- International Monetary Fund
- Published Date:
- January 1998
Gold Prior to the Second Amendment
Before the breakdown of the Bretton Woods system in the early 1970s and the subsequent amendment of the Articles, gold occupied a central role in the international monetary system. The value of each currency was expressed in terms of gold (par value), and members were obliged to keep the exchange rates for their currencies within 1 percent of parity. In practice, most countries fulfilled these obligations by observing the par value against the U.S. dollar and by buying or selling their currencies for U.S. dollars, while the United States undertook to buy and sell gold freely for U.S. dollars at $35 per fine ounce, the par value of the U.S. dollar, which was equivalent to US$1 per 0.888671 gram of fine gold. This was also the “official price” of gold, at which all IMF transactions and operations in gold were conducted.
Gold also played an important role in transactions between the IMF and its members. For example, countries normally paid 25 percent of their IMF quota, as well as quota increases, in gold. Members could purchase any other member’s currency by selling gold to the IMF, some repurchases were required to be made in gold, and charges on the use of the IMF’s resources were payable in gold. In addition, the IMF could sell gold to members to replenish its holdings of currency.
In private markets, the price of gold at times diverged from the official parity price. In 1961, a “gold pool” was formed by the central banks of seven large European countries, which agreed to cooperate with the U.S. Federal Reserve to operate in the London gold market to stabilize prices around the official price. Following heavy sales of gold by the participating central banks in late 1967, the pool was abolished, and in March 1968 the central banks announced that they would no longer intervene in the private gold market. This led to the segmentation of the market for gold into two tiers: an official market, where transactions were made at the official price, and the private market, where prices were determined by supply and demand.
The First Amendment of the Articles, which became effective in July 1969, provided for the creation of the SDR, but did not fundamentally change the par value system and role of gold in the IMF. The SDR was defined in terms of gold (0.888671 gram of fine gold, the equivalent of the par value of the U.S. dollar). Although most of the gold provisions of the Articles were left unchanged. SDRs, in addition to gold and currencies, became usable for conducting operations and transactions with members. For example, the IMF could sell SDRs as well as usable (hard) currencies in purchases (drawings) and accept SDRs in repurchases (repayments), and members could pay charges in SDRs; the IMF could also sell SDRs to replenish its holdings of currencies. SDRs were not, however, directly convertible into gold in official transactions.
Gold After the Second Amendment
In August 1971, the United States announced that it would no longer buy and sell gold at the official price. This announcement was followed shortly by the effective breakdown of the Bretton Woods par value system, with the devaluation of the U.S. dollar in December 1971, and by the generalized floating of exchange rates in March 1973.
A series of discussions on the structure of the international monetary system, including the roles of gold, SDRs, reserve currencies, and the convertibility of currencies into reserve assets in a reformed system, formally began in July 1972 and extended for several years. They eventually led to the Second Amendment of the Articles, which came into effect in April 1978. The Amendment contained comprehensive new provisions that were designed to reduce the role of gold in the international monetary system and the IMF, and to make the SDR the principal reserve asset in the system. The financial operations and transactions of the IMF were adapted in part to reflect these two objectives.
Gold is reported as an asset in the IMF’s balance sheet and financial statements but is not used in its regular operations and transactions. The IMF does not have the authority to buy gold; it may only accept payments from a member in gold at a price agreed upon for each operation or transaction on the basis of market prices, with Executive Board approval by a majority of 85 percent of the total voting power. With the same majority, the IMF may decide to sell gold at market prices (see Box 4) or to “restitute” gold.75 In any operation or transaction in gold, the IMF must avoid managing its price or establishing a fixed price in the gold market. Furthermore, the IMF may not engage in such gold transactions as loans, leases, or swaps and may not use gold as collateral.76
In accordance with the Articles, since the date of the Second Amendment the IMF’s assets have been valued in terms of the SDR. Gold held by the IMF at the time of the Second Amendment is valued at SDR 35 for an ounce of fine gold, the former official price for gold, whereas the valuation of gold accepted by the IMF after that date is decided by the Executive Board. Gold is valued at SDR 35 an ounce for operational purposes (for example, for the operational budget and the designation plan). However, the IMF has discretion as to how gold is valued for these operational purposes and also for statistical or analytical purposes.
IMF’s Gold Sales in 1976–80
Following understandings reached by the Interim Committee in 1975, the IMF sold 50 million ounces of gold during 1976–80, reducing its holdings by a third, to 103.4 million ounces from 153.4 million ounces.77
A total of 25 million ounces of gold was sold at public auctions for the benefit of developing countries from mid-1976 to mid-1980. The auctions were conducted at regular intervals (initially every six weeks and subsequently each month) at a rate of about half a million ounces a month. The sales yielded profits (see Box 4) of $4.6 billion, of which $1.3 billion was distributed to developing countries in proportion to their IMF quotas and the remaining $3.3 billion was made available for long-term low-interest (Trust Fund) loans to eligible low-income developing countries.78
Box 4.Sales of Gold at Market Prices in the Current Articles
The IMF may sell any part of its gold for the currency of a member, with Executive Board approval by a majority of 85 percent of the total voting power.
Sales shall be at a price agreed upon for each transaction on the basis of prices in the market.
If the gold that is sold was acquired prior to the effective date of the Second Amendment, the “capital value” of the gold sold (the value at the price of SDR 35 a fine ounce) must be placed in the General Resources Account (GRA).
The net proceeds of a sale of gold in excess of the capital value (“profits”) must be placed in the Special Disbursement Account (SDA), except that a part may be transferred to the Investment Account by a decision that requires an 85 percent majority of the total voting power. (The income from investments in the Investment Account—authorized by the Articles but not yet activated—may be used to meet the expenses of conducting the business of the IMF, including both operational and administrative expenses.)
The assets of the SDA, which may be invested in income-producing and marketable obligations of members or of international financial organizations, may be used at any time for any of the following purposes:
(1) to make transfers of currency to the GRA for immediate use in regular operations and transactions (with a 70 percent majority of the total voting power);
(2) for other operations and transactions, including to make balance of payments assistance available on special terms to developing members in difficult circumstances; for this purpose, the IMF will have to take into account the level of per capita income of developing members and may take into account other appropriate criteria, but assistance must be on a uniform basis (use of assets for this purpose requires an 85 percent majority of the total voting power);
(3) to distribute directly to developing country members that were members on August 31, 1975, in proportion to their quotas on that date, such part of the assets that the IMF decides to use for the purposes of (2) above as corresponds to the proportion of the quotas of these members on the date of distribution to the total of the quotas of all members on the same date (use of assets for this purpose requires an 85 percent majority of the total voting power).
The other 25 million ounces of gold were sold at the official price of SDR 35 an ounce (“restituted”) to the 128 countries that were members on August 31, 1975, and Papua New Guinea.79 Restitution transferred to members the ownership of gold on the basis of the then-prevailing IMF quotas in exchange for currency at the former official price of gold. Restitution was carried out in four annual installments beginning in 1977 and was calculated in proportion to members’ quotas on August 31, 1975.
The capital value of the 50 million ounces of gold sold (SDR 1.75 billion) was placed in the IMF’s General Resources Account (GRA). An overview of the elements of the gold sales is provided in Figure A1.
Figure A1.IMF Gold Sales Program, 1976–80
Gold Price Developments
Under the par value system, the monetary authorities maintained the price of gold at or close to the official level of $35 a fine ounce by absorbing any imbalances between market supply and demand. The gold market thereby functioned more as a distribution mechanism for the physical supply of gold than as a price-setting device. With the abolition of the gold pool in 1968 and formal elimination of the convertibility of the U.S. dollar into gold in late 1971, a global market for gold as an asset in its own right and as a commodity developed. Major determinants of price fluctuations in this market have been investment demand (hoarding or dishoarding) and official activity. The stock of gold holdings is currently estimated at about 50 years of new gold from mines, and shifts in investor sentiment and central bank management practices therefore tend to have a relatively large short-run impact on gold market prices.
The sharp increase in the gold price at the time of the IMF auctions during 1976–80 was associated with an increase in investment demand partly in response to the accelerating rate of inflation (and negative real interest rates) in the major industrial countries (Figure A2). With the temporary collapse in the demand for gold for fabrication purposes (jewelry, industry) in the late 1970s and investor dishoarding in the early 1980s, the gold price declined sharply from a peak of $850 a fine ounce in January 1980 to a low of $285 a fine ounce in February 1985. Afterwords, the gold price remained largely in the range of $300–$400 a fine ounce, except for a temporary price rise in 1987–88.
Figure A2.Price of Gold
Source: IMF, International Financial Statistics (IFS).
Note: London afternoon gold fix, January 1988—May 1998.
Over the past two years, declining investment demand and increased mobilization of official holdings have caused a decline in the price of gold, which has sometimes fallen to less than $300 a fine ounce. Furthermore, a combination of sustained economic growth and low inflation in the industrial economies has eroded the perceived value of gold as a hedge against inflation.
Policies on Gold Since the Early 1980s
The IMF has not sold any of its gold since May 1980. It now holds 103.4 million fine ounces of gold with a book value—at the former official price of SDR 35 a fine ounce—of SDR 3.6 billion.80 The IMF acquired all of the gold it holds before January 1, 1974, at the former official price,81 mainly from members paying their original quota subscriptions, subsequent quota increases, and charges in gold. These holdings, which make the IMF the second-largest official holder of gold, are part of the IMF’s general resources held in the General Resources Account.
A general review of the use of the IMF’s gold took place in late 1979 and early 1980 in the context of ongoing discussions on the reform of the international monetary system. There was general agreement that the institution should be cautious and prudent in its approach to using its remaining stock of gold and that any further sales should be of limited amounts and should be undertaken only to promote the IMF’s purposes in ways that commanded the broadest possible consensus among its membership. Reflecting the emphasis on the preservation of the IMF’s capital and on maintaining the strength of its financial position, the profits from any gold sales should be used whenever feasible to create an investment fund, of which only the income would be used.
Since then, the Executive Board has discussed ad hoc use of the IMF’s gold on various occasions, most notably in the context of providing assurances to those members that lend to the ESAF Trust. If it appeared that any delay in payment by the trust to lenders would be protracted, the IMF has undertaken to consider all initiatives necessary to ensure full and expeditious payment to lenders, including the use of gold. In addition, the IMF has agreed, if necessary, to mobilize gold to further reassure ESAF creditors that they would be repaid for ESAF loans made to encash rights under the “rights accumulation approach.” For this purpose, in 1993 the IMF decided—with the required 85 percent majority of the total voting power—to sell up to 3 million ounces of gold if it were determined that the resources in the ESAF Trust Reserve Account (plus other available means of financing) were insufficient to meet payments to be made from that account to ESAF lenders. The shortfall would be covered by gold sales to the extent of previous drawings on the Reserve Account attributable to overdue repayments of loans for the encashment of rights, plus the interest earnings forgone on such drawings.
Mobilization of IMF gold reserves has also been considered in discussions of the financing of the ESAF and the HIPC Initiative. In late 1996 it was agreed that if a financing gap remained after all efforts had been made to secure the maximum possible bilateral contributions, there could be recourse to the sale of a moderate amount of the IMF’s gold, not to exceed 5 million ounces. It was understood that the use of resources for ESAF-HIPC would be limited to the interest income on the investment of the profits generated through such sales, while the profits themselves (as defined in Box 4) would be preserved. As of June 30, 1998, efforts were continuing to obtain the maximum feasible bilateral contributions for the ESAF-HIPC Trust.
The IMF’s continued holding of gold involves considerable direct and indirect carrying costs in terms of remuneration expense and of interest income forgone. The alternatives to holding gold in the General Resources Account are to hold either (1) more currencies that can be used in transactions or (2) more SDRs. If the IMF held currencies instead of gold, it would save the remuneration expense it now incurs. If it held SDRs instead of gold, it would receive interest income. In addition, there is an opportunity cost in terms of the income that could be earned on the unrealized value of the IMF’s gold holdings in excess of the value in the financial statements—in other words, its market value over its book value.82
Against these costs, several reasons have been put forward to justify the IMF holding gold as a major component of its assets. (1) The IMF’s gold holdings are an undervalued asset. The potential unrealized gain on these holdings may be considered a significant element adding to the overall strength of the IMF, that is, its basic—or ultimate—reserve. (2) The IMF’s gold holdings are also seen as being available in case of need to meet creditors’ claims on the institution in the event of liquidation, and to replenish the IMF’s currency holdings if the IMF does not at some time have liquid resources to encash members’ reserve positions in the institution, including claims arising from IMF borrowing. (3) The stock of gold enhances the IMF’s ability to respond to unexpected systemic developments—that is, gold should be held as a reserve against various future, unspecified contingencies.
An important element in considering potential gold sales by the IMF is that such sales—or even the announcement of an intent to sell—could, at least in the short run, cause the market price of gold to fall. Various official holders of gold that value their stock at or in relation to the market price may view with concern a sharp decline in the value of their holdings because of an announced program of gold sales by the IMF.
In 1995, the Executive Board reviewed the role of gold in the IMF. Taking into account the above considerations, the Board reached broad agreement that the IMF’s policy on gold should be governed by the following principles:
Gold provides a fundamental strength to the IMF’s balance sheet, giving it operational maneuverability and adding credibility to the level of its precautionary balances. Thus, any mobilization of gold should be carefully thought out to avoid any weakening in the IMF’s overall financial position.
The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also lo meet unforeseen contingencies.
The IMF is the second-largest official holder of gold in the world, with about 10 percent of total official gold stocks of member countries, and thus has a systemic responsibility. It must take great care to avoid causing disruption that would have an adverse impact on all gold holders and gold producers, as well as on the functioning of the gold market.
A sale of gold by the IMF must not weaken its financial position and, if possible, should strengthen it. In practice, therefore, the capital profits of any sale of gold should be retained; only the income deriving from the investment of those profits should be used for any current operations that might be agreed upon.
Reserve Tranche Position
The reserve tranche position of a member is the difference between (1) the member’s quota and (2) the IMF’s holdings of its currency, excluding holdings acquired as a result of the member’s use of IMF credit, when the IMF’s holdings are less than the member’s quota. Holdings in the IMF No. 2 Account that are less than
|Quota||2,000||10,000||SDR 1 = Cu 5|
|Currency holdings by IMF2||1,802||9,010|
|Less use of IMF credit||(200)||(1,000)|
|Less balance in IMF No. 2 Account||(2)||(10)|
|Adjusted currency holdings||1,600||8,000|
|Reserve tranche position||400||2,000|
The IMF remunerates (pays interest) immediately following the end of each of the its financial quarters (July, October, January, and April) on a member’s average remunerated reserve tranche position. A member’s remunerated reserve tranche is that part of its reserve tranche that is equal to the difference between (1) the member’s norm and (2) the IMF’s holdings of its currency other than excluded holdings (holdings acquired as a result of a member’s use of IMF credit and holdings in the IMF No. 2 Account that are less than
Because remuneration accrues daily, the remunerated reserve tranche position is determined for each day, and the rate of remuneration is then applied to the daily position. The basic rate of remuneration is at present equal to the SDR interest rate. This rate is adjusted at the end of each financial quarter in accordance with the decisions on burden sharing. Most payments of remuneration are made in SDRs, although each member has the option to request payment in its own currency.
An illustrative calculation of remuneration is included in Table A2.
|Norm = SDR 5,003,700,000|
(2) × (3)/365
× No. of Days
|Day 1 to day 3||2,877,449,000||2,126,251,000||4.21||735,741|
|Day 4 to day 10||2,884,741,000||2,118,959,000||4.23||1,718,969|
|Day 11 to day 17||2,922,910,000||2,080,790,000||4.25||1,695,986|
|Day 18 to day 24||2,904,859,000||2,098,841,000||4.27||1,718,750|
|Day 25 to day 31||2,981,219,000||2,022,481,000||4.27||1,656,218|
|1. Remuneration before burden sharing||7,525,664|
|Average daily balance (for the month): 2,084,717,742|
|Adjustments to remuneration under burden sharing2|
|Adjustment for deferred charges at 0.47 percent||(832,174)|
|Adjustment for SCA-1 at 0.24 percent3||(424,940)|
|2. Burden sharing||(1,257,114)|
|3. Remuneration after burden-sharing adjustments||6,268,550|
Charges and Interest
When a member purchases (draws) other members’ currencies or SDRs from the IMF. it incurs charges for the use of IMF credit. Purchases in the reserve tranche are not considered to be a use of credit but rather a use of a reserve asset and, accordingly, are not subject to charge or to repurchase. A member can have access to the IMF’s various credit facilities without first purchasing its reserve tranche.
A single periodic rate of charge (that is, interest rate) applies to the use of IMF credit financed from its general resources, except under the Supplemental Reserve Facility where a surcharge is added (see “Schedule of Charges” in Chapter II). The rate of charge is set as a proportion of the SDR interest rate and varies weekly with changes in that rate. (For financial year 1999 the proportion of the SDR interest rate has been set at 107 percent.) The rate of charge is adjusted at the end of each financial quarter under the decisions on burden sharing. Charges on the use of general resources are payable after the close of each financial quarter.
The rate of charge applies to the daily balance of all outstanding purchases during the quarter. A repurchase is applied against the balance of the outstanding purchase to which it relates and, accordingly, reduces the balance of the purchase that is subject to charge. Table A3 provides an illustrative example of the calculation of the IMF’s periodic charges.
Ordinary and Borrowed
(1) × (2)/365 ×
No. of Days
|Day 1 to day 3||42,200,000||4.50||15,608|
|Day 4 to day 10||42,200,000||4.53||36,662|
|Day 11 to day 17||41,628,571||4.55||36,325|
|Day 18 to day 24||40,200,000||4.57||35,233|
|Day 25 to day 31||40,200,000||4.57||35,233|
|1. Charges before burden sharing||159,061|
|Average daily balance (for the month): 41,167,742|
|Adjustments to charges under burden sharing2|
|Adjustment for deferred charges at 0.40 percent||13,986|
|Adjustment for SCA-1 at 0.23 percent3||8,042|
|2. Burden sharing||22,028|
|3. Charges including burden-sharing adjustments||181,089|
In addition, special charges are levied on obligations overdue for less than 180 days to recover the direct financial costs to the IMF resulting from late payments (see Chapter VI). Overdue repurchases are subject to an additional rate of charge equal to the excess, if any, of the SDR interest rate over the “basic” rate of charge. The SDR interest rate applies as a special charge to overdue charges.
A highly concessional interest rate, equal to ½ of 1 percent, is levied on loans outstanding under the Structural Adjustment Facility (SAF) and Enhanced Structural Adjustment Facility (ESAF).
Currency Valuation Adjustment
Pursuant to Article V, Section 11 of the Articles of Agreement, each member agrees to maintain the SDR value of its currency that the IMF holds in the General Resources Account. At least once each year (April 30), a current exchange rate of each member’s currency to the SDR is determined (on the basis of the current representative rate for the currency; see Glossary), and the IMF’s holdings of members’ currencies are revalued. The IMF will also revalue a member’s currency when it is used in a transaction between the IMF and another member, and at such other times as the institution may decide or the member may request.
A currency valuation adjustment arises after a change in the exchange rate of a member’s currency in relation to the SDR (Table A4). A currency valuation adjustment is recorded as either payable to, or receivable from, the IMF, whereas the balancing entry is recorded by the member as a charge against an income and expense, or a reserve, or a deferred valuation adjustment account. The currency valuation adjustment receivable or payable is also part of the IMF’s holdings of a member’s currency and is subject to maintenance of value obligations. Settlements of accounts receivable or payable by or to a member are made within a reasonable time as determined by the IMF, after the date of adjustment, and at any other time requested by the member.
|Example 1: SDR rate increased from SDR 1.15 to SDR 1.185 per currency unit|
|IMF No. 1 Account||4,500,000||4,367,089||132,911|
|IMF No. 2 Account||2,000||1,941||59|
|Example 2: SDR rate decreased from SDR 1.15 to SDR 0.985 per currency unit|
|IMF No. 1 Account||4,500,000||5,253,807||753,807|
|IMF No. 2 Account||2,000||2,335||335|
Table A5 shows the current quotas (as of June 30, 1998) for the 182 members of the IMF, the proposed quotas under the Eleventh Review, the existing cumulative allocations of SDRs, and the amounts proposed for the special equity allocation under the Fourth Amendment of the Articles of Agreement. The quota increases under the Eleventh Review will become effective once members representing 85 percent or more of the total quotas on December 23, 1997, have consented to their proposed increases in quotas. The special equity allocation of SDRs can take place when the Fourth Amendment has been accepted by three-fifths of members having 85 percent of the total voting power.
June 30, 1998
Under the 11th
|Afghanistan, I.S. of||120.4||161.9||26.7||8.6|
|Antigua and Barbuda||8.5||13.5||—||2.5|
|Bosnia and Herzegovina||121.2||169.1||20.5||15.0|
|Central African Rep.||41.2||55.7||9.3||2.8|
|Congo, Dem. Rep. of *||291.0||533.0||86.3||29.4|
|Congo, Rep. of||57.9||84.6||9.7||7.3|
|Iran, I. R. of||1,078.5||1,497.2||244.1||72.1|
|Macedonia, F.Y.R. of||49.6||68.9||8.4||6.2|
|Micronesia, Federated States of||3.5||5.1||—||1.0|
|Papua New Guinea||95.3||131.6||9.3||18.6|
|São Tomé and Príncipe||5.5||7.4||0.6||1.0|
|St. Kitts and Nevis||6.5||8.9||—||1.9|
|St. Vincent and the Grenadines||6.0||8.3||0.4||1.4|
|Syrian Arab Republic||209.9||293.6||36.6||25.0|
|Trinidad and Tobago||246.8||335.6||46.2||26.1|
|United Arab Emirates||392.1||611.7||38.7||76.2|
|Yugoslavia, Fed. Rep. of (Serbia/Montenegro) **||467.7||56.7||41.7|
The IMF maintains close contact and collaborates with its sister Bret-ton Woods institution, the International Bank for Reconstruction and Development (the World Bank). Relations with the World Bank are mostly of a nonfinancial character (except for the Bank’s status as a prescribed holder of SDRs). Each institution has separate purposes, functions, and operations, as well as fundamentally different mechanisms to finance its activities.
The World Bank’s Articles of Agreement restrict its membership to countries that are members of the IMF. This provision was envisaged as helping foster conditions that would enable members to repay the Bank’s loans—for instance, by accepting the regulatory jurisdiction of the IMF in matters of exchange rates and exchange restrictions.
Under the guidelines for collaboration between the two organizations, the IMF primarily provides temporary balance of payments assistance and focuses on the macroeconomic aspects of members’ economies, whereas the Bank concerns itself with long-term project and economic development finance. Since their establishment, the two organizations have cooperated in many areas of their work, including addressing structural adjustment issues through the IMF’s Enhanced Structural Adjustment Facility (ESAF) and designing and implementing a joint IMF/Bank strategy for reducing the debt-service burdens of heavily indebted poor countries (HIPC Initiative) (see “Facilities for Low-Income Members” in Chapter IV). Collaboration between the two organizations for ESAF programs, which is formalized in the assistance given to the member country in formulating a policy framework paper, is vital to ensure that policy advice provided by the Bank and the IMF is consistent, complementary, and mutually reinforcing. The two organizations are careful, however, to avoid cross-conditionality (see Glossary). The two organizations also work closely to mobilize resources from official and commercial sources in support of members’ programs of economic adjustment endorsed by the IMF and the Bank.
In recent years, in response to new developments related to the globalization of the world economy, the IMF and the Bank have further strengthened their collaboration:
Under the HIPC Initiative, IMF and World Bank staffs initiate an extensive consultation process with other creditors to seek their views on actions necessary for a member to achieve debt sustainability. At the point of precommitting resources of the two institutions to the member, the managements of the IMF and the Bank jointly seek assurances of comparable action by all other multilateral, bilateral, and commercial creditors.
In the financial sector, the IMF’s primary responsibility relates to the macroeconomic aspects of financial systems and markets, including its surveillance of all member countries. The Bank and the IMF have recently further strengthened their collaboration in this area to identify financial sector weaknesses more effectively and to promote sound financial systems. The Bank and the IMF have also worked closely with other international institutions and groups, including the Basle Committee on Banking Supervision.
As the IMF promotes capital account liberalization while fostering the smooth operation of international capital markets, it seeks to ensure appropriate coordination with other international institutions working on international financial issues, such as the World Bank, the Organization for Economic Cooperation and Development (OECD), and the World Trade Organization (WTO).
Addressing the issue of good governance entails enhanced collaboration of the IMF with the World Bank, as well as with other multilateral institutions, bilateral donors, and official creditors.
The resolution of balance of payments crises requires careful coordination of financial support of the IMF with the World Bank and other international financial institutions, as well as with bilateral sources.
The April 1998 Interim Committee stated that, in providing members with advice on financial sector issues, the IMF and the World Bank may need to develop new forms of collaboration and draw on relevant outside expertise.
Other International Organizations
Cooperation of the IMF with the WTO, established on January 1, 1995, builds upon and strengthens the IMF’s long and fruitful collaborative relationship with the contracting parties to the General Agreement on Tariffs and Trade (GATT). The IMF-WTO cooperation agreement of December 1996 includes institutional and staff consultations, exchanges of information and databases, access by the staff of each institution to certain documents of the other, and attendance by representatives of each organization at meetings on issues of common interest. The cooperation agreement also provides for discussions on achieving greater coherence in global economic policymaking, which is also called for in Article III of the Agreement Establishing the WTO.
Contacts are maintained by the IMF’s Geneva Office with the International Labor Organization (ILO). In connection with work on country economic programs, IMF staff is encouraged to provide ILO staff with its views on a country’s macroeconomic policies and targets, and IMF staff may seek ILO views on labor market issues and the design of cost-effective social protection instruments.
The IMF cooperates with regional development banks, including the African Development Bank, the Inter-American Development Bank, the Asian Development Bank, and the European Bank for Reconstruction and Development. The areas of cooperation have included, among others, coordination to resolve balance of payments crises, early clearance of arrears, normalization of creditor relations, and technical assistance programs for member countries.
The IMF also maintains working relations with the United Nations and its specialized agencies, the OECD, the European Commission, and the Bank for International Settlements.
Official Creditors, Commercial Banks, and Other Creditors
The IMF’s relations with official creditors, commercial banks, and other creditors are set in the context of their relations with IMF members. The IMF’s Articles do not permit it to engage its general resources in guarantee or reinsurance schemes, including those for commercial bank lending or suppliers’ credits. Various links to IMF arrangements have been included in bank loan agreements with IMF members,83 although in general the IMF discourages such links when feasible and accepts them only when necessary to obtain satisfactory bank financing agreements in concerted financing cases. Such links have included conditions in loan agreements that make disbursements to the borrowing country only if it has an arrangement with the IMF or has made specific purchases under an IMF arrangement. In this connection, at the member’s request, information about a member’s standing in the IMF or purchases it has made under an IMF arrangement can be provided to banks.
The IMF also assists in official debt rescheduling within the framework of the Paris Club, which generally requires that a country concluding a rescheduling agreement adopt an upper credit tranche arrangement with the IMF (see Chapter III on the use of IMF resources). In early 1987, Paris Club creditors decided to consider rescheduling agreements on a case-by-case basis for low-income countries that had arrangements under the SAF and, more recently, for countries with arrangements under the ESAF.
Commercial banks have generally been more willing to extend loans to a debtor country experiencing balance of payments problems for which the IMF has approved an arrangement. Other multilateral organizations and official creditors have also preferred to provide financing for debtor countries’ adjustment programs if the programs are supported by the IMF. In some cases, short-term financing has been provided as a “bridge” to bolster the liquidity position of the adjusting country, pending disbursements from the IMF.
With the emergence of the debt problems of the late 1970s and early 1980s, commercial banks became increasingly reluctant to continue lending to countries experiencing debt-servicing difficulties. Consequently, the IMF’s catalytic role in mobilizing additional financial support from the international banking community increased in importance. In response to these circumstances, the IMF explicitly formulated a policy on financing assurances, with procedural guidelines reflecting, to a large extent, the need to raise new money from commercial banks on a concerted basis. Although this policy has evolved within the framework of the overall debt strategy, its basic objectives have remained constant. In effect, the policy aims to ensure that a member’s adjustment and structural reform program is adequately financed and consistent with its expected return to viability and its ability to repay the IMF, that the burden of financing is shared equitably among various creditors, and that normal debtor-creditor relations are maintained or restored in an orderly fashion. Under the 1989 guidelines on financing assurances, the IMF can approve purchases under an arrangement before the debtor and its commercial bank creditors conclude negotiations on a financial package if approval of an appropriate package can be expected to be concluded within a reasonable period of time. While reiterating that every effort should be made to avoid arrears, the guidelines acknowledge that arrears to bank creditors might need to be tolerated in countries where active negotiations continue and where the liquidity situation makes arrears unavoidable.
The recent experiences of Mexico and Asia have shown that the international community must improve its capacity to respond to financial crises in ways that ensure the appropriate involvement of private creditors. The April 1998 Interim Committee indicated that ways would need to be found to involve private creditors at an early stage of a crisis, in order to achieve equitable burden sharing vis-à-vis the official sector and to limit moral hazard. Efforts should also be devoted to strengthening incentives for creditors and investors to better use information to analyze risks appropriately and avoid excessive risk taking.
This glossary covers basic operational and financial terms as used in the IMF. Words set in light italics are “see also” references.
Access Policy and Access Limits. Policies that govern the use of IMF resources by its members, including access limits set in terms of members’ quotas. The access policy and limits under the credit tranches and the Extended Fund Facility (EFF) are reviewed each year. Access under other facilities also is reviewed periodically. Access under the Supplemental Reserve Facility (SRF), in effect since late 1997, is not subject to limits in relation to quotas (see Chapter III).
Accounting Unit. The IMF’s unit of account is the special drawing right, or SDR (see also Chapter V). Members’ currencies are valued by the IMF in terms of the SDR on the basis of their representative rates of exchange, normally against the U.S. dollar at spot market rates if available. Gold held in depositories is valued on the basis that 0.888671 gram of fine gold is equivalent to 1 SDR (SDR 35 per fine ounce), except for 21,396 fine ounces acquired by the IMF on December 14, 1992, at market value and which are valued accordingly.
Accounts and Departments. The IMF operates its financial functions through the General Department, the SDR Department, and the Administered Accounts, which are accounting entities and not organizational units. The financial functions of the IMF are discharged by the Treasurer’s Department, which is an organizational unit of the staff. The IMF has 17 other departments that are organizational units, as well as the Office of the Managing Director, two bureaus, the Joint Vienna Institute, offices in Paris and Geneva and at the United Nations, a Regional Office for Asia and the Pacific located in Tokyo, the IMF-Singapore Regional Training Institute, and resident representative offices in various member countries.
Adequate Safeguards. Under the Articles of Agreement, the IMF is to make its general resources temporarily available to members “under adequate safeguards.” The IMF considers that the best safeguard of repayment is a strong economic adjustment program and, thus, it has not been IMF practice to require collateral as a condition for making resources available to its members.
Adjustment Program. A detailed economic program, usually supported by use of IMF resources, that is based on an analysis of the economic problems of the member country and specifies the policies being implemented or that will be implemented by the country in the monetary, fiscal, external, and structural areas, as necessary, to achieve economic stabilization and set the basis for self-sustained economic growth.
Administered Accounts. Accounts established for financial and technical services, that are consistent with the purposes of the IMF, including the administration of resources contributed by individual members to provide assistance to other members. All operations and transactions involving the Administered Accounts are separate from those of the IMF’s other accounts (see Chapter IV).
Amendments (to the Articles of Agreement). The Articles of Agreement have been amended three times: The First Amendment (July 1969) introduced the special drawing right (SDR). The Second Amendment (April 1978) reflected the change from the par value system based on a fixed price for gold to an international monetary system based on floating exchange rates. The Third Amendment (November 1992) allowed for the suspension of the voting and certain related rights of a member that fails to fulfill any of its obligations under the Articles (other than obligations with respect to SDRs). The Board of Governors in September 1997 adopted a resolution to amend the Articles to allow for a special one-time allocation of SDRs. The Fourth Amendment will become effective when three-fifths of membership having 85 percent of the total voting power have accepted it. In April 1998, the Interim Committee endorsed the concept of a further amendment to the Articles to make the promotion of capital account liberalization a specific purpose of the IMF and to extend, as needed, the IMF’s jurisdiction for this purpose and asked the Executive Board to submit an appropriate proposal to the Committee as soon as possible.
Arrangement. A decision by the IMF that gives a member the assurance that the institution stands ready to provide foreign exchange or SDRs in accordance with the terms of the decision during a specified period of time. An IMF arrangement—which is not a legal contract—is approved by the Executive Board in support of an economic program under which the member undertakes a set of policy actions to reduce economic imbalances and achieve sustainable growth. Resources used under an arrangement carry with them the obligation to repay the IMF in accordance with the applicable schedule, and to pay charges on outstanding purchases (drawings).
Articles of Agreement. An international treaty that sets out the purposes, principles, and financial structure of the IMF. The Articles, which entered into force in December 1945, were drafted by representatives of 45 nations at a conference held in Bretton Woods, New Hampshire. The Articles have since been amended three times, in 1969, 1978, and 1992, as the IMF responded to changes in the world economic and financial structure; see Amendments (to the Articles of Agreement).
Back-Loading. Deferring the disbursement of the financial resources available to a member under an IMF arrangement toward the latter part of the arrangement. Compare with Front-Loading.
Basic Period. Each of the consecutive periods of five years (or less) during which a consideration is made whether there is a global need for additional international reserves to justify a new allocation of SDRs. There has not been an allocation since the third basic period (1978–81).
Basic Rate of Charge. A single unified rate of charge that is applied to the outstanding use of IMF credit financed from the IMF’s general resources. The basic rate of charge, which is set as a proportion of the weekly SDR interest rate, is applied to the daily balance of all outstanding purchases (drawings) during each of the IMF’s financial quarters (see Chapter II under “Schedule of Charges”). A surcharge is added for use of resources under the Supplemental Reserve Facility.
Benchmarks. In the context of IMF programs, a point of reference against which progress may be monitored. Benchmarks are not necessarily quantitative and frequently relate to structural variables and policies. In Enhanced Structural Adjustment Facility Arrangements, some benchmarks are designated as semiannual performance criteria and are required to be observed in order to qualify for phased (semiannual) borrowings. In addition, quantitative benchmarks are set for the quarters for which there are no performance criteria, and structural benchmarks are set for any date agreed upon under the arrangement.
Burden Sharing. Decisions adopted by the Executive Board of the IMF since 1986 regarding the sharing, between members paying charges and members receiving remuneration, of the financial consequences to the IMF of overdue obligations. An amount equal to overdue charges (excluding special charges) and an allocation to the Special Contingent Accounts (currently only the SCA-1) are generated each quarter by an upward adjustment of the rate of charge and a downward adjustment of the rate of remuneration (see Extended Burden Sharing, Special Charges, Remunerated Reserve Tranche, and Remuneration; see also Chapter II under “Schedule of Charges” and Chapter VI under “Strengthening the IMF’s Financial Position”.)
Commitment Fee (Stand-By, or Extended Arrangement Charge). A charge of ¼ of 1 percent a year payable at the beginning of each period (usually one year) on the resources committed for that period under a Stand-By or Extended Arrangement (see Chapter II under “Schedule of Charges”). This fee is reimbursed when committed resources are drawn.
Compensatory and Contingency Financing Facility (CCFF). A special IMF financing facility (window) that was established in 1988 to combine the longstanding Compensatory Financing Facility (retaining its essential features) with elements of contingency financing. The compensatory element provides resources to members to cover shortfalls in export earnings and services receipts, as well as excesses in cereal import costs, that are temporary and arise from events beyond the members’ control. The contingency element may help members with IMF arrangements to maintain their economic programs when faced with a broad range of unforeseen adverse external shocks.
Conditionality. Economic policies that members intend to follow as a condition for the use of IMF resources. These are often expressed as performance criteria (for example, monetary and budgetary targets) or benchmarks, and are intended to ensure that the use of IMF credit is temporary and consistent with the adjustment program designed to correct a member’s external payments imbalance (see Chapter III).
Credit Tranche Policies. Policies under which members may make use of IMF credit. The amount of such use is related to a member’s quota. Early in its history, the IMF made credit available in four tranches (segments), each equal to 25 percent of a member’s quota. Provided a member is making reasonable efforts to solve its balance of payments problems, it can make use of IMF resources up to the limit of the first credit tranche on fairly liberal terms. Requests for use of more resources (upper credit tranche purchases) requires substantial grounds for expecting that the member’s balance of payments difficulties will be resolved within a reasonable period of time. Such use is almost always made under a Stand-By or Extended Arrangement, entailing phasing of purchases, performance criteria, and reviews—in other words, higher conditionality. (See Chapter III.)
Creditor (or Reserve) Position in the IMF. A member has a creditor (or reserve) position in the IMF if it has lent its currency to the IMF under a loan agreement, and/or the member has not purchased its reserve tranche with the IMF and/or the IMF has used the holdings of the member’s currency—which were acquired by the IMF as part of the member’s quota payment—to provide financial assistance to other members. More precisely, the creditor (or reserve) position is the sum of outstanding borrowing by the IMF from the member, if any, and the member’s reserve tranche position.
Cross-Conditionality, Avoidance of. To avoid duplication of requirements by the IMF and the World Bank—known as cross-conditionality—there is an understanding that each institution must proceed with its own financial assistance according to the standards laid down in its Articles of Agreement and the policies adopted by its Executive Board. In other words, compliance with the requirements of one institution ought not be made a condition for the availability of financial assistance by the other institution.
Currency Holdings. The currency holdings of the IMF are the resources held at its disposal in the IMF No. 1 Account, No. 2 Account, and IMF Securities Account in its member countries (see Chapter I).
Depository and Fiscal Agency. Each member designates a fiscal agency (ministry of finance, central bank, or similar entity) as a channel for the conduct of financial transactions with the IMF and a depository (central bank or similar agency) to maintain the accounts of the IMF (the IMF No. 1 and No. 2 Accounts and the Securities Account). (See Chapter I.)
Designation Plan. A list of participants in the SDR Department whose balance of payments and reserve positions are sufficiently strong for them to be called upon to provide freely usable currency in exchange for SDRs within a financial quarter, together with the amounts they may be called upon to provide. The designation plan is established in advance of each financial quarter (currently only on a precautionary basis) by approval of the Executive Board (see Chapter V).
Early (or Advance) Repurchase. A repurchase (repayment) made under specific conditions, before the end of the established maximum repurchase period. (See Table 8 in Chapter III for the maximum periods; see also under “Repurchase Policies” in Chapter III and Purchases and Repurchases, below.)
Early Repurchase Expectation. The expectation of repurchase (repayment) in advance of its originally scheduled due date. According to the Articles of Agreement, a member is normally expected to repurchase its currency (make repayment of usable currencies) as its balance of payments and reserve positions improve. The current early repurchase policy has been in effect since June 1979 and establishes amounts expected to be repurchased taking into account the level of a member’s reserves and their growth, as well as other parameters. A separate repurchase expectation applies to purchases made under the Supplemental Reserve Facility. Such repurchases are expected one year before they become due, except that at the request of the member the IMF may decide to extend the expectation period by up to one year, though not beyond the due date. There are other provisions for repurchase expectations. (See Chapter III, under “Repurchase Policies.”)
Emergency Financing Mechanism. A set of exceptional procedures to facilitate rapid Executive Board approval of IMF financial support for a member while ensuring the conditionality necessary to warrant such support. These emergency measures are used only in circumstances representing, or threatening to give rise to, a crisis in a member’s external accounts that requires an immediate IMF response.
Emergency Postconflict Assistance. Since 1962, the IMF has provided emergency assistance in the form of outright purchases to help members overcome balance of payments problems arising from sudden and unforeseeable natural disasters. This assistance was extended in September 1995 to cover certain postconflict situations. Assistance for postconflict situations, as well as for natural disasters, is normally limited to 25 percent of quota and is available only if the member intends to move within a relatively short time to an upper credit tranche arrangement.
Enhanced Structural Adjustment Facility (ESAF). Facility established in December 1987 to provide assistance on concessional terms to low-income member countries facing protracted balance of payments problems (see Chapter IV).
Enhanced Surveillance Procedure. Policy introduced in 1985 to help members make progress in addressing their debt problems and improving relations with their creditors. During the enhanced surveillance period, economic developments in the member country are monitored by the IMF. The staff prepares an assessment of the member’s economic program, which may be presented by the member to official and private creditors for consideration. The policy was broadened in 1993 to cover any situation in which a member would find this enhanced monitoring by the IMF helpful (see Chapter I).
Enlarged Access Policy. In effect from 1981 through November 1992, this policy enabled the IMF to provide additional financing from borrowed resources, in conjunction with ordinary resources.
ESAF Arrangement. See Enhanced Structural Adjustment Facility.
ESAF-HIPC Trust. The Trust for Special ESAF Operations for the Heavily Indebted Poor Countries (HIPC) and Interim ESAF Operations. The trust was established in February 1997 to channel special assistance to eligible heavily indebted poor countries.
Excluded Holdings. The part of a member’s currency held in the General Resources Account (GRA) that reflects the member’s use of IMF credit and is therefore excluded when determining the member’s reserve tranche position in the IMF. When determining a member’s reserve tranche position, holdings in the IMF No. 2 Account that are less than
Extended Arrangement. A decision of the IMF under the Extended Fund facility that gives a member the assurance of being able to purchase (draw) resources from the General Resources Account (GRA) in accordance with the terms of the decision during a specified period, usually three to four years, and up to a particular amount.
Extended Burden Sharing. The IMF established a second Special Contingent Account on July 1, 1990. and decided to place SDR 1 billion to the account within about five years (through quarterly downward adjustments to the rate of remuneration and upward adjustments to the basic rate of charge). These actions were taken to safeguard against possible losses arising from undischarged repurchase obligations related to purchases financed by the encashment of “rights” following the successful completion of a rights accumulation program (see Chapter VI under “The Rights Approach”). The target of SDR 1 billion was reached in February 1997. (See Burden Sharing; also see Chapter II under “Schedule of Charges” and Chapter VI under “Strengthening the IMF’s Financial Position.”)
Extended Fund Facility. A financing facility (window) under which the IMF supports economic programs that generally run for three years and are aimed at overcoming balance of payments difficulties resulting from macroeconomic and structural problems. Typically, an economic program states the general objectives for the three-year period and the specific policies for the first year; policies for subsequent years are spelled out in program reviews (see Chapter III and Extended Arrangement).
Financing Assurances. An IMF policy developed in response to the external debt crisis of the late 1970s and early 1980s to help mobilize financial support from the international banking community for countries experiencing debt-servicing difficulties. Under the policy, the IMF would not make its resources available to a member undertaking an adjustment program until receiving assurances that the financing for the program would be forthcoming. (See Appendix IV)
First Credit Tranche Purchase. See Credit Tranche Policies.
Floating Facilities. Purchases (drawings) made under the special facilities (currently the Compensatory and Contingency Financing Facility, the Buffer Stock Financing Facility, and the Supplemental Reserve Facility) are not counted in calculating annual and cumulative access limits. These are therefore termed “floating facilities.” However, for the purpose of determining the level of conditionality (whether first tranche or higher), all purchases are taken into account.
Freely Usable Currency. A currency that the IMF has determined is widely used to make payments for international transactions and widely traded in the principal exchange markets. At present, the deutsche mark, French franc, Japanese yen, pound sterling, and U.S. dollar are classified as freely usable currencies.
Front-Loading. Placing a more than proportional part of the disbursment of the financial resources available to a member under an IMF arrangement to near the beginning of the arrangement. Compare with Back-Loading.
General Arrangements to Borrow (GAB). Long-standing arrangements under which 11 industrial countries stand ready to lend to the IMF to finance purchases (drawings) that aim at forestalling or coping with a situation that could impair the international monetary system. The GAB currently amount to SDR 17 billion, and there is also an associated arrangement with Saudi Arabia for SDR 1.5 billion. Since their establishment in 1962, these arrangements have been renewed every four or five years and have been invoked 10 times.
General Department. Comprises the General Resources Account (GRA), the Special Disbursement Account (SDA), the Investment Account (not activated), and the Borrowed Resources Suspense Accounts (inactive since December 1991).
General Resources. Assets, whether ordinary (owned) or borrowed, maintained within the IMF’s General Resources Account (GRA).
Holdings Rate. The exchange rate of the member’s currency against the SDR, at which the IMF holds the currency of the member (see Representative Rate and Chapter II under “Valuation of the IMF’s Currency Holdings”).
Liquidity Ratio. The ratio of the IMF’s net uncommitted usable resources to its liquid liabilities (see Chapter II).
Maintenance of Value. See Valuation Adjustment.
Net Cumulative Allocations. Cumulative allocations of SDRs less any SDR cancellations. (As of end-April 1998, there have been no cancellations of SDRs.)
New Arrangements to Borrow (NAB). Arrangements under which 25 member countries or their financial institutions would be ready to lend to the IMF under circumstances similar to those covered by the General Arrangements to Borrow (GAB). The total amount of the NAB is SDR 34 billion, and the combined amount that can be drawn under the NAB and the GAB also cannot exceed SDR 34 billion. The NAB will become effective when potential participants with credit arrangements totaling SDR 28.9 billion (85 percent of the total credit arrangements) have consented to the decision that approved the NAB instrument, including the participants with the five largest credit arrangements.
Noncomplying Purchase. A purchase (drawing) made by a member under a Stand-By or an Extended Arrangement that the member is later found not entitled to make—that is, a purchase made on the basis of incorrect information. The IMF has a set of guidelines to apply in such cases. (See Chapter III under “Repurchase Policies.”)
Norm for Remuneration. Calculated as the total of (1) 75 percent of a member’s quota before the Second Amendment of the Articles (April 1, 1978), plus (2) any subsequent increases in its quota. For a country that became a member after April 1, 1978, the norm is a percentage of its quota equal to the weighted average relative to quota of the norms applicable to all other members on the date that the member joined the IMF, plus the amounts of any increases in its quota afterwards. At each quota increase, a member’s norm rises, becoming closer to 100 percent of its quota. A member’s norm determines its remunerated reserve tranche position. (See Appendix II.)
Operational Budget. The Executive Board adopts an operational budget for each upcoming quarter specifying the amounts of SDRs and selected member currencies to be used in purchases and repurchases (transfers and receipts) expected to be conducted through the General Resources Account during that period (see Chapter II).
Operations. The use or receipt of monetary assets by the IMF, other than exchanges of monetary assets (that is, other than transactions). Examples are the payment of remuneration and receipt of charges. Operations in SDRs are uses of SDRs other than exchanges of SDRs for monetary assets (that is, other than transactions by agreement or with designation).
Ordinary Resources. Assets held in the General Resources Account (GRA) that derive from members’ quota subscription payments and the undistributed net income from the use of these resources.
Outright Purchase. A purchase (drawing) for which there is no formal IMF arrangement, such as a purchase under a special policy, e.g., the policy on the emergency postconflict assistance.
Performance Criteria. Macroeconomic indicators such as monetary and budgetary targets that must be met, typically on a quarterly basis, for the member to qualify for purchases under the phasing schedule for Stand-By Arrangements in the upper credit tranches and Extended Fund Facility (EFF) Arrangements, or on a six-month basis for disbursements under Enhanced Structural Adjustment Facility Arrangements. Some performance criteria are those necessary to implement specific provisions of the Articles of Agreement. (See also under “Stand-By and Extended Arrangements” in Chapter III and Benchmarks.)
Periodic Charges. Charges (equivalent to interest), payable by a member on its outstanding use of IMF credit (see Chapter II under “Schedule of Charges”).
Phasing. The practice of making the IMF’s resources available to its members in installments over the period of an arrangement. The pattern of phasing can be even, front-loaded, or back-loaded, depending on the financing needs and the speed of adjustment.
Precautionary Arrangement. A Stand-By or an Extended Arrangement under which the member agrees to meet specific conditions for use of IMF resources although it has indicated to the Executive Board its intention not to make purchases (drawings) (see Chapter I under “Use of IMF Resources and Other Assistance to Member Countries”).
Precautionary Balances. Balances held in the form of General and Special Reserves, and the two Special Contingent Accounts that were established in the context of the arrears strategy (see Chapter II and Chapter VI).
Prescribed SDR Holder. A nonparticipant in the SDR Department that has been prescribed by the IMF as a holder of SDRs (see Chapter V).
Program Monitoring. Monitoring by the IMF to determine whether the performance criteria specified and policy commitments made in the context of a Stand-By or an Extended Arrangement are being observed by the member receiving resources.
Purchases and Repurchases. When the IMF makes its general resources available to a member, it does so by allowing the member to purchase SDRs or other members’ currencies in exchange for its own (domestic) currency. The IMF’s general resources are, by nature, revolving: purchases (or drawings) have to be reversed by repurchases (or repayments) in installments within the period specified for a particular policy or facility.
Quota. The capital subscription, expressed in SDRs, that each member must pay to the IMF on joining. Up to 25 percent is payable in SDRs or other acceptable reserve assets and the remainder in the member’s own currency. Quotas, which reflect members’ relative size in the world economy, are normally reviewed every five years (see Chapter II).
Remunerated Reserve Tranche Position. A member receives remuneration from the IMF (at a rate determined by the IMF) on any excess of its reserve tranche position over the difference between its quota and its norm for remuneration (see Chapter II, Figure 2).
Remuneration. The interest paid by the IMF every quarter on a member’s remunerated reserve tranche position.
Representative Rate. The exchange rate of a member’s currency, normally against the U.S. dollar, that is used in the IMF’s transactions and operations with that member—that is, a currency (other than the U.S. dollar) is valued in accordance with the value of the U.S. dollar in SDR terms and the representative rate of the other currency in terms of the U.S. dollar. If the member has an exchange market where a representative spot rate for the U.S. dollar (against the member’s currency) can be readily ascertained, then that representative rate will be used. If such a market rate cannot be readily ascertained for the U.S. dollar but can be ascertained for another currency for which a representative market rate against the U.S. dollar exists, then that cross rate can be used. Otherwise, the IMP determines a rate for the currency that is appropriate.
Reserve Tranche Position. The extent to which the IMF’s holdings of a member’s currency (excluding holdings that reflect the member’s use of IMF credit and holdings in the IMF No. 2 Account that do not exceed
Rights Accumulation Program (RAP). An economic program agreed between the IMF and an eligible member in protracted arrears to the IMF that provides a framework for the member to establish a satisfactory track record of policy and payments performance, and permits the member to accumulate rights to future drawings of IMF resources following clearance of arrears to the IMF, up to the level of arrears outstanding at the beginning of the program (see Chapter VI).
“Rights” Approach. A special approach to address the situation of members that were in protracted arrears to the IMF at end-1989, on the basis of a rights accumulation program (see entry above and Chapter VI).
Self-Sustained ESAF (or Self-Financing ESAF). Under a self-sustained Enhanced Structural Adjustment Facility, loans would not be financed by ESAF Trust borrowing (as under the current ESAF), but by IMF resources currently in the ESAF Trust Reserve Account, on a revolving basis.
Service Charge. A fixed charge of ½ of 1 percent levied on each purchase (drawing) of IMF resources in the General Resources Account other than reserve tranche purchases, which carry no charges. The service charge is payable at the time of the transaction (see Chapter II under “Schedule of Charges”).
Special Contingent Accounts—First and Second. Accounts established to hold precautionary balances in order to strengthen the IMF’s financial position in connection with members’ overdue financial obligations (see Chapter VI under “Strengthening the IMF’s Financial Position”).
Special Drawing Right (SDR). International reserve asset created by the IMF in 1969 as a supplement to existing reserve assets.
SDR Allocation. Distribution of SDRs to members by decision of the IMF. A “general” allocation requires a finding by the IMF that there is a global need for additional liquidity (see Chapter V).
SDR Assessment. An assessment levied by the IMF. at the same rate for all participants in the SDR Department, on a participant’s net cumulative SDR allocations, to cover the expenses of conducting the business of the SDR Department. (See also Chapter I under “Operating Costs” and Chapter V.)
SDR Department. This department, an accounting entity rather than an organizational unit of the IMF, records and administers all transactions and operations involving SDRs (see Chapter I under “Financial Structure” and Chapter V).
SDR Interest and Charges. Interest is paid to each holder of SDRs. Charges are levied, at the same rate, on each participant’s net cumulative SDR allocations. The SDR interest rate is determined weekly by reference to a combined market interest rate. Interest on SDR holdings is paid, and charges on net cumulative allocations are collected, on a quarterly basis, and are settled on the first day of the subsequent quarter (see Chapter V).
SDR Use. Participants in the SDR Department (currently all members of the IMF) and prescribed holders may use SDRs in a variety of voluntary transfers, including transactions by agreement, swap arrangements, forward operations, and so forth. Participants may also use SDRs in operations and transactions involving the General Resources Account (GRA), such as the payment of charges and repurchases (repayments). In addition, the IMF ensures that a participant with a need because of its balance of payments or reserve position is able to use its SDRs to acquire foreign exchange in a “transaction with designation” (see Chapter V).
SDR Valuation. The currency value of the SDR is determined daily by the IMF by summing the values in U.S. dollars, based on market exchange rates, of a basket of five major currencies. The current valuation basket was established on January 1, 1996 (see Chapter V, Table 11). The SDR valuation basket is normally reviewed every five years.
Stand-By Arrangement. A decision of the IMF by which a member is assured that it will be able to make purchases (drawings) from the General Resources Account (GRA) up to a specified amount and during a specified period of time, usually one to two years, provided that the member observes the terms set out in the supporting arrangement.
Supplemental Reserve Facility (SRF). A facility (window) established in December 1997 to provide financial assistance to members experiencing exceptional balance of payments difficulties due to short-term financing needs resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and the members’ reserves (see Chapter III).
Surveillance. An essential aspect of the IMF’s responsibilities associated with overseeing the policies of its members in complying with their obligations specified in the Articles of Agreement in order to ensure the effective operation of the international monetary system (see Chapter I under “Role of the IMF”).
Systemic Transformation Facility (STF). A temporary facility (window) established in April 1993 to provide financial assistance to members facing balance of payments difficulties arising from shocks in their economies due to a shift from a centrally planned economy to a market-based economy. No purchases have been possible under this facility since end-December 1995.
Transactions. An exchange of monetary assets by the IMF for other monetary assets (for example, a purchase or a repurchase).
Transactions by Agreement. Transactions in which participants in the SDR Department (currently all members) and/or prescribed holders voluntarily exchange SDRs for currency at the official rate as determined by the IMF. These transactions are usually arranged by the IMF (see Chapter V under “Uses of SDRs”).
Upper Credit Tranches. See Credit Tranche Policies.
Use of IMF Resources (or IMF Credit). Includes use of IMF resources under the General Resources Account, and loans made to members of resources in the Special Disbursement Account or resources borrowed by the IMF as Trustee for the ESAF Trust. The use of IMF resources (or IMF credit) in the General Resources Account consists of transactions in which a member in need of balance of payments assistance uses its own currency to acquire from the IMF SDRs or the freely usable currency of a member in a strong balance of payments and reserve position. As a result of these transactions, the IMF’s aggregate holdings of SDRs and currencies do not change, but the composition of those holdings changes. The “strong” member whose currency is used to provide assistance gains a larger reserve tranche position, on which it will receive remuneration (to the extent that the IMF holdings of its currency are less than its norm for remuneration).
Valuation Adjustment. Each member has the obligation of maintaining the value in terms of the SDR of the balances of its currency held by the IMF. Whenever the holdings of a member’s currency are revalued (for a “strong” member, typically when its currency is used in a transaction or operation; for all members, at the end of the IMF’s financial year), a receivable (for the IMF) or a payable (by the IMF) is established for the amount of currency payable by or to the member (see Chapter II under “Valuation of the IMF’s Currency Holdings”).
INTERNATIONAL MONETARY FUND PAMPHLET SERIES
(All pamphlets have been published in English, French, and Spanish, unless otherwise stated)
45. Financial Organization and Operations of the IMF, by the Treasurer’s Department, First edition, 1990. Fifth edition, 1998. Fourth edition also in Russian.
46. Die Unique Nature of the Responsibilities of the International Monetary Fund, by Manuel Guitián. 1992.
47. Social Dimensions of the IMF’s Policy Dialogue, by the stuff of the IMF. 1995.
48. Unproductive Public Expenditures: A Pragmatic Approach to Policy Analysis, by the Fiscal Affairs Department. 1995.
49. Guidelines for Fiscal Adjustment, by the Fiscal Affairs Department. 1995.
50. The Role of the IMF: Financing and Its Interactions with Adjustment and Surveillance, by Paul R. Masson and Michael Mussa. 1995.
51. Debt Relief for Low-Income Countries: The HIPC Debt Initiative, by Anthony R. Boote and Kamau Thugge. 1997.
52. The IMF and the Poor, by the Fiscal Affairs Department. 1998.
Photographic or microfilm copies of all English editions, including numbers that are out of print, may be purchased direct from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Michigan 48106, U.S.A. or from Information Publications International, White Swan House, Godstone, Surrey, RH9 8LW, England.
Copies of these pamphlets and information on earlier issues in the IMF Pamphlet Series may be obtained from:
International Monetary Fund, Publication Services
700 19th Street, N.W., Washington, D.C. 20431, U.S.A.
Tel.: (202) 623-7430 Telefax: (202) 623-7201
Financial Organization and Operations of the IMF
The surveillance of the policies of IMF members who are participants in monetary unions presents special characteristics. Such members have transferred certain competencies in the economic and monetary fields to the monetary union and therefore at the individual level they are limited in their ability to conduct independent economic and monetary policies. On January 1, 1999, the European Economic and Monetary Union (EMU) is scheduled to be established, and the special features of the IMF’s surveillance of the policies of its members, as well as operational aspects arising from the adoption of the euro as a common currency for EMU members, are being considered.
A compendium of good practices for the banking sector, with the Core Principles of the Bask Committee included as an annex, is contained in IMF, Toward a Framework for Financial Stability, World Economic and Financial Surveys (Washington, 1997).
See “Code of Good Practices on Fiscal Transparency—Declaration on Principles,” attached to the “Communiqué’ of the Interim Committee of the Board of Governors of the International Monetary Fund” of April 16, 1998.
The resources in the GRA are managed in a cost-effective way to either reduce remunerated reserve tranche positions (to lower the IMF’s costs) or increase the IMF’s SDR holdings (to increase the IMF’s revenue). In order to be more profitable than GRA resources, resources in an Investment Account would need to be invested at a rate that exceeds the SDR interest rate after taking into account any exchange risk.
Except for financial years 1998 and 1999, as explained in Chapter IV.
See below under “Remuneration.”
Votes are cast by members for various operational and policy decisions of the IMF, and special voting majorities are required for major financial decisions, such as:
|Proportion of Total|
Voting Power Required
|Power of Action|
|Adjustment of quotas||85 percent||Board of Governors|
|Allocation of SDRs||85 percent||Board of Governors|
|Prescription of medium of payment for additional subscription||70 percent||Board of Governors|
|Change in periods for repurchase||85 percent||Executive Board|
|Determination of charges||70 percent||Executive Board|
|Sale of gold||85 percent||Executive Board|
Payment of a quota increase wholly in the member’s own currency was agreed in connection with the quota increase under the Sixth Review.
The IMF also conducted a general review in 1958/59 outside the five-year cycle.
The distribution technique for the selective element in these reviews is one that uniformly and proportionately adjusts all members’ actual quota shares toward their calculated quota shares.
This rearrangement brought Japan’s quota to second largest (equal to that of Germany) and also equalized the quotas of France and the United Kingdom.
The increases in quotas under the Eleventh Review for a few members that have nor yet consented to or paid for their proposed increase in quotas under the Ninth General Review were calculated on the basis of their proposed Ninth Review quotas. Members that are unable to make effective their Ninth Review quota increases may, therefore, “catch up” under the Eleventh Review.
The IMF would arrange for some members to borrow SDRs from other members provided that the borrowing member would, on the same day, repay the SDR loan from the proceeds of a drawing on the reserve tranche position in the IMF that had been established by the payment for the quota increase.
Currently there is only one periodic rate of charge, and a surcharge on the use of resources under the Supplemental Reserve Facility established in December 1997.
Net income may also be distributed to the IMF’s members.
Since February 1, 1987, the unadjusted rate of remuneration has been equal to the SDR interest rate. However, refundable adjustments to that rate are made under burden sharing. For more on burden sharing, see Chapter VI, the Glossary, and Appendix II.
The rate of charge on borrowed resources was, until April 30. 1993, equal to the cost of borrowing by the IMF plus a margin. On May 1, 1993, the rate of charge on borrowed resources was made equal to the rate of charge on ordinary resources.
The IMF levies additional special charges on overdue obligations, which are discussed in Chapter VI, “Strengthening the IMF’s Financial Position.”
After exclusion of currency holdings acquired when the member used IMF resources, and of currency holdings in the IMF No. 2 Account that are less than
Although gold is an asset in the IMF’s balance sheet, it is not regarded as an immediately usable resource and is not used in the IMF’s operations and transactions.
If the IMF determines that its holdings of a member’s currency in the GRA are low, it may replenish its holdings by requiring the member to sell its currency to the IMF for SDRs.
These principles are enumerated in Article V, Section 3(d) (for transfers) and Article V, Section 7(i) (for receipts). The guidelines appear in Selected Decisions under the heading of the associated Articles.
The assessment of external strength in the case of monetary unions poses special issues. For example, the natural economic area for judging balance of payments and reserve strength would be the monetary union as a whole rather than the individual member country, while the IMF’s member continues to be the individual country and not the monetary union. In the case of the European Economic and Monetary Union (EMU) to become effective on January 1, 1999, the necessary adaptations in procedures are being considered.
For a definition of the reserve tranche position, see the Glossary.
For a definition of the norm for remuneration, see “Remuneration” above and the relevant Glossary entry.
The provisions on early repurchases are explained under “Repurchase Policies” in Chapter III.
IMF assistance with other resources has taken the usual form of loans. See Chapter IV.
For analytical, statistical, and reporting purposes, however, a classification of countries as advanced economies, developing countries, and countries in transition is used in IMF publications; see, for example, the introduction to the Statistical Appendix of the World Economic Outlook (Washington: IMF, May and October annually).
In the case of a reserve tranche purchase, which is a use of a member’s own reserve assets, the representation of balance of payments need is not challenged by the IMF, Also, once an arrangement has been approved by the IMF, a member’s representation of balance of payments need to make a purchase is not subject to challenge, under a long-standing policy intended to assure the member of the availability of IMF resources committed to it, subject only to its meeting performance criteria and other conditions specified in the arrangement.
The Fund shall adopt policies … that will establish adequate safeguards for the temporary use of the general resources of the Fund” (Article V, Section 3(a)). See also Joseph Gold, Conditionality, Pamphlet Series No. 31 (Washington: IMF, 1979); and Manuel Guitián, Fund Conditionality: Evolution of Principles and Practices, Pamphlet Series No. 38 (Washington: IMF, 1981).
The maximum repayment period for loans under the ESAF also involving medium-term structural adjustment, is the same as the maximum repurchase period for EFF purchases (10 years) but the grace period is 5½ years for the former, compared with 4½ years for the latter (see Table 8 and Chapter IV).
An 85 percent majority of the total voting power in the IMF is required to change the period of repurchase of holdings of currency acquired by the IMF pursuant to its policy on the use of general resources. A 70 percent majority is required in the case of holdings of currency not acquired as a result of purchases and subject to charges under Article V, Section 8(b)(ii)
No such decision has been taken in the last 25 years.
Members have the option of combining all repurchases due within a calendar month, provided that the combined repurchase is completed not later than the last day of the month and that no single repurchase remains outstanding for a period exceeding the maximum permitted under the relevant policy of the IMF.
The member then has the option of making a repurchase or having its currency included for sales in the operational budget. For a description of the operational budget, see Chapter II. For the designation plan, see “Uses of SDRs” in Chapter V. The specified amount of the expected quarterly repurchase would be 1.5 percent of gross reserves plus (or minus) 5 percent of the increase (or decrease) in gross reserves in the latest six-month period for which data are available. However, the IMF does not expect a repurchase in excess of 4 percent of the member’s gross reserves and limits the amount of expected repurchases, so that it does not exceed 10 percent of gross reserves during the year or reduce gross reserves below a level of 250 percent of quota.
Outright purchases without IMF arrangements can take place in the first credit tranche or under certain special policies (for example, for emergency assistance—see below).
For conditionality under ESAF Arrangements, see Chapter IV.
More specifically, these limits applied to purchases under Stand-By and Extended Arrangements, and to outright purchases, excluding those under special facilities.
As noted in the section on repurchase policies, the IMF has adopted guidelines on early repurchases that apply uniformly to all members.
The World Bank has collaborated with the IMF in financial support of debt-reduction operations, in recognition that these operations can be an important element of a country’s financial and development strategy.
For more on debt and debt-service reduction, see Chapter IV under “Structural Adjustment Programs.”
If the associated Stand-By Arrangement has between 12 to 18 months until expiration, then the repurchase obligation/expectation of the CSF purchase in the first tranche would be one year, or the expiration date of the arrangement, whichever is later.
Technically, the Supplemental Reserve Facility (SRF) belongs to the category of special facilities established under Article V, Section 3(a) because assistance under the SRF has been established for special balance of payments problems, and furthermore special charges and a different repurchase schedule apply. However, the SRF does not fit well within the category of other special facilities in existence before its adoption, and it has been treated separately.
For an early account of the SAF and the ESAF, see Joslin Landell-Mills, Helping the Poor: The IMF’s New Facilities for Structural Adjustment (Washington: International Monetary Fund, rev. ed. 1992).
The PFP also plays a central role in the HIPC Initiative; for HIPCs, the PFP includes a summary of the main findings of the country’s latest joint Bank-IMF debt sustainability analysis.
In March 1998 a special disbursement was made to Côte d’Ivoire for this purpose.
See ESAF Evaluation Board, “External Evaluation of the ESAF: Report by a Group of Independent Experts” (Washington: International Monetary Fund, 1998).
However, an additional annual arrangement may be approved after the expiration of the third annual arrangement under a three-year commitment, subject to satisfactory performance by the member. Also, if a three-year commitment has expired with undrawn amounts, a new commitment may be approved under a one-year or two-year arrangement, in order to disburse the undrawn amounts.
The maximum and exceptional maximum access limits are reduced by the amount of ESAF Trust resources committed to the member.
The current cutoff point for IDA eligibility is a 1996 GNP per capita of $925.
In the case of some loans the maturity of drawings is six months, with a provision for renewal in order to achieve the desired maturity of 5½ to 10 years.
Cumulative disbursements of ESAF resources amounted to SDR 6.0 billion, of which SDR 0.6 billion had been repaid by borrowers to the ESAF Trust. In addition, cumulative use of Special Disbursement Account resources for ESAF borrowing amounted to SDR 0.4 million, of which SDR 0.2 million had been repaid by borrowers. Repayments to lenders amounted to SDR 0.7 billion.
As of April 30, 1998, the balance of resources in the Subsidy Account available to pay interest to lenders was SDR 1.6 billion, and cumulative resources used for this purpose amounted to SDR 0.7 billion.
Highly concessional loans could also be provided in cases where there is a need to provide additional cash assistance to smooth debt-service profiles.
The Umbrella Account for HIPC Operations was established to receive and administer the proceeds of grants and/or loans made available to members that qualify for assistance under the terms of the ESAF-HIPC Trust.
“As needed” refers to the sum of the undiscounted subsidy requirements of the Interim ESAF.
The SCA-2 was established in 1990 in the context of the strengthened arrears strategy to provide additional liquidity and to protect the IMF against the risk of arrears on purchases from the GRA for the encashment of rights. The accumulated balance in the SCA-2 of SDR 1 billion, which was generated from adjustments in the rate of charge and the rate of remuneration, must be refunded when all purchases for the encashment of rights have been repurchased and no further rights purchases financed by GRA resources can be made. However, the SCA-2 can be reduced or closed earlier if the IMF decides with a majority of 70 percent of the voting power that all or part of the balances in the account are no longer needed.
For further information on Administered Accounts, see International Monetary Fund, Financial Statements (issued quarterly), section on “Financial Statements of Administered Accounts Established at the Request of Members.”
For more on the SDR, see IMF, Treasurer’s Department. User’s Guide to the SDR: A Manual of Transactions and Operations in SDRs (Washington, 1995).
The Articles of Agreement use only the term allocation, and not general allocation, which is used in this pamphlet to emphasize the difference from the one-time special allocation that will take place when the Fourth Amendment of the Articles becomes effective.
The procedures for cancellations of SDRs are broadly the same as those for allocations, except that cancellations are based on net cumulative allocations rather than quotas. This ensures a uniform proportionate reduction for all members, regardless of the number of allocations in which they have participated.
Future participants are defined as countries that became participants after September 19, 1997, but within three months of the date of their membership in the IMF.
The currencies determining the value of the SDR are the currencies of the five members whose exports of goods and services during the five-year period ending 12 months before the effective date of the revision of the valuation basket had the largest value.
These interest rates are weighted by the same currency units as are used in the calculation of the value of the SDR. These yields or rates are the market yield for three-month U.S. treasury bills, the three-month interbank deposit rate in Germany, the rate on three-month certificates of deposit in Japan, the interest rate on three-month treasury bills in France, and the market yield for three-month U.K. treasury bills. The instrument (or instruments) to be used for the euro (that will replace the deutsche mark and the French franc on January 4, 1999) in the determination of the interest rate of the SDR is currently under review.
According to Article V, Section 6(a), the IMF also may buy SDRs from participants in exchange for other members’ currencies. However, there has been no Board decision to implement this option.
The 15 prescribed holders are three central banks (the Bank of Central African States, the Central Bank of West African States, and the Eastern Caribbean Central Bank); three intergovernmental monetary institutions (the Bank for International Settlements, the Latin American Reserve Fund, and the Arab Monetary Fund); and nine development institutions (the African Development Bank, the African Development Fund, the Asian Development Bank, the East African Development Bank, the International Bank for Reconstruction and Development and the International Development Association—respectively the “hard” and “soft” loan entities of the World Bank Group—the Islamic Development Bank, the Nordic Investment Bank, and the International Fund for Agricultural Development).
See Chapter II under “Usability of the IMF’s Resources.”
Although the designation mechanism has not been used for several years, quarterly designation plans continue to be prepared and approved by the Executive Board, A quarterly plan lists participants subject to designation and sets maximum limits on the amount of SDRs that they can be designated to receive within that quarter. Three basic guidelines are followed in formulating designation plans. First, participants can be subject to designation if their balance of payments and gross reserve positions are “sufficiently strong.” Second, the amounts of designation for individual participants are determined in a manner that would promote, over time, equality in the “excess holding ratios” of participants (that is, SDR holdings above or below allocations as a proportion of the members’ official gold and foreign exchange reserves). Third, a participant’s obligation to provide currency against SDRs in designation is limited to the level at which its excess holdings are twice the level of its net cumulative SDR allocation, unless the participant and the IMF agree on a higher limit.
Chapter II under “Usability of the IMF’s Resources.”
These organizations are the African Development Bank, African Development Fund. Arab Monetary Fund. Asian Development Bank, Common Fund for Commodities, East African Development Bank. Economic Community of West African States, International Center for the Settlement of Investment Disputes, International Development Association. International Fund for Agricultural Development, islamic Development Bank, and Nordic Development Fund.
Nevertheless, the future of the rights approach and the Second Special Contingent Account (SCA-2) (see below) would be considered earlier, as appropriate, in light of ongoing discussions on funding for the interim ESAF and the HIPC Initiative.
See Appendix I.
Special charges are limited to members with arrears of less than six months because these charges may have an incentive effect at early stages of arrears, but in the longer run they may add to the problem of members’ overdue obligations, making eventual settlement more difficult.
Since May 1993, the basic rate of charge has exceeded the SDR interest rate. As a result, no special charges on overdue repurchases have been levied.
The IMF may sell gold held on the date of the Second Amendment to countries that were members on August 31, 1975 (and Papua New Guinea) and that agree to buy it in proportion to their quotas on that date. The sale to a member would be in exchange for its currency at the price of SDR 35 per fine ounce and would in effect represent a “restitution” of gold to those members.
According to the Articles, the IMF can only use its gold by selling it (that is, transferring its ownership at a price). Loans, leases, or the use of gold as collateral do not involve the transfer of ownership. A swap would involve the transfer of ownership but also an agreement that gold would be returned to the IMF at a later date at an agreed price, while the acquisition of gold by the IMF is limited in the Articles to the acceptance of gold for payments at a price agreed “on the basis of prices in die market.” Prices are meant to be those prevailing in the market at the time gold is accepted by the IMF (and not. for example, the price that might have prevailed at the time of a swap transaction).
These sales were started before the Second Amendment became effective in 1978, and transitional provisions were included in the Amendment for their completion.
Subsequent repayments of such loans were used in part to subsidize the cost of using the Supplementary Financing Facility (SFF) and in part to finance the Structural Adjustment Facility (SAF). They were also used to help fund the ESAF Subsidy Account, as well as to build up the ESAF Reserve Account.
The membership resolution for Papua New Guinea was adopted by the Board of Governors on August 31, 1975, and the country became a member of the IMF on October 9, 1975.
On April 30, 1998, the price of gold in London was SDR 230.7 an ounce.
Except for about 21,300 ounces that the IMF accepted from Cambodia in 1992 in discharge of its overdue financial obligations.
At the average SDR interest rate during the financial year ended April 1998 of 4.2 percent a year, for each million ounces of gold held by the IMF (1) a remuneration expense of SDR 1.5 million a year would be incurred, and (2) interest income would be forgone on the gold’s unrealized value—that is, the difference between the market price of gold and the IMF’s book value (SDR 35 per ounce) in an amount of about SDR 8 million a year (based on an average market price for gold of $316 an ounce and an average SDR value of $1.36 an SDR).
See Joseph Gold, Order in International Finance, the Promotion of IMF Stand-By Arrangements, and the Drafting of Private Loan Agreements, Pamphlet Series, No. 39 (Washington: International Monetary Fund, 1982), pp. 17–35.