Chapter

Appendix I. The Role of the IMF

Author(s):
Harald Finger, and Mauro Mecagni
Published Date:
April 2007
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The restructurings generally occurred while IMF arrangements were in place.49 All eight countries had an IMF arrangement when they restructured their public debt to external private creditors. However, IMF-supported programs in Moldova, Pakistan, Russia, and Ukraine were off track during at least part of the restructurings. Ecuador did not have an IMF-supported program before restructuring its domestic debt, but a program was agreed prior to the restructuring of external public debt. Argentina’s program was on track during the June 2001 megaswap but went off track soon afterwards, before the Phase I restructuring of November/December 2001. Similarly, during the 2005 global debt exchange, Argentina had an IMF-supported program that was off track. Of the eight countries, only the Dominican Republic and Uruguay had IMF-supported programs that were on track during the entire restructuring process (see Table A1.1).

Table A1.1.Fund Arrangements During Recent Sovereign-Debt-Restructuring Episodes
Type of RestructuringCountryTiming of Debt OperationFund Arrangement Immediately Before RestructuringFund Arrangement Following Restructuring
PreemptiveUkraineFour rounds of restructuring between September 1998 and April 2000.Ukraine entered a three-year EFF Arrangement in September 1998 (SDR 1.6 billion, 165 percent of quota), augmented in May 1999 by SDR 274 million, or 20 percent of quota. After the August 1999 review was completed, the program went off track.Disbursements under the existing EFF Arrangement resumed in December 2000.
PakistanExchange offer took place in November/December 1999 as required under the comparability-of-treatment clause for a Paris Club rescheduling.Pakistan entered a three-year combined PRGF and EFF Arrangement in October 1997, in the amount of SDR 1.1 billion (110 percent of quota). The program went off track in July 1999.Pakistan entered a Stand-By Arrangement in November 2000 (SDR 465 million, 45 percent of quota).
MoldovaInitiated Eurobond restructuring in June 2002. The final agreement was signed on October 15, 2002, and became effective on October 30, 2002.A PRGF Arrangement was approved on December 21, 2000, in the amount of SDR 110 million (89 percent of quota). No review was completed until July 10, 2002 (date of completion of first review).No further disbursements were made under the PRGF.
UruguayInitiated restructuring in March 2003. Following consultations with investors, the debt exchange offer was launched on April 10, 2003, and completed on May 22, 2003.Uruguay entered a two-year (later extended by one year) SBA (SDR 0.6 billion, 194 percent of quota) in March 2002, augmented in June and August 2002 to SDR 2.1 billion (694 percent of quota). Program reviews were delayed in the second half of 2002, but reviews were completed in March and July 2003.The program track record remained uneven after the July 2003 review, and the subsequent review was not completed until February 2004.
Dominican RepublicExecuted a debt-exchange offer in April/May 2005 and reached agreements with commercial banks in October 2005.The Dominican Republic entered a 28-month SBA (SDR 437.8 million, 200 percent of quota) in January 2005.The first and second reviews were completed, after some delays, in October 2005.
Post-defaultEcuadorRestructuring of domestic and external obligations between October 1999 and August 2000.After an SBA in 1994–95, Ecuador did not have an arrangement prior to the financial crisis.During restructuring, Ecuador entered into an SBA in April 2000 (SDR 227 million, or 75 percent of quota).
RussiaRestructuring of t-bills, a MinFin bond, and Soviet-era debt to the London Club between August 1998 and August 2000.An existing EFF, in place since 1996, was augmented in July 1998 under CFF and SRF to a total of SDR 13.2 billion (222 percent of quota) and went off track the following month.In July 1999, Russia entered a new 18-month SBA (SDR 3.3 billion, 56 percent of quota). The program went off track before the first review could be completed. Russia has not had an IMF-supported program since then.
ArgentinaTwo rounds of restructuring between June and December 2001, third round in January/February 2005.An existing SBA, in place since March 2000, was augmented in January and September 2001 to SDR 16.9 billion (800 percent of quota). After September 2001, no reviews were completed. After a transitional SBA in January–August 2003 (SDR 2.2 billion, 103 percent of quota), a three-year SBA (SDR 9 billion, 424 percent of quota) was approved in September 2003. After the second review (March 2004), no further reviews were completed.No reviews under the SBA have been completed since the 2005 restructuring.

EFF Extended Fund Facility

PRGF Poverty Reduction and Growth Facility

SBA Stand-By Arrangement

CFF Compensatory Financing Facility

SRF Supplemental Reserve Facility

EFF Extended Fund Facility

PRGF Poverty Reduction and Growth Facility

SBA Stand-By Arrangement

CFF Compensatory Financing Facility

SRF Supplemental Reserve Facility

While the degree of detail in the fiscal and external sector projections varied, in nearly all cases the policy framework preceding the restructuring included medium-term assumptions for macroeconomic policies and the balance of payments related to the “envelope” of resources that could support an eventual agreement between sovereign debtors and their private creditors. The IMF-supported programs in place before the restructurings were generally more specific in defining the medium-term macroeconomic framework in preemptive cases than in post-default cases.

  • Ukraine’s Memorandum of Economic and Financial Policies (MEFP) for its August 1998 arrangement under the IMF’s Extended Fund Facility set a reserve target and the intended direction for the fiscal deficit (rather than the primary deficit) up to 2001. The IMF staff report supported this with detailed balance of payments assumptions through 2004 and fiscal projections through 1999, amended by an overall fiscal deficit path through 2001. Throughout the restructuring period, the country’s letters of intent were published, but not the staff reports. During the exchange offer of Eurobonds and Gazprom bonds, the IMF-supported program was off track, and IMF management issued a letter in February 2000 describing Ukraine’s macroeconomic performance and judging that the terms of the exchange offer would be consistent with the financing needs of a program that could be supported by the IMF.50

  • Pakistan’s December 1998 policy framework paper specified the primary balance path and reserve targets through 2002/03, while details on external financing projections were given through 2000/01. The policy framework paper was published, but the subsequent May 1999 staff report and letter of intent were not. The IMF-supported program went off track in mid-1999, and IMF management issued a letter in November 1999 describing the macroeconomic program underlying the bond exchange and asking for the international community’s support.

  • The MEFP for the May 2001 review of Argentina’s Stand-By Arrangement (SBA) specified a fiscal path by referencing the country’s Fiscal Responsibility Law, which required the federal budget to be balanced by 2003 but did not set out specific primary balance targets. The IMF staff report presented the full fiscal table through 2001 as well as a fiscal below-the-line presentation and full balance of payments table through 2006. The May 2001 staff report was published, but only the MEFP was made public for the August 2001 review. In September 2001, Argentina’s SBA increased to about $22 billion when the IMF approved an $8 billion augmentation, of which $3 billion could be used to support a voluntary, market-based operation by Argentina to increase the viability of its debt profile. The IMF-supported program went off track before the Phase I restructuring. The IMF approved and fully disbursed an eight-month SBA in January–August 2003 (SDR 2.2 billion, or 103 percent of Argentina’s quota in the IMF), and in September 2003, it approved a three-year SBA (SDR 9 billion, or 424 percent of quota). The staff report for the second review, which was completed in March 2004, was published. It contained fiscal and balance of payments projections through 2004 but not for the medium term. No further reviews were completed under the September 2003 program. IMF management did not issue letters supporting Argentina’s debt operations.

  • The MEFP for the July 2002 review of Moldova’s arrangement under the Poverty Reduction and Growth Facility (PRGF) specified primary balance targets for 2002 and 2003. The IMF staff report, which was published, presented the full fiscal table through 2003 and balance of payments projections through 2010. IMF management issued a letter in April 2002 describing Moldova’s performance under its PRGF arrangement, which was off track at the time, and stating that financial support, including from the private sector, would be essential for the future success of Moldova’s economic program. Moldova did not have an IMF-supported program during its 2004 Gazprom debt regularization.

  • Uruguay’s March 2002 two-year SBA contained commitments for the primary balance through 2003, supported by full fiscal and external sector projections through 2003. For the March 2003 review, the MEFP contained primary balance projections up to 2005, and the IMF staff report (published) showed full fiscal and external sector projections through 2004. IMF management issued a letter in March 2003 describing the macroeconomic program, including the primary surplus target for 2003 and for the medium term, and encouraging high participation in the exchange offer.

  • The MEFP before the Dominican Republic’s 2005 debt restructuring contained primary balance and external reserves projections through 2006. The accompanying IMF staff report contained full fiscal and balance of payments projections through 2007 and 2009, respectively. The MEFP was published, but the staff report was not.

  • For Russia’s 1999, 17-month SBA, the MEFP did not specify a primary balance target beyond 1999, and, similarly, the staff report provided detailed fiscal and external sector projections only up to 1999. However, an overview table containing a medium-term framework up to 2005 was presented. The staff report was not published, but a press release showed the primary balance target and an overview of balance of payments projections for 1999. At the time of the restructuring of Principal and Interest Notes (PRINs) and Interest in Arrears Notes (IANs), Russia’s SBA was off track, and IMF management issued a letter in July 2000 describing economic developments, indicating that discussions were under way that could lead to a new SBA, and judging the proposed debt exchange as warranting the support of the international community.

  • Ecuador’s 12-month SBA was approved in April 2000, after the rescheduling of domestic debt but before the exchange offer on external debt of July/August 2000. The MEFP (published) did not specify quantified fiscal targets beyond 2000. The staff report (not published) provided detailed fiscal and external sector tables only through 2000, but a debt-sustainability analysis laid out medium-term fiscal and balance of payments projections. For the restructuring of external debt, IMF management issued a letter in July 2000 describing the macroeconomic program (including the fiscal deficit target for 2000) and encouraging the private sector to participate in the exchange.

IMF loans are usually provided under an “arrangement” that stipulates the specific policies and measures a country has agreed to implement to resolve its balance of payments problem. The economic program underlying an arrangement is formulated by the country in consultation with the IMF and is presented to the IMF’s Executive Board in a “Letter of Intent” and “Memorandum of Economic and Financial Policies.” Once an arrangement is approved by the Board, the loan is released in phased installments, subject to periodic reviews by the Executive Board.

In the context of sovereign-debt-restructuring operations, the IMF has frequently issued assessment (“comfort”) letters to the international financial community, providing a candid assessment of a member’s macroeconomic conditions and prospects as well as of its macroeconomic and structural policies.

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