Selected Decisions and Selected Documents of the International Monetary Fund
Chapter

ARTICLE V, SEC. 3(A), (B), AND (C): Use of Fund's Resources

Author(s):
International Monetary Fund
Published Date:
August 1997
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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 Agreement” IN 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),* 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

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.”

*

Decision No. 102-(52/11)

February 13, 1952

Payments Arrears

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

.

. **

.

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, p. 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 pp. 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 Chairman's Summing Up on Fund Involvement in the Debt Strategy Executive Board Meeting 89/61, May 23, 1989

Directors stressed that in promoting orderly financial relations, every effort must be made to avoid arrears, which could not be condoned or anticipated by the Fund in the design of programs. Nevertheless, an accumulation of arrears to banks may have to be tolerated where negotiations continue and the country's financing situation does not allow them to be avoided. Directors emphasized that appropriate safeguards would need to be incorporated into the monitoring procedures of the Fund arrangement. The Fund's policy of nontoleration of arrears to official creditors remains unchanged. The debtor member would be expected to continue to treat creditors on a nondiscriminatory basis. Directors agreed that while negotiations with bank creditors were continuing, the situation would need to be monitored closely. Performance criteria would be quarterly. A review of progress in the negotiations would be scheduled at an appropriate time and, normally, before the second disbursement.

Overdue Obligations to the Fund

Overdue Payments to the Fund—Purchases From Fund

l. … *

2. … *

3. Other stand-by or extended arrangements granted by the Fund after the date of this decision shall include also the provision in 1 or 2 above.

4. The provision in 1 and 2 above shall be included also in an existing stand-by or an extended arrangement when the Fund and the member reach understandings regarding the circumstances in which further purchases may be made under the arrangement.

5. Decision No. 7678-(84/62), April 20, 1984, shall cease to apply in respect of a stand-by or an extended arrangement that includes the provision in 1 or 2 above.

Decision No. 7908-(85/26)

February 20, 1985

The Executive Board unanimously reaffirmed the existing practices … that management will not submit to the Board any requests for the use of Fund resources under a stand-by or extended arrangement as long as the member concerned has overdue payments to the Fund.

There was more debate whether the Fund should engage in discussions or resume discussions on the use of Fund resources with a member that is in arrears to the Fund. On the whole, the practice of not entering into discussion in those circumstances was confirmed.

This does not mean that we are not going to continue discussions … with members with overdue payments; but … discussions [are] confined quite precisely to assisting the members to organize their affairs in order to permit the payment of the overdue obligations …. Far from cutting our lines of communication, we should do what we can to keep them open. But we should direct the discussions toward enabling the country to make repayments.

EBM/84/54, pp. 37-38

The Chairman's Summing Up at the Conclusion of the Discussion on Overdue Financial Obligations to the Fund Executive Board Meeting 85/170, November 25, 1985

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

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

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

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

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

The Acting Chairman's Concluding Remarks at the Discussion on Additions to the Special Contingent Account Executive Board Meeting 88/12, January 29, 1988

Some Directors made reference to the Enhanced Structural Adjustment Facility in the context of the arrears problem. The Managing Director has stated several times that members in arrears to the Fund would not have access to the Enhanced Structural Adjustment Facility, just as they do not currently have access to the Structural Adjustment Facility (Buff/87/260, 12/17/87), or the facilities in its General Resources Account. Thus, the existing arrears policy is not changed or modified in the context of the Enhanced Structural Adjustment Facility. At the heart of dealing with those cases in which arrears exist are the elements of a strong adjustment program which will assist in attracting external resources to help the country clear its arrears. The Fund could then grant access to its facilities as appropriate, including, of course, the Enhanced Structural Adjustment Facility when it becomes operational.

The Acting Chairman's Summing Up at the Conclusions of the Discussion on Overdue Financial Obligations—Six-Monthly Report Executive Board Meeting 88/19, February 10, 1988

Second, Directors also agreed that the present practice, whereby the general policies and procedures relating to overdue financial obligations to the Fund are not applied to overdue maintenance of value adjustments, should be continued. Again, it was emphasized that prompt settlement of these adjustments constitutes an essential element of members' financial obligations to the Fund, and the staff was encouraged to follow up actively in cases of overdue valuation adjustments in order to achieve a more speedy settlement and to report periodically to the Board in the context of staff papers on individual members.

Procedures for Dealing with Members with Overdue Financial Obligations to the Fund Executive Board Meetings 89/100 and 89/101, July 27, 1989

The Fund, as a cooperative institution, relies on the mutually supportive actions of its membership in all areas of its endeavors. Overdue financial obligations are a breach of obligations to the Fund and are demonstrably a noncooperative action, which imposes financial cost on the Fund's membership, impairs its capacity to assist members, and more generally weakens the Fund's ability to perform its broader responsibilities in the international financial system.

As the experience with arrears demonstrates, countries which accumulate arrears to the Fund also damage themselves, in part through the deterioration which inevitably follows in their financial relations with other creditors. When arrears exist the Fund is not able to provide its own assistance and its effectiveness is diminished as a catalyst for helping the country restore regular financial relations with other creditors.

This statement outlines procedures aimed at preventing the emergence of overdue financial obligations to the Fund and the elimination of existing overdues, including protracted arrears. The need for flexibility in the implementation of the Fund's policies dealing with overdues has been stressed in the past; flexibility must continue to be exercised in order to take account of the specific circumstances of the member. Nonetheless, a balance must be struck between the need for appropriate flexibility and the need for clear and credible procedures that act as a deterrent to members against incurring arrears and to encourage members with overdues to become current.

Arrears prevention

The importance of preventing new cases of arrears has been stressed by the Executive Board. As noted in the past, our best safeguard is the quality of Fund arrangements and we will continue to direct our efforts to ensure that arrangements of the highest quality are placed before the Board. These efforts would include assisting members to design strong and comprehensive economic programs, careful attention to access levels and phasing, explicit assessment of a member's capacity and willingness to repay the Fund, and adequate assurances regarding external financing during the period of the Fund arrangement. Special understandings with creditors and donors may also need to be sought in certain cases to help assure progress toward external viability. In some cases, specific financial or administrative arrangements—designed to ensure that forthcoming obligations to the Fund are settled on time—will be used to increase the assurance that the Fund's resources will be repaid on time. Moreover, the importance of members remaining current on obligations falling due and observing the Fund's preferred creditor status will continue to be stressed.

The Fund's response to overdue obligations

The Fund has developed a set of procedures for dealing with members with overdue financial obligations which are designed to bring about a reduction and the eventual elimination of these overdue obligations. In addition to the procedures set out below, the Fund makes an effort to assist members willing to cooperate to eliminate their arrears through the design and implementation of appropriate policies as well as to help members adopting these policies to secure the necessary financial support.

The procedures initiated immediately after a member falls into arrears provide for a sequence of actions by management, the staff, and the Executive Board.

—Whenever a member fails to settle an obligation on time, the staff immediately sends a cable urging the member to make the payment promptly; this communication is followed up through the office of the Executive Director concerned.

—When an obligation has been outstanding for two weeks, management sends a communication to the Governor for that member stressing the seriousness of the failure to meet obligations to the Fund and urging full and prompt settlement. The Executive Board understands that the Governor will bring this communication and the circumstances that gave rise to it to the attention of his authorities at the highest level. The communication to the Governor would also note that unless payment is received in due course, the Managing Director would intend to raise with the Executive Board the possibility of communicating with Governors of the Fund concerning the situation. The Managing Director has on occasion raised the matter of overdue financial obligations to the Fund directly with the head of government of the member concerned, and he would intend to continue to do so in those cases where he believes it would be a useful procedure.

—The Managing Director notifies the Executive Board normally one month after an obligation has become overdue.

—When the longest overdue obligation has been outstanding for six weeks, the Managing Director informs the member concerned that unless the overdue obligations are settled a complaint will be issued to the Executive Board in two weeks' time.

The Managing Director would in each case recommend to the Executive Board whether a communication should be sent to a selected set of Fund Governors, or to all Fund Governors. If it were considered that it should be sent to a selected set of Fund Governors, an informal meeting of Executive Directors would be held, some six weeks after the emergence of overdues, to consider the thrust of the communication. Alternatively, if it were considered that the communication should be sent to all Fund Governors, a formal Board meeting would be held to consider a draft text and the preferred timing. A sample text for a communication to all Fund Governors is set out in Attachment I.

—A complaint by the Managing Director is issued two months after an obligation has become overdue, and is given substantive consideration by the Executive Board one month later. At that stage, the Executive Board has usually decided to limit the member's use of the general resources, and if the member has overdue obligations in the SDR Department, to suspend its right to use SDRs, and has provided for a subsequent review of the decision. This and subsequent review periods would normally not exceed three months. It would be understood that the Managing Director may recommend advancing the Executive Board's consideration of the complaint regarding the member's overdues.

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

Beyond these procedures, the Executive Board has expressed its intention to provide that a member must first discharge its overdue financial obligations to the General Resources Account before it would be permitted to pay for an increase in its quota under the Ninth General Review, and that, in the event the quota payment were not made within a prescribed period, the proposal for an increase in the member's quota would lapse.

Another measure being considered by the staff relates to the possibility of withholding SDR allocations for members with arrears in the General Department. This measure would require an amendment of the Articles and will be examined further in the next Six-Monthly Report on Overdue Financial Obligations.

Declaration of ineligibility

—If a member persists in its failure to settle its overdue obligations to the Fund, the Executive Board declares the member ineligible to use the general resources of the Fund. The timing of the declaration of ineligibility would vary according to the Board's assessment of the specific circumstances and of the efforts being made by the member to fulfill its financial obligations to the Fund. The procedures for dealing with members with protracted arrears that have been declared ineligible include further reviews at intervals of not more than six months.

—For members with protracted arrears willing to cooperate with the Fund in settling those overdues, the Fund has adopted an intensified collaborative approach, which incorporates exceptional efforts by the international financial community.

—For members that are judged not to be cooperating actively with the Fund, remedial measures would be applied.

—Members not showing a clear willingness to cooperate with the Fund have been informed that in these circumstances the provision of technical assistance would be inappropriate, but the Fund would reconsider providing technical assistance once the member has resumed active cooperation. The Managing Director may also limit technical assistance provided to a member, if in his judgment that assistance was not contributing adequately to the resolution of the problems associated with overdues to the Fund.

—A further remedial measure in cases of protracted arrears would be communications with all Governors of the Fund and with heads of certain international financial institutions. Use of such communications would normally be raised for the Executive Board's consideration at the time of the first post-ineligibility review of the member's arrears. At that time the staff would prepare a draft text of a communication along the lines set out in Attachment II to this statement. It should be noted that the Fund's communication to certain other international financial institutions, such as the three main regional development banks (Asian Development Bank, African Development Bank, Inter-American Development Bank), like its communication to the Governors, would not request the addressee to take specific actions and would leave any action to the institution's discretion. This does not preclude informal contacts with other international financial institutions. The staff would intend to propose to send this latter type of communication on the occasion of the next post-ineligibility review for members that at present have arrears that have been outstanding for a protracted period, in the event the Executive Board judges that the member concerned is not cooperating actively with the Fund in efforts to resolve the problem of its overdue financial obligations to the Fund.

Censure or declaration of noncooperation

—A declaration of censure or noncooperation would come as an intermediate step between a declaration of ineligibility and a resolution on compulsory withdrawal. The decision as to whether to issue such a declaration would be based on an assessment of the member's performance in the settlement of its arrears to the Fund and of its efforts, in consultation with the Fund, to follow appropriate policies for the settlement of its arrears. Three related tests would be germane to this decision regarding (i) the member's performance in meeting its financial obligations to the Fund taking account of exogenous factors that may have affected the member's performance; (ii) whether the member had made payments to other creditors while continuing to be in arrears to the Fund; and (iii) the preparedness of the member to adopt comprehensive adjustment policies. The declaration would follow any communication to Governors after ineligibility and would be considered at a subsequent post-ineligibility review. The period between such communications and the declaration could be about six months, but this time period would be determined on a case-by-case basis.

A draft of the declaration is set out in Attachment III. The actual declaration would be based on this draft text taking account of the circumstances of the individual case. The declaration would be adopted by the Executive Board and published.

Other remedial measures

—On suspension of membership, Directors noted the necessity of amending the Fund's Articles of Agreement to provide for suspension of membership. Some Directors showed an interest in introducing a provision into the Articles of Agreement under which the voting rights of a member that has been declared ineligible to use the Fund's general resources could be suspended. However, most Directors felt that it would not be advisable to propose an amendment of the Fund's Articles of Agreement at this time, but that this matter could be reconsidered in the future.

—Finally, Directors noted the availability to the Fund of procedures under Section 22 of the By-Laws on compulsory withdrawal. These procedures would only be pursued once the Fund has exhausted all other possible avenues to redress the problem of overdue financial obligations and, despite a declaration of noncooperation, the member has not exhibited a willingness to cooperate with the Fund. The Articles of Agreement and the By-Laws provide for procedures for settling claims by the Fund on a member in the event that it withdraws from the Fund. If the procedures were initiated, the staff would prepare an analysis of the effect of the member's withdrawal on the Fund's financial position.

Attachment I

Draft First Letter to All Governors

Dear:

The Executive Board has considered the complaint which was recently issued regarding [member] 's overdue financial obligations to the Fund. In considering this complaint the Executive Board has agreed that I write to all Governors of the Fund to draw their attention to this development. Prompt and effective actions now by [member] and the international community would avoid a further deterioration of this situation including the possibility of declaring [member] ineligible to use the general resources of the Fund, would permit these overdues to be cleared before their magnitude makes the problem more intractable, and before they place a financial burden on other members.

[Paragraph on background circumstances of member leading to the emergence of arrears, the views of the member regarding its overdue obligations, and the member's intended approach for addressing the problem of its overdue obligations. This paragraph would be tailored to the specific circumstances of the member concerned.]

The Executive Board is very concerned about these developments which have serious potential implications both for the [member] and for the Fund as a whole, if the problem is not resolved early. The existence of these overdue financial obligations to the Fund precludes the Fund from extending financial assistance to the member. In addition, experience to date indicates that when a country incurs arrears to the Fund its financial relations with other creditors are also likely to deteriorate. These arrears also have an adverse impact on the Fund as an international financial cooperative, which is the central monetary institution in the international monetary system. As you are aware, overdue obligations, if they are not settled, place a financial burden on other members: on the Fund's debtor members in the form of higher charges and the Fund's creditors in the form of reduced remuneration.

The Fund would greatly appreciate any assistance in urging the member to effect the full and prompt settlement of its overdue obligations to the Fund.

Sincerely yours,

Michel Camdessus Managing Director and Chairman of the Executive Board

Attachment II

Draft Second Letter to All Governors and Certain International Financial Institutions

Dear:

The Executive Board has reviewed the overdue financial obligations of [member] and its circumstances. In this context it agreed that I write to all Governors of the Fund to seek their assistance in resolving the problem of [member] 's overdue financial obligations to the Fund [and that I inform at the same time the heads of [names of certain international financial institutions]].

As you know, [member] was declared ineligible to use the general resources of the Fund on [date], as it had failed to meet its financial obligations to the Fund. As of [date], [member]'s overdue financial obligations to the Fund amounted to SDR[ ] million and the longest overdue obligation had been outstanding for [ ] months. As you are aware, these overdue obligations reduce Fund resources available to help other members and place a financial burden on debtor members in the form of higher charges and on creditor members in the form of reduced remuneration.

[Paragraph on background circumstances of member leading to the emergence of arrears, the views of the member regarding its overdue obligations, and the member's intended approach for addressing the problem of its overdue obligations. This paragraph would be tailored to the specific circumstances of the member concerned.]

The Fund has developed a set of procedures, including the intensified collaborative approach, for dealing, as appropriate, with members that have overdue financial obligations outstanding for a protracted period. The application of the procedures for members in arrears up to now has not resulted in [member] taking steps that could be expected to resolve promptly the problem of its arrears to the Fund. If, in the period prior to the next review of [member]'s

arrears, [member] does not take action to demonstrate its willingness to resume active cooperation with the Fund toward the resolution of the problem of its arrears, [member] may be subject to a declaration of noncooperation. This would be a most serious step that would involve the publication of this declaration, which would refer, inter alia, to the availability to the Fund of procedures under Section 22 of the By-Laws on compulsory withdrawal of [member] from the Fund. The Fund's Executive Board has emphasized the critical stage that has been reached with respect to [member] 's arrears and has stressed its sincere hope that the consideration of further steps will be unnecessary. The Fund would appreciate your [Government/institution] taking whatever actions it considers appropriate to help bring about an early resolution of this situation.

The Executive Board will review again the position of [member] with regard to its arrears to the Fund not later than [date].

Sincerely yours,

Michel Camdessus Managing Director and Chairman of the Executive Board

Attachment III: Draft Declaration on Censure or Noncooperation

The Fund notes that, since the declaration of ineligibility of [date], the member has remained in arrears in its financial obligations to the Fund, thus persisting in its failure to fulfill its obligations under the Articles, and that the level of its arrears has not decreased (or has increased);

[notes that the member has made payments to other creditors while not discharging its financial obligations to the Fund (or not to the same extent), thus ignoring the preferred creditor status that members are expected to give to the Fund;]

finds that the member is not cooperating with the Fund toward the discharge of its financial obligations to the Fund;

urges the member to discharge its financial obligations to the Fund promptly and to cooperate with the Fund;

reminds the member that arrears to the Fund, which is a cooperative institution, are detrimental to the whole membership of the Fund in that they hamper the proper performance by the Fund of its function of assisting members facing balance of payments difficulties;

reminds the member that members in breach of their obligations to the Fund may be subject to the procedures under Section 22 of the By-Laws leading to compulsory withdrawal.

Statement by the Managing Director on the Strengthened Cooperative Strategy on Overdue Financial Obligations to the Fund Executive Board Meeting 90/38 March 16, 1990

2. Measures of deterrence

Measures of deterrence are a second key element of the cooperative strategy that need to be strengthened further. The Fund recently adopted important new procedures in this area and communications to all Fund Governors and selected heads of multilateral financial institutions have been sent in three cases and have borne some fruit.

Executive Directors have agreed that it would be appropriate to widen the scope and strengthen the application of deterrent measures to underscore the Fund's firm resolve to deal with the arrears problem. There is general support for the proposition that a clear timetable and sequence for the implementation of such measures, from the emergence of arrears to the final step of initiation of procedures for compulsory withdrawal, would help remove any misperceptions about the actions to be taken by the Fund when a member falls into arrears or about the consequences of noncooperation. The presumption would be that this timetable would be followed in all cases unless in the Board's judgment a different approach were justified in an individual case.

As compared with the procedures contained in my statement at (EBM/89/101, 7/27/89), the main changes suggested relate to the (i) periodic reviews by the Executive Board of decisions limiting the use of the general resources by the member in arrears which, if the overdue obligations are not settled, leads to a declaration of ineligibility; and (ii) timing and content of measures taken after a declaration of ineligibility. Previously, the Executive Board has held as many as five reviews of its decision to limit a member's use of the general resources before a declaration of ineligibility was adopted; the total length of time between these two actions has been as long as thirteen months, and the period between the emergence of arrears and a declaration of ineligibility has been as long as two years. Many Directors have expressed the view that the number of reviews before a declaration of ineligibility should in general be limited. As regards the post-ineligibility period, in the event a member continues in its failure to fulfill its financial obligations, present procedures call for communications to be sent to all Governors within six months. It is proposed to shorten that period, and also to make explicit the timing of a declaration of noncooperation and of the initiation of the procedure for compulsory withdrawal.

I believe that there is wide support for new procedures under which a member in arrears to the Fund would be declared ineligible to use the general resources no later than twelve months after the emergence of arrears, with the exact timing depending on the Executive Board's assessment of the specific circumstances and of the efforts being made by the member to fulfill its obligations to the Fund. The sending of communications to all Fund Governors and the heads of selected international financial institutions regarding the member's continued failure to fulfill its financial obligations to the Fund would be considered within three months after the declaration of ineligibility. At present, these communications may be followed by a public declaration of noncooperation if the member continues to fail to cooperate. The Executive Board would be asked to consider such a declaration not later than four months after the dispatch of these communications (i.e., within nineteen months of the emergence of arrears), unless the Executive Board were to conclude that there had been a decisive improvement in the member's cooperation with the Fund.

A declaration of noncooperation is an intermediate step before compulsory withdrawal. At present, such a declaration of noncooperation would note the availability to the Fund of procedures on compulsory withdrawal. This procedure should be strengthened by the initiation by the Executive Board of procedures for compulsory withdrawal within five months of the declaration of noncooperation (i.e., within two years of the emergence of arrears), if the member continues to fail to comply with its obligations and to cooperate actively with the Fund toward clearance of its arrears. A recommendation of compulsory withdrawal can be made by the Executive Board by a simple majority, although withdrawal can be required only by a majority of Governors having 85 percent of the total voting power.

In our discussion of financing in relation to the arrears strategy we have had a preliminary review of financial and legal aspects of compulsory withdrawal, and I believe that the general provisions on the basis of which we would need to proceed are understood. In such circumstances, the Executive Board might need to consider the appropriate means to rebuild the Fund's precautionary balances, which would normally imply increasing the Fund's operating income or supplementing it by other exceptional means. In this connection, it has been noted that as a last resort, the sale of part of the Fund's gold could help restore the Fund's financial position.

The timetable proposed would help to make clear to members the need to prevent arrears and to act expeditiously to deal with them if they arose, as well as the consequences of not doing so. It would also provide sufficient time for such members to adopt the adjustment measures needed to move toward restoring domestic and external economic balance. Such a timetable is not to be understood as a period of grace, and the Executive Board would need to be prepared to accelerate action when appropriate, particularly in the early stages prior to a declaration of ineligibility. For the eleven members with protracted arrears, some Executive Directors have stressed that it would be appropriate to apply the new schedule with a degree of flexibility. This is reasonable, but we will need also to keep in mind that these members have already been given a great deal of time to demonstrate their cooperation with the Fund.

In all cases, there is a need for tangible and continuous support for the Fund from the international financial community. In cases of members that were not cooperating, the Fund would expect bilateral creditors and other multilateral agencies to initiate an intensive dialogue with the member in arrears to persuade it to respect the preferred creditor status of the Fund, and to consider reducing and, if necessary, suspending assistance to members that are not cooperating with the Fund. There is a need to convince creditors and donors that persistent financing of a member's inadequate policies is detrimental to the interests of creditors, donors, and debtors alike. The Fund will also ask other official creditors to follow the practice of Paris Club creditors and not engage in rescheduling in the absence of a Fund arrangement or a Fund-monitored program. Furthermore, I believe Executive Directors have supported the proposition that creditors receiving payments from members in arrears to the Fund should be requested, at the least, to urge such members to direct payments to the Fund.

The Board has agreed that a member must first discharge its over-due obligations to the General Resources Account before it can be permitted to consent or to pay for an increase in its quota in connection with the Ninth General Review; and if a member had not increased its quota within the prescribed period, the proposal for an increase in quota should lapse. The Board's consideration of an extension of the period for consent or payment would take into account the situation of members with overdue obligations that are cooperating with the Fund to resolve their arrears problem in the context of a Fund-monitored program.

The measures of prevention and deterrence described above, if applied firmly in the day-to-day operations of the Fund, can provide a powerful mechanism to prevent the emergency of new arrears cases, lead to their rapid elimination if problems do develop, and, jointly with the measures of support suggested in the next section, offer to noncooperating members a last opportunity to move with no further delay onto a more collaborative path. I believe that we should adopt these measures immediately.

At the same time we should pursue expeditiously the necessary work on an amendment of the Articles to introduce into the Fund's Articles a provision similar in some respects to those already existing in other multilateral financial institutions, notably the World Bank—i.e., a provision to suspend voting and related rights for cases of continuing breach of obligations to the Fund. Such an amendment would provide an additional instrument of deterrence. The staff will prepare a paper for Executive Board consideration in April which will focus on the substantive issues related to an amendment of the Articles of Agreement. In particular, the following matters would need to be discussed: the scope of suspension; the conditions for suspension; the relationship of suspension to other deterrent measures; the decision-making procedures; and the majority required. I continue to believe that the qualified majority for suspension should be set at 70 percent of the total voting power. The staff paper would elaborate on these matters, examining the consequences of different approaches and exploring the modalities of an amendment.

Attachment: Measures for Prevention/Deterrence of Overdue Financial Obligations to the Fund—Strengthened Timetable of Procedures

Time after Emergence of ArrearsAction
ImmediatelyStaff sends a cable urging the member to make the payment promptly; this communication is followed up through the office of the concerned Executive Director.
The member is not permitted any use of the Fund's resources nor is any request for the use of Fund resources placed before the Executive Board until the arrears are cleared.
2 weeksManagement sends a communication to the Governor for the member stressing the seriousness of the failure to meet obligations and urging full and prompt settlement.
1 monthThe Managing Director notifies the Executive Board that an obligation is overdue.
6 weeksThe Managing Director notifies the member that unless the overdue obligations are settled promptly a complaint will be issued to the Executive Board. The Managing Director would also consult with and recommend to the Executive Board that a communication concerning the member's situation should be sent to selected Fund Governors or to all Fund Governors in the event that the member has not improved its cooperation with the Fund.
2 monthsA complaint regarding the member's overdue obligations is issued by the Managing Director to the Executive Board.
3 monthsThe complaint is given substantive consideration by the Executive Board. The Board has usually decided to limit the member's use of the general resources and, if overdue SDR obligations are involved, suspend its right to use SDRs.
6-12 monthsThe Executive Board will review its decision on limitation within three months, with the possibility of a second review if warranted. It is proposed that, de pending on the Executive Board's assessment of the specific circumstances and of the efforts being made by the member to fulfill its obligations to the Fund, a declaration of ineligibility be considered to take effect not more than twelve months after the emergence of arrears. It is proposed that the sending of communications to all Fund Governors and the heads of selected international financial institutions regarding the member's continued failure to fulfill its financial obligations to the Fund be considered at the same time as the declaration of ineligibility.
Up to 15 monthsIt is proposed that a declaration of noncooperation be considered within three months after the dispatch of the communications.
Up to 18 monthsIn case an amendment of the Articles would be adopted, it is proposed that a decision on suspension of voting and representation rights be considered within three months after the declaration of noncooperation.
Up to 24 monthsIt is proposed that the procedures on compulsory withdrawal be initiated within six months after the decision on suspension (in case an amendment of the Articles would be adopted) or nine months after the declaration of noncooperation.

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.

Concluding Remarks by the Acting Chairman Overdue Financial Obligations to the Fund—Review of Progress Under the Strengthened Cooperative Strategy, and Review of the System of Special Charges Executive Board Meeting 95/29, March 27, 1995

With respect to the rights approach, Directors concluded that retention for the three remaining eligible members of the rights approach, as an established and effective mechanism, would be warranted for the time being, and they agreed on a one-year extension until the spring 1996 meeting of the Interim Committee.

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

Stand-By Arrangements*

The Fund is prepared to consider requests by members for standby arrangements designed to give assurance that, during a fixed period of time, transactions up to a specified amount will be made whenever a member requests and without further consideration of its position, unless the ineligibility provisions of the Fund Agreement have been invoked. The following paragraphs set forth the general framework for stand-by arrangements:

1. Stand-by arrangements will be limited to periods of not more than six months. * They can be renewed by a new decision of the Executive Board. If a member believes that the payments problems it anticipates (for example, in connection with positive programs for maintaining or achieving convertibility) can be adequately provided for only by a stand-by arrangement of more than six months, the Fund will give sympathetic consideration to a request for a longer stand-by arrangement in the light of the problems facing the member and the measures being taken to deal with them. With respect to stand-by arrangements for periods of more than six months, the Fund and the member might find it appropriate to reach understandings additional to those set forth in this decision.

2. In considering the request for a stand-by arrangement or renewal of a stand-by arrangement, the Fund will apply the same policies that are applied to requests for immediate drawings, including a review of the member's position, policies and prospects in the context of the Fund's objectives and purposes. The Fund will agree to a stand-by arrangement only for a member that is in a position to make purchases of the same amount of exchange from the Fund.

3. There will be specified in each stand-by arrangement the transactions which may be made under that arrangement.

4. A member having a stand-by arrangement will have the right to engage in the transactions covered by the stand-by arrangement without further review by the Fund. This right of the member 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 (under Article XVI, Section 1(a)(ii))** 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 the member. When notice of a decision of formal ineligibility or of a decision to consider a proposal is given pursuant to this paragraph, purchases under this stand-by arrangement will be resumed only after consultation has taken place between the Fund and the member and agreement has been reached on the terms for the resumption of such purchases.

5. …*

6. …*

7. This decision shall continue in effect subject to review by the Executive Board from time to time as circumstances warrant.

Decision No. 270-(53/95)**

December 23, 1953, as amended by

Decision Nos. 876-(59/15), April 27, 1959, and

1151-(61/6), February 20, 1961

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 16. See also Annual Reports,

1953, 1955, 1959, 1961, and 1962.

Guidelines on Conditionality

The Executive Board agrees to the text of the guidelines on conditionality for the use of the Fund's resources and for stand-by arrangements as set forth [below].

Decision No. 6056-(79/38)

March 2, 1979

Use of Fund's General Resources and Stand-By Arrangements

1. Members should be encouraged to adopt corrective measures, which could be supported by use of the Fund's general resources in accordance with the Fund's policies, at an early stage of their balance of payments difficulties or as a precaution against the emergence of such difficulties. The Article IV consultations are among the occasions on which the Fund would be able to discuss with members adjustment programs, including corrective measures, that would enable the Fund to approve a stand-by arrangement.

2. The normal period for a stand-by arrangement will be one year. If, however, a longer period is requested by a member and considered necessary by the Fund to enable the member to implement its adjustment program successfully, the stand-by arrangement may extend beyond the period of one year. This period in appropriate cases may extend up to but not beyond three years.

3. Stand-by arrangements are not international agreements and therefore language having a contractual connotation will be avoided in stand-by arrangements and letters of intent.

4. 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.

5. Appropriate consultation clauses will be incorporated in all stand-by arrangements. Such clauses will include provision for consultation from time to time during the whole period in which the member has outstanding purchases in the upper credit tranches. This provision will apply whether the outstanding purchases were made under a stand-by arrangement or in other transactions in the upper credit tranches.

6. Phasing and performance clauses will be omitted in stand-by arrangements that do not go beyond the first credit tranche. They will be included in all other stand-by arrangements but these clauses will be applicable only to purchases beyond the first credit tranche.

7. The Managing Director will recommend that the Executive Board approve a member's request for the use of the Fund's general resources in the credit tranches when it is his judgment that the program is consistent with the Fund's provisions and policies and that it will be carried out. A member may be expected to adopt some corrective measures before a stand-by arrangement is approved by the Fund, but only if necessary to enable the member to adopt and carry out a program consistent with the Fund's provisions and policies. In these cases the Managing Director will keep Executive Directors informed in an appropriate manner of the progress of discussions with the member.

8. 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.

9. 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. Performance criteria will normally be confined to (i) macroeconomic variables, and (ii) those necessary to implement specific provisions of the Articles or policies adopted under them. Performance criteria may relate to other variables only in exceptional cases when they are essential for the effectiveness of the member's program because of their macroeconomic impact.

10. In programs extending beyond one year, or in circumstances where a member is unable to establish in advance one or more performance criteria for all or part of the program period, provision will be made for a review in order to reach the necessary understandings with the member for the remaining period. In addition, in those exceptional cases in which an essential feature of a program cannot be formulated as a performance criterion at the beginning of a program year because of substantial uncertainties concerning major economic trends, provision will be made for a review by the Fund to evaluate the current macroeconomic policies of the member, and to reach new understandings if necessary. In these exceptional cases the Managing Director will inform Executive Directors in an appropriate manner of the subject matter of a review.

11. The staff will prepare an analysis and assessment of the performance under programs supported by use of the Fund's general resources in the credit tranches in connection with Article IV consultations and as appropriate in connection with further requests for use of the Fund's resources.

12. The staff will from time to time prepare, for review by the Executive Board, studies of programs supported by stand-by arrangements in order to evaluate and compare the appropriateness of the programs, the effectiveness of the policy instruments, the observance of the programs, and the results achieved. Such reviews will enable the Executive Board to determine when it may be appropriate to have the next comprehensive review of conditionality.

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 macro-economic 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

Guidelines on Performance Criteria With Respect to Foreign Borrowing

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 No. 11096- (95VI00),

October 25, 1995

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 borrowing:

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 borrowing will be included in upper credit tranche arrangements. The criterion will include foreign loans with maturities of over one year, and in appropriate cases, 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 loans 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 borrowing 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 borrowing. The coverage will include official entities for which the government is financially responsible as well as private borrowing 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 borrowing without official guarantee and there is an established regulatory machinery to control such borrowing, it will be proposed that the performance criterion on foreign borrowing 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 borrowing, 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 loans 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 loans. The staff will take this into account in discussing the appropriate amount of borrowing.

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.*

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. * Accordingly, the attached decision is proposed for adoption by the Executive Board on a lapse-of-time basis…

Misreporting and Noncomplying Purchases Under Fund Arrangements—Guidelines on Corrective Action

In a few cases, it has been found that a member has made a purchase under a stand-by or extended arrangement which it was not entitled to make by the terms of the arrangement (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 that were applicable to the purchase under the arrangement, or other conditions applicable to purchases under the terms of the decisions on the arrangement, 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 under the arrangement 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 Fund indicating that a performance criterion or other condition applicable to an outstanding purchase made within the previous two years under a stand-by or extended arrangement 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 criterion or condition was not observed, he shall promptly notify the member of his finding. At the same time, he shall submit a report to the Executive Board together with his recommendations, which may include a recommendation that the member be called upon to take corrective action pursuant to paragraph 3 or that the nonobservance be waived pursuant to paragraph 4. The recommendations of the Managing Director shall be submitted to the Executive Board on a lapse-of-time basis giving Executive Directors a period of at least 10 days during which they could ask that the matter be placed on the agenda of the Executive Board for consideration.

3. Unless the decision of the Executive Board is to grant a waiver pursuant to paragraph 4 or to take other action, 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 referred to in paragraph 2. Instead of repurchasing, 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 this paragraph.

4. A waiver 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 of the program supported by the arrangement under which the purchase was made.

5. If a repurchase pursuant to the expectation under paragraph 3 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 he may recommend that the Fund initiate action under Article V, Section 5 of the Articles.

6. 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.

7. 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. 7842-(84/165)

November 16, 1984

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, page 19

Exclusion of Credit Tranches and Extended Facility

l. …*

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) … *

(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)** 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.

5. 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.

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

7. 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.

8. 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.

9. 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.

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, and

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

Extended Fund Facility: Review of Decision

1. The Executive Directors have reviewed Decision No. 4377-(74/114), adopted September 13, 1974, relating to the Extended Fund Facility, in accordance with paragraph 9 of that decision.

2. The Executive Directors have decided not to modify the decision at this time but they will review the adequacy of its provisions further at an appropriate time and in any event when the total amount of the purchases that could be made under extended arrangements is equivalent to SDR 2 billion.

Decision No. 5220-(76/144)

September 20, 1976

1. Pursuant to Decision No. 7157-(82/93), adopted July 7, 1982, the Fund has reviewed the provisions of the Extended Fund Facility further, together with a review of the Fund's stand-by arrangements, and decides that the provisions of the Extended Fund Facility remain appropriate in present circumstances.

2. The Fund will again review programs supported by stand-by and extended arrangements, not later than December 31, 1984. This review will examine the appropriateness of the provisions of the Extended Fund Facility and the guidelines on conditionality, with particular reference to the importance of ensuring the revolving character of the Fund's resources.

Decision No. 7558-(83/156)

November 16, 1983

1. Pursuant to Decision No. 7558-(83/156), adopted November 16, 1983, the Fund has reviewed the programs supported by stand-by and extended arrangements, as well as the appropriateness of the provisions of the Extended Fund Facility, and of the guidelines on conditionality and decides that the provisions of the Extended Fund Facility and the guidelines on conditionality remain appropriate in the present circumstances.

2. The Fund will again review the programs supported by standby and extended arrangements, and the appropriateness of the provisions of the Extended Fund Facility, and of the guidelines on conditionality, not later than December 31, 1985.

Decision No. 7857-(84/175)

December 5, 1984

1. Pursuant to Decision No. 7857-(84/175), adopted December 5, 1984, the Fund has reviewed the conditionality that the Fund applies for transactions in the upper credit tranches with particular reference to the Fund's experience from recent programs supported by stand-by and extended arrangements from the Fund. In the context, the Fund has also reviewed the provisions of the Extended Fund Facility and the guidelines on conditionality.

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

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

Decision No. 8192-(86/13)

January 27, 1986

1. Pursuant to Decision No. 8192-(86/13), adopted January 27, 1986, the Fund has reviewed the experience with recent programs supported by stand-by and extended arrangements, and decides that the provisions of the Extended Fund Facility and the guidelines on conditionality will remain in force in the present circumstances.

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

3. In the light of forthcoming discussions by the Executive Board on issues relating to conditionality, the Executive Board will decide when it may be appropriate to have the next comprehensive review of conditionality.

Decision No. 8583-(87/72)

May 8, 1987

1. Pursuant to Decision No. 8583-(87/72) adopted May 8, 1987, the Fund has reviewed the experience with recent programs supported by stand-by and extended arrangements, and decides that the guidelines on conditionality will remain in force in the present circumstances.

2. In view of the comprehensive reconsideration of the extended Fund facility undertaken in 1988, the Fund decides to postpone the review of the provisions of the extended Fund facility envisaged in Section 2 of Decision No. 8583-(87/72).

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

Decision No. 9189-(89/77)

June 19, 1989

1. Pursuant to Decision No. 9189-(89/77), adopted June 19, 1989, the Fund has reviewed the experience with recent programs supported by stand-by and extended arrangements and the provisions of the extended Fund facility.

2. The guidelines on conditionality and the provisions of the extended Fund facility will remain in force in the present circumstances.

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. At that time, the Fund will also review the provisions of the extended Fund facility.

Decision No. 9790-(91/106)

July 31, 1991

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 that*

  • (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 arrangement during any period in which (member) 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 operations pursuant to Decision No. 9331-(89/167), as amended, or (c) pursuant to subparagraph 16(a) or 33(a) of Decision No. 8955-(88/126), as amended, on the Compensatory and Contingency Financing Facility.

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 that *

  • (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 extended arrangement during any period in which (member) 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 operations pursuant to Decision No. 9331-(89/167), as amended, or (c) pursuant to subparagraph 16(a) or 33(a) of Decision No. 8955-(88/126), as amended, on the Compensatory and Contingency Financing Facility.

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 Mechanism

(To be inserted in the introductory section of the requested [standby] [extended] arrangement, in which case that section will be broken into two subparagraphs)

“b. a decision that, should adverse external contingencies occur during the period of the program supported by the [stand-by] [extended] arrangement, the Fund will provide in association with this [stand-by] [extended] arrangement, external contingency financing up to a maximum amount equivalent to SDR million under the Compensatory and Contingency Financing Facility (Decision No. 8955-(88/126), adopted August 23, 1988, as amended) and in accordance with the factors set out in [memorandum/other relevant document], with the understanding that, should favorable external contingencies occur during such period, the Fund may make adjustments of up to SDR million under paragraph 22 of that decision, in accordance with the factors set out in [memorandum\other relevant document].”

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

(To be inserted in paragraph 2 of the requested [stand-by] [extended] arrangement)

“(d) Each amount that would be available in accordance with paragraphs 1[,] [and] 2(a), [2(b), and 2(c)] above shall be reduced by an amount equivalent to [25 percent], and these set aside amounts shall be made available in accordance with the terms of this [standby] [extended] arrangement and subject to the following conditions:

  • (i) (member) represents that it has a need to make the requested purchase because of use of its reserves or impending payments for the discharge of liabilities under operations involving debt reduction; and

  • (ii) the Fund determines that the requested purchase is needed in accordance with (member's) representation and that the debt reduction involved is consistent with the objectives of the program and the guidelines on Fund involvement in the debt strategy.

(e) If requested by (member), the Fund may decide to make available to (member), notwithstanding the phasing specified under (a), (b) and (c) above, an amount not exceeding the equivalent of [25 percent] of the total of purchases that may be made by (member) during the remainder of this [stand-by] [extended] arrangement. In that event, the right of (member) to make purchases under this [stand-by] [extended] arrangement shall be subject to such phasing and deduction of amounts for debt reduction as shall be determined.

(f) If requested by (member), the Fund may decide to discontinue the deduction of amounts for debt reduction under (d) and (e) above if the Fund determines that the objectives of (member's) program supported by this [stand-by] [extended] arrangement can be achieved without such deductions.”

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, 7997

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. * 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. * 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, pp. 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 staff's 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 benefitted 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.

Emergency Financing Mechanism

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.

Currency Stabilization Funds

The Acting Chairman's Summing Up at the Conclusion of the Discussion on Fund Support for Currency Stabilization Funds Executive Board Meeting 95/86 -September 13, 1995

The discussion today has built on our two earlier discussions on the general principles of Fund policies that might be followed with regard to currency stabilization funds (CSFs) as well as the operational features of the proposed policies. Directors in their majority have supported the conditions and operational characteristics outlined in the statement by the staff. However, some Directors continued to express doubt about the need for a special policy in this area, and some have mentioned areas of concern. Some of you indicated a preference for a special facility, but some of those were prepared to support a consensus on the window approach. Among the main concerns raised today were the fear that establishment of a CSF would appear to signal a Fund preference for a fixed exchange rate, the possibility of too frequent use of the exceptional circumstances clause and the importance of ensuring that use of the exceptional circumstances clause would be very rare, the inherent difficulty of assessing the appropriate level of the exchange rate to be supported by a CSF, the timing and circumstances of possible adjustments to the exchange rate arrangement, and the need to provide for adequate safeguards and suitable procedures, including close involvement of the Board at all stages.

With respect to the framework for CSF operations, all Directors stressed the importance of the country's having a sound track record, of keeping the exchange arrangements under the continuous review both during and after the disinflation effort, and of ensuring that CSF resources were used as intended—that is, to provide a temporary supplement to reserves for confidence building and short-term intervention if needed, and not for general balance of payments support. In this connection, Directors attached importance to the frequent reporting of relevant data, and close monitoring by the staff and the Board, as well as the tranching and repurchase/reconstitution provisions.

Although the sense of the Board is clearly that we should move cautiously in this area, it has been broadly agreed that under certain conditions the Fund should be prepared to support CSFs within the context of upper credit tranche stand-by or extended arrangements. The conditions and modalities outlined in the statement by the staff provide an appropriate framework for this purpose. Accordingly, the amended text of that statement, which is attached to this summing up will provide guidelines for the use of Fund resources under a CSF. Executive Directors do not expect that there will be frequent recourse to CSFs, nor would the Board wish, by establishing CSFs, to signal any preference on the part of the Fund for fixed exchange rates or exchange rate based stabilization. The staff will discuss alternative approaches and forms of Fund support with members and, where a CSF is recommended, will clearly explain the rationale for the approach that is being followed in the documentation for the Board. Where a CSF is being considered and at an appropriate point, recognizing the particular sensitivities of this kind of situation, management will consult with the Board. It is understood that any such operations will be approached in an experimental fashion, kept under close review in light of Director's concerns and, if necessary, adapted on the basis of experience.

The Managing Director will make a progress report to the Interim Committee on the basis of the outcome of today's discussion.

Attachment: Guidelines for Fund Support for Currency Stabilization Funds

1. General considerations

a. Framework and purpose

Experience has shown that under certain circumstances a nominal exchange rate anchor can be a powerful instrument, when employed in the context of strong macroeconomic stabilization policies, in bringing about a rapid decline in inflation. In the framework of a Fund upper credit tranche stand-by or extended arrangement, Fund financial support for the specific purpose of providing a precautionary pool of resources to supplement reserves for a transitional period—that is, a currency stabilization fund (CSF)-could provide an important element of additional confidence in support of an exchange-rate-based stabilization strategy and, under appropriate conditions, would be consistent with the purposes of the Fund.

In particular, for CSFs to play their intended role, economic policies would need to be sufficiently tight to deliver an inflation path compatible with the targeted exchange rate anchor—that is, the anchor would need to be realistic and sustainable on the basis of the member's policies, so that little, if any, use of the CSF for exchange market intervention would be expected; it would need to be understood with the authorities that economic policies would be adapted promptly as necessary in response to changing conditions, so as to ensure the maintenance of the nominal exchange rate objective; and the underlying program would need to be fully financed (i.e., without taking account of the resources of the CSF).

b. Adjustment strategy

Fund support for CSFs would be considered in cases of high inflation where a nominal exchange rate anchor is adopted as part of a credible, comprehensive adjustment strategy to achieve a rapid and substantial decline in inflation and where close monitoring is possible to ensure that the exchange rate anchor and supporting policies continue to be appropriate. It would be expected that a CSF would be activated at a relatively early stage in the process of reducing inflation, but only when the Fund can be confident that the member's policies are sufficiently strong and will be implemented and adapted as necessary; activation could take place at the outset of an arrangement or during the course of a review.

c. Exchange rate arrangement

The most appropriate exchange rate arrangements to be supported by a CSF would be an exchange rate peg with relatively narrow margins, or a preannounced crawl, that would limit the discretionary use of the exchange rate. Careful consideration would need to be given to establishing the appropriate level at which to establish the exchange rate peg (or crawl), avoiding a real exchange rate that is excessively low or high relative to historical levels or other relevant indicators. It would not be the purpose to maintain the anchor indefinitely, and the appropriateness of the exchange rate and the exchange arrangement would be kept under continuous review by the authorities and the Fund, both during and subsequent to the disinflation effort.

d. Policy conditions

The policy conditions necessary to ensure the success of an exchange-rate-based stabilization, and thus essential to Fund support for a CSF, include: 1) fiscal adjustment and credit creation consistent with targeted inflation; 2) appropriate measures to deal with backward-looking automatic wage and other indexation schemes; 3) establishment of a high degree of current account convertibility and an open trade regime, and other measures to encourage a return of flight capital; 4) contingency plans for dealing with large capital outflows or inflows, which would depend on full interest rate flexibility and should also involve contingency fiscal measures; 5) establishment of integrated operational management of foreign exchange reserves and intervention policy; and 6) other structural and institutional elements supportive of the effort to reduce inflation sharply. More specific conditions would depend on the particular circumstances of each country.

e. Co-financing

It would be possible to consider co-financing of CSFs; however, certain basic principles would need to govern Fund policies with regard to co-financing for Fund-supported CSFs. First, the Executive Board would retain control over all use of Fund resources in support of CSFs. Second, co-financing should not unduly complicate the operations of CSFs. Third, terms associated with resources provided through cofinancing should be at least as favorable to the borrower as those associated with Fund financing. Fourth, resources made available through co-financing procedures should not in any way affect the safeguards of Fund resources and the Fund's preferred creditor status. If co-financing were judged to be feasible and beneficial in a particular case, specific features would need to be determined at that stage.

2. Operational characteristics

a. Structure

A CSF would be established as an element (or “window”) within a Fund upper credit tranche stand-by or extended arrangement and would have revolving features permitting repeated use under specified conditions. ESAF-eligible member countries would be able to use CSFs through arrangements in the General Resources Account that would operate in parallel to an ESAF arrangement.

b. Access

Access under arrangements including a CSF element would be subject to the limits (annual and cumulative) applicable to stand-by and extended arrangements. Maximum access under the CSF element would be 100 percent of quota; this would be a sublimit within the access policy. Access under the CSF element would be determined on a “net” basis—that is, outstanding use of CSF resources could not exceed a specified percentage of a member's quota (not exceeding 100 percent in any case), taking account of the repurchase and reconstitution procedures set out below. The determination of access levels for individual cases would be guided by the usual criteria of need, strength of policies, and capacity to repay the Fund, taking into account the adequacy of precautionary reserves to instill confidence in the member's exchange rate regime. In practice, access under CSFs would be expected to vary considerably on a case-by-case basis, depending on the degree to which the assessed need for reserves was already met from other sources.

c. Tranching

Normally, a CSF would have four equal tranches, with flexibility to raise access under the first tranche to a maximum of 35 percent of the size of the CSF with offsetting reductions in the third and fourth tranches (i.e., 25/25/25/25 percent or 35/25/20/20 percent of the size of the CSF or other variations in between) depending on the particular circumstances of each case. There would also be flexibility, where warranted by the circumstances, to vary the number (and consequently the size) of tranches within a range of three to five tranches.

d. Reporting requirements

The documentation establishing a CSF would specify the precise details of the reporting requirements. These would need to be sufficient to enable the Board to assess the appropriateness of requests for activation, availability of resources and extensions of repurchase expectations under a CSF. Daily reporting of key financial variables (such as exchange rates, interest rates, exchange market turnover, intervention, and reserves) would be expected. Reporting requirements could be modified or supplemented by the Executive Board during the operation of the CSF as a condition for approving the availability of CSF resources or completing reviews under the arrangement. It would normally be expected that a Resident Representative would be in place to facilitate close monitoring and compliance with the reporting requirements.

e. Activation and use of CSF

Activation of the CSF element of an arrangement would be based on a determination by the Executive Board that the conditions are appropriate. In assessing whether to activate the CSF element, the Executive Board would consider whether the exchange rate policy was realistic and sustainable; whether the exchange rate policy would be firmly supported by fiscal and monetary policies, including rapid policy adjustments, as necessary; whether the program is fully financed; and, whether adequate monitoring and reporting procedures are in place and functioning properly.

Upon activation, access to the first tranche would become available. The first tranche would represent a form of working balance, which could be purchased and held for the duration of the CSF or drawn, repaid, and redrawn again without the need for further review by the Executive Board so long as the member remained in compliance with the arrangement, including supplementary measures (objectively defined) as might be required by the Board in connection with the CSF element, such as reporting requirements. Decisions to make available CSF resources beyond the first tranche would also be made by the Executive Board and would take into account, inter alia, assessments of monetary, fiscal, and exchange market developments and the sources of exchange market pressure; evaluation of past intervention operations and use of CSF resources; evaluation of the stance of monetary and fiscal policies, including adherence to performance criteria under the arrangement; continued compliance with the conditions of integrated foreign exchange management; continuous adherence to reporting and monitoring requirements; and any other conditions set out at the establishment of the CSF. Policy adaptations could be required. Upon approval, resources in the upper tranches would remain available for purchase for a period of two weeks. At any given point in time, if the member's outstanding credit under the CSF fell into a particular tranche, the maximum size of a request for availability of resources would be equal to any amount remaining unused in that tranche or the size of the subsequent tranche, which ever is larger. Drawings beyond the first tranche would normally be for the purpose of replenishing some pre-established proportion of the member's own reserves used in intervention.

f. Repurchase/Reconstitution

CSF purchases would be subject to a one-year repurchase obligation in those cases where Article V, Section 4 is applicable.*** A one-year repurchase expectation would apply to those first CSF tranche purchases that are not subject to Article V, Section 4. In addition, CSF purchases beyond the first tranche would be subject to a repurchase expectation that would provide for repurchase within three months; requests for extension of such three-month repurchase expectations would be permitted, with approval of the Board, up to three extensions, so long as the CSF remained in operation. Consideration of requests for extension of repurchase expectations would take into account the same factors relevant to requests for availability of CSF resources. Failure to comply with a repurchase expectation would preclude further use of the Fund's general resources until the repurchase expectation had been satisfied. Failure to comply with a repurchase obligation would result in an overdue obligation to the Fund with all the usual consequences.

Repurchase of a purchase under the CSF element of the arrangement would reconstitute the member's right to request the availability of resources under that element, subject to the conditions for such requests noted above.

g. Charges

Charges associated with CSFs would be the same as those that pertain to stand-by and extended arrangements.

h. Operating procedures

Procedures for handling Fund operations under CSFs would include:

• On establishment of a CSF element within a Fund arrangement, a monthly report would be circulated to the Board providing a one page summary of recent developments and prospects, a table of selected CSF-related economic indicators, and a brief assessment of whether the member remains in compliance with all terms and conditions of the CSF and the related arrangement; updates would be provided between monthly reports if CSF resources were used for sustained intervention. If called for, these reports would be supplemented on occasion by somewhat longer reports for discussion. All data and information circulated in these reports would be treated with the utmost confidentiality. CSF-related material would also be covered in staff reports for reviews under the arrangement.

• The Board would be notified immediately of a member's intention to request availability of CSF resources. The minimum circulation period for the Board to act on a member's formal request for the availability of CSF resources would normally be five working days. Under emergency circumstances this could be compressed to 48 hours or, possibly, in informal consultation with the Board, a shorter period.

• After a request for the availability of CSF resources is received, staff would circulate as soon as possible an updated summary of the economic situation and a staff assessment of compliance, to be supplemented as necessary by a briefing at a Board meeting. Under normal circumstances, the period between circulation of the updated summary and the Board discussion of the request would be at least 48 hours. However, under exceptional circumstances, the circulation period could be abbreviated. Disbursement procedures would be in keeping with the Fund's Rules and Regulations, i.e. normally requiring three business days from initiation of a purchase.

Debt Strategy

Fund Involvement in Debt Strategy

The Chairman's Summing Up on Fund Involvement in the Debt Strategy Executive Board Meeting 89/61, May 23, 1989

This has been an important discussion, following the guidance of the last meeting of the Interim Committee, with a view to laying the basis for broad guidelines for the Fund's role in the evolving debt strategy and, in particular, for Fund support for debt and debt service reduction. It is clearly the wish of this Board that the Fund discharge in full its central responsibilities in the debt strategy, but without interference in negotiations between debtors and creditors. We recognize that we are at an experimental phase in the debt strategy and will keep all aspects of developments under review as I will describe more specifically below.

In considering Fund support for debt and debt service reduction operations in conjunction with appropriate flows of new money, Directors emphasized the central importance of sustained implementation of policy reforms in debtor countries. They stressed that all parties in the debt strategy should continue to play their respective roles and, in particular, that official creditors should not substitute for private creditors. Fund support for debt reduction operations would be linked to medium-term adjustment programs with a strong element of structural reform, adopted in the context of stand-by or extended arrangements. Particular emphasis would be given to measures that would improve the climate for saving and investment in borrowing countries, and help reverse capital flight and attract private capital inflows and direct investment. Adherence to MIGA was seen by a number of Executive Directors as a useful step in the investment area. Utilization of debt equity swaps, where compatible with a member's fiscal and monetary policy framework, has also been seen by a number of Directors as a particularly effective means of attracting a return of flight capital.

Executive Directors agreed that requests for Fund support of debt and debt service reduction operations would be considered on a case-by-case basis. Particular reference would be made to three elements—the strength of economic policies; the scope for voluntary, market-based debt reduction operations that would help the country regain access to credit markets and attain external viability with growth; and an assessment as appropriate that such operations represent an efficient use of scarce resources.

Executive Directors strongly emphasized the importance of ensuring continued support for countries that have succeeded in maintaining market access and would not engage in officially supported debt reduction. The creditor community, including the Fund, will need to watch the situation of these countries carefully to ensure that they are not harmed by changing circumstances and that appropriate assistance continues to be forthcoming. This is an important area to which Directors have agreed to return before the Annual Meetings.

Directors stressed that it will be important to keep the Fund's liquidity position under close review. It is considered that the provisions for Fund support of debt and debt service reduction operations that have been discussed could be accommodated without an undue deterioration in the Fund's liquidity position in the near term. However, the implications of the Fund's support of debt and debt service reduction operations will need to be taken into account by Executive Directors in considering the factors bearing on the need for an increase in quotas under the Ninth General Review of Quotas. In particular, Fund support for debt reduction operations must not be allowed to reduce the Fund's ability to support members that are not engaging in such operations.

As regards the particular modalities of Fund support for debt and debt service reduction, Executive Directors agreed that in appropriate cases part of a member's access under an extended or stand-by arrangement could be set aside to finance such operations. The exact size of the set-aside would be determined on a case-by-case basis, but would involve a figure of around 25 percent of access determined on the basis of existing access policy. A number of Directors noted the importance of principal reduction in helping to ease the member's debt burden, and it was agreed that set-aside amounts should be used to support operations involving principal reduction, such as debt buy-backs or exchanges.

The availability of the set-aside amounts would generally be phased in line with program performance. Where warranted, some front-loading could be considered or purchases could be phased in accordance with the specific financing needs of the member's debt reduction program.

Directors agreed that there could be an initial release of Fund resources in support of debt reduction if the program was on track, if the Board was satisfied with the authorities' description of the debt reduction program, and on the understanding that debt reduction operations would be market based or, at market-related prices, involving substantial discounts. Initial purchases under the set-aside could be made available from the outset of an arrangement if these conditions were met. Otherwise, purchase rights would accumulate and be made available upon completion of a review by the Board of the debt reduction plan.

Executive Directors also agreed that in appropriate cases the Fund would be prepared to approve requests for additional resources of up to 40 percent of a member's quota,* where such support would be decisive in facilitating further cost-effective operations and catalyzing other resources, consistent with significant further progress toward external viability. The additional resources from the Fund are to be used for interest support in connection with debt reduction or debt service reduction operations. It was understood that the amount of additional resources to be provided would be determined on a case-by-case basis, in light in particular of the magnitude of the member's balance of payments need and the strength of its adjustment program as well as its own efforts to contribute resources, as feasible, in support of the operations. The limit for additional access is not to be regarded as a target. In considering a request for additional resources, the Executive Board would be presented with detailed information, as available, on the operations to be supported; the timing of actual disbursements to the member would need to be determined in light of the specific operations. Access pursuant to such requests would be additional to that determined under the existing guidelines for enlarged access, it being understood that the present policies on enlarged access will continue to apply, including the exceptional circumstances clause.

In the event a commitment by the Fund to provide additional access for the purposes specified were not used, the commitment would expire at the end of the arrangement period. The member would be expected to make early repurchases of amounts drawn under a commitment of additional access, to the extent that the amounts were not used within an appropriate period for the purposes described in the member's request.

Directors stressed the importance of ensuring that resources made available for debt and debt service reduction operations were used effectively. Directors agreed that there would be a need for periodic reviews to consider how debt reduction operations compare to the Board's initial expectations; if appropriate, the Board could in such reviews reconsider the modalities of the Fund's support for the member's debt reduction plan.

Executive Directors noted that the World Bank would likely be involved, along with the Fund, in supporting debt reduction operations when these are important elements in a country's financial and development strategy. In these cases, Directors stressed that it was important that the two institutions work together closely in securing effective debt reduction. This does not mean each institution must provide equal amounts in each case, as the amounts will need to be taken on a case-by-case basis. The managements of the two institutions are working closely on these matters and Executive Directors will be kept informed of the progress made in support of these operations on a continuing basis.

In discussing financing assurances, Executive Directors reaffirmed the basic objectives of the Fund's policy—ensuring that the program is fully financed; that the financing is consistent with a return to viability and with the ability of the member to repay the Fund; that there is fair burden sharing; and that the program, if appropriately implemented and supported, would contribute to the maintenance or re-establishment of orderly relations between the member and its creditors.

Nevertheless, Directors agreed that there is a need for cautious adaptation of the Fund's policy in light of the changed financial environment and the possibility that in some cases significant time may be needed for banks and the member to agree on an appropriate financing package. In such circumstances, the Fund would on a case-by-case basis approve an arrangement outright before the conclusion of such negotiations, provided that prompt Fund support is judged essential for program implementation, that negotiations between the member and its bank creditors have begun, and that it can be expected that a financing package consistent with external viability will be agreed within a reasonable period of time. Management would continue to consult with Executive Directors at an early stage in such cases. Progress in the negotiations with bank creditors would be closely monitored, and any unforeseen development brought to the Board's attention. When circumstances warrant, the practice of seeking a critical mass, as well as the possibility of approving an arrangement in principle, would remain valid.

Directors stressed that in promoting orderly financial relations, every effort must be made to avoid arrears, which could not be condoned or anticipated by the Fund in the design of programs. Nevertheless, an accumulation of arrears to banks may have to be tolerated where negotiations continue and the country's financing situation does not allow them to be avoided. Directors emphasized that appropriate safeguards would need to be incorporated into the monitoring procedures of the Fund arrangement. The Fund's policy of nontoleration of arrears to official creditors remains unchanged. The debtor member would be expected to continue to treat creditors on a nondiscriminatory basis. Directors agreed that while negotiations with bank creditors were continuing, the situation would need to be monitored closely. Performance criteria would be quarterly. A review of progress in the negotiations would be scheduled at an appropriate time and, normally, before the second disbursement.

These essential points provide a clear, and clearly limited, basis for the Fund to proceed with initial country operations. We are at an early stage, but we must move forthrightly to begin implementation. It is understood that the Fund's policy, and the precise modalities for application of the policy, will evolve under the Board's guidance as individual cases come forward, or are reviewed, and in light of continuing staff studies. We will take stock of progress in connection with our discussion of the management of the debt situation before the Annual Meetings, and we will plan to review the overall experience in a year or earlier if the situation requires.

Debt and Debt Service Reduction Operations—Early Repurchase Expectations

In the context of the guidelines on the role of the Fund in the debt strategy, the Fund adopts the following decision on expectations of early repurchase by members with respect to purchases of additional resources under stand-by or extended arrangements or amounts set aside under such arrangements for use in debt and debt-service reduction operations involving (i) debt reduction, (ii) interest support, or (iii) collateralization of principal in reduced interest par bond exchanges.

A. Failure to Use Resources for Specified Purposes

1. Whenever the Fund approves a member's request for purchases of additional resources or amounts set aside under a stand-by or extended arrangement pursuant to the Fund's guidelines on the role of the Fund in the debt strategy, the Fund shall specify in the decision approving the request the purposes for which, and the period of time within which, such set-aside amounts or additional resources can be used.

2. If the member, having purchased such set-aside amounts or additional resources, has not used them by the end of the specified period of time for the specified purposes, the Managing Director shall, after consultation with the member, promptly report the matter to the Executive Board. In this report, the Managing Director shall recommend that the Executive Board decide that the member is expected to make an early repurchase of the set-aside amounts or additional resources that were not used for the specified purposes, or shall recommend such other action as may be appropriate.

3. The Fund may decide that the member shall be expected to repurchase the set-aside amounts or additional resources that were not used for the specified purposes within 30 days of the decision or within such longer period as the Executive Board may specify.

B. Subsequent Derailment of Program

4. (a) If the program of a member that has previously made accelerated purchases of amounts set aside under a stand-by or extended arrangement is off track on the date a purchase becomes available under the phasing provision in the arrangement, and is not back on track within 90 days after that date, the Managing Director shall report the matter to the Executive Board promptly after the expiration of the 90-day period.

(b) For purposes of this decision, a member's program is off track if the member is unable to make a purchase under the arrangement because of (i) the nonobservance of a performance criterion, the noncompletion of a review or the failure to meet any other condition under the arrangement, or (ii) the cancellation of the arrangement by the member before the purchase; the program is back on track if the member is again able to make purchases under the arrangement.

(c) Subparagraph (a) shall not apply if, on the date the purchase becomes available, all set-aside amounts that were purchased by the member by virtue of the acceleration would already have become available to the member under the phasing provision in the stand-by or extended arrangement in the absence of the acceleration.

5. In the report submitted under paragraph 4 above, the Managing Director shall recommend such action as may be appropriate, including the possibility of an expectation of early repurchase of the accelerated set-aside amounts.

6. (a) In the event that the Executive Board, taking into account the member's economic and financial position, decides that the member shall be expected to repurchase accelerated set-aside amounts, the member would be expected to make the repurchase, to the extent that such amounts would not yet have become available to the member under the phasing provision in the stand-by or extended arrangement in the absence of acceleration, within a period specified by the Executive Board, provided that such period would not be less than 30 days. The Executive Board shall give special consideration to those cases where the program has gone off track because of circumstances beyond the control of the member.

(b) A member shall not be expected to repurchase pursuant to subparagraph (a) above if its program is back on track within the period specified in that subparagraph, or if the Executive Board determines that the member has already begun to implement measures designed to bring the program back on track.

(c) If the Fund finds that the program is back on track after the repurchase has been made under this paragraph, the amount of the stand-by or extended arrangement shall be increased by an amount equivalent to the repurchase, subject to such phasing as shall be specified.

C. Release of Collateral Financed with Additional Resources

7. The provisions of this section shall apply when a member has purchased additional resources to finance the establishment of a collateral, and any portion of such collateral is released, subject to the following conditions:

  • (i) the member has not fully repurchased these additional resources from the Fund; and

  • (ii) the amount of the aggregate collateral that remains after this release is less than a threshold amount equal to:

  • — the sum of outstanding disbursements to the member of additional resources from the Fund and of additional funds for debt and debt service reduction from the World Bank and from regional development banks (“outstanding additional disbursements from IFIs”), minus

  • — any amounts that may have been used previously by the member for further debt or debt service reduction operations in accordance with paragraph 8 below.

8. If the member has not used an amount equivalent to the difference between the threshold amount and the remaining aggregate collateral (“excess release”) for further debt or debt service reduction operations within 12 months of the release, the Managing Director shall, after consultation with the member, promptly report the matter to the Executive Board. In this report, the Managing Director shall recommend that the Executive Board decide that the member is expected to make an early repurchase, or shall recommend such other action as may be appropriate.

9. The member will inform the Fund of the release of any portion of the aggregate collateral within 5 working days of such release, and of any use of the excess release for further debt or debt service reduction operations within 30 days of such use.

10. The Fund may decide that the member shall be expected to repurchase, within 30 days of the decision or within such longer period as the Executive Board may decide, an amount equivalent to the portion of the excess release that was financed with additional resources from the Fund. For purposes of this section, the portion of the excess release financed with additional resources from the Fund shall be calculated by applying the same proportion to the excess release as the amount of the member's outstanding purchases from the Fund of additional resources bears to the total amount of outstanding additional disbursements from IFIs to the member.

11. For purposes of this Section, and with respect to Fund resources made available in accordance with the amended guidelines on the role of the Fund in the debt strategy (Summing Up at EBM/94/1 on January 7, 1994), in cases where debt or debt-service reduction operations include the establishment of a collateral, any portion of the collateral that has not been financed from additional resources from international financial institutions other than the Fund shall be deemed to be financed first from additional resources from the Fund and, subsequently, from other resources.

D. General Provisions

12. 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 pursuant to paragraph 3, 6, or 10 above.

13. (a) Provision shall be made in stand-by and extended arrangements for the suspension of further purchases under the arrangement whenever a member fails to meet a repurchase expectation pursuant to paragraph 3, 6, or 10 above.

(b) Paragraph 5 of the standard form of the stand-by arrangement in Attachment A to Decision No. 6838-(81/70) adopted April 29, 1981, as amended, shall be modified as follows:

“(Member) will not make purchases under this stand-by arrangement during any period of the arrangement in which (member) has an overdue financial obligation to the Fund or is failing to meet a repurchase expectation pursuant to the Guidelines on Corrective Action in respect of a noncomplying purchase or pursuant to Decision No. 9331-(89/167), as amended.”

(c) Paragraph 5 of the standard form of the extended arrangement in Attachment B to Decision No. 6838-(81/70) adopted April 29, 1981, as amended, shall be modified as follows:

“(Member) will not make purchases under this extended arrangement during any period of the arrangement in which (member) has an overdue financial obligation to the Fund or is failing to meet a repurchase expectation pursuant to the Guidelines on Corrective Action in respect of a noncomplying purchase or pursuant to Decision No. 9331-(89/167), as amended.”

14. If a repurchase pursuant to the expectation under paragraph 3, 6, or 10 above has not been effected within the specified period of time, the Managing Director shall submit promptly a report to the Executive Board accompanied with a proposal on how to deal with this matter.

15. Nothing in this decision shall be deemed to limit the power of the Fund to take any other action that may be taken pursuant to the Fund's Articles.

Decision No. 9331-(89/167)

December 19, 1989, as amended by

Decision Nos. 9693-(91/48), April 3, 1991

10056-(92/78), June 23, 1992, and

10547-(94/1), January 7, 1994

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.

Summing Up by the Acting Chairman—Modalities of Fund Support for Debt and Debt-Service Reduction Executive Board Meeting 94/1, January 7, 7994

The Executive Board agreed to modify the guidelines on the Fund's involvement in the debt strategy that had been established in the Chairman's summing up on May 23, 1989. The Board decided to eliminate the segmentation requirements in order to facilitate commercial bank debt restructuring for some countries with difficult debt situations. After this modification, it would be possible to use both set-asides and additional resources from augmentation to support operations involving debt reduction, interest support for debt and debt-service reduction, and principal collateral for reduced-interest par bonds, provided that such operations satisfied the Fund's criteria. The Board also decided to make the consequential amendments to the decision on early repurchase expectations with respect to debt and debt-service operations.

Directors noted that decisions by the Fund to support particular debt and debt-service reduction packages would continue to be made on a case-by-case basis. As set out in the May 1989 guidelines, the Board would evaluate any proposed package in light of the strength of the member's economic policies, the likelihood that the package would help the country regain access to credit markets and attain external viability with growth, and an assessment that the package represented an efficient use of scarce resources. Directors agreed that appropriate balance between debt and debt-service reduction was an element to be taken into account in evaluating a proposed package. In assessing balance, the Fund would consider a number of factors, including (i) whether the resulting debt-service profile on restructured debt was consistent with a country's likely medium term debt-service capacity;(ii) whether the package, taken as a whole, was cost effective; (iii) whether the package would imply continued commercial bank involvement with the debtor country, where such involvement would be appropriate and could be expected to provide the basis for a subsequent return to spontaneous financing; and (iv)—although some Directors questioned the need for such an assessment—whether the menu of options included in the package provided a sufficiently broad range of alternatives to ensure a high rate of participation in the package. As before, the member and its banks would be able to allocate the options in a package between debt and debt-service reduction so as to tailor them to the needs of each case.

Under the modified approach, it would generally be expected that set-asides would be included in an arrangement if Fund support for debt operations was likely to be requested. Priority would be given to accumulated set-asides in support of bank debt packages. Augmentation of access would be considered only if accumulated set-aside resources were insufficient to ensure adequate Fund financing of the package, taking into account the criteria specified in the 1989 guidelines, including the need to catalyze resources from other sources and for the member to contribute as feasible, and the strength of the member's adjustment program. The consensus of the discussion was that acceleration of set-asides would continue to be possible, but only if judged absolutely necessary, and normally after appropriate use of additional resources. An exception to that set of priorities could be permitted where access under an arrangement was particularly low, in which case it would be possible to avoid use of set-asides and rely solely on augmentation of the arrangement.

Compensatory and Contingency Financing Facility

Compensatory and Contingency Financing Facility—Establishment

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, (ii) adverse external contingencies, (iii) excess costs of cereal imports, or (iv) excess costs of oil imports.

2. Purchases under this Decision will be financed with ordinary resources.

3. 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).

4. 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 any of the policies set forth in 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 any Section of this Decision and for purchases in the credit tranches, purchases under this Decision shall be deemed to be made first.

5. 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.

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

7. When a request for a purchase is made by a member under any Section 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 any other Section, double compensation shall be avoided when calculating the amount of the requested purchase.

8. (a) Subject 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:

(i) a combined limit of 80 percent of the member's quota for

  • - the sum of purchases on account of export shortfalls under Section II, Section IV, or Section V and purchases on account of external contingencies under Section III;

  • - the sum of purchases on account of export shortfalls under Section II, Section IV, or Section V and purchases on account of an excess in cereal import costs under Section IV or Section V;

  • - the sum of purchases on account of external contingencies under Section III and purchases on account of an excess in cereal import costs under Section IV or Section V;

  • - the sum of purchases on account of export shortfalls under Section II, Section IV, or Section V and purchases on account of excesses in oil import costs under Section V; and

  • - the sum of purchases on account of excesses in cereal import costs under Section IV or Section V and purchases on account of excesses in oil import costs under Section V.

(ii) a limit of 65 percent of the member's quota for purchases on account of export shortfalls under Section II, Section IV, or Section V if at the time of the request for the purchase the member's balance of payments position apart from the effects of the export shortfall is satisfactory, and a limit of 30 percent of the member's quota for such purchases in all other cases;

(iii) a limit of 30 percent of the member's quota for purchases on account of external contingencies under Section III;

(iv) a limit of 65 percent of the member's quota for purchases on account of an excess in cereal import costs under Section IV or Section V if at the time of the request for the purchase the member's balance of payments position apart from the effects of the excess in cereal import costs is satisfactory, and a limit of 15 percent of the member's quota for such purchases in all other cases;

(v) a limit of [ ] percent of the member's quota for purchases on account of an excess in oil import costs under Section V if at the time of the request for the purchase the member's balance of payments position apart from the effects of the excess in oil import costs is satisfactory, and a limit of [ ] percent of the member's quota for such purchases in all other cases; and

(vi) a combined limit of 95 percent of the member's quota for the sum of purchases on account of export shortfalls under Section II, Section IV, or Section V, purchases on account of external contingencies under Section III, purchases on account of an excess in cereal import costs under Section IV or Section V, and purchases on account of an excess in oil import costs under Section V.

(b) Notwithstanding the provisions of subparagraph (a)(ii), (iii), (iv), and (v) above, the limits of 30, 15, and [ ] percent above may be exceeded to permit additional purchases under this Decision, provided that the aggregate amount of Fund's holdings of the member's currency resulting from such additional purchases shall not exceed 20 percent of the member's quota.

9. 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.

10. (a) Wherever used in this Decision, the expression “Fund arrangement” will mean a stand-by or an extended arrangement. It will also mean a Structural Adjustment Facility (SAF) arrangement or an Enhanced Structural Adjustment Facility (ESAF) arrangement, provided that the Fund shall decide to provide financing on the basis of a SAF or ESAF arrangement only if the program supported by the arrangement, at the time of the decision, meets the criteria for the use of the Fund's general resources in the upper credit tranches.

(b) The total amount available under Section III to a member eligible for SAF or ESAF arrangements shall not exceed the total amount that would be available under that Section to the same member if it were not so eligible.

Section II. Compensatory Financing of Export Fluctuations

11. The Fund is prepared to assist members, particularly primary exporters, encountering payments difficulties produced by temporary export shortfalls, and has decided that such members may continue to expect that their requests for purchases will be met, subject to the provisions of this Decision, where the Fund is satisfied that:

(a) the shortfall is of a short-term character and is largely attributable to circumstances beyond the control of the member; and

(b) the member satisfies the conditions of cooperation with the Fund in accordance with paragraph 12.

12. (a) Subject to the provisions of subparagraphs (b) and (c) below, a member may expect that its request for a purchase on account of an export shortfall under this Section, Section IV, or Section V will be met immediately, whenever the purchase would not cause the Fund's holdings of the member's currency resulting from such purchases to exceed:

  • (i) 30 percent of the member's quota, if the Fund is satisfied that the member will cooperate with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties; and

  • (ii) 50 percent of the member's quota, if the member has a Fund arrangement, in support of a program that meets the criteria for the use of the Fund's general resources in the upper credit tranches, under which performance is broadly satisfactory, or if the Fund approves such an arrangement for the member at the time of the request, or if the member's current and prospective policies are such as would, in the Fund's view, meet such criteria.

(b) If the Fund considers that the record of the member's cooperation with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties had not been satisfactory, the member may expect that its request for a purchase on account of an export shortfall under this Section, Section IV, or Section V will be met whenever the purchase would not cause the Fund's holdings of the member's currency resulting from such purchases to exceed:

  • (i) 15 percent of the member's quota, if the Fund is satisfied that the member has taken action that gives, prior to submission of the request, a reasonable assurance that policies corrective of the member's balance of payments problem will be adopted;

  • (ii) 30 percent of the member's quota, if the member has a Fund arrangement, in support of a program that meets the criteria for the use of the Fund's general resources in the upper credit tranches, under which performance is broadly satisfactory, or if the Fund approves such an arrangement for the member at the time of the request, or if the member's current and prospective policies are such as would, in the Fund's view, meet such criteria; and

  • (iii) 50 percent of the member's quota, if the member has a Fund arrangement, in support of a program that meets the criteria for the use of the Fund's general resources in the upper credit tranches, under which a review is completed by the Fund at the time of the request, or if the member's policies in the recent past, as well as its current and prospective policies, are such as would, in the Fund's view, continue to meet such criteria.

(c) Notwithstanding subparagraphs (a) and (b) above, if a member's balance of payments position apart from the effects of the export shortfall is satisfactory, such member may expect that its request for a purchase on account of an export shortfall under this Section, Section IV, or Section V will be met whenever the purchase would not cause the Fund's holdings of the member's currency resulting from such purchases to exceed 65 percent of the member's quota.

(d) Approval in principle of a Fund arrangement shall be deemed to fulfill the conditions in subparagraphs (a)(i) and (b)(i) above.

(e) When a member has outstanding purchases on account of excesses in oil import costs under Section V, the limits in subparagraphs (a), (b), and (c) above shall be reduced in accordance with paragraph 44(f).

(f) Whenever estimated data are used for 9 months or more of the 12-month period referred to in paragraph 14, an amount of compensatory financing, determined in accordance with this Decision as an amount to be purchased under this Section, shall be phased in two purchases in accordance with this subparagraph. The two purchases shall be governed by the provisions of this subparagraph. The member may expect that its request for the first purchase, which shall be for up to 65 percent of the amount of compensatory financing, shall be met immediately. The member may expect that its request for the second purchase, which shall be for up to the difference between (i) the amount of compensatory financing recalculated at the time of the request for the second purchase and (ii) the amount of the first purchase, shall be met after actual data become available for at least 6 months of the 12-month period, provided that:

  • - the 12-month period shall be the same as for the first purchase and the second purchase shall be subject to the provisions of subparagraph (g) below,

  • - if policy implementation by the member or the 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, and

  • - if the first purchase and the second purchase requested by the member would cause the Fund's holdings of the member's currency resulting from purchases under this Section to exceed the limit in this paragraph under which the first purchase was made, the second purchase shall be subject to the relevant provisions of subparagraphs (a), (b), and (c) above instead of the provisions of this subparagraph.

(g) A purchase under this Section shall not be approved later than 6 months after the end of the 12-month period referred to in paragraph 14, provided that it may be approved up to 7 months after the end of such period if the delay beyond 6 months is the result of circumstances external to the member.

13. 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.

14. 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 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.

15. 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 preshortfall 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 14, 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 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 shortfall under this Section or Section IV, 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.

16. (a) When a member has made a purchase under the proviso in paragraph 14 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 data for the full 12-month period under paragraph 15, 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.

(b) If a member requests a purchase 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, Section IV, or Section V, 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 data available at the time of the request.

(c) Provision shall be made in stand-by and extended arrangements for the suspension of further purchases under the arrangement whenever a member fails to meet a repurchase expectation pursuant to subparagraph (a) above. 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.

Section III. External Contingency Financing

17. When approving a Fund arrangement, or when completing a review under such an arrangement at least six months before the expiration date of the arrangement, the Fund will be prepared to decide, at the request of the member and subject to the provisions of this Decision, that, should unfavorable deviations in the member's balance of payments due to adverse external contingencies occur during the period of the program supported by the arrangement, it will provide to the member external contingency financing in association with the arrangement.

18. (a) A decision by the Fund that it will be prepared to provide financing under paragraph 17 may be taken only in association with a Fund arrangement which provides that adjustments to performance criteria under the arrangement, including the performance criterion pertaining to international reserves, shall be made automatically in accordance with subparagraph (b) below in the event that deviations in the member's balance of payments due to external contingencies occur during the period of the program supported by the arrangement. With respect to arrangements under the Structural Adjustment Facility, references in this Section to performance criteria shall be understood to be to benchmarks under such arrangements.

(b) The automatic adjustments to performance criteria contemplated in subparagraph (a) above will be made in accordance with the terms specified in the arrangement, which shall include the external contingencies that will be taken into account and such other modalities as the Fund may determine. The external contingencies shall relate to key external variables of the member's current account that are highly volatile and easily identifiable.

19. (a) When deciding that it will be prepared to provide financing under paragraph 17, the Fund shall specify the maximum amount of purchases under this Section that may be permitted in association with the arrangement in case of unfavorable deviations and the maximum amount by which the arrangement could be reduced in accordance with paragraph 22 in the case of a favorable deviation. These two maximum amounts will normally be the same.

(b) The maximum amount of purchases under this Section that may be made in association with a Fund arrangement will generally not exceed 70 percent of the amount of the arrangement.

(c) When a member makes a request under paragraph 17, every effort will be made to obtain contingent financing from other sources.

20. (a) The Fund may provide financing under this Section only if:

(i) an automatic adjustment to the performance criterion pertaining to international reserves under the Fund arrangement for the member has occurred as contemplated in paragraph 18 as a result of an unanticipated unfavorable deviation in the member's balance of payments;

(ii) the deviation referred to in subparagraph (i) above is outside the control of the member;

(iii) the member's performance under the associated Fund arrangement is satisfactory;

(iv) the member is prepared to adapt its adjustment policies as may be necessary to ensure the viability of the program supported by the associated arrangement through a mix of adjustment and financing appropriate to the circumstances of the member; and

(v) the program supported by the associated Fund arrangement continues to be adequately financed which, if necessary, may include the provision of financing from other sources.

(b) Financing under this Section shall be provided generally on the basis of a review by the Executive Board.

(c) The amount of financing shall be equal to the amount of the adjustment to the performance criterion pertaining to international reserves contemplated in paragraph 18(a), provided that:

(i) the amount of financing shall be subject to the maximum amount of purchases specified pursuant to paragraph 19(a);

(ii) the amount of financing shall not exceed the amount by which the member's actual balance of payments position at the end of the period with respect to which contingency financing is requested is less favorable than projected in the member's program supported by the associated arrangement; and

(iii) the Fund's holdings of the member's currency resulting from purchases under this Section on account of deviations in net interest costs in association with all Fund arrangements for the member shall not exceed 25 percent of the member's quota.

(d) For purposes of applying the limitation in subparagraph (c)(iii) above, when a purchase to be made under this Section is attributable to unfavorable deviations in net interest costs and in one or more other variables relating to external contingencies, the purchase shall be allocated between the deviation in net interest costs and the other deviations. The portion that is to be allocated to the deviation in net interest costs shall be determined on the basis of the share of such deviation in the sum of the deviations.

(e) When, at the request of a member, the Fund has decided to provide financing to the member under this Section that would cause the Fund's holdings of the member's currency resulting from purchases under this Section to exceed 30 percent of the member's quota, the amount of such excess over 30 percent of quota shall not be available under paragraph 8(b), in respect of the arrangement in association with which the Fund decides to provide such financing, for other purchases under this Decision, unless the member notifies the Fund that it will not avail itself of such financing in excess of 30 percent under this Section.

21. Purchases under this Section shall be subject to the observance of any applicable performance criteria or other conditions specified in the associated arrangement, as if such purchases were drawings to be made under that arrangement. Purchases under this Section may be phased as specified by the Fund.

22. (a) If an automatic adjustment to a member's performance criteria pertaining to international reserves has occurred as contemplated in paragraph 18 as a result of a favorable deviation in the member's balance of payments, the Fund may, taking into account the member's level of international reserves, decide to reduce the amount of the arrangement by an amount up to the difference between the deviation and the automatic adjustment, but not exceeding the maximum amount specified pursuant to paragraph 19(a) or the amount that would have been financed under this Section if the deviation had been unfavorable.

(b) When one or more purchases under this Section had earlier been made by the member, the member may choose to substitute for a reduction of the amount of the arrangement a repurchase of a corresponding amount of the Fund's holdings of the member's currency in respect of such earlier purchases.

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

23. Until January 13, 1998, the Fund will be 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.

24. For a period of three years from the date of a member's first request for a purchase in respect of cereal imports under Decision No. 6860-(81/81), or under this Section or Section V, 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 or Section V.

25. A member with balance of payments difficulties may continue to expect that its request for a purchase under this Section will be met if the Fund is satisfied that:

(a) 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

(b) the member satisfies the conditions of cooperation with the Fund in accordance with paragraph 31.

26. (a) Subject to the limits specified in paragraphs 8 and 31, 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 27 and 28.

27. 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.

28. 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 27 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 5-year period centered on that 12-month period.

29. The amount of a purchase under this Section, as defined in paragraph 26, 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. The total amount of the purchase and the amount of each component are subject to the limits specified in paragraphs 8 and 31.

30. (a) The part of a purchase relating to an export shortfall, subject to the limits in paragraphs 8 and 31, shall not exceed the lesser of the export shortfall defined in paragraph 26(b)(ii) and the net shortfall in exports defined in paragraph 26(a).

(b) The amount of a purchase relating to an excess in cereal import costs, subject to the limits in paragraphs 8 and 31, shall not exceed the lesser of the excess in cereal import costs defined in paragraph 26(b)(iii) and the net shortfall in exports defined in paragraph 26(a).

31. (a) The provisions of paragraph 12 shall apply to purchases on account of export shortfalls under this Section.

(b) Subject to the provisions of subparagraphs (c) and (d) below, a member may expect that its request for a purchase on account of an excess in cereal import costs under this Section or Section V will be met immediately, whenever the purchase would not cause the Fund's holdings of the member's currency resulting from such purchases to exceed:

(i) 15 percent of the member's quota, if the Fund is satisfied that the member will cooperate with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties; and

(ii) 35 percent of the member's quota, if the member has a Fund arrangement, supporting a program that meets the criteria for the use of the Fund's general resources in the upper credit tranches, under which performance is broadly satisfactory, or if the Fund approves such an arrangement at the time of the request, or if the member's current and prospective policies are such as would, in the Fund's view, meet such criteria.

(c) If the Fund considers that the record of the member's cooperation with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties had not been satisfactory, the member may expect that its request for a purchase on account of an excess in cereal import costs under this Section or Section V will be met whenever the purchase would not cause the Fund's holdings of the member's currency resulting from such purchases to exceed:

  • (i) 15 percent of the member's quota, if the Fund is satisfied that the member has taken action that gives, prior to submission of the request, a reasonable assurance that policies corrective of the member's balance of payments problem will be adopted; and

  • (ii) 35 percent of the member's quota, if the member has a Fund arrangement, supporting a program that meets the criteria for the use of the Fund's general resources in the upper credit tranches, under which a review is completed by the Fund at the time of the request, or if the member's policies in the recent past, as well as its current and prospective policies, are such as would, in the Fund's view, continue to meet such criteria.

(d) Notwithstanding subparagraphs (b) and (c) above, if a member's balance of payments position apart from the effects of the excess in cereal import costs is satisfactory, such member may expect that its request for a purchase on account of an excess in cereal import costs under this Section or Section V will be met whenever the purchase would not cause the Fund's holdings of the member's currency resulting from such purchases to exceed 83 percent of the member's quota.

(e) Approval in principle of a Fund arrangement shall be deemed to fulfill the conditions in subparagraphs (b)(i) and (c)(i) above.

(f) When a member has outstanding purchases on account of excesses in oil import costs under Section V, the limits in subparagraphs (b), (c), and (d) above shall be reduced in accordance with paragraph 44(f).

(g) Whenever estimated data are used for 9 months or more of the 12-month period referred to in paragraph 27, an amount of compensatory financing, determined in accordance with this Decision as an amount to be purchased under this Section, shall be phased in two purchases in accordance with this subparagraph. The two purchases shall be governed by the provisions of this subparagraph. The member may expect that its request for the first purchase, which shall be for up to 65 percent of the amount of compensatory financing, shall be met immediately. The member may expect that its request for the second purchase, which shall be for up to the difference between (i) the amount of compensatory financing recalculated at the time of the request for the second purchase and (ii) the amount of the first purchase, shall be met after actual data become available for at least 6 months of the 12-month period, provided that:

  • - the 12-month period shall be the same as for the first purchase and the second purchase shall be subject to the provisions of subparagraph (h) below,

  • - if policy implementation by the member or the 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, and

  • - if the first purchase and the second purchase requested by the member would cause the Fund's holdings of the member's currency resulting from purchases under this Section to exceed the limit in this paragraph under which the first purchase was made, the second purchase shall be subject to the relevant provisions of subparagraphs (b), (c), and (d) above instead of the provisions of this subparagraph.

(h) A purchase under this Section shall not be approved later than 6 months after the end of the 12-month period referred to in paragraph 27, provided that it may be approved up to 7 months after the end of such period if the delay beyond 6 months is the result of circumstances external to the member.

32. A member shall allocate the amount of its purchase as between the export shortfall and cereal import components, where the sum of the two components, each as limited by paragraph 8,

(a) exceeds the limit of 80 percent of the member's quota, if, at the time of the request for the purchase, the member's balance of payments position apart from the effects of the export shortfall or the excess in cereal import costs is satisfactory; or

(b) exceeds the amount that the member may purchase pursuant to the access limits in paragraph 8, in all other cases.

33. (a) When a member has made a purchase under this Section on the basis of estimated statistical 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.

(b) If a member requests a purchase 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 Section II, Section V, or 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 data available at the time of the request.

(c) Provision shall be made in stand-by and extended arrangements for the suspension of further purchases under the arrangement whenever a member fails to meet a repurchase expectation pursuant to subparagraph (a) above. 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.

34. (a) Subject to paragraph 33(a), 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 paragraphs 8 and 31.

35. (a) After the expiration of the period referred to in paragraph 24, 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 24 or the expiration of this Section.

Section V. Compensatory Financing of Fluctuations in the Cost of Oil Imports

36. Until December 31, 1991, the Fund will be 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 oil imports.

37. For the period from the date of a member's first request for a purchase in respect of oil imports under this Section through December 31, 1991, any purchase by the member in respect of its export shortfalls or of its excesses in cereal import costs shall be made under this Section instead of under Section II or Section IV of this Decision.

38. 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:

(a) any shortfall in exports, any excess costs in oil imports, and any excess costs in 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

(b) the member satisfies the conditions of cooperation with the Fund in accordance with paragraph 44.

39. (a) Subject to the limits specified in paragraphs 8 and 44, 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, the excess in its oil import costs, and, if cereal import costs are to be included in the calculation of the net shortfall in exports in accordance with paragraph 24, 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, a shortfall in oil import costs shall be considered a negative excess in oil import costs, 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, and an excess in cereal import costs shall be determined in accordance with Section IV.

  • (iii) An excess in oil import costs shall be determined in accordance with paragraphs 40 and 41.

(c) For the purposes of this Section, oil imports will be understood to mean imports of crude petroleum, petroleum products and natural gas. Such imports shall be included in the calculation of an excess in oil import costs to the extent that, in the opinion of the Fund, adequate data are available.

40. The existence and amount of an excess in the cost of oil imports shall be determined, for the purposes 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 oil import costs. The calculation of a member's shortfall or excess in exports, of its excess or shortfall in the cost of oil imports, and of its excess or shortfall in the cost of cereal imports shall be made for the same 12-month period.

41. In order to identify more clearly what are to be regarded as excess costs of oil 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 oil import costs. For the purposes of this Section, the excess in a member's oil imports for the 12-month period referred to in paragraph 40 shall be the amount by which the member's oil imports in that 12-month period are more than the arithmetic average of the member's oil imports for the 5-year period centered on that 12-month period.

42. The amount of a purchase under this Section, as defined in paragraph 39, may be on account of an export shortfall, on account of an excess in oil import costs, or on account of an excess in cereal import costs, or it may be on account of any combination of two or three of these components. The total amount of the purchase and the amount of each component are subject to the limits specified in paragraphs 8 and 44.

43. (a) The part of a purchase relating to an export shortfall, subject to the limits in paragraphs 8 and 44, shall not exceed the lesser of the export shortfall defined in paragraph 39(b)(ii) and the net shortfall in exports defined in paragraph 39(a).

(b) The part of a purchase relating to an excess in oil import costs, subject to the limits in paragraphs 8 and 44, shall not exceed the lesser of the excess in oil import costs defined in paragraph 39(b)(iii) and the net shortfall in exports defined in paragraph 39(a).

(c) The part of a purchase relating to an excess in cereal import costs, subject to the limits in paragraphs 8 and 44, shall not exceed the lesser of the export shortfall defined in paragraph 39(b)(ii) and the net shortfall in exports defined in paragraph 39(a).

44. (a) The provisions of paragraph 12 shall apply to purchases on account of export shortfalls under this Section.

(b) The provisions of paragraph 31 shall apply to purchases on account of excesses in cereal import costs under this Section.

(c) Subject to the provisions of subparagraphs (d) to (i) below, a member may expect that its request for a purchase on account of an excess in oil import costs under this Section will be met immediately, whenever the purchase would not cause the Fund's holdings of the member's currency resulting from such purchases to exceed:

  • (i) [ ] percent of the member's quota if the Fund is satisfied that the member will cooperate with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties; and

  • (ii) [ ] percent of the member's quota if the member has a Fund arrangement, in support of a program that meets the criteria for the use of the Fund's general resources in the upper credit tranches, under which performance is broadly satisfactory, or if the Fund approves such an arrangement for the member at the time of the request, or if the member's current and prospective policies are such as would, in the Fund's view, meet such criteria.

(d) Subject to the provisions of subparagraphs (e) to (i) below, if the Fund considers that the record of the member's cooperation with the Fund in an effort to find, where required, appropriate solutions for its balance of payments difficulties had not been satisfactory, the member may expect that its request for a purchase on account of an excess in oil import costs under this Section will be met, whenever the purchase would not cause the Fund's holdings of the member's currency resulting from such purchases to exceed:

  • (i) [ ] percent of the member's quota if the Fund is satisfied that the member has taken action that gives, prior to the submission of the request, a reasonable assurance that policies corrective of the member's balance of payments problem will be adopted;

  • (ii) [ ] percent of the member's quota if the member has a Fund arrangement, in support of a program that meets the criteria for the use of the Fund's general resources in the upper credit tranches, under which performance is broadly satisfactory, or if the Fund approves such an arrangement for the member at the time of the request, or if the member's current and prospective policies are such as would, in the Fund's view, meet such criteria; and

  • (iii) [ ] percent of the member's quota if the member has a Fund arrangement, in support of a program that meets the criteria for the use of the Fund's general resources in the upper credit tranches, under which a review is completed by the Fund at the time of the request, or if the member's policies in the recent past, as well as its current and prospective policies, are such as would, in the Fund's view, continue to meet such criteria.

(e) Notwithstanding subparagraphs (c) and (d) above, if a member's balance of payments position apart from the effects of the excess in oil import costs is satisfactory, such member may expect that its request for a purchase on account of an excess in oil import costs under this Section will be met whenever the purchase would not cause the Fund's holdings of the member's currency resulting from such purchases to exceed [ ] percent of the member's quota.

(f) Notwithstanding subparagraphs (c), (d), and (e) above, the Fund's holdings of a member's currency resulting from purchases on account of excesses in oil import costs under this Section shall not exceed:

  • -in the case of a member falling under subparagraph (c)(i), (d)(i), or (d)(ii) above, the amount of access that remains available to the member for purchases on account of export shortfalls under Section II, Section IV, or this Section, and

  • -in the case of a member falling under subparagraph (c)(ii), (d)(iii), or (e) above, the amount of access that remains available to the member either for purchases on account of export shortfalls under Section II, Section IV, or this Section or for purchases on account of excesses in cereal import costs under Section IV or this Section.

When a member makes a purchase on account of an excess in oil import costs under this Section, the access limits in paragraph 12 for purchases on account of export shortfalls and the access limits in paragraph 31 for purchases on account of excesses in cereal import costs shall be reduced accordingly. If the member falls under subparagraph (c)(ii), (d)(iii), or (e) above, it shall, when requesting the purchase, specify, in accordance with this subparagraph, the extent to which this purchase shall reduce the access limits in paragraph 12 for purchases on account of export shortfalls and the access limits in paragraph 31 for purchases on account of excesses in cereal import costs.

(g) The Fund shall approve a member's request for a purchase on account of an excess in oil import costs under subparagraph (c), (d) or (e) above only if it is satisfied that the member is pursuing appropriate energy policies.

(h) A purchase under subparagraph (c)(i) or (d)(i) above shall be approved by the Fund if the Fund is satisfied, based on a written statement submitted by the member, that the member will pursue appropriate macroeconomic policies and objectives.

(i) Except in this subparagraph, when compensatory financing is phased in accordance with this subparagraph, references in this Decision to purchases on account of excesses in oil import costs under this Section shall be understood to apply to the amount of compensatory financing before phasing. Whenever estimated data are used for 9 months or more of the 12-month period referred to in paragraph 40, the amount of compensatory financing on account of an excess in oil import costs under this Section shall be phased in two purchases in accordance with this subparagraph. The member may expect that its request for the first purchase, which shall be for up to 65 percent of the amount, shall be met immediately. The member may expect that its request for the second purchase, which shall be for up to the difference between the amount recalculated on the basis of the actual data available at the time of the request and the amount of the first purchase, shall be met after actual data become available for at least 6 months of the 12-month period referred to in paragraph 40, provided that:

  • - if policy implementation by the member or the 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, and

  • - if the sum of the first purchase and of the second purchase requested by the member exceeds the limit in this paragraph under which the first purchase was made, the second purchase shall be subject to the relevant provisions of subparagraph (c), (d) or (e) above instead of the provisions of this subparagraph.

(j) Without prejudice to subparagraph (g) above, approval in principle of a Fund arrangement shall be deemed to fulfill the conditions in subparagraphs (c)(i) and (d)(i) above.

45. A member shall allocate the amount of its purchase as between the export shortfall, the oil import, and the cereal import element, where the sum of the three components, each as limited by paragraph 8,

(a) exceeds the limit of [ ] percent of the member's quota, if, at the time of the request for the purchase, the member's balance of payments position apart from the effects of the export shortfall, the excess in oil import costs, or the excess in cereal import costs is satisfactory; or

(b) exceeds the amount that the member may purchase pursuant to the access limits in paragraph 8, in all other cases.

46. (a) When a member has made a purchase under this Section on the basis of estimated statistical 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.

(b) If a member requests a purchase 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 Section II, Section IV, or 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 data available at the time of the request.

47. (a) Subject to paragraph 46(a), 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 oil import component, export shortfall component, and cereal import component, of the purchase.

(b) When the Fund's holdings of a member's currency resulting from a purchase under this Section, Section II, or Section IV 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 paragraphs 8 and 44.

48. (a) After the expiration of the period referred to in paragraph 37, the total amount of the export shortfall components and of the cereal import components of a member's purchases outstanding under this Section shall be counted as having been purchased under Section II or Section IV, depending on the Section under which they would otherwise have been made.

(b) The provisions of Section II or of Section IV shall continue to apply to the export shortfall and cereal import components of a purchase under this Section after the expiration of the period referred to in paragraph 37 or the expiration of this Section.

Section VI. Transitional and Other Provisions

49. This Decision shall apply to all purchases on account of export shortfalls, on account of external contingencies, or on account of an excess in cereal import costs made after August 23, 1988, provided that purchases on account of export shortfalls or on account of an excess in cereal import costs that are made before November 1, 1988 shall be governed by Decision No. 6224-(79/135) and by Decision No. 6860-(81/81), as the case may be, if they result from requests initiated before the date of this Decision.

50. For purposes of calculating the Fund's holdings of a member's currency under this Decision, purchases made under Decision No. 6224-(79/135) or Decision No. 6860-(81/81) prior to August 23, 1988 or under paragraph 37, shall be deemed to have been made under Section II or Section IV of this Decision, as the case may be.

51. Notwithstanding the provisions of paragraph 17, the Fund will be prepared to decide, when completing a review of a Fund arrangement approved before November 1, 1988, that external contingency financing will be provided under this Decision for the remaining period of the arrangement, if such period is at least one year. The provisions of Section III shall apply to mutatis mutandis that decision.

52. If on August 23, 1988 the Fund's holdings of a member's currency resulting from purchases on account of export shortfalls exceed 65 percent of the member's quota, purchases by the member on account of export shortfalls under Section II, Section IV, or Section V and purchases on account of external contingencies under Section III may be permitted, up to a transitional combined access limit for the sum of such purchases, in excess of the 105 percent and 122 percent limits specified in paragraph 8(a). The transitional access limit shall be equal to the sum of such holdings of the Fund (expressed in terms of the member's quota) on August 23, 1988 and 40 percent of the member's quota. The transitional access limit shall apply until the Fund's holdings of the member's currency resulting from purchases on account of export shortfalls are reduced to 65 percent of the member's quota or the Fund's holdings of the member's currency resulting from both purchases on account of export shortfalls and purchases on account of external contingencies are reduced to 105 percent of the member's quota, whichever shall come first.

53. (a) Rule I-6(4) shall be amended by inserting the following new subparagraph (vi):

“or (vi) under the Compensatory and Contingency Financing Facility (Executive Board Decision No. 8955-(88/126), as amended).”

(b) Decision No. 5703-(78/39) shall be amended by inserting the following clause in paragraph l(a) immediately after the reference to Decision No. 6860-(81/81):

“or the decision on the Compensatory and Contingency Financing Facility (Decision No. 8955-(88/126), as amended).”

54. Notwithstanding paragraph 13, any member that has specified, for a purchase made prior to November 15, 1990, that receipts from travel and workers' remittances shall be included in the calculation of the shortfall shall specify, for the first purchase under Section II, Section IV, or Section V following November 15, 1990, whether services shall be included or excluded in the calculation of the shortfall.

55. Notwithstanding paragraph 36, a purchase under Section V may be made after the date of expiration of that Section, if (i) it results from a request initiated before such date of expiration and relates to a net shortfall year ending not later than December 31, 1991, or (ii) it is a second purchase within the meaning of paragraph 44(i), and the first purchase was made prior to such date of expiration or was made pursuant to (i) above, provided that a first purchase within the meaning of paragraph 44(i) may not be made after June 30, 1992.

56. The Fund will review this Decision not later than January 13, 1998.

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, and

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

Final Version of the Chairman's Summing Up of the Discussions on the Compensatory and Contingency Financing Facility Concluded at Executive Board Meeting 88/105, July 15, 1988

These remarks summarize my understanding of the agreement that has been reached on the general principles and specific modalities for the compensatory and contingency financing facility. My informal remarks of April 7, 1988 (Buff 88/68—Final Version) on the same subject form an integral part of the understandings and are included as an Appendix* to this Summing Up.

At the meetings that took place in March and April of this year, broad agreement was reached on general principles and a framework for the new facility. In particular, it was concluded that the essential features of the CFF should be preserved; that contingent Fund financing could help maintain the momentum of adjustment programs against adverse external shocks; and that the basic features of contingency mechanisms should include an appropriate blend of adjustment and financing, incorporate symmetry, and involve external factors beyond the control of authorities, subject to a minimum threshold level for activation. To these principles I would add the need to pursue parallel contingent financing vigorously where necessary and to ensure that programs continue to be adequately financed when Fund resources are disbursed. It is also important to stress that purchases under this facility, as under all Fund facilities, would be subject to balance of payments need and that, in providing financing under this facility, due attention will be paid to the member's capacity to meet its obligations to the Fund.

In our meetings over the past few weeks, Directors have reached agreement on a number of operational modalities for the new facility and the features of this agreement are summarized below. Directors also concluded that in order to avoid creating an unduly rigid and complex system, many detailed operational aspects of contingency financing would have to be developed with the authorities at the time each associated arrangement is framed, on an experimental and case-by-case basis. As each case comes before the Board, and is commented on by Directors, that experience will be duly reflected in subsequent cases. Then, before the 1989 Annual Meeting, there will be a general review of the compensatory and contingency financing facility based on experience with its operations.

I will now turn to the detailed modalities for the new facility.

1. Access limits for contingency mechanisms

Contingent financing would be subject to the cumulative access limits for the facility. In addition, contingent financing would not generally exceed 70 percent of access under the associated arrangement. For multiyear arrangements there would be a flexible approach for distribution of access as between years; normally, some frontloading and carryover of access would be provided for, but access in any one year would not generally exceed 70 percent of the access available under the associated arrangement in each 12-month period.

2. Activation

Contingency mechanisms would be attached to Fund arrangements and would be approved by the Executive Board at the time of the approval of the associated arrangement. Contingency mechanisms generally would be activated on the basis of a review by the Executive Board. Such reviews would normally be conducted within the context of a mid-term program review, although in some cases it might be useful to conduct an ad hoc review. Eventually, some of these reviews might occasionally be conducted on a lapse-of-time basis, but it is understood that in the early experimental stage of the new facility a discussion by the Executive Board would take place in each case.

In some exceptional cases where the link between additional financing needs and the relevant contingencies and the policy actions that would need to be phased in could be specified in advance with sufficient precision, the Executive Board could give advance approval for the disbursement of contingent financing without further Executive Board review. In such cases, the staff assessment could be expedited and, after the Board has received adequate advance notification, disbursements would be made. All purchases would of course require observance of the arrangement's performance criteria, adjusted by the Executive Board as necessary to take account of the effects of the contingencies.

3. Resources for contingent financing

Purchases for contingent financing will use ordinary resources with a repurchase period of three-five years. Access would be considered separate from holdings resulting from the use of Fund resources under any other policy but not from holdings resulting from purchases on account of export shortfalls or excess cereal costs. As is the case with purchases under tranche policies, purchases for contingent financing and holdings resulting from such purchases would be excluded for the purpose of determining a member's reserve tranche position.

4. Choice of the optional tranche

The optional tranche would be divisible. Prior to activation of a contingency mechanism, members would be free to choose the application of the optional tranche, except when the member requests and the Fund agrees to specify in advance an allocation of the optional tranche; it is expected that this would mainly involve cases where parallel contingent financing was being arranged. At the time of activation of the contingency mechanism, members would commit themselves on the use of the optional tranche for the remaining period of the baseline.

5. Minimum threshold

For an experimental period until the general review of the facility has been completed, the staff would work with a threshold of 10 percent of quota, but management would have the freedom to propose a lower or higher figure in what is expected to be the relatively few cases where this was necessary. Four percent of quota—an amount that is assumed to be covered as a minimum in all basic programs through appropriately flexible policies and/or financing—would be deducted before calculating the financing to be made available or before applying the symmetry procedures.

6. Proportion of deviation to be financed

The proportion of a contingent deviation to be financed would be determined on a case-by-case basis to ensure an appropriate mix of adjustment and financing and would be established at the outset of the arrangement with a contingency mechanism. In the period immediately after an adverse shock has occurred, it would normally be expected that the Fund would finance a substantial proportion of the adverse deviation. Every effort would be made to obtain parallel contingent financing from other creditors and contingency mechanisms would not be activated unless the program continued to be adequately financed. The proportion of the deviation to be financed could be changed at the request of the member at the time of the activation of the contingency mechanism, if the program was being affected by shocks of a nature that made the originally decided split between financing and adjustment inappropriate.

7. Phasing

Contingent financing would be phased through the baseline period at the same time as purchases under the associated arrangement. The phasing would take into account the timepath of the net deviation from the baseline and the timing of the implementation of additional policy measures. When a shock covered by the contingency variables had occurred the first purchase would be made available when the cumulative deviation from the baseline was projected to exceed the threshold. Subsequent purchases would be proportional to the net deviation estimated for the corresponding quarters, on the basis of shocks that had already been observed. When a member has made a purchase under a contingency mechanism on the basis of an estimated deviation which later is shown to be incorrect, the member will be expected, unless the Fund decides otherwise, to make a prompt repurchase to reverse any overcompensation.

8. Symmetry

When a favorable deviation relative to the baseline occurs, a substantial part of the favorable deviation would be used to build up reserves in cases where reserves were low. Where reserves were at a more adequate level, part of the favorable deviation would be reflected in a reduction of purchases under the basic arrangement, or, if an earlier contingency purchase had been made, the member could opt to repurchase contingency purchases.

9. Eligibility of SAF and ESAF arrangements for contingency mechanisms

It has been agreed that it would be desirable to permit contingency mechanisms to be attached to SAF and ESAF arrangements. In view of the limited amount of resources available to the Special Disbursement Account and the ESAF Trust and the restrictions on their utilization, financing for this purpose would need to be provided from the Fund's general resources. The possibility of providing for concessionality in the resources disbursed under contingency mechanisms for low-income countries will be reviewed at a later date.

The use of the Fund's general resources for contingency financing for SAF and ESAF arrangements raises issues with respect to the uniformity of treatment of Fund members. For this fundamental principle to be maintained, the conditionality attached to the use of the Fund's general resources under a contingency mechanism must be the same, whether this is in connection with a SAF arrangement, an ESAF arrangement, or an upper credit tranche arrangement.

This does not pose difficulties with respect to the ESAF, but to enable a contingency mechanism to be activated for a SAF arrangement, it would be necessary for the member concerned to agree to a program sufficiently strong to permit the Executive Board to determine that the SAF arrangement in question entailed conditionally equivalent to that of an upper credit tranche arrangement. It would also, as a practical matter, be necessary for such SAF arrangements (and, as relevant, for ESAF arrangements) to incorporate stronger provisions for monitoring, including a review to change benchmarks as necessary and to formulate them in a way that would govern the phased disbursements under the contingency mechanism, as well as to activate the mechanism.

The principle of uniformity precludes a differentiated overall ceiling on access to the Fund's general resources. Therefore, care will be taken to ensure that a SAF/ESAF-eligible member would not, by virtue of its eligibility both for arrangements under those facilities and for upper credit tranche arrangements, have higher access to the Fund's general resources under the contingency mechanism than a member who is not eligible for the SAF and ESAF.

10. Eligibility of enhanced surveillance procedures for contingency mechanisms

The attachment of contingency mechanisms to the procedures for enhanced surveillance would be examined further in the context of the review of enhanced surveillance.

11. Coverage

As a general principle, contingency mechanisms would cover unanticipated changes in the exogenous components of a few key external variables: export earnings, import prices, and interest rates. Other current account transactions (such as tourist receipts and migrant workers' remittances) could also be covered where they are of particular importance. Capital movements and unanticipated shifts in the volume of imports of goods and services would not be covered. Natural disasters would not be covered by contingency mechanisms, but could give rise to assistance under the Fund's decision on emergency assistance related to natural disasters.

Coverage in the context of a particular Fund arrangement would be determined on a case-by-case basis, in discussion with the authorities. In all cases, the specific set of variables selected would need to cover a substantial proportion of the exogenous components of the country's current account. At the same time, the authorities and the staff would have sufficient flexibility in determining coverage to avoid complications in the calculations of baselines and contingencies that could substantially delay agreement on programs and activation of the contingency mechanism. The subset of variables covered would be specified at the inception of the program and would remain unchanged throughout the life of the associated arrangement.

Contingency mechanisms would cover unforeseen changes in nominal interest rates, and would be limited to changes in benchmark international interest rates (such as LIBOR). Accordingly, unexpected deviations in interest costs stemming from changes in the risk premium, exchange rates, and unanticipated external borrowing would not be covered. Fund financing of interest rate contingencies would apply to the member's net external debt, which would generally be defined as the public and publicly guaranteed gross external debt minus official external assets. Such contingencies would apply only to instruments that are affected by unforeseen changes in interest rates.

Contingent financing of interest costs would be subject to a cumulative sublimit of 35 percent of quota. When such a limitation applied, the calculation of the net aggregate contingent deviation would be modified so as to avoid triggering the symmetric provisions of the mechanism in situations where the country would otherwise have experienced a contingent shortfall. Parallel contingent financing from commercial banks will be pursued vigorously. However, provided that adequate financing of the program is assured, there would not be a formal requirement for advance coverage of interest rates and other contingencies by mechanisms established with commercial banks. Countries also would be encouraged to hedge a part of their foreign debt against unforeseen rises in world interest rates, on the basis of the several instruments available in world financial markets.

12. Calculation of contingent deviations

Contingent deviations for individual current account variables would be calculated in relation to a baseline projection specified at the inception of the program. The aggregate size of the contingent deviation for a particular member would then be calculated as the net sum of deviations from baseline values for individual variables.

In preparing the baseline projections the staff would draw on World Economic Outlook forecasts of key variables, supplemented as appropriate by country-specific variables, and taking into consideration the country's circumstances. The key WEO projections would be updated as necessary to provide an adequate basis for the calculations. The baseline normally would be specified for a period of 12 months, and in any case no longer than 18 months. EFF and ESAF (and where appropriate SAF) arrangements would call for specification of annual baselines at the beginning of each program year.

In calculating the contingent deviations, the staff will adhere to the principle of exogeneity. Application of this principle would be straightforward for most import prices and export prices of key inter-nationally traded commodities. For countries with a diversified export base (typically including a substantial proportion of manufactures), the staff will estimate the impact of unforeseen changes in external demand on export earnings. As regards interest rates, the contingent deviation would be calculated by multiplying the stock of net external debt specified in the baseline by the unexpected deviation in the nominal LIBOR (or the appropriate benchmark rate where liabilities are denominated in currencies other than the U.S. dollar). When necessary, the calculation of contingencies would take into account information (particularly with respect to longer-term contracts) about the lags with which changes in world prices and international interest rates have an effect on the member's current account.

13. Compensatory financing element

In situations where the member's record of cooperation in recent periods had been unsatisfactory, or where its policies were seriously deficient, the compensatory financing element is to be made available in two tranches of equal size (each 20 percent of quota), given reasonable assurance that policies corrective of the member's balance of payments problems would be adopted.

14. Approval in principle

When compensatory financing requests are accompanied by Fund arrangements approved in principle, purchase of the full compensatory financing element (40 percent of quota) would be allowed for members with a good record of cooperation, and purchase of the first tranche (20 percent of quota) of the compensatory financing element would be allowed for other members.

15. Cereal decision

Overall access under the cereal decision and the compensatory and contingency financing facility will be 122 percent of quota, as set out under alternative A in the Annex to EBS/88/100. Symmetry with the agreement to maintain access at its current level of 83 percent of quota for export shortfalls for members with a satisfactory balance of payments position except for the effects of the export shortfall would suggest leaving in place the existing access limit of 83 percent of quota for cereal excesses and the existing joint limit of 105 percent of quota for members with a satisfactory balance of payments position except for the effects of the cereal excess/export shortfall. This approach implies a potential to include access for contingency financing up to an overall access limit of 122 percent of quota.

16. Transitional arrangements

Under transitional arrangements, (i) there would be access of 40 percent of quota for contingency financing for countries with outstanding CF purchases of more than 65 percent of quota at the time the new decision is approved; and (ii) CF requests on which discussions were initiated before the approval of the new decision would be governed by the current CF decision for a period of three months after the approval of the new decision.

17. Calculation of compensable export shortfalls

a. Projection limits

There would be an upper limit on the projections of export earnings to be used in the calculations of export shortfalls. The limit on the projected growth of the average level of exports in the two postshortfall years over the average level of exports in the two preshortfall years would be set at 20 percent. Periodically, this limit would be reviewed, and if necessary revised, in the light of developments with respect to world inflation.

b. Adjustment for over compensation and undercompensation

A compensatory financing request based on a shortfall falling within or overlapping with the two-year projection period of an earlier purchase would be adjusted by the amount by which the earlier purchase may have been overcompensated. Similarly, any undercompensation of the first purchase would be added to the subsequent shortfall when determining the size of the second purchase.

18. Avoidance of double compensation in compensatory and contingency financing

In calculating compensable amounts under the new facility, the staff will apply procedures to avoid double compensation between compensatory, including with respect to cereal costs, and contingency financing along the lines outlined in EBS/88/100. Under the procedures, a member with a contingency mechanism that includes export earnings as a variable should be able to be compensated under both contingency and compensatory financing, provided the amounts compensated under one component are deducted from the amounts to be compensated under the other. The member will have the choice to classify the amount of compensation deemed common to both contingency and compensatory financing as a purchase under either component.

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, 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.”

Buffer Stock Financing Facility

Buffer Stock Financing Facility: THE Problem of Stabilization of Prices of Primary Products

1. The Executive Board, having considered the staff study on “The Problem of Stabilization of Prices of Primary Products,” decides that the Fund will be prepared to extend assistance to members in connection with the financing of international buffer stocks of primary products in accordance with the principles and subject to the quantitative limits set forth in Chapter III, Section 2, and Annex A of Part II of the study.

2. In accordance with paragraph 1 above, the total of purchases outstanding pursuant to paragraph 1 of this decision shall not exceed 35* percent of quota.

3. In order to carry out the purposes of this decision, the Fund will be prepared to waive the limit on purchases that raise the Fund's holdings above 200 percent of quota, where appropriate.

4. When purchases are made pursuant to paragraph 1 of this decision, the Fund will so indicate in an appropriate manner.

5. …*

6. In view of the Fund's purposes which include the facilitation of “the expansion and balanced growth of international trade,” the Fund, in its consultations with members, will pay increased attention to their policies in the commodity field.

Decision No. 2772-(69/47)

June 25, 1969, as amended by

Decision Nos. 4913-(75/207), December 24, 1975

7602-(84/3), January 6, 1984, and

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

Buffer Stock Financing Facility: Access Policy—Elimination of Floating

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 Decision No. 2772-(69/47), adopted June 25, 1969, as amended, on the buffer stock financing facility, 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 Decision No. 2772-(69/47) and purchases in the credit tranches, purchases under Decision No. 2772-(69/47) shall be deemed to be made first.

Decision No. 10186-(92/132)

November 3, 1992

Buffer Stock Financing Facility: Fourth International tin Agreement

(i) The Fund, having considered the text of the Fourth International Tin Agreement, as adopted by the United Nations Tin Conference on May 15, 1970, finds that the terms of this Agreement relating to the international tin buffer stock to be established under the Agreement are consistent with the principles referred to in Executive Board Decision No. 2772-(69/47) of June 25, 1969. The Fund expects that an amount equal to not less than one third of the compulsory contributions due on entry into force of the Agreement under Article 21(a)(ii) of the Agreement will be met from financing other than the use of the Fund's resources under Executive Board Decision No. 2772-(69/47).

(ii) In view of (i) above, the Fund will meet, subject to the provisions of Executive Board Decision No. 2772-(69/47), a member's requests for purchases in connection with the financing by the member of that part of its compulsory contribution to the buffer stock established under the Fourth International Tin Agreement which the member has been called upon to make under Article 21 of the Agreement and which is in excess of one third of the member's compulsory contribution due under Article 21(a)(ii) of the Agreement.

(iii) The staff will keep the Executive Directors informed on the operation of the buffer stock and other developments in connection with the Fourth International Tin Agreement by reports that will be made at least once a year, and the Fund may make such review of this Decision as is appropriate in the light of these reports.

Decision No. 3179-(70/102)

November 25, 1970

In applying the provisions of E.B. Decision No. 3179-(70/102), dated November 25, 1970, the Fund decides that, for the purpose of determining the appropriate use of Fund resources under the Decision, any initial contribution made in the form of tin metal under Article 21(a)(ii) of the Fourth International Tin Agreement shall be regarded as equivalent to contributions in cash, valued at the floor price ruling on entry into force of the Agreement.

Decision No. 3351-(71/51)

June 21, 1971

Buffer Stock Financing Facility: Fifth International tin Agreement

1. The Fund, having considered the text of the Fifth International Tin Agreement, as adopted by the United Nations Tin Conference on June 21, 1975, finds that the terms of this Agreement relating to the international tin buffer stock to be established under the Agreement are consistent with the principles referred to in Executive Board Decision No. 2772-(69/47) of June 25, 1969.

2. In view of (1) above, the Fund will meet, subject to the provisions of Executive Board Decision No. 2772-(69/47) as amended by Executive Board Decision No. 4913-(75/207), a member's requests for purchases in connection with the financing by the member of its compulsory contributions to the buffer stock established under the Fifth International Tin Agreement.

3. The Fund decides that any contribution made in the form of tin metal under Article 21 of the Agreement shall be regarded as equivalent to a contribution in cash, valued at the floor price prevailing when the contribution is called up. Any transfer of metal from the buffer stock to a member will be treated as a distribution in currency, valued at the floor price prevailing when the transfer is made.

4. The staff will keep the Executive Directors informed on the operation of the buffer stock and other developments in connection with the Fifth International Tin Agreement by reports that will be made at least once a year, and the Fund may make such review of this decision as is appropriate in the light of these reports.

Decision No. 5127-(76/91)

June 23, 1976

Buffer Stock Financing Facility: Sixth International tin Agreement

1. The Fund, having considered the text of the Sixth International Tin Agreement, as established by the United Nations Tin Conference on June 26, 1981, and applied provisionally among the members who have decided to do so, finds that the terms of this Agreement relating to the international buffer stock established under the Agreement are consistent with the principles referred to in Executive Board Decision No. 2772-(69/47), adopted June 25, 1969, as amended.

2. In view of paragraph (1) above, the Fund will meet, subject to the provisions of Executive Board Decision No. 2772-(69/47), as amended, a member's requests for a purchase in connection with the financing by a member of its compulsory contributions to the normal buffer stock established under the Sixth International Tin Agreement, if its request is received in the Fund not later than six months after the date of the contribution or, in respect of contributions made before the date of this decision, not later than 90 days after the date of this decision.

3. A member that has outstanding purchases under this decision

(a) shall make repurchases in respect of these purchases in accordance with paragraph l(a) of Decision No. 5703-(78/39), adopted March 22, 1978, as amended, and

(b) will be expected to repurchase at an earlier date than would be required under (a) above,

  • (i) when, and to the extent that, the International Tin Council makes refunds, and

  • (ii) if the Sixth International Tin Agreement terminates without being replaced by a new International Tin Agreement providing for a buffer stock, when transfers in liquidation are made to the member. Any transfer of tin metal from the buffer stock to the member will be treated as a distribution in currency, valued at the average price for tin prevailing on the appropriate market (London or Penang) on the day of distribution.

4. If the Sixth International Tin Agreement is to be replaced by a new International Tin Agreement providing for a buffer stock,

(a) a transfer of all or part of a member's share under the existing Agreement to the buffer stock account of the new Agreement will not be treated as a distribution in currency for the purpose of repurchase, if within 180 days of the termination of the existing Agreement, the Fund finds the terms of the new Agreement to be consistent with the principles referred to in Executive Board Decision No. 2772-(69/47), as amended, and

(b) members that do not participate in the new Agreement will be expected to repurchase in accordance with paragraph 3(b)(ii) above.

5. The staff will keep the Executive Board informed on the operation of the buffer stock and other developments in connection with the Sixth International Tin Agreement by reports that will be made at least once a year, and the Fund may make such review of this decision as is appropriate in the light of these reports.

Decision No. 7247-(82/147)

November 12, 1982

Buffer Stock Financing Facility: 1977 International Sugar Agreement

1. It is decided that, for the purposes of Decision No. 2772-(69/47), as amended, a sugar buffer stock consisting of buffer stocks nationally owned but internationally controlled pursuant to the 1977 International Sugar Agreement, as established by the 1977 United Nations Sugar Conference, shall be deemed to be an international buffer stock if it otherwise meets all the criteria referred to in Decision No. 2772-(69/47), as amended.

2. The Fund, having considered the text of the International Sugar Agreement, 1977, as adopted by the United Nations Sugar Conference on October 7, 1977, recognizing the economically sound attributes of the Agreement and the price stabilization objective, finds that the terms of this Agreement relating to the special stocks of sugar to be established under the Agreement are consistent with the principles referred to in Executive Board Decision No. 2772-(69/47), as amended, including the amendment in paragraph 1 above.

3. In view of paragraph 2 above, the Fund will meet, subject to the provisions of Executive Board Decision No. 2772-(69/47), as amended, and the limits specified in paragraphs 4 and 5 below, a member's requests for purchases in connection with the financing by the member of the special stocks established in accordance with Article 46 of the International Sugar Agreement, 1977. For the purposes of this decision, any special stock in sugar established in accordance with Article 46 of the International Sugar Agreement, 1977, shall cover an amount of sugar not exceeding the quantities for which certificates of existence issued by the Government of the member have been supplied to the International Sugar Organization and in respect of which agreement has been reached between the member and the International Sugar Organization regarding on-site verifications, as provided for in Article 47 of the 1977 International Sugar Agreement. A member may make a purchase under this decision if its request is received in the Fund not later than six months after (i) the end of the period in which the member has to fulfill its obligation to establish a special stock in accordance with Article 46.5 of the International Sugar Agreement or (ii) the date on which the export quotas are lifted, if this date is earlier.

4. A request for a purchase under this decision will be met if it will not cause the total of purchases outstanding under this decision to exceed the sum of the values of the quantities of sugar placed in the special stock, with each quantity valued on the basis of the lesser of (i) the floor price and (ii) the average market price during the month in which the quantity was acquired.

5. A request for a purchase under this decision by a member that has outstanding any loans in foreign exchange for which a special stock has been used as collateral will be met if, in addition to being consistent with the limit specified in paragraph 4 above, it does not cause the total of purchases outstanding under this decision to exceed the higher of (i) the sum referred to in paragraph 4 above minus the amount of any outstanding loans in foreign exchange for which the special stock has been used as collateral and (ii) the total value of the special stock on the basis of the average price during the latest calendar month before the request for a purchase under this decision minus the amount of any such loans. When requesting a purchase and while it has purchases outstanding under this decision, a member shall inform the Fund of any loans for which the special stock has been used as collateral.

6. A member that has outstanding purchases under this decision will be expected to repurchase in accordance with paragraph 1 of Decision No. 5703-(78/39) and shall complete repurchase in respect of these purchases in accordance with paragraph 1 of the same decision. The member will be expected to make a repurchase at an earlier date

  • (i) when, and to the extent that, stocks are released from the control of the International Sugar Organization, and

  • (ii) when the member obtains a loan in foreign exchange for which the special stock is used as collateral, to the extent that the amount of this loan, together with the amount of purchases outstanding exceeds the amount that the member may purchase in accordance with paragraphs 4 and 5 above.

7. The staff will keep the Executive Directors informed on the operation of the buffer stock and other developments in connection with the International Sugar Agreement, 1977, by reports that will be made at least once a year, and the Fund may make such review of this decision as is appropriate in the light of these reports.

Decision No. 5597-(77/171)

December 16, 1977

Buffer Stock Financing Facility: International Natural Rubber Agreement, 1979

1. The Fund, having considered the text of the International Natural Rubber Agreement as established by the United Nations Conference on Natural Rubber on October 6, 1979, finds that the terms of this Agreement relating to the international natural rubber buffer stock established under the Agreement are consistent with the principles referred to in Executive Board Decision No. 2772-(69/47), adopted June 25, 1969, as amended.

2. In view of paragraph 1 above, the Fund will meet, subject to the provisions of Executive Board Decision No. 2772-(69/47), as amended, a member's request for a purchase in connection with the financing by the member of its direct compulsory contribution to the acquisition costs of the buffer stock established under the International Natural Rubber Agreement, if its request is received in the Fund not later than six months after the date of the contribution or, in respect of contributions made before the date of this decision, not later than 90 days after the date of this decision.

3. A member that has outstanding purchases under this decision

(a) shall make repurchases in respect of these purchases in accordance with paragraph l(a) of Decision No. 5703-(78/39), adopted March 22, 1978, as amended, and

(b) will be expected to repurchase at an earlier date than would be required under (a) above,

  • (i) when, and to the extent that, the International Natural Rubber Council refunds net contributions in excess of those required to support buffer stock operations, and

  • (ii) if the current Agreement terminates without being replaced by a new Agreement providing for a buffer stock, when transfers in liquidation are made to the member. Any transfer of natural rubber from the buffer stock to the member will be treated as a distribution in currency, valued at the lowest current price for each type or grade so transferred during the 30 market days preceding the termination of the Agreement.

4. If the current Agreement is to be replaced by a new Agreement providing for a buffer stock,

(a) a transfer of all or part of a member's share under the existing Agreement to the buffer stock account of the new Agreement will not be treated as a distribution in currency for the purpose of repurchase if, within 180 days of the termination of the current Agreement, the Fund finds the terms of the new Agreement to be consistent with the principles referred to in Executive Board Decision No. 2772-(69/47), as amended, and

(b) members that do not participate in the new Agreement will be expected to repurchase in accordance with paragraph 3(b)(ii) above.

5. The staff will keep the Executive Board informed on the operation of the buffer stock and other developments in connection with the International Natural Rubber Agreement by reports that will be made at least once a year, and the Fund may make such review of this decision as is appropriate in the light of these reports.

Decision No. 7246-(82/147)

November 12, 1982

Buffer Stock Financing Facility—International Natural Rubber Agreement, 1987

1. The Fund, having considered the text of the International Natural Rubber Agreement as established by the United Nations Conference on Natural Rubber on March 10, 1987 (hereinafter called “1987 International Natural Rubber Agreement”), finds that the international natural rubber buffer stock established under the terms of that Agreement is consistent with the principles referred to in Executive Board Decision No. 2772-(69/47), adopted June 25, 1969, as amended.

2. In view of paragraph 1 above, the Fund will be prepared to meet, subject to the provisions of Executive Board Decision No. 2772-(69/47), as amended, a member's request for a purchase in connection with the financing by the member of its direct compulsory contribution toward covering the acquisition costs of the buffer stock established under the 1987 International Natural Rubber Agreement, if its request is received in the Fund not later than six months after the date of the contribution.

3. A member that has outstanding purchases under this decision,

(a) shall make repurchases in respect of these purchases in accordance with Paragraph 1 of Decision No. 5703-(78/39), adopted March 22, 1978, as amended, and

(b) will be expected to repurchase at an earlier date than would otherwise be required, when, upon termination of the 1987 International Natural Rubber Agreement without replacement by a new agreement providing for a buffer stock in natural rubber, transfers in liquidation are made to the member. Any transfer of natural rubber from the buffer stock to the member will be treated as a distribution in currency, valued at the lowest current price for each type or grade so transferred during the 30 market days preceding the termination of the Agreement.

4. If the 1987 International Natural Rubber Agreement is to be replaced by a new agreement providing for a buffer stock in natural rubber,

(a) a transfer of all or part of a member's share under the 1987 International Natural Rubber Agreement to the buffer stock account of the new agreement will not be treated as a distribution in currency for the purpose of repurchase, if within 180 days after the termination of the 1987 International Natural Rubber Agreement the Fund finds the terms of the new agreement to be consistent with the principles referred to in Executive Board Decision No. 2772-(69/47), as amended, and

(b) members that do not participate in the new agreement will be expected to repurchase at an earlier date than would otherwise be required when the members receive payment of their respective shares in the buffer stock account.

5. The staff will keep the Executive Board informed on the operation of the buffer stock and other developments in connection with the 1987 International Natural Rubber Agreement by reports that will be made at least once a year, and the Fund may make such review of this decision as is appropriate in the light of these reports.

Decision No. 9403-(90/53)

April 4, 1990

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 No. 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

Enlarged Access Policy *

Policy on Enlarged Access

1. From the date on which the Fund determines that all available supplementary financing has been committed and additional borrowing arrangements have been concluded, the Fund will be prepared to provide balance of payments assistance to members facing serious payments imbalances that are large in relation to their quotas in accordance with this decision (hereinafter referred to as “Enlarged Access”). Access to the Fund's resources under this decision will be provided under a stand-by or an extended arrangement, and purchases under the arrangement will be financed by resources that the Fund obtains for this purpose by replenishment under Article VII, Section l(i) (hereinafter referred to as “borrowed resources”), in conjunction with the use of the other resources of the Fund (hereinafter referred to as “ordinary resources”).

2. Access to the Fund's resources under other policies of the Fund will remain available in accordance with the terms of those policies.

3. A member contemplating use of the Fund's resources under this decision shall consult the Managing Director before making a request for such use. A request will be met only if the Fund is satisfied: (i) that the member needs financing from the Fund that exceeds the amount available to it in the four credit tranches or under the Extended Fund Facility and its problem requires a relatively long period of adjustment and a maximum period for repurchase longer than the three to five years under the credit tranche policies; and (ii) on the basis of a detailed statement of the economic and financial policies the member will follow and the measures it will apply during the period of the stand-by or extended arrangement, that the member's program will be adequate for the solution of its problem and is compatible with the Fund's policies on the use of its resources beyond the first credit tranche or under the Extended Fund Facility.

4. The Fund may approve a stand-by or extended arrangement that provides for Enlarged Access at any time until the Eighth General Review of Quotas becomes effective, provided that the Fund may extend this period.

5. A stand-by or extended arrangement approved under this decision will be in accordance with the Fund's policies, including the policies on conditionality, phasing and performance criteria.

6. The period of a stand-by arrangement approved under this decision will normally exceed one year, and may extend up to three years in exceptional cases. The period of an extended arrangement will be normally 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.

7. The amounts that will be made available under stand-by or extended arrangements approved under this decision will be determined according to guidelines adopted by the Fund from time to time.

8. The amounts available under a stand-by or extended arrangement approved under this decision will be apportioned between ordinary and borrowed resources as follows:

(a) …

(b) …

(c) The apportionment in accordance with (a) and (b) above will be made on the basis of the outstanding use by the member of the Fund's resources at the time the arrangement for the member is approved.

(d) From time to time the Fund will review the proportions of ordinary and borrowed resources specified in (a) and (b) above and may modify them, and the modified proportions shall apply uniformly to both arrangements approved after the modification and amounts that may be purchased under existing arrangements after the modification.

9. (a) A stand-by or extended arrangement approved under this decision may provide, in part, for supplementary financing in accordance with Decision No. 5508-(77/127), adopted August 29, 1977, if

  • (i) the arrangement replaces an arrangement approved under that decision, or

  • (ii) an amount of supplementary financing becomes available because of the cancellation of an arrangement or because it is reasonably certain that an arrangement will not be fully utilized, in which case the arrangement approved under this decision may provide for the utilization of a part or all of the available amount.

(b) When an arrangement under this decision provides for supplementary financing, the supplementary financing will be used before borrowed resources.

10. (a) Repurchases in respect of outstanding purchases under this decision will be made in accordance with the provisions of the Articles of Agreement and decisions of the Fund, including those relating to repurchase as the member's balance of payments and reserve position improves, provided that repurchases in respect of outstanding purchases financed by borrowed resources shall be completed seven years after the purchase, and that the repurchases shall be made in equal semiannual installments during the period beginning three and one half years and ending seven years after the purchase.

(b) If a purchase is financed by ordinary and borrowed resources, a repurchase attributed to the purchase made with borrowed resources in advance of this schedule of installments must be accompanied by a repurchase in respect of the purchase made with ordinary resources at the same time if any part of the latter purchase is still outstanding. The amounts of the two repurchases will be in the same proportions in which ordinary and borrowed resources were used in the purchases, provided, however, that the repurchase in respect of the purchase financed with ordinary resources will not exceed the amount of the purchase still outstanding.

11. In order to carry out the purposes of this decision, the Fund will be prepared to grant a waiver of the limitation in Article V, Section 3(b)(iii) that is 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.

12. The Fund will apply its credit tranche policies as if the Fund's holdings of a member's currency did not include holdings resulting from purchases under this decision that have been made with borrowed resources. Purchases under this decision with borrowed resources and holdings resulting from these purchases will be excluded under Article XXX (c).

13. The Fund will state which purchases by a member are made under this decision and the amounts of ordinary and borrowed resources used in each purchase.

14. The Fund will determine the charges that it will levy on holdings of a member's currency resulting from purchases outstanding under this decision to the extent that they are made with borrowed resources.

15. The Fund will review this decision not later than June 30, 1983, and annually thereafter as long as the decision remains in effect.

Decision No. 6783-(81/40)*

March 11, 1981, as amended by

Decision No. 8885-(88/89), June 6, 1988

Access Policy—Guidelines on Access Limits

1. The Fund, having reviewed Decisions No. 6783-(81/40), adopted March 11, 1981, as amended, No. 7600-(84/3), adopted January 6, 1984, as amended, and No. 9546-(90/145), adopted September 17, 1990, as amended, and having noted that, upon the fulfillment of the requirement for effectiveness of increases in quotas under the Ninth General Review of Quotas specified by paragraph 3 of the Resolution of the Board of Governors No. 45-2, it may no longer approve stand-by or extended arrangements under the Enlarged Access Policy, decides that, after that date, access by members to the Fund's general resources under the credit tranches and the extended Fund facility shall be subject to an annual limit of 68 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 the access limits are intended to be temporary. Therefore, they will be reviewed not later than October 29, 1993 and annually thereafter in light of all relevant factors, including the magnitude of members' payments problems and developments in the Fund's liquidity.

Decision No. 10181-(92/132)

November 3, 1992

1. Pursuant to Decision No. 10181-(92/132), adopted November 3, 1992, the Fund has reviewed the guidelines and the limits for access to the Fund's general resources under the credit tranches and the extended Fund facility, and decides that during a period of three years from October 24, 1994, the annual access limit shall be increased from 68 percent of quota to 100 percent of quota. 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. During that period, the other provisions of Decisions No. 10181-(92/132) will continue to apply.

2. This Decision shall be reviewed annually, at the time of the reviews prescribed by Decision No. 10181-(92/132).

Decision No. 10819-(94/95)

October 24, 1994

1. Pursuant to Decision No. 10181-(92/132), adopted November 3, 1992, and Decision No. 10819-(94/95), adopted October 24, 1994, the Fund has reviewed the guidelines and the limits for access by members to the Fund's general resources under the credit tranches and the extended Fund facility, and the decision to increase the annual access limit to 100 percent of quota during a period of three years from October 24, 1994, and decides that they remain appropriate in the present circumstances.

2. The next of the annual reviews prescribed by Decision No. 10181-(92/132), adopted November 3, 1992, and by Decision No. 10819-(94/95), adopted October 24, 1994, shall be completed by October 31, 1996.

Decision No. 11098-(95/101)

October 27, 1995

1. Pursuant to Decision No. 10181-(92/132), adopted November 3, 1992, and Decision No. 10819-(94/95), adopted October 24, 1994, the Fund has reviewed the guidelines and the limits for access by members to the Fund's General Resources Account under the credit tranches and the Extended Fund Facility, and the decision to increase the annual limit to 100 percent of quota during a period of three years from October 24, 1994, and decides that they remain appropriate in the present circumstances.

2. The next of the annual reviews prescribed by Decision No. 10181-(92/132), adopted November 3, 1992, and by Decision No. 10189-(94/95), adopted October 24, 1994, shall be completed by October 31, 1997.

Decision No. 11374-(96/102)

November 13, 1996

The Chairman's Summing Up at the Conclusion of the Discussion on Criteria for the Amount of Access in Individual Cases—December 2, 7983*

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 communique 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 O 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 standby 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 conditionality (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 out-come 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.

Supplementary Financing Facility

Supplementary Financing Facility: Establishment

1. (a) The Fund will be prepared to provide, in accordance with this decision, supplementary financing in conjunction with use of the other resources of the Fund (hereinafter referred to as “ordinary resources”) to members facing serious payments imbalances that are large in relation to their quotas. Supplementary financing for the purpose of this decision means financing that the Fund will provide under a stand-by or extended arrangement with resources the Fund obtains by replenishment under Article VII, Section 2* and Decision No. 5509-(77/127),** adopted August 29, 1977.

(b) Resources available to members under other policies of the Fund will remain available in accordance with the terms of those policies.

2. A member contemplating use of the Fund's resources in the three credit tranches beyond the first credit tranche (hereinafter referred to as the “upper credit tranches”) that would include supplementary financing shall consult the Managing Director before making a request under this decision. A request by a member will be met under this decision only if the Fund is satisfied: (i) that the member needs financing from the Fund that exceeds the amount available to it in the four credit tranches and its problem requires a relatively long period of adjustment and a maximum period for repurchase longer than the three to five years under the credit tranche policies; and (ii), on the basis of a detailed statement of the economic and financial policies the member will follow and the measures it will apply during the period of the stand-by or extended arrangement, that the member's program will be adequate for the solution of its problem and is compatible with the Fund's policies on the use of its resources in the upper credit tranches or under the Extended Fund Facility.

3. The Fund may approve a stand-by or extended arrangement that provides for supplementary financing at any time within two years from the effective date of this decision. The Fund will review this period when conducting a review under 12 below. Any extension of the period shall not exceed one year.

4. (a) Supplementary financing will be available only if the program referred to in 2(ii) above is one in support of which the Fund approves a stand-by arrangement in the upper credit tranches or beyond or an extended arrangement. The stand-by or extended arrangement will be in accordance with the Fund's policies, including inter alia its policies on conditionality, phasing, and performance criteria, provided however that any right of augmentation exercised by a member in connection with a repurchase in respect of a purchase made with supplementary financing shall be subject to the same period of repurchase that applied to the purchase in respect of which the repurchase was made.

(b) The period of a stand-by arrangement approved under this decision will normally exceed one year, and may extend up to three years in appropriate cases. The period of an extended arrangement will be in accordance with Decision No. 4377-(74/114),* adopted September 13, 1974.

(c) A request for a purchase in accordance with a stand-by or extended arrangement approved under this decision will be met from ordinary resources and supplementary financing in the proportions determined under 5 and 6 below when the arrangement is approved.

5. The amounts available to a member under a stand-by arrangement approved under this decision will be apportioned between ordinary resources and supplementary financing as follows:

(a) While each credit tranche is 36.25 percent of quota under the Fund's policies, supplementary financing will be equivalent to 34 percent of quota in respect of each of the upper credit tranches.

(b) After each credit tranche becomes 25 percent of quota under the Fund's policies, supplementary financing will be equivalent to 12.5 percent of quota in respect of the first credit tranche and 30 percent of quota in respect of the upper credit tranches.

(c) If a member has used all or part of its credit tranches before a stand-by arrangement is approved under this decision, the arrangement approved under this decision will provide that the amount of supplementary financing that would have been used under (a) and (b) above if all earlier purchases in the credit tranches had been made in conjunction with supplementary financing will be used, subject to 4(a) above, before purchases are made under (a) or (b) above.

(d) If a purchase in a credit tranche is less than the amount of a full credit tranche, the supplementary financing to be used in conjunction with the purchase will be in the same proportion of the amount of supplementary financing referred to in (a) and (b) above as the purchase in the credit tranche bears to the amount available in that tranche when the arrangement was approved.

(e) From time to time, the Fund will review the proportions of supplementary financing to be used in conjunction with the upper credit tranches, and may substitute modified proportions for those in effect pursuant to this decision. The modified proportions shall apply only to stand-by arrangements approved after the date of the decision to modify the proportions, provided that a member that has an existing stand-by arrangement may request that, subject to 4(a) and 5(c) above, any increased proportions be made available to it under a new or revised arrangement.

(f) In special circumstances, a stand-by arrangement may be approved under this decision that provides for purchases beyond the credit tranches and supplementary financing available under (a), (b), and (c) above. The arrangement will provide that all purchases under it will be made with supplementary financing. The Fund, taking into account the criteria in 2 above, will prescribe in each arrangement the amount of supplementary financing that will be available.

6. (a) Supplementary financing will be available, in combination with ordinary resources, for purchases under an extended arrangement approved under this decision in an amount not exceeding the equivalent of 140 percent of quota. Purchases under an extended arrangement will be made with ordinary resources and with supplementary financing in the ratio of one to one.

(b) Supplementary financing available to a member in accordance with the ratio in (a) above will be increased by an amount determined by the ratio of one to one in respect of that part of the upper credit tranches that is no longer available to the member as the result of earlier uses of the Fund's resources. Purchases will be made with supplementary financing, subject to 4(a) above, to the extent of the amount of this increase before purchases are made in accordance with (a) above.

(c) The principles of 5(e) and (f) shall apply to extended arrangements approved under this decision.

7. (a) Repurchases in respect of outstanding purchases under this decision will be made in accordance with the terms of the stand-by or extended arrangement under which the purchases were made.

(b) The terms will include a provision that the member will be expected to repurchase in respect of purchases, whether made with ordinary resources or with supplementary financing, as its balance of payments and reserve position improves, and will make such repurchases if, after consultation with the member, the Fund represents that repurchase should be made because of an improvement.

(c) The terms will also provide that with respect to purchases financed with ordinary resources repurchase will be made in accordance with the Fund's policies on the credit tranches or under the Extended Fund Facility; and that with respect to purchases made with supplementary financing repurchase will be made in equal semi-annual installments that begin not later than three and one-half years and are completed not later than seven years after the purchase.

(d) A repurchase attributed to a purchase made with supplementary financing in advance of this schedule of equal semiannual installments must be accompanied by a repurchase in respect of the purchase financed with ordinary resources made at the same time if any part of the latter purchase is still outstanding. The amounts of the two repurchases will be in the same proportions in which ordinary resources and supplementary financing were used in the purchases, provided, however, that the repurchase in respect of the purchase financed with ordinary resources will not exceed the amount of the purchase still outstanding.

(e) Repurchases will be made in the media prescribed by the Articles of Agreement and specified by the Fund at the time of the repurchase after consultation with members. The Fund will be guided by a policy of specifying for repurchase the media in which it will make repayments as a result of the repurchases, and will take this policy into account in preparing its currency budgets.

8. In order to carry out the purposes of this decision, the Fund will be prepared to grant a waiver of the conditions of Article V, Section 3(a)(iii) (or Article V, Section 3(b)(iii) after the Second Amendment of the Articles) that is 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.

9. The Fund will apply its credit tranche policies as if the Fund's holdings of a member's currency did not include holdings resulting from purchases outstanding under this decision that have been made with supplementary financing. After the effective date of the Second Amendment of the Articles of Agreement purchases under this decision and holdings resulting from purchases outstanding under this decision will be excluded under Article XXX (c).

10. The Fund will state which purchases by a member are made under this decision and the amounts of ordinary resources and supplementary financing used in each purchase.

11. The Fund will levy charges in accordance with the decision of the Executive Board on holdings of a member's currency resulting from purchases outstanding under this decision to the extent that they are made with supplementary financing.

12. The Fund will review this decision not later than two years after its effective date or when the Seventh General Review of Quotas becomes effective, if that occurs within the two years. One year after the effective date of this decision the Fund will report on the use of the supplementary financing facility. The report will deal also with other important aspects of the facility.

13. The effective date of this decision will be the date on which agreements are completed under Decision No. 5509-(77/127), adopted August 29, 1977, for a total amount not less than SDR 7.75 billion, including at least six agreements each of which provides for an amount not less than SDR 500 million.

Decision No. 5508-(77/127)

August 29, 1977

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

The remainder of the provisions of this decision are no longer in effect, but see footnote to Decision No. 270-(53/95) on page 116.

See pages 429 and 430 for paragraphs 1 through 3.

For paragraphs 1 and 2, see paragraph 4 of Attachments A and B to Decision No. 10464-93/130) on pages 141, 145.

For the form of stand-by arrangements, see pages 137-42.

See also Decision No. 6783-(81/40), paragraph 6 at page 235,

Corresponds to Article XXVII, Section 1(a)(i) of the Articles of Agreement after the Second Amendment.

For the subject matter of paragraphs 5 and 6, charges for stand-by arrangements, see Rule I-8 of the Rules and Regulations in By-Laws, Rules and Regulations, Fifty-First Issue, January 1, 1996.

A section of this decision, not reproduced, provides that Decision No. 102-(52/11) would continue in effect after 1953 subject to review from time to time.

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.

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

Paragraph 1 of this decision appears on page 515.

Paragraph 2 of this decision which was incorporated in paragraph 4(a) of Decision No. 4377-(74/114) was deleted. (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 indicative only.

The performance criteria enumerated here are indicative only.

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 make 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.

Article V, Section 4 would be applicable if the combined amount committed under both the traditional and CSF elements of the arrangement would, if purchased, result in the Fund's holding of the member's currency exceeding 200 percent of the member's quota.

For stand-by arrangements with more than one year but less than 18 months until expiration, the repurchase obligation/expectation for purchases in the first tranche would be one year, or set to coincide with the expiration date of the arrangement, whichever is longer.

This limit was reduced to 30 percent of a member's quota (See Buff/92/133).

Not included in this publication.

This percentage of quota “shall be reviewed not later than December 31, 1984 and annually thereafter in the light of all relevant factors, including the magnitude of members' payments problems and developments in the Fund's liquidity.” (Decision No. 7602-(84/3), January 6, 1984.)

For paragraph 5, see paragraph 1 of Decision No. 5703-(78/39), reproduced on page 273.

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

For decisions on annual reviews and guidelines on access limits and other related decisions, see Eighteenth Issue of this publication.

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.)

Corresponds to Article VII, Section 1 of the Articles of Agreement after the Second Amendment.

Reproduced on pages 406-07.

Reproduced on pages 129-33.

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