Journal Issue
Share
IMF Survey Vol.30, September 2001
Article

Overdue payments: IMF strategy focuses on prevention, cooperation, remedial measures, and deterrence

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2001
Share
  • ShareShare
Show Summary Details

To maintain the cooperative nature and protect the financial resources of the IMF, and to keep other sources of official and private credit open to them, members must meet their financial obligations to the IMF on time. When members fall behind in their debt-service obligations, they are expected to take steps that will enable them to settle their arrears as quickly as possible.

Strategy

The IMF’s cooperative strategy, strengthened in 1990, helps prevent new cases of arrears from emerging and existing arrears from becoming protracted (overdue by six months or more). The strategy has three main elements–prevention, intensified collaboration, and remedial measures—and entails close collaboration among the IMF, the World Bank, and other international financial organizations to encourage member countries to resolve their arrears problems.

Prevention. To prevent new cases of arrears from emerging, the IMF imposes conditions on the use of its resources, assesses members’ medium-term external viability and ability to repay, cooperates with donors and other official creditors to ensure that IMF-supported adjustment programs are adequately financed, undertakes safeguards assessments of the central banks receiving IMF resources, and provides technical assistance to help members formulate and implement reforms.

Intensified collaboration and the rights approach. Intensified collaboration helps members design and implement economic and structural policies to resolve their balance of payments and arrears problems. It also provides a framework for members in arrears to establish a track record of policy and payments performance, mobilize resources from international creditors and donors, and become current in their obligations to the IMF and other creditors. This approach has resulted in the normalization of relations between the IMF and most of the members in protracted arrears at the time that the cooperative strategy was strengthened in 1990.

Safeguarding resources

In financial year 2001, the IMF intensified its efforts to safeguard its resources by adopting a strengthened framework of measures, including procedures for assessing the safeguards of the central banks of member countries using IMF funds. These assessments, which began in July 2000, focus on the banks’ internal control, accounting, reporting, and auditing systems and, thus, on their ability to manage their resources, including IMF disbursements. If vulnerabilities are identified, IMF staff proposes remedies, including measures that could be implemented before further disbursements of IMF funds.

The new policy was adopted against the background of several instances of misreporting by some members under IMF-supported programs and allegations of misuse of IMF resources. The strengthened framework is intended to supplement conditionality, technical assistance, and other means that have traditionally ensured the proper use of IMF loans. As a result of the policy, central banks have become more aware of transparency and governance issues in their operations, and it is hoped that they will introduce more effective safeguards. The IMF also introduced measures to deal with the misreporting and misuse of information provided to it.

In some cases, a country’s economic policies are formulated in the context of a “rights-accumulation program,” which shares many of the features of a regular IMF-supported macroeconomic stabilization and structural reform program. A rights-accumulation program allows a country in protracted arrears to accumulate “rights” to future drawings of IMF resources through its adjustment and reform efforts. Future drawings are made only after the member has satisfactorily completed the program and cleared its arrears and the IMF has approved a successor arrangement.

Remedial measures. The arrears strategy includes a timetable of remedial measures of increasing intensity to be applied to member countries with overdue obligations that do not actively cooperate with the IMF in seeking a solution to their arrears problems. Such measures can range from a temporary limit on the member’s use of IMF resources to compulsory withdrawal from the IMF.

In July 1999, the Executive Board established a process of deescalation of certain remedial measures to encourage members in protracted arrears to cooperate with the IMF to clear those arrears and have their access to IMF resources restored. Under the process, the Board would determine that the member had begun to cooperate in resolving its arrears problems, an evaluation period would be established during which cooperation would be expected to strengthen further, and remedial measures that had been taken would be lifted in stages.

Developments

Protracted arrears to the IMF declined in financial year 2001, to SDR 2.26 billion as of April 30, 2001, from SDR 2.32 billion a year earlier. Four members–the Democratic Republic of the Congo, Liberia, Somalia, and Sudan–are responsible for almost all overdue obligations to the IMF.

The Board reviewed the overdue financial obligations of two members during 2000/2001. Reviewing Liberia’s overdue obligations on November 15, 2000, the Board noted a weakening of policy implementation and deterioration of relations with external creditors and donors. It decided to defer further remedial measures pending the next review, which is scheduled to take place by November 15, 2001. On July 31, 2000, November 20, 2000, and March 5, 2001, the Board reviewed Sudan’s overdue obligations and found that Sudan was making payments to the IMF in line with commitments and that its policy performance was broadly on track for 1999-2001. Under its policy of deescalating remedial measures, the Board restored Sudan’s voting rights in the IMF as of August 1, 2000.

With respect to the Democratic Republic of the Congo, an IMF staff team visited Kinshasa in early 2001. A follow-up mission in May held discussions for the 2001 Article IV consultation and reached understandings on a staff-monitored program for the period June 2001-March 2002.

At the end of April 2001, the Islamic State of Afghanistan, the Democratic Republic of the Congo, Iraq, Liberia, Somalia, and Sudan remained ineligible to use the general resources of the IMF. Declarations of noncooperation were in effect for the Democratic Republic of the Congo and Liberia, and the voting rights of the former remained suspended.

Other Resources Citing This Publication