A Concluding Comment

International Monetary Fund
Published Date:
January 1982
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To judge by the number of stand-by arrangements in force, the Fund’s current policy on enlarged access to its resources has done much to remove the inhibitions that members have had about approaching the Fund with requests for stand-by arrangements at an early stage of their difficulties. The present guidelines on enlarged access applied by the Fund permit an annual use of its resources equivalent to 150 per cent of quota and use of up to 450 per cent of quota over a period of three years, apart from transactions under two special policies with light conditionality. A limit of 600 per cent of quota is placed on total outstanding use, apart from use under the same two policies and a third policy not now in effect, and with allowance made for scheduled repurchases (i.e., repayments) in respect of earlier purchases. Even these multiples of quota can be exceeded if the Fund decides that it should meet an even greater need. The effect of the policy has been a major increase in the number of outstanding arrangements and in the total amount of resources committed under them.

In the interest of order in international finance, it remains desirable that lenders, whether official or private, should encourage requests for stand-by arrangements as conditions precedent to entry into their own loan agreements when made to support the balance of payments or reserve position of a member. For the same reason, it is desirable also that lenders should tie provisions of their agreements into the terms of stand-by arrangements. The increase in the number of arrangements and the longer periods that they cover give lenders more opportunities to require these ties. The contribution of the Fund to order is its maintenance of the standards of conditionality.

There are cases in which a member does not approach the Fund because the member is not in a difficult balance of payments or reserve position and does not expect to be. If the member wishes to obtain resources in such circumstances, banks willing to supply the resources may not find it easy to suggest that the member seek a stand-by arrangement from the Fund, even though the Fund has shown some willingness to approve precautionary stand-by arrangements. A different situation exists, however, if a member is in difficulty or expects to be, and if banks distinguish between what they consider good risks and bad risks among applicants and advise only the latter members to request stand-by arrangements.102 A distinction of this kind could harm the interests of members that are advised to approach the Fund.

There are many ways to formulate provisions that establish ties. Some of the provisions that have been examined demonstrate an incomplete understanding of the Fund’s law and practice. References to the ineligibility of a member are ambiguous. If the word is given the meaning that it has under the Articles, it offers no real protection to a lender because the Fund avoids procedures that are related to ineligibility. For the same reason, references to the Fund’s limitation of the use of its resources or to the suspension of transactions under paragraph 5 of a stand-by arrangement have little effect. It may be impractical for formal reasons to avoid a reference to paragraph 5, but the most realistic way in which a lender can protect itself is by relying on the observance of performance criteria. A properly drafted reference to the observance of performance criteria should be considered indispensable whatever additional provisions a lender may wish to include in its loan agreement.

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