Abstract

The stand-by arrangements of the Fund are arrangements under which the Fund assures a member that it will be able to use the Fund’s resources up to a prescribed amount during a specified period and usually subject to certain conditions.93 These arrangements are now very frequent in Fund practice, and a large proportion of the Fund’s financial transactions is covered by them. Almost invariably, a stand-by arrangement consists of two documents, one of which sets forth largely standard terms that are intended on the whole to fit the operation into the Articles and the Fund’s unique form of financing. The second document is an attachment in the form of a letter or memorandum, usually signed by the Minister of Finance or Governor of the central bank of the member for whose benefit the arrangement is made, or by both. This document, frequently referred to as a letter of intent, sets out, often in some detail, the policies that the member will follow. The general objective of these policies is to ensure that the member’s use of the Fund’s resources under the stand-by arrangement will be consistent with the purposes and provisions of the Articles and with the policies adopted by the Fund under them. By means of appropriate provisions in the covering document, the observance of certain features of the member’s letter of intent is made a condition of its continued ability to use the Fund’s resources under the stand-by arrangement.

The stand-by arrangements of the Fund are arrangements under which the Fund assures a member that it will be able to use the Fund’s resources up to a prescribed amount during a specified period and usually subject to certain conditions.93 These arrangements are now very frequent in Fund practice, and a large proportion of the Fund’s financial transactions is covered by them. Almost invariably, a stand-by arrangement consists of two documents, one of which sets forth largely standard terms that are intended on the whole to fit the operation into the Articles and the Fund’s unique form of financing. The second document is an attachment in the form of a letter or memorandum, usually signed by the Minister of Finance or Governor of the central bank of the member for whose benefit the arrangement is made, or by both. This document, frequently referred to as a letter of intent, sets out, often in some detail, the policies that the member will follow. The general objective of these policies is to ensure that the member’s use of the Fund’s resources under the stand-by arrangement will be consistent with the purposes and provisions of the Articles and with the policies adopted by the Fund under them. By means of appropriate provisions in the covering document, the observance of certain features of the member’s letter of intent is made a condition of its continued ability to use the Fund’s resources under the stand-by arrangement.

The Fund would undoubtedly take the position that the interpretation of the standard terms in the covering document falls within its own powers of interpretation under the Articles because the purpose of those terms is to fit the arrangement into the Articles. Moreover, the standard terms are based on, and reflect the language of, the general decisions of the Executive Directors on stand-by arrangements. The position is not so clear with respect to the letter of intent. It is a declaration by the member itself. Probably, neither the letter of intent nor the stand-by arrangement as a whole can be regarded as an international agreement in any classical legal sense.94 Nevertheless, the letter of intent is almost always written after consultations with a Fund mission, and the degree of participation in its drafting by Fund officials may vary from suggestions at one extreme to the preparation of a complete draft on behalf of the member at the other extreme. The extent of staff participation will depend on the amount of technical assistance that the member needs in arriving at an appropriate program or on the character of the negotiations. The negotiations are sometimes complex, and a letter of intent may be the subject of many revisions either in the field or after a mission has returned to Fund headquarters and had the benefit of the views of the Managing Director and other staff members. In all of this drafting and redrafting, the Fund’s legal advisors take an active part.

It is not at all infrequent that during the life of a stand-by arrangement there will be the need to interpret the language of the letter of intent. No stand-by arrangement has ever included an express provision, either in the covering document or in the letter of intent, with respect to interpretation. Sometimes, however, interpretative understandings on particular features of the letter of intent will be reached between the Fund and the member in the course of the consultations preceding the Fund’s approval of a stand-by arrangement. In practice, it has always been possible to resolve difficulties of interpretation by consultation even where no such understanding was reached in advance. It must also be noted that sometimes a member will be granted stand-by arrangements for successive periods, and the difficulties of interpretation that may have emerged during one period will be resolved in the document drafted for the next period. In addition, the experience gained in the case of one member will often be useful in avoiding ambiguities in the drafting of stand-by arrangements for other members.