrument.

(bb) Assistance shall be committed and made available to a qualifying member under a single three-year 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 three-year 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 arrangement shall also provide for reviews of the member’s program with the Trustee 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 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 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 of 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 three-year arrangement for an eligible member, or the cancellation of the arrangement by the member, the Trustee may approve additional arrangements for that member in accordance with the Instrument.

(c) Before approving a three-year 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.

(d) Commitments under three-year arrangements may be made during the period from January 1, 1988 to December 31, 2006.

(e) The Managing Director shall not recommend for approval, and the Trustee shall not approve, a request for a three-year 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 in respect to a purchase in support of debt and debt service reduction operations pursuant to Decision No. 9331-(89/167), or a purchase pursuant to Decision No. 11627-(97/123) on the Supplemental Reserve Facility, or pursuant to the Guidelines for Fund Support for Currency Stabilization Funds, or is failing to meet a repayment expectation pursuant to 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).

(f) The Trustee shall not complete a review under an arrangement 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 the resources of the Trust 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. The maximum access limit and the exceptional maximum limit 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, 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 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.

(d) The amount of resources committed to a qualifying member under a three-year arrangement may be increased at the time of consideration of each annual program or at the time of any review contemplated under an annual arrangement, to help meet a larger balance of payments need or to support a strengthening of the program during the period of such annual arrangement. The amounts committed to a member 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 three-year arrangement and the improvement for the member derives in particular from improvements in the external environment.

(dd) The amount of resources committed to a qualifying member under a three-year arrangement may be increased at the time of any review contemplated under the arrangement, to help meet a larger balance of payments need or to support a strengthening of the program. The amount committed to a member 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 three-year 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 must precede the expiration of the three-year commitment period. If an annual arrangement expires with undisbursed amounts, the Trustee may rephase those amounts over the remaining annual arrangements under the three-year commitment. It may also extend the period of the three-year commitment for up to one year to allow the disbursement of undisbursed amounts or of additional resources committed to the member, subject to appropriate conditions consistent with the terms of assistance under this Instrument.

Each annual arrangement shall determine the phasing of disbursements, which, in principle, shall be 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. Arrangements shall also contain provisions for reviews of the member’s program with the Trustee to evaluate the macroeconomic and structural reform policies of the member and reach new understandings if necessary. In cases where closer monitoring is needed, an annual arrangement may provide for quarterly performance criteria and reviews and quarterly disbursements. In establishing the phasing under an arrangement, the Trustee shall endeavor to avoid undesirable bunching of disbursements under one arrangement with the disbursements under the subsequent arrangement.

(bb) Disbursements under a three-year arrangement 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 the 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 Instrument.

(c) 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.

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

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

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

Paragraph 4. Terms of loans

(a) Interest on the outstanding balance of a Trust loan 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.

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 Trust for Interim PRGF 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, 20011 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, 2001,2 net earnings from investment of resources held in that Account. 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 Account 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 Account

Paragraph 1. Resources

The resources held in the Subsidy Account shall consist of:

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

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

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

(d) 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 that Trust Instrument; and

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

Paragraph 2. Donations

The Trustee may accept donations of resources for the Subsidy Account 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 the Subsidy Account 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 Subsidy Account; repayment of principal and any payments of interest on such borrowing shall be contingent upon the receipt by the Subsidy Account of the Trust of the donation that has been prefinanced;

(b) that the 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

The Trustee shall draw upon the resources available in the 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 Trust Loans.

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 Poverty Reduction and Growth Facility is a highly concessional facility 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 Account.

(b) The Trustee shall keep the operation of the Subsidy Account 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 Trust 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 Trust 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 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 to the availability of resources to the Subsidy Account.

(d) If the interest due to lenders for an interest period has exceeded the interest due by borrowers 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, an amount equivalent to that difference shall be added to the interest due by 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

Upon completion of the subsidy operations authorized by this Instrument, the Fund shall wind up the affairs of the Subsidy Account. Any resources remaining in the Subsidy Account shall be used first to reduce to the fullest extent possible, in accordance with this Instrument, to 0.5 percent the interest rate paid by borrowers, by means of payments to borrowers. Any resources remaining after that subsidization shall be distributed to the Fund, donors, and lenders that have contributed to the 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. For the purposes of this distribution, account will be taken of donations, the net earnings from investment of the proceeds of concessional loans extended to the Subsidy Account 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.

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 Account 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—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 Trust

The following procedures aim at preventing the emergence or accumulation of overdue financial obligations to the Poverty Reduction and Growth Facility 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, including PRGF 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.

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 PRGF 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, including PRGF 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 PRGF 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-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-eligible countries. Any reinstatement of the member on the list of PRGF-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-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 PRGF Trust

8. 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. (EBS/01/122, 7/23/01).

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 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 the provisions of Appendix I to the PRGF Trust Instrument.

Decision No. 11832-(98/119) ESAF

November 20, 1998

Poverty Reduction and Growth Facility Trust—Extension and Enlargement

1. The Fund adopts the following decisions,1 which shall become effective when (i) the Executive Board has determined that sufficient contributions to the Loan and Subsidy Accounts of the Poverty Reduction and Growth Facility (PRGF Trust) are committed or in firm prospect to initiate operations under the enlarged and amended PRGF Trust, and (ii) all creditors to the Loan Account of the PRGF Trust have consented to the partial transfer to the Subsidy Account of the PRGF Trust of resources from the Special Disbursement Account that were to be transferred to the Reserve Account of the PRGF Trust in accordance with Decision No. 8760-(87/176), adopted December 18, 1987, as amended.

2. The period for making commitments specified in Section II, subparagraph 1(d) of the PRGF Trust Instrument is extended until February 28, 1994 or the date of effectiveness of the decisions referred to in paragraph 1 of this decision, whichever is earlier.

Decision No. 10530-(93/170) ESAF

December 15, 1993

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 Dec. No. 12848-(02/94),

September 6, 2002

Instrument to Establish the Post-Conflict 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 of resources provided to the Account by Contributors for the subsidization of the rate of charge on post-conflict 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. 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 type 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 3. 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 type of investment agreements with the Contributors to the Account.

Paragraph 4. Unit of Account

The SDR shall be the unit of account.

Paragraph 5. 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 the 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 6. 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 emergency purchases under Decision No. 1234 1-(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.

(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 7. 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 8. 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 9. 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 10. 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 Contributor in the proportion that the SDR equivalent of its respective Contribution bears to 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 11. 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, 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 12. Settlement of Questions

Any question arising under this Instrument shall be settled by mutual agreement between the Fund and the Contributors.

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.

ESAF Successor—Initiation of Operations

The Executive Board determines that sufficient contributions to the Loan and Subsidy Accounts of the PRGF Trust are committed or in firm prospect to initiate operations under the enlarged and amended ESAF Trust.

Decision No. 10597-(94/14) ESAF

February 23, 1994

PRGF Trust-Reserve Account—Transfer to the PRGF-HIPC Trust, FY 2001–2004

For financial years 2001–2004, no reimbursement shall be made to the General Resources Account from the PRGF Trust Reserve Account (through the Special Disbursement Account) for the cost of administering the PRGF Trust. One-fourth of the estimated cost shall be transferred to the PRGF-HIPC Trust at the end of each financial quarter ended July 31 and October 31, 2000, January 31 and April 30, 2001, July 31 and October 31, 2001, January 31 and April 30, 2002, July 31 and October 31, 2002, January 31 and April 30, 2003, July 31 and October 31, 2003, and January 31 and April 30, 2004.

Decision No. 12065-(99/130) PRGF, December 8, 1999,

effective January 10, 2000

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 already 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 frontloading 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.

Enhanced Structural Adjustment 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 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. The Fund shall review the maximum access limit and the exceptional maximum limit, together with the operation of the Enhanced Structural Adjustment Facility and the Enhanced Structural Adjustment Facility Trust, not later than June 30, 1995.

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, and 11879-(99/2) ESAF,

January 6, 1999

Enhanced Structural Adjustment Facility—Access Limits, 1995 Review

Pursuant to Decision No. 8845-(88/61) ESAF, adopted April 20, 1988, as amended, the Fund as Trustee of the Enhanced Structural Adjustment Facility Trust (ESAF Trust) has reviewed the operations of the Enhanced Structural Adjustment Facility (ESAF) and of the ESAF Trust and the maximum limit and the exceptional maximum limit on access to the resources of the ESAF Trust established by Decision No. 8759-(87/176) ESAF, adopted December 18, 1987, as amended.

Decision No. 11027-(95/65) ESAF

June 30, 1995

Enhanced Structural Adjustment 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

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

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, and

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

and 12874-(02/110),

October 25 2002

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”) Trust as described in the Instrument to Establish the Poverty Reduction and Growth Facility Trust adopted by Decision No. 8759-(87/176) PRGF, December 18, 1987, as amended (“the 1987 PRGF 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 country concerned and broadly endorsed by the Bank and the Fund; and

  • (x) 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 (Appendix I of the Instrument to Establish the Poverty Reduction and Growth 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-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, 2004, supported by the Fund through PRGF 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.

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.

(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 shall have prepared a PRSP and implemented this strategy satisfactorily for at least a year by the completion point. In the case of the first three-year period, such programs shall be programs supported by PRGF 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 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 if there has been a fundamental change in the member’s economic circumstances adversely affecting its debt sustainability, which was due to exogenous circumstances. 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) 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.

(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 Subsidy Account of the PRGF Trust are insufficient for interim PRGF subsidy operations, the Trustee shall transfer to the Subsidy Account of the PRGF 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.

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.

****

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.

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 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 grants and loans as determined under the provisions of Section III, Paragraph 4(b) of the Instrument to Establish the ESAFHIPC 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 No. 12697-(02/27) ESAF,

March 15, 2002

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

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.

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.

Summing Up by the Chairman Review of the Poverty Reduction Strategy Paper Approach—Main Findings and Issues for Discussion Executive Board Meeting 02/24, March 8, 2002

1. Directors welcomed the open and inclusive process through which the review of the Poverty Reduction Strategy Paper (PRSP) approach was conducted. They acknowledged the important contributions made by representatives from low-income countries, development agencies, and civil society organizations, as well as the useful role that the regional and international conferences played in facilitating an open exchange of views about the PRSP approach.

2. Directors noted that broad-based country-led processes are taking hold in some 60 low-income countries and are being widely embraced by these countries’ external development partners. They agreed that the principles and objectives of the PRSP approach remain valid, that there have been improvements over time in both process and content, and that the PRSP process can improve joint efforts aimed at poverty reduction. At the same time, Directors recognized that the design and implementation of country-owned poverty reduction strategies is a complex task, and that the experience has varied with each country’s own starting point, capacities, and priorities. Because of these complexities, dialogue among all stakeholders is important, and in this connection it is essential that the need for policies to deliver sustainable growth be taken into account, while realizing that policy tradeoffs are inevitable. At the same time, once the various options for program design have been discussed and understanding is reached on the macroeconomic framework, the decision taken by the authorities needs to be respected. Directors considered that there is still considerable room for strengthening the PRSP approach, based on the experience of the past two years, in order to better achieve the goals of higher economic growth and lower poverty. Directors stressed that sources of sustainable growth, and policies to facilitate such growth, must be placed at the center of the PRSP process.

3. Directors noted most countries are only at the early stages of developing their PRSPs, and that it is too early to draw firm conclusions about the development impact of the approach. They stressed that further actions are needed to improve the preparation and content of PRSPs, including openness and transparency in countries’ dialogue with stakeholders, broader civil society participation, realism in the setting of goals and targets, and improved alignment of donor policies with PRSPs. In addition, they called for greater emphasis on credible and measured growth strategies, better prioritization and sequencing of goals and policies, greater specificity of macroeconomic targets and policies, improved public expenditure and debt management practices, and development of short-term monitorable indicators that could demonstrate whether key objectives are being met. They believed that a range of good practices could be gleaned from the early experience, which could prove to be useful for countries and their partners in the PRSP process. Nevertheless, Directors agreed that, given the importance of country ownership, rigid guidelines should be avoided.

4. Directors emphasized the importance of country ownership and leadership in the development and implementation of poverty reduction strategies, but admitted that this task constitutes a major challenge for low-income countries with limited technical and institutional capacity. They therefore believed that support of capacity building should be a high priority for donors. Directors also recognized that a concerted international effort will also be required to enhance the knowledge base and understanding of sources of pro-poor growth, linkages between public policies and poverty outcomes, costing of priority public actions, assessing inter-sectoral trade-offs, analyzing the poverty and social impact of public policies, and addressing vulnerability and external shocks. They called upon the international community, including the Fund and the Bank, to provide the necessary technical and financial support in a timely fashion.

5. Directors stressed that countries must follow through on the policy commitments laid out in their PRSPs, particularly regarding macroeconomic and structural policies, improving the investment climate, good governance, healthy institutions, and investment in human capital and infrastructure. Developed countries, too, have a critical role to play by increasing aid and aligning it with country-led poverty strategies, by opening markets to developing country exports, and by phasing out trade-distorting subsidies. Directors stressed that only through such concerted actions could the fight against poverty be effectively sustained and the challenge of meeting the Millennium Development Goals (MDGs) for 2015 be attained.

6. Directors were encouraged that participatory processes were beginning to take hold in PRSP countries. They noted, however, that the role of Parliaments in the preparation, approval, and monitoring of country strategies has generally been limited, and that the involvement of other stakeholders has been uneven. Despite these deficiencies in early PRSPs, Directors believed that standards or guidelines on participation were neither desirable nor feasible.

7. Directors emphasized the essential role of faster sustained growth in reducing poverty, and called on countries to place greater emphasis on the sources of such growth. In this regard, they stressed the importance of developing an enabling environment for private sector investment and development. Directors expressed concern over the lack of prioritization and specificity of the public actions for poverty reduction in PRSPs, but acknowledged that this was due in part to inadequate methodologies for “costing” and for assessing inter-sectoral trade-offs between policies. They suggested that this is an area for priority technical assistance.

8. Directors called for PRSPs and JSAs to give greater emphasis to the risks of implementation, including those related to growth projections, vulnerability to external shocks, and shortfalls in financing. Directors urged countries to include in their PRSPs ex ante contingency spending plans to respond to these shocks and shortfalls.

9. Directors noted that in many countries public expenditure management systems need to be upgraded to facilitate a more meaningful presentation of the overall public expenditure program in the PRSP and to monitor implementation. As emphasized during their recent discussion of tracking poverty reducing public spending, Directors urged countries to strengthen their capacity to track poverty-reducing spending and to move swiftly to implement measures, to broaden the coverage of government accounts, upgrade budget classifications, and report budget outturns more frequently. Directors stressed importance of continued donor assistance in support of capacity building for public expenditure management, but acknowledged improvement in this area would take time.

10. Directors stressed the need for development partners, including the Bank and the Fund, to assist countries in undertaking more systematic PSIA of major policy choices, and acknowledged that progress in this area will be gradual and dependent upon available resources. Most Directors agreed that the Bank should continue to be the lead agency on PSIA since these analyses generally focus on structural and social issues within the Bank’s core areas of expertise. A few Directors, however, underscored the need for the Fund to take a lead role in assessing the impact of macroeconomic polices. Directors considered that, at a minimum, PRGF documents should provide a qualitative description of the likely impact of major macroeconomic and structural measures on the poor.

11. Directors were encouraged that nearly all donors have agreed in principle to align their programs with PRSPs. They urged donors to harmonize and simplify their procedures and reporting requirements, and to align assistance as much as possible with national cycles of government decision making, particularly annual budget cycles. Directors noted that while programmatic lending is a potentially important instrument for alignment with PRSPs, there is considerable scope for alignment even without it. A few Directors emphasized that bilateral programmatic lending should be targeted to strong performers with adequate fiduciary procedures. Directors urged donors to provide information on medium-term aid commitments on a timely basis and to make aid flows more predictable, but acknowledged that predictability is also related to the commitment of countries to sound policies.

12. Directors reaffirmed that debt relief should be provided within a framework that would ensure that resources are used effectively for poverty reduction, and most agreed, therefore, that the Bank and Fund should retain the presumption of a one-year period of satisfactory PRSP implementation before reaching the completion point under the HIPC Initiative. Many Directors suggested, 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. However, a number of Directors expressed concern that such flexibility would be inconsistent with the intentions of the HIPC instrument. They stressed that prior to considering such flexibility regarding a specific country case, the Board would need to first take a decision on the proposed policy change.

13. Directors agreed that countries should continue to have the option of preparing I-PRSPs and PRSP Preparation Status Reports as a basis for access to Bank/Fund concessional assistance until their first full PRSP is completed. Directors also concurred that countries should determine the appropriate periodicity of their full PRSPs within a range of two to five years, in line with their own planning cycles and capacity constraints, and that they continue to prepare annual PRSP progress reports in order to access Bank/Fund concessional resources. Directors noted, however, that the longer the period between updates of the PRSPs, the more governments would be expected to rely on annual progress reports to make any adjustments needed to their strategies.

14. Directors drew particular attention to the exceptional circumstances of conflict-affected countries, which face additional constraints in preparing a full PRSP due to weak administrative capacity, a continued weak security situation, and a fractured social and political environment. Most Directors believed that the existing PRSP framework is, in principle, sufficiently flexible for the special needs of conflict-affected countries, but urged the staff to be sensitive to these needs and to apply the JSA guidelines with appropriate flexibility in such cases.

15. Directors requested that the next review of experience with developing and implementing poverty reduction strategies be carried out at the latest before the 2005 Spring Meetings, with external participation from low-income countries, international organizations, other aid agencies, civil society, and the business community. Directors agreed that staff reports on progress in implementing the PRSP approach should henceforth take place on an annual cycle beginning with the September 2002 Annual Meetings.

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.

The Acting Chair’s Summing Up HIPC Initiative—Status of Implementation; and Update of PRGF and HIPC Operations and Subsidization of Post-Conflict Emergency Assistance Executive Board Meeting 02/94, September 6, 2002

Executive Directors welcomed the continued progress being made under the enhanced HIPC Initiative in providing debt relief to the world’s poorest countries. They noted that two-thirds of the countries expected to require HIPC debt relief are already past their decision points and six countries have now reached the completion point. Together with associated debt forgiveness, HIPC debt relief to these countries represents a reduction in their outstanding debt stock by two-thirds. This will reduce debt-service payments for most HIPCs to less than 10 percent of exports, helping these countries to increase substantially their poverty-reducing expenditures.

Directors generally considered that the existing criteria and framework for debt relief under the HIPC Initiative provide a sound basis for reducing the debt burden of HIPCs to sustainable levels, and that the key priority in the period ahead is to implement the existing framework successfully. They recognized, however, that implementation of the Initiative in the period ahead will face substantial challenges in view of the global economic downturn and depressed commodity prices. In particular, bringing the remaining dozen countries to the decision point will remain a daunting task, as these countries are mostly conflict-affected and a number of them have substantial arrears to official creditors. They also encouraged HIPCs that are in the interim period to stay on track with their economic programs and to push ahead with their poverty reduction strategies in order to reach their completion points without delay. Some Directors stressed the importance of technical assistance to these countries to strengthen their program implementation capacity while some also urged greater flexibility with regard to HIPC framework requirements to help them reach their decision and completion points quickly. In this context, a few Directors reiterated the call made at the April discussion for flexibility regarding the requirement for one year of implementation of the full PRSP prior to reaching the completion point.

Directors welcomed the review of HIPCs’ debt sustainability outlook, noting that the findings of the latest review remain broadly unchanged from those of the Spring 2002 Progress Report. Directors expressed concern that debt indicators in 15 out of the 24 HIPCs under the review had worsened in 2001 relative to decision point projections, largely as a result of the global economic downturn and depressed commodity prices. They noted that based on the current projections of commodity prices, the external debt indicators for some eight to ten countries may exceed the HIPC thresholds at their respective completion points.

Directors noted that, if necessary, the Initiative has the flexibility to provide, where appropriate, additional debt relief at the completion point. They stressed that such “topping up” should continue to be based on a careful case-by-case review of countries that have suffered a fundamental change in their economic circumstances due to exceptional exogenous shocks. Recalling that the threshold was lowered at the time of the enhancement of the Initiative in order to build in an additional financial cushion, and that country circumstances will vary, some Directors pointed out that a ratio temporarily above the threshold of NPV of debt to exports of 150 percent should not necessarily be interpreted as signifying an unsustainable debt situation. On how to assess the case for and calculate the amount of topping up that might be warranted, some Directors suggested that additional debt relief provided by bilateral creditors should be excluded from the calculations. However, others disagreed, as this could misrepresent the countries’ actual debt situation. Some Directors suggested that further discussion would be helpful on the methodology for calculating the topping up.

Directors again considered the implications of the Initiative for long-term debt sustainability in HIPCs. Most believed that over the longer term, HIPC relief provides a good basis, but no guarantee, for achieving sustainability. Rather, debt sustainability will need to be ensured by attention to the broader development agenda for each country based on sound economic policies and good governance, aided by technical assistance and adequate financial support on appropriately concessional terms from donors and creditors. Directors stressed the importance of prudent debt management policies by HIPCs, and suggested that new borrowing by HIPCs be closely monitored and that the Board be kept informed. A few Directors advised caution on new borrowing by HIPCs even on concessional terms, noting these countries’ limited absorption capacity. Directors agreed that continuing debt relief is not the right instrument for dealing with future economic shocks. They confirmed that the PRSP provides the appropriate framework for macroeconomic management within which HIPC authorities should seek to maintain their external debt at sustainable levels and pursue an overall strategy for accelerated growth. In this context, Directors noted that export diversification will be critical for reducing external vulnerability and dependence on a few primary commodity exports subject to volatile world prices. They also urged the staff to incorporate more realistic growth and export projections as well as stress testing in HIPC documents. The development of alternative macroeconomic scenarios will highlight countries’ vulnerabilities and facilitate faster policy adjustment and contingency planning. In addition, steps by all countries to lower trade barriers and expand market access will be helpful for boosting the exports of HIPCs and securing debt sustainability over time.

Directors noted that the majority of HIPCs’ bilateral creditors have agreed to provide debt relief, and attached high priority to ensuring the full participation of non-Paris Club and commercial creditors. Directors welcomed the staff’s work on creditor litigation against HIPCs, and asked the staff to continue efforts to seek increased creditor participation in the Initiative. Some Directors suggested that the Fund publicly identify those creditors not participating in the Initiative. They also urged IFIs to provide technical and financial assistance to countries facing litigation. Directors called on the creditors that have not yet done so to participate in the HIPC Initiative. They acknowledged that HIPC-to-HIPC debt relief remains a major challenge meriting further reflection.

Directors welcomed the further progress made in securing financing for the continuation of PRGF operations and the Fund’s participation in the HIPC Initiative. They were pleased to note that, in the current framework, available loan and subsidy resources appear to be sufficient to cover the projected cost of PRGF subsidies and the Fund’s HIPC Initiative assistance, including the relatively modest amount of topping-up assistance as envisaged in the HIPC progress report. Directors suggested that, given the uncertainties associated with the projections, the adequacy of financing will need to be monitored closely in light of the actual use of these resources and developments in market interest rates. In particular, a few Directors expressed concern that the proposed level of self-sustained PRGF might not be sufficient, especially if countries currently in arrears enter the HIPC Initiative. They urged bilateral contributors to the PRGF-HIPC Trust to make the remaining contributions effective as soon as possible to ensure full funding of PRGF-HIPC operations.

Directors welcomed contributions by a number of countries to the subsidization of the rate of charge on the Fund’s post-conflict emergency assistance, and were pleased to note that adequate resources have been secured for this purpose through 2004. Directors agreed with the proposal to make countries in arrears to the Fund ineligible for such subsidization, thus bringing this policy in line with the Fund’s general policy that disallows countries in arrears to the Fund access to Fund resources.

Directors supported an extension of the sunset clause of the HIPC Initiative to end-2004, so as to provide an opportunity for all eligible HIPCs to establish a policy track record that would allow them to benefit from HIPC relief. Directors stressed, however, that the HIPC Initiative is not intended as a permanent mechanism of debt relief.

Most Directors also agreed to replace the current semi-annual cycle for HIPC Initiative implementation reviews with an annual cycle beginning in September 2002, together with a six-monthly statistical update on the status of implementation and the adequacy of resources, as well as periodic reports on policy issues as needed.

Technical Services

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

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

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.

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.

Most Executive Directors emphasized the importance of a greater commitment of members to current account convertibility as evidenced by the acceptance of Article VIII obligations. They agreed that many members have availed themselves of Article XIV for too long and should take appropriate steps to remove remaining restrictions. Therefore, the staff will intensify its efforts to encourage countries to accept the obligations of Article VIII, especially in those long-standing cases where there are no restrictions subject to Articles VIII or XIV.

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.

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.

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

[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

Summing Up by the Acting Chairman Enhancing Contributions to Combating Money Laundering Executive Board Meeting 01/38, April 13, 2001

Executive Directors welcomed the opportunity to review issues related to money laundering, and to consider the staffs proposals for incorporating work on these issues into the Fund’s and the World Bank’s various activities, as requested by the International Monetary and Financial Committee. They agreed that money laundering is a problem of global concern, which affects major financial markets as well as smaller ones, and that to address it, international cooperation should be stepped up. Directors also agreed that the Fund has an important role to play in protecting the integrity of the international financial system, including through efforts to combat money laundering. They emphasized, however, that the Fund’s involvement in this area should be strictly confined to its core areas of competence.

Directors recognized that more vigorous national and international efforts to counter money laundering are needed. These efforts should encompass the promotion of sound financial systems and good governance, the design and implementation of judicial and legal reform and other related capacity-building programs, and effective law enforcement.

Directors pointed out that financial regulation and supervision, based on internationally recognized standards, play an important role in preventing financial abuse, including money laundering. However, they stressed that financial/supervisory regulation needs to be backed by legal/criminal enforcement. In this regard, Directors noted the efforts being made by the Financial Action Task Force (FATF), regional anti-money laundering task forces, and the United Nations and other multilateral organizations to assess and promote anti-money laundering measures, including those in the area of law enforcement. They also noted the important role played in law enforcement by various national and international agencies, but confirmed that it would not be appropriate for the Fund to become involved in law enforcement activities.

Directors generally agreed that the Fund should take the following steps to enhance international efforts to counter money laundering:

  • intensify its focus on anti-money laundering elements in all relevant supervisory principles,

  • work more closely with major international anti-money laundering groups,

  • increase the provision of technical assistance,

  • include anti-money laundering concerns in its surveillance and other operational activities when macroeconomic relevant, and

  • undertake additional studies and publicize the importance of countries acting to protect themselves against money laundering.

Directors considered that intensifying the focus on anti-money laundering elements in supervisory principles will help ensure that financial institutions have in place the management and risk control systems needed to deter financial abuse. They noted that financial sector supervisory principles already assessed under the Financial Sector Assessment Program (FSAP) include elements that are relevant to money laundering and have an analogue in certain aspects of the FATF 40 Recommendations.

Directors endorsed the proposal to develop a methodology that would enhance the assessment of financial standards relevant for countering money laundering and could be used for preparing reports in each FSAP on observance of all relevant principles. The recently approved expansion of the FSAP and the ongoing offshore financial center (OFC) assessments will allow an increasing number of members to benefit from the Fund’s work on strengthening financial systems and countering money laundering. Directors agreed that results from such FSAP and OFC assessments could be shared with the international community, with the agreement of the member. Publication and circulation to outside agencies of the assessments would be governed by existing Fund policies.

Directors stressed that money laundering issues should continue to be addressed in Fund surveillance when they have macroeconomic effects, including effects arising from financial instability and reputational damage. A number of Directors considered that the cross-border implications of money laundering should be raised during Article IV consultations, even if it is not macroeconomic relevant for that member but when it had significant externalities for other countries. In this context, Directors agreed that more research into the magnitude and the economic consequences of financial abuse, including money laundering, should be encouraged. They also agreed that the FSAP, OFC assessments, and Reports on the Observance of Standards and Codes (ROSCs) can help guide and inform surveillance. With regard to conditionality, many Directors were of the view that the “macro-relevance” test should continue to be applied, but a few Directors were opposed to applying conditionality to anti-money laundering measures.

Directors called on all governments, especially those with responsibilities for major financial markets, to put in place the necessary measures to counter money laundering. They endorsed the staffs proposals for increased cooperation with the FATF and regional anti-money laundering task forces, including those relating to the exchange of information with these groupings. It was generally agreed that the FATF 40 Recommendations be recognized as the appropriate standard for combating money laundering, and that work should go forward to determine how the Recommendations could be adapted and made operational to the Fund’s work. However, several Directors noted that recognizing the FATF 40 Recommendations did not constitute an endorsement of the non-voluntary and non-cooperative manner in which the FATF applies the Recommendations. Most Directors felt that the Fund should cover only those issues in the FATF 40 Recommendations that deal with financial regulation and supervision, and that responsibility for legal/crime enforcement should be left to others.

Directors also stressed that the FATF process needs to be made consistent with the ROSC process—that is, the FATF standard needs to be applied uniformly, cooperatively, and on a voluntary basis—and that once this is done, the FATF could be invited to participate in the preparation of a ROSC module on money laundering. They called on the staffs of the Fund and the World Bank to contribute to the ongoing revision of the FATF 40 Recommendations and to discuss with the FATF the principles underlying the ROSC procedures and come back to the Board with a report and proposals.

Directors agreed that the expanded role in combating money laundering should include more technical assistance for members, particularly for capacity building in the preventive areas, with the extra work focusing on adherence to supervisory standards.

Regarding the resource costs arising from money laundering activities, it is clear that additional resources are required for these additional activities, and that the initial estimates will need to be reviewed in light of actual experience. It is noted that there is the potential for some external financing for this specific activity, and any such financing would reduce the impact on the budget. It is too early to request an exact amendment to the budget at this time, but depending on further assessments, management will return to the Board if necessary during the year should a supplemental appropriation be required.

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

Executive Directors welcomed the opportunity to review progress in the Fund’s work on anti-money laundering (AML) issues and to consider the Fund’s role in combating terrorism financing in the aftermath of the events of September 11. They stressed that the Fund has a key role to play in combating money laundering and terrorism financing as part of international efforts to prevent the abuse of financial systems and to protect and enhance the integrity of the international financial system. Many countries and international bodies are reexamining how to promote and enforce laws in these areas. In this context, there was broad agreement that the Fund needs to intensify its contribution to these international efforts, taking account of its mandate and expertise, and to work closely with the World Bank and other international bodies in order to avoid duplication of work.

Directors acknowledged the progress achieved in implementing the measures contained in the Board’s summing up of April 13, 2001 to enhance the role of the Fund in the area of anti-money laundering. In particular, Directors noted that (a) an AML Methodology Document has been prepared, circulated for comment, and is being piloted; (b) work is underway with the Financial Action Task Force (FATF) to adapt the FATF 40 Recommendations to the Report on the Observance of Standards and Codes (ROSC) process and to review and update the Recommendations; and (c) technical assistance for AML has been intensified and in some cases extended to include, for example, the creation of financial intelligence units.

In considering how the Fund could extend its activities to limit the use of financial systems for terrorism financing, and to make its anti-money laundering work more effective, Directors stressed that the Fund’s involvement in these areas should be consistent with its mandate and core areas of expertise. Recognizing that no single agency can resolve the problems independently, they emphasized that the Fund should adopt a disciplined and collaborative approach that respects the expertise, scope, and mandate of other relevant institutions, and that the roles of the various institutions involved should be clarified. Directors reaffirmed that the Fund’s primary efforts should be in assessing compliance with financial supervisory principles and providing corresponding technical assistance. They confirmed, in particular, that it would be inappropriate for the Fund to become involved in law enforcement issues.

Directors generally agreed that the set of measures in the staff paper were an appropriate response by the Fund to the challenges facing the institution, in a way that is consistent with the Fund’s mandate and existing practices. In particular, Directors supported:

• expanding the Fund’s involvement beyond anti-money laundering to efforts aimed at countering terrorism financing;

• expanding the joint Fund/World Bank AML Methodology Document and Fund technical assistance to include aspects relating to anti-terrorism financing. In addition, Directors noted that effective implementation of financial supervisory principles depends on a sound legal framework and on other institutional structures. Thus, most Directors considered it appropriate to expand coverage to legal and institutional issues in the AML methodology. Some Directors considered that the methodology document should eventually cover all the FATF Recommendations, both the original 40 (as revised) and the additional 8 on anti-terrorist financing. However, several Directors supported an evolutionary approach whereby the staff would work on expanding coverage of the assessment methodology to these issues while experience in the implementation of the present Methodology Document accumulates. The revised Fund/World Bank AML Methodology Document will be circulated to the Board as soon as it is ready;

• applying the expanded methodology in Offshore Financial Center (OFC) assessments (the pace of which would be speeded up), as well as onshore assessments in the context of Financial Sector Assessment Programs (FSAPs), though they stressed that these assessments should be done on a voluntary basis;

• 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;

• enhancing the Fund’s collaboration with the FATF, including by working closely and rapidly with the FATF on a suitable assessment process that is compatible with the uniform, voluntary, and cooperative nature of the ROSC exercise, and by contributing to the revision of the FATF 40 Recommendations;

• increasing relevant Fund technical assistance—but avoiding diversion of TA resources from their traditional uses—to correct deficiencies in countries’ anti-money laundering and anti-terrorism financing regimes identified in the course of FSAPs and OFC assessments; and to develop a Fund role in the coordination of such technical assistance; and

• undertaking further research and analysis on relevant issues, including alternative remittance and payment systems, and corporate vehicles.

Directors further agreed that a key element in combating money laundering and terrorist finance is more effective information sharing and cooperation among national authorities and international agencies. They called upon governments to create mechanisms to enable collection and sharing, including cross-border sharing of relevant financial information with appropriate supervisory and law enforcement authorities. Directors stressed that primary responsibility for enforcement of anti-money laundering and anti-terrorism financing measures will continue to rest with national authorities.

Directors noted the preliminary estimates of additional resources needed to undertake these tasks. They generally agreed that these estimates could be used as a basis for moving forward. Refining these estimates and including the resource impact of the extra work, together with any possible offsets, should be examined in the course of the budget discussions for the next financial year 2003.

Directors believed that this package of further actions by the Fund, taken together, would constitute a substantive and measured response to the global challenges by enabling the Fund to make a more useful contribution to combating money laundering and terrorist finance.

Directors requested the staff to keep the Board informed on progress in this area, including on efforts to converge toward a single and comprehensive assessment methodology that is operational for the Fund’s work, and to prepare a progress report for the Board by the Spring 2002 meeting of the International Monetary and Financial Committee as well as a paper on the outcome of the enhanced work program before the 2002 Annual Meetings.

Reports on Observance of Standards and Codes

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

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 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/02/122 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

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) on pages 410–12. On the establishment of the Enhanced Structural Adjustment Facility, see Decision No. 8757-(87/176) SAF/ESAF on pages 408–409. On modalities of gold pledge for use of ESAF Trust resources under rights approach, see Decision No. 10286-(93/23) ESAF on pages 413–15.

The change of date from November 30, 1993 became effective when all lenders to the PRGF Trust consented (Decision No. 12560-(01/85) PRGF, August 23, 2001, effective September 19, 2001).

The text in italics became effective when all lenders to the PRGF Trust consented (Decision No. 12560-(01/85) PRGF, August 23, 2001, effective September 19, 2001).

Adopted by Decision No. 11832-(98/119) ESAF, November 20, 1998, as amended by Decision No. 12252-(00/77), July 27, 2000.

Adopted by Decision No. 12545-(01/84) PRGF, August 22, 2001.

Part I amended Sections II and V of the PRGF Instrument and added Appendix I.

Decision Nos. 10531-(93/170) SAF, 10532-(93/170) ESAF, 10533-(93/170) ESAF, 10534-(93/170) ESAF, and 10535-(93/170) SAF.

The remaining text of Paragraph 3(b) will only apply to commitments approved after March 15, 2002.

The remaining text of Paragraph 3(d) will apply to disbursements of interim assistance approved after March 15, 2002, including the disbursements made under existing commitments.

The remaining text of Paragraph 3 will apply to disbursements of interim assistance approved after March 15, 2002, including the disbursements made under existing commitments.

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.

Hereafter, 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.

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