Shrikrishna A. Pandit
The International Monetary Fund sometimes stations a staff member as a Resident Representative in a member country, perhaps for a year or two. Recently I was called upon to fill this role, and although what I write here is primarily based on my own experience, it also takes into account a good deal of discussion with others who have performed similar roles. I hope it may be general enough to illuminate one of the Fund’s services which member countries have deeply appreciated but which is not generally well-known or understood.
The assignment of Fund staff members as resident experts in member countries for periods of six months or more dates back to as early as 1950, but Resident Representative assignments, or as they were originally termed, “Fund representatives in connection with stand-by arrangements,” date only from 1965. Initially, a Fund Representative was stationed in a country following the negotiation of a stand-by arrangement with that country with the implied expectation that he would be resident there for the one-year life of the stand-by. However, very soon the custom developed of member countries requesting a continuing assignment of a Fund Representative with an extension of the stand-by and later, after the expiration of the stand-by, in contemplation of a new one. As a result, in several countries the presence of Resident Fund Representatives has tended to become a continuing aspect of the Fund’s relations with those countries, for example, in Afghanistan continuously since 1965, in Korea since 1965, and in Indonesia since 1967. The assignment of individual staff members as Fund Representatives abroad usually extends for one to two years, although in-a few instances the period has been longer.
An aspect of technical assistance
Since 1966, the number of Fund representative assignments has expanded significantly. By February 1973, a total of 72 Fund representatives had been assigned to 23 countries. At present, there are representatives serving in 18 countries: Afghanistan, Bangladesh, Bolivia, Costa Rica, Ecuador, Haiti, Honduras, Indonesia, Korea, Liberia, Mali, Nicaragua, Panama, Paraguay, Peru, the Philippines, Sudan, and Uruguay. As indicated above, most of the Fund representatives have been stationed in countries that have entered into stand-by arrangements in support of their financial stabilization programs. However, in a few instances, the Fund has also posted its representatives with countries that have not entered into stand-by arrangements but have nevertheless requested the presence of such representatives to advise and assist them in connection with their own financial or exchange stabilization programs. Normally, there is only one Resident Representative in a country, but on occasion (for exam-pie, in Indonesia), where the Fund technical assistance has been extensive, one or two Assistant Representatives have also been assigned to help the Fund Representative.
The posting of a Fund Resident Representative in a country represents only one part or form of the Fund’s overall technical assistance effort. Thus, from time to time, the Fund sends special technical assistance missions to Fund members, or posts staff members in countries for varying periods of time for special assignments. Also, the Fund makes available to members requesting such assistance the services of resident technical experts under the special technical assistance programs offered by the Fund’s Central Banking Service and the Fiscal Affairs Department. These experts are generally recruited from outside the Fund staff from an internationally chosen panel of technicians, and they usually serve in some operating capacity in either the Central Bank or the Finance Ministry of the host country. In addition, in the past several years, the Fund’s Bureau of Statistics has been making available the services of its staff members to various countries for short periods of time to assist them in improving the quality and coverage of the financial data in their own statistical publications, primarily the Central Bank Bulletin.
A stand-by is an arrangement whereby “a member country is assured that, following upon a review of its (economic) policies and position, and subject to such conditions as are included in the arrangement, it can purchase from the Fund the currencies of other Fund members up to an agreed amount without further consideration of its (economic) position by the Fund.”
See George Nicoletopolous, “Standby Arrangements,” Finance and Development, December 1964.
Because of the greater continuity of the Fund Resident Representative’s position and his generally wide ranging policy responsibilities, technical assistance liaison and coordinative functions with respect to the other elements of the technical assistance programs, especially in respect of annual consultations and other short-term Fund missions, often devolve upon him. This relationship varies widely from country to country and with the type of technical assistance subject involved.
The Resident Representative generally maintains his office in one of the two institutions with which the Fund is constantly in contact, namely, the Finance Ministry or the Central Bank of the host country; often that institution assigns one or two liaison officers to work closely with him. The Representative has regular access to high policy-making officials in both the Ministry and the Central Bank, and also in other government departments and agencies as necessary. He also seeks to maintain contacts with representatives of other international agencies operating in the country (e.g., the United Nations Development Program (UNDP), the World Bank) or of the countries providing substantial aid to the host country (e.g., consortium members, U. S. Agency for International Development), managers of the branches of major foreign banks operating in the country, the local chambers of commerce and other business organizations, and the academic community.
As stated earlier, most of the Fund Resident Representatives in various countries have been stationed, at the specific request of those countries, in order to assist the authorities in the implementation of their stabilization programs. Generally, these countries have a stand-by relationship with the Fund in support of these programs. Under such an arrangement, to quote an earlier writer in Finance and Development, “a member country is assured that, following upon a review of its (economic) policies and positions, and subject to such conditions as are included in the arrangement, it can purchase from the Fund the currencies of other Fund members up to an agreed amount without further consideration of its (economic) position by the Fund.”
The stand-by arrangement itself is negotiated by a special Fund mission which visits the country concerned, and a prospective Resident Representative could be a member of that mission. Once he is already assigned to that country, he actively participates in any further negotiations for the review or the modification of the existing stand-by as well as in the negotiations for a new stand-by. Once the stand-by arrangement enters into effect, the Resident Representative’s main task is to assist, as stated above, the authorities in the implementation of the financial stabilization program outlined in that arrangement.
The various provisions of the stand-by arrangement arrived at after consultation between a country and the Fund constitute the basis for a financial stabilization program. This program generally aims at improving the country’s balance of payments position and creating conditions conducive to the realization of the objective of sustained economic growth consistent with domestic price stability. A stand-by arrangement might thus provide for credit restraints, including limits on the growth of total domestic credit with sub-ceilings if necessary on credit to the public sector; assurances concerning the maintenance of, or raising of existing minimum and/or margin reserve requirements for commercial banks; or perhaps the introduction and implementation of a comprehensive interest rate reform. Further, under a stand-by arrangement, the government would also be likely to express its intention to adopt expeditiously appropriate measures to augment government revenue, to control less essential government expenditures, and to reduce or eliminate some or all of the existing consumption subsidies (for example, a subsidy on rice) in order to reduce the fiscal deficit. The government may further decide to initiate measures to improve the performance of state enterprises in financial difficulties, including primarily measures to rationalize their pricing policies. Furthermore, the stand-by arrangement might contain the so-called “balance of payments test” under which a country might plan to avoid any loss of external reserves during the stand-by period or to attain a certain minimum increase in reserves. The balance of payments test is usually applicable when the member country concerned is operating under a floating exchange rate system. The stand-by arrangement may also call for a simplification or unification of the exchange system, or abolition of (or at least no increases in) existing multiple exchange rate practices, exchange restrictions, quantitative import controls, and bilateral payments arrangements. Also, if the existing level and the maturity pattern of a country’s foreign debt are such that the servicing of this debt already imposes, or is potentially likely to impose, a heavy burden on the country’s balance of payments, then the stand-by for that country might contain clauses pertaining to limitations on new foreign borowings of different original maturities. The various techniques outlined above are generally used only in those cases where the use of the Fund’s resources is in higher credit tranches—i.e., where the country is making a large use of these resources.
Not every stand-by arrangement will contain all these features, but every standby will provide for at least some of them. The stand-by arrangement may also provide suitable phasing, i.e., time references, in respect of various ceilings and other limits. The various terms and any special concepts used in reaching the stand-by agreement are defined in the Letter of Intent that is sent to the Fund by the appropriate authorities of the country seeking the stand-by and/or in the Memorandum of Understanding agreed between the Fund staff and the officials of that country in regard to that stand-by. The Memorandum of Understanding also provides that the country concerned will supply regularly adequate statistical and other information concerning all aspects of the implementation of the stand-by arrangement, particularly data relating to various ceilings and other firm understandings which if not adhered to would render the country ineligible to draw any unused portion of the amount provided under the stand-by arrangement without further consultation with the Fund.
Implementing the stand-by
The implementation of the stand-by arrangement involves considerable efforts on the part of the country concerned. It is in this respect that the Fund Resident Representative can provide significant advisory assistance on the basis of his own experience and impartial and constant observation of the situation, supplemented by guidance that might be provided to him by the Fund staff from headquarters. In performing this function, he watches out for any danger signals in the economy and alerts the country officials to them. He may thus spot a situation whereby the host country may be in danger of exceeding the agreed quantitative criteria, or be slowly drifting into a situation which may lead to sharp price rises, or to the imposition of undesirable new exchange or trade restrictions. Once he does this, after ascertaining that these dangers are not likely to disappear on their own accord, he may offer some suggestions to the authorities on how to meet the situation. This is indeed one of the key elements in the role of the Fund Representative, and it is not easy to discern how, in the absence of a Fund Representative, this function would be performed efficiently.
Being on the spot, the Resident Representative has generally good access to all the information necessary to follow the economic developments in the country, which is of course essential to any meaningful analysis of how the implementation of the stand-by is proceeding, or if it is not proceeding smoothly, why not. On the basis of this information, he is better able to advise the member country authorities concerning the effectiveness of their stabilization measures. Also, he is in a position to keep the Fund staff well acquainted with the economic situation in the country, providing background material and explanations supplementing the data that are furnished to the Fund by the country itself. He can thus explain why in a given period of time there was a sharp increase in bank credit to the public or private sector, or why the commercial banks developed a reserve deficiency, or why the fiscal situation is developing in a manner different from that anticipated in the original stand-by arrangement, or why foreign exchange reserves are declining steadily or abruptly, or why prices shot up suddenly, or why there is excessive pressure on the exchange rate, or why the supposedly floating exchange rate was, in effect, pegged, and so on. He can also provide fuller information about any new fiscal or credit control measures or new import or exchange restrictions introduced by that country, new external loans obtained, or any natural calamity or other emergency that might jeopardize the success of the stabilization program. The Fund can, of course, obtain this information by correspondence or on occasion by sending a special mission to the country. This would be time-consuming and often cumbersome, and generally this procedure cannot be an adequate substitute for the comprehensive and steady flow of information and explanations provided by the Resident Representative.
The Resident Representative is not, however, in the country as a watchdog for the Fund. Rather, all the activities of the Representative are directed strictly toward being useful to the host country in whatever small way he can in the matter of the implementation of the stabilization program. And if, in the course of performing this task, he remains constantly in touch with the Fund headquarters, this contact is aimed at securing any necessary guidance from the Fund staff in order to perform his own advisory role.
Negotiating further arrangements
There is yet another important aspect of the role played by the Resident Representative in connection with the stand-by arrangement. This relates to the negotiation of a new stand-by arrangement or modification of the existing one, or even the modification of the Memorandum of Understanding. With his on-the-spot and constant observation of the economic situation, and continuous contact with the country officials and the Fund staff on various matters, he may have useful suggestions to offer concerning some desirable changes in certain aspects of the new stand-by to be negotiated or the existing one to be modified. These suggestions can be helpful in expediting these negotiations and arriving at a more suitable stand-by arrangement, which in turn may contribute to its smooth implementation. Furthermore, based on his first hand knowledge of the availability of various data in the country, on the one hand, and familiarity with the data requirements of the Fund staff, on the other, the Resident Representative can assist the host country in improving the quality and the coverage of the statistical and other information prepared by the host country in response to the comprehensive written questionnaire that might be sent by the Fund staff in advance of the actual field negotiations for the stand-by arrangement. Such improvement of the statistical information is indeed essential for formulating a sound policy program.
Role in consultations
The work done by the Resident Representative in connection with the stand-by arrangement, of course, occupies a major part of his time, but he is also engaged in other activities. Thus, first of all, he serves as a link between the Fund and the host country in respect of various other aspects of the Fund’s relations with that country. He participates in the Fund’s annual consultation discussions with the country, involving an overall economic review, with special reference to its balance of payments and reserves position and developments in the exchange system. He may also assist the country in the periodic submission of data to the Fund on balance of payments, foreign trade, exchange restrictions, external debt, etc. On occasion, he serves as a useful intermediary in the exchange of communications relating to various matters such as local currency subscription by the country in respect of its quota increase in the Fund, or rescheduling of repurchases from the Fund. Furthermore, he helps in the preparation of the documentation for Fund representation at the World Bank Consultative Group Meetings or at any international debt rescheduling meetings arranged for his host country, and also sometimes attends these meetings along with other Fund representatives from headquarters.
When invited to do so, and this happens not infrequently, he also provides, on an informal basis, detailed explanations and background information to the officials of the host country concerning the many aspects of the Fund’s policies and operations and also about various technical concepts used in the course of the Fund’s work (for example, concepts such as reserve money, overall and basic balance of payments surplus or deficit, etc.). If need be, he will also bring to the attention of the country the availability of specialized technical assistance offered by the Fund under the programs of the Central Banking Services, the Fiscal Affairs Department, and the Bureau of Statistics. If requested, he will help in arranging to obtain such assistance under these specialized programs.
In addition to his role in connection with several aspects of the host country’s relations with the Fund, in particular the stand-by arrangement, the Resident Representative may also be called upon to perform various other important duties. Thus, he is often asked to give his personal and informal opinions concerning economic policy matters which do not strictly fall within the narrowly defined scope of the Fund’s relations with the country. For example, his advice or help may be sought in a formal or informal manner in connection with the operation of the foreign exchange market, or credit controls, and he may be asked to participate on a more or less regular basis in certain important economic policy meetings. In all these matters, the usefulness of the Fund Representative’s advisory role is greatly enhanced if he has been successful in attaining the confidence of the key officials and technicians in the host country.
The Resident Representative may also often be invited by the officials of the host country to give his own views and to contribute his personal interpretation of various developments in the world of international finance and other economic matters. Thus, he may be asked to comment on the current discussions relating to the reform of the international monetary system, developments in the Euro-dollar and other international money and capital markets, changes in interest rates in industrialized countries, price trends in developed as well as developing nations and price and wage control programs, innovations in fiscal and monetary policy techniques, planning techniques and procedures used in other developing countries, regional economic and financial arrangements, and so on. In this context, it may be especially noted that during periods of international monetary crises, the authorities of the host country might find it advantageous to discuss with the Fund Representative the possible implications of these crises for that country’s balance of payments and exchange position and policies. The Resident Representative may also be requested to provide information available to him concerning the relationship of the Fund to various international organizations, including the World Bank Group, the Asian Development Bank and other regional development banks, the General Agreement on Tariffs and Trade, the United Nations Conference on Trade and Development, and other UN economic organizations, and various regional economic organizations. To keep informed about developments in these and other fields and to make this information available to the policymakers and technicians in the host country is indeed at once a challenging and satisfying job. And, in the opinion of the author, it is also of considerable help to the host country, for in many instances such information may not be readily available to these officials, especially in view of their constant preoccupation with various administrative matters in the course of their work of formulating and implementing various domestic economic policies.
In conclusion, there exists a broad scope to the field of activities which a Fund Resident Representative performs in the course of his assignment. A good part of these activities is directly related to the country’s stand-by agreement with the Fund and the other aspects of the Fund’s relations with that country. Many of the other activities, however, are not strictly connected with this main task, and are, therefore, outside the scope of this article and as such they have been only very briefly outlined in the preceding paragraph. The Resident Representative’s work calls for continuous diligence and alertness and above all tact and readiness to assist at all times the officials of that country in matters that fall within his competence. He must also constantly seek to understand the official thinking on various economic matters within the context of the country’s overall socio-political and economic situation and its cultural and institutional background. His unobtrusive presence and objective counsel serve the interests of both the member country and the Fund. In the performance of his task, he thus serves to develop a friendlier relationship between the Fund and the member country, which is one of the indispensable elements for the smooth working of the International Monetary Fund.