Annex. Fund Resources and Financing Operations
This Annex reviews the status of current and prospective Fund resources and presents a preliminary assessment of the impact of the reforms proposed in this paper on the demand for Fund resources. The preventative nature of the proposed reforms would likely increase potential resource commitments early in a crisis, while, at the same time, reducing the need for commitments under traditional crisis management instruments. While the proposed reforms would tend to increase the frontloading of demand for Fund resources, the overall resource envelope discussed in the initial meeting on the size of Fund resources in April appears broadly adequate. Nonetheless, these reforms would tend to increase the advantages of quota resources relative to borrowing, and may also have implications for liquidity management by creditor members.
Paper prepared by an interdepartmental team coordinated by C. Beaumont (FIN), L. Giorgianni (SPR), and R. Weeks-Brown (LEG) and comprising L. Kohler and M. Rossi (all FIN), K. Christopherson, D. Eastman, A. Giddings, K. Kwak, Y. Liu, and G. Rosenberg (all LEG), and G. Adler, M. Goretti, K. Guo, I. Halikias, B. Joshi, S. Lanau, J. Roaf, M. Saenz, and A. Stuart (all SPR).
See Caballero, Ricardo, 2009, “Sudden Financial Arrest,” Department of Economics Working Paper No. 09-29 (Cambridge: Massachusetts Institute of Technology).
The policy to formalize a unilateral offer to approve assistance would be analogous to the Trade Integration Mechanism (TIM), an existing policy under which the Fund stands ready to approve increased access to members with existing Fund arrangements where this is needed to address balance of payments difficulties arising from multilateral trade liberalization measures undertaken by other countries. The TIM, which is not targeted to any specific list of members, was designed to make Fund resources predictably available to members with Fund arrangements that were affected by trade liberalization measures implemented by other countries.
Until a decision to activate the NAB is taken, it is not included in the FCC.
As of June 28, 2010 a total of 16 participants had consented or adhered to the expanded NAB, with a list available at http://www.imf.org/external/np/fin/misc/nab.htm
As of June 28, 2010, 82 countries representing around 78.1 percent of the total voting power had accepted the amendment on voice and participation, with three-fifths of members (113) having 85 percent of the total voting power required before the amendment to become effective.
The exact figures will depend on the distribution of quota increases across members.
Following the completion of the 14threview, it is agreed that there would be a review of the expanded NAB.
The scenarios covered a subset of advanced economies, in particular, those identified as highly vulnerable in the Fall 2009 vulnerability exercise for advanced economies, and those with large financial sectors relative to their economic size.
In this analysis, countries that are assumed to be qualified for and FCL or PCL are those with an investment grade rating, but this is only a working assumption rather than a qualification requirement or a sufficient condition for qualification. This type of assumption is made because it avoids the need for staff to make any case-by-case evaluation and it generates an overall group size (40 percent of the 57 countries, with some 60 percent of the quota of this group) that appears broadly plausible.
As discussed in the preliminary analysis of the adequacy of Fund resources, the scenarios do not assume that all these members would all have arrangements, rather the analysis indicates the scale of resources needed to give confidence that such support could be provided.
In 2009, estimates of average rollover rates of financial and corporate sector external debt in Romania, Latvia and Hungary are 85, 86, and 90 percent respectively. Rollover rates varied more at the sectoral level, from 75 percent for the external debt of Hungarian banks in 2009 up to 91 percent for Romanian banks in the context of the European Bank Coordination Initiative.
Excluding the recent commitments to Greece, other sources of exceptional financing are estimated to have committed just over SDR 30 billion in the current crisis.
Members drawing on crisis resolution arrangements would not be included in the FTP, reducing lending resources by a modest SDR 1.6 billion. However, some members with crisis prevention arrangements may also need to draw in a tail risk scenario—these members’ total current quota and bilateral borrowing commitments amount to about SDR 50 billion, and they account for almost SDR 100 billion of the total lending resources from the expanded NAB and a doubling of post second round quotas.
The expanded NAB is a backstop to quotas, which when effective, can be activated by an 85 percent majority of credit arrangements once supplementary resources to quota resources are needed in order to forestall or cope with an impairment of the international monetary system. See Proposed Decision to Modify the New Arrangements to Borrow.