Selected Decisions and Selected Documents of the International Monetary Fund
Chapter

Article V, Section 3(a), (b), and (c) Use of Fund’s Resources

Author(s):
International Monetary Fund
Published Date:
May 2003
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General Decisions

Interpretation of Articles of Agreement

The Executive Directors of the International Monetary Fund interpret the Articles of Agreement to mean that authority to use the resources of the Fund is limited to use in accordance with its purposes to give temporary assistance in financing balance of payments deficits on current account for monetary stabilization operations.

Pursuant to Decision No. 71-2

September 26, 1946

Use of Fund’s Resources for Capital Transfers

After full consideration of all relevant aspects concerning the use of the Fund’s resources, the Executive Directors decide by way of clarification that Decision No. 71-2 does not preclude the use of the Fund’s resources for capital transfers in accordance with the provisions of the Articles, including Article VI.

Decision No. 1238-(61/43)

July 28, 1961

Use of Fund’s Resources: Meaning of “Consistent With the Provisions of This Agreementin Article V, Section 3

The phrase “consistent with the provisions of this Agreement” in Article V, Section 3, means consistent both with the provisions of the Fund Agreement other than Article I and with the purposes of the Fund contained in Article I.

Decision No. 287-3

March 17, 1948

Use of Fund’s Resources: Meaning of Article V, Section 3 (b)(ii)

The word “represents” in Article V, Section 3(a)(i)1, means “declares.” The member is presumed to have fulfilled the condition mentioned in Article V, Section 3(a)(i), if it declares that the currency is presently needed for making payments in that currency which are consistent with the provisions of the Agreement. But the Fund may, for good reasons, challenge the correctness of this declaration, on the grounds that the currency is not “presently needed” or because the currency is not needed for payment “in that currency,” or because the payments will not be “consistent with the provisions of this Agreement.” If the Fund concludes that a particular declaration is not correct, the Fund may postpone or reject the request, or accept it subject to conditions. The phrase “presently needed” cannot be defined in terms of a formula uniformly applicable to all cases, but where there is good reason to doubt that the currency is “presently needed,” the Fund will have to apply the phrase in each case in the light of all the circumstances.

Decision No. 284-4

March 10, 1948

Multiple Currency Practices Applicable Solely to Capital Transactions

The phrase “multiple currency practices” in decisions of the Fund relating to the use of the Fund’s resources does not, except as otherwise provided, include multiple currency practices applying solely to capital transactions.

Decision No. 8648-(87/104)

July 17, 1987

Use of Fund’s Resources and Repurchases

1. The Managing Director has made the following statement which should be the framework for his discussions with members on use of the Fund’s resources:

The present proposals are designed to provide a practical basis for use of the Fund’s resources in accordance with the purposes of the Fund. When the proposals are agreed they will, of course, have to be carried into effect through actual cases. Decisions will have to be made in accordance with the particular circumstances, and in this manner a body of practical criteria will gradually be built up. However, even at the outset I think it must be clear that access to the Fund should not be denied because a member is in difficulty. On the contrary, the task of the Fund is to help members that need temporary help, and requests should be expected from members that are in trouble in greater or lesser degree. The Fund’s attitude toward the position of each member should turn on whether the problem to be met is of a temporary nature and whether the policies the member will pursue will be adequate to overcome the problem within such a period. The policies, above all, should determine the Fund’s attitude.

In addition, the Fund should pay attention to a member’s general creditworthiness, particularly its record with the Fund. In this respect, the member’s record of prudence in drawing, its willingness to offer voluntary repayment when its situation permitted, and its promptness in fulfilling the obligation to transmit monetary reserves data and in discharging repurchase obligations would be important. I would expect that in the years to come, with extended activities of the Fund, we shall be able more and more to rely on the Fund’s own experience, thus providing a further and most useful link between Fund drawings and repurchases.

After a period of relative inactivity of the Fund, it would be too much to expect that we should be able to solve with one stroke the entire problem of access to the Fund’s resources so that each member would always know how any request would be received by the Fund. We shall have to feel our way. Sometimes a member may want to submit to the Fund a specific request for drawings, with adequate information as to the particular situation which prompts the request. At other times discussions between the member and the Fund may cover its general position, not with a view to any immediate drawing, but in order to ensure that it would be able to draw if, within a period of say 6 to 12 months, the need presented itself. The Fund itself might take the initiative in discussing with one or more members transactions which it believes suitable for the Fund and helpful to the members concerned. In cases where it would appear appropriate and useful, the Fund might arrange drawings to deal with special short-run situations accompanied by arrangements for repurchase in a period not exceeding 18 months.

1

Decision No. 102-(52/11)

February 13, 1952

Side Letters and the Use of Fund Resources

Confidentiality

1. The existence and content of side letters will be treated with the utmost confidentiality by management, Fund staff, and Executive Directors.

Definition of side letters

2. A side letter is a letter or other written communication from a member’s authorities to Fund management or staff containing confidential policy understandings complementary to or elaborating upon those in new or currently applicable letters of intent supporting a request for the use of Fund resources.

3. Understandings contained in side letters will not contradict or detract from those contained in the applicable letters of intent.

Use of side letters

4. Members requesting the use of Fund resources are encouraged to include all policy undertakings in letters of intent. Side letters will be used sparingly and only in those circumstances which the authorities consider, and management agrees, require such exceptional communication.

5. The use of side letters to keep certain understandings confidential can be justified only if their publication would directly undermine the authorities’ ability to implement the program or render implementation more costly. Accordingly, their use will normally be limited to cases in which the premature release of the information would cause adverse market reaction or undermine the authorities’ efforts to prepare the domestic groundwork for a measure.

6. While there is no presumption that particular kinds of measures would be conveyed in a side letter rather than a letter of intent, some matters that could in some cases be considered for inclusion in side letters would be: (i) exchange market intervention rules; (ii) bank closures; (iii) contingent fiscal measures; and (iv) measures affecting key prices.

Communication of side letters to the Executive Board

7. Fund staff will advise members’ authorities of this decision pertaining to the communication of side letters to the Executive Board before the authorities send side letters.

8. The Executive Board will consider any side letter in a restricted session soon after the relevant letter of intent is issued to the Board. At this session, each Executive Director’s constituency will be represented by only one person. A numbered copy of the side letter will be made available to each such representative and, at the end of the meeting, each copy will be returned. Staff will be present to answer any questions, including questions about the circumstances that justified the use of the side letter.

9. In principle, the full text of a side letter will be communicated to the Executive Board. However, at the request of the authorities, the Managing Director may delete from the copies to be communicated to the Board information of such specificity that:

  • (i) it is substantially immaterial to Executive Directors’ consideration of the request for the use of Fund resources; and

  • (ii) disclosure would: (a) seriously hamper the authorities’ capacity to conduct economic policy; or (b) confer an unfair market advantage upon persons not authorized to have knowledge of the information.

10. Information that might in specific cases be deleted under paragraph 9 above includes: figures regarding foreign exchange markets (e.g., exchange rate intervention triggers or amounts of intervention), names of specific banks or companies, or specific dates for the introduction of certain policy measures.

Communications about side letters by Executive Directors to members’ authorities

11. Executive Directors who decide to communicate information about a side letter to their respective authorities should: (i) limit the recipients to those who have a strict need to know; (ii) inform the recipients of the need to treat the information as highly confidential; and (iii) inform the recipients about the procedures that apply to the communication of side letters to the Executive Board under this decision.

12. Executive Directors that communicate information about a side letter to their respective authorities will inform promptly the Managing Director and the Executive Director for the member that sent the side letter of such communication.

Review

13. This decision will be reviewed by the Executive Board within one year, provided, however, that it will be reviewed promptly before that time if the confidentiality of any side letter has not been observed.

Decision No. 12067-(99/108)

September 22, 1999

Summing Up by the Acting Chair Review of Side Letters and the Use of Fund Resources Executive Board Meeting 02/59, June 12, 2002

Directors welcomed the review of side letters. They agreed that, in general, the policy on side letters has achieved its objective of enhancing accountability to the Board while at the same time the number of side letters had declined. Furthermore, the procedures set out in the side letters policy have maintained the confidentiality required by members’ authorities. Directors noted that the policy areas covered by side letters have appropriately focused on highly market-sensitive issues or understandings where premature release of information would undermine the authorities’ ability to implement their economic program or increase the costs of implementation. They also noted that resort to oral understandings between the Fund and national authorities has been rare, and should continue to be discouraged as such understandings lack transparency and are difficult to monitor. In the highly exceptional cases in which oral understandings would be used, the Board will be informed in an appropriate manner.

Directors stressed the need for systematic reporting to the Board on the implementation of understandings in side letters. In general, implementation will continue to be summarized in staff reports while maintaining the confidentiality of the original understanding, but information on the implementation of prior actions and performance criteria will, in all cases, be specifically reported to the Board. Some Directors suggested that this information be communicated to the Board in staff reports, which would be issued with a higher level of confidentiality than normal Board documents in cases where the information is still sensitive. However, most Directors agreed that, to better safeguard confidentiality, reporting to the Board on specific implementation of prior actions and performance criteria should follow the existing side letter procedures. Experience with the agreed reporting procedure will be monitored carefully and reviewed as appropriate.

Summing Up by the Acting Chairman on Strengthening Safeguards on the Use of Fund Resources and Misreporting of Information to the Fund—Policies, Procedures, and Remedies—Preliminary Considerations1 Executive Board Meeting 00/32, March 23, 2000

Reliable information is essential to every aspect of the Fund’s work—surveillance, financing, and technical assistance—and is particularly important in ensuring that the Fund’s resources are used for their intended purposes. As has been the practice over many years, the Fund must depend primarily on trust in members’ readiness to provide the information needed and to use the Fund’s resources for the purposes envisaged.

While known incidents of misreporting and misuse of the Fund’s resources have been rare, many Directors noted recent instances involving allegations of misuse of Fund resources and cases of misreporting, and emphasized the importance of preserving the integrity of the Fund’s reputation as a careful and prudent provider of financial assistance to members. Directors agreed that these events further underscore the need to strengthen the Fund’s existing safeguards on the use of its resources.

The September 1999 Interim Committee emphasized the importance of strengthening governance at the national and international levels, and in this context called on the Fund to perform an authoritative review of its procedures and controls in order to identify ways to strengthen safeguards on the use of its funds and to report on this review at its next meeting.

In considering strengthened safeguards for the use of Fund resources, Directors noted the importance of the safeguards already in place, in particular program design, conditionality and monitoring, the availability of technical assistance, the transparency and governance initiatives, including the establishment and monitoring of codes and standards, and the recent use of special audits and the SDR-account mechanism in selected cases. They stressed that these areas of Fund operations should continue to play a central role in promoting public sector integrity and accountability, thereby contributing to the safeguarding of Fund resources. Directors also noted that policies on noncomplying purchases are ex post in nature, in that they rely on the disincentives of actions taken by the Fund after the fact of misreporting has been established, and they welcomed this opportunity to review relevant aspects of the Fund’s legal framework governing misreporting of information to the Fund.

Directors also welcomed the opportunity to consider an approach to assessing the adequacy of member countries’ framework of safeguards that could help, ex ante, to prevent the possible misuse of Fund resources and misreporting of information. In considering the staff’s proposals, Directors expressed their gratitude to the panel of six eminent outside experts, drawn from the private and public sectors, who had independently assessed these proposals. In light of these proposals, the Board has decided on a number of steps to strengthen key aspects of the Fund’s framework for dealing with these issues.

Ex Ante Safeguards

Directors generally concurred that the proposed two-stage approach to safeguards assessments could provide an appropriate mechanism to strengthen existing safeguards by assessing a central bank’s compliance with a series of desirable practices, rules and regulations regarding internal control procedures, financial reporting, and audit mechanisms. Safeguards assessments of central banks have the objective of providing reasonable assurance to the Fund that the central bank’s control, accounting, reporting, and auditing systems in place to manage resources, including Fund disbursements, are adequate to ensure the integrity of operations. However, Directors remarked that safeguards assessments would not prevent misuse of resources by a willful override of controls or manipulation of data. They noted the view of the panel of experts that safeguards assessments will greatly enhance the ability of central banks to improve their controls, efficiency, and effectiveness, as well as their view that the assessment framework addresses the protection of member shareholders’ resources without threatening the cooperative nature of the Fund.

Directors generally endorsed the framework for the conduct of safeguards assessments and, in particular, the focus on member countries’ central banks. They agreed that the safeguards framework would include an assessment of the accountability and transparency of foreign reserves management operations assumed by agencies outside the central bank, which is sometimes the case when the fiscal agent for the Fund is not the central bank. Some Directors, however, emphasized the importance of strengthening controls and financial reporting in the government sector, and took note, in this regard, especially of the need to strengthen the quality and reliability of fiscal data and of other information related to performance criteria used in Fund-supported programs. They noted management’s intention to strengthen the approach to handling data in the Fund, to which I will refer later.

Directors endorsed the proposal that an important principle of the strengthened safeguards framework become a standard requirement for Fund financial support, namely, that central banks of member countries making use of Fund resources publish annual financial statements independently audited by auditors external to the central banks in accordance with internationally accepted audit standards. In noting their agreement with the staff proposal on external audits based on international quality standards, several Directors underscored the importance of sound risk and reserve management practices, including transactions on an arm’s length basis with related parties. They also endorsed the general principle of basing benchmarks on the Fund’s Code of Good Practices on Transparency in Monetary and Financial Policies.

A number of Directors noted that, although they agree in principle with the staff’s proposals, country-specific circumstances would need to be taken into account in the conduct of safeguards assessments. In this context, Directors stressed the importance of technical assistance in the implementation of recommendations arising from the safeguards assessments.

In the first stage of the assessment process, the authorities of a member seeking a new Fund arrangement would be expected to furnish the Fund with the documents listed in the attachment to this summing up as early as possible, and grant permission for Fund staff to hold discussions with their independent auditors. The staff would review this information to arrive at a preliminary judgment about the adequacy of the central bank’s internal control systems, reporting, and internal and external audit mechanisms.

Directors supported the view that if, based on this information, the staff reaches the conclusion that the central bank’s control, reporting, and auditing mechanisms appeared adequate for safeguarding Fund resources, no further steps would be undertaken. In other cases, and as a second stage, an on-site review would be undertaken by a multidisciplinary team prior to presentation of the arrangement for Board approval, or in any case no later than the first review.

On the modalities of this second stage, Directors considered that multidisciplinary teams were needed, including experts from central banks and private accounting firms. They generally concurred that the teams should be led by the staff to ensure consistency of the approach and to help achieve a continuous improvement of the assessment methodology. Directors emphasized the importance of confidentiality and the need for close monitoring and guidance of outside experts. They also recognized the confidential nature of safeguards assessment reports and, in this regard, generally agreed that the results of safeguards assessments be made available to the Executive Board in a summary form. At the same time, if requested by Board members, information referred to in the summary reports would be made more fully available by management to the Executive Board in an appropriate format and forum.

Directors considered that the introduction of safeguards assessments requires a differentiation between new and current users of Fund resources. For Fund arrangements approved after June 30, 2000, two requirements would be applied: (i) member countries’ central banks would be subject to the two-stage assessment approach described above, with the expectation that in many cases the first stage would suffice, and (ii) as part of the safeguards, central banks would publish annual financial statements independently audited by auditors external to the central banks in accordance with internationally accepted audit standards.

For Fund arrangements in effect before June 30, 2000, Directors endorsed the view that, as a transitional arrangement to minimize resource costs, the two-stage assessment approach would not be applied. However, an important part of the safeguards framework would apply—the audit arrangements in place at central banks would be assessed to determine whether the central banks publish annual financial statements independently audited by auditors external to the central banks in accordance with internationally accepted audit standards. Members with possible disbursements subject to program reviews after September 30, 2000 would be required to furnish the Fund with the documents listed in points (1) to (3) of the attachment three months before the first program review after September 30, 2000. The staff would review this information to assess the adequacy of the external audit arrangements and report its findings to management. Where improvements were deemed necessary, these and the authorities’ response would be reported to the Board in the documentation for the first program review after September 30, 2000.

The resource implications of safeguards assessments would be kept under review and Directors noted management’s intention to return to the Board should the resource requirements exceed those available under the Fund’s current fiscal year 2001 budget proposals.

Most Directors expressed the view that safeguards assessments should be carried out on an experimental basis and that a review of the Fund’s experience with this approach should be undertaken with the involvement of the outside panel of experts within 12–18 months.

List of Information/Documents to Obtain from Member Country Central Banks

1. Copies of audited (or unaudited if no audit is performed) financial statements for the past three years, together with related audit reports.

2. Copies of all management letters issued by the external auditors in connection with their audit of the financial statements for the past three years.

3. Copies of all audit reports (including agreed-upon procedures engagements) issued by the external auditors during the past three years.

4. A description of the central bank’s management structure, including the organizational reporting structure.

5. A description of the organizational structure and reporting lines of the internal audit department, including details of the senior management staff in the department and a summary of staff resources (experience and qualifications).

6. A summary of high-level internal controls in place for the banking, accounting, and foreign exchange departments of the central bank.

7. Listing of all reports issued by the internal audit department in the past three years and a summary description of findings. Potentially, copies of reports dealing with operational and financial controls during the same period.

8. Details of the full legal names of any subsidiaries of the central bank, and a description of their business and the nature of their relationship with the central bank. A listing of all correspondent banks.

9. A listing of all accounts held by government agencies with the central bank.

10. Copies of current legislation governing the central bank.

BUFF/00/48

March 30, 2000

The Acting Chair’s Summing Up Safeguards Assessments—Review of Experience and Next Steps Executive Board Meeting 02/26, March 14, 2002

Directors considered the safeguards policy, which was adopted on an experimental basis in March 2000 as an ex ante mechanism to strengthen the IMF’s framework of measures to safeguard the use of Fund resources and minimize the possibility for misreporting, to be an unqualified success. The policy has been widely accepted by central banks, and has helped improve their operations and accounting procedures while enhancing the Fund’s reputation and credibility as a prudent lender. Directors, therefore, supported the staff proposal that the policy be adopted as a permanent feature of Fund operations. They expressed their gratitude to the panel of experts for their contribution in shaping the safeguards policy.

Despite improvements in central banks’ safeguards over the past few years, Directors noted that the safeguards assessments completed to date have revealed significant vulnerabilities in the controls employed by a number of central banks of borrowing member countries, which could lead to possible misreporting to the Fund or misuse of central bank resources, including Fund disbursements. In particular, safeguards assessments have revealed that (i) a substantial number of central banks’ financial statements are not subject to an independent and external audit conducted in accordance with internationally accepted standards; (ii) several central banks have poor controls over foreign reserves and data reporting to the IMF; and (iii) a number of central banks have adopted an unclear financial reporting framework and inadequate accounting standards.

Directors noted that these findings indicated that significant, but avoidable, risks to Fund resources may exist in the cases concerned. Accordingly, some of the findings have warranted corrective measures under program conditionality, ranging from prior actions to policy commitments in letters of intent. Directors stressed, however, that Fund conditionality in these cases should be limited to areas highly relevant to safeguarding the use of Fund resources. They welcomed the fact that central banks have generally embraced the staff recommendations and that many have already taken steps to implement them. Directors advised the staff to tailor the assessments and remedial measures to the specific circumstances of individual countries.

Directors agreed that the coverage of safeguards assessments should extend to countries that augment an existing Fund arrangement or that have a Rights Accumulation Program, and a number favored its extension to countries with stand-alone CFFs and to countries with outstanding obligations to the Fund that do not currently have a Fund-supported program. Some Directors also favored its extension to countries with staff-monitored (SMPs), but others felt otherwise since these cases do not involve the use of Fund resources. Most Directors agreed that countries under an SMP should be encouraged to undergo safeguards assessments on a voluntary basis, as in many cases these programs are followed by formal arrangements with the Fund. While recognizing that the safeguards assessments constitute part of the Fund’s broader efforts to improve transparency in member countries, Directors stressed that safeguards assessments should not be converted to an institution-building exercise, but should remain narrowly focused on safeguarding use of Fund resources. Most Directors agreed that safeguards assessments should not be applied to fiscal issues and other public agencies, since that would require a new mandate for the staff. A few Directors also urged the staff to raise safeguards issues in the context of Article IV consultations with countries that were not subject to a safeguards assessment, but have current outstanding obligations to the Fund.

Moving forward, Directors supported the shift of focus of the safeguards policy, during the next three or four years, from initial assessments to the monitoring of past commitments. They welcomed the improvements to external communications during the safeguards process proposed by the staff, and the closer coordination of corrective actions with past and ongoing technical assistance. Directors also underscored the need to strengthen internal communications among Fund staff to ensure consistency in the application of the safeguards policy.

Directors stressed that a key consideration moving forward is the modalities for monitoring the implementation of the remedies proposed by safeguards assessments. They noted that commitments made by the authorities to implement safeguards recommendations would be monitored in conjunction with overall program conditionality and that the main focus of future safeguards work would, therefore, be on the efficacy of implementation. To facilitate the monitoring of recommendations, Directors agreed that central banks should provide annually to Fund staff their annual audited financial statements and related audit reports, including management letters and special audit reports, for as long as Fund credit remains outstanding. They also agreed that the periodicity of monitoring would be influenced by the timing for implementing past recommendations and that, in some cases, on-site monitoring would be necessary.

Directors agreed that the modalities for future safeguards assessments would be broadly similar to existing procedures, except for improvements resulting from the lessons learned during the experimental period to narrow the focus and improve the effectiveness of the assessment. Therefore, all member countries receiving a new arrangement from the IMF after June 30, 2000, would be subject to a full safeguards assessment. However, the nature and extent of a safeguards assessment for new arrangements where a previous assessment had already been conducted would be based on known risk factors, including the findings and date of the previous assessment, the results of the safeguards monitoring process, and possible new developments at the central bank. Also, the distinction between Stage One (off-site) and Stage Two (on-site) assessment reports would no longer apply—a single, confidential safeguards assessment report would be prepared for all new arrangements.

Directors noted the importance of deadlines for the completion of safeguards assessments and indicated that, in principle, the assessment should be completed prior to the Executive Board’s approval of a new arrangement. They recognized, however, that various factors may delay the completion of a safeguards assessment and agreed to retain the deadline for completion of the assessment by no later than the first program review under the arrangement. Where the deadline is not met, either due to external factors or as a result of deliberate recommendation by the staff, Directors noted that a staff report recommending completion of a review under the arrangement would contain, in the appraisal, an explicit statement to this effect and the reasons for proposing completion of the review despite the delay in the safeguards assessment. Several Directors suggested that the current policy be augmented so that key weaknesses are addressed as soon as possible and prior to the second review under any program, although the administrative capacity of the country must be taken into account. In view of the importance of safeguards assessments to the integrity of the Fund and the benefits to members, and to minimize delays, many Directors supported the allocation of more staff resources to this task, although a number of them preferred that this be done through redeployment. Some Directors also encouraged the continued use of technical experts from central banks.

Directors concurred that safeguards assessment reports should remain confidential documents and requested that the Executive Board be kept informed on safeguards issues by (i) a summary of findings and recommendations identified by safeguards assessments in staff reports; and (ii) periodic summary reports to the Executive Board on safeguards assessments findings in general. However, a few Directors believed that countries that wish to publish their reports should be allowed to do so. Directors supported publication of the staff report after deletion of references to individual countries, They agreed that a review of the safeguards policy should take place in three years, if not earlier, and suggested the involvement of external experts in the review process.

Summings up for Internal Purposes on Use of Fund Resources

Following any Executive Board meeting on the use of Fund resources by a member combined with an Article IV consultation, summings up for internal purposes on the use of Fund resources shall no longer be prepared. Instead, a paragraph or paragraphs concerning Executive Directors’ views regarding the member’s Fund-supported program shall be attached to the summing up of the Board discussion of the Article IV consultation. Such paragraph(s) shall not be published with any Public Information Notice following the meeting.

Decision No. 12663-(02/6)

January 22, 2002

Overdue Obligations to the Fund

Summing Up by the Chairman Operational Modalities of the Rights Approach Executive Board Meeting 90/97, June 20, 1990

This has been an important discussion, following the guidance of the Interim Committee at its meeting in May 1990, to establish broad guidelines for the application of the “rights” approach and “rights accumulation programs,” as we shall now call them. Drawing on our earlier discussions, Executive Directors have endorsed the main features of rights accumulation programs and of the financing of rights as set out in the staff paper for this meeting, while emphasizing the need for flexibility in the different and difficult circumstances that we may face. It is intended that this summing up provide a description of the key characteristics of the rights approach for reference in the decisions that are to be taken on the gold pledge and extended burden sharing.

Under the rights approach, a member in arrears to the Fund will be able to earn rights, conditioned on satisfactory performance under an adjustment program monitored by the Fund, toward a disbursement from the Fund once the member’s overdue obligations have been cleared and upon approval of a successor arrangement by the Fund. Utilization of the rights approach will be limited to the eleven members that had financial obligations to the Fund overdue for six months or more at the end of 1989. I would note here that it is not expected that all of these members would make use of the rights approach; indeed, two of them are likely to settle their arrears shortly without recourse to the rights approach. It is intended that utilization of the rights approach would be further limited to those of the eleven members that adopt a comprehensive economic program that can be endorsed by the Executive Board as a rights accumulation program by the time of the Spring 1991 meeting of the Interim Committee. I have noted the view of some Directors that a longer time might need to be envisaged, but that this is not the view of the majority. If there were to be a compelling reason, we would be able to return to the question as we approach the Spring 1991 meeting.

Executive Directors considered a three-year period to be appropriate as a norm for a rights accumulation program, but with scope for variation in either direction. The member would be expected, with support as appropriate from other sources, to make maximum efforts to reduce overdue obligations to the Fund during the period of the rights accumulation program, so as to minimize the necessary recourse to rights. We will seek to incorporate a reduction of arrears to the Fund into programs and to introduce appropriate contingency provisions for additional payments to the Fund where developments are more favorable than expected. The magnitude of rights to be accumulated will clearly require case-by-case judgments by the Executive Board. But it is understood that, in cases where it appears unavoidable, rights may accumulate up to the amount of arrears outstanding at the beginning of the rights accumulation program. Some Directors noted that special action might have to be considered in highly exceptional circumstances, but it is not necessary to revisit the understanding placed in the record on this subject during the course of our deliberations prior to the recent meeting of the Interim Committee.

The member would be expected to generate the financing needed to meet the requirements of its economic program under the rights approach and, and at minimum, to remain current with respect to obligations to the Fund and the World Bank falling due during the period of the rights accumulation program. In this effort, it would be envisaged that the member would be assisted by creditors and donors through support groups, consultative groups, and/or other arrangements as appropriate. Resources that become available pursuant to the proposal for voluntary contributions originally made… which has been warmly welcomed by the Interim Committee and is expected to be discussed by the Executive Board in July, would complement these efforts.

Executive Directors agreed that rights accumulation programs should adhere to macroeconomic and structural policy standards associated with programs supported by arrangements under the extended Fund and enhanced structural adjustment facilities and that the Fund would draw, as appropriate, on Fund policies and guidelines associated with the use of such facilities. In particular, rights accumulation programs would need to help create the conditions for sustained growth and substantial progress toward external viability.

There was a preference among Directors for even phasing of the accumulation of rights within annual programs, based on quarterly monitoring. Executive Directors did not, however, rule out the possibility of some front-loading of rights within the first annual program if warranted by special circumstances. With respect to performance tests, the Fund’s policies on waivers and modifications would be applied so as to allow for continuation of the program and rights accumulation if performance criteria were not observed but performance had been brought back on track. If waivers or modifications were not granted, Executive Directors considered it reasonable to permit the member to retain its previously accumulated rights for six months before they would lapse. Several Directors indicated that they would prefer that rights lapse in their entirety after six months, but most others considered that such a rule would be too rigid. On balance, we will plan that normally rights would lapse at a rate of 25 percent of accumulated rights per quarter; but that this rate could be more or less rapid depending on the circumstances, including, inter alia, the period of satisfactory performance under the rights program before it went off track and the reasons for the nonobservance of performance criteria. Again, the Executive Board will need to consider these questions on a case-by-case basis. If, after rights had begun to lapse, a new rights accumulation program were endorsed by the Executive Board, the member would resume accumulation of rights and the program period would normally be extended to permit the member to accumulate the rights needed to help clear its arrears.

Accumulated rights would be financed by a Fund disbursement upon approval of a successor arrangement with the Fund, following satisfactory performance under the rights accumulation program and once the member’s overdue financial obligations to the Fund had been cleared. For SAF-eligible members, the mix of financing between the resources of the structural adjustment and enhanced structural adjustment facilities (SAF/ESAF) and the resources of the Fund’s General Resources Account (GRA) would be approved as part of the successor arrangements, although some tentative indication of an anticipated mix could be given earlier. I would not intend to propose approval of a commitment to use ESAF Trust resources for the financing of rights before the decision on the gold pledge for the use of ESAF Trust resources for the financing of rights has been adopted.

Where a blend of General Resources Account and SAF/ESAF resources was considered appropriate, use of General Resources Account resources would normally be under an extended arrangement, and in such cases, the extended and SAF/ESAF arrangements would operate concurrently. Total access to the resources of the enhanced structural adjustment facility by a member would in all cases be in accordance with the access limits of that facility. I have taken note of the proposal made concerning the attribution of payments to the SAF/ESAF which would also make possible the application of all of the Fund’s deterrent measures should arrears emerge; I suggest that we consider this proposal in connection with the forthcoming review of those facilities.

Our discussion has provided guidance that will enable us to proceed with concrete planning for rights accumulation programs in individual cases and with what we all hope will be a definitive phase in resolution of the arrears problem. Other issues will no doubt emerge as specific programs are developed, and these will need to be addressed case by case as they arise.

Summing Up by the Chairman Overdue Financial Obligations to the Fund—Six-Monthly Review; Progress Under the Strengthened Cooperative Strategy; and Special Charges—Annual Review Executive Board Meeting 91/42, March 25, 1991

Executive Directors acknowledged the progress made over the past year in dealing with overdue financial obligations to the Fund and urged the active pursuit of all elements of the strengthened cooperative strategy—by the members in arrears, the Fund, and the membership at large—in order to consolidate and extend recent positive developments.

Because the process of formulating necessary adjustment policies securing the requisite financing has been more time consuming than anticipated, it has not been possible to bring rights accumulation programs … to the Executive Board by the end of April 1991. Given the progress under way in some cases, Directors agreed on a one-year extension of the deadline established last year for members in protracted arrears to enter into a rights accumulation program. Several Directors wondered whether a shorter extension might not have sufficed and sent a stronger signal regarding the urgency of rapid progress in outstanding cases. Some Directors also emphasized that they would not be willing to consider a further extension beyond the Spring of 1992. A few other Directors questioned whether a one-year extension would suffice in the most difficult cases.

Summing Up by the Acting Chairman Overdue Financial Obligations to the Fund—Six-Monthly Review; Further Progress Under the Strengthened Cooperative Strategy Executive Board Meeting 92/58, April 17, 1992

Directors considered that the strengthened timetable of procedures for applying remedial measures remained appropriate and had been implemented in accordance with the Executive Board’s judgment regarding the degree of a member’s cooperation with the Fund in terms of implementation of policies and record of payments as well as the timing and actions appropriate to the particular circumstances of each member.

Directors considered the questions of the criteria and timing for reversing the actions specified in the strengthened timetable of procedures. They noted that for some actions the issue of reversibility did not arise, while other actions were automatically terminated or withdrawn upon full settlement of overdue obligations to the Fund. Directors broadly endorsed the established practices of terminating a declaration of ineligibility immediately following full settlement of arrears to the Fund and publicizing the restoration of eligibility by issuing a press release and sending communications to all Fund Governors.

With respect to the lifting of a declaration of noncooperation, it was generally agreed that the same criteria were relevant in coming to a judgment on the degree of a member’s cooperation as were applied in deciding whether to issue such a declaration. A member’s cooperation would be reviewed on the occasion of the periodic reviews of the member’s arrears. Directors felt that the timing of consideration of the withdrawal of a declaration depended on the implementation of the necessary adjustment policies and the member’s payments record to the Fund; it would not be feasible to specify in advance a timetable for consideration of the lifting of a declaration of noncooperation. Directors agreed that, as in the case of the issuance of a declaration of noncooperation, the withdrawal of a declaration of noncooperation should be publicized by issuing a press release.

As regards the rights approach, the Executive Board decided on a one-year extension of the deadline established last year for eligible members so as to provide time for them to adopt a comprehensive economic program that could be endorsed by the Executive Board as a rights accumulation program.

Overdue Financial Obligations to the Fund—Review of Progress Under Strengthened Cooperative Strategy—Extension of Rights Approach

The availability of the rights approach is extended until end-August 2001. (EBS/01/93, 6/20/01)

Decision No. 12512-(01/67)

June 28, 2001

Overdue Financial Obligations—Strengthened Cooperative Strategy—2002 Review

The Fund has reviewed progress under the strengthened cooperative strategy with respect to overdue financial obligations to the Fund as described in EBS/02/133 (7/23/02). The Fund reaffirms its support for the strengthened cooperative strategy and agrees to extend the availability of the rights approach until end-August 2003. (EBS/02/133, 7/23/02)

Decision No. 12818-(02/85)

August 6, 2002

Credit Tranche Policies, Stand-By and Extended Arrangements, Emergency Assistance

Guidelines on Conditionality—Stand-By Arrangements

1. Access to Fund resources in the credit tranches will normally be provided through a stand-by arrangement.

2. A representation of need by a member for a purchase requested under a stand-by arrangement will not be challenged by the Fund.

3. The normal period for a stand-by arrangement will range from 12 to 18 months. If a longer period is requested by a member and is considered necessary by the Fund to enable the member to implement its adjustment program successfully, the stand-by arrangement may extend beyond this range, up to a maximum of three years.

4. Phasing and performance clauses will be omitted in stand-by arrangements within the first credit tranche. They will be included in all other stand-by arrangements but will apply only to purchases outside the first credit tranche. For an arrangement within the first credit tranche, a member may be required to describe the general policies it plans to pursue, including its intention to avoid introducing or intensifying exchange and trade restrictions.

Decision No. 12865-(02/102)

September 25, 2002

General Policies on Use of the Fund’s Resources: Tranche Policies

… The Fund’s attitude to requests for transactions within the “first credit tranche”… is a liberal one, provided that the member itself is making reasonable efforts to solve its problems. Requests for transactions beyond these limits require substantial justification.

Annual Report of the Executive Directors

1963, page 161

Guidelines on Conditionality

A. Principles

1. Basis and purpose of conditionality. Conditions on the use of Fund resources are governed by the Fund’s Articles of Agreement and implementing decisions of the Executive Board. Conditionality-that is, program-related conditions-is intended to ensure that Fund resources are provided to members to assist them in resolving their balance of payments problems in a manner that is consistent with the Fund’s Articles and that establishes adequate safeguards for the temporary use of the Fund’s resources.

2. Early warning and prevention. Conditionality is one element in a broad strategy for helping members strengthen their economic and financial policies. Through formal and informal consultations, multilateral surveillance including the World Economic Outlook and discussions of capital market developments, advice to members on the voluntary adoption of appropriate standards and codes, and the provision of technical assistance, the Fund encourages members to adopt sound economic and financial policies as a precaution against the emergence of balance of payments difficulties, or to take corrective measures at an early stage of the development of difficulties.

3. Ownership and capacity to implement programs. National ownership of sound economic and financial policies and an adequate administrative capacity are crucial for successful implementation of Fund-supported programs. In responding to members’ requests to use Fund resources and in setting program-related conditions, the Fund will be guided by the principle that the member has primary responsibility for the selection, design, and implementation of its economic and financial policies. The Fund will encourage members to seek to broaden and deepen the base of support for sound policies in order to enhance the likelihood of successful implementation.

4. Circumstances of members. In helping members to devise economic and financial programs, the Fund will pay due regard to the domestic social and political objectives, the economic priorities, and the circumstances of members, including the causes of their balance of payments problems and their administrative capacity to implement reforms. Conditionality and program design will also reflect the member’s circumstances and the provisions of the facility under which the Fund’s financing is being provided. The causes of balance of payments difficulties and the emphasis to be given to various program goals may differ among members, and the appropriate financing, the specification and sequencing of policy adjustments, and the time required to correct the problem will reflect those and other differences in circumstances. The member’s past performance in implementing economic and financial policies will be taken into account as one factor affecting conditionality, with due consideration to changes in circumstances that would indicate a break with past performance.

5. Approval of access to Fund resources. The Fund will ensure consistency in the application of policies relating to the use of its resources with a view to maintaining the uniform treatment of members. A member’s request to use Fund resources will be approved only if the Fund is satisfied that the member s program is consistent with the Fund’s provisions and policies and that it will be carried out, and in particular that the member is sufficiently committed to implement the program. The Managing Director will be guided by these principles in making recommendations to the Executive Board with respect to the approval of the use of Fund resources by members.

6. Focus on program goals. Fund-supported programs should be directed primarily toward the following macroeconomic goals:

(a) solving the member’s balance of payments problem without recourse to measures destructive of national or international prosperity; and

(b) achieving medium-term external viability while fostering sustainable economic growth.

7. Scope of conditions. Program-related conditions governing the provision of Fund resources will be applied parsimoniously and will be consistent with the following principles:

(a) Conditions will be established only on the basis of those variables or measures that are reasonably within the member’s direct or indirect control and that are, generally, either (i) of critical importance for achieving the goals of the member’s program or for monitoring the implementation of the program, or (ii) necessary for the implementation of specific provisions of the Articles or policies adopted under them. In general, all variables or measures that meet these criteria will be established as conditions.

(b) Conditions will normally consist of macroeconomic variables and structural measures that are within the Fund’s core areas of responsibility. Variables and measures that are outside the Fund’s core areas of responsibility may also be established as conditions but may require more detailed explanation of their critical importance. The Fund’s core areas of responsibility in this context comprise: macroeconomic stabilization; monetary, fiscal, and exchange rate policies, including the underlying institutional arrangements and closely related structural measures; and financial system issues related to the functioning of both domestic and international financial markets.

(c) Program-related conditions may contemplate the member meeting particular targets or objectives (outcomes-based conditionality), or taking (or refraining from taking) particular actions (actions-based conditionality). The formulation of individual conditions will be based, in particular, upon the circumstances of the member.

8. Responsibility of the Fund for conditionality. The Fund is fully responsible for the establishment and monitoring of all conditions attached to the use of its resources. There will be no crossconditionality, under which the use of the Fund’s resources would be directly subjected to the rules or decisions of other organizations. When establishing and monitoring conditions based on variables and measures that are not within its core areas of responsibility, the Fund will, to the fullest extent possible, draw on the advice of other multilateral institutions, particularly the World Bank. The application of a lead agency framework, such as between the Fund and the Bank, will be implemented flexibly to take account of the circumstances of members and the overlapping interests of the two institutions with respect to some aspects of members policies. The Fund’s policy advice, program design, and conditionality will, insofar as possible, be consistent and integrated with those of other international institutions within a coherent country-led framework. The roles of each institution, including any relevant conditionality, will be stated clearly in Fund-related program documents.

B. Modalities

9. Nature of Fund arrangements. A Fund arrangement is a decision of the Executive Board by which a member is assured that it will be able to make purchases or receive disbursements from the Fund in accordance with the terms of the decision during a specified period and up to a specified amount. Fund arrangements are not international agreements and therefore language having a contractual connotation will be avoided in arrangements and in program documents. Appropriate consultation clauses will be incorporated in all arrangements.

10. Members program documents. The authorities policy intentions will be described in documents such as a Letter of Intent (LOI), or a Memorandum on Economic and Financial Policies (MEFP) that may be accompanied by a Technical Memorandum of Understanding (TMU). These documents will be prepared by the authorities, with the cooperation and assistance of the Fund staff, and will be submitted to the Managing Director for circulation to the Executive Board. The documents should reflect the authorities policy goals and strategies. In addition to conditions specified in these documents, members requesting the use of Fund resources may in exceptional cases communicate confidential policy understandings to the Fund in a side letter addressed to the Managing Director and disclosed to the Executive Board. In all their program documents, the authorities should clearly distinguish between the conditions on which the Fund’s financial support depends and other elements of the program. Detailed policy matrices covering the broader agenda should be avoided in program documents such as LOIs and MEFPs unless they are considered necessary by the authorities to express their policy intentions.

11. Monitoring of performance. The implementation of the member’s understandings with the Fund may be monitored, in particular, on the basis of prior actions, performance criteria, program and other reviews, and other variables and measures established as structural benchmarks or indicative targets.

(a) Prior actions. A member may be expected to adopt measures prior to the Fund’s approval of an arrangement, completion of a review, or the granting of a waiver with respect to a performance criterion when it is critical for the successful implementation of the program that such actions be taken to underpin the upfront implementation of important measures. In reaching understandings on prior actions, the Fund will also take into account the strain that excessive reliance upon such actions can place on members implementation capacity. The Managing Director will keep Executive Directors informed in an appropriate manner of the progress of discussions with the member.

(b) Performance criteria. A performance criterion is a variable or measure whose observance or implementation is established as a formal condition for the making of purchases or disbursements under a Fund arrangement. Performance criteria will apply to clearly-specified variables or measures that can be objectively monitored by the staff and are so critical for the achievement of the program goals or monitoring implementation that purchases or disbursements under the arrangement should be interrupted in cases of nonobservance. The number and content of performance criteria may vary because of the diversity of circumstances and institutional arrangements of members.

(c) Reviews. Reviews are conducted by the Executive Board.

(i) Program reviews. Program reviews provide a framework for an assessment of whether the program is broadly on track and whether modifications are necessary. A program review will be completed only if the Executive Board is satisfied, based on the member’s past performance and policy understandings for the future, that the program remains on track to achieve its objectives. In making this assessment, the Executive Board will take into consideration, in particular, the member’s observance of performance criteria, indicative targets, and structural benchmarks, and the need to safeguard Fund resources. The elements of a member’s program that will be taken into account for the completion of a review will be specified as fully and transparently as possible in the arrangement. Arrangements will provide for reviews to take place at a frequency appropriate to the member’s circumstances. Reviews are expected to be held every six months, but substantial uncertainties concerning major economic trends or policy implementation may warrant more frequent monitoring. In cases of major delays in the completion of a review, the Managing Director will inform Executive Directors in an appropriate manner.

(ii) Financing assurances reviews. Where the Fund is providing financial assistance to a member that has outstanding sovereign external payments arrears to private creditors or that, by virtue of the imposition of exchange controls, has outstanding non-sovereign external payments arrears, the Executive Board will conduct a financing assurances review to determine whether adequate safeguards remain in place for the further use of the Fund’s resources in the member’s circumstances and whether the member’s adjustment efforts are undermined by developments in creditor-debtor relations. More specifically, every purchase or disbursement made available after the approval of the arrangement will, while such arrears remain outstanding, be made subject to the completion of a financing assurances review. Financing assurances reviews may also be established where the member has outstanding arrears to official creditors.

(d) Other variables and measures. In monitoring the implementation of a member s program, the Fund may also examine variables and measures established as indicative targets and structural benchmarks. The same principles governing the scope of conditions set out in paragraph 7 apply to these variables and measures as well as to other program-related conditions.

(i) Indicative targets. Variables may be established as indicative targets for the part of an arrangement for which they cannot be established as performance criteria because of substantial uncertainty about economic trends. As uncertainty is reduced, these targets will normally be established as performance criteria, with appropriate modifications as necessary. Indicative targets may also be established in addition to performance criteria as quantitative indicators to assess the member’s progress in meeting the objectives of a program in the context of a program review.

(ii) Structural benchmarks. A measure may be established as a structural benchmark where it cannot be specified in terms that may be objectively monitored or where its non-implementation would not, by itself, warrant an interruption of purchases or disbursements under an arrangement. Structural benchmarks are intended to serve as clear markers in the assessment of progress in the implementation of critical structural reforms in the context of a program review.

12. Waivers. The Fund will grant a waiver for nonobservance of a performance criterion only if satisfied that, notwithstanding the nonobservance, the program will be successfully implemented, either because of the minor or temporary nature of the nonobservance or because of corrective actions taken by the authorities. The Fund will grant a waiver of the applicability of a performance criterion only if satisfied that, notwithstanding the unavailability of the information necessary to assess observance, the program will be successfully implemented and there is no clear evidence that the performance criterion will not be met.

13. Floating tranches. Conditions will normally apply to specified dates or continuously. However, when the Fund judges that the member will need to implement a particular structural measure or meet a particular performance target during the program period but not necessarily by a specific date, and when flexibility in timing would promote national ownership, the arrangement may provide for the purchase or disbursement of Fund resources to be made available whenever the measure is implemented or the target observed. These floating tranches are expected to apply primarily to structural performance criteria that are included because of their importance for medium-term external sustainability and growth.

C. Evaluation and Review

14. Program evaluation. The staff will prepare an analysis and assessment of the performance under programs supported by use of the Fund’s resources in connection with Article IV consultations and as appropriate in connection with further requests for use of the Fund’s resources.

15. Periodic review. The Fund will review the application of this Decision at intervals of two years and at such other times as consideration of it is placed on the agenda of the Executive Board. These reviews will evaluate the consistency of conditionality with these guidelines, the appropriateness and implementation of programs, and the effectiveness of policy instruments.

16. Decision No. 270-(53/95), adopted December 23, 1953, Stand-By Arrangements, as amended, Decision No. 6056-(79/38), adopted March 2, 1979, Guidelines on Conditionality, and Decision No. C-3220-(01/24), adopted March 9, 2001, Concluding Remarks by the Chairman-Conditionality in Fund-Supported Programs, are repealed. (SM/02/276, Rev. 1, 9/23/02)

Decision No. 12864-(02/102)

September 25, 2002

Concluding Remarks by the Chairman The Modalities of Conditionality—Further Considerations Executive Board Meeting 02/9, January 28, 2002

Executive Directors welcomed the opportunity to discuss the modalities of conditionality, as part of their ongoing review of conditionality. They considered proposals for greater use of outcomes-based conditionality and floating-tranche disbursements, and reviewed the use of various tools of conditionality, including performance criteria, prior actions, and program reviews guided by indicative targets and structural benchmarks. Directors stressed the need to apply the modalities of conditionality flexibly and to take into account country- and program-specific circumstances, consistent with the objective of enhancing the effectiveness of Fund conditionality through streamlining, focusing, and enhanced ownership.

Outcomes-Based Conditionality and Floating Tranches

Directors broadly welcomed proposals to base IMF conditionality to a somewhat greater degree on outcomes rather than on the implementation of specified actions by the authorities. Outcomes-based conditionality would give the authorities greater flexibility and accountability in choosing how to achieve the desired results, which would enhance national ownership of policy programs and reduce the degree of detail with which the IMF monitors the implementation of reforms. Directors noted, however, that the scope for outcomes-based conditionality is likely to be limited by the need for timely disbursements and for avoiding inappropriate policy actions. Moreover, when conditionality is specified on outcomes rather than actions, the authorities are exposed to the risk that the desired results may not be achieved notwithstanding their own best efforts. Some Directors also cautioned against a weakening of program focus on critical aspects of institution building. Greater application of outcomes-based conditionality would therefore have to be handled with care and moderation and on a case-by-case basis, to avoid its potential disadvantages. In cases where a long time period is needed to achieve the final outcome, some intermediate outcomes on which disbursement will be based may be agreed between the authorities and the Fund. A range of views was expressed on the scope for moving toward greater use of outcomes-based conditionality, in view of these potential disadvantages, but, on balance, Directors agreed that some shift in this direction would be feasible and desirable, where appropriate, particularly in the context of PRGF and EFF arrangements, given their medium-term focus on structural reforms. In this connection, many Directors stressed that the Fund should stand ready, in particular in cases where administrative capacity is weak, to advise countries on a range of available policy options and implementation plans so as to enable them to make informed choices.

Directors discussed proposals for some of the Fund’s financing to be provided in floating tranches linked to the implementation of specified structural reforms. The Fund has already used floating tranches in some specific circumstances: in supporting debt restructuring under the Brady Plan in the late 1980s and in triggering completion point assistance under the HIPC Initiative. Directors noted that greater use of floating tranches could enhance ownership by giving the authorities greater flexibility in choosing the timetable on which reforms-particularly structural reforms-are implemented. Floating tranches would, however, not be suitable for measures that must be implemented on an agreed timetable to achieve macroeconomic or external stabilization. Some Directors also felt that having multiple disbursement mechanisms would unduly complicate Fund programs. In any case, with the streamlining of conditionality to concentrate on macro-critical measures, Directors expected that the scope for using floating tranches will remain limited in the Fund’s work.

Tools of Conditionality

Directors generally agreed that the existing conditionality toolkit remains appropriate, with each of the tools serving a distinct and essential role. At the same time, they noted that, in some instances, the inappropriate use of the tools of conditionality may be symptomatic of deeper weaknesses in program design, ownership, and selectivity, which need to be addressed more directly rather than by restructuring the toolkit.

Directors discussed the Fund’s policy in granting waivers of nonobservance of performance criteria. They noted that waivers lend an indispensable element of flexibility in applying performance criteria, enabling a program to be adapted successfully in the face of unavoidable uncertainties about macroeconomic relationships and shocks, particularly those beyond the control of the authorities. At the same time, they observed that waivers are often an indication of poor policy implementation and/or a lack of realism in program design, including failure to take account of limited implementation capacity. In this light, Directors expressed concern that, over the past several years, there had been an increase in the overall numbers of waivers and a significantly higher incidence of waivers for structural performance criteria. Directors believed that waivers should become less frequent as conditionality is focused on measures that are critical to program objectives, and ownership is strengthened, while stressing the need to preserve the flexibility that waivers provide in adapting programs to changing circumstances. Several Directors cautioned, however, against the presumption that fewer waivers would be granted in the future, particularly in the current environment of increased uncertainty. Directors stressed the need to adhere more closely to the existing policy that, in cases of significant policy slippages, waivers should be granted only if appropriate corrective action has been taken to achieve the objectives of the program.

Directors agreed that prior actions serve an important purpose in underpinning the upfront execution of urgent and critical reform measures, putting in place necessary conditions for successful program implementation, especially in cases where Fund financial assistance is frontloaded. At the same time, Directors broadly agreed that, like other forms of conditionality, the use of prior actions should be streamlined and focused on those measures needed for programs to achieve their objectives. Directors expressed a range of views about the increasing use of prior actions, especially as signals of the authorities’ commitment to implement the program in cases where past performance has been unsatisfactory. Many Directors noted that experience points to only limited usefulness of prior actions in this respect, and expressed concern about the strain that large numbers of prior actions place on countries’ implementation capacity. These Directors were in favor of more strictly adhering to the existing policy that prior actions should be used sparingly. Directors considered that greater selectivity, including some period of successful implementation before committing Fund financing, would, in some cases, be the preferred course of action to address instances of past poor performance. At the same time, many Directors considered that, in cases that are less clear-cut, prior actions remain essential tools to demonstrate country ownership and commitment to reform.

A few Directors suggested establishing a threshold for the number of prior actions per program. While considering the importance of not overloading program with prior actions, on balance, however, Directors were of the view that the number of prior actions is not as important as to how effectively they contribute to a high quality economic program.

Directors also discussed the procedures by which the Board is informed of prior actions envisaged in programs currently being discussed with the authorities. They noted that a timely dialogue between Executive Directors and staff could be helpful, particularly in cases in which some prior actions may be contentious. They therefore asked management and staff to make more systematic use of existing informal procedures to keep the Board abreast of possible prior actions.

Directors noted the key role played by program reviews in the assessment of policy implementation, particularly in establishing the forward-looking viability of the program and in monitoring aspects of structural reform for which performance criteria are a less effective monitoring tool. This role has increased in recent years, in large part as a result of greater uncertainties about macroeconomic developments as well as the increasing importance of structural reforms. Directors envisaged that reviews could become even more important as the use of other forms of conditionality-performance criteria and prior actions-is streamlined, while stressing that this evolution should go hand in hand with a clear delineation of the scope of program reviews. Some Directors cautioned against using program reviews to escalate conditionality, and emphasized that performance criteria should remain the primary basis for decisions about disbursements under the program. Directors noted that the frequency of reviews had crept upward in recent years. In general, they reaffirmed the existing policy that reviews should normally be semiannual, while acknowledging that, in certain cases, there may be reasons for more frequent reviews—notably in crisis cases, given the rapid pace of changing events and the scale of Fund resources committed. Several Directors stressed that, in cases where reviews are delayed, even though performance criteria have been observed, it is important that the reasons for the delay are clearly understood by the parties involved, and that the Executive Board is informed.

To improve clarity and transparency, Directors stressed the importance of ensuring that the nature and boundaries of the Fund’s conditionality are presented clearly in all Fund documents. In this connection, they welcomed the proposal to include in all staff reports on the use of Fund resources a single standardized table showing all the elements of conditionality that will be applied in a given case. Some Directors also expressed interest in periodic reviews of the application of conditionality.

Next Steps

As the next step in a series of discussions that have taken place over the past year, the Board will distill the lessons from the review of conditionality, including from real-time assessments of the coverage of conditionality in each country case. The outcome of today’s discussion of the modalities of conditionality, as well as of the other discussions forming part of the conditionality review, will factor into the Fund’s reassessment of its Guidelines on Conditionality, tentatively scheduled to take place by the time of the 2002 Annual Meetings.

In parallel to the present review of conditionality, Directors encouraged staff to continue with work reviewing the program design to determine whether improvements are warranted and feasible based on experience with Fund-supported programs under various circumstances. They saw such work as essential in bringing analysis and experience to bear in enhancing the success of Fund-supported programs. In this connection, Directors also noted the importance of further progress with the operationalization of Fund-Bank cooperation on program design.

Summing Up by the Acting Chair Lessons from the Real-Time Assessments of Structural Conditionality Executive Board Meeting 02/36, April 3, 2002

Executive Directors welcomed the opportunity to take stock of the ongoing review of conditionality by reviewing recent experience with the interim guidelines that have been in effect since September 2000. They generally agreed that this experience is broadly positive, while pointing to some areas where implementation could be further strengthened. The central objectives of the review—streamlining and focusing conditionality on measures that are critical for achieving the program objectives, and fostering national ownership of Fund-supported programs for the purpose of enhancing the success and effectiveness of programs—continue to serve as useful benchmarks for assessing progress and for gleaning lessons from the application of conditionality in a variety of cases.

Directors reaffirmed that the purpose of streamlining conditionality is to enhance the success and effectiveness of programs by concentrating on those conditions that are critical to achieving the program’s macroeconomic objectives. Directors welcomed the increased focus of conditionality on the core areas of fiscal, financial, and exchange rate policies, and stressed in particular the importance of retaining structural conditions in the fiscal domain, especially on improving expenditure management and enhancing revenue performance. Financial sector conditions, centered on strengthened supervision, were also seen as important, with real-time assessments highlighting the need to ensure that such measures are internally consistent and aimed at an overall strengthening of the financial system.

Directors agreed that some structural conditionality will likely remain necessary outside the Fund’s core areas, when justified by the magnitude of its impact on the fiscal and external balances. In this context, they noted that measures in a variety of areas, such as privatization, governance, and public enterprise and civil service reform, had been covered by Fund conditionality, based on their critical impact on restoring the soundness of a country’s public finances. Against this background, a number of Directors saw scope for further streamlining, especially in non-core areas, but a member of other Directors considered it to be preferable to err on the side of caution to ensure that all important measures are adequately covered. In discussing how best to balance the need for inclusion of critical conditionality in non-core areas with the goal of parsimony, Directors stressed that the reasons for including structural conditionality beyond the Fund’s core areas should be clearly explained and clearly justified in every case in relation to the goals of the program, while noting that these goals may vary from one case to the next.

In this context, Directors agreed that, in PRGF arrangements, structural measures oriented primarily toward achieving growth and poverty reduction objectives can be considered macro-critical. The need for more work in defining and promoting sources of growth in PRGF countries, including the scope for stronger emphasis on financial sector development, was highlighted in this regard. Some Directors considered that growth-enhancing policies may also be macro-critical to restoring medium-term balance-of-payments viability and debt sustainability in the context of stand-by and extended arrangements. Directors agreed that in countries suffering sudden and massive outflows of private capital, a critical mass of frontloaded reform may be required to restore market confidence. They stressed that conditionality should nevertheless be focused on reforms that tackle the root of the crisis, and a number of Directors cautioned against overloading the program with numerous conditions that could undermine implementation capacity.

Directors noted that the need to take account of differences in country-specific circumstances has been the most important reason for variation in the scope and coverage of conditionality among countries in applying the interim guidelines thus far. These circumstances have typically included a possible need to establish a track record of strong policy implementation or achieve a critical mass of front-loaded reforms, or the need to take into account limitations in administrative capacity. Most Directors considered that experience thus far pointed to a broadly satisfactory use of the modalities of conditionality. It was noted, however, that, in the context of the overall review of conditionality guidelines, it would be useful to clarify the appropriate use of prior actions in light of today’s discussion and the understandings reached by Directors on this issue at their meeting on January 28. While recognizing that variation in the extent of conditionality is the consequence of the wide and unique circumstances of member countries, Directors noted, however, that the inclusion or exclusion of conditions was not always clearly linked to these circumstances. A number of Directors suggested that further progress in narrowing variation among country experiences to ensure greater uniformity of treatment would be desirable, although the difficulty of developing more specific guidelines toward that end was recognized. Some Directors emphasized that a numerical approach to gauge how conditionality is being applied is less important than an approach that stresses the application of the right conditionality in individual cases.

The determination of whether any specific action is critical to the success of a particular program is inherently a matter of judgment. Directors emphasized that staff reports should, in any event, provide enough information to facilitate such judgments. In most cases, the magnitude of the fiscal impact is likely to be a key factor, suggesting that the weaker and less direct a measure’s impact is on the fiscal accounts, the stronger will be the need to justify its inclusion in the program’s conditionality. Directors also suggested various ways to further improve the flow of information on program conditionality in staff reports and at Executive Board meetings, and to guide judgments on the appropriateness of including or excluding certain measures.

While welcoming progress, Directors stressed that further strengthening and clarification of the collaboration with the World Bank will be key to effective streamlining of conditionality. They looked forward to undertaking a more detailed review of that process this summer, and also agreed that it would be useful to address this issue in the Joint Board Committee on Bank/Fund Collaboration. Directors underscored that Fund-supported programs should be consistent with an overall country-led framework, which would often require support from the World Bank and other agencies in addition to the Fund. The nature and extent of collaboration would necessarily be more extensive in PRGF countries, but, in all cases, the appropriate coverage of conditionality could be assessed only by taking proper account of the role of each agency that is involved.

A number of Directors expressed concern that the Fund’s initiative in streamlining and focusing conditionality might not result in an overall reduction in conditionality when all international financial institutions were considered, and they asked for further careful assessment and monitoring of this aspect. At the same time, a number of Directors were concerned that areas no longer covered by Fund conditionality might not be adequately covered by other agencies, particularly the World Bank. To ensure that such concerns can be adequately addressed, Directors stressed the need for careful documentation in staff reports on the division of labor between the Fund and the Bank, the structure and timing of Bank conditionality, the progress achieved, and the implications for the fiscal situation and the program in general.

Directors agreed that it would be useful to consolidate the progress that has been made in this review, and, in that context, to next consider the development of new guidelines on conditionality. Building on the Interim Guidance Note of September 2000 and the experience gained since then, these guidelines would provide a framework that will enable the Fund to apply conditionality parsimoniously and consistently, based on national ownership, with the objective of enhancing the effectiveness of Fund-supported programs. Directors also looked forward to periodic reviews of the evolving experience with Fund conditionality to ensure the consistent implementation of the guidelines over time, as well as their contribution to greater program effectiveness.

Concluding Remarks by the Acting Chair Strengthening IMF-World Bank Collaboration on Country Programs and Conditionality—Progress Report Executive Board Meeting 02/95, September 11, 2002

Executive Directors welcomed the opportunity to review progress on IMF-World Bank collaboration on country programs and conditionality, in relation to the guiding principles agreed by the Executive Boards of the two institutions in August 2001 and the operational Guidance Note issued in April 2002. Directors reaffirmed that close collaboration is indispensable for providing effective support to member countries, and forms an integral part of efforts to streamline and focus conditionality to enhance national ownership of reform programs. The move to strengthen collaboration in country programs is taking place against the background of progress achieved in a number of other areas, including the PRGF/HIPC framework and systematic joint analytic work such as in the FSAP and ROSC exercises.

Directors noted that the central principles of collaboration on country program design and conditionality are the clear designation of one of the two institutions as a lead agency in particular policy areas and systematic information-sharing between the two institutions. At the same time, they considered it essential that each institution retain ultimate responsibility for its own lending decisions.

Directors considered that the Guidance Note on Operationalizing Bank-Fund Collaboration in Country Programs and Conditionally—issued by Bank and Fund management to the staff of both institutions in Spring 2002—is beginning to play a positive role in strengthening collaboration, while they noted the limited basis for assessment at this stage. Directors endorsed the approach that places primary responsibility for collaboration on the country teams in each institution, specifically the Fund mission chief and the World Bank country director. They stressed the importance of early engagement between the staffs of the two institutions to arrive at a common view on reform priorities and program design issues, and to harmonize work programs and missions. They also underscored the need for transparent reporting to the two Executive Boards.

Against this background, Directors discussed the current state of collaboration in country programs and conditionality, as documented in the paper prepared by the staff. They agreed that a shared perspective and clarity of roles and responsibilities are prerequisites for effective collaboration, and welcomed indications that these conditions are receiving heightened attention. While progress has been made, Directors called for a stronger, continuing effort to improve coordination, communication, and information-sharing between country teams of the two institutions.

Directors reviewed a number of key areas in which collaboration needs to be strengthened, noting in particular that it has been impeded by institutional factors such as differences in internal requirements, working structures, timetables, and lending arrangements and instruments. While Directors believed that these impediments can usually be overcome through effective consultation, they urged staff to establish a clearer definition of the lead agency role and also a sharper division of labor, on a case-by-case basis—especially in areas where responsibilities are shared. Public expenditure management was cited as an area in which better collaboration is needed; a few Directors also stressed the importance of operationalizing Poverty and Social Impact Assessments (PSIAs). Several Directors suggested exploring the scope for more formal structures to implement collaboration, by analogy with the arrangement for Financial Sector Assessment Programs (FSAPs) and Poverty Reduction Strategy Papers (PRSPs), but recognized the need to avoid undue bureaucracy.

Directors emphasized that effective collaboration with the Bank is critical for the success of efforts to streamline and appropriately focus Fund conditionality. They stressed that strengthened collaboration is needed to ensure that important measures are adequately covered as the Fund applies conditionality more sparingly outside its core areas. At the same time, Directors generally considered that structural measures that do not fall in the core areas of the Fund, but are critical for macroeconomic stability, should remain part of the Fund’s conditionality. Some Directors noted that overlapping conditionality might thus be unavoidable for policy measures that are critical to the success of both programs. A number of Directors stressed that reforms that are crucial to achieve stability and growth should not fall into a “no institution’s land”. Other Directors emphasized the need to reduce the overall burden of conditionality on member countries and ensure that collaboration should not become a vehicle for implicit Fund conditionality.

Directors noted that for the low-income countries, the PRSP process provides a natural framework for ensuring collaboration between the staffs of the two institutions in support of a country-led strategy for addressing poverty and fostering sustainable growth. For middle-income countries, collaboration has been more varied and based on a less formal approach, depending in part on the circumstances of the country, and stronger efforts are needed to ensure an effective approach in these cases also.

Directors generally welcomed the inclusion in program documents of annexes that provide an overview of the reform priorities supported by the two institutions and the accompanying conditionality. In this regard, they noted the importance of clear documentation in staff reports of the division of labor and of lead roles between the two institutions; the goals, structure, relevance and timing of their conditionality; and the progress achieved in key economic reforms. Several Directors stressed the desirability of having Fund staff reports include a comprehensive matrix of structural reforms being undertaken in a country, and the lead agencies involved—with a view to strengthening the lead agency framework and promoting donor support. At the same time, a few Directors encouraged selectivity in reporting on Bank-supported programs—based on relevance to the Fund-supported program. Directors also welcomed more systematic participation by the staff of each institution in the Board meetings, as well as the missions, of the other institution.

Directors encouraged the staff of both institutions to move ahead on the basis of the Guidance Note and the approach set out in the progress report, subject to another review no later than the end of 2003, when sufficient experience has been gained—including through a process of continuous assessment of collaboration. Since the ultimate purpose of collaboration is to ensure the best possible quality of Fund- and Bank-supported programs, Directors emphasized that internal and external studies of experience under those programs will afford further opportunities to assess how collaboration has been working in practice. For the same reason, they stressed that the views of the country authorities must be taken into account in evaluating the effectiveness of collaboration, and they also suggested seeking input from donors, as well as a wider sample of Fund and Bank staff. They looked forward to the inclusion of such feedback in the next review.

Relationship Between Performance Criteria and Phasing of Purchases Under Fund Arrangements—Operational Guidelines

1. As a general rule, every effort should be made to limit the lag between the beginning of the annual program period and the date of discussion by the Executive Board of supporting annual arrangement (or the annual segment of a multiyear arrangement) to a minimum. This would facilitate the inclusion of quarterly performance criteria throughout the program period and of purchases throughout the period of the arrangement, thereby strengthening the link between Fund financing and adjustment.

2. Particular attention should be given to minimizing lags in reporting of data relating to performance criteria without loss of reliability of data. It would be reasonable for the Fund to expect that all members seeking the Fund’s support should be able to limit reporting lags to two months. In very exceptional cases where reporting lags exceed two months, the staff will explain the reasons for such lags as well as the steps being taken to reduce them.

3. Every effort should be made to limit the period between the approval of an adjustment program by management and the date when the supporting arrangement is discussed by the Executive Board to no more than three months. Should the period be exceeded, the staff would confirm before the Board discussion of the arrangement that the program as originally proposed remains generally appropriate. In those exceptional cases where the delay indicates a significant slippage in the implementation of the agreed program, the staff would renegotiate the program, including the performance criteria and phasing of purchases.

4. There would be no fewer than four purchases during a 12-month period of the arrangement, five being the preferred course of action. The purchase dates would also be distributed as evenly as possible throughout the arrangement. However, problems have often been experienced in this regard because of a bunching of the first two purchases under an arrangement and/or the last purchase occurring unduly early before the end of the arrangement. In order to avoid such problems, as a general rule, the date of the second purchase would not be earlier than two months from the initial purchase on approval of the arrangement and the date of the last purchase would not be earlier than two months before the end of the arrangement. One possible exception would be the case where initial Executive Board approval has been only in principle and final approval follows later by up to 30 days.

5. The test dates for performance criteria would also be distributed as evenly as possible through the period of the arrangement. Normally the date of the first performance test would not be earlier than the date on which the arrangement becomes effective, and the date of the last performance test would not be earlier than three months from the end of the arrangement.

6. Every effort should be made to include performance criteria initially for as much of the 12-month period of the Fund arrangement as possible. However, it may not be possible always to establish in advance one or more performance criteria for part of the period of the arrangement because of substantial uncertainties about major economic trends and normal time lags between the completion of negotiations on the arrangement and Board discussion of the arrangement. Taking into account both sets of factors, as well as the actual experience in recent years, it would be reasonable to expect that, as a normal rule, performance criteria would be included initially which would govern purchases over a period of at least six months of the arrangement. This would normally involve at least two sets of performance criteria. Where this minimum period is not met, the staff report would include a full explanation of the underlying reasons.

7. As a general rule, indicative targets would be included at the outset for that part of the 12-month arrangement for which performance criteria are yet to be established. Provision will also be made for a review in order to replace these indicative targets later with performance criteria. Indicative targets will also be included for the last month of the arrangement period.

8. In the case of segments within the framework of a multiyear arrangement, normally performance criteria would be set up to the end of each underlying annual program period. The purchase after the end of the underlying annual program (which may be the last purchase under the preceding segment of the arrangement or the first purchase under the subsequent segment) would be contingent both on understandings being reached with the Fund on the next year’s underlying program and on observance of performance criteria for the end of the preceding program period or established in the context of the member’s new program, or on a waiver being approved by the Board in the case of nonobservance of these performance criteria.

9. Notwithstanding the foregoing, in the case of extended arrangements, performance criteria and purchases could be phased at semiannual intervals, provided that appropriate monitoring of macroeconomic developments would be ensured, normally in the form of quarterly benchmarks.

Decision No. 7925-(85/38)

March 8, 1985,

as amended by Decision No. 8887-(88/89),

June 6, 1988

Completion of Reviews Under Stand-By and Extended Arrangements

The Fund shall not complete a review under a stand-by or extended arrangement unless and until all other conditions for the availability of an associated purchase have been met or waived (EBS/00/172, 8/18/00).

Decision No. 12278-(00/86)

August 25, 2000

Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements

The Executive Board approves the Chairman’s summing up on external debt management policies as set forth [below].

Decision No. 6230-(79/140)

August 3, 1979,

as amended by Decision Nos. 11096-(95/100), October 25, 1995,

and 12274-(00/85),

August 24, 2000

The Chairman’s Summing Up on External Debt Management Policies

In the context of a general discussion of the issues relating to external debt management policies, the Executive Board considered the following guideline on the performance criteria with respect to foreign debt:

When the size and the rate of growth of external indebtedness is a relevant factor in the design of an adjustment program, a performance criterion relating to official and officially guaranteed foreign debt will be included in upper credit tranche arrangements. The criterion will include all forms of debt, including loans, suppliers’ credits and leases, that constitute current, i.e., not contingent, liabilities, which are created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which require the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments discharge the principal and/or interest liabilities incurred under the contract. The criterion will include foreign debts with maturities of over one year, and, in appropriate cases and where specifically provided, other financial instruments that have the potential to create substantial external liabilities for governments. The criterion will usually be formulated in terms of debts contracted or authorized. However, in appropriate cases, it may be formulated in terms of net disbursements or net changes in the stock of external official and officially guaranteed debt. Flexibility will be exercised to ensure that the use of the performance criterion will not discourage capital flows of a concessional nature by excluding from the coverage of performance criteria debts defined as concessional on the basis of currency-specific discount rates based on the OECD commercial interest reference rates, and including a grant element of at least 35 percent, provided that a higher grant element may be required in exceptional cases. Normally, the performance criterion will include a subceiling on foreign debt with maturities of over one year and up to five years. Additional subceilings may also be included on debt with specified maturities beyond five years or with a specified grant element lower than 35 percent.

Adoption of this guideline will be subject to the understanding that the staff will be guided also by the following points:

1. The above guideline will be applied with a reasonable degree of flexibility while safeguarding the principle of uniformity of treatment among members. The external debt guideline should be interpreted in the light of the general guidelines on conditionality (Decision No. 6056-(79/38)), especially guideline No. 4, which states:

In helping members to devise adjustment programs, the Fund will pay due regard to the domestic social and political objectives, the economic priorities, and the circumstances of members, including the causes of their balance of payments problems.

Also, guideline No. 9 includes the following:

The number and content of performance criteria may vary because of the diversity of problems and institutional arrangements of members. Performance criteria will be limited to those that are necessary to evaluate implementation of the program with a view to ensuring the achievement of its objectives.

Furthermore, guideline No. 8 states:

The Managing Director will ensure adequate coordination in the application of policies relating to the use of the Fund’s general resources with a view to maintaining the nondiscriminatory treatment of members.

2. In analyzing the amount and terms of new debt that would be appropriate—in the member’s circumstances—over the medium term, the staff will take into account prospective developments in the member’s external payments situation and the profile of its external indebtedness.

3. In formulating external debt criteria, the staff will be mindful of the need to ensure consistency between external debt management policies and domestic financial policies. Where external debt per se is not a matter for concern, but adjustment programs have as a main objective to reduce excess demand pressures and restore overall balance to the public sector finances, the credit ceiling for the public sector would cover both domestic and foreign financing of the overall public sector deficit.

4. Normally the performance criterion will relate to official and officially guaranteed foreign debt. The coverage will include official entities for which the government is financially responsible as well as private debt for which official guarantees have been extended and which, therefore, constitute a contingent liability of the government.

5. In cases where the member’s external debt management policy covers private sector debt without official guarantee and there is an established regulatory machinery to control such debt, it will be proposed that the performance criterion on foreign debt should be adapted accordingly.

6. The staff is encouraged to include short-term debt of a maturity of less than one year in the performance criteria relating to foreign debt, while allowing some flexibility in light of the different institutional reporting procedures employed by members and the statistical difficulties of recording that category.

7. The guideline provides for excluding from the coverage of performance criteria those debts defined as concessional on the basis of currency-specific discount rates based on the OECD commercial interest reference rates and including a specified grant element. In some cases, member countries utilize credits associated with concessional debts. The staff will take this into account in discussing the appropriate amount of debt.

8. In principle, a performance criterion on foreign debt will incorporate by reference the definition of debt set forth in point No. 9 below. Financial instruments that are not covered under the definition but have the potential to create substantial external liabilities for governments will be included in the performance criterion where appropriate, in which case they would be explicitly specified.

9. (a) For the purpose of this guideline, the term “debt” will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:

  • (i) loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);

  • (ii) suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and

  • (iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair, or maintenance of the property.

(b) Under the definition of debt set out in point 9 (a) above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

Guidelines on Performance Criteria with Respect to Foreign Borrowing—Change in Implementation of Revised Guidelines

For purposes of implementation of the Guidelines on Performance Criteria with Respect to Foreign Borrowing, as amended (Decision No. 6230-(79/140), the Executive Board endorses the revised method of calculation of the discount rate described in SM/96/86 (4/8/96).

Decision No. 11248-(96/38)

April 15, 1996

SM/96/86

Hence, the staff proposes that under arrangements approved from May 1, 1996 onwards, the average of CIRRs over the last ten years should be used as the discount rate for assessing the concessionality of loans of a maturity of at least 15 years. One effect of this change will be that some loans from multilateral development banks and from some bilateral creditors, including OECF of Japan, will be treated as concessional and excluded from borrowing limits in Fund arrangements. This should alleviate some operational problems that have arisen in the treatment of these loans.

Similar problems of frequent classification changes arise in assessing the concessionality of loans with shorter maturities. For these loans, it is proposed that instead of current CIRRs, the average CIRRs of the preceding six-month period (February 15 to August 14 or August 15 to February 14) be used in assessing the concessionality. This approach would follow more closely that used by the OECD and would reduce the frequency of changes in assessments of concessionality.

To both the ten-year and six-month averages, the same margins for differing repayment periods as those used by the OECD would continue to be added (0.75 percent for repayment periods of less than 15 years, 1 percent for 15 to 19 years, 1.15 percent for 20 to 29 years, and 1.25 percent for 30 years or more). Table 1 shows current CIRRs, six-month average CIRRs, and the ten-year averages of CIRRs at end-1995.1

The staff proposes to follow this approach as an interim methodology to ensure that frequent changes in the assessment of concessionality are minimized and that longer term multilateral and bilateral loans are not subject to the borrowing limits in Fund arrangements in a way that was not intended by the Board. This issue would be reviewed in the context of the review of borrowing limits envisaged before the end of the year referred to above.2 Accordingly, the attached decision is proposed for adoption by the Executive Board on a lapse-of-time basis…

Concluding Remarks by the Acting Chairman Strengthening the Application of the Guidelines on Misreporting Executive Board Meeting 00/77, July 27, 2000

Following up on the conclusions of its discussion on misreporting of information to the Fund on March 23, 2000, the Executive Board met today to decide on the modalities for strengthening the application of the Fund’s Misreporting Guidelines. These Guidelines (which comprise Misreporting and Noncomplying Purchases under Fund Arrangements—Guidelines on Corrective Action and analogous guidelines for the Poverty Reduction and Growth Facility (PRGF)) specify how the Fund deals with cases in which a member provides the Fund with incorrect information and, on this basis, makes a purchase or receives a disbursement to which it was not entitled under the terms of the decisions governing the purchase or disbursement. In today’s meeting, the Executive Board made decisions to implement steps that had been agreed to in the earlier meeting.

The decisions are part of an overall strategy to strengthen the Fund’s response to the misreporting of information. Two of these decisions involve amendments to the Misreporting Guidelines. In particular, these Guidelines will henceforth cover outright purchases in the General Resources Account, including in the context of emergency assistance and the Compensatory Financing Facility. Directors also agreed to lengthen the limitation period (the period in which indications of potential misreporting must be brought to light for the Guidelines to be applicable) from 2 to 4 years.

The Executive Board also agreed on policies with regard to prior actions and the treatment of waivers, which will be implemented in decisions approving the use of Fund resources for individual members. With regard to prior actions, all future decisions on the use of Fund resources will be adopted on the condition that the information provided by a member on the implementation of specified prior actions is accurate. Directors also supported establishing as normal practice that all prior actions must be carried out at least five working days before the Board discussion to which they relate. With regard to waivers, all waivers for nonobservance of performance criteria will henceforth be made conditional on the accuracy of the data or other information reported by the authorities to assess observance of the performance criterion in question. Waivers of applicability will be made conditional on the accuracy of a member’s representation that the information necessary to assess observance of the relevant performance criterion is unavailable and on the accuracy of data provided by a member to assess observance of the relevant performance criterion for the previous period.

Directors also reviewed the current policy on publication of cases of misreporting and decided to retain the current policy, which requires that after the Board makes its determination that misreporting occurred, the Fund proceed to make relevant information public in every case, with Board review of the text for publication. A number of Directors suggested that we think about introducing the concept of the material importance of an instance of misreporting as affecting the decision on whether to publish. The staff will reflect on this issue and consider whether, in the light of recent and further experience, workable proposals can be presented in the forthcoming paper for Board discussion in October.

Today’s discussion has brought up another aspect of misreporting that warrants further reflection. Directors recognized that the process of establishing a “culture of statistics” is complex and takes time. They have also noted the problem of how best to design effective programs in circumstances of pervasive data unavailability or imperfection. In this connection, many Directors have expressed concern that data problems beyond the control of members may arise with increasing frequency, especially in relation to PRGF programs. Directors therefore underscored the importance of providing adequate technical assistance to members in order to help improve their ability to provide reliable and timely data and to help minimize the likelihood of misreporting in the first instance.

The staff was also urged to provide proposals on the treatment of misreporting under the HIPC Trust Instrument by the time of the October Board discussion.

At the October meeting the Board will discuss another aspect of the strategy to strengthen the Fund’s response to the misreporting of information, namely, the more effective use of Article VIII, Section 5 in addressing cases of misreporting, both in the context of surveillance and the use of Fund resources, including in precautionary arrangements.

Misreporting and Noncomplying Purchases in the General Resources Account—Guidelines on Corrective Action

In some cases, it has been found that a member has made a purchase in the General Resources Account that it was not entitled to make under the terms of the arrangement or other decisions governing the purchase (a “noncomplying purchase”). The purchase was permitted because, on the basis of the information available to it at the time, the Fund was satisfied that all performance criteria or other conditions applicable to the purchase under the terms of the relevant decision had been observed, but this information later proved to be incorrect. When such a case arises in the future, the member will be called upon to take corrective action regarding a noncomplying purchase, to the extent that it is still outstanding, either by repurchase or by the use of its currency in transactions and operations of the Fund, unless the Fund decides that the circumstances justify the member’s continued use of the purchased resources. Steps should also be taken to improve the accuracy and completeness of the information to be reported to the Fund by the member in connection with its use of the Fund’s general resources, and to define performance criteria and other applicable conditions in a manner that would facilitate accurate reporting. The Fund adopts the following guidelines, which shall apply to purchases made after the date of this decision:

1. Whenever evidence comes to the attention of the staff indicating that a performance criterion or other condition applicable to an outstanding purchase made in the General Resources Account may not have been observed, the Managing Director shall promptly inform the member concerned.

2. If, after consultation with the member, the Managing Director finds that, in fact, the performance criterion or other condition was not observed, the Managing Director shall promptly notify the member of this finding. At the same time, the Managing Director shall submit a report to the Executive Board together with recommendations.

3. In any case where the noncomplying purchase was made no more than four years prior to the date on which the Managing Director informed the member, as provided for in paragraph 1, the Executive Board may decide either (a) that the member shall be expected to repurchase from the Fund the outstanding amount of its currency resulting from the noncomplying purchase normally within a period of 30 days from the date of the Executive Board decision, or (b) that the nonobservance will be waived pursuant to paragraph 5.

4. Instead of repurchasing from the Fund the outstanding amount of its currency resulting from the noncomplying purchase as provided for in paragraph 3(a), the member may request the Fund to use an equivalent amount of its holdings of the member’s currency in the Fund’s transactions and operations, but if such use cannot be made within 20 days from the date of the Executive Board decision the member shall be expected to make a repurchase in accordance with paragraph 3(a).

5. A waiver under paragraph 3(b) 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 purchase, the member had adopted additional policy measures appropriate to achieve the objectives supported by the relevant decision.

6. If a repurchase pursuant to the expectation under paragraph 3(a) has not been effected, the Managing Director shall submit promptly a report to the Executive Board accompanied by a proposal on how to deal with this matter, in which the Managing Director may recommend that the Fund initiate action under Article V, Section 5 of the Articles.

7. Provision shall be made in Fund arrangements for the suspension of further purchases under an arrangement whenever a member fails to meet a repurchase expectation pursuant to these guidelines.

8. Nothing in these guidelines shall limit the power of the Fund to take, in cases of noncomplying purchases, other action that could be taken pursuant to the Fund’s Articles and Rules.

Decision No. 12249-(00/77)

July 27, 2000

Establishment of General Policy to Condition Decisions in the General Resources Account on Accuracy of Information Regarding Implementation of Prior Actions

Any decision on the use of resources in the General Resources Account (including decisions approving an arrangement or an outright purchase, 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. 12250-(00/77)

July 27, 2000

Establishment of General Policy to Condition Waiver Decisions in the General Resources Account on Accuracy of Information Regarding Performance Criteria

Any decision granting a waiver for the nonobservance of a performance criterion under an arrangement 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 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. 7842-(84/165)

November 16, 1984,

as amended by Decision No. 12251-(00/77),

July 27, 2000

Failure to Meet a Repurchase Expectation and Use of Fund’s General Resources

The Executive Board agreed … that, if a member were failing to meet a repurchase expectation pursuant to the Guidelines on Corrective Action with respect to a noncomplying purchase, the Fund would not negotiate or approve either a stand-by or extended arrangement for the member or the use of the Fund’s general resources outside an arrangement, as in the case of an overdue financial obligation to the Fund.

EBM/85/26, February 20, 1985, page 19

Overdue Financial Obligations—Amended Decisions

1. References in Fund decisions to Decision No. 7842-(84/165) on the guidelines on corrective action in cases of misreporting and noncomplying purchases in the General Resources Account shall be understood to be references to Decision No. 12249-(00/77), July 27, 2000.

2. Decision No. 7931-(85/41), March 13, 1985, and Decision No. 7999-(85/90), June 5, 1985 are hereby abrogated. (EBS/01/122, 7/23/01)

Decision No. 12548-(01/84)

August 22, 2001

Exclusion of Credit Tranches and Extended Facility

1. …1

2. …2

3. In paragraph 1 of the standard form of stand-by and extended arrangements the words, “after making full use of any reserve tranche that it may have at the time of making a request for a purchase under this arrangement,” shall be deleted.

4. The amendment of stand-by and extended arrangements pursuant to paragraph 3 above shall apply also to purchases made and holdings acquired after the date of this decision under arrangements approved prior to the date of this decision.

5. The Fund will review this decision before April 30, 1984.

Decision No. 6830-(81/65), April 22, 1981

effective May 1, 1981

Elimination of Augmentation of Rights to Purchase Under Stand-By and Extended Arrangements

The texts of stand-by and extended arrangements approved after the date of the Second Amendment, including the texts of such arrangements in connection with the supplementary financing facility, shall not provide for the augmentation of rights to make purchases under the arrangements.

Decision No. 5706-(78/39)

March 22, 1978

Extended Fund Facility

I.

(i) The Executive Directors have been considering the establishment of an extended facility for members that would enable the Fund to give medium-term assistance in the special circumstances of balance of payments difficulty that are indicated in this decision. The facility, in its formulation and administration, is likely to be beneficial for developing countries in particular.

(ii) The Executive Directors have noted the studies prepared by the staff, including SM/74/58 (“Extended Fund Facility,” March 8, 1974), and especially paragraphs 12 to 16 of that memorandum, in which certain situations to which an extended facility could apply, are described as follows:

  • (a) an economy suffering serious payments imbalance relating to structural maladjustments in production and trade and where prices and cost distortions have been widespread;

  • (b) an economy characterized by slow growth and an inherently weak balance of payments position which prevents pursuit of an active development policy.

(iii) The Executive Directors have noted the support for an extended facility by the Committee of the Board of Governors on the Reform of the International Monetary System and Related Issues.

(iv) Taking into account the considerations set forth above, and in particular the exceptional problems faced by some members, the Executive Directors have decided to establish a facility in accordance with the terms set forth in Section II of this decision for the purpose of giving such members medium-term assistance, consistently with Article I(v) and the other purposes of the Fund, under extended arrangements.

II.

1. The Fund will be prepared to give special assistance to members to meet balance of payments deficits for longer periods and in amounts larger in relation to quotas than has been the practice under existing tranche policies. Such assistance will be given in the form of extended arrangements in support of comprehensive programs that include policies of the scope and character required to correct structural imbalances in production, trade, and prices when it is expected that the needed improvement in the member’s balance of payments can be achieved without policies inconsistent with the purposes of the Fund only over an extended period. The Fund will pay particular attention to the policy measures that the member intends to implement in order to mobilize resources and improve the utilization of them and to reduce reliance on external restrictions, the time required for these measures to have the intended effect on the balance of payments, and such other factors as the Fund considers relevant to the member’s circumstances.

2. A member that contemplates making a request for an extended arrangement should consult the Managing Director before making a request under this decision. A request by a member for an extended arrangement in order to deal with a problem of the kind referred to in this decision will be met, subject to paragraphs 3 and 4 below, if the Fund is satisfied that:

(a) the solution of the member’s balance of payments problem will require a longer period than the period for which the resources of the Fund are available under existing tranche policies, and

(b) the member has presented:

  • (i) a program, setting forth the objectives and policies for the whole period of the extended arrangement, and adequate for the solution of the member’s problem; and

  • (ii) a detailed statement of the policies and measures for the first 12 months constituting an initiation of the program referred to in (i) considered substantial in the member’s circumstances,

with the understanding that, for each subsequent 12-month period, the member will present to the Fund a detailed statement of the progress made, and the policies and measures as in (ii) that will be followed, to further the realization of the objectives of the program referred to in (i) with such modifications in the member’s policies as might reasonably be considered necessary to assist it to achieve its objectives in changing circumstances.

3. Extended arrangements under this decision will be for periods not exceeding three years; where appropriate, and at the request of the member, the period of an existing extended arrangement may be lengthened up to four years. Each arrangement will prescribe the total amount, and the annual installments within the total, available in accordance with the original or any modified terms of the arrangement. Purchases in respect of each installment will be phased over the period in which it is available and will be subject to suitable performance clauses related to the implementation of those policies that are necessary for achieving the objectives of the program that the member has adopted as the basis for an extended arrangement.

4. (a)…1

5. (b) In order to carry out the purposes of this decision, the Fund will be prepared to grant any waiver of the conditions of Article V, Section 3(a)(iii)2 when necessary to permit purchases under this decision or to permit purchases under other policies that would raise the Fund’s holdings of a member’s currency above the limits referred to in that provision because of purchases outstanding under this decision.

6. A member that has obtained an extended arrangement under this decision will make repurchases corresponding to purchases under the extended arrangement to the extent that such purchases are still outstanding, as soon as its balance of payments problems have been overcome and, in any event, within an outside range of four to ten years after each purchase. Not later than four years after the first purchase under the extended arrangement the member will propose to the Fund a schedule of repurchases for all purchases outstanding under the extended arrangement. Normally, schedules under this paragraph will provide for repurchases in respect of each purchase of 12 equal six-monthly installments.

7. When purchases are made under extended arrangements granted pursuant to this decision, the Fund will so indicate in an appropriate manner.

8. The Fund will levy charges on holdings of a member’s currency resulting from purchases outstanding under this decision in accordance with Executive Board Decision No. 4378-(74/114), adopted September 13, 1974.

9. Except as otherwise provided in this or in any subsequent related decisions, extended arrangements shall be subject to the Fund’s decisions and policies on stand-by arrangements.

10. The Fund will review this decision in the light of experience and developing circumstances when the total amount of purchases that could be made under extended arrangements is equivalent to two billion special drawing rights, and in any event not later than July 31, 1976.

11. (a) In addition to making repurchases in accordance with paragraph 5, a member will be expected to repurchase an amount of the Fund’s holdings of its currency resulting from purchases under this decision made after November 28, 2000 equal to, and at the time of, the six-monthly installments of repurchases falling due during the period beginning four years and ending seven years after the date of the purchase, provided that the Fund may, upon request by the member, amend the schedule of repurchase expectations, if in the judgment of the Fund the member’s external position is not sufficiently strong for repurchases to be made pursuant to the expectation schedule set out in this paragraph. In determining whether to amend the schedule, the Fund may consider all relevant information, including the size of the member’s foreign reserves, the member’s medium-term balance of payments outlook, and the degree of the member’s access to international capital markets.

(b) The Fund shall not approve, and the Managing Director shall not recommend for approval, any request for the use of the Fund’s general resources by a member that is failing to meet a repurchase expectation under paragraph 10(a) above. Provision shall be made in each stand-by and extended arrangement for the suspension of further purchases under the arrangement whenever a member fails to meet a repurchase expectation under paragraph 10(a) above.

12. The Fund shall review the time-based repurchase expectation scheme set out in paragraph 10(a) of Decision No. 4377-(74/114), adopted September 13, 1974, no later than November 30, 2005.

Decision No. 4377-(74/114)

September 13, 1974,

as amended by Decision Nos. 6339-(79/179), December 3, 1979,

6830-(81/65), April 22, 1981, effective May 1, 1981,

8885-(88/89), June 6, 1988,

10182-(92/132), November 3, 1992,

10186-(92/132), November 3, 1992, and 12343-(00/117),

November 28, 2000

Extended Fund Facility: Review of Decision, 1994

1. Pursuant to Decision No 9790-(91/106), adopted July 31, 1991, the Fund has reviewed the experience with recent programs supported by the stand-by and extended arrangements and decides that the guidelines on conditionality will remain in force in the present circumstances.

2. The Fund decides to postpone until an appropriate time the review of the provisions of the extended Fund facility envisaged in Section 3 of Decision No. 9790-(91/106).

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

Decision No. 10723-(94/58)

June 30, 1994

Stand-By and Extended Arrangements—Standard Forms

The Executive Board approves the standard forms of stand-by and extended arrangements contained in Attachments A and B to SM/93/207 (9/3/93), and the standard clauses contained in Attachment C to SM/93/207, to be added to those arrangements in cases of requests for (i) a decision on external contingency financing under the compensatory and contingency financing facility in association with an arrangement, or (ii) set-asides in support of operations involving debt reduction.

Decision No. 10464-(93/130)

September 13, 1993

Attachment A

Form of Stand-By Arrangement

Attached hereto is a letter [, with annexed memorandum,] dated ____________ from (Minister of Finance and/or Governor of Central Bank) requesting a stand-by arrangement and setting forth:

(a) the objectives and policies that the authorities of (member) intend to pursue for the period of this stand-by arrangement;

(b) the policies and measures that the authorities of (member) intend to pursue the [first year] of this stand-by arrangement; and

(c) understandings of (member) with the Fund regarding [a] review[s] that will be made of progress in realizing the objectives of the program and of the policies and measures that the authorities of (member) will pursue for the remaining period of this stand-by arrangement.

To support these objectives and policies the International Monetary Fund grants this stand-by arrangement in accordance with the following provisions:

1. [For a period of _______ years from ____________] [For the period from _________ to __________] (member) will have the right to make purchases from the Fund in an amount equivalent to SDR _________ million, subject to paragraphs 2, 3, 4, and 5 below, without further review by the Fund.

2. (a) Purchases under this stand-by arrangement shall not, without the consent of the Fund, exceed the equivalent of SDR _________ million, provided that purchases shall not exceed the equivalent of SDR _________ million until _______________, and the equivalent of SDR _________ million until ______________.

(b) The right of (member) to make purchases during the remaining period of this stand-by arrangement shall be subject to such phasing as shall be determined.

(c) None of the limits in (a) or (b) above shall apply to a purchase under this stand-by arrangement that would not increase the Fund’s holdings of (member’s) currency subject to repurchase beyond 25 percent of quota.

3. (Member) will not make purchases under this stand-by arrangement that would increase the Fund’s holdings of (member’s) currency subject to repurchase beyond 25 percent of quota:

(a) during any period in which the data at the end of the preceding period indicate that1

  • (i) [the limit on net international reserves of [Central Bank] described in paragraph ____ of the attached [letter] [memorandum]], or

  • (ii) [the limit on the net domestic borrowing of the public sector described in paragraph ____ of the attached [letter] [memorandum]], or

  • (iii) [the limit on the net domestic assets of the Central Bank described in paragraph ____ of the attached [letter] [memorandum]], or

  • (iv) [these provisions would incorporate other [quantitative or structural] performance criteria monitored at the end of the preceding period]

[specified in [Tables 1, 2, 3, and 4] [paragraphs ......], respectively, of the [letter] [memorandum] is not observed; or

(b) [if at any time during the period of the arrangement] [while]

  • (i) [the limit on the contracting and guaranteeing of external public debt with original maturity of ____ described in paragraph ____ of the attached [letter] [memorandum]], or

  • (ii) [the limit on external payments arrears described in paragraph ____ of the attached [letter] [memorandum]], or

  • (iii) [these provisions would incorporate other [quantitative or structural] performance criteria continuously monitored]

[specified in [Tables 5, 6, and 7] [paragraphs ____], respectively, of the [letter] [memorandum] is not observed, or

(c) after ________ and ________, until the respective review[s] contemplated in paragraph _____ of the attached [letter] [memorandum] is [are] completed, or

(d) if at any time during the period of the stand-by arrangement, (member)

  • (i) imposes or intensifies restrictions on the making of payments and transfers for current international transactions, or

  • (ii) introduces or modifies multiple currency practices; or

  • (iii) concludes bilateral payments agreements which are inconsistent with Article VIII, or

  • (iv) imposes or intensifies import restrictions for balance of payments reasons.

When (member) is prevented from purchasing under this stand-by arrangement because of this paragraph 3, purchases will be resumed only after consultation has taken place between the Fund and (member) and understandings have been reached regarding the circumstances in which such purchases can be resumed.

4. (Member) will not make purchases under this [stand-by][extended] arrangement during any period in which (member): (i) has an overdue financial obligation to the Fund or is failing to meet a repurchase expectation (a) in respect of a noncomplying purchase pursuant to Decision No. 7842-(84/165) on the Guidelines on Corrective Action, or (b) in respect of a purchase in support of debt and debt service reduction operation pursuant to Decision No. 9331-(89/167), or (c) pursuant to paragraphs 17 and 31 of Decision No. 8955-(88/126), on the Compensatory Financing Facility, or (d) in respect of a purchase under Decision No. 11627-(97/123) SRF on the Supplemental Reserve Facility and Contingent Credit Lines, or (e) pursuant to paragraph 1(b) of Decision No. 5703-(78/39) or paragraph 10(a) of Decision No. 4377-(74/114); or (ii) is failing to meet a repayment obligation to the PRGF Trust established by Decision No. 8759-(87/176) PRGF, or a repayment expectation to that Trust pursuant to the provisions of Appendix I to the PRGF Trust Instrument.

5. (Member’s) right to engage in the transactions covered by this stand-by arrangement can be suspended only with respect to requests received by the Fund after (a) a formal ineligibility, or (b) a decision of the Executive Board to suspend transactions, either generally or in order to consider a proposal, made by an Executive Director or the Managing Director, formally to suppress or to limit the eligibility of (member). When notice of a decision of formal ineligibility or of a decision to consider a proposal is given pursuant to this paragraph 5, purchases under this arrangement will be resumed only after consultation has taken place between the Fund and (member) and understandings have been reached regarding the circumstances in which such purchases can be resumed.

6. Purchases under this stand-by arrangement shall be made in the currencies of other members selected in accordance with the policies and procedures of the Fund, unless, at the request of (member), the Fund agrees to provide SDRs at the time of the purchase.

7. (Member) shall pay a charge for this stand-by arrangement in accordance with the decisions of the Fund.

8. (a) (Member) shall repurchase the amount of its currency that results from a purchase under this stand-by arrangement in accordance with the provisions of the Articles of Agreement and decisions of the Fund, including those relating to repurchase as (member’s) balance of payments and reserve position improves.

(b) Any reductions in (member’s) currency held by the Fund shall reduce the amounts subject to repurchase under (a) above in accordance with the principles applied by the Fund for this purpose at the time of the reduction.

9. During the period of the stand-by arrangement (member) shall remain in close consultation with the Fund. These consultations may include correspondence and visits of officials of the Fund to (member) or of representatives of (member) to the Fund. (Member) shall provide the Fund, through reports at intervals or dates requested by the Fund, with such information as the Fund requests in connection with the progress of (member) in achieving the objectives and policies set forth in the attached letter [and annexed memorandum].

10. In accordance with paragraph ____ of the attached letter, (member) will consult the Fund on the adoption of any measures that may be appropriate at the initiative of the government or whenever the Managing Director requests consultation because any of the criteria in paragraph 3 above have not been observed or because the Managing Director considers that consultation on the program is desirable. In addition, after the period of the arrangement and while (member) has outstanding purchases in the upper credit tranches, the government will consult with the Fund from time to time, at the initiative of the government or at the request of the Managing Director, concerning (member’s) balance of payments policies.

Attachment B

Form of Extended Arrangement

Attached hereto is a letter [, with annexed memorandum,] dated ___________ from (Minister of Finance and/or Governor of Central Bank) requesting an extended arrangement and setting forth:

(a) the objectives and policies that the authorities of (member) intend to pursue for the period of this extended arrangement;

(b) the policies and measures that the authorities of (member) intend to pursue during the first year of this extended arrangement; and

(c) understandings of (member) with the Fund regarding reviews that will be made of progress in realizing the objectives of the program and of the policies and measures that the authorities of (member) will pursue for the second and third years of this extended arrangement.

To support these objectives and policies the International Monetary Fund grants this extended arrangement in accordance with the following provisions:

1. For a period of [three years] from ____________ (member) will have the right to make purchases from the Fund in an amount equivalent to SDR ___________ million, subject to paragraphs 2, 3, 4, and 5 below, without further review by the Fund.

2. (a) Purchases under this extended arrangement shall not, without the consent of the Fund, exceed the equivalent of SDR _____________ million until _____________, the equivalent of SDR _____________ million until _____________, the equivalent of SDR _____________ million until _____________, and the equivalent of SDR _____________ million until _____________.

(b) Until (end of second year) purchases under this extended arrangement shall not, without the consent of the Fund, exceed the equivalent of SDR _____________ million.

(c) the right of (member) to make purchases during the second and third years shall be subject to such phasing as shall be determined.

3. (Member) will not make purchases under this extended arrangement:

(a) during any period in which the data at the end of the preceding period indicate that1

  • (i) [the limit on net international reserves of [Central Bank] described in paragraph ____ of the attached [letter] [memorandum]], or

  • (ii) [the limit on net domestic borrowing of the public sector described in paragraph ____ of the attached [letter] [memorandum]], or

  • (iii) [the limit on the net domestic assets of the Central Bank described in paragraph ____ of the attached [letter] [memorandum]], or

  • (iv) [these provisions would incorporate other [quantitative or structural] performance criteria monitored at the end of the preceding period]

[specified in [Tables 1, 2, 3 and 4] [paragraphs ____], respectively, of the [letter] [memorandum] is not observed; or

(b) [if at any time during the period of the arrangement] [while]

  • (i) [the limit on the contracting or guaranteeing of external public debt with original maturity of ____ described in paragraph ____ of the attached [letter] [memorandum]], or

  • (ii) [the limit on external payments arrears described in paragraph ____ of the attached [letter] [memorandum]], or

  • (iii) [these provisions would incorporate other [quantitative or structural] performance criteria continuously monitored]

[specified in [Tables 5, 6 and 7] [paragraphs ____], respectively, of the [letter] [memorandum]], is not observed, or

(c) after ____ and ____, until the review[s] contemplated in paragraph ____ of the attached [letter] [memorandum] is [are] completed, or

(d) if at any time during the period of the extended arrangement, (member)

  • (i) imposes or intensifies restrictions on the making of payments and transfers for current international transactions, or

  • (ii) introduces or modifies multiple currency practices; or

  • (iii) concludes bilateral payments agreements which are inconsistent with Article VIII, or

  • (iv) imposes or intensifies import restrictions for balance of payments reasons.

When (member) is prevented from purchasing under this extended arrangement because of this paragraph 3, purchases will be resumed only after consultation has taken place between the Fund and (member) and understandings have been reached regarding the circumstances in which such purchases can be resumed.

4. (Member) will not make purchases under this [stand-by][extended] arrangement during any period in which (member): (i) has an overdue financial obligation to the Fund or is failing to meet a repurchase expectation (a) in respect of a noncomplying purchase pursuant to Decision No. 7842-(84/165) on the Guidelines on Corrective Action, or (b) in respect of a purchase in support of debt and debt service reduction operation pursuant to Decision No. 9331-(89/167), or (c) pursuant to paragraphs 17 and 31 of Decision No. 8955-(88/126), on the Compensatory Financing Facility, or (d) in respect of a purchase under Decision No. 11627-(97/123) SRF on the Supplemental Reserve Facility and Contingent Credit Lines, or (e) pursuant to paragraph 1(b) of Decision No. 5703-(78/39) or paragraph 10(a) of Decision No. 4377-(74/114); or (ii) is failing to meet a repayment obligation to the PRGF Trust established by Decision No. 8759-(87/176) PRGF, or a repayment expectation to that Trust pursuant to the provisions of Appendix I to the PRGF Trust Instrument.

5. (Member’s) right to engage in the transactions covered by this extended arrangement can be suspended only with respect to requests received by the Fund after (a) a formal ineligibility, or (b) a decision of the Executive Board to suspend transactions, either generally or in order to consider a proposal, made by an Executive Director or the Managing Director, formally to suppress or to limit the eligibility of (member). When notice of a decision of formal ineligibility or of a decision to consider a proposal is given pursuant to this paragraph 5, purchases under this arrangement will be resumed only after consultation has taken place between the Fund and (member) and understandings have been reached regarding the circumstances in which such purchases can be resumed.

6. Purchases under this extended arrangement shall be made in the currencies of other members selected in accordance with the policies and procedures of the Fund, unless, at the request of (member), the Fund agrees to provide SDRs at the time of the purchase.

7. (Member) shall pay a charge for this extended arrangement in accordance with the decisions of the Fund.

8. (a) (Member) shall repurchase the amount of its currency that results from a purchase under this extended arrangement in accordance with the provisions of the Articles of Agreement and decisions of the Fund, including those relating to repurchase as (member’s) balance of payments and reserve position improves.

(b) Any reductions in (member’s) currency held by the Fund shall reduce the amounts subject to repurchase under (a) above in accordance with the principles applied by the Fund for this purpose at the time of the reduction.

9. During the period of the extended arrangement (member) shall remain in close consultation with the Fund. These consultations may include correspondence and visits of officials of the Fund to (member) or of representatives of (member) to the Fund. (Member) shall provide the Fund, through reports at intervals or dates requested by the Fund, with such information as the Fund requests in connection with the progress of (member) in achieving the objectives and policies set forth in the attached letter [and annexed memorandum].

10. In accordance with paragraph ____ of the attached letter, (member) will consult with the Fund on the adoption of any measures that may be appropriate at the initiative of the government or whenever the Managing Director requests consultation because any of the criteria in paragraph 3 above have not been observed or because the Managing Director considers that consultation on the program is desirable. In addition, after the period of the arrangement and while (member) has outstanding purchases under this arrangement, the government will consult with the Fund from time to time, at the initiative of the government or at the request of the Managing Director, concerning (member’s) balance of payments policies.

Attachment C

(i) Standard Clause On External Contingency Mechanism1

(ii) Standard Clauses on Set Asides in Support of Operations Involving Debt Reduction2

Reviews Under Fund Arrangements—Lapse of Time Procedure

The Executive Board approves the proposed procedures with regard to lapse of time completion of reviews under Fund arrangements, as set forth in EBD/96/160, Supplement 1.

Decision No. 11515-(97/59)

June 9, 1997

EBD/96/160 Supplement 1

1. Use of the lapse of time procedure to complete program reviews under Fund arrangements may be proposed by the Chairman, the Executive Director for the country concerned, or, with that Director’s agreement, one or more other Executive Directors.3 The proposal would state the reasons why lapse of time consideration seemed warranted, and it should be understood that such consideration should not be proposed unless: (i) the staff has determined that all the performance criteria have been met, or where the staff has found that the requested waivers or modifications were minor so that the thrust of the policies and objectives supported by an arrangement could be maintained; and (ii) there did not appear to be any general policy issues requiring Board discussion.

2. Proposals by the Chairman for lapse of time approval would be made when a staff paper is circulated to the Executive Board. Proposals by an Executive Director(s) should be made as soon as possible after the paper’s circulation. Such a proposal should in general be made at least five business days prior to the scheduled Board date, and would not be entertained if made within the four business days prior to that date.

3. An objection to a proposal for lapse of time approval would have to be made at least two business days preceding the scheduled Board date. The objection of any one Director would be sufficient to hold the Board discussion as scheduled, and no reason for the objection would need to be stated.

4. If an objection is received, the discussion will take place on the originally scheduled Board date.

5. In the event that no objection is received, the proposed decision(s) on the program review would be approved with effect on the date of the originally scheduled Board discussion.1 A copy of the approved decision(s) will be sent by the Secretary to the authorities of the country concerned.

6. The reasons given by Director(s) for proposing the use of the lapse of time procedure, and any responses of Directors to that proposal and any comments or qualifications expressed by Directors when agreeing to the lapse of time proposal, will be circulated to all Directors but would not be made part of the formal record of Board proceedings.

7. In cases where program reviews are combined with Article IV consultations, it is expected that the lapse of time procedure would be resorted to only rarely, even where the program review itself could be completed on a lapse of time basis.

8. These procedures will be reviewed together with the review of lapse of time procedures for Article IV consultations.

Emergency Assistance

Emergency Assistance—Natural Disasters

The Chairman … made his final concluding remarks:

I think the best thing we can do at this stage is to note the support for the flexible practices that have been used in the past and have been incorporated in the language of Section III of the paper. . . .

One of the advantages of the method already in use is that the management is allowed to exercise discretion and judgment on what constitutes a disaster serious enough to make a country eligible for emergency assistance from the Fund. The staff and management might miss some of the important points, but close contact with the Executive Directors concerned would enable them to receive good guidance on whether a given series of events crosses the threshold of disaster. Judgments will have to be made on the gravity of the situation, on the impact on the balance of payments, and on the type of help the Fund can offer the country in question. Such judgments would not fit easily into a set of rigid guidelines. The present language of Section III [below] seems appropriate, because it gives the staff and management general guidance while leaving them the necessary flexibility. In any event, it is the Board that will decide on each particular case. I am sure that the Board will be happy to have, not a legal document, but some guidelines to use as yardsticks in reaching those decisions.

EBM/82/16, February 10, 1982, pages 17–18

SM/82/7

III. Issues for Consideration by the Executive Board

The review of experience suggests that effective emergency assistance can continue to be provided to members afflicted by natural disasters through a flexible application of the existing policies on use of Fund’s resources. There is, therefore, no need in the staffs judgment for establishing a new facility specifically addressed to cases of emergency. Executive Directors may wish to consider the following broad guidelines for the provision of emergency assistance to members afflicted by natural disasters.

(a) In most cases in which a member is afflicted by a natural disaster, effective assistance would continue to be provided by purchases under the compensatory financing facility or by stand-by and extended arrangements. However, in those cases where a member cannot meet its immediate financing needs arising from a major disaster, such as flood, earthquake, or hurricane, without serious depletion of its external reserves, emergency assistance in the form of quick outright purchases would continue, as in the past, to be provided under a flexible application of tranche policies.

(b) Emergency assistance is designed to provide only limited foreign exchange required for immediate relief. In the past, outright purchases for emergency situations were provided for relatively moderate amounts. In half of the cases, such purchases amounted to 25 percent of quota; in the remaining half, purchases ranged from 42–50 percent of quotas. On the basis of experience, the amount of resources would continue to be limited to the equivalent of one credit tranche, though larger amounts could be made exceptionally available. When need for additional financing is present, it would be best provided under the compensatory financing facility and within the framework of stand-by and extended arrangements.

(c) The amount of an emergency purchase would be taken into account in determining the size of any additional support under a subsequent stand-by or extended arrangement. Moreover, in order to avoid double compensation in cases where a member requests a CFF purchase subsequent to an emergency purchase, a determination would be made at the time of the CFF request of the part of export shortfall on which the CFF request is based that has already been compensated by the emergency purchase. In accordance with the procedures suggested in the Appendix, that part would be deducted from the calculated shortfall and an equivalent amount of the emergency purchase would be reclassified as a CFF purchase.

(d) In emergency situations, timing is crucial; quick assistance from the Fund can both provide relief and encourage financing from other sources. While in most instances, balance of payments difficulties will be transitory, understandings are needed to ensure that inappropriate policies do not compound the problems caused by the disaster. As in the past, a flexible and pragmatic approach will be followed to take into account the particular circumstances of the country, the nature and the extent of the disaster and the need to safeguard the revolving character of Fund resources.

(e) For purposes of emergency assistance requests, a member would be required to describe the general policies it plans to pursue, including its intention to avoid introducing or intensifying exchange and trade restrictions. The request will be granted when the Fund is satisfied that the member will cooperate with the Fund in an effort to find, where appropriate, solutions for its balance of payments difficulties. Frequently, at the time of the request of emergency assistance, members expressed an intention to devise adjustment programs in consultation with the Fund, but this intention was seldom carried out. To strengthen this aspect of the Fund’s emergency assistance, the member’s cooperation with the Fund in designing and adopting, when appropriate and as soon as circumstances permit, necessary adjustment measures would be one of the elements to be considered in the assessment of the requirement of cooperation associated with CFF purchases in the upper tranche. Such an approach would be applied so as to allow the assessment of cooperation to continue to be made on a pragmatic basis in the light of the nature of the difficulties and the circumstances of the member.

Emergency Assistance—Post-Conflict Countries

Summing Up by the Chairman Fund Involvement in Post-Conflict Countries Executive Board Meeting 95/82, September 6, 1995

Directors in their majority endorsed the staff’s views on coordination among the various agencies and bilateral donors and creditors involved in assisting countries in post-conflict situations, and endorsed the suggestion to expand the scope of the present guidelines on emergency assistance to include such situations. However, a number of Directors expressed the need for great caution given the limited role the Fund can play in such circumstances.

Directors welcomed the early provision by the Fund of technical assistance and policy advice in its areas of expertise. In assessing the post-conflict cases reviewed in the paper, they noted that, in general, the Fund had been able to provide financial support at a relatively early stage, bearing in mind the need for adequate safeguards for use of the Fund’s resources.

Looking to the future, Directors emphasized the need for the Bretton Woods institutions, the regional development banks, the UN, and bilateral donors and creditors to coordinate closely in supporting countries emerging from conflict situations. They observed that, in the post-conflict cases reviewed, the process of coordination had benefited from the leadership of a single agency or bilateral partner, and that different agencies or countries had performed this role effectively in the various cases. Directors concurred that the institutional flexibility that has prevailed to date remained appropriate. While it was important that a lead be taken by one institution or donor, most Directors would not expect the Fund to be the lead institution. Directors were in broad agreement that coordination would be facilitated through an early preparation, where possible, by the affected member and the lead agency, in consultation with other relevant agencies and bilateral donors and creditors, of a framework paper for organizing technical assistance and financial support. Such a report could be similar to a policy framework paper, but less comprehensive, and with a shorter time horizon.

Most Directors thought that the Fund’s existing financial instruments were adequate to deal with some post-conflict situations, but that they may not be fully suitable, or available, in all cases that could merit Fund financial support. A majority of Directors endorsed the idea of expanding the scope of the present policy on emergency assistance to include carefully defined post-conflict situations. However, a number of other Directors saw no need for new policies in this area. In their view, experience had shown that the Fund was able to provide financial assistance when conditions were appropriate.

Regarding the operational aspects related to the proposed expansion of the scope of emergency assistance, most Directors were disposed to endorse those proposed by the staff in post-conflict situations: where the country’s institutional and administrative capacity was disrupted as a result of the conflict, so that the member was not yet able to develop and implement a comprehensive economic program that could be supported by a Fund arrangement, but where there was nonetheless sufficient capacity for planning and policy implementation and a demonstrated commitment on the part of the authorities; where there was an urgent balance of payments need to help rebuild reserves and meet essential external payments and a role for the Fund in catalyzing support from other official sources; and where Fund support would be part of a concerted international effort to address the aftermath of the conflict situation in a comprehensive way.

Directors agreed that access to Fund resources in such cases should generally be limited to one credit tranche, and that the access policy under the existing emergency assistance guidelines provided sufficient flexibility to handle exceptional needs. Directors supported having a tranching of total resources in some instances to help ensure the effective use of Fund resources and provide an incentive to develop a comprehensive economic program. Most Directors agreed that the proposed Fund financial assistance for post-conflict countries be made available only if the member intended to move within a relatively short time frame to an upper credit tranche stand-by or extended arrangement, or to an arrangement under the enhanced structural adjustment facility (ESAF). Indeed, the use of emergency assistance should be framed in such a manner as to pave the way toward the adoption of a program that could be supported by such an arrangement.

For ESAF-eligible members, Directors recognized that concessional resources would be appropriate. For these members, most speakers indicated that they would favor the approach of seeking interest subsidies from bilateral donors on a case-by-case basis when Fund resources were provided under the emergency policy. Others, however, expressed caution about this approach.

Directors agreed that Fund assistance, and its conditionality, should be tailored to individual country circumstances, and should address the need to rebuild the administrative and institutional capacity required to put a comprehensive economic program in place. Accordingly, conditions would include a statement of economic policies; a quantified macroeconomic framework, to the extent possible; and a statement by the authorities of their intention to move as soon as possible to an upper credit tranche stand-by or extended arrangement, or to an ESAF arrangement. Part of the response must be a comprehensive technical assistance program, including institution-building aspects, and provision for its financing.

Overall, this has been a productive discussion of Fund involvement in post-conflict cases in which Directors have agreed on the fundamental—but generally not the leading—role of the Fund, regarding both cooperation with other international agencies and the parameters for Fund financial involvement through an expansion of the scope of the present policy on emergency assistance. While noting the caution expressed by a number of Directors, I would propose that we proceed to expand the scope of the emergency assistance policy on the basis outlined above. This summing up will provide the guidelines for this approach, it being understood that Fund support under an arrangement is the approach to be followed wherever this is possible, while, in the other cases, emergency assistance would be tailored to pave the way in this direction. Except as noted above, the provisions of the existing guidelines on emergency assistance will apply in post-conflict situations.

Summing Up by the Acting Chairman Fund Assistance to Post-Conflict Countries Executive Board Meeting 99/38, April 5, 1999

Directors welcomed the opportunity to discuss ways to enhance Fund financial assistance to post-conflict countries, including those with arrears to international financial institutions, as requested by the Interim and Development Committees.

Most Directors observed that the existing policy guidelines have generally served Fund members well. In this regard, they noted that the Fund had provided technical assistance and macroeconomic policy advice at an early stage, and expressed satisfaction that the Fund’s financial assistance has been provided relatively quickly and had played a catalytic role in concerted international assistance efforts.

Directors therefore reaffirmed that the basic approach of the post-conflict emergency assistance policy continues to be a sound basis for the Fund’s involvement in post-conflict countries. Nevertheless, they noted that, within this framework, every effort should be made to enhance such assistance, and they welcomed the opportunity to consider the proposals put forward by the staff for this purpose. At the same time, Directors emphasized that, to be effective, any possible new steps by the Fund should be considered in the framework of substantially strengthened efforts on the part of the international community as a whole to ensure the maintenance of peace and to assist in the orderly transition from conflict to conditions conducive to stabilization and high quality growth. A few Directors suggested that enhanced assistance should also be available to countries struck by natural disasters.

Regarding the terms of emergency post-conflict assistance, Directors agreed that financial assistance on concessional interest rates would be more appropriate for low-income post-conflict countries than the General Resources Account (GRA) charges that currently apply to such assistance. In considering the four possible approaches discussed by the staff, Directors expressed a range of views.

Directors agreed that under any approach that involved the use of GRA resources, it would be essential to seek interest subsidies from bilateral donors on a case-by-case basis, with intensified efforts to mobilize these funds. In this regard, Directors called for an early indication of members’ readiness to contribute to subsidies, and endorsed the idea of establishing an administered account at the Fund.

While a new special facility within the GRA would deal with the maturity issue and would effectively address the concessionality issue if accompanied by a decision to lower charges or an agreement by donors to provide subsidies. There is not sufficient support for the establishment of such a facility. However, some Directors asked the staff to continue examining this approach, including the possibility of using income from purchases under the SRF to help subsidize the rate of charge on use of GRA resources.

There was support for the approach that would provide for early replacement of GRA resources by resources provided under the ESAF, when the member is in a position to obtain an ESAF arrangement. This would be an effective way of providing more financial support on appropriate terms to low-income post-conflict countries, as it would address both the concessionality and maturity issues. Directors also agreed that this would be consistent with the present purposes, structure, and conditionality of the ESAF as well as the prudential interest of ESAF creditors. They stressed that this procedure should not result in a weakening of ESAF conditionalities or a rationing of ESAF resources.

Most Directors considered that the provision of emergency assistance under the ESAF would represent an undesirable modification of the structure of the ESAF.

On access and length of the program period, Directors noted that most of the countries that have used emergency post-conflict assistance have been able to move to a Fund arrangement with upper credit tranche conditionality within a year or so of the approval of emergency assistance. However, such a rapid move may not always be possible or desirable, especially if economic and political conditions remain particularly fragile.

Hence, Directors agreed that in situations in which the rebuilding of institutions and reestablishing of policy implementation capacity is slow, despite the efforts of the authorities, and the member is not in a position to implement a Fund arrangement after about a year under a program supported by emergency assistance, and when there is sufficient evidence of the authorities’ commitment to reform and capacity to implement policies, additional access of up to another 25 percent of quota in the form of outright purchases could be provided. The additional 25 percent of quota would normally be tranched. A few Directors would have preferred smaller and/or more back-loaded disbursements, and a few would have preferred a larger initial amount. Directors noted that each purchase would need Board approval and would continue to be subject to satisfactory progress by the member in the rebuilding of capacity and macroeconomic stability. They emphasized that there should be continued stress on the catalytic role of the Fund, and that the Fund would be involved only as part of a concerted international effort, including technical support from other multilateral and bilateral agencies.

Directors indicated that the most difficult issue to address in considering the Fund’s post-conflict assistance policy was the situation of post-conflict countries that have large, protracted arrears to the Fund. At present, there are a small number of countries that could fall into this category.. Special efforts to accelerate the provision of financial assistance by the Fund in such cases poses particular difficulties in relation to the Fund’s arrears strategy and could, if not carefully circumscribed, pose issues of moral hazard and undermine the Fund’s preferred creditor status.

In this regard, most Directors considered that, while there are a number of attractive features in the proposals put forward by the World Bank staff for post-conflict assistance for heavily indebted poor countries that are in arrears to multilateral institutions, they need to be considered from the perspective of the key issues for the Fund’s arrears policy: the principle of uniformity of treatment; payments to the Fund in the pre-arrears clearance period; length of the track record prior to arrears clearance; and the arrears clearance process and procedures for financing.

As to uniformity of treatment, Directors indicated that while it would be possible to make modifications to the arrears policy that could be applied to countries meeting specified post-conflict criteria, the application of those modifications could not discriminate among members by income level. Regarding the Fund’s approach of requiring a member to establish a strong track record of sound policy and adequate payments to the Fund at a minimum, remaining current on obligations falling due to the Fund and making every effort to reduce its arrears to the Fund. They generally believed that this approach had been effective in reducing the total amount of arrears and arrears cases, and in restoring normal relations with countries in a wide range of situations.

At the same time, Directors recognized that, in the pre-arrears clearance stage, competing claims from multilateral institutions for payments from heavily indebted post-conflict countries in arrears to these institutions may not be sustainable. In this regard, they supported the staff’s recommendation that the Fund consider relaxing its calls for payments as a test of cooperation, provided that the member is judged to be cooperating on policies and that all other multilateral to which the member is in arrears take at least comparable action. Judgment as to the level of payment needed to sustain cooperation would be made on a case-by-case basis, taking into account the member’s debt servicing capacity.

Directors stressed that a solid track record is important to provide assurances that a member’s policy framework and commitment to sound policies are strong enough to ensure timely payments to the Fund in the future. In this light, it was generally agreed that a drastic shortening or elimination of the track record would not be desirable for the Fund or the international community more generally and that the current policy allows for sufficient flexibility in determining the appropriate length of the track record for post-conflict arrears countries.

With respect to arrears clearance, Directors stressed the need for consultation and coordination among creditors and donors in dealing with post-conflict cases. However, since the situations of these countries can vary widely, they endorsed a continuation of the case-by-case approach, which allows for sequential clearance of arrears to the international financial institutions in appropriate circumstances and the development of arrears clearance plans in individual cases, in coordination with other creditors.

In the absence of concessional financing for arrears clearance or rights encashment, Directors noted that arrears could likely be cleared through a bridge to a new arrangement in the GRA. They strongly reconfirmed their earlier views against the idea of the Fund matching rescheduling operations of the Paris Club or any other group of creditors, as being inconsistent with the monetary character of the Fund. Directors recognized, nonetheless, that there may be circumstances in which the Fund may need to consider exceptionally the use of the provisions of the Articles relating to postponement of repurchases and/or payment of GRA charges in domestic currency. This would need to be assessed as the countries neared the point at which arrears clearance operations would be appropriate and in the light of the circumstances of each case, including the financing requirements and financing possibilities available at that time.

Directors recognized that arrears clearance operations, through a bridge to a new arrangement in the GRA or postponement of repurchases and payment of charges in domestic currency, would not by themselves result in sustainable debt service positions for the heavily indebted post-conflict arrears countries. Hence, following clearance of arrears and the establishment of a satisfactory track record, the countries. Debt to the Fund and other creditors would be subject to action under the HIPC Initiative. This underscores the critical importance of marshaling concessional resources for the ESAF and the HIPC Initiative.

In light of today’s discussion, the staff will come back to the Board with proposals for appropriate modifications of existing policies, and with proposed decisions as necessary to give effect to the agreements on enhancing the Fund’s assistance to post-conflict countries. In the meantime, a joint Bank-Fund report will be prepared for the Interim and Development Committees on the status of the institutions’ consideration of these issues.

BUFF/99/48

April 9, 1999

Conversion of Emergency Assistance into a Special Policy

1. The Fund will be prepared to provide financial assistance to members who are afflicted by natural disasters or are in post-conflict situations. This assistance will be provided in accordance with the provisions of this decision and the guidelines on emergency assistance for natural disasters and post-conflict situations set out in: (i) pages 17 and 18 of EBM/82/16 (2/10/82); (ii) Summing Up by the Chairman—Fund Involvement in Post Conflict Countries—Executive Board Meeting 95/82, September 6, 1995 (BUFF/95/98 (9/19/95)); and (iii) Summing Up by the Acting Chairman—Fund Assistance to Post-Conflict Countries—Executive Board Meeting 99/38, April 5, 1999 (BUFF/99/48 (4/9/99)).

2. Purchases under this decision and holdings resulting from such purchases shall be excluded for the purposes of the definition of reserve tranche purchase pursuant to Article XXX(c).

3. Except for the purpose of determining the level of conditionality applied to purchases in the credit tranches, the Fund’s holdings of a member’s currency resulting from purchases under this decision shall be considered separate from the Fund’s holdings of the same currency resulting from purchases under any other policy on the use of the Fund’s general resources.

4. In order to carry out the purposes of this decision, the Fund will be prepared to grant a waiver of the limitation of 200 percent of quota in Article V, Section 3(b)(iii), whenever necessary to permit purchases under this decision or to permit other purchases that would raise the Fund’s holdings of the purchasing member’s currency above that limitation because of purchases outstanding under this decision.

Decision No. 12341-(00/117)

November 28, 2000

Summing Up by the Chairman Emergency Financing Mechanism Executive Board Meeting 95/85, September 12, 1995

Directors welcomed the opportunity to consider the elements of a proposed “emergency financing mechanism” (EFM) which would strengthen the ability of the Fund to respond rapidly in support of members facing a crisis in their external accounts and seeking Fund assistance. Although the wording “emergency financing mechanism” suggests a more ambitious purpose, Directors in fact considered that the topic under discussion was an emergency procedure rather than a new financing mechanism.

Directors agreed that the essence of an emergency financing mechanism was to provide for exceptional procedures that, in the event a member faced a crisis, would facilitate rapid approval of Fund support while assuring the conditionality necessary to warrant such support. In this connection, Directors generally agreed that there was not necessarily a link between exceptional procedures to facilitate a rapid response on the part of the Fund, on the one hand, and exceptional access, or the need for supplementary financing, on the other. However, Directors noted that, in addition to a rapid response to an emergency, the Fund may need to provide potentially large and front-loaded access, which possibly would imply the need to call upon the supplementary resources. Issues related to possible expansion of the GAB and/or the supplementary borrowing arrangements, and their modalities and criteria for activation, remain open for further consideration, and we may need to return to the question of linkages to the EFM as those discussions evolve. For the moment, however, I believe there is broad agreement among Directors on the main aspects of what would constitute emergency procedures.

While noting the staff’s assurances regarding “moral hazard” and other issues raised during the Board discussion of the role of the Fund in August, most Directors stressed the importance of ensuring that the use of the emergency procedures would be limited to truly exceptional circumstances and that the Fund’s role, in the context of such use, would remain catalytic. Further, use of emergency procedures would not be a guarantee against sovereign default. With regard to the key features of these emergency procedures, many Directors underscored the critical importance of strengthened Fund surveillance, and close cooperation between the Fund and the members, in order to help avoid a financial crisis and to facilitate a rapid response should a crisis occur. In that context, it was stressed by several Directors that it was a member’s responsibility to come to the Fund early with a strong and comprehensive economic program in order to prevent a potential crisis from emerging and to limit the cost of repair.

There was very broad support for the circumstances and conditions under which emergency financing procedures could be initiated, and for the procedures themselves, as suggested and clarified by the staff. Some Directors expressed concern about the lack of objective criteria to identify in advance what kind of financial crisis would require and warrant a rapid Fund response, but others noted that it would be difficult to define beforehand the characteristics that would constitute such a crisis. A number of Directors would prefer to limit the use of emergency procedures to situations involving significant spillover or contagion effects, but most noted that such an approach would unduly restrict the availability of emergency procedures. Some Directors pointed to the lack of consensus on the meaning, in particular, of the concept of systemic effects.

In their comments, a number of Directors have emphasized the importance of continuous and substantive involvement of the Executive Board in the utilization of emergency procedures. I fully agree and have assured you that management would inform the Board immediately of its intention to activate the emergency procedures. Close communication and consultation would be maintained throughout the process, about which I will have more to say later in this summing up, and I agree on the importance of ensuring early and broad-based support in any activation of emergency procedures.

With reference to the specific elements of emergency procedures, I would list them as follows so that there is clarity for members, the staff, management, and the Board.

  • The emergency procedures would be expected to be used only in rare circumstances that represented or threatened to give rise to a crisis in a member’s external accounts requiring immediate response from the Fund. Identification of such an emergency would be based on an initial judgment by management, in consultation with the Executive Board, that the member was faced with a truly exceptional situation threatening its financial stability, and that a rapid Fund response in support of strong policies was needed to forestall or to contain significant damage to the country itself or to the international monetary system, it being understood that the potential for spillover effects would be an important element of the Board’s final judgment.

  • The conditions for activation of emergency procedures would include the readiness of the member to engage immediately in accelerated negotiations with the Fund, with the prospect of early agreement on—and implementation of measures sufficiently strong to address the problem. Prior actions normally would be expected. The member’s past cooperation with the Fund, in particular its record of reporting and responding to the Fund’s policy advice in the context of regular consultations and continuing surveillance, would have a strong bearing on the speed with which the Fund itself could assess the situation and agree on necessary corrective measures. Our important operating principle—the stronger the program, the stronger the Fund’s support would also apply here.

  • The Executive Board would be informed immediately by management of the intention to activate emergency procedures, the nature of the emergency and the initial outlines of the planned responses by the member and the Fund, and the likely timetable for Executive Board discussion of a proposed arrangement. Strict confidentiality would need to be maintained, and public statements should be careful not to prejudge the Board’s exercise of its responsibility to take the final decision.

  • A short written report would be circulated to the Executive Board as soon as feasible, describing the member’s current economic situation.

  • During the negotiations with the member, the Executive Board would be briefed regularly on economic and financial developments, the progress of negotiations, the likely key parameters of the program (including the level and phasing of access), the likely impact on the Fund’s liquidity and the possible need to activate borrowing arrangements, and any changes in the initially envisaged timetable for Executive Board discussion of the arrangement. These briefings would provide the Board with opportunity to give guidance to management and the staff on the country’s policies and the contemplated Fund assistance.

  • In instances where support from other creditors is likely to be important, consultations with key creditors would be initiated at the outset of the emergency. The Executive Board would be informed of relevant developments in this area, in the context of the regular informal briefings.

  • Once agreement had been reached on a program, documents would be circulated as soon as possible. The staff would aim to do this within, say, five days. The Executive Board would be prepared to consider the request for an arrangement as early as 48 to 72 hours after circulation of the documentation. Decisions regarding key parameters, including access and phasing, would be taken in the context of the Executive Board’s consideration of the arrangement, in accordance with the existing rules and practices of the Fund.

  • The early involvement and high frequency briefing of the Executive Board would be a centerpiece of the procedures facilitating a rapid Fund response. Similarly, after approval of the arrangement, and during a period of very close monitoring by the staff to allow early and continuing assessment of the effectiveness of the member’s policy response, the Executive Board would continue to be involved closely in monitoring progress until the emergency was definitively resolved. In most cases, it could be expected that the full review of the initial policy response and the reaction of markets to these policies would be conducted within one to two months of the approval of the arrangement, with the aim of allowing modifications to policies as necessary in light of the evolving situation.

  • Directors agreed that there would be an understanding, rather than a legal obligation, that the member would make early repurchase of the resources made available under emergency procedures, provided the member overcame its crisis quickly.

I conclude from today’s meeting that Directors agree that we should strengthen the Fund’s ability to act quickly in crisis situations. Directors have endorsed the broad outlines of the proposed features of what could constitute emergency procedures. I will plan to report to the Interim Committee on this basis. Of course, there are issues related to supplementary financing arrangements still under discussion, and we will consider any implications of such arrangements for the emergency financing mechanism in due course.

Arrears to Creditors and Debt Strategy

Arrears to Creditors and Debt Strategy

The Executive Board has reviewed the Fund’s policy with respect to payments arrears. The Fund shall be guided by the approach in the conclusions set forth [below].

Decision No. 3153-(70/95)

October 26, 1970

Conclusions

1

4. Fund financial assistance to members having payments arrears should be granted on the basis of performance criteria or policies with respect to the treatment of arrears similar to the criteria or policies described in the preceding paragraph for the approval of the payments restrictions. In general, the understandings should provide for the elimination of the payments arrears within the period of the stand-by arrangement. Such understandings should be based on the concept of a given level of payments arrears and should be reflected in the performance criteria included in stand-by arrangements in the higher credit tranches. To support the policies designed to deal with arrears the letter of intent should include a statement that there would be no imposition of new restrictions or increase in the level of delayed payments. Where Fund financial assistance is being provided, but only through the first credit tranche, the adoption of a viable program directed toward the elimination of the payments arrears should be an important factor in considering whether the country was making reasonable efforts to redress its international financial situation.

Review of Fund Policies and Procedure on Payments Arrears

Returning to the conclusions in EBS/80/190, [the Acting Chairman] observed that paragraph 3 seemed to be acceptable to Directors except for the final sentence, which could be changed to state that, depending on the member’s circumstances and the length of the program, it might not be feasible in the early stages of the program to go beyond an understanding that the member would try to avoid any further increase in outstanding arrears. As for the remainder of paragraph 3, Executive Directors appeared to agree that the staff should continue to be guided by the approach set forth in the Executive Board Decision No. 3153-(70/95).

EBM/80/154, October 17, 1980, page 9

EBS/80/190

3. The Fund’s policies on payments arrears are also concerned with their treatment in the context of stabilization programs supported by use of the Fund’s resources. In these programs, member countries are expected to take steps to reduce and eventually eliminate payments arrears relating to capital transactions as well as to payments and transfers for current international transactions. In formulating policy guidelines in these programs, the staff will continue to be guided by the approach set forth in the Executive Board decision of 1970 (Decision No. 3153-(70/95)), as quoted on page 12. This approach will also be followed with respect to payments arrears arising from default. The technique chosen by a member to reduce outstanding arrears will reflect its institutional arrangements, as well as the magnitude of the arrears and the severity of the balance of payments problem. When payments arrears are large in relation to a member’s available foreign exchange resources, it may not be possible to aim at the elimination of the arrears within the program period. Special arrangements may be needed for the renegotiation of outstanding debt obligations when debt problems are particularly severe. Depending on the member’s circumstances and the length of the program, it may not be possible, in the early stages of a program, to reach an understanding with the member that goes beyond requiring the avoidance of any further increase in arrears.

The Acting Chairman’s Summing Up on Fund Policy on Arrears to Private Creditors—Further Considerations Executive Board Meeting 99/64, June 14, 1999

Directors welcomed the opportunity to reexamine the criteria set out earlier for Fund lending into arrears to private creditors stemming from sovereign defaults and from the imposition of exchange controls that lead to an interruption in debt-service payments by nonsovereign borrowers.

Directors emphasized that the modification of the financing assurances and arrears policies to permit lending into arrears is an adaptation of existing policies to changing circumstances, and is intended to reinforce the Fund’s ability to promote effective balance of payments adjustment while providing adequate safeguards for the use of the Fund’s resources.

Directors concurred that the criteria set out earlier for the case of sovereign arrears may be too restrictive and could lead to instances in which creditors particularly bondholders could exercise a de facto veto over Fund lending. They also considered that the criteria set out earlier for the case of nonsovereign arrears are too restrictive, as they may not take adequate account of the possibility that, even when both creditors and debtors are willing to participate in collaborative negotiations, the process of debt renegotiation may be protracted. Directors noted that in the case of nonsovereign arrears to private creditors, it would be important to ensure that appropriate steps are taken to protect creditors’ interests. One suggestion to staff in this regard was to consider the establishment of an escrow account into which debt-service payments in local currency to nonresident creditors would be made. Against the background of variations in institutional arrangements and members’ capacity, however, Directors considered that it would be difficult to specify as a criterion for lending into nonsovereign arrears the implementation of specific mechanisms to protect creditors’ interests; instead, this judgment would need to be made on a case-by-case basis.

Directors agreed that Fund lending into sovereign arrears to private creditors (including bondholders and commercial banks) should be on a case-by-case basis and only where:

  • (i) prompt Fund support is considered essential for the successful implementation of the member’s adjustment program; and

  • (ii) the member is pursuing appropriate policies and is making a good faith effort to reach a collaborative agreement with its creditors.

Directors agreed that Fund lending into nonsovereign arrears stemming from the imposition of exchange controls should be on a case-by-case basis and only where:

  • (i) prompt Fund support is considered essential for the successful implementation of the member’s adjustment program; and

  • (ii) the member is pursuing appropriate policies, is making a good faith effort to facilitate a collaborative agreement between private debtors and their creditors, and a good prospect exists for the removal of exchange controls.

In both cases, all purchases by the member would be subject, as provided at present, to financing reviews to bring developments at an early stage to the attention of the Executive Board, and to provide an opportunity for the Board to consider whether adequate safeguards remain in place for further use of the Fund’s resources in the member’s circumstances. Specifically, such reviews would provide a basis to assess whether the member’s adjustment efforts are considered to be undermined by developments in creditor-debtor relations.

Directors noted that the policy outlined above supersedes all previous policies regarding lending into arrears to private creditors.

Finally, Directors noted that it would be important to monitor experience with lending into arrears and to keep the policy outlined above under review, so as to ensure that it achieves its objectives.

The Acting Chair’s Summing Up Fund Policy on Lending into Arrears to Private Creditors—Further Consideration of the Good Faith Criterion Executive Board Meeting 02/92, September 4, 2002

Directors agreed that the Fund’s policy on lending into sovereign arrears to private creditors continues to provide a useful tool enabling the Fund to support a member’s adjustment efforts before it has reached agreement with its private creditors on a debt restructuring. The pillars of this policy are first, that the timely support of the member’s adjustment program is considered essential to help limit the scale of economic dislocation and preserve the economic value of investors’ claims; and second, that the debtor engages its creditors in an early and constructive dialogue to help secure a reasonably timely and orderly agreement that would help the country regain external viability.

Directors welcomed the opportunity to review the application of the criterion requiring a member to make good faith efforts to reach a collaborative agreement with its creditors, in light of the experience with bond restructurings since the introduction of the “good faith” criterion in 1999. They observed that this experience, although limited, suggests that notwithstanding the ability of debtors to reach restructuring agreements with their creditors, the restructuring processes have in some cases been protracted, reflecting the complexity of each individual case, as well as different perspectives and concerns among debtors and creditors. Against this backdrop, Directors agreed that greater clarity about the good faith dialogue between a debtor and its creditors during the restructuring process could help provide better guidance about the application of the lending into arrears policy and, more generally, promote a better framework for the engagement of debtors and creditors in the restructuring of sovereign debt. Greater clarity concerning the framework for possible debt restructuring would strengthen the capacity of investors to assess recovery values under alternative scenarios, thereby facilitating the pricing of risk and improving the functioning of the capital markets. At the same time, however, Directors stressed the need for continued flexibility in applying the “good faith” criterion to accommodate the characteristics of each specific case; to avoid putting debtors at a disadvantage in the negotiations with creditors; and to avoid prolonged negotiations that could hamper the ability of the Fund to provide timely assistance. Indeed, any clarification of the “good faith” criterion should serve primarily to support the difficult judgments that will continue to have to be made in each case, and should be made operational in a manner that does not impair market discipline.

Directors considered that the following principles would strike an appropriate balance between clarity and flexibility in guiding the dialogue between debtors and their private external creditors.

• First, when a member has reached a judgment that a restructuring of its debt is necessary, it should engage in an early dialogue with its creditors, which should continue until the restructuring is complete.

• Second, the member should share relevant, non-confidential information with all creditors on a timely basis, which would normally include:

  • an explanation of the economic problems and financial circumstances that justify a debt restructuring;

  • a briefing on the broad outlines of a viable economic program to address the underlying problems and its implications on the broad financial parameters shaping the envelope of resources available for restructured claims; and

  • the provision of a comprehensive picture of the proposed treatment of all claims on the sovereign, including those of official bilateral creditors, and the elaboration of the basis on which the debt restructuring would restore medium-term sustainability, bearing in mind that not all categories of claims may need to be restructured.

• Third, the member should provide creditors with an early opportunity to give input on the design of restructuring strategies and the design of individual instruments.

In discussing the various approaches that would best clarify the content of a member’s good faith efforts in the context of the lending into arrears policy, Directors emphasized that the modalities guiding the debtor’s dialogue with its creditors will need to be tailored to the specific features of each individual case. Most Directors considered that the third approach suggested in the staff paper for refining the good faith criterion provides an appropriate basis for the implementation of the Fund’s policy, while retaining sufficient flexibility to address the diversity of individual situations. Although, as a general premise, the form of the dialogue would be left to the debtor and its creditors, under this approach a member in arrears would be expected to initiate a dialogue with its creditors prior to agreeing on a Fund-supported program consistent with the principles discussed above. In cases in which an organized negotiating framework is warranted by the complexity of the case and by the fact that creditors have been able to form a representative committee on a timely basis, there would be an expectation that the member would enter into good faith negotiations with this committee, though the unique characteristics of each case would also be considered. This formal negotiating framework would include, inter alia, the sharing of confidential information needed to enable creditors to make informed decisions on the terms of a restructuring (subject to adequate safeguards), and the agreement to a standstill on litigation during the restructuring process by creditors represented in the committee. By the same token, in less complex cases, where creditors have not organized a representative committee within a reasonable period, or where for other reasons a formal negotiation framework would not be effective, the member would be expected to engage creditors through a less structured dialogue. Directors stressed that, in going forward with the suggested approach, it would be crucial to strike the appropriate balance between the need to promote effective communication between a debtor and its creditors, and the need to retain flexibility to address the diversity of individual country circumstances.

Directors discussed a variety of factors that would need to be considered in making the proposed framework operational. They emphasized that in assessing whether the member is making good faith efforts to negotiate, judgments would continue to be required in a number of important areas. These include a consideration of the complexity of the restructuring case, the extent to which a creditor committee is sufficiently representative, and whether a reasonable period has elapsed to allow for the formation of a representative committee. Directors viewed the considerations laid out in the staff paper as useful inputs for helping to make such judgments, which would need to be made flexibly. They also noted that to the extent that negotiations become stalled because creditors are requesting terms that are inconsistent with the adjustment and financing parameters that have been established under a Fund-supported program, the Fund should retain the flexibility to continue to support members notwithstanding the lack of progress in negotiations with creditors. In this connection, it was stressed that decisions on an adequate macroeconomic framework that could form the basis for the Fund’s lending into arrears will remain in the sole purview of the Fund.

Directors recognized that there may be circumstances where, following a default, the debtor enters into good faith discussions with creditors prior to the approval of a Fund arrangement. In these circumstances, creditors are likely to express views as to the appropriate dimensions of the program’s adjustment and financing parameters. While such input would be welcome, Directors emphasized that it would be inappropriate for private creditors to be given a veto over the design of the financing plan or the design of the adjustment program.

All purchases made while a member has outstanding arrears to private creditors will continue to be subject to financing reviews, which will provide an opportunity for the Fund to monitor relations between a debtor and its creditors, and for the Board to be kept informed about developments in this area at an early stage. Going forward, a number of Directors also underscored the importance of strengthening debtor-creditor dialogue in good times, as this will provide a good base for advancing the required negotiation framework in times of stress.

Summing Up by the Chairman—Management of the Debt Situation Executive Board Meeting 91/48, April 3, 1991

Turning to the modalities of Fund support for debt operations, Directors saw no need for substantial modifications to the guidelines which, implemented in close collaboration with the World Bank, continue to provide the required versatility. They noted, however, the need to strengthen existing safeguards to ensure that linkages to Fund arrangements in commercial bank agreements do not adversely affect the interests of member countries or the Fund. In this regard, they observed that “condition precedent” clauses, linking bank disbursements to purchases from the Fund, should be discouraged where feasible and accepted only when necessary to obtain satisfactory bank financing agreements in concerted financing cases. In addition, they stressed that “mandatory prepayment” clauses in future bank agreements should be structured so as clearly to avoid linking bank prepayments to early repurchases made pursuant to expectations or obligations established by the Fund. Directors emphasized that these safeguards should be taken into account by member countries as early as possible in their negotiations with bank creditors. In that connection, a number of Directors observed that debtors and creditors should be aware of what the Fund can accept and, in the same vein, that members should inform the staff at an early stage, and well ahead of agreement with bank creditors, about envisaged linkages to Fund arrangements in bank packages.

Access Policy1

Access Policy—Guidelines on Access Limits

1. The Fund, having reviewed Decision No. 10181-(92/132), adopted November 3, 1992, and Decision No. 10819-(94/95), adopted October 24, 1994, and in light of the increases in quotas under the Eleventh Review of Quotas that will take effect upon the fulfillment of the requirement for the effectiveness of such increases specified by paragraph 3 of the Resolution of the Board of Governors No. 53-2, decides that the limits for access by members to the Fund’s general resources in the credit tranches and under the Extended Fund Facility remain appropriate. Accordingly, such access shall be subject to an annual limit of 100 percent of quota2 and a cumulative limit of 300 percent of quota, net of scheduled repurchases. These limits shall not be regarded as targets. Within these limits, the amount of access in individual cases will vary according to the circumstances of the member in accordance with criteria established by the Executive Board. The Fund may approve stand-by or extended arrangements that provide for amounts in excess of these access limits in exceptional circumstances.

2. The guidelines and the access limits set forth in this decision shall be reviewed not later than December 31, 1999 and at least annually thereafter on the basis of all relevant factors, including the magnitude of members’ payments problems and developments in the Fund’s liquidity.

Decision No. 11876-(99/2)

January 6, 1999

Access Policy and Limits in Credit Tranches and Under Extended Fund Facility—Extension of Deadline for Completion of Review

The Fund decides that the next annual review of the guidelines and limits for access to the Fund’s general resources in the credit tranches and under the Extended Fund Facility prescribed by paragraph 2 of Decision No. 11876-(99/2), as amended by Decision No.12385-(00/129), shall be completed by August 31, 2001. (EBS/01/99, 6/27/01)

Decision No. 12517-(01/68)

June 29, 2001

The Chairman’s Summing Up at the Conclusion of the Discussion on Criteria for the Amount of Access in Individual Cases Executive Board Meeting 83/167, December 2, 19831

The thoughtful and frank comments of Executive Directors during the discussion were of great benefit to the staff and management. As has been suggested by a number of Directors, I will sum up the discussion rather than attempt to reformulate the proposed criteria in Section V of the staff paper EBS/83/233.

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

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

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

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

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

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

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

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

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

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

Attachment EBS/83/233

II. Considerations Governing Amount of Access

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

The considerations that need to be taken into account in determining the amount of access in individual arrangements and current practice on access have been discussed in recent staff papers, in particular in EBS/83/132 (6/27/83), and may be briefly recapitulated here. The first important consideration is the member’s actual or potential need for resources from the Fund, taking into account other sources of financing and the desirability of maintaining a reasonable level of reserves; in no circumstances can access be greater than this need. The second important consideration stems from the need to preserve the revolving character of the resources that the Fund provides, i.e., the ability of the member to service its indebtedness to the Fund. In determining the case for Fund support and the amount involved, the timing and extent of the expected improvement in the member’s balance of payments are relevant factors. It follows that adjustment policies in support of which the Fund’s resources are to be used must be designed and implemented in such a manner as to lead to a strengthening of the balance of payments by the time the repurchases begin to fall due and of a sufficient extent to allow the member to make the repurchases without strain. Finally, the amount of the member’s outstanding use of Fund credit and its record in using Fund resources in the past must enter into the judgment on the appropriate scale of further use of the Fund.

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

To ensure that the program allows repurchases to be made, a balance of payments projection well into the repurchase period must show that progress toward a viable balance of payments position is being achieved. This can be indicated by a diminishing need for exceptional finance in general, and that to be provided by the Fund in particular, over the period. The policy measures already in place or being introduced must be commensurate with those needed to continue this progress at the required rate. This subject is discussed in the recent paper reviewing upper credit tranche stand-by arrangements and conditionally (EBS/83/215, 10/4/83).

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

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

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

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

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

Review of Access Policy in Credit Tranches and Under Extended Fund Facility

1. Pursuant to Decision No. 11876-(99/2), January 6, 1999, the Fund has reviewed the guidelines and the limits for access by members to the Fund’s general resources in the credit trances and under the Extended Fund Facility, and decides that they remain appropriate in the present circumstances. Accordingly, access by members to the Fund’s general resources in the credit tranches and under the Extended Fund Facility shall be subject to an annual limit of 100 percent of quota and a cumulative limit of 300 percent of quota, net of scheduled repurchases. These limits shall not be regarded as targets. Within these limits, the amount of access in individual cases will vary according to the circumstances of the member in accordance with criteria established by the Executive Board. The Fund may approve stand-by or extended arrangements that provide for amounts in excess of these access limits in exceptional circumstances.

2. The guidelines and access limits set forth in this decision shall be reviewed not later than December 31, 2002, at which time the Fund shall decide on the frequency of future reviews of these guidelines and access limits (EBS/01/133, 8/9/01).

Decision No. 12562-(01/86)

August 30, 2001

Summing Up by the Acting Chair Access Policy in Capital Account Crises Executive Board Meeting 02/94, September 6, 2002

Directors welcomed the opportunity to consider elements of a strengthened framework for the policy on exceptional access to the Fund’s resources—i.e., access that exceeds the limits under the credit tranches and the Extended Fund Facility (EFF). Our discussion today has focused particularly on access policy and crisis resolution in cases where a combination of adjustment and financing is likely to be sufficient to put a country on a stable medium-term path. In some other cases, a restructuring of private claims may be necessary. Our work on ways to strengthen the framework for debt restructurings—including the sovereign debt restructuring mechanism and the contractual approach—and clarifying the lending into arrears policy are separate strands for developing the crisis resolution strategy. Access policy is also closely related to our ongoing discussions on the size of the Fund, and the Twelfth General Review of Quotas, with a number of Directors noting that progress on this issue, including on the distribution of quotas, would help to address some of the concerns about exceptional access.

Directors discussed the exceptional access policy in the context of the Fund’s response to the challenges arising from the increasing integration of global financial markets in the last decade. This integration has helped to support a rapid expansion of investment and activity in many emerging market countries, but has also exposed these countries to crises caused by rapid reversals of capital flows. The Fund has responded to the challenges posed by these modern capital account crises by strengthening its crisis prevention capabilities and, in some cases, by helping meet members’ unusually large financing needs. Directors agreed that exceptional access will sometimes be necessary if the Fund is to provide meaningful assistance to members facing a capital account crisis, but that the policies on such access need to be strengthened to ensure that it remains exceptional. In this context, some Directors noted that the exceptional circumstances clause may continue to be needed occasionally also for balance of payments problems in the current account.

Our discussion today has been informed by the experience gained in past exceptional access cases, beginning with Mexico’s Stand-By Arrangement (SBA) in 1995. Several of the programs supported by exceptional access have been quite successful in helping the member achieve external viability, resume growth with limited vulnerability, and regain access to private markets, although more slowly than at first expected. In other countries, however, the combination of adjustment and exceptional access in the context of the associated political and external environment was not sufficient to avoid a restructuring of obligations. It was noted, however, that in all cases the borrowing members have remained current on their repayment obligations to the Fund. From a broader perspective, Directors also noted that, while some moral hazard is bound to be present in Fund lending, there is little evidence that the use of exceptional access in general has had large effects on moral hazard by increasing investor or country risk-taking.

Directors agreed that more clearly defined criteria regarding the appropriate use of exceptional access in capital account crises are needed to help shape the expectations of members and markets, provide a benchmark for difficult decisions regarding program design and access, safeguard Fund resources, and ensure uniformity of treatment of members. Directors generally considered that (at a minimum) the following criteria would need to be met to justify exceptional access for members facing a capital account crisis:

(i) The member is experiencing exceptional balance of payments pressures on the capital account resulting in a need for Fund financing that cannot be met within the normal limits;

(ii) A rigorous and systematic analysis indicates that there is a high probability that debt will remain sustainable;

(iii) The member has good prospects of regaining access to private capital markets within the time Fund resources would be outstanding, so that the Fund’s financing would provide a bridge; and

(iv) The policy program of the member country provides a reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment.

In discussing the aforementioned criteria, Directors emphasized in particular the importance of rigorous debt sustainability analyses to support requests for exceptional access. Several Directors saw scope for further strengthening the criteria so as to ensure their strict application. Directors underscored the importance of involving the private sector for program success, and a number of them expressed the view that the member’s best efforts to secure private sector involvement in program financing should be an important consideration for justifying exceptional access.

A few Directors suggested further narrowing the definition of capital account crises that could warrant exceptional access by establishing a formal criterion relating to problems of contagion or the potential for systemic effects. Many other Directors, however, considered that such a criterion could create a bias toward higher access for larger members, which could not be reconciled with the principle of uniformity of treatment. Directors recognized that the Fund should be prepared to provide access above the normal limits in cases where the member’s problems have regional or systemic implications, when the other criteria are met.

Directors concurred that the member’s balance of payments needs remain a key criterion in determining access in individual cases, while recognizing that measurement of need in financial crises is subject to an unusual degree of uncertainty. Stocks of financial claims can be very large, and can potentially translate into a large balance of payments need. In this context, several Directors highlighted the limitations of the gross financing needs variable, which is a commonly reported measure of need in Fund-supported programs.

A number of Directors noted that, in capital account crises, access in percent of quotas has varied widely, partly because, for some members, the quota may not reflect the relative size of the economy and/or their integration into international capital markets. Most Directors considered, nevertheless, that quotas should remain the fundamental metric for access. Many Directors recognized that alternative metrics, such as GDP, exports, gross reserves, and calculated quotas, could provide additional perspectives on the scale of access in individual cases, even though they would not give unequivocal guidance. In this light, a few Directors recommended that further work be done to support assessments of the appropriate scale of access in more detail.

Most Directors agreed that even when the need was large, Fund financing in exceptional access cases had in practice covered only a portion of the gross financing need, with financing from the private sector and from other official sources filling the balance. Directors emphasized that efforts to involve private sector creditors in program financing should be continued, but it was also recognized that concerted or involuntary action by such creditors could be associated with a slow return of confidence and market access. Several Directors encouraged further consideration of the role of private sector involvement in exceptional access cases.

Directors supported strengthening the procedures for decision making on access proposals above the normal access limits to provide additional safeguards and enhance accountability, and the Board agreed to the following measures:

(i) Raising the burden of proof required in program documents as set out in the staff paper. This would include thorough discussion of need and the proposed level of access, a rigorous analysis of debt sustainability, and an assessment of the risks to the Fund arising from the exposure and its effect on liquidity;

(ii) Formalizing requirements regarding early Board consultation on the status of negotiations in exceptional access cases. The modalities of the Board’s involvement will be further worked out, building on the practice under which the Board has confidential briefings on the broad strategy of the program and the case for access above normal limits before negotiations are concluded; and

(iii) Requiring an ex post evaluation by the staff of programs supported by exceptional access within a year after the end of the arrangement, with a number of Directors suggesting that the Independent Evaluation Office also consider conducting such evaluations.

Directors also considered the possibility of establishing a presumption of public disclosure of Fund staff reports on programs supported by exceptional access. A majority of the Board held the view that, in particular in these cases, there would be a high premium on increasing public understanding and credibility of the program strategy. Many other Directors, however, were concerned that moving to a presumption of publication of such staff reports might not be easily reconcilable with the need for frank assessments of the risks involved. Directors agreed to return to this issue on the occasion of the next review of the Fund’s transparency policy in June 2003.

Directors discussed the possibility of requiring a supermajority of Board votes to approve exceptional access. They generally agreed that such a fundamental change to the governance structure of the Fund—which would necessitate a change in the Articles of Agreement—should not be pursued at this time. A few Directors were in favor of separating Board decisions on exceptional access from the approval of the program. Several Directors noted, however, that the merits of the access proposal could not be considered independently from the program, and cautioned against procedures that could slow the approval process. Directors discussed the possibility of introducing a presumptive limit on cumulative exceptional access to provide an additional restraint on the use of the Fund’s resources. Directors were opposed to the establishment of such a limit, noting that it could not preclude access above this limit without fundamentally constraining the Fund’s capacity to respond to crises in its member countries where access above the high limit might be justified. They also pointed to a number of difficult practical hurdles that a limit or norm on exceptional access would raise, in particular, the problem of choosing the right level for a high limit, and the complexity of rules that would need to be defined around a two-tier system of access limits. Furthermore, some Directors were concerned that a presumptive access limit or norm would only be credible to the extent that it was adhered to. Past decisions on high access above the limits considered would make it more difficult to establish credibility.

Turning to prudential considerations regarding exceptional access cases, Directors agreed that more systematic and comprehensive information regarding the member country’s capacity to repay the Fund and the Fund’s exposure to the member country is needed to underpin judgments about the appropriateness of the proposed access levels in individual cases. In this context, Directors also considered setting a maximum absolute exposure level for a single member above which additional precautionary balances would immediately be accumulated through the burden-sharing mechanism. While a few Directors saw merit in such a proposal, most Directors opposed this idea, as it would raise difficult issues regarding the uniformity of treatment of members in terms of access. They were also concerned that using the burden-sharing mechanism could signal a lack of confidence of the Fund in the member country’s economic program and ability to repay the Fund. Some Directors called for an increase in quotas to provide the Fund with adequate resources to deal with the new type of crises.

Directors also had a preliminary discussion of possible changes in the terms and conditions of Fund lending above the limits to affect incentives that apply to exceptional access cases. Most Directors agreed that the scope for increasing the rate of charge to discourage exceptional access appears limited. A number of Directors were of the view that, since some capital account crises are unlikely to reverse as quickly as foreseen in the Supplemental Reserve Facility (SRF), lending at somewhat longer maturities should be available if the Fund is to contribute effectively in some of these cases. Other Directors, however, cautioned that such proposals could blur the distinction between SRF and SBA resources, and would warrant a fuller review. Many Directors also expressed interest in further considering the establishment of a presumption that SRF resources would be used when the cumulative access exceeds the limits under the credit tranches and the EFF. A few Directors also noted the importance of the policy on early repurchases in this context.

The current discussion has been fruitful in developing consensus in a number of areas. Staff will prepare a follow-up paper before the end of the year on how best to put this new framework in place, including procedures for early Board consultation in cases where exceptional access is considered, and issues related to private sector involvement in these cases. This paper will also include further consideration of the appropriate maturity of Fund lending in capital account crises, and of the related issue of the mix between SRF and SBA resources. At that discussion, the Board will also conduct the regular review of access policy under the credit tranches and the EFF.

Summing Up by the Acting Chairman Review of the Compensatory and Contingency Financing Facility (CCFF) and Buffer Stock Financing Facility (BSFF)—Preliminary Considerations Executive Board Meeting 00/5, January 14, 2000

Executive Directors welcomed the opportunity to review the CCFF and the BSFF, although many would have preferred that the review of these two facilities be undertaken in the context of the broader review of the Fund’s financial facilities that is now planned to start ahead of the spring meetings. However, all agreed that this is a useful first step, affording an opportunity for some streamlining at this early stage.

For today’s review, Directors were unanimous in supporting the elimination of the BSFF, a facility that has not been used in the last 16 years. In coming to this conclusion, Directors noted variously that buffer stocks have not proven their utility in meeting their objectives; that there are at present no commodity agreements for which BSFF eligibility has been approved; and that other facilities are sufficient for purposes the BSFF could serve.

There was also a broad consensus in favor of elimination of the contingency element (ECM) of the CCFF. Most Directors noted that, while the idea behind this mechanism has some appeal, the ECM was seldom being used—and not at all in the last eight years—probably in part because of its complexity and rigidity, despite earlier efforts at simplification, and because we have found other ways to deal with the problems it was intended to address. These considerations have led a few Directors to favor further attempts at simplification and revitalization of this facility. But others have noted that this has been tried before, and a clear majority would favor elimination of this element of the facility as well.

Predictably, a great deal of today’s discussion has focused on the compensatory element (CFF) of the CCFF. No Director has argued for retention of the CFF as it is now, and the debate has focused on the two main options discussed in the staff paper: (i) elimination of the CFF; or (ii) substantial amendments to the facility, limiting it to cases where an arrangement is in place or no other balance of payments problem is present.

Some Directors favored elimination of the CFF. They noted that the question of temporariness is hard to judge in advance; that the facility poses risks of providing access to relatively unconditional Fund resources in circumstances where there is often a need for economic adjustment and conditionality; that the provision of significant up-front CFF resources can weaken economic reform incentives; and that needs for compensatory financing can reasonably be satisfied under a Fund arrangement. A number of these Directors also noted that the current CFF includes tests of cooperation that often involve making difficult judgments outside the context of an arrangement; that there were problems with the way the export shortfall was calculated; and in those cases where adjustment was required, they stressed the difficulty of evaluating stand-alone CFF requests, which require assessing the likely implementation of policies in the future.

A majority of Directors, however, favored the alternative option of retaining a streamlined CFF, pending a further review in the context of the broader review of the full panoply of Fund facilities. They supported limiting the CFF to cases in which an upper credit tranche arrangement is in place—with simplified access provisions and with phasing—or where the balance of payments position is deemed satisfactory apart from the temporary export shortfall or cereal import excess. In these latter cases, stand-alone access to compensatory financing would still be made available. These Directors considered that this alternative could adequately address the problems encountered in the past, mainly those related to the need for adjustment and phasing of purchases, while at the same time maintaining the capacity of a compensatory facility.

On balance, if the compensatory element is retained, a majority would support the staff’s proposals: to confine it to cases where arrangements are in place (or cases in which the balance of payments position is deemed satisfactory apart from a temporary export shortfall or cereal import excess); to introduce phasing; and to greatly simplify the system of access limits, possibly by adopting a single access limit for all requests.

Given the views that have been expressed, we will proceed as follows, bearing in mind that there will be a broader review of facilities.

First, we eliminate the BSFF. Second, we eliminate also the ECM.

Third, we leave the CFF for now, pending the broader review, on the understanding that if it is decided to retain the CFF in the context of that review, there is strong sentiment for modifying and streamlining it along the lines the staff has proposed.

Accordingly, the staff will return shortly with draft decisions eliminating the BSFF and the contingency element of the CCFF, and we will propose that these decisions be adopted on a lapse-of-time basis.

Compensatory Financing Facility1

Compensatory Financing Facility

Section I. General Provisions

1. The Fund is prepared to extend financial assistance, in accordance with the provisions of this Decision, to members that encounter balance of payments difficulties arising out of (i) temporary export shortfalls or (ii) excess costs of cereal imports.

2. Purchases under this Decision and holdings resulting from such purchases shall be excluded for the purposes of the definition of reserve tranche purchase pursuant to Article XXX(c).

3. Except for the purpose of determining the level of conditionally applied to purchases in the credit tranches, the Fund’s holdings of a member’s currency resulting from purchases under this Decision shall be considered separate from the Fund’s holdings of the same currency resulting from purchases under any other policy on the use of the Fund’s general resources. In cases of concurrent requests for purchases under this Decision and for purchases in the credit tranches, purchases under this Decision shall be deemed to be made first.

4. In order to carry out the purposes of this Decision, the Fund will be prepared to grant a waiver of the limitation of 200 percent of quota in Article V, Section 3(b)(iii), whenever necessary to permit purchases under this Decision or to permit other purchases that would raise the Fund’s holdings of the purchasing member’s currency above that limitation because of purchases outstanding under this Decision.

5. The Fund shall indicate in an appropriate manner which purchases by a member are made pursuant to Section II or Section III of this Decision, as well as the export shortfall component and the cereal import cost component of each purchase under Section III.

6. When a request for a purchase is made by a member under either Section II or Section III of this Decision on account of circumstances that have already been taken into account in calculating the amounts of purchases made or to be made under the other Section, double compensation shall be avoided when calculating the amount of the requested purchase.

7. In providing financing pursuant to this Decision, the Fund, as under other policies of the Fund, shall pay due attention to the member’s capacity to service its financial obligations to the Fund, and, having regard to the outstanding financial obligations of the member to the Fund, may reduce the amount of financing accordingly, notwithstanding any other provision in this Decision.

8. Wherever used in this Decision, the expression “arrangement” will mean an upper credit tranche stand-by arrangement, an extended arrangement, or an arrangement under the Poverty Reduction and Growth Facility (PRGF).

9. Without prejudice to the other limitations on purchases specified by this Decision, the Fund’s holdings of a member’s currency resulting from purchases under this Decision shall not exceed any of the following access limits:

(a) 45 percent of the member’s quota for purchases on account of an export shortfall under Section II or Section III;

(b) 45 percent of the member’s quota for purchases on account of an excess of cereal import costs under Section III; and

(c) a combined limit of 55 percent of the member’s quota for purchases on account of an export shortfall component under Section II or Section III and an excess cereal costs component under Section III.

Section II. Compensatory Financing of Export Fluctuations

Qualification and Timing of Purchases

10. The Fund is prepared to assist members, particularly primary exporters, encountering balance of payments difficulties produced by temporary export shortfalls and such members may expect that their request for purchases under this Section will be met, subject to the provisions of this Decision, where the Fund is satisfied that the shortfall is of a short-term character and is largely attributable to circumstances beyond the control of the member, and

(a) at the time of the request, the members’ balance of payments position apart from the effects of the export shortfall is satisfactory; or

(b) at the time of the request, the Fund approves an arrangement, or, in the case of an existing arrangement, either completes a review under such an arrangement or determines that the member’s policies are such as would, in the Fund’s view, continue to meet the criteria for the use of the Fund’s resources in the upper credit tranches.

11. With respect to compensation under paragraph 10(a), a member may expect that the full amount of compensatory financing, subject to the provisions of this Decision, shall be made available in one purchase, unless estimated data are used for 9 months or more of the 12-month period referred to in paragraph 15, in which case the amount of compensatory financing shall be made available in two purchases, in accordance with the following provisions:

(a) the first purchase shall not exceed 65 percent of the amount of compensatory financing; and

(b) the second purchase request shall not exceed the difference between the amount of the compensatory financing recalculated at the time of the request for the second purchase and the amount of the first purchase and shall not be approved until actual statistical data becomes available for at least 6 months of the 12-month period used for the purposes of the first purchase; if the policy implementation or external circumstances of the member differ materially from that originally anticipated at the time of the request for the first purchase, the Fund may decide not to approve, or to reduce the amount available under, the second purchase.

12. With respect to compensation under paragraph 10(b), a member may expect that the amount of compensatory financing, subject to the provisions of this Decision, shall be made available in more than one purchase, which shall normally be for equal amounts, unless recalculated pursuant to this paragraph, and that

(a) its request for a first purchase will be met immediately, subject to the provisions of this Decision,

(b) its requests for subsequent purchases will be met, subject to the provisions of this Decision, if, at the time of the request for the purchase,

  • – the member continues to have an arrangement, and

  • – the Fund decides that the member has met the conditions for the purchase or disbursement under the associated arrangement, including the observance or waiver of any applicable performance criteria or other conditions specified therein; provided that the last purchase shall not take place earlier than six months from the first purchase, and any actual statistical data that has become available for the shortfall year shall be used to recalculate the amount of any subsequent purchases under this paragraph.

13. A purchase under paragraph 11 or the first purchase under paragraph 11(a) or paragraph 12 shall not be approved under this Section later than six months after the end of the 12-month period referred to in paragraph 16, provided that it may be approved up to seven months after the end of such period if the delay beyond six months is the result of circumstances external to the member.

Calculation

14. If, in the opinion of the Fund, adequate data on receipts from services other than investment income are available, the member requesting a purchase under this Section shall specify whether the receipts shall be included or excluded in the calculation of the shortfall. The choice by the member to include such receipts shall continue to apply for a period of three years.

15. The existence and amount of an export shortfall for the purpose of any purchase under this Section shall be determined with respect to the latest 12-month period preceding the request (or, in the case of paragraph 11(a) or paragraph 12, the first request) for which the Fund has sufficient statistical data, provided that a member may request a purchase in respect of a shortfall year for which not more than 12 months of the data on merchandise exports and on receipts from services are estimated.

16. In order to identify more clearly what are to be regarded as export shortfalls of a short-term character, the Fund, in conjunction with the member concerned, will seek to establish reasonable estimates regarding the medium-term trend of the member’s exports based partly on statistical calculation and partly on appraisal of export prospects. For the purposes of this Section, the shortfall shall be the amount by which the member’s export earnings in the shortfall year are less than the geometric average of the member’s export earnings for the five-year period centered on the shortfall year. In computing the five-year geometric average, the Fund, in conjunction with the member, will use an estimate based on a judgmental forecast for the period of the two post-shortfall years, provided that any amount by which the forecast for the period of the two post-shortfall years would exceed the member’s export earnings for the period of the two pre-shortfall years by more than 20 percent shall not be included in such computation. When the Fund allows a member to purchase under the proviso in paragraph 15, the Fund may use such methods as it considers reasonable for estimating exports during the period for which sufficient statistical data are not available. If, in the opinion of the Fund, adequate statistical data are available for this purpose, the calculations and estimates under this paragraph of earnings from an export item shall, with respect to a purchase on account of an export short-fall under this Section or Section III, be made net of the value of imported intermediate inputs, where such value exceeds 50 percent of the gross earnings from the export item and the exclusion of the value of the export item would increase or reduce by at least 10 percent the amount that could otherwise be purchased on account of the export shortfall.

Overcompensation

17. When a member has made a purchase under this Section on the basis of estimated data and the amount of the purchase exceeds the amount that could have been purchased on the basis of actual statistical data, the member will be expected to make a prompt repurchase in respect of the outstanding purchase, in an amount equivalent to the excess. The calculation of such an excess with respect to a purchase shall be made on the basis of the same post-shortfall year projections used for the calculation of the purchase, provided that if the member has made more than one purchase with respect to the same 12-month period, the calculation of any excess with respect to all such purchases will be made on the basis of the post-shortfall year projections used for the latest of such purchases.

18. Provision shall be made in all arrangements for the suspension of further disbursements under the arrangement whenever a member fails to meet a repurchase expectation pursuant to paragraph 17. Furthermore, the Managing Director shall not recommend for approval, and the Fund shall not approve, a request for the use of the Fund’s general resources by a member that is failing to meet such an expectation.

19. If a member requests financing under this Section in relation to a shortfall year that in whole or in part is included in the period of the two post-shortfall years concerning any earlier purchase under this Section, the amount of the requested purchase shall be adjusted so as to take into account any amount by which such earlier purchase differs from the amount that could have been purchased on the basis of the data available at the time of the request.

Section III. Compensatory Financing of Fluctuations in the Cost of Cereal Imports

Qualification and Timing of Purchases

20. The Fund is prepared to extend financial assistance subject to the provisions of this Decision to members that encounter a balance of payments difficulty produced by an excess in the cost of their cereal imports.

21. For a period of three years from the date of a member’s first request for a purchase in respect of cereal imports under this Section, any purchases by the member in respect of its export shortfalls shall be made under this Section instead of under Section II of this Decision. The same provision shall apply if, after the end of the three-year period, the member makes a new purchase in respect of cereal imports under this Section.

22. A member with balance of payments difficulties may expect that its request for a purchase under this Section will be met if the Fund is satisfied that any shortfall in exports and any excess costs of cereal imports that result in a net shortfall in the member’s exports are of a short-term character and are largely attributable to circumstances beyond the control of the member, and

(a) at the time of the request, the member’s balance of payments position, apart from the effects of the net shortfall in the member’s exports, is satisfactory; or

(b) at the time of the request, the Fund approves an arrangement, or, in the case of an existing arrangement, either completes a review under such an arrangement or determines that the member’s policies are such as would, in the Fund’s view, continue to meet the criteria for the use of the Fund’s resources in the upper credit tranches.

23. Paragraphs 11, 12, and 13 shall apply mutatis mutandis to this Section. The applicable 12-month period shall be the period referred to in paragraph 25.

Calculation

24. (a) Subject to the limits specified in paragraph 9, a member may request a purchase under this Section for an amount equal to the net shortfall in its exports calculated as the sum of its export shortfall and the excess in its cereal import costs.

  • (b)(i) For the calculation of the net shortfall in exports, an excess in exports shall be considered a negative shortfall in exports and a shortfall in cereal import costs shall be considered a negative excess in cereal import costs.

  • (ii) An export shortfall shall be determined in accordance with Section II.

  • (iii) An excess in cereal import costs shall be determined in accordance with paragraphs 25 and 26.

25. The existence and amount of an excess in the cost of cereal imports shall be determined, for the purpose of purchases under this Section, with respect to the latest 12-month period preceding the request for which the Fund has sufficient statistical data, provided that the Fund may allow a member to make a purchase on the basis of estimated data in respect of a 12-month period ending not later than 12 months after the latest month for which the Fund has sufficient statistical data on the member’s cereal import costs. The estimates used for this purpose shall be made in consultation with the member. The calculation of a member’s shortfall or excess in exports and its excess or shortfall in the cost of its cereal imports shall be made for the same 12-month period.

26. In order to identify more clearly what are to be regarded as excess costs of cereal imports of a short-term character, the Fund, in consultation with the member concerned, will seek to establish reasonable estimates regarding the medium-term trend of the member’s cereal import costs. For the purposes of this Section, the excess in a member’s cereal imports for the 12-month period referred to in paragraph 25 shall be the amount by which the member’s cereal imports in that 12-month period are more than the arithmetic average of the member’s cereal imports for the five-year period centered on that 12-month period.

27. The amount of a purchase under this Section, as defined in paragraph 24, may be either on account of an export shortfall or on account of an excess in cereal import costs, or the amount may consist of two components, one on account of an export shortfall and the other on account of an excess in cereal import costs. A member shall allocate the amount of its purchase under this Section between the export shortfall and cereal import components, each as limited by paragraph 9(a) or paragraph 9(b), provided that in no case the combined amount shall exceed the limit in paragraph 9(c).

28. (a) The part of a purchase relating to an export shortfall, subject to the limit in paragraph 9(a), shall not exceed the lesser of the export shortfall defined in paragraph 24(b)(ii) and the net shortfall in exports defined in paragraph 24(a).

(b) The amount of a purchase relating to an excess in cereal import costs, subject to the limit in paragraph 9(b), shall not exceed the lesser of the excess in cereal import costs defined in paragraph 24(b)(iii) and the net shortfall in exports defined in paragraph 24(a).

29. (a) Subject to paragraph 31, when a reduction in the Fund’s holdings of a member’s currency is attributed to a purchase under this Section, the member shall attribute that reduction between the outstanding cereal import component and export shortfall component of the purchase.

(b) When the Fund’s holdings of a member’s currency resulting from a purchase under this Section or Section II are reduced by the member’s repurchase or otherwise, the member’s access to the Fund’s resources under this Section will be restored pro tanto, subject to the limits in paragraph 9.

30. (a) After the expiration of the period referred to in paragraph 21, the total amount of the export shortfall components of a member’s purchases outstanding under this Section shall be counted as having been purchased under Section II.

(b) The provisions of Section II shall continue to apply to the export shortfall component of a purchase under this Section after the expiration of the period referred to in paragraph 21.

Overcompensation

31. The provisions of paragraph 17, 18, and 19 shall apply mutatis mutandis to purchases under this Section. The applicable 12-month period shall be the period referred to in paragraph 25.

Section IV. Other Provisions

32. All references in other Fund decisions to the Compensatory and Contingency Financing Facility shall be read as the Compensatory Financing Facility.

33. The Fund will review this Decision not later than June 30, 2003 (SM/02/364, 11/27/02).

Decision No. 8955-(88/126)

August 23, 1988,

as amended by Decision Nos. 9101-(89/30), March 7, 1989,

9153-(89/59), May 19, 1989,

9391-(90/43), March 22, 1990,

9503-(90/114), July 16, 1990,

9586-(90/161), November 15, 1990,

9587-(90/161), November 15, 1990,

9588-(90/161), November 15, 1990,

9604-(90/170), December 5, 1990,

10071-(92/85), July 2, 1992,

10183-(92/132), November 3, 1992,

10186-(92/132), November 3, 1992,

10398-(93/89), June 23, 1993,

10725-(94/58), June 24, 1994,

11169-(95/122), December 20, 1995,

11170-(95/122), December 20, 1995,

11474-(97/36), April 9, 1997,

11475-(97/36), April 9, 1997,

11646-(98/1), January 5, 1998,

11647-(98/1), January 5, 1998,

11851-(98/127), December 15, 1998,

11852-(98/127), December 15, 1998,

11878-(99/2), January 6, 1999,

12121-(00/4), January 12, 2000,

12122-(00/4), January 12, 2000,

12131-(00/9), January 28, 2000,

12141-(00/16) CFF, February 15, 2000,

12325-(00/111), November 10, 2000, and 12901-(02/120),

December 6, 2002

Compensatory Financing Facility—Overcompensation

The Executive Board approves the legal interpretation given by the staff in SM/81/234.

The Executive Board agrees for the time being not to change the legal status of a representation to repurchase any amount of overcompensation under the compensatory financing facility.

The Executive Board agrees to maintain the present and past practice under which an overcompensated member would continue to make prompt repurchases, and emphasizes the importance it attaches to maintaining the high standards of prompt repurchase that have generally characterized past experience.

More specifically, the Executive Board agrees, in the light both of past practice and of the nature of overcompensation, that prompt repurchase in the context of the compensatory financing facility decision would mean that the repurchase would normally be made within a period of 30 days. That understanding should be made clear from the start to members that might be in a position to experience an overcompensation problem in the future.

If the normal period of prompt repurchase referred to in paragraph 4 cannot be respected, a report will be made to the Executive Board within a period of up to two weeks as judged necessary by the management and Treasurer, which report should normally be accompanied by a proposal on how to deal with the question in the most prompt and appropriate manner.

Should experience in the future show an increase in the frequency of cases of overcompensation, or a deterioration in the repurchase behavior attaching to such cases of overcompensation, the Executive Board would review the whole policy issue.

EBM/82/1, January 6, 1982, pages 20–21

SM/81/234

Conclusions

1. It is clear from the record that a representation as to repurchase made by a member pursuant to the present paragraph 7 of the compensatory financing decision does not create a legally binding obligation.

2. Prior to the date of the Second Amendment, the Fund did not have the power to require a purchasing member to accept a repurchase obligation (other than the automatic repurchase obligations of Article V, Section 7), except as a “term” safeguarding the Fund’s interests in cases of purchase involving the granting of a waiver pursuant to Article V, Section 4. Since the date of the Second Amendment, however, the Fund has ample authority to change existing, or to create new, repurchase obligations as it deems appropriate to ensure that the use of its resources is consistent with the purposes of the Fund. Thus, the Fund may, under the provisions of Article V, Section 7(d), decide to require members making purchases under the compensatory financing decision in the future on the basis of estimated data to repurchase promptly, as a matter of legal obligation, the amount of any “overcompensation.”

Termination of the Buffer Stock Financing Facility

1. Decision No. 2772-(69/47), adopted June 25, 1969, as amended, is hereby repealed.

2. The following decisions relating to the Buffer Stock Financing Facility are also hereby repealed:

  • —Decision No. 10186-(92/132), adopted November 3, 1992;

  • —Decision No. 3179-(70/102), adopted November 25, 1970;

  • —Decision No. 3351-(71/51), adopted June 21, 1971;

  • —Decision No. 5127-(76/91), adopted June 23, 1976;

  • —Decision No. 7247-(82/147), adopted November 12, 1982;

  • —Decision No. 5597-(77/171), adopted December 16, 1977;

  • —Decision No. 7246-(82/147), adopted November 12, 1982; and

  • —Decision No. 9403-(90/53), adopted April 4, 1990.

Decision No. 12142-(00/16)

February 15, 2000

Termination of the Policy on Currency Stabilization Funds

The Fund hereby terminates its policy on currency stabilization funds as described in the Acting Chairman’s Summing up at the Conclusion of the Discussion on Fund Support for Currency Stabilization Funds (EBM/95/86, 9/13/95).

Decision No. 12184-(00/42)

April 13, 2000

Supplemental Reserve Facility and Contingent Credit Lines

Supplemental Reserve Facility and Contingent Credit Lines

I. Supplemental Reserve Facility

1. (a) The Fund will be prepared to provide financial assistance in accordance with the terms of this section to a member that is experiencing exceptional balance of payments difficulties due to a large short-term financing need resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and the member’s reserves, if there is a reasonable expectation that the implementation of strong adjustment policies and adequate financing will result, within a short period of time, in an early correction of such difficulties.

(b) This facility is likely to be utilized in cases where the magnitude of the outflows may create a risk of contagion that could pose a potential threat to the international monetary system.

(c) When approving a request for the use of its resources under this section, the Fund will take into account the financing provided by other creditors. In order to minimize moral hazard, a member using resources under this section will be encouraged to seek to maintain participation of creditors, both official and private, until the pressure on the balance of payments ceases. All options should be considered to ensure appropriate burden sharing.

(d) The Fund may make the use of its resources under this section conditional upon the adoption by the member of measures under Article VI, Section 1 of the Fund’s Articles of Agreement.

2. Financing under this section will be available to members under a stand-by or extended arrangement in addition to resources in the credit tranches or under the extended Fund facility, in cases where (i) a member faces the type of balance of payments difficulties described in paragraph 1 above and (ii) the projected access in the credit tranches or under the extended Fund facility, taking into account outstanding purchases, would otherwise exceed either the annual or cumulative limit. In those cases, unless the member’s medium-term financing needs require access in the credit tranches or under the extended Fund facility beyond the annual or cumulative limit, financing in the credit tranches or under the extended Fund facility will not be provided beyond the annual or cumulative limit, and financing beyond either limit will be provided only under this section.

3. Financing under this section will be determined by the Fund, taking into account the financing needs of the member, its capacity to repay, including in particular the strength of its program, its outstanding use of Fund credit, and its record in using Fund resources in the past and in cooperating with the Fund in surveillance, as well as the Fund’s liquidity.

4. Financing under this section will be committed for a period of up to one year, even if the corresponding arrangement is for a longer period, and will generally be available in two or more purchases. The first purchase will be available at the time of approval of financing under this section, which will normally coincide with the approval of the corresponding arrangement. The subsequent purchases will be available subject to the conditions of the corresponding arrangement.

5. The corresponding arrangement will identify the total amount and phasing of the financing provided under this section.

6. (a) A member making purchases under this section shall repurchase the outstanding amounts of its currency resulting from such purchases within two to two and a half years from the date of each purchase in two equal semi-annual installments; the first installment shall become due two years and the second installment two and a half years from the date of each purchase.

(b) The member will be expected to repurchase those amounts one year before they become due, provided that the Fund may, upon request by the member, decide to extend each such repurchase expectation by up to one year. If a member fails to make a repurchase as expected, the Fund may require the member to make the repurchase in question within a specified period not to exceed the repurchase schedule under (a) above.

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

7. Purchases under this section and holdings resulting from such purchases shall be excluded for the purposes of the definition of reserve tranche purchase pursuant to Article XXX(c).

8. During the first year from the date of the first purchase financed under this section, the rate of charge under Article V, Section 8(b) on holdings acquired as a result of purchases under this section shall be 300 basis points per annum above the rate of charge referred to in Rule I-6(4) as adjusted for purposes of burden sharing. Such rate shall be increased by 50 basis points at the end of that period and every six months thereafter, until the surcharge reaches 500 basis points, subject to the provisions of paragraph 9.

Pending a decision on the use to be given to the income generated under this section, such income shall not be taken into account when determining the amount of net income in excess of the net income target for purposes of paragraph 3 of Decision No. 11482-(97/42), April 21, 1997.

9. The provisions of Decision No. 8165-(85/189) G/TR, December 30, 1985, except Section IV, shall apply to overdue financial obligations arising under this section, subject to the following provision:

The rate of charge on overdue repurchases shall be determined by the Fund but shall not be less than the maximum rate of charge specified in paragraph 8.

10. Except for the purposes of determining the level of conditionality applied to purchases in the credit tranches, the Fund’s holdings of a member’s currency resulting from purchases under this section shall be considered separate from the Fund’s holdings of the same currency resulting from purchases made under any other policy on the use of the Fund’s general resources.

11. In order to carry out the purposes of this section, the Fund will be prepared to grant a waiver of the limitation of 200 percent of quota in Article V, Section 3(b)(iii), whenever necessary to permit purchases under this section or to permit other purchases that would raise the Fund’s holdings of the purchasing member’s currency above that limitation because of purchases outstanding under this section.

12. This section and its operation will be reviewed no later than January 31, 1999.

II. Contingent Credit Lines

13. Through November 30, 2003, the Fund will be prepared to commit and provide financial assistance to a member under the terms and conditions specified in this section.

14. Financing under this section will be committed to a member: (i) that, at the time of commitment, is implementing policies that are considered unlikely to give rise to a need to use Fund resources, and is not facing balance of payments difficulties of the type described in paragraph 15; (ii) whose policies have received a positive assessment from the Fund at its last Article IV consultation and whose policies have continued to be assessed favorably by the Fund thereafter based on economic indicators reflecting domestic stability and external sustainability, and taking into account the extent of the member’s adherence to relevant internationally-accepted standards; in particular, the member would have subscribed to the Special Data Dissemination Standard and be judged to be making satisfactory progress towards meeting its requirements; (iii) that is maintaining constructive relations with its private creditors with a view to facilitating appropriate involvement of the private sector, and has made satisfactory progress in limiting external vulnerability through the management of the level and structure of its external debt and international reserves; and (iv) that has submitted a satisfactory economic and financial program, including a quantified framework, which the member stands ready to adjust as needed.

15. Financing under this section will be provided where, as a result of circumstances that are largely beyond the control of the member and that stem primarily from adverse developments in international capital markets consequent upon developments in other countries, the member is experiencing exceptional payments difficulties due to a large short-term financing need resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and the member’s reserves, if there is a reasonable expectation that adequate financing and the implementation of any necessary adjustment policies will result, within a short period of time, in an early correction of such difficulties.

16. Financing under this section will be committed and provided under a stand-by arrangement, in addition to resources in the credit tranches. Financing will be committed under this section in cases where purchases in the credit tranches or under the extended Fund facility, taking into account outstanding purchases, would otherwise exceed either the annual or cumulative access limit.

17. The Fund may commit resources under this section at any time under an arrangement, but will only make such resources available after the completion of an activation review under the arrangement when it finds that the member meets the conditions specified in paragraph 15. The arrangement will specify the total amount of resources committed under this section and the amount of such resources that will be made available upon the completion of the activation review. The availability of the rest of the committed resources under this section shall be subject to such phasing and conditionality as the Fund shall consider appropriate, normally at the time of a post-activation review. In addition, the arrangement will normally provide for the continued commitment of resources under this section beyond a specified date to be subject to the completion of a program review by the Fund. The Fund may commit resources under this section for a period of up to one year and, after it makes such resources available, may extend such period for up to one year from the date such resources are made available.

18. Notwithstanding the provisions of paragraph 16, financing under this section may be committed and provided under any extended arrangement in effect on June 30, 1999.

19. Paragraphs 6, 7, 10 and 11 of this decision shall apply to purchases made under this section.

20. During the first year from the date of the first purchase financed under this section, the rate of charge under Article V, Section 8(b) on holdings acquired as a result of purchases under this section shall be 150 basis points per annum above the rate of charge referred to in Rule I-6(4) as adjusted for purposes of burden sharing. Such rate shall be increased by 50 basis points at the end of that period and every six months thereafter, until the surcharge reaches 350 basis points, subject to the provisions of paragraph 21.

21. The provisions of Decision No. 8165-(85/189) G/TR, December 30, 1985, except section IV, shall apply to overdue obligations arising under this section, subject to the following provision:

The rate of charge on overdue repurchases shall be determined by the Fund but shall not be less than the maximum rate of charge specified in paragraph 20.

22. This section and its operation will be reviewed no later than June 30, 2003 (SM/02/364, 11/27/02).

Decision No. 11627-(97/123) SRF

December 17, 1997,

as amended by Decision Nos. 11866-(99/1) SRF, December 22, 1998,

11895-(99/11) SRF, January 25, 1999,

11942-(99/48) SRF/CCL, April 23, 1999,

11982-(99/61) SRF/CCL, June 8, 1999,

12197-(00/48) SRF/CCL, May 4, 2000,

12340-(00/117) SRF/CCL, November 28, 2000,

and 12902-(02/120) CCL,

December 6, 2002

Summing Up by the Acting Chairman Contingent Credit Lines Executive Board Meeting 00/113, November 17, 2000

1. Directors have given extensive consideration to a role for the Fund in providing members with contingent credit lines (CCLs), both when the CCL was established in April of last year and on the occasion of the review of the CCL this year. The CCL is conceived essentially as an important instrument of crisis prevention, creating further incentives for the adoption of strong policies and adherence to internationally accepted standards, encouraging the constructive involvement of the private sector, and thereby reducing the risks of contagion. There are a number of elements in the CCL decision, as revised in November 2000, which require some elaboration in order to express the Board’s understanding as to how they will operate.

2. Foremost among these elements are the four eligibility criteria referred to in paragraph 14 of the decision. As is clear from the decision, and as Directors have agreed, for a member to be eligible for the CCL, it must satisfy all four of these criteria. Directors have also agreed, however, that in assessing whether an individual criterion is satisfied, the Executive Board would take into account a range of factors, and would exercise judgment as to whether a sufficient “critical mass” of factors relevant to the criterion is in evidence.

3. Let me start with the first criterion. It is agreed that, for a member to be eligible for the CCL, the member’s policies should be such that, absent a future balance of payments problem of the type for which CCL resources are intended, the member would not otherwise be expected to need to use Fund resources. This criterion would not exclude members with arrangements in place where members are treating these arrangements as precautionary or where drawings are outstanding but the need for further drawings under the arrangements is judged to have ceased as confirmed by the member.

4. As indicated by the second criterion, the member’s policies should “have received a positive assessment from the Fund at its last Article IV consultation” and its policies should have “continued to be assessed favorably by the Fund thereafter based on economic indicators reflecting domestic stability and external sustainability, and taking into account the extent of the member’s adherence to relevant internationally accepted standards.” It is understood that by a “positive assessment,” it is meant that the Board should have expressed its broad satisfaction with the member’s policy stance and prospects, although this does not necessarily mean an assessment entirely devoid of recommendations for changes in policy. But it would be important that the Board should be of the view that the member’s policies themselves would not expose it to significant risk of balance of payments pressure, and this should be true both of the member’s policies in the recent past and of the policies it plans to implement in the future. This broadly satisfactory assessment should have been expressed at the time of the most recent Article IV consultation, and reaffirmed, with respect to the policies the member has been implementing and the policy plans it has framed since the Article IV consultation, at the time of the commitment of CCL resources. If the member has not already done so, the Fund would strongly encourage a member that contemplates use of the CCL to publish its Article IV staff report.

5. Directors are agreed that, in judging eligibility under this criterion, the Board should take into account the member’s progress in adhering to relevant internationally accepted standards. The member would have subscribed to the Special Data Dissemination Standard and be judged to be making satisfactory progress toward meeting its requirements. In addition, the Board would take into account the member’s adherence, or progress toward adherence, to the Basle Core Principles for Banking Supervision, and the codes of transparency in the areas of fiscal and monetary and financial policies. Other standards, some of which are still under development, could also be added as they are developed, so long as the Fund is able to assess adherence, possibly taking into account the views of other organizations. As standards are developed and experience is gained, the question of requiring adherence to certain standards could be reviewed.

6. The third criterion provides that a member would be eligible if it is maintaining constructive relations with its private creditors with a view to facilitating appropriate involvement of the private sector, and has made satisfactory progress in limiting external vulnerability through the management of the level and structure of its external debt. This is a complex area, and many aspects of it remain to be fully worked out. Directors have accepted that a judgmental approach to assessing overall progress in this area will be needed, and they have pointed to a number of factors and considerations that would be relevant to this criterion. For a member to be judged to have constructive relations with private creditors, for example, it would seem essential that the member not have external payments arrears on sovereign debt, nor on private debt as a result of exchange controls. In examining a member’s request under the CCL, the Executive Board would take account of market assessments of the country’s situation. In addition, a member should have in place, or demonstrate that it is making credible efforts toward putting in place, appropriate arrangements to involve the private sector. These might include, by way of example, (i) contingent private credit lines or similar arrangements, (ii) call options in debt instruments, which would permit the debtor to extend their maturity, (iii) terms and conditions in recent and forthcoming bond contracts that include provision for the adjustment of terms by qualified majorities, collective representation provisions, and sharing clauses, (iv) as they are developed, other debt instruments designed to provide efficient and appropriate insurance against shocks, (v) a framework for debtor-creditor discussions, (vi) effective debt management procedures, and (vii) strong domestic bankruptcy regimes. It has to be recognized that most of these arrangements are not yet in general use, and we will need both to evaluate what countries have achieved in this area relative to changing practices, and be prepared to learn from experience. As experience is gained and instruments are developed, this checklist will need to be adapted and, as in the area of standards, we could consider whether it would be possible to define more concretely a critical mass of steps that should be expected.

7. In assessing the member’s external vulnerability and the management of its external debt profile, the Board will take into account a range of factors or “sustainability checks” including, inter alia, the evolution of the real exchange rate (to establish that this has not moved to an unsustainable level), the level and composition (currency denomination and maturity profile) of public debt (including with reference to derivatives, and with consideration of creditors’ put options), the level and composition of external debt (including with reference to derivatives, and with consideration of creditors’ put options), the level of gross and net international reserves, the share of short term external debt unmatched by private contingent credit lines or reserves, the net foreign asset position of commercial banks, and the evolution of domestic credit in relation to GDP. To assist the Board’s assessment in this respect, the staff and the authorities should work to provide quantified “stress simulations” which will aim to take into account both potential outflows and secured inflows in the event of a crisis. The policies the member has implemented with a view to limiting vulnerability would also be taken into account. The appropriateness of the exchange rate regime will be important in this respect, but other factors will also be relevant, such as the degree to which the member has avoided bias (for instance, in its regulatory and tax system) in favor of short-term borrowing and the existence of a system to monitor private external liabilities.

8. The final criterion requires that a member should submit for the Board’s approval “a satisfactory economic and financial program, including a quantified framework, which the member stands ready to adjust as needed.” As is customary in support of a request for access to Fund resources, the member would present to the Board a description of its planned economic policies for the period for which access to CCL resources is approved, including a quarterly quantified framework that will guide its macroeconomic policies, and the structural policies it intends to implement. There would be a strong presumption that this statement of policies would be released to the public. Such policies would be expected to be of sufficient quality and strength that they would meet the standards required of drawings in the upper credit tranches. The quantified framework should be specified in such a way that the staff and the Board would be able to form a rapid assessment of the member’s compliance with it and thereby facilitate the rapid release of resources upon the request for activation of the CCL. There would not, however, be a need for performance criteria or quantitative benchmarks, nor for a Technical Memorandum of Understanding or similarly detailed definitions of program targets, as long as the basis on which the authorities compiled and reported data was well understood. And while the initial consideration of the member’s eligibility would assess its structural program and the progress expected under that program during the period of commitment of CCL resources, it would also not be necessary for the structural program of a member that has prequalified for the CCL to be specified to the degree of detail that would be entailed by structural benchmarks. Monitoring of the program would involve regular and timely provision of relevant data to the staff and continuous monitoring by the staff of the country’s economic situation.

9. I turn now to the subject of access. While there is no general access limit, it is accepted that, unless warranted by exceptional circumstances and while paying due regard to the liquidity position of the Fund, commitments under the CCL would be expected to be in a range of 300–500 percent of quota.

10. In its consideration of a member’s request for a commitment of the Fund’s resources under the CCL, the Executive Board will also consider the potential impact on the Fund’s liquidity position and on the level of the Fund’s usable and potentially available resources over the period of the requested commitment. The Executive Board will monitor the Fund’s liquidity position on a continuing basis paying particular regard to the possible evolution of commitments under the CCL as well as under the Fund’s other facilities. The Executive Board will also consider in the light of experience the appropriate method to assess the impact of CCL commitments and possible purchases on the Fund’s liquidity position.

11. CCL resources would be committed under a stand-by arrangement.1 In accordance with the principles on access under arrangements, upon Board approval of an arrangement establishing a contingent credit line, a small purchase of credit tranche resources (typically 5 percent of quota) would be immediately available. Beyond this, activation of the credit line will require a Board review. This approach would also be applied if CCL resources are committed in the context of an existing arrangement (namely an arrangement that the member treats as precautionary).

12. A member for which a CCL has been approved may, at any time, request access to CCL resources, which would require a special “activation” review by the Board. The Board would expeditiously complete this review, and make available the associated purchase, if it were satisfied that: (i) the member is experiencing exceptional balance of payments difficulties due to a large short-term financing need resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and the member’s reserves, and (ii) these difficulties are judged to be largely beyond the member’s control and to be primarily from adverse developments in international capital markets’ consequent upon developments in one or several other countries. In determining whether condition (ii) for the activation review had been met, the Board would verify that the member’s own policies had not been a significant cause of the pressures in its balance of payments. Activation would be completed on the presumption that the member remains committed to adjusting policies to deal with any significant economic impact that may follow from contagion, with the member being given the strong benefit of the doubt in this respect. The monitoring arrangements already in place would allow the activation review to be completed rapidly. The amount to be released upon completion of the activation review would be determined and specified at the time of commitment of CCL resources, and would normally amount to one third of the total amount of resources committed under the arrangement.

13. The amount of the arrangement that is not made available at the activation review will be subject to such phasing and conditionality as the Fund shall determine at the time of a post-activation review. At that time, the Fund and the member would reach understandings on policies to be pursued from that point onward. In light of the nature of the crisis, conditionality for access to the remaining resources would not generally be expected to involve changes in structural policies, although it could involve continuation of those structural measures that had been agreed upon at the time of the initial consideration of the commitment of CCL resources. The post-activation review would normally follow the activation review with some lag, albeit short in most cases; but the member could request simultaneous completion of the activation and post-activation reviews if it so desired, and the Board could agree to such a request if it were satisfied that the member’s situation and the Board’s familiarity with and assessment of its policies warranted it.

14. Upon approval of the arrangement committing CCL resources, the Board will schedule a mid-term review to be completed by a specified date if the activation review is not completed before this date. After this date has passed, the mid-term review will need to be completed before a purchase associated with the activation review can be released. At the mid-term review, the Board would satisfy itself that the member was successfully implementing the economic program earlier presented to the Board and had adjusted that program appropriately in response to any changes in circumstances. In appropriate cases, it would be possible to complete the mid-term review on a lapse-of-time basis. Between occasions of formal consideration by the Board, the staff and management would be expected to remain in close consultation with the member, particularly should any untoward developments occur, and would bring the member’s situation to the attention of the Board should there be concerns that slippages in the member’s policies make it vulnerable to crisis. Such close consultation would help provide a signal to the member if developments affected the likelihood that the Fund would be able to complete the activation review if the relevant circumstances arose.

15. The CCL is an important initiative for the Fund. It involves several aspects that are new or still under development, and we will need to continue to approach it experimentally, with a view to learning and, if necessary, adapting it. The guidelines formulated in this summing up replace those set out in BUFF/99/56, dated April 24, 1999.

Supplemental Reserve Facility and Contingent Credit Lines Disposition of Net Operating Income, FY 2001

For financial year 2001, after meeting the cost of administering the PRGF Trust, any remaining net operational income generated by the Supplemental Reserve Facility and the Contingent Credit Lines shall be transferred, after the end of that financial year, to the General Reserve.

Decision No. 12191-(00/45) SRF/CCL, April 28, 2000

effective May 2, 2000

Systemic Transformation Facility

Systemic Transformation Facility

1. (a) Until April 30, 1995, the Fund will be prepared to provide financial assistance in accordance with the terms of this decision to members that are experiencing balance of payments difficulties as a result of severe disruptions in their traditional trade and payments arrangements that are manifested by (i) a sharp fall of total export receipts due to a shift from significant reliance on trading at nonmarket prices to multilateral, market-based trade, (ii) a substantial and permanent increase in net import costs, due to a shift from significant reliance on trading at nonmarket prices toward world market pricing, particularly for energy products, or (iii) a combination of both.

(b) For purposes of this decision, disruptions in a member’s trade and payments arrangements shall be deemed to be “severe” when they are estimated to be at least equivalent to 50 percent of quota.

2. Financing under this decision for the balance of payments difficulties stemming from the disruptions described in paragraph 1 above shall not exceed 50 percent of the member’s quota and shall be provided in two purchases. Each purchase shall be equal to 50 percent of the member’s access as determined under this decision.

3. (a) A member may expect that its request for a first purchase under this decision will be met immediately, if the Fund is satisfied that the member will cooperate with the Fund in an effort to find appropriate solutions to its balance of payments difficulties, based on:

  • (i) a written statement submitted by the member

    • – describing the policies and measures that the member intends to pursue for the next 12 months, including, as appropriate, the steps taken or to be taken to put in place the basic institutions of economic management in a market-oriented system;

    • – stating the member’s intention to reach understandings with the Fund as soon as possible on a comprehensive adjustment program that could be supported by a Fund arrangement; and

    • – describing a financial program, including quarterly targets for relevant macroeconomic indicators, for the next 12 months, if such a program can reasonably be elaborated; and

  • (ii) such prior actions, if any, as the Fund considers appropriate.

(b) A member shall be deemed to fulfill the condition of willingness to cooperate set out in subparagraph (a) above with respect to a request for a first purchase, if a Fund arrangement is approved or a program review under a Fund arrangement is completed for the member while the request for the first purchase is under consideration by the Fund.

4. (a) A member may expect that its request for a second purchase under this decision, which would normally be made about 6 months, but in any event not later than 18 months, after the date of the first purchase, will be met when the Fund is satisfied that the member continues to cooperate with the Fund in an effort to find appropriate solutions to its balance of payments difficulties, based on:

  • (i) a finding by the Fund that there has been satisfactory progress (1) toward reaching understandings between the member and the Fund on a comprehensive adjustment program that could be supported by a Fund arrangement, taking into account the policies and measures carried out by the member since the first purchase, and (2) in mobilizing the external financing necessary to support the policies being implemented with the support of the Fund under this decision;

  • (ii) a written statement submitted by the member describing or updating a financial program, including quarterly targets of relevant macroeconomic indicators, for the subsequent two quarters; and

  • (iii) such prior actions, if any, as the Fund considers appropriate.

(b) A member shall be deemed to fulfill the condition of continuing cooperation set out in subparagraph (a) above with respect to a request for a second purchase, and may make such purchase earlier than specified in subparagraph (a) above, if a Fund arrangement is approved or a program review under a Fund arrangement is completed for the member not less than 2 months after the date of the first purchase and while the request for the second purchase is under consideration by the Fund.

5. A member that has a Fund arrangement shall, as a condition for making a purchase under this decision, reach understandings with the Fund on appropriate modifications of the terms and conditions of the arrangement, including the amount of the arrangement.

6. Purchases under this decision and holdings resulting from such purchases shall be excluded for the purposes of the definition of “reserve tranche purchase” pursuant to Article XXX(c).

7. Except for the purpose of determining the level of conditionality applied to purchases in the credit tranches, the Fund’s holdings of a member’s currency resulting from purchases under this decision shall be considered separate from the Fund’s holdings of the same currency resulting from purchases made under any other policy on the use of the Fund’s general resources. In cases of concurrent requests for a purchase in the credit tranches and for a purchase under this decision, the purchase under this decision shall be deemed to be made first.

8. In order to carry out the purposes of this decision, the Fund will be prepared to grant a waiver of the limitation of 200 percent of quota in Article V, Section 3(b)(iii), whenever necessary to permit purchases under this decision or to permit other purchases that would raise the Fund’s holdings of the purchasing member’s currency above that limitation because of purchases outstanding under this decision.

9. Wherever used in this decision, the expression “Fund arrangement” will mean an upper credit tranche stand-by or extended arrangement or an arrangement under the Enhanced Structural Adjustment Facility.

10. In providing financing pursuant to this decision, the Fund, as under any other policies of the Fund, shall pay due attention to the member’s capacity to service its financial obligations to the Fund, and, having regard to the outstanding financial obligations of the member to the Fund and to assurances received from creditors and donors, may reduce the amount of financing accordingly, notwithstanding any other provision of this decision.

11. Notwithstanding paragraph 1, a second purchase under paragraph 4 may be made by a member after April 30, 1995, but not later than December 31, 1995, provided that the member has made the first purchase under paragraph 3 before December 31, 1994.

12. Pursuant to Article V, Section 7(d), repurchases in respect of an outstanding purchase under this decision shall be made in equal semiannual installments during the period beginning four and one half years and ending ten years after the purchase.

13. Rule I-6(4) shall be amended by inserting the following new subparagraph (viii):

or (viii) under the Systemic Transformation Facility (Executive Board Decision No. 10348-(93/61) STF, adopted April 23, 1993,)

Decision No. 10348-(93/61) STF

April 23, 1993,

as amended by Decision Nos. 10760-(94/71) STF, July 29, 1994 and

10855-(94/109) STF,

December 14, 1994

Future of Systemic Transformation Facility

The period of the systemic transformation facility is not extended. In accordance with the terms of the decision establishing this facility, the period within which a member may make a first purchase will expire on April 30, 1995. With respect to members that will have only made their first purchase by April 30, 1995, the period during which they may make their second purchase will expire on December 31, 1995.

Decision No. 10961-(95/41)

April 19, 1995

Corresponds to Article V, Section 3(b)(ii) of the Articles of Agreement after the Second Amendment.

The remaining provisions of this decision are no longer in effect.

Sections on misreporting have been deleted from this summing up in light of subsequent decisions on misreporting (Decision Nos. 12252-(00/77), July 27, 2000, on pages 80–82, and 12249-(00/77), July 27, 2000, on pages 247–49.

See also Annual Reports 1953, 1955, 1959, 1961, and 1962.

Where a CIRR is not available for a given currency or time period, a rate based on five-year government bond yields in the currency concerned is used as a proxy in Table 1 (not included in this volume).

It is intended to use the 10-year averages at end-1995 throughout 1996.

Paragraph 1 of this decision appears on page 626.

Paragraph 2 of this decision, which was incorporated in paragraph 4(a) of Decision No. 4377-(74/114), was deleted by Decision No. 10182-(92/132), November 3, 1992.

Deleted (Decision No. 10182-(92/132), November 3, 1992).

Corresponds to Article V, Section 3(b)(iii) of the Articles of Agreement after the Second Amendment.

The performance criteria enumerated here are examples only.

The performance criteria enumerated here are examples only.

Eliminated by Decision No. 12325-(00/11), November 10, 2000.

Eliminated by Decision No. 12185-(00/42), April 13, 2000.

It is noted that, in contrast to the lapse of time procedures for Article IV consultations, the Chairman could propose lapse of time consideration for program reviews without agreement of the Executive Director of the country concerned. This is in line with current practice where the Chairman identifies and makes proposals for lapse of time consideration of program reviews on the basis of his judgment and that of the staff.

It should be noted that under current practice, when a matter is approved under the lapse of time procedure unless otherwise specified, the effective date of the decision is the same day as the close of the lapse of time period. Consistent with the procedures contained in SM/96/214, Supplement 1, the lapse of time period would close two business days prior to the scheduled Board date and the effective date of decision would be the originally scheduled Board date.

See pages 482–83 for paragraphs 1 through 3.

The policy on enlarged access lapsed on November 11, 1992.

The annual limit is the gross amount. See Decision No. 10819 on the annual limit of 100 percent, which provides, “Accordingly, during that period, the Fund may approve outright purchases in the credit tranches and stand-by or extended arrangements for up to a total annual amount of purchases of 100 percent of quota.”

The criteria governing access in individual cases set out in the Chairman’s Summing Up of December 2, 1983 continue to apply, mutatis mutandis, under the current access limits. See Summing Up by the Chairman of the discussions on Access Policy and Limits in Connection with Quota Increases under Ninth General Review, EBM/92/129, October 28, 1992, BUFF/92/133, October 30, 1992.

Any reference in this volume to the “Compensatory and Contingency Financing Facility” shall be read as a reference to the “Compensatory Financing Facility.”

However, CCL resources could also be committed under an extended arrangement in effect on June 30, 1999.

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