Chapter

Article V, Section 3(a), (b), and (c)

Author(s):
International Monetary Fund. Legal Dept.
Published Date:
August 2017
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Use of Fund Resources

General Decisions

Interpretation of Articles of Agreement

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

Pursuant to Decision No. 71-2,

September 26, 1946

Use of Fund’s Resources for Capital Transfers

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

Decision No. 1238-(61/43),

July 28, 1961

Use of Fund’s Resources: Meaning of “Consistent with the Provisions of This Agreement” in Article V, Section 3

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

Decision No. 287-3,

March 17, 1948

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

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

Decision No. 284-4,

March 10, 1948

Conditionality

Guidelines on Conditionality

A. Principles

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

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

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

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

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

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

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

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

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

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

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

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

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

B. Modalities

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

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

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

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

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

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

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

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

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

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

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

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

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

C. Evaluation and Review

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

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

16. Decision No. 270-(53/95), adopted December 23, 1953, Stand-By Arrangements, as amended, Decision No. 6056-(79/138), adopted March 2, 1979, Guidelines on Conditionality, and Decision No. C-3220-(01/24), adopted March 9, 2001, Concluding Remarks by the Chairman—Conditionality in Fund-Supported Programs, are repealed. (SM/02/276, Rev. 1, 9/23/02)

Decision No. 12864-(02/102)

September 25, 2002,

as amended by Decision No. 13814-(06/98),

November 15, 2006

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

1. The number of purchases and corresponding performance criteria in Fund GRA arrangements will depend on the circumstances of the member, provided however that there would be a minimum of two purchases (in addition to the initial purchase) and two sets of corresponding performance criteria during each 12-month period of an arrangement.1 In considering a member’s circumstances, the member’s policies, and the likely timing of its balance of payments needs, and the external economic environment will be taken into account. For members facing an actual balance of payments crisis that may involve fast moving developments or an uncertain external economic environment, more frequent monitoring on a quarterly basis could be expected. In all cases, the purchase dates and the test dates for performance criteria would be expected to be distributed as evenly as possible throughout the period of the arrangement. In the case of performance criteria, the date of the first performance test would not normally 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 in cases where purchases are phased quarterly.

2. Every effort should be made to include performance criteria initially for as much of each 12-month period of a Fund GRA arrangement as possible. However, it may not always be possible to establish in advance one or more performance criteria for each 12-month period of the arrangement because of substantial uncertainties about major economic trends and normal time lags between the completion of program discussions and Executive Board discussion. Performance criteria should normally be included initially which would govern purchases over a period of at least six months of an arrangement. Indicative targets would normally be included at the outset for that part of each 12-month period of an arrangement for which performance criteria are yet to be established.

3. Access under a Fund GRA arrangement may be frontloaded as appropriate, taking into account a member’s actual or potential need for resources from the Fund, the likely timing of the member’s balance of payments need, the member’s policies, the external economic environment, the sequencing of financing from other sources, and the desirability of maintaining a reasonable level of reserves.

4. Every effort should be made to: (i) limit to a minimum the lag between the beginning of a member’s program and the date of discussion by the Executive Board of the member’s request for a Fund arrangement; and (ii) limit the period between the approval by Fund management of the member’s request and the Executive Board discussions of the request to no more than three months. Should the period in (ii) above be exceeded, the staff would confirm that the program as originally proposed remains generally appropriate. In cases where a delay indicates a significant slippage in the implementation of the agreed program, the program would be renegotiated, including the performance criteria and phasing of purchases.

5. Lags between the reporting of data relating to performance criteria should be minimized in order to preserve the reliability of data. All members are expected to limit such reporting lags to two months. 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. (SM/09/69, Sup. 2, 03/24/09)

Decision No. 7925-(85/38),

March 8, 1985,

as amended by Decision Nos. 8887-(88/89), June 6, 1988, and

14281-(09/29), March 24, 2009, and

15017-(11/112),

November 21, 2011

The Acting Chair’s Summing Up—Review of Conditionality Executive Board Meeting 12/84, September 5, 2012

Executive Directors welcomed the comprehensive review of conditionality. They welcomed the generally positive findings on the application of the Guidelines on Conditionality and the design and macroeconomic outcomes of Fund-supported programs, which had internalized lessons from the past. Directors noted that the design of some of the more recent high-debt crisis programs faced difficult challenges and that, as these programs are still ongoing, they will need to be considered in more detail at a later date. Directors generally agreed that the Guidelines on Conditionality remain broadly appropriate, although their implementation could be improved in several areas. They broadly endorsed the specific proposals put forward in SM/12/148, and welcomed the intention to modify the operational guidance note on conditionality in light of the conclusions reached today, complemented by ongoing efforts to improve debt sustainability analysis. Some Directors considered that the Guidelines themselves would benefit from an update to reflect recent trends, practices, and policy changes.

Keeping conditionality focused

Directors welcomed the findings that conditionality has become more focused, more closely aligned with program goals, and generally well-tailored to country characteristics and initial macroeconomic conditions. They observed that the growing number and depth of structural conditions in more recent GRA programs reflected more deep-rooted structural challenges and adjustment needs. Directors underscored the need to adhere strictly to the macro-criticality criterion for setting conditionality, with close scrutiny for conditionality outside the Fund’s core areas of responsibility. Most Directors concurred that progress in streamlining conditionality should be consolidated, while a few stressed that the overriding goal in designing structural conditionality should be to achieve program objectives, including medium-term external viability. Directors also emphasized that program design should adapt flexibly and respect countries’ policy choices, while at the same time striving to maintain evenhandedness. They recognized, however, that striking an appropriate balance could be a challenge. Directors called for greater clarity on structural conditionality in program documents, particularly the adequacy of progress in structural reforms subject to review-based conditionality.

Strengthening risk diagnostics

Directors supported developing an approach for better risk diagnostics across a range of dimensions and tailoring robustness tests according to this assessment. They encouraged continued close analysis of the fiscal adjustment/growth nexus in cases with narrowing policy space, particularly where debt sustainability is a concern and could jeopardize external stability. Directors emphasized the importance of assessing debt sustainability based on realistic macroeconomic assumptions that are cross-checked against past crisis cases, and in close consultation with country authorities and institutional partners. Directors also saw room for further strengthening the discussion of systemic and contagion risks in exceptional access programs, especially where these risks have an impact on the robustness of debt sustainability. They considered that priority should be given to refining analytical tools to evaluate such risks and to analyzing spillovers and macrofinancial linkages more systematically.

Emphasizing macro-social aspects

Directors welcomed the finding that social spending has been largely protected and, in the case of programs in low-income countries, has increased. They encouraged more analysis of the social impact of policy measures in programs, in close cooperation with country authorities and institutional partners. Directors also supported, where feasible and appropriate, inclusion of policy measures to mitigate adverse short-term impacts on the most vulnerable, particularly in programs with high risks and large fiscal adjustment. In implementing these proposals, Directors stressed the need to be mindful of the Fund’s core areas of responsibility and competencies, and encouraged staff to draw on the expertise of other institutions to the extent possible.

Enhancing ownership and transparency

Directors emphasized that ownership is critical to program success. They agreed that prior actions cannot substitute for program ownership and should continue to be applied with great care, although a few Directors regarded their role as important in signaling the authorities’ commitment. While recognizing that macro-critical issues must be addressed in program conditionality and that the Guidelines on Conditionality allow conditions reasonably within the direct or indirect control of the member country, some Directors expressed concern about the use of conditionality that is outside the executive branch’s control, which in their view could undermine ownership. Directors welcomed plans to improve outreach, communication, and transparency, and to conduct a broader discussion of alternative policy options and their feasibility at the design stage, in close consultation with authorities. They generally saw merit in developing standard processes to obtain external views in the internal Fund discussions of program design.

Leveraging surveillance

Directors agreed that more could be done to leverage Fund surveillance and technical assistance better in program design. They broadly supported proposals to increase contingency planning for potential programs under strict confidentiality, utilizing the risk assessment matrices undertaken during Article IV consultations wherever appropriate. A few Directors considered it important to draw a line between surveillance and financial assistance.

Improving partnerships with other institutions

Directors highlighted the importance of coordination and collaboration with other international institutions, and donors where relevant, to ensure adequate financing and coherent conditionality while avoiding duplication. Noting in particular the increasing complexity of recent programs for countries that are members of a currency union, given the presence of publicly stated common policies, Directors agreed that it would be desirable to maintain a standing dialogue with relevant regional institutions on policies and procedures, including on approaches for dealing with recurrent problems. Directors expressed wide-ranging views on recent high-access programs with euro area countries—even though these programs were beyond the scope of the review and will be considered in more detail at a later stage—given their specific features and the role of the institutions at the European Union level, particularly in co-financing. Many Directors encouraged staff to draw preliminary lessons from these cases in a timely manner, including on coordination with Troika partners and the modalities of designing programs and conditionality.

Resources

Directors noted that implementing the recommendations made in this review will likely have some budgetary implications, with a few calling for strong efforts to remain within the current budget envelope. They looked forward to a fully-costed proposal in the context of budget discussions, taking into account today’s discussions and the findings of the staff working group on jobs and growth.

BUFF/12/103

September 10, 2012

The Acting Chair’s Summing Up—Reform of the Policy on Public Debt Limits in Fund-Supported Programs Executive Board Meeting 14/107, December 5, 2014

Directors welcomed the opportunity to revisit the role of debt conditionality in Fund-supported programs. They noted that the proposed reforms have been informed by extensive consultations, which have contributed to significant refinements of the reform package.

Directors observed that the experience with the 2009 reform of the debt limits policy has been uneven. They noted that the sharp dichotomy between concessional and semi-concessional loans is difficult to justify on economic grounds. They emphasized that reforms to the policy should balance debt sustainability and borrowing requirements for investment and growth. They agreed that the coverage of debt limits should be unified and comprehensive, covering both concessional and nonconcessional debt. Moreover, there should be incentives for creditors to provide, and for borrowers to seek, financing on concessional terms.

Directors agreed that the use of debt conditionality in Fund-supported programs is warranted when a member faces significant debt vulnerabilities. Debt sustainability analysis should continue to play the key role in identifying debt vulnerabilities. There would be cases where the quality and coverage of fiscal statistics would warrant the use of conditionality on debt accumulation instead of, or as a complement to, conditionality on “above-the-line” fiscal measures (such as the fiscal deficit), taking care to avoid duplication of conditionality.

Directors emphasized that the broad principles that will guide the new debt limits policy should be applied in a transparent and even-handed manner. The particular form of debt conditionality adopted should reflect country-specific circumstances and program goals. Some Directors pointed to the importance of a clear description of remedial actions in case a breach of debt limits threatens to set a program off-track.

Directors supported the principle that debt conditionality policy should cover all public debt. Conditionality could take the form of a limit on total public debt accumulation, separate limits on external public debt accumulation and on domestic public debt accumulation, or targeted limits on some sub-component of aggregate public debt. A number of Directors considered that setting conditionality on the contracting rather than the disbursement of debt would tend to overstate the debt burden.

BUFF/14/115

December 12, 2014

Reform of the Policy on Public Debt Limits in Fund-Supported Programs

1. The “Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements” set forth in Decision No. 6230-(79/140) of August 3, 1979, as amended, is replaced by the “Guidelines on Public Debt Conditionality in Fund Arrangements” as set forth in the Attachment to this decision. Any existing reference in Fund policies to the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements shall be read as a reference to the Guidelines on Public Debt Conditionality in Fund Arrangements.

2. Paragraph 18 of the Policy Support Instrument Framework decision, Decision No. 13561-(05/85), adopted October 5, 2005, as amended, shall be amended by removing the reference to “and” immediately preceding “(c)” and by adding at the end of the current text the following: “and (d) Guidelines on Public Debt Conditionality in Fund Arrangements.”

3. This decision shall become effective on June 30, 2015. Any performance criterion or indicative target on external debt that is in place when this decision becomes effective shall continue to apply in accordance with its terms unless and until such performance criterion or indicative target is amended consistent with the Guidelines on Public Debt Conditionality in Fund Arrangements.

4. It is expected that the Fund will review the implementation of the Guidelines on Public Debt Conditionality in Fund Arrangements no later than June 30, 2018. (SM/14/304, Sup. 1, 11/26/14)

Decision No. 15688-(14/107),

December 5, 2014

Attachment: Guidelines on Public Debt Conditionality in Fund Arrangements

1. Public debt conditionality in the form of a performance criterion or an indicative target establishing a limit on public and publicly guaranteed debt, or some sub-component of this aggregate, will normally be included in Fund arrangements in the General Resources Account (GRA) or under the Poverty Reduction and Growth Trust (PRGT) when a member faces significant debt vulnerabilities.

2. The use of public debt conditionality may also be warranted in situations where the quality and coverage of the fiscal statistics produced by the national system of fiscal accounting and budgeting of the member favor the use of public debt conditionality in place of, or as a complement to, “above-the-line” fiscal conditionality.

3. Public debt conditionality will be established as a limit on “total” public and publicly guaranteed debt unless country circumstances and program objectives justify the use of more narrowly targeted conditionality:

a) For countries where there is significant segmentation between domestic and external sources of public financing, debt conditionality will normally be established as separate limits on external and domestic public and publicly guaranteed debt.

b) For countries where debt vulnerabilities are specific in nature, rather than linked to aggregate debt levels, public debt conditionality should, to the extent possible, be targeted on the specific areas of vulnerability, with limits covering the relevant sub-categories of debt.

c) The specific design and coverage of public debt conditionality should take into account the quality and timeliness of the financial information produced by the member country’s public sector accounting system.

4. The appropriate definition of the public sector for the purposes of specifying public debt conditionality will depend on institutional arrangements in the member country; it will normally include all nonfinancial public enterprises and other public entities, unless explicit exclusions have been made. Explicit exclusions could include specific public enterprises or other official sector entities that are assessed to be in a position to borrow without a guarantee of the government and whose operations pose limited fiscal risk to the government. The specification of what constitutes “public sector” for the purposes of public debt conditionality in a Fund arrangement will be explained clearly in the program documents.

5. For the purposes of specifying public debt conditionality, the concept of “external” debt may be defined on the basis of the residency of the creditor or the currency of denomination of the debt. The public debt conditionality will specify which of these two criteria is being used for purposes of the definition of external debt.

6. The performance criteria or indicative targets establishing debt limits may be formulated in terms of a) debts contracted or authorized; b) disbursements made; or c) changes in the stock of public and publicly guaranteed debt. The specific approach chosen will depend on program objectives, the predictability of loan disbursements, and the quality and timeliness of data availability.

7. In accordance with these guidelines, the following considerations will apply when establishing public debt conditionality in Fund arrangements:

a. These guidelines will be applied with a reasonable degree of flexibility while safeguarding the principle of uniformity of treatment among members. These guidelines should be interpreted in the light of the Guidelines on Conditionality.

b. The appropriate level and composition of debt for purposes of public debt conditionality will be based on an evaluation of the member’s proposed fiscal program, including the associated borrowing plan, and on the member’s debt vulnerabilities, as identified through a debt sustainability analysis.

c. For purposes of these guidelines, the quality and coverage of the fiscal statistics produced by a member’s national system of fiscal accounting and budgeting will normally warrant the use of public debt conditionality instead of, or as a complement to, “above-the-line” fiscal conditionality when at least one of the following conditions is met:

i. The national system of fiscal accounting and data compilation is such that the quality and timeliness of fiscal financing data is significantly better than the data on “above-the-line” measures (such as the fiscal balance); or

ii. Important public debt-creating activities are not adequately captured in the fiscal accounts (e.g., bank recapitalization, issuances of government guarantees, noncommercial state-owned enterprises, and other agencies outside the budgetary framework) and these activities pose a threat to the overall fiscal position.

d. The performance criterion or indicative target establishing a debt limit would normally be set on the nominal value of debt, except in cases under paragraph 7(e) below.

e. For members that normally rely on official external financing on concessional terms, public debt conditionality will generally be established as follows:

(i) Except as provided in subparagraphs (iv) and (v) below, for members assessed as facing a high risk of debt distress or in debt distress, public debt conditionality will take the form of (a) a performance criterion specifying a ceiling on the nominal amount of non-concessional external debt accumulation and (b) a performance criterion or indicative target setting a ceiling on the accumulation of concessional external debt. The accumulation of non-concessional debt would be allowed under the conditionality only under exceptional circumstances.

(ii) Except as provided in subparagraphs (iv) and (v) below, for members assessed as facing a moderate risk of debt distress, public debt conditionality will take the form of a performance criterion setting a ceiling specified in present value (PV) terms on the accumulation of public and publicly guaranteed external debt, without distinctions between concessional and non-concessional debt.

(iii) For members assessed as facing a low risk of debt distress, conditionality on debt accumulation would not be warranted, except where justified on the basis of the criteria specified in 7(c) above.

(iv) Where the member’s capacity to monitor the contracting of debt is weak, public debt conditionality will consist of a performance criterion, specified in nominal terms, on the accumulation of non-concessional external debt, supplemented by a memorandum item, specified in nominal terms, on the accumulation of concessional external debt.

(v) For members with an open capital account and significant financial integration with international markets, public debt conditionality may be set on total public debt accumulation rather than on the accumulation of external debt.

f. In principle, a performance criterion or an indicative target establishing a debt limit will incorporate by reference the definition of debt set forth in paragraph 8 below. Financial instruments that are not covered under the definition, but have the potential to create substantial external liabilities for governments, will be included in the debt limit where appropriate, in which case they would be explicitly specified in the program documents.

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

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

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

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

(b) awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

9. These Guidelines on Public Debt Conditionality in Fund Arrangements shall apply by analogy to programs supported under the Policy Support Instrument Framework, Decision No. 13561–(05/85), October 5, 2005, as amended.

The Acting Chair’s Summing Up—Review of the Policy on Debt Limits in Fund-Supported Programs Executive Board Meeting 13/26, March 22, 2013

Directors welcomed the opportunity to discuss this review of the policy on debt limits in Fund-supported programs. Directors concurred that the 2009 reform had been a useful step to adjust the debt limits policy to the changing circumstances of members, particularly low-income countries (LICs), and to strengthen the link between the debt limits policy on the one hand and debt vulnerabilities and public financial management on the other. Most Directors also agreed that the review of its implementation suggests that further modifications to the policy are needed to reduce uneven outcomes and address the complexity and potential for distortions in investment and financing decisions raised by the current policy.

Most Directors concluded that establishing a unified debt limits framework by broadening the scope of the debt limits policy to encompass all borrowing, regardless of its terms, would provide stronger safeguards for debt sustainability without unduly constraining countries’ ability to secure adequate external financing to support their development agenda. However, because of concerns to protect the availability of concessional financing, a few Directors expressed the view that a stronger case needed to be made before the Fund moves away from the current framework. Many Directors concurred with the proposal to set the debt limits in nominal terms for all countries in order to facilitate monitoring, but a number of Directors were concerned that moving away from limits on non-concessional borrowing might lead to an accumulation of unsustainable debt. Many Directors noted that the discussion is preliminary and that specific changes to the policy will require further work and analysis.

Directors stressed the importance of preserving incentives for LICs to borrow on concessional terms and for their lenders to provide such financing whenever possible. Many Directors were of the view that the proposed indicative target on the average concessionality of new financing, together with the ceiling on aggregate borrowing, would satisfy this objective and welcomed the increased flexibility the proposed reform would grant to LICs in managing their borrowing policy. A number of Directors proposed that consideration be given to making average concessionality a binding performance criterion or to set the overall debt limit in present value terms. Some Directors reserved judgment on whether the proposed reform contains sufficient incentives to ensure that LICs receive favorable terms on their official financing until they have the opportunity to review the operational proposals to be developed by staff in the second stage of the review.

Most Directors agreed that no changes to the design of debt limits in Fund-supported programs in the General Resources Account (“GRA programs”) were needed. Directors welcomed staff’s proposal to develop additional guidance on the circumstances under which GRA programs would be expected to include a debt limit.

Many Directors saw merit in addressing issues related to public financial and debt management capacity directly in the structural component of a country’s program, rather than through the debt limits policy. However, a number of Directors urged that further staff work was needed to explain how country capacity could still maintain a central role in the application of debt limit policy. Noting the importance of the capacity dimension in countries’ ability to safely carry debt, a number of Directors stressed that measures aimed at building such capacity should figure prominently in technical assistance.

Most Directors saw merit in moving toward a single uniform discount rate that would address unwarranted fluctuations in concessionality calculations that have occurred since the Debt Sustainability Framework (DSF) for LICs was originally designed. They welcomed the greater stability and predictability in concessionality calculations that such a reform would bring, but a number of Directors emphasized that a strong link to market-determined rates should be maintained. Directors looked forward to the specific reform proposal on this issue to be put forward in a joint paper by staffs of the Fund and the World Bank in the coming weeks.

Directors encouraged staff to conduct outreach with key constituencies, including country authorities, lenders, and other development stakeholders to seek their input on the design of the final reform proposal. A number of Directors also encouraged staff to explore the impact of the reform on lending operations of other international financial institutions (IFIs). Given the importance of the proposed reform, a number of Directors suggested that a gradual approach and transitional arrangements be considered. Directors also urged staff to continue to collaborate closely with World Bank staff to reach an agreement on the reform of the discount rate in the DSF. Directors also emphasized the objective of maintaining, to the extent possible, broad consistency between the Fund’s debt limit policy and the Bank’s non-concessional borrowing policy.

Directors asked staff to conduct further analysis and report back to the Board in an informal session before proceeding with a specific reform proposal.

BUFF/13/27

March 29, 2013

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

For purposes of implementation of the Guidelines on Performance Criteria with Respect to Foreign Borrowing, as amended (Decision No. 6230-(79/140), the Executive Board endorses the revised method of calculation of the discount rate described in SM/96/86 (4/8/96).1

Decision No. 11248-(96/38), April 15, 1996,

as amended by Decision No. 15462-(13/97),

October 11, 2013

SM/96/86

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

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

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

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

Reduction of Blackout Periods in GRA Arrangements

1. This Decision shall apply to all Fund GRA arrangements that have periodic performance criteria.

2. A member may purchase any amount available under the phasing provisions of an arrangement without having to demonstrate observance of any periodic performance criterion specified for the most recent relevant test date if:

(i) the purchase is requested within 45 days of the most recent test date;

(ii) the member is meeting all other conditions applicable to purchases under the arrangement;

(iii) the member has either met or been granted a waiver for nonobservance of each periodic performance criterion for the relevant test date immediately preceding the most recent test date, provided that in cases where a purchase is subject to periodic performance criteria specified for more than one test date, this paragraph (iii) shall not apply to performance criteria specified for the earlier of such test dates where the data is unavailable and the 45-day period referred to in paragraph 2(i) of this Decision for that earlier test date has not elapsed;

(iv) the member has met all data reporting deadlines applicable to each periodic performance criterion for the most recent relevant test date set forth in the Technical Memorandum of Understanding (“TMU”);

(v) with respect to any periodic performance criterion for the most recent relevant test date for which data are available, the member has either met or been granted a waiver for nonobservance of that performance criterion; and

(vi) with respect to any performance criterion for the most recent relevant test date for which data are unavailable and the reporting deadline set out in the TMU has not passed, the member represents that such data are unavailable.

3. Any purchase made pursuant to Paragraph 2 above shall, for the purposes of the Guidelines on Corrective Action for Misreporting and Noncomplying Purchases in the General Resources Account set out in Decision No. 7842-(84/165), adopted November 16, 1984, as amended (hereinafter the “Misreporting Guidelines”), be deemed to have been made subject to a condition that any representation made by the member under Paragraph 2(vi) above is accurate.

4. When a purchase is made under Paragraph 2 in circumstances where the Misreporting Guidelines do not apply, and it is subsequently determined that the member did not observe a performance criterion for which a representation was made under paragraph 2 (vi), the Managing Director shall promptly inform Executive Directors in such manner as he deems appropriate.

5. Accordingly, to implement this Decision, the following amendments shall be made to the standard forms of the stand-by and extended arrangements set out, respectively, in Attachments A and B to Decision No. 10464-(93/130), September 13, 1993, as amended:

(a) The first sentence of Paragraph 3 (a) of the standard form of the Stand-By Arrangement shall be modified as follows:

“Subject to paragraph 2 of Decision No. 14407, during any period in which the data at the end of the preceding period indicate that: …”

(b) The first sentence of Paragraph 3 (a) of the standard form of the extended arrangement shall be modified as follows:

“Subject to paragraph 2 of Decision No. 14407, during any period in which the data at the end of the preceding period indicate that: …”

6. This Decision is expected to be reviewed by the Fund on an as needed basis. (SM/13/19, 01/23/13)

Decision No. 14407-(09/105),

October 26, 2009,

as amended by Decision No. 15320-(13/10),

January 30, 2013

The Acting Chair’s Summing Up–Conditionality in Evolving Monetary Policy Regimes Executive Board Meeting 14/28, March 26, 2014

Executive Directors welcomed the discussion of monetary policy conditionality in countries with evolving monetary policy regimes. They saw merit in employing a review-based approach to monetary conditionality and broadly endorsed staff’s proposal to enhance the existing framework by introducing a monetary policy consultation clause (MPCC) as an option for countries that have the capacity to adjust policy settings in a flexible way to achieve their monetary policy objectives.

Directors noted that many developing countries with scope for independent monetary policy are moving toward more flexible and forward-looking monetary policy frameworks, generally focused around the broad objective of achieving price stability. They observed that a weaker relationship between monetary aggregates and inflation implies a decline in the relevance of monetary aggregates as reliable indicators of the monetary stance in countries with low inflation, changing financial landscapes, and facing exogenous shocks. Moreover, the non-observances of reserve money targets in Fund-supported programs have typically not been correlated with inflation deviations in countries that have already achieved single-digit inflation levels.

Directors discussed the proposed enhancement of the review-based approach to monetary conditionality in Fund-supported programs in the form of the MPCC. Under this approach, the MPCC would be based on a specified central path for a target variable (i.e., monetary aggregate or inflation). This target variable would normally have a single tolerance band. It would be subject to periodic reviews in conjunction with general program reviews, and would include an enhanced monetary policy assessment in the context of a clearly defined monetary policy objective. A formal consultation with the Executive Board would be triggered if the observed outcome of the target variable deviates from the band, and access to Fund resources would be interrupted until the consultation with the Board takes place and the relevant program review is completed. In MPCC regimes selecting inflation as the target variable, a narrower inner band could be an option to serve as an early warning mechanism that would trigger a consultation with staff when the observed outcome of the target variable deviates from the inner band. In the event a consultation with the Executive Board is triggered, the staff report would include a comprehensive assessment of monetary policy explaining clearly the reasons behind the target deviations and proposing prompt remedial actions if deemed necessary.

Directors considered that the MPCC could enhance monetary policy conditionality in programs where countries have a strong track record of policy implementation, a relatively low and stable inflation rate, and adequate technical capacities. In this regard, Directors generally pointed to the importance of de facto central bank autonomy in monetary operations, macroeconomic and financial stability, and the capacity for quantitative analysis of the inflation process, for successful implementation of the flexible monetary policy framework under the MPCC. Directors underscored the importance of evenhanded application of the standard and urged staff to consider, on a case-by-case basis, whether it would be appropriate for a member to use the MPCC, noting that some countries may not currently meet all the institutional guideposts or have other characteristics that make the use of the MPCC premature. In the near term, relatively few arrangements are expected to adopt this new conditionality framework, but it is understood that staff will exercise flexibility in assessing individual cases. For some countries, the MPCC could be considered provided the program includes reforms to address capacity constraints and institutional weaknesses. Directors noted that the decision to implement the MPCC would be the outcome of discussions between staff and the authorities. They stressed that program design—including the features of the tolerance band—should take into account countries’ characteristics. Some Directors cautioned that use of the MPCC should not imply a commitment to move toward inflation targeting.

Directors emphasized the importance of the proposed consultation clause in safeguarding the use of Fund resources. They were of the view that maintaining the floor on net international reserves as a performance criterion and, where warranted, indicative targets on indicators such as net domestic assets or net credit to government should provide sufficient safeguards for the use of Fund resources.

Directors considered that the traditional framework for monetary policy conditionality would continue to be relevant for many countries, including those with less-developed institutional frameworks and a track record of relatively high inflation. Nonetheless, the Fund should support developing countries that seek to modernize their conduct of monetary policy. Directors welcomed staff’s efforts to build institutional capacity and enhance data provision and analysis in these countries.

Directors supported a measured approach by staff to the introduction of the MPCC in countries where conditions for successful implementation are broadly in place. The Operational Guidance Note on Conditionality will be updated to incorporate the enhancements of the review-based monetary conditionality framework discussed by the Executive Board today. Directors looked forward to taking stock of experience gained from selected countries implementing the new conditionality framework after sufficient experience has been gained.

BUFF/14/29

March 28, 2014

Conditionality Governing the Use of Fund Resources

The Fund decides that, effective May 1, 2009, it shall no longer establish structural performance criteria as a modality for monitoring performance under any type of Fund arrangement. (SM/09/69, Sup. 2, 03/24/09)

Decision No. 14280-(09/29),

March 24, 2009

The Acting Chair’s Summing Up—GRA Lending Toolkit and Conditionality—Reform Proposals Executive Board Meeting 09/29 March 24, 2009

The Executive Board has adopted a number of decisions to reform the Fund’s GRA lending and conditionality frameworks to ensure that the Fund is well-equipped to fully meet the needs of its membership. While many Directors expressed some reservations on certain elements of these reforms, Directors generally considered the overall package to be a satisfactory compromise that balances the diverse interests of the membership.

Modernizing Conditionality

Most Directors noted that structural performance criteria are perceived as reducing national ownership of Fund-supported programs, while being difficult to define objectively. Accordingly, they agreed that structural performance criteria would be replaced under all Fund arrangements, including those under facilities designed for low-income countries, with a review-based approach to monitoring the implementation of structural reforms in Fund-supported programs. A few of these Directors supported replacing structural benchmarks and prior actions, as well. For existing arrangements, a few Directors would have preferred a faster transition to review-based conditionality, by automatically discontinuing all structural performance criteria in upcoming program reviews. Some Directors, however, wanted to retain structural performance criteria for macro-critical measures, while a few Directors would have also supported adoption of a review-based approach for quantitative variables.

Flexible Credit Line (FCL)

Directors supported the creation of the FCL to enable very strong-performing members to have high and front-loaded access to Fund resources. The FCL could be used for contingent or actual financing needs stemming from all types of balance of payments problems. Directors broadly agreed with the FCL’s key design elements. Directors stressed that the assessment of a member’s FCL qualification should be undertaken confidentially and only at the request of the member. In emphasizing the importance of transparency, Directors agreed that the Managing Director should generally not recommend that the Executive Board approve a request to use the FCL unless the member had consented to publication of the associated papers. Some Directors, however, considered that publication should always take place in FCL cases. It was agreed that the Board will revisit this issue in the context of its review of the Fund’s transparency policy later this year.

A number of Directors remained concerned that the FCL could induce large precautionary use of Fund resources, crowding out lending for crisis resolution. Directors agreed that the FCL should be reviewed in two years, or earlier if commitments under the FCL reach SDR 100 billion, while a few Directors preferred reviewing the FCL in three years. Some Directors would have preferred an access limit to help safeguard Fund resources and to ensure even-handedness and predictability of Fund lending, but welcomed staff’s expectation that access would not normally exceed 1,000 percent of quota. A few Directors reiterated their concern that ex-ante conditionality might not provide adequate safeguards for the use of Fund resources.

Directors called for rigorous and even-handed application of the FCL’s qualification framework, as further elaborated in Annex I of the staff paper, to ensure that only members with very strong macroeconomic fundamentals and policy frameworks, sustained track records of implementing very strong policies, and a commitment to maintaining such policies, would have access to FCL financing. A number of Directors stressed the importance of relying on Executive Board assessments of members’ policies in the context of recent Article IV consultations. These Directors expected that a member that qualifies for the FCL would normally have held the most recent Article IV consultation in accordance with the standard cycle for such consultations. A few Directors considered that qualification assessments should also be informed by a recent FSAP or FSAP update.

Enhancing Stand-By Arrangements

Directors supported making high-access precautionary SBAs (HAPAs) available on a more regular basis. In addition, all SBAs, including HAPAs, could be designed flexibly—including with respect to phasing and frontloading of access, and frequency of performance criteria test dates and Board reviews—in recognition of members’ varying circumstances. At the same time, a few Directors expected that quarterly phasing would continue to be used in cases of large access to Fund resources. Directors looked forward to a future staff paper addressing the “black-out period” problem under SBAs, which currently blocks members from making purchases during certain periods when data for performance criteria assessments are unavailable.

Access Policies

Directors agreed to double normal GRA access limits to 200 percent of quota annually and 600 percent of quota cumulatively. They also supported the modification of the four substantive exceptional access criteria so as to allow exceptional access for potential and actual BOP needs stemming from both capital and current account crises, and to eliminate rigidities and ambiguities in the criteria. Some Directors felt that aspects of the modifications could weaken this policy, but welcomed the preservation of the procedural aspects of the policy, which they considered to be an essential part of Fund risk management.

Surcharges and Fees

Directors supported the proposed simplification of the current level-based surcharge structure, the introduction of a new time-based surcharge, and the elimination of the time-based repurchase expectations policy. They considered the proposals to strike a balance between simplifying the cost and repayment structures for Fund lending, and mitigating credit risks and encouraging timely repayment of Fund resources.

In discussing the staff’s proposal, a few Directors reiterated their preference to align the threshold for the level-based surcharges with the new normal access limits. A few other Directors expressed concern that the alignment of the Extended Fund Facility (EFF) and SBA time-based surcharges would make high access under the EFF unduly costly for low-income members. It was recognized, however, that high access would not normally be expected under the EFF, as the SBA would be a better instrument for such purpose. A few Directors also requested an early review of the burden-sharing mechanism.

Directors concurred that the new upward-sloping commitment fee structure will discourage unnecessarily high precautionary access, helping to contain risks to the Fund’s liquidity. While supporting the decision, some Directors also felt that fees were too high, while some other Directors believed that fees should have been higher.

Eliminating Special Facilities

Directors agreed to abolish the Compensatory Financing Facility, the Supplemental Reserve Facility, and the Short-Term Liquidity Facility, which have been seldom or not used. Directors supported retaining the EFF, particularly given its usefulness to low-income countries.

BUFF/09/50,

March 27, 2009

Elimination of Certain Special Facilities

1. The following decisions are hereby repealed:

(a) Decision No. 14184-(08/93), adopted 10/29/08, establishing the Short-Term Liquidity Facility;

(b) Decision No. 11627-(97/123), adopted 12/17/97, as amended, establishing the Supplemental Reserve Facility; and

(c) Decision No. 8955-(88/126), adopted 8/23/88, as amended, establishing the Compensatory Financing Facility.

2. References in other Fund decisions to the Short-Term Liquidity Facility, the Supplemental Reserve Facility, and the Compensatory Financing Facility are hereby deleted. (SM/09/69, Sup. 2, 03/24/09)

Decision No. 14282-(09/29),

March 24, 2009

Use of Fund Resources—Side Letters

Confidentiality

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

Definition of side letters

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

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

Use of side letters

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

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

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

Communication of side letters to the Executive Board

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

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

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

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

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

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

Communications about side letters by Executive Directors to members’ authorities

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

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

Review

13. This decision will be reviewed by the Executive Board within one year, provided, however, that it will be reviewed promptly before that time if the confidentiality of any side letter has not been observed. (SM/99/236, 9/15/99)

Decision No. 12067-(99/108),

September 22, 1999

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

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

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

BUFF/02/80

June 19, 2002

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

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

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

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

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

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

5. A waiver under paragraph 3(b) will normally be granted only if the deviation from the relevant performance criterion or other condition was minor or temporary, or if, subsequent to the purchase, the member had adopted additional policy measures appropriate to achieve the objectives supported by the relevant decision.

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

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

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

9. For the purposes of this decision:

(i) whenever the Managing Director considers there is evidence indicating that a member may have made a noncomplying purchase, but the nonobservance of the relevant performance criterion or other specified condition was de minimis in nature, as defined in paragraph 1 of Decision No. 13849, the communication referred to in paragraph 1 may be made by a representative of the relevant Area Department;

(ii) if the Managing Director determines that a member has made a noncomplying purchase and considers that the nonobservance of the relevant performance criterion or other specified condition was de minimis in nature, as defined in paragraph 1 of Decision No. 13849, the notification referred to in paragraph 2 may be made by a representative of the relevant Area Department, and the report of the Managing Director contemplated in paragraph 2 shall, wherever possible, be included in a staff report on the relevant member that deals with issues other than the noncomplying purchase and shall include a recommendation that the related nonobservance be considered to be de minimis in nature, and that a waiver for nonobservance be granted. In those rare cases when such a staff report cannot be issued to the Board promptly after the Managing Director concludes that a noncomplying purchase has been made, the Managing Director shall consult Executive Directors and, if deemed appropriate by the Managing Director, a standalone report on the noncomplying purchase will be prepared for consideration by the Executive Board, normally on a lapse-of-time basis; and

(iii) whenever the Executive Board finds that a noncomplying purchase has been made but that the nonobservance of the relevant performance criterion or other specified condition was de minimis in nature as defined in paragraph 1 of Decision No. 13849, a waiver for nonobservance shall be granted by the Executive Board.

Decision No. 7842-(84/165),

November 16, 1984,

as amended by Decision Nos. 12249-(00/77), July 27, 2000, and

13849-(06/108),

December 20, 2006

Making the Misreporting Policies Less Onerous In De Minimis Cases

1. In order to address cases of misreporting that are considered to be de minimis in nature, the following amendments are hereby made to the decisions referred to below. To be considered de minimis, a deviation from a performance criterion, assessment criterion or other specified condition would be so small as to be trivial with no impact on the assessment of performance under the relevant member’s program, as illustrated by the examples set out in Table 1 of EBS/06/86.

1

Decision No. 13849-(06/108),

December 20, 2006

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

Any decision on the use of resources in the General Resources Account (including decisions approving an arrangement or an outright purchase, completing a review, or granting a waiver either of applicability or for the nonobservance of a performance criterion) will be made conditional upon the accuracy of information provided by the member regarding implementation of prior actions specified in the decision.1 (EBS/00/121, 6/29/00)

Decision No. 12250-(00/77),

July 27, 2000

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

Any decision granting a waiver for the nonobservance of a performance criterion under an arrangement will be made conditional upon the accuracy of data or other information provided by the member to assess observance of the performance criterion in question.

Any decision waiving the applicability of a performance criterion under an arrangement will be made conditional upon (i) the accuracy of the member’s representation that the information necessary to assess observance of the relevant performance criterion is unavailable, and (ii) the accuracy of data provided by the member to assess observance of the same performance criterion for a preceding period (if applicable for that period). (EBS/00/121, 6/29/00)

Decision No. 12251-(00/77),

July 27, 2000

Overdue Financial Obligations—Amended Decisions

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

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

Decision No. 12548-(01/84),

August 22, 2001

Establishment of General Policy to Condition Decisions Under the Extended Credit Facility, Standby Credit Facility and Exogenous Shocks Facility on Accuracy of Information Regarding Implementation of Prior Actions

Any decision on the use of resources under the Extended Credit Facility, Standby Credit Facility and Exogenous Shocks Facility (including decisions approving an arrangement, completing a review, or granting a waiver either of applicability or for the nonobservance of a performance criterion) will be made conditional upon the accuracy of information provided by the member regarding implementation of prior actions specified in the decision.

Decision No. 12253-(00/77),

July 27, 2000,

as amended by Decision No. 14354-(09/79),

July 23, 2009,

effective January 7, 2010

Failure to Meet a Repurchase Expectation and Use of Fund’s General Resources Executive Board Meeting 85/26, February 20, 1985

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.

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

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

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

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

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

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

Ex Ante Safeguards

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10. Copies of current legislation governing the central bank.

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

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

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

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

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

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

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

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

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

Directors concurred that safeguards assessment reports should remain confidential documents and requested that the Executive Board be kept informed on safeguards issues by (i) a summary of findings and recommendations identified by safeguards assessments in staff reports; and (ii) periodic summary reports to the Executive Board on safeguards assessments findings in general. However, a few Directors believed that countries that wish to publish their reports should be allowed to do so. Directors supported publication of the staff report after deletion of references to individual countries. They agreed that a review of the safeguards policy should take place in three years, if not earlier,1 and suggested the involvement of external experts in the review process.

BUFF/02/43,

March 20, 2002, revised April 1, 2002

The Acting Chair’s Summing Up—Safeguards Assessments—Review of Experience; The Safeguards Policy—Independent Panel’s Advisory Report Executive Board Meeting 10/76, July 23, 2010

Executive Directors welcomed the opportunity to conduct this review, which marks the 10th anniversary of the Fund’s safeguards assessment policy. They noted that the policy, which was introduced in March 2000 and adopted as a permanent feature of Fund operations in March 2002, continues to be widely welcomed and yield positive results in an ever-changing central banking environment. Directors expressed their appreciation to the panel of experts for providing an independent appraisal of the safeguards process and noted the panel’s conclusions and recommendations.

Directors reiterated the continued effectiveness of the safeguards policy in helping mitigate the risks of misreporting and misuse of Fund resources, and maintaining the Fund’s reputation as a prudent lender. They observed the positive impact of the policy on central bank operations, evidenced by a continuing trend towards enhanced transparency and improved control systems by central banks assessed. Directors also noted that the policy has played an important role in the detection and resolution of cases involving misreporting and governance abuse, but stressed that safeguards assessments alone cannot be a panacea for governance abuse and control overrides.

Directors agreed that the existing framework for assessing and monitoring central banks’ operations remains broadly appropriate, and that the process of improving the safeguards policy needs to be continuous and sufficiently flexible to reflect evolving circumstances. Directors welcomed the panel’s recommendations to update the existing framework through a sharper focus on governance and risk management in the ELRIC framework that is used in conducting safeguards assessments and enhance collaboration with stakeholders, and broadly endorsed staff’s proposals in these areas. Directors also welcomed staff’s suggestions to increase information sharing and encouraged central banks to make further efforts to increase their self-assessments, where feasible.

Directors affirmed that existing policy requirements for the publication of financial statements that have been independently audited by high-quality firms in accordance with international standards and the deadline of the first program review for completion of a safeguards assessment remain broadly appropriate and should continue to be applied consistently. Directors welcomed the conclusion of the panel that the risk-based safeguards monitoring framework, introduced following the previous review, has been effective. Noting the importance of continued cooperation by central banks and their external auditors for maintaining the effectiveness of the monitoring framework, Directors agreed that instances of non-receipt of monitoring information be explicitly flagged in staff reports.

Directors noted that the current framework is focused solely on central banks and that replicating safeguards assessments across the whole of government for budget financing cases remains challenging. Against the backdrop of an increasing number of such cases recently, Directors welcomed the steps taken to ensure that an appropriate framework between the central bank and the state treasury is in place for timely servicing the member’s financial obligations to the Fund, and endorsed their application as a standard procedure under the existing safeguards framework. Many Directors encouraged staff to highlight fiscal safeguards risks in the staff reports involving budget financing, drawing on a variety of available diagnostic sources such as ROSC and PEFA reports. A number of Directors cautioned that this may not go far enough and encouraged exploration of a possible, more ambitious approach to conduct targeted safeguards assessments at the level of state treasuries, which would require a parallel assessment mandate and product.

Directors considered the confidentiality of safeguards assessment reports and options for dissemination of safeguards findings. They observed that the existing confidentiality of safeguards reports had served the due diligence aspects of the policy well, and should be retained. Directors broadly agreed that there is scope for wider dissemination of safeguards findings and welcomed the staff’s proposals to adapt the existing reporting format in safeguards and staff reports and to expand the annual activity reports to the Board. Directors also agreed that confidential briefings could be provided to donors, if requested, and with the consent of the central bank, and encouraged central banks to make their own efforts in disseminating safeguards findings.

BUFF/10/115,

July 29, 2010

The Acting Chair’s Summing Up—Safeguards Assessments—Review of Experience Executive Board Meeting 15/96, October 23, 2015

Executive Directors welcomed the opportunity to review the experience with the safeguards assessment policy since its last review in 2010. They noted that the policy, which became a permanent feature of Fund operations in March 2002, remains an integral part of the Fund’s overall risk management framework. Directors expressed their gratitude to the panel of experts for their independent perspective on the safeguards assessment policy and noted the panel’s recommendations for further refinements to the process.

Directors reiterated the importance of the safeguards assessment policy in helping to mitigate the risks of misreporting and misuse of Fund resources, and to maintain the Fund’s reputation as a prudent lender. They welcomed the findings that the policy has been applied appropriately and effectively met these objectives. Directors also observed that the safeguards process has helped central banks improve their control, audit, and reporting practices.

Directors considered that the existing framework for the assessment and monitoring of central banks’ governance and control mechanisms is broadly appropriate and flexible. They welcomed the proposed enhancements to keep pace with the evolving nature of safeguards risks, particularly the sharper focus on governance as an overarching principle of the safeguards framework. Directors also recognized the increasing importance of integrated risk management frameworks in strengthening institutions, and supported broadening coverage in this area, tailored to each central bank’s capacity.

Directors welcomed staff efforts to refine modalities for addressing safeguards risks in Fund arrangements involving budget financing. They agreed that fiscal safeguards reviews should be part of the safeguards assessment policy, and endorsed the proposals on the operational modalities for conducting such reviews. Given the scope and resource challenges, Directors supported the risk-based approach for fiscal safeguards reviews of state treasuries to be conducted for all arrangements where a member requests exceptional access to Fund resources, and at the time of program approval the member expects that at least 25 percent of the funds will be directed to financing the state budget. This approach would also apply when a member requests exceptional access during an arrangement, unless a fiscal safeguards review was completed within the previous 18 months. A few Directors felt that fiscal safeguards risks would be best addressed through targeted technical assistance, while a few others noted that countries accessing PRGT resources could also benefit from fiscal safeguards reviews.

Directors supported the risk-based streamlining proposals to achieve efficiency gains while preserving the fundamental objectives of the policy. They agreed to discontinue conducting update safeguards assessments for (i) augmentations of existing arrangements; (ii) successor arrangements where a safeguards assessment was completed no more than 18 months prior to the approval of the successor arrangement; or (iii) central banks with a strong track record, if the previous assessment was completed within the past four years and no substantial issues were identified in the prior assessment or subsequent monitoring. Directors also considered it appropriate to modify the monitoring framework to follow post-program monitoring practices. Once a member’s credit outstanding falls below the post-program monitoring threshold, the safeguards monitoring procedures will be limited to a review of annual external audit results, unless a country continues to be subject to post-program monitoring.

Directors concurred on the need to retain the confidentiality of safeguards reports. Noting that the Executive Board is informed about safeguards matters mainly through country staff reports, Directors endorsed the panel’s recommendation for greater consistency in presenting a summary of safeguards issues in these reports. They agreed that a summary paragraph should be consistently placed in the main body of the report and should include any significant recommendations on legislative amendments that involve parties external to the central bank, problems in obtaining access to data, and deviations from commitments relating to safeguards recommendations. Where broader engagement is deemed necessary to advance on amendments to central bank legislation, Directors encouraged staff to consult with key domestic players, in close collaboration with the central bank.

BUFF/15/94

October 28, 2015

Risk Acceptance Statements

1. The Executive Board reviewed the specific risk acceptance statements embedded in existing Fund’s policies and processes as set forth in SM/16/7, Rev. 3, 2/17/16 and considered them appropriate, in view of existing safeguards and given the Fund’s mandate.

2. The Executive Board endorsed the following overarching statement of the Fund’s risk acceptance:

The promotion of the stability of the international monetary system is the unifying theme that defines the scope and content of the diverse functions conferred upon the International Monetary Fund (hereafter referred to as “the Fund”) by the Articles of Agreement and guides its risk acceptance and tolerance levels. The Fund recognizes that there is an element of risk in any decision or activity it undertakes and seeks to ensure that strong safeguards are in place. Thus, the Fund strives to operate with the least level of risk but acknowledges that, in the conduct of its core functions-surveillance, lending, and capacity development-it may need to undertake activities that require a certain degree of risk acceptance, given their bearing on the Fund’s ability to fulfill its mandate. In particular, as the central institution for the international monetary system, the Fund monitors and limits accepted risks in its lending activities to ensure they remain within the boundaries of its legal and policy framework. Qualification requirements, program conditionality, and other program modalities provide important safeguards. Moreover, risks are further mitigated by the general recognition of the Fund’s preferred creditor status, the established remedial measures on overdue financial obligations to ’the Fund, and, ultimately, the Fund’s precautionary balances and burden sharing mechanism. Operationally risks are managed through defined processes and internal controls that emphasize the importance of integrity, maintaining high quality and diverse staff, and public accountability. Across its functions, the Fund recognizes the need to prudently adhere to the Fund’s medium-term strategic budget. In taking any decision, the Fund also weighs carefully the risks to its credibility and reputation with a view to furthering the effective pursuit of its mandate.”

3. The Executive Board approves the publication of the statement set forth in paragraph 2 of this decision.

Decision No. 15948-(16/15),

February 17, 2016

Credit Tranche Policies and Facilities

Stand-by Arrangements

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

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

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

Decision No. 12865-(02/102),

September 25, 2002,

as amended by Decision No. 14283-(09/29),

March 24, 2009

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

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

Annual Report of the Executive Directors,

1963, page 161

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

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

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

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

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

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

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

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

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

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

BUFF/02/59

April 9, 2001

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 four years. It would be expected that extended arrangements would be approved for periods not exceeding three years, although arrangements for up to four years may also be approved, where appropriate, and if the member so requests. Where appropriate, and at the request of the member, the period of an existing extended arrangement of less than four years may be lengthened up to the maximum duration of 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. 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(b)(iii) when necessary to permit purchases under this decision or to permit purchases under other policies that would raise the Fund’s holdings of a member’s currency above the limits referred to in that provision because of purchases outstanding under this decision.

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

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

7. The Fund will levy charges on holdings of a member’s currency resulting from purchases outstanding under this decision in accordance with the decisions of the Fund.

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 as needed in the light of experience, including in the context of periodic reviews of other GRA facilities and instruments.

Decision No. 4377-(74/114),

September 13, 1974,

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

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

8885-(88/89), June 6, 1988, 10182-(92/132), November 3, 1992,

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

12343-(00/117), November 28, 2000,

14287-(09/29), March 24, 2009, effective April 1, 2009, and

15113-(12-24), March 14, 2012

Stand-by and Extended Arrangements—Standard Forms

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

Decision No. 10464-(93/130), September 13, 1993,

as amended by Decision Nos. 14287-(09/29), March 24, 2009,

effective April 1, 2009,

14407-(09/105), October 26, 2009, and

15113-(12/24), March 14, 2012

Attachment A: Form of Stand-By Arrangement

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

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

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

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

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

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

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

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

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

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

(a) Subject to paragraph 2 of Decision No. 14407, during any period in which the data at the end of the preceding period indicate that:1

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

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

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

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

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

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

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

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

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

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

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

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

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

  • (ii) introduces or modifies multiple currency practices;1 or

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

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

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

4. (Member) will not make purchases under this stand-by arrangement during any period in which (Member): (i) has an overdue financial obligation to the Fund or is failing to meet a repurchase expectation in respect of a noncomplying purchase pursuant to Decision No. 7842-(84/165) on the Guidelines on Corrective Action, or (ii) is failing to meet a repayment obligation to the PRG Trust established by Decision No. 8759-(87/176) PRGT, as amended, or a repayment expectation to that Trust pursuant to the provisions of Appendix I to the PRG Trust Instrument.

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

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

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

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

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

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

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

Attachment B. Form of Extended Arrangement

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

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

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

(c) understandings of (member) with the Fund regarding reviews that will be made of progress in realizing the objectives of the program and of the policies and measures that the authorities of (member) will pursue for the subsequent 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 [up to four years] from ______ (member) will have the right to make purchases from the Fund in an amount equivalent to SDR ______ million, subject to paragraphs 2, 3, 4, and 5 below, without further review by the Fund.

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

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

(c) Until (end of third year) purchases under this extended arrangement shall not, without the consent of the Fund, exceed the equivalent of SDR ______ million.

(d) the right of (member) to make purchases during the subsequent years shall be subject to such phasing as shall be determined.

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

(a) Subject to paragraph 2 of Decision No. 14407, during any period in which the data at the end of the preceding period indicate that:1

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

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

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

  • (iv) [these provisions would incorporate other [quantitative or structural] performance criteria monitored at the end of the preceding period] [specified in [Tables 1, 2, 3 and 4] [paragraphs ____], respectively, of the [letter] [memorandum] is not observed; or

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

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

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

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

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

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

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

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

  • (ii) introduces or modifies multiple currency practices;1 or

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

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

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

4. (Member) will not make purchases under this extended arrangement during any period in which (member): (i) has an overdue financial obligation to the Fund or is failing to meet a repurchase expectation in respect of a noncomplying purchase pursuant to Decision No. 7842-(84/165) on the Guidelines on Corrective Action, or (ii) is failing to meet a repayment obligation to the PRG Trust established by Decision No. 8759-(87/176) PRGT, as amended, or a repayment expectation to that Trust pursuant to the provisions of Appendix I to the PRG Trust Instrument.

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

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

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

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

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

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

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

Completion of Reviews Under Stand-by and Extended Arrangements

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

Decision No. 12278-(00/86),

August 25, 2000

Flexible Credit Line (FCL) Arrangements

1. The Fund decides that resources in the credit tranches may be made available under a Flexible Credit Line (FCL) arrangement, in accordance with the terms and conditions specified in this Decision.

2. An FCL arrangement shall be approved upon request in cases where the Fund assesses that the member (a) has very strong economic fundamentals and institutional policy frame works, (b) is implementing—and has a sustained track record of implementing—very strong policies, and (c) remains committed to maintaining such policies in the future, all of which give confidence that the member will respond appropriately to the balance of payments difficulties that it is encountering or could encounter. In addition to a very positive assessment of the member’s policies by the Executive Board in the context of the most recent Article IV consultations, the relevant criteria for the purposes of assessing qualification for an FCL arrangement shall include: (i) a sustainable external position; (ii) a capital account position dominated by private flows; (iii) a track record of steady sovereign access to international capital markets at favorable terms; (iv) a reserve position that is relatively comfortable when the FCL is requested on a precautionary basis; (v) sound public finances, including a sustainable public debt position; (vi) low and stable inflation, in the context of a sound monetary and exchange rate policy framework; (vii) [a] sound financial system and the absence of solvency problems that may threaten systemic stability, or, for arrangements approved before May 21, 2014, the absence of bank solvency problems that pose an immediate threat of a systemic banking crisis; (viii) effective financial sector supervision; and (ix) data transparency and integrity.

3. In light of the qualification criteria set out in paragraph 2 of this Decision, and except for the review requirement specified in paragraph 5 of this Decision, FCL arrangements shall not be subject to performance criteria or other forms of ex-post program monitoring.

4. There shall be no phasing under FCL arrangements and, accordingly, the entire amount of approved access will be available to the member upon approval of an FCL arrangement. A member may make one or more purchases up to the amount of approved access at any time during the period of the FCL arrangement, subject to the provisions of this Decision. The Fund shall not challenge a representation of need by a member for a purchase requested under an FCL arrangement.

5. (a) The Fund may approve a member’s request for an FCL arrangement of either one year or two years duration. For FCL arrangements with a two-year duration, no purchase shall be made after one year has elapsed from the date of the approval of the FCL arrangement until an Executive Board review of the member’s policies has been completed. Such a review will assess the member’s continued adherence to the qualification criteria specified in paragraph 2 of this Decision, and would be scheduled with the objective of completion by the Executive Board immediately prior to the lapse of the one-year period referred to above.

(b) An FCL arrangement will expire upon the earlier of: (i) the expiration of the approved term of the arrangement; (ii) the purchase by a member of the entire amount of approved access under the FCL arrangement; or (iii) the cancellation of the FCL arrangement by the member. Upon expiration of an FCL arrangement, the Fund may approve additional FCL arrangements for the member in accordance with the terms of this Decision.

6. (a) The following procedures and arrangements for consultations with the Executive Board will apply following a member’s expression of interest in an FCL arrangement:

(i) Staff will conduct a confidential preliminary assessment of the qualification criteria set forth in paragraph 2.

(ii) Where support from other creditors is likely to be important in helping a member address its balance of payments difficulties, staff will consult with key creditors as appropriate.

(iii) Once management decides that access to Fund resources under this Decision may be appropriate, it will consult with the Executive Board promptly in an informal meeting. For this purpose, Executive Directors will be provided with a concise staff note setting out the basis on which approval could be recommended under this Decision, including (I) a rigorous assessment of the member’s actual or potential need for Fund resources and repayment capacity, and (II) an assessment of the impact of the arrangement on Fund liquidity in cases where it is contemplated that access would exceed 1000 percent of quota or SDR 10 billion, whichever is lower.

(iv) When the Managing Director is prepared to recommend approval of an FCL arrangement, the relevant documents, including (I) a written communication from the member requesting an FCL arrangement and outlining its policy goals and strategies for at least the duration of the arrangement as well as its commitment, whenever relevant, to take adequate corrective measures to deal with shocks that have arisen or that may arise, and (II) a staff report that assesses the member’s qualification for financial assistance under the terms of this Decision, will be circulated to the Board. An assessment of the impact of the proposed FCL arrangement on the Fund’s finances and liquidity position will be included in the staff report.

(v) The minimum periods applicable to the circulation of staff reports to the Executive Board shall apply to requests under this Decision, provided that the Executive Board will generally be prepared to consider a request within 48 to 72 hours after the circulation of the documentation in exceptional circumstances, such as an urgent actual balance of payments need.

(b) A member requesting an FCL arrangement would not be subject to the Fund’s policy on safeguards assessments for Fund arrangements. However, at the time of making a formal written request for an FCL arrangement, such a member requesting an FCL arrangement will provide authorization for Fund staff to have access to the most recently completed annual independent audit of its central bank’s financial statements, whether or not the audit is published. This will include authorizing its central bank authorities and the central bank’s external auditors to discuss the audit findings with Fund staff, including any written observations by the external auditors regarding weaknesses observed in internal controls. The member will be expected to act in a cooperative manner during such discussions with the staff. For as long as Fund credit is outstanding under this Decision, the member will also provide staff with copies of annual audited financial statements and management letters, together with an authorization to discuss audit findings with the external auditor.

7. The Emergency Financing Mechanism (EFM) procedures set forth in BUFF/95/102, 9/21/1995 shall not apply to requests for FCL arrangements.

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

9. Paragraph 1 of Decision No. 12865-(02/102), adopted September 25, 2002, shall be deleted, and Paragraph 2, 3 and 4 of the Decision shall be renumbered as Paragraph 1, 2 and 3, respectively.

10. [Deleted]1

Decision No. 14283-(09/29),

March 24, 2009.

as amended by Decision Nos. 14714-(10/83), August 30, 2010, and

15593-(14/46),

May 21, 2014

The Fund’s Financing Role—Reform Proposals on Liquidity and Emergency Assistance—Precautionary and Liquidity Line (PLL) Arrangements

1. The Fund decides that resources in the credit tranches may be made available under a Precautionary and Liquidity Line (PLL) arrangement, in accordance with the terms and conditions specified in this Decision.

2. (a) A PLL arrangement shall be approved upon request in cases where the Fund assesses that the member (i) has sound economic fundamentals and institutional policy frameworks, (ii) is implementing—and has a track record of implementing—sound policies, and (iii) remains committed to maintaining such policies in the future, all of which give confidence that the member will take the policy measures needed to reduce any remaining vulnerabilities and will respond appropriately to the balance of payments difficulties that it is encountering or might encounter.

(b) (i) In addition to requiring a generally positive assessment of the member’s policies by the Executive Board in the context of the most recent Article IV consultations, a member’s qualification for a PLL arrangement shall be assessed in the following areas (with the member being expected to perform strongly in most of these areas and not to substantially underperform in any of them):

(i) external position and market access, (ii) fiscal policy, (iii) monetary policy, (iv) financial sector soundness and supervision, and (v) data adequacy.

(b)(ii) With respect to arrangements to be approved after May 21, 2014, in assessing these five qualification areas specified in paragraph 2(b)(i), the Fund will in particular take into account the following nine criteria: (1) a sustainable external position; (2) a capital account position dominated by private flows; (3) a track record of steady sovereign access to international capital markets at favorable terms; (4) a reserve position that is relatively comfortable when the PLL is requested on a precautionary basis; (5) sound public finances, including a sustainable public debt position; (6) low and stable inflation, in the context of a sound monetary and exchange rate policy framework; (7) sound financial system and the absence of solvency problems that may threaten systemic stability; (8) effective financial sector supervision; and (9) data transparency and integrity. These nine criteria are specifically linked to the five qualification areas specified in paragraph 2(b)(i) as follows: (i) external position and market access, linked to qualification criteria (1)-(4); (ii) fiscal policy, linked to qualification criterion (5); (iii) monetary policy, linked to qualification criterion (6); (iv) financial sector soundness and supervision, linked to qualification criteria (7)-(8); and (v) data adequacy, linked to qualification criterion (9).

(c) Notwithstanding paragraph 2(b) above, the Fund shall not approve a PLL arrangement for a member facing any of the following circumstances: (i) sustained inability to access international capital markets, (ii) the need to undertake a large macroeconomic or structural policy adjustment (unless such adjustment has credibly been launched before approval), (iii) a public debt position that is not sustainable in the medium term with a high probability, or (iv) widespread bank insolvencies.

3. (a) The Fund may approve a member’s request for a PLL arrangement (i) with a duration of one to two years, or (ii) with a duration of six months in circumstances where the member has an actual or potential short-term balance of payments need such that it can generally be expected to make credible progress in addressing its vulnerabilities during the six-month period of the arrangement.

(b) PLL arrangements with a duration of one to two years shall have conditionality that includes indicative targets, as well as the standard performance criteria related to trade and exchange restrictions, bilateral payments arrangements, multiple currency practices and non-accumulation of external debt payments arrears as specified in paragraphs 3(d) and 3(b)(ii), respectively, of Attachment A of Decision No. 10464-(93/130), adopted September 13, 1993 as amended. The conditionality under these PLL arrangements may also include other performance criteria, prior actions and structural benchmarks where warranted under the Guidelines on Conditionality set forth in Decision No. 12864-(02/102), adopted September 25, 2002, as amended. PLL arrangements with a duration of one to two years shall provide for six-monthly reviews by the Executive Board to assess whether the member’s PLL-supported program remains on track to achieve its objectives based on relevant factors such as the member’s observance of performance criteria, indicative targets and structural benchmarks, as applicable; its continued adherence to the PLL qualification standard set forth in paragraphs 2(a) and 2(b) of this Decision; and its policy understandings for the future. Such reviews would be scheduled with the objective of completion by the Executive Board immediately prior to the lapse of each six-month period referred to above.

(c) The conditionality under PLL arrangements with a six-month duration shall include the standard performance criteria specified in paragraph 3(b) above and may also include prior actions where warranted under the Guidelines on Conditionality, but shall not include reviews or other forms of ex post conditionality.

4. (a) Subject to paragraphs 4(b) and 4(c) of this Decision, access to Fund resources under the PLL instrument shall be subject to a cumulative cap of 500 percent of quota, net of scheduled repurchases, which shall apply to all PLL arrangements regardless of duration.

(b) In addition to the PLL instrument access cap specified in paragraph 4(a) above, access under PLL arrangements with a duration of one to two years shall be subject to an annual access limit of 250 percent of quota (net of scheduled repurchases) applicable at the time of approval of such arrangements, and shall be subject to the following additional considerations:

(i) For one-year PLL arrangements approved for members not having an actual balance of payment need at the time of approval of the arrangement, the entire amount of approved access shall be available upon approval of the arrangement and shall remain available throughout the arrangement period, subject to completion of a six-monthly review as specified in paragraph 3(b) of this Decision. For PLL arrangements with a duration of one to two years approved for members not having an actual balance of payment need at the time of approval of the arrangement, purchases shall be phased, with an initial amount not in excess of 250 percent of quota being available upon approval of the arrangement and the remaining amount being made available at the beginning of the second year of arrangement, subject to completion of the relevant six-monthly reviews specified in paragraph 3(b) of this Decision.

(ii) For PLL arrangements with a duration of one to two years approved for members that are facing an actual balance of payments need at the time of approval of the arrangement, purchases shall be phased, with an initial amount being available upon approval of the arrangement and the remaining amounts being made available at semi-annual intervals, subject to completion of the relevant six-monthly reviews specified in paragraph 3(b) of this Decision.

(c) In addition to the PLL instrument access cap specified in paragraph 4(a) above, the following access limits and additional considerations shall apply to six-month PLL arrangements:

(i) A per arrangement limit of 125 percent of quota, net of scheduled repurchases, shall normally apply to six-month PLL arrangements, with the entire amount of approved access being available to the member upon approval of the arrangement and remaining available throughout the arrangement period.

(ii) A per arrangement limit of 250 percent of quota, net of scheduled repurchases, shall apply to six-month PLL arrangements in exceptional circumstances where a member is experiencing or has the potential to experience short-term balance of payments needs that exceed the 125 percent of quota limit specified in paragraph 4(c) (i) above due to the impact of exogenous shocks, including heightened regional or global stress conditions. Accordingly, the Fund may in these circumstances, and on a case-by-case basis, approve a new six-month PLL arrangement or augment access under an existing six-month PLL arrangement up to this higher limit, with the entire amount of approved access being available to the member upon approval of the arrangement or, in the case of augmentations, upon completion of an ad hoc review under paragraph 4(d) below, and remaining available throughout the arrangement period.

(iii) Total access to Fund resources under all six-month PLL arrangements shall in no event exceed a cumulative six-month PLL arrangement access limit of 250 percent of quota, net of scheduled repurchases.

(d) Subject to the PLL instrument access cap specified in paragraph 4(a) above and, for six-month PLL arrangements, subject to the limits specified in paragraph 4(c) above, the Fund will stand ready to consider a member’s request to make additional amounts available under any PLL arrangement. The Fund will also stand ready to rephase access under PLL arrangements with a duration of one to two years. Such augmentation or rephasing of access shall be considered in the context of a scheduled or ad hoc review in which the Fund assesses the member’s actual or potential need for Fund resources and the extent to which the PLL-supported program remains on track to achieve its objectives based on the factors specified for six-monthly reviews in paragraph 3(b) of this Decision.

5. (a) A PLL arrangement will expire upon the earlier of: (i) the expiration of the approved term of the arrangement, (ii) the purchase by a member of the entire amount of approved access under the PLL arrangement, or (iii) the cancellation of the PLL arrangement by the member.

(b) Upon the expiration of a PLL arrangement, the Fund may on a case-by-case basis approve additional PLL arrangements with a duration of one to two years for the member in accordance with the terms of this Decision, including the provisions on qualification and use of prior actions where warranted.

(c) Following the expiration of a six-month PLL arrangement, the Fund may on a case-by-case basis approve additional six-month PLL arrangements for the member in accordance with the terms of this Decision, including the provisions on qualification and use of prior actions where warranted, if either (i) at least two years have elapsed since the approval of the most recent six-month PLL arrangement, or (ii) the member’s balance of payments need is longer than originally anticipated due to the impact of exogenous shocks, including heightened regional or global stress conditions, provided that not more than one additional six-month PLL arrangement may be approved under the circumstances specified in this clause (ii).

6. The following procedures and arrangements for consultations with the Executive Board will apply following a member’s expression of interest in any PLL arrangement:

(a) Staff will conduct a confidential preliminary assessment of the qualification criteria set forth in paragraph 2 of this Decision.

(b) Once management decides that access to Fund resources under this Decision may be appropriate, it will consult with the Executive Board promptly in an informal meeting. For this purpose, Executive Directors will be provided with a concise note setting out the basis on which approval could be recommended under this Decision, including a preliminary assessment of the member’s qualification for the PLL, an initial discussion of the key policy areas where policy actions might be sought and an assessment of the member’s actual or potential need for Fund resources and repayment capacity.

7. A member may make one or more purchases up to the amount available under a PLL arrangement, subject to the provisions of this Decision. The Fund shall not challenge a representation of need by a member for a purchase requested under a PLL arrangement.

8. Phasing and performance clauses shall be omitted in any PLL arrangement in the first credit tranche. They will be included in other PLL arrangements where specified under the terms of this Decision, but will apply only to purchases outside the first credit tranche.

9. In requesting a PLL arrangement, the member shall submit a concise written communication outlining its policy goals and strategies for at least the duration of the arrangement as well as measures aimed at addressing its remaining vulnerabilities, together with a quantified macroeconomic framework. Where PLL arrangements with a duration of one to two years are requested, such a framework shall be underpinned by a streamlined set of indicative targets, and where warranted, structural benchmarks and performance criteria. For six-month PLL arrangements, the member shall commit to undergo a safeguards assessment, provide staff with access to its central bank’s most recently completed external audit reports and authorize its external auditors to hold discussions with Fund staff. The timing and modalities for the safeguards assessment for members with a six-month PLL arrangement would be determined on a case-by-case basis, but normally the safeguards assessment would need to be completed before Executive Board approval for the member of any subsequent arrangement to which the Fund’s safeguards assessments policy applies.

10. 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.

11. All arrangements under Decision No. 14715-(10/83), adopted August 30, 2010 on Precautionary Credit Line Arrangements, that are in force on the effective date of this Decision shall be renamed Arrangements under the Precautionary and Liquidity Line, and shall be subject to the terms of this Decision.

12. The term “PCL” in Decision No. 14064-(08/18), adopted February 22, 2008, as amended, on access policy and limits in the credit tranches, is revised to read “PLL”; and the terms “Precautionary Credit Line” and “PCL” in Decision No. 14745-(10/96), adopted September 28, 2010 on Article IV consultation cycles, are revised to read “Precautionary and Liquidity Line” and “PLL,” respectively.

13. Decision No. 7925-(85/38), adopted March 8, 1985, as amended, on the relationship between performance criteria and phasing under GRA arrangements, shall not apply to PLL arrangements.

14. Decision No. 14715-(10/83), adopted August 30, 2010 on Precautionary Credit Line Arrangements is hereby repealed. (SM/11/284, Sup. 3, 11/22/11)

Decision No. 15017-(11/112),

November 21, 2011,

as amended by Decision Nos. 15594-(14/46), May 21, 2014, and

15942-(16/14),

February 17, 2016

The Fund’s Financing Role—Reform Proposals on Liquidity and Emergency Assistance—Review of Decisions on FCL Arrangements and PLL Arrangements

1. It is expected that the decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/29), adopted March 24, 2009, as amended, will be reviewed by the Fund no later than three years after the date of the adoption of this Decision.

2. It is expected that the decision on Precautionary and Liquidity Line Arrangements, Decision No. 15019-(11/112), adopted November 21, 2011, will be reviewed by the Fund no later than one year after the date of the adoption of this Decision.

3. Notwithstanding Paragraphs 1 and 2 above, the decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/29), adopted March 24, 2009, as amended, and the decision on Precautionary and Liquidity Line Arrangements, Decision No. 15019-(11/112), adopted November 21, 2011, will be reviewed jointly by the Fund whenever aggregate outstanding credit and commitments under these two Decisions reach SDR 150 billion. (SM/11/284, Sup. 3, 11/22/11)

Decision No. 15019-(11/112),

November 21, 2011

The Chairman’s Summing Up—Review of the Flexible Credit Line and Precautionary Credit Line; The Fund’s Financing Role—Reform Proposals on Liquidity and Emergency Assistance Executive Board Meeting 11/112, November 21, 2011

The Executive Board today adopted decisions to further strengthen the Fund’s General Resources Account (GRA) lending toolkit, by establishing the Rapid Financing Instrument (RFI) and the Precautionary and Liquidity Line (PLL), the latter in place of the Precautionary Credit Line (PCL). The decisions were informed by the first review of the Flexible Credit Line (FCL) and PCL, which was also completed by Executive Directors today.

Review of the FCL and PCL

Most Directors endorsed the main findings of the review of the FCL and PCL. They welcomed, in particular, that these instruments have provided valuable insurance and helped boost market confidence during a period of heightened risks. The limited use of these instruments reflects in part a preference for self-insurance, remaining perceptions of stigma associated with Fund financing, and concerns over perceived lack of flexibility. Directors welcomed staff recommendations that could help address these concerns.

Directors supported the staff’s proposals to enhance transparency in the assessments of access under FCL and PLL arrangements, which would facilitate comparison and evenhandedness across arrangements. At the same time, they recognized that there would need to be a degree of judgment in determining the level of access, with due consideration of country-specific factors. In this context, Directors saw merit in linking the assessment of balance of payments needs in each case more closely with adverse scenarios, which would, among others, help guide reserve use assumptions—carefully anchored on measures of reserve needs that are relevant for the particular country.

With regard to qualification, Directors generally supported the proposed greater focus on qualitative and forward-looking factors embedded in the FCL/PLL qualification frameworks, including through increased reliance on the most recent Article IV consultations and Financial Sector Assessment Program assessments. Directors also noted that in-house vulnerability analyses could provide a useful input into the process, and called for care to be taken to ensure transparency and clarity in the qualification analysis.

Directors noted that access under the FCL and PLL instruments is a temporary supplement to reserves during periods of heightened risks. They reaffirmed the normal expectation of reduced access under successor FCL arrangements as set forth BUFF/10/125, and agreed that the same expectation would also be applicable to successor PLL arrangements. Discussing the country’s external risks and exit expectations in staff reports requesting FCL and PLL arrangements should help promote timely exit. A number of Directors nevertheless preferred more clearly articulated exit strategies, while a few others cautioned that excessive rigidity could undermine the objectives of these instruments. A number of Directors saw scope for considering stronger price-based incentives to discourage prolonged and large precautionary arrangements, with some requesting that staff develop concrete proposals for Board consideration.

Rapid Financing Instrument

Directors supported the establishment of the RFI, replacing the current emergency assistance policy for post-conflict situations and natural disasters with a streamlined and more flexible instrument within the credit tranches, consistent with the spirit of the recent GRA reforms. They underscored that, in the absence of a requirement for upper credit tranche-quality policies, the safeguards embedded in the RFI’s design would need to be strictly implemented. Directors confirmed that members could obtain RFI financing to address urgent balance of payments needs that, if not addressed, would result in an immediate and severe economic disruption, so long as the other requirements for RFI financing were met. They noted that they would expect this instrument to be used mainly to address exogenous shocks, and in post-conflict and other fragile situations.

Directors noted that, despite the repeal of Emergency Natural Disasters Assistance (ENDA) and Emergency Post-Conflict Assistance (EPCA), existing holdings of the member’s currency resulting from purchases under these instruments would remain subject to their current financing terms. Some Directors expressed concern about the potential impact on vulnerable members of credit tranche surcharges that could be applied when access under the RFI is combined with large access under another instrument or facility, whereas surcharges were not applicable to purchases under the ENDA and EPCA. They welcomed the intention to monitor and address this issue, if necessary, at the time of the first review of the RFI decision.

Precautionary and Liquidity Line

Directors considered the PLL proposal to allow Fund financing of members with an actual balance of payments need at the time of approval of the arrangement, and allow six-month arrangements to meet short-term balance of payments needs. A range of views were expressed, including on the limited experience with the PCL, the risk of tiering of the Fund’s membership, the appropriate access levels, and the similarity to Stand-By Arrangements. Nevertheless, in a spirit of compromise, most Directors viewed the reform as a practical step to enhance the flexibility, usefulness, and coherence of the toolkit, while preserving adequate safeguards.

Directors underlined the importance of appropriate ex ante and ex post conditionality. They emphasized that the specific type of ex post conditionality under a PLL arrangement with a duration of one year or longer should be determined on a case-by-case basis in accordance with the Guidelines on Conditionality, taking into account the country’s remaining vulnerabilities.

Directors urged careful qualification assessments, including explicit consideration of the suitability of the duration of the arrangement relative to the member’s balance of payments need and remaining vulnerabilities. With regard to six-month arrangements, the requirement is that the 250 percent access limit would not be exceeded except in exceptional circumstances where the member faces a balance of payments need that is of a short-term nature and results from the impact of exogenous shocks, including heightened regional or global stress conditions whose occurrence would be expected to be rare. Directors noted that determining, as well as communicating, the impact of heightened stress conditions would require extra care. A few Directors also noted that a member drawing on a six-month PLL arrangement would be expected normally, as its balance of payments and reserve position improves, to effect an early repayment of these drawings. Directors welcomed the procedures for early Board involvement that would be applicable to all PLL arrangements, irrespective of access or duration.

Directors noted the staff’s assessment that the proposed reforms may increase upfront calls on Fund resources, but that the net effect is likely to be relatively limited. They looked forward to a timely discussion of the adequacy of Fund resources and greater clarity on the Fund resource envelope that would be required to meet potential financing needs across the membership.

BUFF/11/148,

December 2, 2011

The Chairman’s Summing Up—Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument Executive Board Meeting 14/15, February 14, 2014

Executive Directors welcomed today’s discussion of the review of the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Rapid Financing Instrument (RFI). They considered that the FCL and the PLL have both provided valuable insurance to members against external shocks and helped boost market confidence during a period of heightened risks. They broadly agreed that the FCL, PLL, and RFI should remain in the Fund’s lending toolkit, which is an important component of the strengthened global financial safety net. At the same time, they saw scope for further refinements, and welcomed efforts to enhance their effectiveness, transparency, and attractiveness while also preserving the revolving nature of the Fund’s limited resources.

Directors noted that the relatively modest use of the FCL and the PLL reflected a continued preference for self-insurance, including through reserve accumulation, by many members and remaining perceptions of stigma associated with Fund financing in general. They generally agreed that effective communication, through outreach to a broader group of stakeholders, would help improve the public perception of the Fund. As regards other options to address the perceived stigma problem, there was interest in further work on modalities for Fund engagement with other providers of international liquidity support, although some skepticism remained. Additional work in these areas, if pursued, would need to examine carefully the benefits and the practicality of each approach.

Directors generally concurred that FCL qualification decisions in individual cases to date have been broadly satisfactory, but recognized the inherent challenge in identifying the minimum standard needed to meet the PLL qualification requirements in practice. For the purpose of comparability across arrangements, most Directors saw merit in aligning the areas for qualification assessments between the FCL and the PLL, while maintaining the different qualification standards for each of these instruments as under the current policies. In doing so, however, they stressed the need to preserve the high standards of the FCL, and for this reason many preferred to enhance the richness and granularity of PLL qualification assessments along the lines of FCL qualification criteria. A number of Directors were not convinced that unifying the qualification areas would help improve the predictability and transparency of assessments between the two instruments. A few also noted that the intrinsic difficulty in differentiating between PLL and high-access precautionary Stand-By Arrangements warrants further consideration.

Most Directors were open to the idea of developing selected indicators of institutional strength to complement existing quantitative indicators of qualification, while also emphasizing that judgment should continue to play a central role in all qualification assessments. However, others saw difficulties in establishing an index and cautioned against ranking countries based on a quantitative index in areas where the Fund has little expertise. Directors reaffirmed the importance of concluding Article IV consultations prior to FCL and PLL arrangements’ approvals or reviews so as to incorporate the Board’s most recent assessment of a member’s economic performance in the relevant qualification assessments.

Regarding conditionality in PLL arrangements, many Directors saw scope for greater use of targeted ex post conditionality to address remaining vulnerabilities of PLL users, in accordance with the Guidelines on Conditionality. A few Directors expressed a concern that increased use of ex post conditionality could undermine the signaling effect of the PLL and further weaken its attractiveness.

Directors reiterated that FCL and PLL support provides a temporary supplement to reserves during periods of heightened external risks, and that countries making use of these resources are expected to exit in a timely manner. Many Directors, concerned about undue repeated use of the FCL, saw merit in further work on stronger incentives to encourage timely exit, such as time-based commitment fees, with a few suggesting also a time limit on the use of the FCL or the PLL. Many other Directors saw no compelling evidence of problems with exit, noting that countries should be allowed access to FCL and PLL resources as long as they meet the qualification criteria and that decisions to exit should depend on the state of the external environment facing the member. Directors concurred that one way to address concerns about exit stigma is by clearly articulating exit strategies in staff reports, laying out the authorities’ specific measures to strengthen resilience together with a communication plan.

Directors underscored that assessing external risks remains an important aspect in access and exit discussions. In this regard, most Directors considered that an indicator of external stress, along the lines proposed by staff, would be a useful innovation to strengthen the discussion of a country’s external risks in staff reports for requests for, or reviews under, FCL and PLL arrangements, which would help inform decisions. A few Directors were not in favor of a mechanistic approach to assessing risks, stressing that the focus should continue to be on qualitative and forward-looking factors. Some Directors stressed the need to build up strong buffers, including a prudent accumulation of reserves where needed, as part of the exit process. Directors looked forward to additional work in these areas, as well as further elaboration in the staff guidance note on the use of reserves in adverse scenarios. In this context, some Directors called for caution when applying the reserve adequacy metric in access discussions.

With regard to the RFI, most Directors supported keeping the current access limits unchanged. A number of Directors could consider raising the limits to make the instrument more useful to Fund members experiencing large shocks.

Directors generally agreed that the current approach of full scoring of precautionary arrangements in the forward commitment capacity remains appropriate, providing important assurance that committed resources will be available to the membership in all circumstances. A few others were open to considering some flexibility in their treatment, given the low probability of drawing under these arrangements.

In light of today’s discussion, staff will return to the Board in coming months with further analysis and proposals to enhance transparency and predictability in qualification assessments and access and exit discussions, including the unification of the criteria for assessing FCL and PLL qualification, as well as indicators of institutional strength and external stress. Directors will take stock in three years’ time, or sooner if necessary, of experience with the use of the FCL, PLL, and RFI, and assess the need for a comprehensive review of each of these instruments, including a review of commitment fees, at that time.

BUFF/14/17

February 20, 2014

Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument—Next Review

1. It is expected that the experience with the use of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument will be considered no later than three years after May 21, 2014 with a view to assessing the need for a comprehensive review of each of these instruments, including a review of commitment fees.

2. Notwithstanding Paragraph 1 above, the decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/29), adopted March 24, 2009, as amended, and the decision on Precautionary and Liquidity Line Arrangements, Decision No. 15017-(11/112), adopted November 21, 2011, will be reviewed jointly by the Fund whenever aggregate outstanding credit and commitments under these two Decisions reach SDR 150 billion. (SM/14/113, 05/01/14)

Decision No. 15596-(14/46),

May 21, 2014

Statement by the Staff Representative on the Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument—Specific Proposals Executive Board Meeting, June 11, 2014

This statement provides additional explanatory information on the redlined Annex I presented in SM/14/113, Supplement 2.

1. ARA metric. The addition of the ARA metric in paragraph 5, 4th bullet was aimed simply at reflecting its increasing operational use as one of several tools for measuring reserve adequacy in FCL- and PLL-related staff reports. Indeed, all recent staff reports for current FCL and PLL users show or discuss the ARA metric as one of the tools to measure reserve adequacy. The recent Board paper on the Review of the FCL, PLL, and RFI (SM/14/36, 1/28/14) and the 2011 Review of the FCL and PLL (SM/11/288, 11/1/11) referred to this metric specifically as one possible measure to determine reserve adequacy for access discussions. Thus, the language in the redlined Annex I (“Assessments of reserve levels would take into account a number of metrics (imports, short-term debt, monetary base, ARA metric) as relevant given the member’s exchange rate regime”) aimed only at including a reference to this metric as another tool for measuring reserve adequacy without giving it any different role from other measures of reserve adequacy also listed in the Annex.

2. Indicators of institutional strength. Under existing FCL and PLL policies, the Fund has to assess a member’s institutional strength to determine whether it meets the relevant FCL or PLL qualification standards. For this purpose, to inform its judgment, the Fund has already been using a range of indicators that are associated with the relevant qualification criteria as set forth in the Annex to SM/09/69 (the 2009 Annex I) and in the FCL and PLL Operational Guidance Notes (SM/12/114 and SM/12/115). As the staff report (SM/14/113) noted, the proposed new indicators aim to complement the existing indicators of institutional strength. The report categorizes these new indicators by policy area related to corresponding qualification criteria (paragraph 17, footnote 8). This is consistent with the grouping of indicators under the FCL qualification criteria in the 2009 Annex I. In line with this, staff considered it appropriate to show the new indicators that inform judgment on institutional strength with respect to fiscal and monetary policy cyclicality in the same paragraphs where the existing indicators relating to these two policy areas are contained. The other proposed indicators to inform judgment on institutional strength that cannot be directly tied to specific policy areas were presented separately under paragraph 6 in the redlined Annex I. As discussed in the staff report, all these indicators are meant to complement those already used to help inform the qualification assessment process, and are not a substitute for the judgment of the Board and the staff.

BUFF/14/49,

June 5, 2014

The Acting Chair’s Summing Up—Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument—Specific Proposals Executive Board Meeting 14/46, May 21, 2014

Executive Directors welcomed the discussion of specific proposals to enhance the Flexible Credit Line (FCL) and the Precautionary and Liquidity Line (PLL), completing the review of these instruments, as well as that of the Rapid Financing Instrument (RFI), which began in February. They considered the proposals aimed at improving the transparency and predictability of qualification assessments and further informing access and exit discussions, which are central to the use of the FCL and PLL instruments.

Directors generally supported the proposal for aligning the qualification criteria for the FCL and the PLL through the adoption of the nine specific FCL criteria to assess PLL qualification. At the same time, they supported retaining the requirement of strong performance in most of the five broad qualification areas for the PLL. A number of Directors saw the benefits of precise, detailed assessments against each of the nine criteria in enhancing the richness and transparency of assessments, as well as comparability across arrangements. A few Directors noted that improving transparency requires a change in implementing the qualification framework rather than modifying the qualification criteria themselves.

Most Directors supported strengthening the bank solvency qualification criterion so that it is based on the soundness of the overall financial system and the absence of solvency problems that may threaten systemic stability. A few Directors pointed to the practical difficulties in conducting a comprehensive assessment of the financial system in a short timeframe.

Most Directors concurred with the use of additional indicators of institutional strength outlined in the paper to complement the existing quantitative indicators already used in qualification assessments for FCL and PLL arrangements. At the same time, they underlined that these indicators, when considered, would not constitute a new criterion or be used mechanistically, but could help inform the judgment made by Fund staff when assessing institutional policy frameworks for qualification for these instruments. These Directors urged staff to exercise caution and judgment in using these indicators, given the subjectivity of third-party data and the need to take account of country-specific circumstances and policy regimes. A number of Directors remained unconvinced of the usefulness of the proposed indicators, which, in their view, have conceptual and methodological shortcomings, including limited empirical evidence supporting the choice of proxies and use of data that are outside the Fund’s core areas of expertise, while a few also noted their limited applicability given members’ specific conditions. A few Directors expressed particular concern about the appropriateness of relying on the indicators developed by the International Country Risk Guide, and could not support using them in FCL or PLL qualification assessments.

Most Directors endorsed the proposal to use an external stress index in future FCL and PLL staff reports to inform the discussion of the external environment facing a member. They concurred that, while this index would provide a richer backdrop for the Board to discuss access and exit prospects, final decisions should continue to reflect broader considerations. Most Directors agreed that country teams should have the responsibility of constructing this index, following consultations with country authorities. They underscored, however, that the choice of index should be justified in a thorough manner, with many also noting the desirability of striking the right balance between flexibility that allows for country-specific considerations and standardization that ensures evenhandedness and consistency over time. Some Directors saw scope for further improving the methodological robustness of the index, including by incorporating more forward-looking elements to capture potential risks.

Directors looked forward to continuing the discussion on access limits, as well as revisiting issues related to exit strategies at the next opportunity. In this context, a number of Directors would have preferred a more thorough discussion of exit issues in the current review and continued to call for stronger incentives to discourage prolonged large precautionary arrangements, including commitment fees. In line with the general view held at the February Board discussion, a few Directors underscored that all staff reports for members using the FCL or the PLL should include a clear exit strategy and a well-articulated communication plan. A few Directors reiterated their interest in considering greater use of ex post conditionality as a way to address remaining vulnerabilities in PLL users. Many Directors reiterated their call for raising RFI access limits, which will be considered carefully in the follow-up discussion on policies regarding access limits and surcharges.

In adopting decisions amending the FCL and the PLL instruments, Directors broadly supported the proposal for the alignment of the qualification criteria for the FCL and the PLL and the amendment of the bank solvency criterion to become effective for new arrangements immediately. Most Directors also generally supported implementing the proposals on the use of indicators of institutional strength and the index of external stress from September 1, 2014, allowing staff time for adequate preparations and discussions with relevant country authorities. At the request of a few Directors, staff would re-circulate Annex I in a form that identifies the modifications to the existing annex that are needed in light of the decisions adopted by the Executive Board today, and the Board would have an opportunity to discuss these modifications in a subsequent meeting on June 11. As agreed at the meeting in February, Directors will review the experience with the use of the three instruments within three years, although a number of Directors expressed a preference for the next review to be conducted earlier than three years.

BUFF/14/50

June 12, 2014

The Acting Chair’s Summing Up—Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument—Specific Proposals—Annex Executive Board Meeting 14/53 June 11, 2014

Executive Directors discussed Annex I of the May 2014 Board paper on the Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument—Specific Proposals (SM/14/113 and Supplement 2). Most Directors broadly supported the presentation of the FCL and PLL Qualification Assessment Framework, as elaborated in Annex I.

Most Directors supported the presentation of indicators of institutional strength in Annex I, stressing that staff should exercise judgment when using these indicators and in consultation with authorities. A number of Directors remained unconvinced of the proposal to use additional indicators, which in their view have methodological shortcomings. Reflecting these and other concerns, and following further discussion, Directors agreed not to endorse the International Country Risk Guide indicators. Given the concern by some Directors about the placement of the indicators on fiscal and monetary policy cyclicality under the relevant qualification criteria, Directors could go along with moving these indicators to paragraph six of the Annex where the new institutional strength indicators are described.

Most Directors supported the inclusion of the metric for assessing the adequacy of reserves (ARA metric) in Annex I, acknowledging its increasing use in past documents along with other measures of reserve adequacy. A few Directors had reservations, on grounds that this addition was not explicitly discussed in the main text of the May 2014 Board paper. These Directors cautioned that the ARA metric should not substitute for an in-depth country-specific analysis of reserve adequacy.

BUFF/14/56

June 18, 2014

Omnibus Paper on Easing Work Pressures

Decision A. Lapse of Time Procedures for Completion of Program Reviews

The Fund decides to approve the lapse of time procedures for completion of program reviews set forth in the Attachment to this Decision. The presumption set forth in paragraph 2 of the Attachment will come into effect for program reviews for which a Policy Consultation Meeting is held after the date of this Decision. The provisions of Decision No. 14003-(07/107), December 6, 2007, shall continue to apply to cases where a Policy Consultation Meeting was undertaken prior to the date of this Decision but where the relevant review has yet to be completed. Decision No. 14003-(07/107) shall lapse upon the earlier of the completion of the last review to which Decision No. 14003-(07/107) applies or January 31, 2010.

Attachment to Decision A Lapse of Time Completion of Program Reviews

1. The completion of a program review under a Fund arrangement on a lapse of time basis may be proposed by the Managing Director with the approval of the Executive Director for the member concerned, or by the Executive Director for the member concerned, in accordance with the procedures set forth herein.

2. Eligibility: Completion of a program review on a lapse of time basis will be presumed where all of the following conditions apply: (i) the relevant arrangement does not involve exceptional access; (ii) the most recent program review under the relevant arrangement was not concluded on a lapse of time basis; (iii) the relevant review is to be completed under an ECF or an SCF arrangement and does not take place immediately after the completion of an ad-hoc review under an ECF or SCF arrangement pursuant to Section II, paragraph 2(h) of the PRGT Instrument; (iv) the review to be completed does not raise general policy issues requiring Board discussion; (v) all prior actions for the review have been met; (vi) the review does not introduce major changes in the objectives or design of the program, including but not limited to, major changes in conditionality for future reviews, the combination of future reviews envisaged under the arrangement, the rephasing of disbursements, or an augmentation of access other than an augmentation of access not exceeding 25 percent1 of a member quota approved pursuant to Section II, paragraph 2(h) of the PRGT Instrument; and (vii) performance under the member’s program does not raise concerns as to whether the review should be completed, in particular as a result of deviations, other than minor deviations, from the quantitative performance criteria and structural benchmarks. Where these conditions are not met, a program review would not be eligible for completion on a lapse of time basis.

3. Procedures for Proposing Lapse of Time:

(a) By the Managing Director: The Managing Director’s proposal for completion of a program review on a lapse of time basis will be made at the time of circulation of the staff paper for the review to the Executive Board. The cover memorandum for the circulated staff paper will: (i) include a deadline for Executive Directors to object to a proposal by the Managing Director for lapse of time completion that is consistent with paragraph 4 below; (ii) specify the date upon which the decision will become effective if no objection to the proposal for lapse of time completion is received; (iii) specify a reserved date, consistent with minimum circulation periods for program reviews, for discussion if an Executive Director objects to the proposal for lapse of time consideration; and (iv) explain the reasons why lapse of time completion is warranted. Should the Managing Director judge that a member meets the lapse of time criteria, but the Executive Director for the member concerned does not approve, the cover memorandum circulating the staff paper would include a notation to this effect.

(b) By the Executive Director for the Member Concerned: The Executive Director for the member concerned may propose the completion of a program review on a lapse of time basis no more than two business days after the issuance of the staff paper for the program review to the Executive Board, and preferably, as soon as possible after the circulation of the staff paper. A notification from the Executive Director for the member concerned proposing lapse of time completion of a program review will be issued to the Executive Board and shall: (i) include a deadline for Executive Directors to object to the proposal for lapse of time completion that is consistent with paragraph 4 below; (ii) specify the date upon which the decision will become effective if no objection to the proposal for lapse of time completion is received; (iii) specify a reserved date, consistent with minimum circulation periods for program reviews, for discussion if an Executive Director objects to the proposal for lapse of time consideration; and (iv) set out the reasons presented by the Executive Director for the member concerned as to why lapse of time completion is warranted

4. Objections: An Executive Director may object to a proposal for lapse of time completion of a program review no later than five business days after the issuance of the staff paper for the program review to the Executive Board, and need not state the reason for such objection. Whenever an Executive Director objects to completion of a program review on a lapse of time basis, the staff paper for the program review shall be discussed by the Executive Board on the date that has been reserved for discussion, consistent with the minimum circulation guidelines for staff papers for program reviews.

5. Effective Date of Review: If no objection is received to a proposal for a lapse of time completion of a program review during the period in which such objections may be made, the proposed decision(s) associated with the program review will be approved with effect on the date of effectiveness stated in the cover note described in paragraph 3 above. (SM/09/213, Sup. 3, 08/31/09)

Decision B. Ex-Post Evaluations

The Fund decides, with effect from the date of this decision, to approve the proposal to allow multi-country ex-post evaluations, as set forth in paragraph 6 of SM/09/213, August 5, 2009.

Paragraph 6 of SM/09/213

“6. It is proposed that ex post evaluations be conducted on a multi-country basis where feasible (e.g., after a global shock), thus also facilitating cross-country comparison. These assessments would involve cross-country analyses of whether justifications presented at the outset of the programs were consistent with Fund policies and review performance under the programs.1 Consistent with the current guidelines, the cross-country analyses would also assess the appropriateness of the policy response—including the mix of financing and adjustment—based on the outturn. In line with BUFF/02/159, these assessments would be completed—approved by management for circulation to the Board—within a year of the end of the arrangements.”

Decision C. Ex-Post Assessments

[Repealed].2

Decision D. Procedural Deadlines for Completing Article IV Consultations

The last sentence of paragraph 17 of Decision No. 13919-(07/51), June 15, 2007 shall be amended to read as follows:

“It is expected that no later than sixty-five days after the termination of discussions between the member and the staff, the Executive Board will reach conclusions and thereby complete the consultation under Article IV, except in the case of consultations with members eligible for financing under the Poverty Reduction and Growth Facility identified in Decision No. 8240-(86/56), SAF, adopted March 26, 1986, as amended, where it is expected that the Executive Board will reach conclusions no later than three months from the termination of discussions between the member and the staff.”

Decision E. Procedural Deadlines for Completing Policy Reviews

The Fund decides, with effect from the date of this decision, to approve the proposal to convert mandatory deadlines for the completion of policy reviews into expectations, as set forth in paragraph 16 of SM/09/213, August 5, 2009. Accordingly, reviews of Fund policies shall henceforth be expected to be completed by the deadlines specified in relevant Executive Board decisions. These decisions are hereby amended accordingly.

Paragraph 16 of SM/09/213

“16. Deadlines for policy papers. It is proposed to extend the proposal to policy papers, eliminating the need for formal decisions in the event papers are not discussed by the original deadline. While formal decisions on the timing of policy reviews give the Board some confidence that a certain timeframe will be respected, they do entail a nonnegligible administrative cost. Often, the delay is minor or results from a request from the Board. In practice, the Board has never refused to grant such extensions. Further, the monthly meetings on the calendar now give more control to the Board over the work program, such that casting deadlines as expectations rather than obligations would seem to have few, if any, downsides.”

Decision F: Review of Experience

It is expected that the experience with the Decisions set forth in SM/09/213, Sup. 3 will be reviewed by no later than August 27, 2011. (SM/09/213, Sup. 3, 8/31/09)

Decision A-13207 (08/28/09),

August 28, 2009,

as amended by Decision Nos. 14766-(10/115), November 29, 2010,

15355-(13/32), April 8, 2013,

15481-(13/103), November 11, 2013, and

15763-(15/39),

April 23, 2015

The Chairman’s Summing Up—Selected Streamlining Proposals Under the FY16-18 Medium-Term Budget—Implementation Issues Executive Board Meeting 15/39, April 23, 2015

In approving the FY16 budget, Executive Directors welcomed the opportunity to discuss a set of cross-cutting streamlining proposals to support the FY16-18 medium-term budget strategy. They recognized that maintaining an unchanged budget envelope in real terms requires difficult trade-offs, a particularly challenging process in an evolving and uncertain environment. Directors noted that a flat budget should not undermine the Fund’s capacity to deliver core activities and fulfill its mandate. They appreciated staff’s ongoing efforts to achieve efficiencies and reallocate resources to higher priority activities. While Directors supported many of the proposals, they expressed a wide range of views on other proposals.

Directors generally saw merit in the streamlining proposals regarding the use of Fund resources. There was broad support for a more systematic application of the presumption of semi-annual reviews for Fund arrangements and instruments, while stressing the need to preserve quarterly reviews in countries that are particularly vulnerable or where program risks are acute. A few Directors, however, preferred applying a presumption of quarterly reviews to ensure that emerging risks are not missed. Most Directors agreed with aligning post-program monitoring (PPM) more closely with financial risks to the Fund by raising the thresholds for PPM engagement, as proposed. However, a significant minority of Directors cautioned that such a change could weaken countries’ incentives to press ahead with essential reforms and undermine the exercise of the Board’s fiduciary responsibility. In light of today’s discussion, management has withdrawn the proposal dealing with post-program monitoring and will reflect further on this issue.

Directors broadly supported the more systematic use of lapse-of-time (LOT) procedures, where possible, for completing standard program reviews and reviews where program deviations are minor. However, there was insufficient support for the proposal to allow for the possibility of concluding program reviews of exceptional access cases on an LOT basis, and management has withdrawn this proposal. Most Directors agreed to discontinue ex post assessments, as lessons will continue to be drawn from past programs in a more cost-effective way through post-program peer-reviewed assessments to help design successor programs.

Directors broadly welcomed the more strategic approach to policy reviews, where the standard periodicity would be lengthened to five years, with a few exceptions as proposed. Directors generally supported flexibility in conducting policy reviews on an as-needed basis, with assessments on the timing of specific reviews taken in the Executive Board Work Program discussions. They also generally agreed to merge related reviews to ensure a holistic and consistent approach in reviewing major Fund policies. Directors concurred with the proposal to lengthen the periodicity of certain reports and operational reviews and to streamline them where possible. In this regard, they noted the review of the debt sustainability framework for low-income countries expected to be completed in 2016.

Directors broadly endorsed other streamlining initiatives, including in multilateral surveillance, capacity development, and administrative and other internal processes, that management intends to implement.

Directors expressed a wide variety of views on the proposals to streamline Article IV consultations and make greater use of the 24-month consultation cycle for stable, non-systemic countries, while underlining that the proposals should not weaken bilateral surveillance activities. Noting the merit of the risk-based approach, many Directors supported or could go along with the proposals, including the modifications streamlining the formal requirements for Article IV staff reports as set forth in Annex I of the streamlining paper. Many other Directors, however, expressed serious reservations or some concerns with specific aspects of the proposals. In particular, these Directors stressed that streamlining should not unduly target countries where the Fund is the only source of high-quality analysis, given the public good nature of Fund surveillance. Other concerns included the risk of missing emerging vulnerabilities and creating an unintended stigma when moving countries back to the regular 12-month cycle, with some Directors calling for further discussion and reflection on these issues.

BUFF/15/38

April 30, 2015

The Fund’s Financing Role—Reform Proposals on Liquidity and Emergency Assistance—Rapid Financing Instrument (RFI)

1. The Fund decides that resources in the credit tranches may be made available under the Rapid Financing Instrument (RFI), in accordance with the terms and conditions specified in this Decision.

2. The Fund will approve a member’s request for resources under the RFI only where it is satisfied that:

(a) the member is experiencing an urgent balance of payments need that, if not addressed, would result in an immediate and severe economic disruption;

(b) the member either (i) has a balance of payments need that is expected to be resolved within one year with no major policy adjustments being necessary, or (ii) is unable to design or implement an upper credit tranche-quality economic program given the urgent nature of the balance of payments need or due to its limited policy implementation capacity; and

(c) the member will cooperate with the Fund in an effort to find, where appropriate, solutions for its balance of payments difficulties. Where warranted, the Managing Director may request that the member implement upfront measures before recommending that the Fund approve a purchase under this Decision.

3. If a member has made a purchase under this Decision within the preceding three years, any additional purchases under this Decision may be approved only if the Fund is satisfied that (a) the member’s urgent balance of payments need was caused primarily by an exogenous shock; or (b) the member has established a track record of adequate macroeconomic policies over a period of at least six months immediately prior to the request.

4. A member requesting assistance under this Decision shall describe in a letter the general policies it plans to pursue to address its balance of payments difficulties, including its intention not to introduce or intensify exchange and trade restrictions and other measures or policies that would compound these difficulties. The member shall also commit to undergoing a safeguards assessment, provide staff with access to its central bank’s most recently completed external audit reports and authorize its external auditors to hold discussions with Fund staff. The timing and modalities for the safeguards assessment for a member that has received assistance under the RFI would be determined on a case-by-case basis, but normally the safeguards assessment would need to be completed before Executive Board approval for the member of any subsequent arrangement to which the Fund’s safeguards assessment policy applies.

5. Assistance under this Decision shall be made available to members in the form of outright purchases. Access by members to resources under this Decision shall be subject to (a) an annual limit of 75 percent of quota, and (b) a cumulative limit of 150 percent of quota, net of scheduled repurchases.1

6. 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.

7. Decision No. 12341-(00/117), adopted November 28, 2000, which established the special GRA policy on emergency assistance, is hereby repealed. (SM/11/284, Sup. 3, 11/22/11)

Decision No. 15015-(11/112),

November 21, 2011,

as amended by Decision Nos. 15595-(14/46), May 21, 2014,

15820 (15/66), July 1, 2015, and

15821 (15/66),

July 1, 2015

The Chairman’s Summing Up—Small States’ Resilience to Natural Disasters and Climate Change—Role for the IMF Executive Board Meeting 16/108, December 1, 2016

Executive Directors welcomed the discussion on strengthening small states’ resilience to natural disasters and climate change, noting the particularly high exposure of small states to these risks. They agreed that the Fund has a role to play in helping small states build resilience to these risks, while remaining within its mandate and in close cooperation with other international organizations, notably the World Bank Group. Directors concurred that strengthened domestic policies are crucial to reduce costs associated with natural disasters and climate change. In this regard, they underscored the importance of identifying risks and vulnerabilities in advance, investing in programs and projects that can reduce risk exposures, and developing contingency plans for risks that cannot be entirely avoided. Directors noted that the macroeconomic aspects of resilience-building should be integrated into countries’ core budget, public investment planning, and debt management frameworks. They also noted the importance of continued adjustment of Fund policy tools, including debt sustainability analyses and reserve adequacy frameworks, to capture natural disaster and climate change risks.

Directors agreed that small states should seek to develop more ex ante financing arrangements for use after natural disasters. They encouraged the broader use of contingent financing arrangements, regional insurance pooling, and catastrophe bond options. Directors generally considered that the Fund could deepen discussions with the insurance industry and development partners to better assist small states. They also encouraged the Fund to provide capacity development to small states to help them assess their options in these areas.

Directors emphasized that small states’ adaptation to climate change will require enhanced access to financing, ideally on highly concessional terms. In this connection, they noted the importance of developing less complex and cumbersome application procedures for access to climate fund resources.

Directors noted that small state members are less frequent users of Fund arrangements than larger peers. Against this backdrop, a few Directors suggested that small states could use Fund arrangements to support policies to build resilience to natural disasters and climate change. Some others, however, did not see a case to use such arrangements, noting that this depends on balance of payment needs. Instead, a few Directors saw scope for using the Policy Support Instrument in small states to build resilience to these risks.

Directors welcomed the ongoing use of the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) by countries hit by natural disasters. Noting that annual access under these instruments can be small in relation to the most destructive disasters hitting vulnerable economies, including small states, Directors generally supported staff’s proposal to raise the annual access ceiling from the current 37.5 percent of quota to 60 percent of quota for countries experiencing severe disaster-related damages. Most Directors considered the proposed eligibility threshold of disaster damages of at least 30 percent of GDP as overly restrictive, and suggested allowing for higher access in a larger range of circumstances, including lowering such disaster damage threshold to 20 percent of GDP or lower. While many Directors also suggested considering an increase in cumulative access ceilings for the RCF and RFI, a number of others supported staff’s proposal to keep cumulative access limits unchanged at 75 percent of quota for both facilities, and a few of these Directors recommended assessing this issue in the comprehensive review of facilities for low-income countries in 2018. Directors looked forward to receiving a formal proposal on access limits and applicable higher-access disaster damage threshold for Board consideration in a timely manner, while underlining that any proposal must safeguard the self-sustainability of the Poverty Reduction and Growth Trust. Noting that few small states are eligible for the Catastrophe Containment and Relief (CCR) Trust, many Directors suggested that consideration be given to expanding the eligibility criteria to give small states greater access to relief through the CCR Trust in the event of very large and rare natural disasters.

Directors stressed that macroeconomic policies should play an important role in small states’ plans to mitigate and, particularly, adapt to climate change. Accordingly, most Directors saw merit in an IMF assessment of such policies, on a pilot basis, focusing on requests from small states seeking to use these assessments to improve access to climate change financing. These Directors called on staff to closely collaborate with other organizations, notably the World Bank Group, when undertaking these assessments. A few Directors, however, did not see a need for conducting such assessments, citing potential resource costs and risks of overstepping the Fund’s responsibilities, and therefore recommended that macroeconomic policies related to climate change be assessed as part of regular Article IV consultations.

Directors emphasized the role of Fund capacity building in helping small states build resilience to natural disasters and adapt to the challenges from climate change. They underlined the importance of leveraging regional technical assistance centers, and further tailoring capacity building to the absorptive capacity and policy priorities of small states.

BUFF/16/88

December 5, 2016

Financing for Development—Enhancing the Financial Safety Net for Developing Countries—Review of Rapid Financing Instrument Access Limits

The Fund has reviewed the limits of access by members to resources under the Rapid Financing Instrument, Decision No. 15015-(11/112), November 21, 2011, as amended, and decides as follows:

1. The percentages of quota referred to in paragraph 5 with regard to the annual and cumulative limits by members under the RFI shall be changed from 75 percent to 37.5 percent and from 150 percent to 75 percent respectively.

2. This decision will become effective when the conditions specified in paragraph 3 of the Board of Governors Resolution No. 66-2 (December 15, 2010) are met and will apply to assistance under the RFI committed after its date of effectiveness. (SM/15/134, Sup. 1, 06/25/15)

Decision No. 15821-(15/66),

July 1, 2015

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

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

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

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

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

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

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

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

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

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

BUFF/99/48

April 9, 1995

The Chairman’s Summing Up—The Role of the Fund in Low-Income Countries Executive Board Meeting 08/6, July 23, 2008

This has been a useful and constructive discussion. It has allowed us to take stock of the valuable contribution that the Fund has made to the progress of many low-income countries (LICs) toward macroeconomic and financial stability, which is central to sustained growth and poverty reduction. Our discussion has reconfirmed a broadly shared vision on the need for a continued close Fund engagement with its low-income member countries that is tailored to their changing needs and emerging new challenges. The Fund’s work on LICs will be shaped by its broader refocusing, and build on close collaboration with partner institutions.

Most Directors considered that the proposed mission statement outlines useful guiding principles for the Fund’s engagement in LICs. The statement affirms that the Fund aims to help LICs achieve the macroeconomic and financial stability needed to raise sustainable growth and have a durable effect on poverty reduction. While recognizing that the Fund’s mandate is similar in all member countries, many Directors suggested that the mission statement should better reflect the fact that at times different instruments and approaches are required when working with LICs given the particular characteristics of this group of countries. Many Directors considered that the objective of achieving strong, sustained growth should be an integral part of the policies which the Fund is helping LICs put in place, while others felt that the emphasis should rather be on stability as the platform upon which sustainable growth can be achieved. Directors agreed that the main channels for the Fund’s engagement will continue to be macroeconomic policy advice, capacity-building assistance, and concessional balance of payments support. On the latter, some Directors noted that the Fund is not a donor agency, and that its financing is relatively less concessional. A few Directors reiterated the view that LICs should not have to pay for capacity building assistance. As in other member countries, the Fund will focus on its core areas of expertise, namely, macroeconomic stabilization and fiscal, monetary, financial, and exchange rate policies, and the underlying institutions and closely related structural policies. The Fund’s work will draw on country-owned development strategies, and its advice and engagement will be tailored to the specific characteristics of countries. We will need to reflect further on how to take forward the issuance of a mission statement in light of the comments as well as suggestions for further refinement that were made today.

Directors welcomed the planned reviews of the Fund’s instruments to ensure that they continue to meet the evolving needs and priorities of LICs. The immediate priority will be to modify the Exogenous Shocks Facility (ESF), which has so far not been used, to make it a more effective instrument in helping LICs cope with shocks, including those arising from food and fuel price increases. Today’s discussion has raised a number of complex issues, on which we need to reflect further as we seek to adapt our instruments. This will involve careful examination of the merits of increasing the flexibility of the PRGF as the primary instrument for Fund financial engagement with LICs facing protracted balance of payments problems, including with respect to repayment schedules and the possibility of creating a precautionary window. The review of Fund facilities will also address proposals for increasing the fungibility of concessional resources across the Fund’s toolkit, and for a possible Stand-By-type instrument to support short-term stabilization in LICs. Most Directors did not see a role for Fund financing to offset shortfalls in aid.

BUFF/08/127,

August 1, 2008

The Chairman’s Summing Up—Review of Facilities for Low-Income Countries Executive Board Meeting 12/85, September 6, 2012

Executive Directors welcomed the opportunity to review the Fund’s facilities for low-income countries (LICs). They considered that the 2009 reforms have been broadly successful in closing gaps and creating a streamlined architecture of facilities better tailored to the needs of LICs. Directors welcomed the staff’s findings that the Fund was able to respond effectively to LICs’ needs during the global financial crisis, and that Fund-supported programs have played a positive role over the longer term in helping countries raise economic growth, reduce poverty, and build macroeconomic buffers and institutional capacity.

Concessional financing framework

Directors noted that the central challenge ahead will be to preserve the Fund’s ability to provide financial support to LICs in the face of a sharp prospective drop in the Fund’s concessional lending capacity after 2014. With demand projected to exceed by a considerable margin the Fund’s existing financing capacity even under a low-case scenario, identifying substantial additional resources for the PRGT becomes a priority to secure the PRGT’s longer-term sustainability.

Most Directors supported, or were open to, using resources linked to the remaining windfall profits from gold sales as part of a strategy to make the PRGT sustainable, possibly supplemented by contingent measures, including suspension of the reimbursement to the GRA for the PRGT’s administrative costs and/or bilateral fund raising. Many Directors supported, or were open to, establishing a regular fundraising mechanism. A number of Directors saw the two main options—use of the remaining gold windfall profits and regular fundraising—as complementary, while a few encouraged exploring additional options. Some Directors proposed that consideration be given to eliminating PRGT reimbursement to the GRA for administrative costs. A few others considered that, in the current circumstances of elevated credit risks facing the Fund, the remaining windfall profits should be counted toward the Fund’s precautionary balances.

Tailoring access and financing terms

Directors underscored that it is important to make the most effective use of the Fund’s scarce concessional resources. Noting that current access levels appear broadly appropriate on average, most Directors saw merit in keeping access unchanged in SDR terms when the 14th General Review of Quotas becomes effective, which implies a corresponding decrease in access in percent of quota. A number of other Directors were not in favor of reducing access norms and limits as quotas are doubled, or could support only a less than commensurate reduction, while strengthening efforts to address the long-term resource gap. A few of these Directors expressed concern about a perceived lack of evenhandedness in the proposal and a potential negative effect on the Fund’s credibility that could arise in the context of the 14th General Review of Quotas. Directors recognized that access will need to be raised in the future as financing needs increase, based on a careful assessment of projected financing needs and available resources. Some Directors underlined the importance of applying robust and evenhanded PRGT graduation criteria and looked forward to the upcoming review of PRGT eligibility.

Directors saw scope for aligning financing more closely with countries’ balance of payments needs. In this context, there was broad support for further work on a cost-neutral approach for allowing contingent tranches that can be activated when unforeseen urgent balance of payments needs arise during an on-track ECF or SCF arrangement. While the financing terms of PRGT loans appear on average to strike the right balance between concessionality and lending capacity, most Directors saw merit in greater differentiation of financing terms, particularly through greater use of blending. While many could consider interest rate surcharges, a few Directors held the view that interest rate differentiation should not go against the principle of uniformity of treatment.

Contingent financing

Directors generally saw merit in exploring refinements to increase the flexibility of existing instruments to provide contingent financing and policy support to LICs, rather than creating a new instrument. These could include relaxing timing restrictions on access under the SCF; giving ECF users the option to forego disbursements when the member’s balance of payments position improves; and making the design of the PSI more flexible while preserving its signaling function. Directors noted that any modifications should be designed in a manner that limits the need for additional resources and avoids adding undue complexity. A few Directors favored exploring a new precautionary instrument for LICs.

Design of PRGT arrangements

Directors also generally saw room for improvements to certain design aspects of the facilities—including the proposed refinements aimed at refocusing PRS linkages on substance rather than process, in consultation with the World Bank. Most Directors would support, or were open to, the proposals to provide options for ECF arrangements with longer initial durations and increased flexibility in the phasing of disbursements. Most also supported considering the proposal to allow defunct arrangements to lapse in order to free up scarce resources. Some others held the view that the treatment of defunct arrangements should be aligned across GRA and PRGT facilities.

Directors looked forward to the second stage of the review, which will draw on their views expressed today, and allow them to take decisions on specific refinements. The Board will return in the near future to the issue of the use of resources linked to the remaining windfall profits from gold sales as part of a strategy to ensure PRGT sustainability.

BUFF/12/104

September 10, 2012

Trade-Related Balance of Payments Adjustment—Fund Support

Trade Integration Mechanism

1. The Fund is prepared to provide financial assistance to members that are experiencing balance of payment difficulties as a result of trade liberalization measures undertaken by other countries. Such assistance shall be made available: (i) in the upper credit tranches under a Stand-By Arrangement, (ii) under the Extended Fund Facility, or (iii) under arrangements under the Poverty Reduction and Growth Trust, and shall be subject to the general access limits established from time to time under such policies. Liberalization measures undertaken by other members would normally be limited to measures introduced either (i) under a WTO agreement or (ii) on a nondiscriminatory basis.

2. Financing under this decision may be provided to address the existing or anticipated balance of payments difficulties identified in paragraph 1 either at the time of the approval of an arrangement or completion of a program review under such an arrangement, upon the Fund’s determination that the member is implementing economic adjustment policies that are designed to address the identified balance of payments problems.

3. When making a request for financing under paragraph 2 above, the member may also request that the Fund indicate its willingness to consider providing additional financing if the balance of payments difficulties identified in paragraph 1 above that may arise during the course of the arrangement are larger than anticipated at the time of the approval of the original request under paragraph 2 above. This additional financing, which shall not exceed 10 percent of quota, may be requested by the member and be provided at any time during the period of the arrangement upon a determination by the Fund, in the context of a special review under the arrangement, that: (i) the member’s adjustment program is broadly on track and (ii) the additional financing is justified by unanticipated balance of payments difficulties of the type identified in paragraph 1.

4. Nothing in this decision shall be understood as preventing a member from requesting Fund financial assistance outside this decision to address the balance of payments problems identified in paragraph 1.

5. This decision shall be reviewed no later than December 31, 2007.1

Decision No. 13229-(04/33),

April 2, 2004,

as amended by Decision Nos. 13814-(06/98), November 15, 2006,

14354-(09/79),

July 23, 2009,

effective January 7, 2010

Arrears to Creditors and Debt Strategy

Arrears to Creditors and Debt Strategy

The Executive Board has reviewed the Fund’s policy with respect to payments arrears. The Fund shall be guided by the approach in the conclusions set forth in SM/70/139, 7/6/70.

Decision No. 3153-(70/95),

October 26, 1970

SM/70/139

Conclusions

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

Review of Fund Policies and Procedure on Payments Arrears Executive Board Meeting 80/154, October 17, 1980

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

EBS/80/190

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

Summing Up by the Chairman—Fund Involvement in the Debt Strategy Executive Board Meeting 89/61, May 23, 1989

Directors stressed that in promoting orderly financial relations, every effort must be made to avoid arrears, which could not be condoned or anticipated by the Fund in the design of programs. … The Fund’s policy of nontoleration of arrears to official creditors remains unchanged. The debtor member would be expected to continue to treat creditors on a nondiscriminatory basis. …

BUFF/89/89

May 24, 1989

The Chairman’s Summing Up—Reforming the Fund’s Policy on Non-toleration of Arrears to Official Creditors Executive Board Meeting 15/113, December 8, 2015

Executive Directors welcomed today’s discussion of proposed reforms to the Fund’s policy on non-toleration of arrears to official bilateral creditors, one of the issues under the sovereign debt restructuring work program that was endorsed by the Executive Board in May 2013. They reiterated that the other three work streams—reforming the Fund’s lending framework, strengthening the contractual approach to address collective action problems, and reviewing the Fund’s lending-into-arrears policy—also remain critical to facilitate timely and orderly sovereign debt restructurings where these are necessary, thereby minimizing the associated costs for debtors, creditors, and the international financial system.

Directors noted that the changing landscape for official finance warrants a review of the Fund’s policy on non-toleration of arrears to ensure that, where a restructuring is deemed necessary, collective action among official bilateral creditors is encouraged and the provision of Fund support is not held up by the unwillingness of hold-out creditors to join an effort that is supported by an adequately representative group of creditors. Directors recognized that prompt provision of support maximizes the value of creditors’ claims (or minimizes their losses) and maintains the debtor’s capacity to service its debt. They underscored that the reform proposal does not alter the current practices whereby the terms of debt treatment offered to official bilateral creditors have typically been more favorable than those received by private creditors. They also stressed that the proposal does not imply any increase in the frequency with which official bilateral creditors may be called upon to restructure their claims in future cases.

Directors highlighted that the financing that official bilateral creditors provide during crises is often critical for the success of Fund-supported programs. They emphasized, therefore, the importance of minimizing instances of arrears to official bilateral creditors. They concurred that any decision to provide financing despite the arrears should be based on a determination that it would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. Directors underlined the need to strike an appropriate balance between the Fund’s ability to provide timely support while maintaining important safeguards for official bilateral creditors.

In light of the above considerations, nearly all Directors endorsed the following revision to the policy on non-toleration of arrears to official bilateral creditors:

If an agreement is reached through the Paris Club that is adequately representative, the Fund would rely on its current practices—i.e., arrears would be considered eliminated (for purposes of the application of this policy) for both participating and non-participating creditors when financing assurances are received from the Paris Club in anticipation of an Agreed Minute. Should another representative standing forum emerge, the Fund would be open to engaging with such a forum.

In circumstances where an adequately representative agreement has not been reached through the Paris Club, the Fund would consider lending into arrears owed to an official bilateral creditor only in circumscribed circumstances where all the following criteria are satisfied:

  • Prompt financial support from the Fund is considered essential, and the member is pursuing appropriate policies;

  • The debtor is making good faith efforts to reach agreement with the creditor on a contribution consistent with the parameters of the Fund-supported program—i.e., that the absence of an agreement is due to the unwillingness of the creditor to provide such a contribution; and

  • The decision to provide financing despite the arrears would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases.

In applying the above criteria, the Fund will need to exercise judgment based on case-specific circumstances. In exercising this judgment, the Board will be guided by the following considerations:

First, an agreement will be considered “adequately representative” when it provides a majority of the total financing contributions required from official bilateral creditors over the program period. “Contribution” here comprises, and is limited to, debt relief and new financing (e.g. loans, bond financing, guarantees, and grants).

Second, in assessing whether a debtor is acting in good faith, the Fund will consider, inter alia, whether the debtor has approached the creditor to which it owes arrears either bilaterally or through a relevant grouping of official bilateral creditors, recognizing that the latter may take several forms, including ad hoc creditor committees; has offered to engage in substantive dialogue with the creditor and has sought a collaborative process with the creditor to reach agreement; has provided the creditor relevant information on a timely basis consistent with the Fund’s policy on confidentiality of information; and has offered the creditor terms that are consistent with the parameters of the Fund-supported program. If the debtor requested terms from an official bilateral creditor that would result in financing contributions that exceeded the requirements of the program it would generally not indicate good faith. Finally, an assessment of the second criterion would also take into consideration the extent to which a creditor is being asked to make a contribution that is disproportionate relative to other official bilateral creditors.

Third, in assessing whether the Fund’s decision to lend into arrears owed to an official bilateral creditor would have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases, the Fund will consider the signal that such a decision would send to official bilateral creditors as a group, given the specific circumstances of the case. In particular, this criterion would normally not be satisfied where the creditor or group of creditors that has not reached agreement with the debtor accounts for an adequately representative share, i.e., a majority, of total financing contributions required from official bilateral creditors over the program period, as defined above. Separately, an assessment of whether the third criterion is satisfied would take into consideration the creditor’s track record of providing contributions in past debt restructurings under Fund-supported programs, even if the creditor does not account for an adequately representative share of total financing contributions.

An official bilateral creditor may choose to consent to Fund financing notwithstanding arrears owed to it. In such cases, the Board would not need to make a judgment as to whether the three criteria above are satisfied. The Fund would nevertheless continue to encourage the parties to come to an agreement during the program, since the regularization of arrears is an objective of any Fund-supported program and important for the functioning of the international financial system at large.

There may be emergency situations, such as in the aftermath of a natural disaster, where the extraordinary demands on the affected government are such that there is insufficient time for the debtor to undertake good faith efforts to reach agreement with its creditors. When a judgment has been made that such exceptional circumstances exist, the Fund may provide financing under the Rapid Credit Facility (RCF) or the Rapid Financing Instrument (RFI) despite arrears owed to official bilateral creditors and without assessing whether the three criteria above have been satisfied or obtaining the creditor’s consent. However, it would be expected that the Fund’s support provided to the debtor in such cases would help advance normalization of relations with official bilateral creditors and the resolution of arrears, so that the approval of any subsequent Fund arrangement for the member would again be subject to all three criteria set out above.

This policy will enter into effect immediately and will apply to all future purchases or disbursements (including under existing arrangements), with respect to existing and future arrears. Further, so long as unresolved arrears owed to official bilateral creditors are outstanding, every purchase or disbursement made available after the approval of the arrangement will be subject to a financing assurances review by the Board and verification that all three criteria are satisfied to determine whether this policy continues to be met for the further use of the Fund’s resources in the member’s circumstances.

In supporting the reform proposal, many Directors expressed the view that it would be important to preserve comparability of treatment across official creditors. Some Directors also stressed that Fund financing in emergency cases under the RCF or the RFI without an assessment of whether the three criteria have been satisfied is expected to be rare and limited to a small sub-set of cases.

Notwithstanding their general support of the proposal, a few Directors expressed some reservations about the term “normally” used in the third criterion above, noting the risk that it may be applied in a manner that is not consistent with the principle of uniformity of treatment. In this regard, Directors agreed that any evaluation of this criterion in these abnormal circumstances should be in line with the Fund’s mandate and based exclusively on a determination as to whether the Fund’s decision to provide financing despite the arrears would have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases.

A few Directors raised concerns that the reform may not provide adequate protection to official bilateral creditors vis-à-vis private creditors. Directors were generally satisfied, however, that the policy preserves important differential safeguards for official bilateral creditors, including the requirement that the third criterion be satisfied.

Directors agreed that, given the importance of this policy change, and depending on the complexity and number of cases that arise, the policy may need to be reviewed within a relatively short period, namely, two to three years.

BUFF/15/107,

December 9, 2015

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

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

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

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

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

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

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

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

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

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

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

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

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

BUFF/99/71,

June 18, 1999

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

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

Directors welcomed the opportunity to review the application of the criterion requiring a member to make good faith efforts to reach a collaborative agreement with its creditors, in light of the experience with bond restructurings since the introduction of the “good faith” criterion in 1999. They observed that this experience, although limited, suggests that notwithstanding the ability of debtors to reach restructuring agreements with their creditors, the restructuring processes have in some cases been protracted, reflecting the complexity of each individual case, as well as different perspectives and concerns among debtors and creditors.

Against this backdrop, Directors agreed that greater clarity about the good faith dialogue between a debtor and its creditors during the restructuring process could help provide better guidance about the application of the lending into arrears policy and, more generally, promote a better framework for the engagement of debtors and creditors in the restructuring of sovereign debt. Greater clarity concerning the framework for possible debt restructuring would strengthen the capacity of investors to assess recovery values under alternative scenarios, thereby facilitating the pricing of risk and improving the functioning of the capital markets. At the same time, however, Directors stressed the need for continued flexibility in applying the “good faith” criterion to accommodate the characteristics of each specific case; to avoid putting debtors at a disadvantage in the negotiations with creditors; and to avoid prolonged negotiations that could hamper the ability of the Fund to provide timely assistance. Indeed, any clarification of the “good faith” criterion should serve primarily to support the difficult judgments that will continue to have to be made in each case, and should be made operational in a manner that does not impair market discipline.

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

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

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

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

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

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

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

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

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

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

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

BUFF/02/42,

September 9, 2001

Fund’s Policy on Lending Into Arrears

5. The Fund decides that the deadline for the next review of the Fund’s policy on lending into arrears prescribed by Decision No. 13814-(06/98), adopted November 15, 2006, shall be extended to end-December 2008. (SM/07/394, 12/21/07)1

Decision No. 14036-(08/01),

December 27, 2007

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

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

BUFF/91/65

April 5, 1991

The Acting Chairman’s Summing Up on the Role of the Fund in the Settlement of Disputes Between Members Relating to External Financial Obligations Executive Board Meeting 84/99, June 22, 1984

There was a strong consensus on three general matters relating to the use of the Fund’s good offices. First, in the light of the Fund’s primary responsibilities concerning the international monetary system and of its specific authority under the Articles to provide financial and technical services, management and staff should stand ready to use their good offices in helping members engaged in a particular dispute over an external financing obligation. Second, such good offices should, however, be limited in scope and frequency, although in that connection there were differences in emphasis among Directors. Some felt that the Fund should be more active, others that the Fund must be quite cautious. In short, the use of good offices should be consistent with available resources and should be substantially technical. Third, all Directors attached great importance to the Fund’s remaining neutral in issues of debt dispute. It should be clearly understood that the Fund’s good offices were meant to bring the parties to a dispute together. Fourth, there was agreement that the Fund should act in such cases only if both parties wished to have the Fund provide its good offices.

BUFF/84/107

August 13, 1984

Access Policy

Access Policy and Limits in the Credit Tranches and Under the Extended Fund Facility and on Overall Access to the Fund’s General Resources, and Exceptional Access Policy—Review and Modification

1. The Fund has reviewed the guidelines and the limits for access by members to the Fund’s general resources set forth in Decision No. 14064-(08/18), adopted February 22, 2008, as amended, and decides as follows.

2. The overall access by members to the Fund’s general resources shall be subject to (i) an annual limit of 145 percent of quota; and (ii) a cumulative limit of 435 percent of quota, net of scheduled repurchases; provided that these limits will not apply in cases where a member requests a Flexible Credit Line arrangement in the credit tranches, although outstanding holdings of a member’s currency arising under such arrangements will be taken into account when applying these limits in cases involving requests for access under other Fund facilities.1

3. Subject to paragraph 4 below, the Fund may approve access in excess of the limits set forth in this Decision in exceptional circumstances, provided the following four substantive criteria are met:

(a) The member is experiencing or has the potential to experience exceptional balance of payments pressures on the current account or the capital account, resulting in a need for Fund financing that cannot be met within the normal limits.

(b) A rigorous and systematic analysis indicates that there is a high probability that the member’s public debt is sustainable in the medium term. Where the member’s debt is assessed to be unsustainable ex ante, exceptional access will only be made available where the financing being provided from sources other than the Fund restores debt sustainability with a high probability. Where the member’s debt is considered sustainable but not with a high probability, exceptional access would be justified if financing provided from sources other than the Fund, although it may not restore sustainability with high probability, improves debt sustainability and sufficiently enhances the safeguards for Fund resources. For purposes of this criterion, financing provided from sources other than the Fund may include, inter alia, financing obtained through any intended debt restructuring. This criterion applies only to public (domestic and external) debt. However, the analysis of such public debt sustainability will incorporate any relevant contingent liabilities, including those potentially arising from private external indebtedness.

(c) The member has prospects of gaining or regaining access to private capital markets within a timeframe and on a scale that would enable the member to meet its obligations falling due to the Fund.

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

4. When exceptional access is approved under a PLL arrangement pursuant to paragraph 3, such access, combined with the member’s access to the Fund’s resources under other PLL arrangements, shall in no event exceed a cumulative limit of 500 percent of quota, net of scheduled repurchases.

5. Unless otherwise specified in a general decision of the Executive Board, the procedures set forth in BUFF/02/159 (9/20/02), BUFF/03/28 (3/5/03), and BUFF/05/68 (4/13/05) shall apply to all cases involving access in excess of the limits set forth in this Decision.

6. This Decision shall be reviewed on an as needed basis in accordance with Decision No. 15764-(15/39), adopted April 23, 2015, on implementing streamlining of policy reviews.

Decision No. 14064-(08/18),

February 22, 2008,

as amended by Decision Nos. 14184-(08/93), October 29, 2008,

14284-(09/29), March 24, 2009,

BUFF/10/56, May 9, 2010,

14716-(10/83), August 30, 2010,

15017-11/112), November 21, 2011,

15931-(16/4), January 20, 2016, and 15941-(16/14), February 17,

2016.

EBS/83/233

II. Considerations Governing Amount of Access

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.

….

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BUFF/02/159

September 20, 2002

The Acting Chair’s Summing Up—Review of Access Policy Under the Credit Tranches and the Extended Fund Facility, and Access Policy in Capital Account Crises—Modifications to the Supplemental Reserve Facility and Follow-Up Issues Related to Exceptional Access Policy Executive Board Meeting 03/16, February 26, 2003

Directors welcomed the opportunity to review the recent application of the Fund’s access policy, as well as proposals to make operational the Fund’s new strengthened framework for exceptional access in capital account crises. Together with the summing up of our discussion on September 6, 2002, this summing up will provide a new framework that will help ensure that exceptional access remains exceptional, while retaining the Fund’s flexibility to provide adequate assistance to members facing a capital account crisis. The Board also decided to maintain the current access limits in the credit tranches.

Access Policy in Capital Account Crises—Modifications to the Supplemental Reserve Facility and Issues Related to Exceptional Access Policy

Regarding the policy on access in capital account crises, Directors discussed a number of operational aspects of the new framework whose building blocks were endorsed at their discussion on September 6, 2002. As noted at that time, the new framework establishes four substantive criteria guiding decisions on when exceptional access may be appropriate in capital account crises—events characterized by a sharp loss of investor confidence and large and disorderly outflows of capital. Directors stressed that the effectiveness of the exceptional access policy will critically depend on the consistent and rigorous application of these criteria. Directors took note of the further staff papers planned on the capacity of countries to access financial markets after debt restructuring, and on initial experience with the debt sustainability analysis.

The new framework also sets out stronger procedures for decision making on exceptional access proposals. These procedures include increasing the burden of proof in program documentation, early and more formal Board consultations on program negotiations in exceptional access cases, and, as a rule, ex post evaluation of programs with exceptional access within one year of the end of the arrangement. Directors agreed that these procedures would apply to any exceptional access (i.e., access under any facility that exceeds the limits applying in the credit tranches and the Extended Fund Facility), even when the member is not experiencing a capital account crisis.

Directors saw a more formal process for Executive Board consultation at the early stages of program discussions as helpful for reinforcing careful and systematic decision making on exceptional access cases. At the same time, however, they recognized the constraints imposed by the special circumstances under which exceptional access programs are negotiated. In particular, these programs are frequently negotiated over a very short time with a backdrop of a worsening crisis, where new information and developments may require substantial changes in the program at very short notice. Directors also agreed that management and staff should have sufficient flexibility and discretion in coming to an agreement in crisis situations without undue delay. The need to move very quickly in some situations was emphasized by several Directors. Recognizing that these constraints will affect different cases differently, Directors agreed on the following policy regarding procedures for early consultation to be followed in all cases involving access above the limits.

Once management decides that new or augmented exceptional access to Fund resources may be appropriate, it will consult with the Board promptly in an informal meeting. Directors will be provided with a concise note that sets out the following as fully as possible: (i) a tentative diagnosis of the problem; (ii) the outlines of the needed policy measures; (iii) the basis for a judgment that exceptional access may be necessary and appropriate, with a preliminary evaluation of the four substantive criteria1 applying in capital account crises, and including a preliminary analysis of external and sovereign debt sustainability; and (iv) the likely timetable for discussions. Staff will circulate this note to Executive Directors at least two hours prior to the informal session, to give Directors some time to absorb the material before meeting. This meeting will provide the basis for consultation with capitals and the issues that emerge would be addressed in a further informal session.

Additional consultations with Executive Directors will normally be expected to occur between the initial informal meeting and the Board’s consideration of the staff report. The briefings will aim to keep the Board abreast of program-financing parameters, including assumed rollover rates, economic developments, progress in negotiations, any substantial changes in understandings, and any changes to the initially envisaged timetable for Board consultation. The staff will provide the Board with a separate report evaluating the case for exceptional access based on further consideration of the four substantive criteria, including debt sustainability. To the extent that program parameters are not yet agreed, this report will clearly be tentative. Where time permits, this report will be provided to the Board in advance of the circulation of program documents. In all cases, this report will be included in the program documents.

Management will consult with the Board specifically before concluding discussions on a program and before any public statement on a proposed level of access.

Strict confidentiality will need to be maintained, and public statements by members, staff and management should take special care not to prejudge the Board’s exercise of its responsibility to take the final decision.

As the Board agreed in September, the staff report for an arrangement proposing exceptional access will include: a consideration of each of the four substantive criteria for exceptional access in capital account crises (including a rigorous analysis of debt sustainability); a thorough discussion of need and the proposed level of access; an assessment of the risks to the Fund arising from the exposure and its effect on liquidity; and systematic and comprehensive information on the member’s capacity to repay the Fund.

Directors highlighted the unusual uncertainty and risk that is often associated with the projections of private capital flows and the difficulty this poses for program design. In such cases, it is especially important to be explicit and cautious about the assumptions underlying the projections for financing and their sensitivity to shocks. A number of Directors requested that further information be provided to the Board discussing private sector involvement in program financing. There will normally be a range of potentially applicable approaches for sustaining private sector financial flows, including voluntary efforts to overcome collective action problems among creditors, that could help meet the objectives of the program. Directors agreed that discussions of these issues would be expected to be part of the Board consultations for exceptional access cases set out above.

Directors also agreed to include in the program documentation a standard table that would gauge proposed access levels against a broader set of metrics, and complement quota based metrics. While Fund access would not be constrained to, or evaluated against, any of the indicators proposed in the paper, these indicators would provide useful additional perspective and help ensure uniformity of treatment among members. Directors agreed that a table along the lines proposed in the staff paper should be included in all requests for exceptional access with the possible inclusion of additional indicators as might be needed.

Directors considered possible changes to the maturity of repurchases under the Supplemental Reserve Facility (SRF), as well as the appropriate mix of Fund resources in capital account crises. They observed that the experience with capital account crises has shown a greater variance in the duration of countries’ balance of payments need than originally expected. Most Directors expressed concern about the increased use of so-called “blends” of credit tranche and SRF resources. The Board has decided to lengthen the maturity of SRF expectations by one year and obligations by six months, and to strengthen the presumption that exceptional access in capital account crises should be provided under the SRF. A number of Directors stressed that there should be a strong presumption to use only SRF resources in all cases where exceptional access is used in capital account crises.

Directors also had an initial exchange of views about the implementation of the Fund’s access policy in situations where a debt restructuring is needed. They stressed that difficult and well-informed assessments will be required to deal with financial challenges and needs that are fundamentally different from those of countries with a sustainable debt burden. In particular, the substantive criteria for exceptional access in capital account crises will generally not be met and the conditions for the use of the SRF will not apply. Directors generally agreed that access in such cases would normally be expected to be within the access limits, although there could be rare circumstances warranting exceptional access. A few Directors were hesitant to allow for any possibility of exceptional access in debt restructuring cases.

Directors agreed that the consistent implementation of the new framework for access policy will be an important contribution to the Fund’s ongoing efforts to heighten the degree of clarity and predictability for both members and markets about the Fund’s response in crisis resolution. They welcomed the proposal for a stock taking on the operation of this framework after one year.

BUFF/03/28

March 5, 2003

Summing Up by the Acting Chair—Review of Exceptional Access Policy Executive Board Meeting 04/36, April 14, 2004

Directors welcomed the opportunity to take stock of the experience with the new framework for exceptional access to Fund resources. This framework was put in place about one year ago, and has informed the Board’s decisions to provide exceptional access for Argentina and Brazil. Today’s discussion has covered issues relating to the application of the four substantive criteria for exceptional access. In addition, the Board has reviewed the new procedures for early Executive Board involvement in the run-up to formal Board discussions on exceptional access requests and the additional information and documentation that are now required. Directors also discussed the staff’s analysis of the strategies and circumstances that lead to a reduction in high levels of outstanding Fund credit in the countries that have recently benefited from exceptional access. The Board will further discuss issues related to exceptional access in a precautionary setting, including as part of an exit strategy, in the context of the upcoming discussion on precautionary arrangements scheduled for July 2004.

Directors noted that the exceptional access framework has helped to improve the clarity and predictability of the Fund’s response to capital account crises for both members and markets. They underlined that the strengthened decision making procedures agreed to in February 2003 should continue to apply to all requests for exceptional access. Most Directors felt that the exceptional access criteria remain appropriate and, given the limited experience with the framework, considered that it would be premature to change the exceptional access criteria at this point in time. Stressing that cases of exceptional access should be kept few in number in order to safeguard Fund resources, these Directors were in favor of maintaining the requirement that every request for exceptional access be justified in light of the four substantive criteria. Some Directors highlighted the need to define exceptional access based on a more economically relevant set of metrics rather than in terms of a member’s quota, with a few noting that a size and distribution of quotas that reflect more accurately the relative position of member countries in the world economy might have resulted in fewer exceptional access cases.

Directors noted that the exceptional access criteria were designed for members facing capital account crises. They acknowledged that in rare circumstances a need for exceptional access could arise in situations other than a capital account crisis, and that in those cases a member could not be expected to meet all four criteria. Directors took note of the flexibility to grant access under the exceptional circumstances clause.

Most Directors were not in favor of the staff proposal set out in paragraph 13 of the staff report for dealing with exceptional access arising in situations where the member has a pre-existing high exposure to the Fund and does not face a capital account crisis. They believed that the proposed principles could be seen as a weakening of the policy on exceptional access that could lead to an inappropriate increase in the number of exceptional access cases, with risks to the Fund’s financial position. A number of other Directors, however, thought that the current criteria have not provided sufficient guidance in recent requests for exceptional access, and are unlikely to do so for future requests.

Most Directors expressed preliminary views on the merits of exceptional access in the context of a precautionary arrangement. While many of these Directors were willing to consider the possibility of exceptional access in precautionary arrangements, a few of them felt that precautionary exceptional access would be warranted only in a situation where a member has pre-existing exceptional access exposure, as part of an exit strategy to phase out the use of Fund resources. A number of other Directors, however, did not support use of the concept of “potential need” for exceptional access. They expressed concerns about the provision of Fund financing as “insurance” against potential problems, as this could create problems of moral hazard, diminish the role of conditionality, and lead to market expectation of augmentation of exceptional access.

Most Directors noted the importance of incentives for members to repay the Fund as their balance of payments improves, and reiterated the strong presumption that exceptional access should be provided on SRF terms. A number of these Directors stressed that, as a principle, exceptional access should always be subject to SRF-type charges. However, many Directors noted that the maximum maturity of the SRF obligations may sometimes be too short relative to the duration of the balance of payments need, including, in some cases, where the member has high preexisting use of Fund resources and where portfolio shifts may be longer-lasting.

Further, the restrictive circumstance test for the SRF would, unless amended, preclude use of that facility outside of capital account crises and in precautionary settings. Directors agreed to continue discussion of the applicability of the SRF to precautionary settings in July 2004. The Board will have the opportunity to review issues related to charges and maturity of the SRF and other facilities at a date to be determined.

In connection with exit strategies, and based on the experience in earlier cases where the Fund was repaid, Directors observed that a member’s capacity to make repurchases and reduce its large Fund exposure will depend on improvements to both the current account and the capital account of the balance of payments. In this context, Directors recognized that some of the features of the current exceptional access cases, particularly the high debt levels, will require the relevant members to sustain high primary fiscal surpluses into the medium term. Given that the balance of payments difficulties of the countries currently with exceptional access appear to be of a medium-term nature, Directors could not rule out the possibility of continued Fund financing for some of these countries for a period of time.

Directors agreed that the procedures for early Board involvement and for the provision of additional information have worked well in supporting an effective decision making process. Early informal Board meetings on Argentina and Brazil were helpful in providing the Board with information on the progress of negotiations and alerting staff to Directors’ concerns on key aspects of the program. Directors also welcomed the additional information provided in the context of requests for exceptional access—in particular, the documents evaluating exceptional access based on the four substantive criteria, and the rigorous assessment of the financial risks to the Fund arising from the proposed access, its effect on liquidity, and the member’s capacity to repay the Fund. They considered that the framework would be strengthened by the inclusion, in documents presenting future requests for exceptional access, of more in-depth scenario analyses of the financial impact on the Fund and explicit recognition of costs to borrowers and creditors of members incurring arrears to the Fund. In this context, some Directors called for clarification of the Fund’s lending into arrears policy, particularly with regard to the good-faith criterion. In addition, a few Directors requested that the normal circulation period for staff reports prior to the Board not be shortened unless a rapid decision is essential.

Directors noted that the Fund has provided a very high share of total official financing in recent exceptional access arrangements. While financing from other official sources will continue to be decided on a case-by-case basis, some Directors considered that, as members proceed toward graduating from use of Fund resources, it would be appropriate for financing from other official bilateral and multilateral sources to increase. A view was expressed, however, that the Fund should remain the primary source of official financing.

Directors took note of the circumstances in which Fund resources have addressed an underlying balance of payments need that was related to fiscal imbalances. While Fund resources can only be used to meet a balance of payments need, on occasion purchases have in effect been used as a source of budget financing, particularly where the resources have been made available directly to the government rather than retained by the central bank. Several Directors noted that such use increases financial risks to the Fund, including the risk that the associated repurchases become subject to a budget appropriation process, and some Directors recommended that such arrangements be avoided in the future. Several Directors requested a more detailed assessment in the period ahead of the rationale for, and the risks associated with, the use of Fund financing as a source of budget finance.

Directors agreed that future reviews of the exceptional access policy should be undertaken at the same time as regular reviews of access policy in the credit tranches and under the EFF. The next review is scheduled to take place in late 2004.

BUFF/04/81

April 23, 2004

The Acting Chair’s Summing Up—The Fund’s Lending Framework and Sovereign Debt—Further Considerations Executive Board Meeting 16/4, January 20, 2016

Executive Directors welcomed today’s discussion of proposed reforms to the Fund’s exceptional access framework, one of the issues under the sovereign debt restructuring work program that was endorsed by the Executive Board in May 2013. Directors supported the broad objectives underlying the proposed reforms. They agreed that, by modifying this framework to allow responses that are better calibrated to a member’s debt vulnerabilities, the reforms would help promote more efficient resolution of sovereign debt problems and avoid unnecessary costs for the member, its creditors, and the overall system. At the same time, they would enable the Fund—consistent with its mandate—to continue providing financing to assist members in resolving their balance of payments problems, including in the presence of spillover and contagion risks.

In this context, Directors generally favored the removal of the systemic exemption. It was recognized that the removal of the systemic exemption is critical for several reasons. First, to the extent that a member faces significant debt vulnerabilities despite its planned adjustment efforts, the use of the systemic exemption to delay remedial measures risks impairing the member’s prospects for success and undermining safeguards for the Fund’s resources. Second, from the perspective of creditors, the replacement of maturing private sector claims with official claims, in particular Fund credit, will effectively result in the subordination of remaining private sector claims in the event of a restructuring. Third, the systemic exemption aggravates moral hazard in the international financial system and may exacerbate market uncertainty in periods of sovereign stress. Finally, it is far from clear that invoking the systemic exemption to defer necessary measures on debt can be relied upon to limit contagion, since the source of the problem—namely, market concerns about underlying debt vulnerabilities—is left unaddressed.

Directors agreed that staff’s proposed approach addresses more robustly the rigidities in the exceptional access framework, while ensuring that debt vulnerabilities are addressed in an appropriately calibrated way. Specifically:

  • When the Fund is confident that debt is sustainable with high probability, it would continue to provide financing in support of a strong adjustment program that envisages payment of outstanding obligations as they fall due. These cases would include those where, although a member may have lost market access, the Fund is confident that this loss is temporary and that debt is sustainable.

  • By contrast, when debt is clearly unsustainable, prompt and definitive action to restructure debt and restore debt sustainability with high probability remains the least-cost approach.

  • However, when a member’s debt is assessed to be sustainable but not with high probability, requiring a definitive debt restructuring could incur unnecessary costs. In such situations, it would be appropriate for the Fund to grant exceptional access so long as the member also receives financing from other sources during the program on a scale and terms such that the policies implemented with program support and associated financing, although they may not restore projected debt sustainability with a high probability, improve debt sustainability and sufficiently enhance the safeguards for Fund resources.

Directors noted that, in applying this more flexible standard in circumstances where debt is assessed to be sustainable but not with high probability, there would be a range of options that could meet the prescribed requirements. There would be no presumption that any particular option would apply. Rather, the choice would depend on the circumstances of the particular case, and would need to be justified accordingly. In particular:

  • In situations where the member retains market access, or where the volume of private claims falling due during the program is small, sufficient private exposure could be maintained without the need for a restructuring of their claims.

  • If the member has lost market access and private claims falling due during the program would constitute a significant drain on available resources, a reprofiling of existing claims (that is, a short extension of maturities falling due during the program, with normally no reduction in principal or coupons) would typically be appropriate. This could allow a somewhat less stringent adjustment path while also reducing the needed level of access. Although a reprofiling is a form of debt restructuring, it was recognized that, in these circumstances, it will likely be less costly to the debtor, the creditors, and the system than a definitive debt restructuring. In this context, the scope of debt to be reprofiled would be determined on a case-by-case basis, recognizing that it would not be advisable to reprofile a particular category of debt if the costs for the member of doing so—including risks to domestic financial stability—outweighed the potential benefits. Notably, short-term debt instruments (by original maturity), trade credits, and local currency-denominated debt had not been included in most past restructurings.

  • Similarly, financing from official bilateral creditors, where necessary, could be provided either through an extension of maturities on existing claims and/or in the form of new financing commitments.

As is the case with all debt restructurings under Fund-supported programs, a reprofiling, where it is needed, should ideally be undertaken before the approval of the Fund arrangement. However, there may be circumstances under which more flexibility is warranted, so that the conclusion of the debt operation is contemplated at a later date. Against this background, it would not be necessary to hold up Fund support until there is complete clarity regarding the terms of this financing.

Directors broadly concurred with staff’s analysis on the nature and type of cross-border spillovers that could result from a debt restructuring. They recognized that some spillovers, insofar as they reflect a repricing of risk in line with fundamentals, should be accommodated and complementary policy actions should be taken if necessary to counter market fluctuations that are not rooted in fundamentals.

Nevertheless, Directors took note of the fact that, if a rare tail-event case were to arise where any restructuring of private claims, even a reprofiling, is judged to pose unmanageable risks, either for domestic financial stability or in terms of possible cross-border spillovers, the reformed framework creates the flexibility for the Fund to approve exceptional access to Fund resources without such a restructuring so long as official sector partners are willing to provide the necessary financing. Such financing would need to be on terms sufficiently favorable to improve sustainability and enhance safeguards for Fund resources, and, accordingly, the Fund would need assurances that the terms could be modified in future if the outlook for debt sustainability were to deteriorate significantly. If official creditors were unwilling to provide such assurances, the terms of the financing would need to be sufficiently generous upfront to restore debt sustainability with high probability. In circumstances where debt is unsustainable, the terms of the financing provided by official bilateral creditors would similarly need to be sufficiently favorable to restore debt sustainability with high probability. This could take the form of loans with long tenors and concessional rates, grants, or other instruments. Directors noted that these requirements would be implemented flexibly. The Fund could proceed on the basis of political commitments to backstop debt sustainability without necessarily requiring all the specific modalities to be spelt out. Directors concurred that, while this alternative approach for rare tail-risk cases does not allay moral hazard concerns, it would be more effective than the systemic exemption, as it would help the member address its debt problems, mitigate contagion at its source, and provide safeguards for Fund resources. Some Directors noted the expectation that the approach would be used only rarely and emphasized that the decision to resort to this approach should be made in an evenhanded manner. A few Directors expressed the view that the approach described in this paragraph could be feasible even in less extreme circumstances rather than just in rare tail-events characterized by unmanageable risks.

Directors observed that the Fund’s assessment of debt sustainability will continue to play a central role in the exceptional access framework. In this regard, they emphasized that, notwithstanding continued improvements in the Fund’s toolkit for making debt sustainability assessments, the determination of where a country’s debt prospects lie on the spectrum of probabilities will continue to involve a significant element of judgment. Specifically, the determination, which is inherently forward-looking, would take into account all relevant information, including country-specific information on prospects for policy implementation, growth opportunities, contingent liabilities, the nature of the creditor base and indicators of investor confidence; as well as the outlook for the global economic environment. Directors noted that, taking these considerations into account, the levels of debt that are consistent with sustainability could vary significantly across programs.

With regard to the third criterion under the exceptional access framework, namely the condition related to market access, Directors supported staff’s view that this condition needs to be met even in cases involving open-ended commitments of official support beyond the program period. They agreed that the resolution of a member’s balance of payments problem and the achievement of medium-term external viability is a key objective of Fund lending, and a member’s ability (as distinct from its need) to access private capital markets is inherent to this resolution. While official financing commitments can provide a useful backstop against downside risk, they do not render the market access criterion moot. Directors emphasized, nonetheless, that staff should take into account the positive impact that commitments of official support may have on a member’s ability to access markets, on a case-by-case basis, when assessing whether the third criterion is met.

Directors also broadly supported staff’s clarification on the timeframe within which to establish market access. Specifically, they noted that the Fund has generally expected that a member gain or regain market access within a timeframe that facilitates the repayment of all of its obligations to the Fund—not just the last one that is due, as the current wording of the third criterion might suggest.

The changes to the Fund’s exceptional access framework will enter into effect immediately and will apply to all future completion of reviews under existing arrangements or approval of new Fund arrangements.

Looking ahead, Directors called on staff to continue its work on ensuring that the Fund’s lending toolkit is effective in addressing systemic crises and contagion. They looked forward to the upcoming review of issues relating to debtor-creditor engagement, including the Fund’s lending into arrears policy. This would complete the program of work aimed at facilitating the timely and orderly resolution of sovereign debt problems.

BUFF/16/9, Cor. 1 (1/27/2016)

January 27, 2016

The Chairman’s Summing Up—Crisis Prevention and Precautionary Arrangements—Status Report Executive Board Meeting 04/90, September 24, 2004

Executive Directors welcomed the opportunity to discuss the status report on Crisis Prevention and Precautionary Arrangements. The Board has discussed the possible use of precautionary arrangements in capital account crisis prevention on several occasions. Directors reiterated their strong support for the main elements of the Fund’s crisis prevention strategy. This is focused on promoting the early adoption by members of sound policy frameworks as the first line of defense against vulnerability to sudden capital out-flows. In addition, the Fund provides assurances to its members of its readiness to provide financial support, including above the normal access limits where warranted, in support of an appropriate policy response should a crisis occur.

Directors continue to support specific elements of the Fund’s toolkit for crisis prevention. They agree that the overall experience with normal access precautionary arrangements has been positive. They support the exceptional access criteria, which are designed to provide clarity to both members and markets on the conditions for Fund financial assistance in the event of a capital account crisis, and to facilitate the rapid provision of such assistance. Also, they concur that the wide range of measures taken to improve the Fund’s surveillance mechanisms has enhanced the capacity to advise members on emerging vulnerabilities at an early stage.

Against this background, Directors continued their debate on the need for, and desirability of, a new policy that would clarify the use of exceptional access under precautionary arrangements. On the one hand, many Directors take the view that existing Fund policies are adequate. Their view is based on the following considerations: first, that Fund membership itself provides sufficient insurance to members; second, that regular precautionary arrangements—that is, within the normal access limits—can, and do, provide support for members’ strong policies; third, that innovations to Fund surveillance and efforts to increase transparency are bearing fruit; and fourth, that a new policy could undermine incentives to undertake reforms or to assess risk fully. Directors holding this view also note that the Fund can augment the resources it provides fairly quickly if the need arises. Furthermore, most Directors noted that exceptional access could be used in precautionary settings as part of an exit strategy for countries with outstanding Fund resources above the normal limits, under the flexibility provided by the exceptional circumstances clause.

Several Directors suggested that the Supplemental Reserve Facility be modified to allow its use in precautionary arrangements. The Board will have the opportunity to come back to this at a later stage in the context of the review of charges and maturities of Fund facilities.

The alternative view, held by many other Directors, remains that there is a gap in the Fund’s toolkit left by the expiration of the Contingent Credit Lines in late 2003. These Directors stress that, even if a country is a Fund member and maintains strong domestic policies under Fund surveillance, a capital account crisis can occur as a result of exogenous factors. A new policy that would provide ex ante assurances of appropriate financial support can help strengthen the Fund’s role in crisis prevention. Such a policy would: first, provide increased assurances of the conditions under which Fund resources would be made available in a crisis; second, provide access to Fund resources more in line with the potential need of a member with capital account vulnerabilities or contagion risk; third, enhance incentives for members to adopt strong policies before capital account pressures emerge; and fourth, help to boost market confidence and hence reduce the probability of a costly crisis. Directors holding this view feel that regular precautionary arrangements—while useful in cases where pressures are likely to emerge in the current account—are not an effective tool of crisis prevention for members that pursue sound policies but still remain exposed to exogenous shocks and contagion. They regret the lack of progress in designing a policy on exceptional access under precautionary arrangements, and urge that this issue remain a high priority on the Fund’s agenda.

Directors have expressed a variety of views on the alternative areas that could be explored to improve country insurance against capital account shocks. Some Directors have stressed that future research should not send a signal that the Fund is turning away from the objective of finding an effective means of assisting member countries in their efforts to prevent capital account crises, while some others have cautioned that the staff’s work program should not be pursued with the aim of finding justifications for use of exceptional access in precautionary arrangements. There are differences of emphasis with respect to the orientation of our future work as proposed in the staff report. Today’s discussion has brought out further ideas that could be explored. The staff will keep Directors informed, in the context of the work program discussion and at other opportunities, of how its work will be advanced, taking account of all the suggestions made.

Emergency Financing Mechanism and Post-Program Monitoring

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Post-Program Monitoring

1. If outstanding credit to a member exceeds any of the thresholds specified below:

(a) 200 percent of quota for credit from the Fund’s General Resources Account (GRA), or from the Fund as Trustee of the Poverty Reduction and Growth Trust PRGT), or a combination thereof; or

(b) an amount equivalent to SDR 1.5 billion for credit from the Fund’s GRA; or

(c) an amount equivalent to SDR 0.38 billion from the PRGT,

and the member does not have a program supported by a Fund arrangement or is not implementing a staff monitored program with reports issued to the Executive Board, or the member does not have a program supported by a Policy Support Instrument (“PSI”), the member will be expected to engage in Post-Program Monitoring (PPM) with the Fund of its economic developments and policies upon the recommendation of the Managing Director. Where the above criteria are met, the Managing Director shall recommend PPM to the Executive Board, unless, in the view of the Managing Director, the member’s circumstances (in particular, the strength of the member’s policies, its external position, or the fact that a successor arrangement, PSI or a staff monitored program is expected to be in place within the next six months) are such that the process is unwarranted. PPM will normally cease when the member’s outstanding credit falls below all of the applicable thresholds above.

2. The Managing Director may also propose PPM to the Executive Board in cases where outstanding credit as defined above is below the above-specified thresholds if, in the view of the Managing Director, there are developments that suggest the need for closer monitoring of the member’s capacity to repay, and particularly, where developments call into question the member’s progress toward external viability.

3. For members subject to PPM, there will normally be one standalone PPM paper issued for Executive Board consideration in a twelve-month period. The member will be expected to engage in discussions with staff on its policies, which shall include a quantified macroeconomic framework. The staff will report to the Executive Board on the member’s policies, the consistency of the macroeconomic framework with the objective of medium-term viability, and the implications for the member’s capacity to repay the Fund. PPM papers should also examine the risks to the member’s capacity to repay the Fund.

4. The Executive Board’s consideration of a PPM paper will be reflected in a press release. The publication of the press release will follow the normal press release procedure, including the requirement of the member’s consent.

Decision No. 13454-(05/26),

March 14, 2005,

as amended by Decision Nos. 13563-(05/85), October 5, 2005,

14184-(08/93), October 29, 2008,

14284 (09/29), March 24, 2009,

15946-(16/14), February 17, 2016, and

16019-(16/61)

July 1, 2016

The Acting Chair’s Summing Up Strengthening the Framework for Post-Program Monitoring Executive Board Meeting 16/51, July 1, 2016

Executive Directors welcomed the opportunity to discuss proposals to improve the Fund’s framework for post-program monitoring (PPM). They considered PPM to be an important element of the Fund’s safeguards framework. Through closer engagement with members that have substantial outstanding credit to the Fund but are no longer in a program relationship, PPM enhances the Fund’s ability to detect risks to the member’s repayment capacity and thus safeguard the Fund’s resources. Directors noted that the sizeable expansion of Fund credit in recent years has made it all the more important to ensure that the PPM framework remains robust. At the same time, they recognized the challenge of striking the right balance between different—and sometimes conflicting—objectives, including between strengthening and streamlining efforts, and between flexibility and evenhanded treatment.

Against this backdrop, Directors supported moving toward a more risk-based and focused PPM framework. They agreed that PPM reports should examine in depth the full range of risks to members’ capacity to repay, and that the analysis should be tailored to members’ specific circumstances. Directors welcomed the range of innovative techniques and indicators used in the analysis and monitoring of risks, while stressing the desirability of maintaining a clear distinction, in terms of both content and modalities, between PPM and other forms of Fund engagement, be it lending or surveillance.

Directors saw merit in establishing absolute-size thresholds to help ensure adequate monitoring of large exposures to the Fund’s resources. They found it reasonable to calibrate such thresholds relative to the Fund’s loss-absorption capacity, and to use as a proxy the minimum floor of precautionary balances for credit outstanding from the General Resources Account (GRA), and the reserve balance for credit outstanding from the Poverty Reduction and Growth Trust (PRGT). Directors supported, or could support, setting the absolute-size thresholds at SDR 1.5 billion for GRA credit, and at SDR 0.38 billion for PRGT credit. Some Directors considered that a lower threshold for GRA exposures would have provided a better safeguard to Fund resources.

Directors agreed that the quota-based threshold should be retained as a backstop. They supported, or could support, raising the threshold to 200 percent of quota, close to the point at which level-based surcharges apply for GRA exposures. Some Directors would have preferred a lower level, noting that small and medium-sized economies could benefit from enhanced engagement with the Fund, or should be able to opt in voluntarily.

Directors agreed that the policy should be implemented in a flexible and streamlined manner, while ensuring the strongest safeguards to Fund resources. They agreed to reduce the frequency of PPM to once in any 12-month period, based on a mission scheduled between annual Article IV consultations, which would also help differentiate the two reports. That notwithstanding, Directors took note of the requirement that Article IV consultations, inter alia, assess balance of payments stability and risks. While a number of Directors were willing to go along with a presumption that all standalone PPM reports would be considered on a lapse-of-time (LOT) basis, most Directors had reservations and emphasized the importance of the Board exercising its fiduciary duty to oversee risks to the Fund’s resources. In this context, a few Directors saw value in applying the absolute-size thresholds as a trigger for formal Board consideration of PPM reports. In light of these considerations, Directors agreed to retain the current risk-based approach to the usage of LOT procedures, whereby it would be possible for the Board to conclude PPM consideration on an LOT basis if no major issues have arisen.

BUFF/16/51

July 8, 2016

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

Ed. Note: Paragraph 13 of Decision No. 15017-(11/112), November 21, 2011 states: “Decision No. 7925-(85/38), adopted March 8, 1985, as amended, on the relationship between performance criteria and phasing under GRA arrangements, shall not apply to PLL arrangements.”

Ed. Note: Decision No. 15462-(13/97), October 11, 2013, provides that: “Decision No. 11248-(96/38), adopted April 15, 1996, shall remain applicable to any conditionality on external debt that is in place as of the date of this decision unless and until such conditionality is amended to provide for the use of the Unified Discount Rate. (SM/13/271, 10/07/13)”

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

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

Paragraphs 2-7 of this decision contain amendments that have been inserted into the respective amended decisions (i.e., Decision Nos. 7842-(84/165), 11832-(98/119) ESAF, 13561-(05/85), 11436-(97/10), 13564-(05/85), and 13183-(04/10).

Ed. Note: See also the Concluding Remarks by the Acting Chairman-Strengthening the Application of the Guidelines on Misreporting, EBM/00/77, July 27, 2000, where Directors also supported establishing as normal practice that all prior actions must be carried out at least five working days before the Board discussion to which they relate.

Ed. Note: Sections on misreporting have been deleted from this summing up in light of subsequent amending decisions on misreporting (Decision Nos. 12252-(00/77), July 27, 2000 and 12249-(00/77), July 27, 2000).

Ed. Note: Pursuant to Decision No. 13814-(06/98), November 15, 2006, future reviews will be conducted on an “as needed” basis. The expectation going forward is that “as needed” would generally mean a lag of at least five years between any such reviews.

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

Ed. Note: The performance criteria enumerated here are examples only.

Ed. Note: As per Decision No. 8648-(87/104), July 17, 1987, 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.

The performance criteria enumerated here are examples only.

Ed. Note: As per Decision No. 8648-(87/104), July 17, 1987, 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.

Ed. Note: Paragraph 10 was deleted by Decision No. 14714-(10/83), August 20, 2010.

Ed Note: Decision No. 15481-(13/103), November 11, 2013, provides: “Upon completion of the conditions specified in paragraph 3 of the Board of Governors Resolution No. 66-2, the percentage of quota referred to in subparagraph (vi) of paragraph 2 of the Attachment to Decision A set forth in DEC/A/13207, as amended, with regard to the limit of access in augmentations considered for approval on a lapse-of-time basis shall be changed from 25 percent to 12.5 percent.”

See SM/02/246, 7/30/02.

Ed Note: Decision No. 15763-(15/39), adopted April 23, 2015, states: “The Fund decides to repeal the policy on Ex Post Assessments (EPA) set forth in BUFF/03/51 of April 8, 2003; BUFF/06/59 of May 17, 2006; and Decision C of DEC/A/13207 of August 28, 2009. The repeal of the policy on EPA is effective immediately effective except in cases where an EPA report has been already prepared by staff and submitted to management. In such cases the provisions of the EPA will continue to apply through December 31, 2015. (SM/15/81, Sup. 2, 04/28/15).”

Ed. Note: The access limits referred to in this paragraph will be halved when the conditions specified in paragraph 3 of the Board of Governors Resolution No. 66-2 (December 15, 2010) are met and will apply to assistance under the PRGT committed after its date of effectiveness (see Decision No. 15821-(15/66), July 1, 2015).

Ed. Note: Pursuant to Decision No. 13814-(06/98), November 15, 2006, future reviews will be conducted on an “as needed” basis. The expectation going forward is that “as needed” would generally mean a lag of at least five years between any such reviews.

Decision No. 14235-(09/1), December 31, 2008, provided that reviews of the Fund’s policy of lending into arrears shall have no deadline; they are to be completed “as needed” as defined in the Streamlining Decision.

Ed. Note: Paragraph 2 of Decision No. 15941-(16/14), February 17, 2016 states: “2. The modification of overall access limits set forth under this decision [in paragraphs 2 and 4] shall not cause members to be subject to the exceptional access policy if they were not subject to the said policy prior to the entrance into effect of this Decision, unless following the entrance into effect of this Decision the Executive Board approves access to the Fund’s general resources account under a new arrangement, or through an augmentation of access under an arrangement that was in place prior to the entrance into effect of this Decision, or through an outright purchase under the RFI, in an amount that would cause the member to exceed the overall annual or cumulative access limits set forth under this decision.”

The four criteria are exceptional balance of payments pressures in the capital account; debt-sustainability analysis; expectation of reentry to capital markets; and strong program design and implementation prospects. The full language of the criteria is given in Summing Up by the Acting Chair—Access Policy in Capital Account Crises (BUFF/02/159, 9/20/02).

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