Selected Decisions (14th Ed)
Chapter

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

Author(s):
International Monetary Fund
Published Date:
April 1989
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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[b][ii], means “declares”…

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

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 macro-economic 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.

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

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, with the upper limit being determined by conditions in world capital markets; in present conditions, the upper limit will include loans with maturities in the range of 10 to 12 years. The criterion will usually be formulated in terms of loans 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. Normally, the performance criterion will also include a subceiling on foreign loans with maturities of over one year and up to five years. 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 under DAC criteria, where sufficient data are available.

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. While uniformity of treatment indicates a need for a common upper-maturity limit, this limit will be reviewed annually by the Executive Board at the time of its consideration of staff papers on conditions in international capital markets. 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. Normally, loans of less than one-year maturity will be excluded from the borrowing limitations. In exceptional circumstances where nontrade-related loans of less than one year of maturity become a source of difficulty, such loans will be included in the limitations. The Managing Director will inform Executive Directors in an appropriate manner of the reasons for including such loans in the limitation.

7. The last sentence of the guideline provides for excluding from the coverage of performance criteria those loans defined as concessional under DAC criteria. Available information on loans by multilateral development institutions indicates that all of the recent loans of the IBRD and the Inter-American Development Bank have been outside the 10- to 12-year limit and that most of the loans by the Asian and African regional development banks have also been outside the upper limit. In discussing with member countries the total amounts of permissible borrowing of less than 10 to 12 years’ maturity, the staff would take into account possible lending of less than this maturity range by multilateral development institutions. In some cases, member countries utilize credits associated with concessional loans. The staff will take into account these developments in discussing the appropriate amount of borrowing.

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) Purchases outstanding under this decision will not exceed 140 percent of the member’s quota, or be allowed to increase the Fund’s holdings of the member’s currency resulting from purchases in the credit tranches and under this decision above 165 percent of the member’s quota.

(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. In addition, subject to (a), the Fund will apply its tranche policies to requests by a member for purchases other than gold tranche purchases as if the Fund’s holdings of the member’s currency did not include holdings resulting from any 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

Decisions Nos. 6339-(79/179), December 3, 1979,

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

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

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 stand-by 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 21, 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

Charge for Extended Arrangements

Under paragraph 8 of Decision No. 4377-(74/ll4), adopted September 13, 1974, the charge of ¼ of 1 percent per annum imposed by paragraph 5(a) of Decision No. 270-(53/95), adopted December 23, 1953, as amended, shall be payable to the Fund in advance of each year of an extended arrangement on the amount that could be purchased during that year.

Decision No. 4720-(75/114)*

July 2, 1975

Supplementary Financing Facility

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 semiannual 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

Supplementary Financing Facility: Report on Use

1. Paragraph 12 of the Executive Board decision on the Supplementary Financing Facility provides in part that “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.”

2. The use of the resources available under the facility has up to the present been moderate, with total commitments at present amounting to 12 percent of the resources available under the borrowing agreements entered into by the Fund to finance purchases under the facility. All use of the facility so far has been by non-oil developing countries. It is expected that there will be substantially greater use under the facility in the year ahead.

3. So far, the total of available resources has been sufficient to meet the foreseeable demand. Participation in the facility remains open to other lenders in accordance with the Executive Board Decision on replenishment in connection with the supplementary financing facility on the same terms as apply to existing lenders if the Fund finds it useful to enter into further agreements.

4. The Executive Board is reviewing the ways and means of lowering the cost of using the supplementary financing facility.

Decision No. 6445-(80/43)

March 11, 1980

Review of the Supplementary Financing Facility: Initial Disposition

It is decided that the proportions of supplementary financing and ordinary resources to be used under stand-by and extended arrangements approved by the Fund after December 7, 1980 shall be the proportions prescribed in paragraphs 5 and 6 of Decision No. 5508-(77/127), of August 29, 1977, as modified when the review referred to in paragraph 12 of that decision is concluded. In order to ensure that the modified proportions will be applied in respect of such a stand-by or extended arrangement under which purchases will have been made before the conclusion of the review referred to above, appropriate adjustments shall be made in the proportions of supplementary financing and ordinary resources to be used in purchases made under the arrangement after the conclusion of that review.

Decision No. 6693-(80/177)

December 8, 1980

Review of the Supplementary Financing Facility

The Fund, having reviewed its decision on the Establishment of a Supplementary Financing Facility (Decision No. 5508-(77/127), August 29, 1977), extends until February 22, 1982 the period during which it may approve a stand-by or extended arrangement that provides for supplementary financing.*

Decision No. 6725-(81/5)

January 9, 1981

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 1(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

Policy on Enlarged Access: Period and Annual Review

a. The Fund may approve a stand-by or extended arrangement that provides for enlarged access under Decision No. 6783-(81/40) on the Policy on Enlarged Access until the end of 1989, provided that the Fund may extend this period.

b. The Fund will review Decision No. 6783-(81/40) not later than December 31, 1984, and annually thereafter as long as the Decision remains in effect, in order to consider the future of the Policy on Enlarged Access in light of all relevant factors, including the magnitude of members payments problems and developments in the Fund’s liquidity.

Decision No. 7599-(84/3)

January 6, 1984, as amended by

Decisions Nos. 7841-(84/165), November 16, 1984,

8147-(85/177), December 9, 1985,

8459-(86/189), December 1, 1986,

8744-(87/166), December 4, 1987 and

9028-(88/171), November 22, 1988

Policy on Enlarged Access: Guidelines on Access Limits

a. Access by members to the Fund’s general resources under Decision No. 6783-(81/40) on the Policy on Enlarged Access during the period ending on December 31, 1984 shall be subject to annual limits of 102 or 125 percent of quota, three-year limits of 306 or 375 percent of quota, and cumulative limits of 408 or 500 percent of quota net of scheduled repurchases, depending on the seriousness of the member’s balance of payments needs and the strength of its adjustment effort. Access by members to the Fund’s general resources under arrangements approved under Decision No. 6783-(81/40) during 1985 shall be subject to annual limits of 95 or 115 percent of quota, three-year limits of 280 or 345 percent of quota, and cumulative limits of 408 or 450 percent of quota net of scheduled repurchases, depending on the seriousness of the member’s balance of payments needs and the strength of its adjustment effort. Access by members to the Fund’s general resources under arrangements approved under Decision No. 6783-(81/40) during 1986, 1987, 1988, and 1989 shall be subject to annual limits of 90 or 110 percent of quota, three-year limits of 270 or 330 percent of quota, and cumulative limits of 400 or 440 percent of quota net of scheduled repurchases, depending on the seriousness of the member’s balance of payments needs and the strength of its adjustment effort. The annual and triennial access limits shall not be regarded as targets. Within these limits, the amounts 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.

b. The guidelines will be reviewed before the end of 1989 at the time of the annual review of the Decision on the Policy on Enlarged Access.*

Decision No. 7600-(84/3)

January 6, 1984, as amended by

Decisions Nos. 7841-(84/165), November 16, 1984,

8147-(85/177), December 9, 1985,

8459-(86/189), December 1, 1986,

8744-(87/166), December 4, 1987, and

9028-(88/171), November 22, 1988

Policy on Enlarged Access: Use of Ordinary and Borrowed Resources

1. Effective June 6, 1988, subparagraphs (a) and (b) of paragraph 8 of Decision No. 6783-(81/40), adopted March 11, 1981, on the Policy on Enlarged Access shall read as follows:

(a) Under a stand-by arrangement, purchases will be made with ordinary and borrowed resources in the ratio of 2 to 1 in the first credit tranche, and 1 to 2 in the next three credit tranches. Thereafter, purchases will be made with borrowed resources only.

(b) Under an extended arrangement, purchases by a member will be made with ordinary resources until the outstanding use of ordinary resources in the upper credit tranches and under the Extended Fund Facility equals 140 percent of the member’s quota. Thereafter, purchases will be made with borrowed resources.

2. Effective June 6, 1988, Decision No. 8487-(86/205), adopted December 19, 1986, shall be terminated.

Decision No. 8886-(88/89)

June 6, 1988

The Chairman’s Summing Up at the Conclusion of the Discussion on Criteria for the Amount of Access in Individual Cases—December 2, 1983

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

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

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

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

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

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

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

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

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

8. A number of Directors felt that the staff paper was biased against the use of the Extended Fund Facility. I wish to emphasize that that had not been the intention; on the occasion of the recent discussion in the Executive Board on the review of past programs under stand-by and extended arrangements, I 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 the 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 than three to five years. The decision further states that the period of a stand-by arrangement involving enlarged access will normally exceed one year and may extend to three years, and the period of an extended arrangement will be normally three years. In practice the Fund has considered successive one-year stand-by arrangements, formulated within a medium-term strategy of steady progress toward a sustainable balance of payments position to be consistent with this decision, when the amount of the arrangement is greater than that available in the credit tranches.

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

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

To ensure that the program allows repurchases to be made, a balance of payments projection well into the repurchase period must show that progress toward a viable balance of payments position is being achieved. This can be indicated by a diminishing need for exceptional finance in general, and that to be provided by the Fund in particular, over the period. The policy measures already in place or being introduced must be commensurate with those needed to continue this progress at the required rate. This subject is discussed in the recent paper reviewing upper credit tranche stand-by arrangements and 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 outcome were to turn out to be fully as planned, new problems could arise before repurchases were completed, calling for a supplementary adjustment effort. The Fund should continue to have the flexibility to provide financial support in these circumstances, even though this might prolong the period of use of its resources by a member. This policy approach is implicit in the fact that the cumulative limit allows additional Fund financing even when a member has obtained the maximum possible amount of support for a period of three years.

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

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

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:

  • 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.

  • 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.

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

  • 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.

  • *

  • *

  • 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

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

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

Forms of Stand-by and Extended Arrangements Under Enlarged Access Policy

The Executive Board approves the forms of stand-by and extended arrangements contained in Attachments A and B [below] that will be used by the Fund to provide for Enlarged Access to the Fund’s resources under Decision No. 6783-(81/40), adopted March 11, 1981.

Decision No. 6838-(81/70)

April 29, 1981, as amended by

Decisions Nos. 7048-(82/13), February 5, 1982,

7688-(84/70), May 1, 1984, and

7908-(85/26), February 20, 1985

Attachment A

Form of Stand-By Arrangement Under Enlarged Access Policy

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 ___________, subject to paragraphs 2, 3, 4, 5, and 6 below, without further review by the Fund.

2. (a) Until (end of first year) purchases under this stand-by arrangement shall not, without the consent of the Fund, exceed the equivalent of SDR _________, provided that purchases shall not exceed the equivalent of SDR __________ until ____________, and the equivalent of SDR ___________ 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 in the credit tranches beyond 25 percent of quota or increase the Fund’s holdings of that currency resulting from purchases of supplementary financing or borrowed resources beyond 12.5 percent of quota.

3. Purchases under this stand-by arrangement shall be made from…*, provided that any modification by the Fund of the proportions of ordinary and borrowed resources shall apply to amounts that may be purchased after the date of modification.

4. (Member) will not make purchases under this stand-by arrangement that would increase the Fund’s holdings of (member’s) currency in the credit tranches beyond 25 percent of quota or increase the Fund’s holdings of that currency resulting from purchases of supplementary financing or borrowed resources beyond 12.5 percent of quota:

  • (a) during any period in the first year in which [the data at the end of the preceding period indicate that]**

    • (i) [the limit on domestic credit described in paragraph _______ of the attached letter], or

    • (ii) [the limit on credit to the public sector described in paragraph _______ of the attached letter], or

    • (iii) … [These provisions would incorporate other quantitative performance criteria of the program]

      are not observed; or

  • (b) if (member) fails to observe the limits on authorizations of new public and publicly guaranteed foreign indebtedness described in paragraph __________ of the attached letter; or

  • (c)*** during the second or third year of this stand-by arrangement until suitable performance criteria have been established in consultation with the Fund as contemplated by paragraph ____________ of the attached letter, or after such performance criteria have been established, while they are not being observed; or

  • (d)* during the entire period of this stand-by arrangement, if (member)

    • (i) imposes [or intensifies] restrictions on 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 standby arrangement because of this paragraph 4, 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.

5. (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.

6. (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 6, 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.

7. 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, and may be made in SDRs if, on the request of (member), the Fund agrees to provide them at the time of the purchase.

8. The value date for purchases under this stand-by arrangement involving borrowed resources will be determined in accordance with Rule G-4(b) of the Fund’s rules and regulations. (Member) will consult the Fund on the timing of purchases involving borrowed resources in accordance with Rule G-4(d).

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

10. (a) (Member) shall repurchase the outstanding 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.

(c) The value date of a repurchase in respect of a purchase financed with borrowed resources under this stand-by arrangement will be normally either the 6th day or the 22nd day of the month, or the next business day if the selected day is not a business day, provided that repurchase will be completed not later than seven years from the date of purchase.

11. 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].

12. 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

Version A

[because any of the criteria in paragraph 4 above have not been observed or because he 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.]

Version B

[because he considers that consultation on the program is desirable.]

Attachment B

Form of Extended Arrangement Under Enlarged Access Policy

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 for 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 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 __________, subject to paragraphs 2, 3, 4, 5, and 6 below, without further review by the Fund.

2. (a) Until (end of first year) purchases under this extended arrangement shall not, without the consent of the Fund, exceed the equivalent of SDR __________, provided that purchases shall not exceed the equivalent of SDR ___________ until ___________, the equivalent of SDR ___________ until ___________, and the equivalent of SDR ___________ 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 ___________.

(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. Purchases under this extended arrangement shall be made from…* provided that any modification by the Fund of the proportions of ordinary and borrowed resources shall apply to amounts that may be purchased after the date of modification.

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

  • (a) throughout the first year, during any period in which [the data at the end of the preceding period indicate that]**

    • (i) [the limit on domestic credit described in paragraph _______ of the attached letter], or

    • (ii) [the limit on credit to the public sector described in paragraph _________ of the attached letter], or

    • (iii) … [These provisions would incorporate other quantitative performance criteria of the program]

      are not observed; or

  • (b) if (member) fails to observe the limits on authorizations of new public and publicly guaranteed foreign indebtedness described in paragraph _________ of the attached letter; or

  • (c) throughout the second and third years, if before the beginning of the second year and the beginning of the third year of the extended arrangement suitable performance clauses have not been established in consultation with the Fund as contemplated in paragraph of ________ the attached letter or such clauses, having been established, are not being observed; or

  • (d) throughout the duration of the extended arrangement, if (member)

    • (i) imposes [or intensifies] restrictions on 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 4, 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.

5. (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 pursuant to the Guidelines on Corrective Action with respect to a noncomplying purchase.

6. (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 6, 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.

7. 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, and may be made in SDRs if, on the request of (member), the Fund agrees to provide them at the time of the purchase.

8. The value date for purchases under this extended arrangement involving borrowed resources will be determined in accordance with Rule G-4(b) of the Fund’s rules and regulations. (Member) will consult the Fund on the timing of purchases involving borrowed resources in accordance with Rule G-4(d).

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

10. (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.

(c) The value date of a repurchase in respect of a purchase financed with borrowed resources under this extended arrangement will be normally either the 6th day or the 22nd day of the month, or the next business day if the selected day is not a business day, provided that repurchase will be completed not later than seven years from the date of purchase.

11. 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].

12. 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 under paragraph 4 above have not been observed or because he considers that consultation on the program is desirable. In addition, after the period of the extended arrangement and while (member) has outstanding purchases under this extended 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.

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

Exclusion of Credit Tranches and Extended Facility

1…. *

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

Amendment of Stand-By and Extended Arrangements to Utilize Supplementary Financing

a. Utilization of Supplementary Financing

The Executive Board approves the utilization of supplementary financing along the lines proposed by the Managing Director in his statement {below}.

Decision No. 7047-(82/13)

February 5, 1982

Managing Director’s Statement

1. Members expected to conclude new stand-by or extended arrangements prior to February 22, 1982 will be asked to agree to the inclusion of a provision in the arrangement that would permit the Fund, at its discretion, to substitute any available SFF resources for enlarged access resources (EAR) in amounts determined by the Managing Director at the time of the purchase. Commitments under arrangements likely to be concluded between now and February 22, 1982 are expected to be relatively small, and therefore members with existing arrangements under the EAR policy will also be asked to agree, before February 22, 1982, to the inclusion of the same clause in their respective arrangements in order to permit the Fund to substitute, at its discretion, SFF resources for EAR resources. At present, 15 members have concluded arrangements under the enlarged access policy for an amount totaling SDR 10.14 billion, of which SDR 5.86 billion is required to be financed with borrowed funds.

2. Each quarter, at the time of the operational budget, a review would be made (i) of the amount of SFF funds available because of canceled or expired arrangements (and toward the end of the disbursement period SFF resources might also be usable because country programs are irretrievably off track and the members would not be able to draw under their arrangements), and (ii) of the amount of SFF lines of credit that could be called upon.

3. If the Fund’s total obligations to supply SFF funds were less by a reasonable safety margin (to cover actually and potentially weak lenders) than the total of undisbursed usable SFF lines of credit, these lines of credit could be called upon to finance purchases in the forthcoming calendar quarter by those members that had agreed to permit the Fund to substitute SFF resources for EAR resources.

I would like to make four comments regarding this proposed scheme. First, I have stressed that the relevant arrangements must be approved or amended not later than February 22, 1982, because I do not believe we should attempt to renegotiate the SFF borrowing agreements to extend them beyond the terminal date originally agreed by the lenders. The proposal is aimed at maximizing the Fund’s use of the SFF and not at prolonging the SFF arrangements. I would like to assure the lenders, in particular, on that score.

Second, the proposal is not intended to commit the Fund to supply SFF resources beyond that which already exists. The Fund will not enter into any new commitments to supply SFF funds except in conformity with the existing decision, which allows the Fund to recommit SFF resources in those stand-by and extended arrangements that replace arrangements that at present provide for SFF funds. Beyond that, the Fund will use SFF borrowed funds in substitution for EAR funds only if and when SFF funds are available.

Thirdly, in disbursing SFF funds in substitution for EAR funds during a quarter, the aim will be to prorate SFF substituted funds among purchasing members during the quarter in a manner that would take into account the availability of SFF funds during the quarter.

Finally, Directors are aware that SFF resources carry a subsidy element when used by eligible beneficiaries. Consequently, a release of SFF resources by members that are not eligible for the SFF subsidy to members that are eligible beneficiaries could increase the overall cost of the SFF subsidy. At present, we estimate the cost of the SFF subsidies at slightly less than SDR 600 million. On present indications, the bulk of SFF resources that are likely to be released because present arrangements are canceled or expire will be released by members that are already eligible for the SFF subsidy. We do not, therefore, anticipate any material change in the net cost of the SFF subsidy. It would also seem possible to accommodate under the existing financing arrangements for the SFF subsidy account a transfer of SFF resources to members that are eligible for a subsidy as a result of canceled or expired arrangements from members that are not eligible for a subsidy. For example, if SDR 1 billion of SFF funds were released from members that were not eligible for the SFF subsidy to eligible beneficiaries it is estimated that the increase in the overall cost of the SFF subsidy would amount to approximately SDR 125 million, i.e., the total cost would be within the SDR 750 million to be transferred from the Trust Fund, leaving aside bilateral contributions of SDR 67 million so far received or committed.

b. Forms of Stand-By and Extended Arrangements

1. Paragraph 3 of stand-by and extended arrangements involving borrowed resources approved between February 5 and 22, 1982, shall, if the member consents, read as follows:

Purchases under this [stand-by] [extended] arrangement shall be made from [e.g., borrowed resources until purchases under this arrangement reach the equivalent of SDR __________, then from ordinary and borrowed resources in the ratio of 1 to 1.2 until purchases under this arrangement reach the equivalent of SDR _______________, and then from borrowed resources], provided that any modification by the Fund of the proportions of ordinary and borrowed resources shall apply to amounts that may be purchased after the date of modification; and provided further that amounts of supplementary financing may be substituted for borrowed resources as determined by the Managing Director at the time of a request by [member] for a purchase [prior to February 22, 1984].

2. Paragraph 3 or its equivalent of any stand-by or extended arrangement in effect involving borrowed resources, that was approved before February 5, 1982, shall be amended as set forth in paragraph 1 above if the Fund receives a request from the member to that effect on or before February 22, 1982.

Decision No. 7048-(82/13)

February 5, 1982

Overdue Payments to the Fund—Purchases from Fund

1…. *

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.

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

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

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

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

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

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

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

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

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

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

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

Decision No. 7925-(85/38)

March 8, 1985, as amended by

Decision No. 8887-(88/89), June 6, 1988

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, or (iii) excess costs of cereal 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. For the purpose of applying the Fund’s policies on the use of its general resources, holdings resulting from the use of the Fund’s resources under any of the policies set forth in this Decision shall be considered to be separate from the holdings resulting from the use of the Fund’s resources under any other policy.

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, or IV of this Decision, and the export shortfall component and the cereal import cost component of each purchase under Section IV.

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 105 percent of the member’s quota for

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

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

  • — 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;

  • (ii) a limit of 83 percent of the member’s quota for purchases on account of export shortfalls under Section II or Section IV 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 40 percent of the member’s quota for such purchases in all other cases;

  • (iii) a limit of 40 percent of the member’s quota for purchases on account of external contingencies under Section III;

  • (iv) a limit of 83 percent of the member’s quota for purchases on account of an excess in cereal import costs under Section IV 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 17 percent of the member’s quota for such purchases in all other cases; and

  • (v) a combined limit of 122 percent of the member’s quota for the sum of purchases on account of export shortfalls under Section II or Section IV, purchases on account of external contingencies under Section III and Purchases on account of an excess in cereal import costs under Section IV.

  • (b) Notwithstanding the provisions of subparagraph (a)(ii), (iii), and (iv) above, the limits of 40 and 17 percent above may be exceeded to permit additional purchases under this Decision, provided that the aggregate amount of the Fund’s holdings of the member’s currency resulting from such additional purchases shall not exceed 25 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.

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 subparagraph (b) below, a member may expect that its request for a purchase on account of an export shortfall under this Section or Section IV 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) 40 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) 65 percent of the member’s quota, if the member has a Fund arrangement 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 the criteria for the use of the Fund’s general resources in the upper credit tranches.

(b) If the Fund considers that there are substantial indications that the existing policies of the member in dealing with its balance of payments difficulties are seriously deficient or that the member’s record of cooperation with the Fund in the recent past has not been satisfactory, the member may expect that its request for a purchase on account of an export shortfall under this Section or Section IV 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) 20 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) 40 percent of the member’s quota, if the member has a Fund arrangement 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 the criteria for the use of the Fund’s general resources in the upper credit tranches; and

  • (iii) 65 percent of the member’s quota, if the member has a Fund arrangement 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 the criteria for the use of the Fund’s general resources in the upper credit tranches.

(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 or Section IV 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.

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

13. If, in the opinion of the Fund, adequate data on receipts from travel and workers remittances 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 shall continue to apply for a period of five 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 6 months of the data on merchandise exports, and 12 months of the data on travel and workers remittances, 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.

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.

(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 or Section IV, 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.

Section III. External Contingency Financing

17. When approving a Fund arrangement, the Fund will be prepared to decide, at the request of the member and subject to the provisions of this Decision, that, should adverse external contingencies occur during the period of the arrangement, it will provide to the member external contingency financing in association with the arrangement.

18. Such external contingency financing will only be provided in association with a Fund arrangement, generally on the basis of a review by the Executive Board, to a member facing unanticipated deviations from the baseline projections of key external variables that cover a substantial proportion of the exogenous components of the member’s current account and that relate to the specified external contingencies during the period of the projections (hereinafter called the “baseline period”), if:

(a) the deviations from the baseline projections are outside of the control of the member;

(b) the member’s performance under the associated Fund arrangement is satisfactory; and

(c) 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.

19. (a) When the Fund approves an arrangement in association with which external contingency financing is to be provided under this Section, it will specify for the arrangement:

  • (i) the external contingencies that will be taken into account;

  • (ii) the maximum amount of purchases that may be permitted in case of unfavorable external contingent deviations;

  • (iii) the minimum threshold, which shall generally be 0 percent of the member’s quota, that must be exceeded by the applicable net sum of deviations before external contingency purchases may be permitted or adjustments pursuant to paragraph 27 may be required;

  • (iv) the proportion of the applicable net sum of deviations that may be financed under this Section, subject to any subsequent changes that may be required pursuant to paragraph 18(c) to ensure the viability of the member’s program supported by the arrangement; and

  • (v) the maximum amount by which the associated arrangement could be reduced or other adjustments pursuant to paragraph 27 could be required in case of favorable external contingent deviations, which amount will normally be the same as the amount specified pursuant to (ii) above.

(b) For purposes of this Section, the expression “net sum of deviations” shall mean the net aggregate effect on the member’s balance of payments of deviations in the variables relating to the external contingencies specified pursuant to subparagraph (a)(i) above; and the expression “applicable net sum of deviations” shall mean the net sum of deviations in the situations covered by paragraph 20(b) or the net sum of deviations adjusted for the limit on interest cost deviations in the situations covered by paragraph 20(c), as appropriate.

(c) The Fund shall determine the length of each baseline period, which shall generally be from 12 to 18 months, and the maximum amount of external contingency purchases that may be permitted on account of deviations that occur during such baseline period.

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

20. (a) Subject to the limitations specified by this Decision, the amount of an external contingency purchase under this Section shall be determined on the basis of the applicable net sum of deviations in accordance with subparagraphs (b) and (c) below. Deviations will be calculated in relation to baseline projections established for each baseline period.

(b) Except as provided in subparagraph (c) below, the amount that may be financed under this Section shall be determined as the net sum of deviations reduced by the equivalent of 4 percent of the member’s quota and subsequently multiplied by the proportion specified pursuant to paragraph 19(a)(iv).

(c) In case of a favorable or unfavorable deviation in net interest costs that, when multiplied by the proportion specified pursuant to paragraph 19(a)(iv), would exceed the percentage of the member’s quota that is available for purchases under paragraph 21(a), the amount that may be financed under this Section shall be determined as the sum of:

  • (i) the net aggregate amount of the deviations, other than a deviation in net interest costs, multiplied by the proportion specified pursuant to paragraph 19(a)(iv); and

  • (ii) the amount of the deviation in net interest costs reduced by the equivalent of 4 percent of the member’s quota and multiplied by the same proportion, up to a limit equivalent to the percentage of the member’s quota available for purchases under paragraph 21(a), except that any excess of a favorable or unfavorable deviation in net interest costs over such limit shall be included in the calculation as required to avoid or to reduce an unfavorable or favorable net sum of deviations.

For the cases covered by this subparagraph (c), the net sum of deviations shall be determined by dividing the amount that may be financed by the proportion specified pursuant to paragraph 19(a)(iv) and by adding an amount equivalent to 4 percent of the member’s quota.

(d) Once the 4 percent adjustment in subparagraph (b) or subparagraph (c) above has been made for a purchase in respect of a baseline period, no further such adjustment shall be made for later purchases in respect of that period.

(e) Purchases under this Section shall be permitted only when the applicable net sum of deviations exceeds the minimum threshold specified by the Fund pursuant to paragraph 19(a)(iii), provided that in applying this subparagraph (e) the limit specified by subparagraph (c)(ii) above shall be disregarded.

21. (a) Subject to the other limitations on purchases specified in this Decision, the Fund’s holdings of a member’s currency resulting from purchases on account of deviations in net interest costs in association with all Fund arrangements for the member shall not exceed 35 percent of the member’s quota.

(b) For purposes of applying the limitation in subparagraph (a) above, when a purchase under this Section is attributable to unfavorable deviations in net interest costs and in one or more other variables relating to external contingencies, the portion of the purchase that is to be allocated to a deviation in net interest costs shall be determined on the basis of the share of such deviation in the applicable net sum of deviations, and in determining this share the portion of the 4 percent reduction in paragraph 20(b) that is to be allocated to net interest costs shall be determined on the same basis.

22. The maximum amount of external contingency purchases in association with a Fund arrangement to be specified pursuant to paragraph 19(a)(ii) will generally not exceed 70 percent of the amount of the arrangement, and the maximum amount of external contingency purchases in respect of any baseline period, to be specified pursuant to paragraph 19(c), will generally not exceed 70 percent of the amount available under the arrangement for the same period.

23. 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 40 percent of the member’s quota, the amount of such excess over 40 percent of quota shall not be available under paragraph 8(b) for other purchases under this Decision in respect of the baseline period for which the Fund decides to provide such financing, unless the member notifies the Fund that it will not avail itself of such financing in excess of 40 percent under this Section.

24. The Fund will provide financing under this Section only if the program supported by the associated arrangement continues to be adequately financed, including, if necessary, through the provision of financing from other sources.

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

(b) Purchases under this Section shall be phased to coincide with the drawings scheduled to be made under the associated arrangement in respect of the baseline period for which the Fund decides to provide the external contingency financing. The phasing shall take into account the effects of the applicable net sum of deviations on the program supported by the associated arrangement and the timing of the additional measures to be taken by the member in accordance with paragraph 18(c).

26. When a member has made a purchase 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, the member will be expected, unless the Fund decides otherwise, to make a prompt repurchase in an amount equivalent to the overcompensation.

27. If, in respect of any baseline period, the Fund finds that a favorable applicable net sum of deviations with respect to the contingencies specified pursuant to paragraph 19(a)(i) has occurred, the following provisions shall apply, subject to the maximum amount specified pursuant to paragraph 19(a)(v):

(a) when no purchase under this Section has been made by the member in respect of the baseline period for which the Fund makes such finding, as a preference, the limits on, or objectives for, the member’s reserves under the associated Fund arrangement shall be increased or, as a second option, the amount of the associated Fund arrangement shall be reduced, or both, as determined by the Fund, by an amount that shall be equivalent to a substantial part of the applicable net sum of deviations not exceeding the amount that would have been financed under this Section if the applicable net sum of deviations would have been unfavorable; and

(b) when one or more purchases under this Section had earlier been made by the member in respect of the baseline period for which the Fund makes such finding, as a preference, the limits on, or objectives for, the member’s reserves under the associated Fund arrangement shall be increased or, as a second option, the amount of the associated Fund arrangement shall be reduced, or both, as determined by the Fund, by an amount that shall be equivalent to a substantial part of the applicable net sum of deviations not exceeding the amount that would have been financed under this Section if the applicable net sum of deviations that have occurred since the latest of any such earlier purchases would have been unfavorable, provided that 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

28. For the remainder of the period from May 13, 1981 to December 1, 1989, 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.

29. 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, 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.

30. 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 36.

31. (a) Subject to the limits specified in paragraphs 8 and 36, 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 32 and 33.

32. 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.

33. 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 32 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.

34. The amount of a purchase under this Section, as defined in paragraph 31, 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 36.

35. (a) The part of a purchase relating to an export shortfall, subject to the limits in paragraphs 8 and 36, shall not exceed the lesser of the export shortfall defined in paragraph 31(b)(ii) and the net shortfall in exports defined in paragraph 31(a).

(b) The amount of a purchase relating to an excess in cereal import costs, subject to the limits in paragraphs 8 and 36, shall not exceed the lesser of the excess in cereal import costs defined in paragraph 31(b)(iii) and the net shortfall in exports defined in paragraph 31(a).

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

(b) Subject to the provisions of subparagraph (c) below, a member may expect that its request for a purchase on account of an excess in cereal 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) 17 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) 42 percent of the member’s quota, if the member has a Fund arrangement 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 the criteria for the use of the Fund’s general resources in the upper credit tranches.

(c) If the Fund considers that there are substantial indications that the existing policies of the member in dealing with its balance of payments difficulties are seriously deficient or that the member’s record of cooperation with the Fund in the recent past has 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 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) 17 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 for the purchase, a reasonable assurance that policies corrective of the member’s balance of payments problem will be adopted; and

  • (ii) 42 percent of the member’s quota, if the member has a Fund arrangement under which a review is completed by the Fund at the time of the request for the purchase, 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 the criteria for the use of the Fund’s general resources in the upper credit tranches.

(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 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.

37. 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 105 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.

38. (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 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.

39. (a) Subject to paragraph 38(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 protanto, subject to the limits in paragraphs 8 and 36.

40. (a) After the expiration of the period referred to in paragraph 29, 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 29 or the expiration of this Section.

41. The Fund will review this Section not later than December 1, 1989.

Section V. Transitional and Other Provisions

42. 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.

43. 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 42, shall be deemed to have been made under Section II or Section IV of this Decision, as the case may be.

44. 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.

45. 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 or Section IV 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.

46….

47. The Fund will review this Decision not later than December 1, 1989.

Decision No. 8955-(88/126)

August 23, 1988, as amended by

Decision No. 9101-(89/30)

March 7, 1989

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 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 conditionality 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 internationally 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 post-shortfall years over the average level of exports in the two pre-shortfall 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 overcompensation 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: 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 45* 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

Decisions Nos. 4913-(75/207)

December 24, 1975, and

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

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 1(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 1(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

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.

The remainder of the provisions of this decision are no longer in effect, but see footnote to Decision No. 270-(53/95) on page 89.

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

See also Rule I-8 of the Rules and Regulations in By-Laws, Rules and Regulations, Forty-Fifth Issue, August 23, 1988.

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

Reproduced on pages 274–5.

Reproduced on pages 60–3.

See also Decision No. 7047-(82/13) on pages 100–02.

See Decision No. 7600-(84/3), January 6, 1984, as amended by Decisions Nos. 7841-(84/165), November 16, 1984, and 8147-(85/177), December 9, 1985, and 8459-(86/189), December 1, 1986 on pages 78–9.

See Decision No. 8886-(88/89), June 6, 1988 on pages 79-80.

“The review of the Policy on Enlarged Access and access limits thereunder in the light of the outcome of the Ninth General Review of Quotas shall be completed not later than the effective date of any quota increase under such Review.” (Decision No. 9028-(88/171) November 23, 1988)

For the form of stand-by arrangements, see pages 89–94.

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, Forty-Fifth Issue, August 23, 1988.

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.

The text to be added will depend on the situation of the member at the time.

The performance criteria enumerated here are indicative only.

These subparagraphs would be adapted in accordance with the period of the stand-by arrangement.

These subparagraphs would be adapted in accordance with the period of the stand-by arrangement.

The phrase “multiple currency practices” in decisions of the Fund relating to the use of the Fund’s resources does not, except as otherwise provided, include multiple currency practices applying solely to capital transactions. Decision No. 8648-(87/104) July 17, 1987

The text to be added will depend on the situation of the member at the time.

The performance criteria enumerated here are indicative only.

The phrase “multiple currency practice” in decisions of the Fund relating to the use of the Fund’s resources does not, except as otherwise provided, include multiple currency practices applying solely to capital transactions. Decision No. 8648-(87/104) July 17, 1987

Paragraph 1 of this decision appears on page 356.

Paragraph 2 of this decision is incorporated in paragraph 4(a) of Decision No. 4377-(74/114); see page 62.

For paragraphs 1 and 2, see paragraph 5 of Attachments A and B to Decision No. 6838-(81/70) on pages 92, 97.

Not included in this publication.

This new 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 pages 172–73

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