Resources to help low-income countries strengthen their balance of payments positions and promote growth were significantly boosted following the announcement on December 31, 1987, that the International Monetary Fund had established a new concessional lending facility. The enhanced structural adjustment facility (ESAF) is expected to provide SDR 6 billion from which its poorest member countries can draw when undertaking strong three-year macroeconomic and structural programs. This new entity and the remaining resources of its companion facility, the structural adjustment facility (SAF), together during 1988–90 will provide SDR 8.2 billion (about US$11.4 billion) to support such programs. The additional resources are designed to assist the adjustment efforts of low-income countries faced with high levels of indebtedness as well as those whose exports are concentrated in commodities—often one commodity—whose prices have remained weak in the world market.
The ESAF results from an initiative begun in the spring of 1987. The Fund’s Managing Director, Michel Camdessus, first raised the possibility of tripling the level of resources offered under the SAF at the annual meeting of the UN Economic and Social Council in June 1987. The proposal was subsequently endorsed at the Venice Economic Summit also in June and by both the Interim and Development Committees during the 1987 Annual Meetings of the Fund and Bank.
The ESAF’s objectives, basic procedures, and financial conditions are roughly similar to those of the SAF. Repayment schedules, for example, are the same under both facilities: ten equal semiannual installments, beginning five and one-half years and ending ten years from the date of disbursement. Interest rates for both facilities will be one-half of one percent, subject to the availability of the contributions of donor countries.
The two facilities draw their resources from different sources, however. The SAF was established in 1987 by reflows from the Fund’s Trust Fund; the ESAF is supplied by special loans and contributions from Fund members. The SDR 6 billion made available under the ESAF will be in addition to the SDR 2.2 billion that remains to be disbursed of the SAF’s original SDR 2.7 billion.
Currently 62 member countries are eligible for assistance from either facility. Access to the new facility for an individual country will be determined on the basis of balance of payments need and the strength of its adjustment effort. Maximum access to ESAF is expected to be 250 percent of quota, with provision for somewhat higher access in exceptional cases. Access under the SAF is 63.5 percent. Members borrowing from either facility will retain privileges to draw from the Fund’s general resources and other special facilities.
Like SAF programs, ESAF programs will be based on a Policy Framework Paper, which outlines the authorities’ medium-term economic objectives and priorities, and is developed with the joint assistance of the Bank and Fund staffs.
For further information on the PFP and other aspects of the facility, see “Enhancing the Fund’s Structural Adjustment Facility,” by Charles S. Gardner in the September 1987 issue, and “Helping Structural Adjustment in Low Income Countries,” by Michael W. Bell and Robert L. Sheehy in the December 1987 issue.