Selected Decisions Annex (14th Ed)

Policy on Enlarged Access: Borrowing Agreement with Japan

International Monetary Fund
Published Date:
April 1989
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Pursuant to Article VII, Section 1 of the Articles of Agreement, the Executive Board approves the agreement for borrowing from the Government of Japan, in terms of the draft set out in the Attachment to EBS/86/265, and authorizes the Managing Director to take such action as is necessary to conclude and implement the agreement.

Decision No. 8486-(86/205) December 19, 1986

Attachment to EBS/86/265

Draft of Proposed Borrowing Agreement Between the Government of Japan and the Fund

1. Given the severe balance of payments difficulties confronting, or in prospect for many member countries, and in order to strengthen the financial position of the International Monetary Fund (“the Fund”) and to facilitate a flexible response in accordance with its policies to assist its members in their efforts to overcome balance of payments difficulties, the Government of Japan (“Japan”) agrees to lend to the Fund an amount equivalent to SDR 3 billion, on the terms and conditions set out below.

2. The Fund may make drawings under this agreement at any time during the period of four years commencing on the date of the first drawing and, in any event, not later than May 1, 1987, upon giving Japan at least three business days’ notice (Tokyo) by tested telex. After consultation with Japan, the Managing Director may, if warranted in his judgment in light of an assessment of the Fund’s liquidity and prospective borrowing requirements, propose extension of the period for drawings for up to two years, and Japan would agree to such a proposal.

3. The Fund will endeavor not to draw more than the equivalent of SDR 400 million on any one value date nor more than the equivalent of SDR 800 million during any week.

4. The amount of each drawing shall be denominated in SDRs. Unless otherwise agreed between the Fund and Japan, the amount shall be paid by Japan, on the value date specified in the Fund’s notice, by transfer of the equivalent amount of Japanese yen to the account of the Fund at the Bank of Japan, Tokyo. Japan agrees that, on request, it shall exchange yen provided hereunder for U.S. dollars, to the extent required by the Fund for investment pending use of the borrowed funds in transactions of the Fund.

5. At the request of Japan, the Fund shall issue to Japan a nonnegotiable certificate evidencing its claim on the Fund resulting from a drawing outstanding under this agreement.

6. (a) Drawings shall be for maturity periods of six months. The drawings, or any part thereof, may be renewed by the Fund for consecutive periods of six months on giving notice as provided in paragraph 2 prior to each maturity date, provided that the total period that any drawing remains outstanding shall not exceed five years.

(b) If a maturity period does not end on a business day in the place where payment is to be made, the maturity date shall be on the next succeeding business day in that place.

(c) A renewal may be recorded in the books of Japan by entries showing that the outstanding drawing has been repaid and that the amount subject to renewal has been drawn by the Fund on the same value date.

7. The Fund shall repay the principal amount of each drawing on the final maturity date applicable to the drawings or on such earlier repayment date as may be established pursuant to paragraphs 12 or 14 of this agreement. Repayment shall not have the effect of restoring the amount that can be drawn under this agreement.

8. (a) Each drawing shall bear interest at an annual rate determined by the Fund at the commencement of each maturity period, from the product of:

(i) the interest rates on domestic instruments in each currency included in the SDR basket, as reported to the Fund by each of five central banks, on the business day referred to in paragraph 13, as follows:

  • —the bond equivalent yield for six-month U.S. Treasury Bills,

  • —the six-month interbank rate in Germany,

  • —the six-month rate for interbank loans against private paper in France,

  • —the average rate for newly issued bank CDs in Japan with a maturity of between 150 and 180 days,

  • —the six-month interbank rate in the United Kingdom, and

(ii) the percentage weight of that currency in the valuation of the SDR on that business day, calculated by using the same amounts and exchange rates for currencies as are employed by the Fund for calculating the value of the SDR in terms of the U.S. dollar on that day.

The applicable interest rate shall be the sum of the products so calculated, rounded up to the nearest one sixteenth of one percent.

(b) The amount of interest payable in respect of the maturity period shall be calculated on an actual day basis and shall be paid by the Fund on the last day of the period or on the date the principal amount is repaid, whichever is earlier.

9. (a) Payments by the Fund of principal and interest shall normally be made in Japanese yen, provided that the Fund, by agreement with Japan, may use SDRs, U.S. dollars, or any other currency. If agreement is not reached, the Fund shall have the option to pay in any freely usable currency as defined by the Fund, in SDRs, or in any combination thereof.

(b) Payments in Japanese yen shall be made by crediting the amount due to the account of Government of Japan at the Bank of Japan, Tokyo. Payments in SDRs shall be made by crediting Japan’s holdings account in the Special Drawing Rights Department. Payments in U.S. dollars shall be made by crediting the account of the Government of Japan, Minister of Finance, at the Federal Reserve Bank of New York, New York. Payments in any other currency shall be made to an account specified by Japan.

10. At the request of Japan, its commitment to meet drawings or to renew drawings shall be terminated if Japan represents that its balance of payments and reserve position does not justify further drawings or renewals, and the Fund, having given this representation the overwhelming benefit of any doubt, determines that no further drawing or renewal should be made.

11. (a) Except as provided in (b) and (c) below, the commitment of Japan to meet and renew drawings under this agreement and its claims on the Fund resulting from outstanding drawings shall be transferable only with the consent of the Fund.

(b) Japan shall have the right to transfer at any time all or part of any claim to any member of the Fund, to the central bank or other fiscal agency designated by any member for purposes of Article V, Section 1 (“other fiscal agency”), or to any official entity that has been prescribed as a holder of SDRs pursuant to Article XVII, Section 3 of the Fund’s Articles of Agreement.

(c) The transferee shall, as a condition of the transfer, assume the liability of Japan to accept a renewal of the transferred claim, and shall acquire all the rights of Japan under this agreement with respect to such claim, except that (i) for purposes of notice of renewals, references to business days (Tokyo) shall be deemed to refer to business days in the place where the transferee is situated, (ii) the transferee shall acquire the right to request termination of renewals under paragraph 10 and early repayment under paragraph 12 only if it is a member, or the central bank or other fiscal agency of a member, and at the time of transfer the member’s balance of payments and reserve position is considered sufficiently strong in the opinion of the Fund for its currency to be usable in net sales in the Fund’s operational budget, and (iii) if the transferee is a member or the central bank or other fiscal agency of a member, the reference to Japanese yen in paragraph 9(a) shall be deemed to refer to the transferee’s currency, and in other cases it shall be deemed to refer to U.S. dollars.

12. (a) Japan shall obtain repayment of a claim on the Fund under this agreement before maturity, at face value, if Japan represents that its balance of payments and reserve position justifies early repayment, and the Fund, having given this representation the overwhelming benefit of any doubt, determines that there is a need for such early repayment.

(b) Japan and the Fund may agree that a claim on the Fund will be repaid at the end of any maturity period.

13. Unless otherwise agreed between Japan and the Fund, all transfers and exchanges under paragraph 4, and all payments of principal and interest, shall be made at the exchange rates for the relevant currencies in terms of the SDR established by the Fund for the third business day of the Fund before the value date of the transfer, exchange, or payment.

14. If the Fund changes the method of valuing the SDR, all transfers, exchanges, and payments of principal and interest made three or more business days of the Fund after the effective date of the change shall be made on the basis of the new method of valuation. Nevertheless, if Japan so requests within 30 days after the adoption of the relevant decision of the Fund but not later than 14 days after the date the change becomes effective, the former method of determining the value of the SDR shall continue to apply to all outstanding amounts and their repayment, and in the calculation and payment of interest on such outstanding amounts. If Japan exercises this option, the Fund shall have the right, on giving 14 days notice, to repay in advance of maturity all the amounts to which the option has been applied.

15. Any question arising hereunder shall be settled by mutual agreement between Japan and the Fund.

If the foregoing proposal is acceptable to Japan, this communication and your duly authenticated reply accepting the proposal shall constitute an agreement between Japan and the Fund which shall enter into effect on the date the Fund acknowledges receipt of your reply.*

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