Certification by the Fund

International Monetary Fund
Published Date:
January 1982
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If conditions that relate to the Fund or to the use of its resources are included in loan agreements, lenders want to know whether the conditions are satisfied. The Fund has cooperated with members when they have requested statements that provide the necessary information, and in particular the information that a member was able to make purchases under a stand-by arrangement. Members prefer this procedure to a practice, which was followed sometimes in the past, of making small purchases under a stand-by arrangement in order to demonstrate that their right to engage in transactions was not impeded. Sometimes, however, a loan agreement calls for a statement that, as of a certain date, the member has made all the purchases for which the stand-by arrangement provides. Some provisions that were intended to have this effect have used the possibly ineffective, and certainly ambiguous, language of “all purchases of funds which could be made under such stand-by arrangement.” If, because of the nonobservance of performance criteria, purchases could not be made, it might be contended that all the purchases that could be made under the terms of the stand-by arrangement had been made.

Members themselves can represent that they are observing performance criteria and that they can make purchases from the Fund if lenders require a representation to that effect. Performance criteria are objective, and normally, therefore, a member should know whether or not the criteria are being observed. Sometimes, however, the Fund is asked to provide a statement either because the member is not certain about its position or because lenders regard the Fund’s statement as impartial or more authoritative. The content of the statement that is requested is determined by the provisions of the loan agreement that gives rise to the request. The Fund usually has the information on the basis of which it can make the necessary statement, but on a few occasions it has had to make a special effort to gather current information.

A statement provided to a member by the Managing Director on behalf of the Fund can be transmitted by the member to lenders. The Fund prefers this procedure because it gives the member an opportunity to raise any question about the statement if it wishes.

On some occasions, the Managing Director has provided a statement directly to a lender, in compliance with the request of a member. Statements relating to a member’s ability to make purchases or to its observance of performance criteria are not submitted to the Executive Board for its approval. The Executive Board has been unwilling to establish procedures by which the Fund would provide certifications that assess the quality of a member’s policies or the strength of its economic or financial position.

The Managing Director has provided statements along the following lines:

It is hereby confirmed that the International Monetary Fund has approved a stand-by arrangement under which Patria can make purchases from the Fund in the higher credit tranches, in amounts and subject to the terms and conditions specified in the arrangement. As of the date of this communication, Patria is able to make purchases under the stand-by arrangement as provided by the terms and conditions of the arrangement.

The following formulation is an example of a more detailed statement requested by a member in accordance with the wishes of a lender:

Reference is made to the stand-by arrangement that the International Monetary Fund has approved on July 1, 1980 for Patria (referred to in this letter as “the stand-by arrangement”).

I hereby confirm that:

  • (1) The stand-by arrangement continues in effect.
  • (2) Subject to the satisfaction of the terms of the stand-by arrangement, Patria will have the right to make purchases from the Fund under the stand-by arrangement in an amount equivalent to SDR 400 million, provided that purchases under the stand-by arrangement will not, without the consent of the Fund, exceed the equivalent of SDR 120 million until September 30, 1980, the equivalent of SDR 220 million until December 15, 1980, and the equivalent of SDR 320 million until March 31, 1981. These limits do not apply in respect of any purchase under the stand-by arrangement that does not increase the Fund’s holdings of Patria’s currency beyond the first credit tranche.
  • (3) As of October 31, 1980, Patria was observing all applicable performance criteria under the stand-by arrangement.
  • (4) As of the same date, Patria had purchased all amounts that it was entitled to purchase in accordance with the provisions of the stand-by arrangement prescribing the amount and timing of such purchases.

Sometimes, a lender, in order to be able to provide urgently needed resources, has asked the member to request a statement that the Managing Director has recommended approval of a stand-by arrangement or that he has recommended a waiver of the nonobservance of performance criteria under an existing arrangement. The Managing Director has complied with such requests even though the Executive Board has not yet acted on his recommendation.

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