Annex. Evolution of Policies on Performance Criteria and Program Reviews in Fund Arrangements
1. The Fund’s present set of tools for conditionality has gradually evolved from its earliest days of operation to meet the changing needs of its members. Performance criteria and program reviews are two types of conditionality that have become principal features of Fund arrangements over time. As the Fund has continuously adapted these tools to improve their effectiveness, the dynamics of the relationship between performance criteria and reviews have changed over time. While the widespread use of waivers and frequent modification of performance criteria have diminished their intended effectiveness, the increasing importance of structural policies and the complexity of uncertain macroeconomic developments have significantly enhanced the role of reviews. This Annex briefly reviews the development of policies on performance criteria and reviews under Fund arrangements in the context of their historical evolution.
This paper sets out initial options for reform. The subsequent paper GRA Lending Toolkit and Conditionality: Reform Proposals (03/24/09) identifies specific proposed reforms. Substantial differences between this paper and the subsequent paper are highlighted in the text. In particular, note that the Executive Board decided to maintain quantitative performance criteria.
Paper prepared by a staff team consisting of Thanos Arvanitis, Wes McGrew, Alison Stuart, Guillermo Tolosa (all SPR); and Rhoda Weeks-Brown, Ceda Ogada, Yan Liu, Kyung Kwak, and Wouter Bossu (all LEG).
For a more extensive discussion of these issues, see Conditionality In Fund-Supported Programs, Supp. 1, 2/20/2001 (PIN/01/125, 12/14/01).
While the original Articles of Agreement did not provide an entirely explicit basis for policy conditionality, this basis was clarified through the Board’s interpretation in March 1948 (see Decision No. 287–3, 3/17/1948).
For a detailed discussion of the evolution of policies on performance criteria and reviews, see Annex.
See Decision No. 287–3, 3/17/1948, which clarifies that “consistent with the provisions of this Agreement” as used in Article V, Section 3 means consistent both with the provisions of the Articles other than Article I and with the purposes of the Fund contained in Article I.
Under the Guidelines on Conditionality, all conditionality under a Fund-supported program must be either critical to the achievement of program goals or for monitoring implementation, or necessary for the implementation of specific provisions under the Articles and policies thereunder.
There is a long-standing policy requiring the use of performance criteria in connection with purchases beyond the first credit tranche in all stand-by arrangements. The latest Board reiteration of this policy is in Decision No. 12865-(02/102), 9/25/2002.
Guidelines on Conditionality, Decision No. 12864-(02/102), 9/25/2002, as amended by Decision No. 13814-(06/98), 11/15/2006, paragraph 7(a).
See, e.g., A New Facility for Market Access Countries—The Short-Term Liquidity Facility, 10/24/2008, (PR/08/262, 10/29/08) for additional discussion of the background and evolution of conditionality.
Although for smaller amounts, Fund financial support under the Compensatory Financing Facility, Emergency Natural Disaster Assistance and Emergency Post-Conflict Assistance is also provided in the form of outright purchases.
Even in somewhat more recent times, for example, a stand-by arrangement approved for the United Kingdom in 1969 provided for prior consultations concerning monetary and fiscal programs, but included no performance criteria or other standard monitoring variables.
The new framework would also not entail any changes to the current requirements concerning financing assurances reviews under the Lending Into Arrears policy and Guidelines on Conditionality.
However, inaccurate reporting on the implementation of programs would continue to be subject to the misreporting framework. While reporting of information on the implementation of prior actions is already subject to the misreporting framework, in the absence of performance criteria, staff proposes that the misreporting framework be amended in order to cover the reporting of information on targets.
As noted above, Article XXX(b) of the Fund’s Articles of Agreement defines a stand-by arrangement as a decision “by which a member is assured that it will be able to make purchases from the General Resources Account in accordance with the terms of the decision during a specified period and up to a specified amount.”
Decision No. 7925-(85/38), March 8, 1985, as amended by Decision No. 8887-(88/89), 6/6/1988.
While in most cases, prior actions would not be needed under the ex ante approach, there might be cases where notwithstanding the sound fundamentals and policies, the member is undertaking measures to reduce remaining vulnerabilities. In these cases, it would be open for management to consider establishing prior actions.
This would apply to the PRGF as well as the Exogenous Shock Facility and Policy Support Instrument.
While the original Articles of Agreement did not provide an entirely explicit basis for policy conditionality, this basis was provided through a March 1948 interpretation. See Decision No. 287–3, 3/17/1948.
Decision No. 155-(52/57), 10/1/1952.
Decision No. 270-(53/95), 12/23/1953.
Decision No. 6056-(79/38), 3/2/1979.
Decision No. 6056-(79/38).
Conditionality in Fund-Supported Programs – Policy Issues, 2/16/2001.
Guidelines on Conditionality, Decision No. 12864-(02/102), 9/25/2002, as amended by Decision No. 13814-(06/98), 11/15/2006.
IMF Executive Board Discusses Review of the Conditionality Guidelines, PIN/05/52, 4/15/2005.
Independent Evaluation Office – Evaluation of Structural Conditionality in IMF-Supported Programs, 2007.