Prepared by an interdepartmental team led by U. Ramakrishnan (SPR) and comprising M. Fisher, M. Kumar, M. Rossi, R. Rozenov (all FIN), K. Christopherson, D. Eastman, A. Giddings, K. Kyung, Y. Liu, G. Rosenberg (all LEG), R. Bi, M. Goretti, I. Halikias, M. Jamal, B. Kelmanson, S. Lanau, T. Miyoshi, M. Pant, and J. Roaf (all SPR), with overall guidance from T. Krueger (FIN), L. Giorgianni (SPR), and R. Weeks-Brown (LEG).
See “Analytics of Systemic Crises and the Role of Global Financial Safety Nets” and the background paper “Mapping Cross-Border Financial Linkages—A Supporting Case for Global Financial Safety Nets”.
See Deauville Partnership Finance Ministers’ Meeting Communiqué - Marseille, September 10, 2011.
See Public Information Notice (PIN) No. 11/95 : Macroeconomic and Operational Challenges in Countries in Fragile Situations.
See Public Information Notice (PIN) No. 11/98: Analytics of Systemic Crises and the Role of Global Financial safety Nets”. See also the Final Communiqué from the Meeting of G20 Finance Ministers and Central Bank Governors, April 15, 2011, Washington D.C.
With the reform of the IMF’s concessional lending facilities that became effective on January 7, 2010, the availability of subsidies for new purchases under ENDA and EPCA was terminated, and replaced by the concessional RCF in the PRGT.
The features of the low-income country RCF are elaborated in A New Architecture of Facilities for Low Income Countries.
An exogenous shock is defined in the same manner as under the RCF, i.e., an event beyond the control of the authorities, with a significant negative impact on the economy, and could include, inter alia, terms of-trade shocks, natural disasters, shocks to demand for exports, or conflict or crisis in neighboring countries that has adverse BoP effects. “Fragility” has many definitions, and its assessment is necessarily judgmental and complex, and can vary across countries and change over time. See Appendix 1 of Macroeconomic and Operational Challenges in Countries in Fragile Situations for a more detailed discussion of the definition of fragility.
The Fund has long had GRA policies under which it has made resources greater than the first credit tranche (25 percent of quota) available in the absence of UCT quality policies, including the current ENDA/EPCA and the now-defunct Systemic Transformation Facility and Compensatory Financing Facility.
Larger BoP needs of an urgent nature could be met under the modified PCL (as discussed in Section III) for countries qualifying for this instrument, and more generally under Stand-By or Extended Arrangements if the country’s economic program were to warrant SBA or Extended Fund Facility support.
The timing and modalities of the safeguards assessment for members with assistance under the RFI would be determined on a case-by-case basis. Normally, however, the safeguards assessment would need to have been completed before Executive Board approval of any subsequent arrangement to which the Fund’s safeguards policy applies.
In particular, the following qualification requirements under the current PCL decision would continue to apply: “In addition to requiring a generally positive assessment of the member’s policies by the Executive Board in the context of the most recent Article IV consultations, a member’s qualification for a PCL arrangement shall be assessed in the following areas (with the member being expected to perform strongly in most of these areas and not to substantially underperform in any of them): (i) external position and market access, (ii) fiscal policy, (iii) monetary policy, (iv) financial sector soundness and supervision, and (v) data adequacy”. Also, the four criteria for not approving the PCL would remain binding (Decision No. 14715-(10/83), 8/30/10, Section 2(b)): A PCL would not be allowed for members facing “(i) sustained inability to access international capital markets, (ii) the need to undertake a large macroeconomic or structural policy adjustment (unless such adjustment has credibly been launched before approval); (iii) a public debt position that is not sustainable in the medium term with a high probability, or (iv) widespread bank insolvencies” (Decision No. 14715-(10/83), 8/30/10, Section 2(c)).
See Analytics of Systemic Crises and the Role of Global Financial Safety Nets for a discussion of events of heightened and widespread stress and possible quantitative and qualitative indicators to determine and monitor such events.
The companion Review paper provides evidence of such a phenomenon where the FCL lowered market spreads not only for those countries that requested the arrangements, but also for other emerging market economies perceived to be FCL qualifiers.
The standard continuous performance criteria cover trade and exchange restrictions, bilateral payment arrangements, multiple currency practices and non-accumulation of external debt payments arrears. If a standard performance criterion is not observed at any point during a six-month PLL arrangement, purchases under that arrangement would be blocked until the Board grants a waiver of nonobservance, as is the case under the current PCL.
While access under one year PCL arrangements may not exceed 500 percent of quota at the time of approval of such arrangements, they can be augmented during the course of the arrangement (i.e., subsequent to approval) subject to the applicable PCL access limits (See The Fund’s Mandate - The Future Financing Role: Revised Reform Proposals and Revised Proposed Decisions, Supplement 1 and PCL Decision No. 14715-(10/83)..
As is currently the case for PCL arrangements, one-to-two year PLL arrangements would continue to be subject to the standard safeguards assessment policy for Fund arrangements, with a safeguards assessment being required to be completed at least by the time of the first review under the arrangement. Given the absence of a review under six-month PLL arrangements, however, it is proposed that the approach that has been applied for outright purchases under EPCA and the RCF—and as proposed above for the RFI—be applied for such arrangements.
See “A Review of Crisis Programs”, September 2009, and its update in April 2011.
For the tail risk scenario underlying the discussion here, all shock assumptions are the same as the “Unchanged Capital Outflows” scenario in The Fund’s Mandate—The Future Financing Role—Reform Proposals. Specifically, relative to WEO projections (i.e., the baseline) (i) FDI inflows are 20 percent lower, (ii) the external debt rollover rate is 60 percent, (iii) net portfolio inflows are 15 percent lower, (iv) bank deposits
As noted before, stigma in the current toolkit could arise because members who are PCL-qualifiers in all respects except that they have an actual BoP need at the time of approval would need to request an SB A, which they might be more reluctant to do because of perceptions that it does not carry the same positive signaling effect as the PCL.
The resources implications of the proposed PLL reforms are shown in Figure 1 relative to a baseline of the demand for Fund resources under the current lending toolkit. The upcoming paper on the Adequacy of Fund Resources will elaborate on the demand and supply of Fund resources.
For a discussion of FCL-specific considerations, see The Technical Note on Synchronized Approval of Flexible Credit Lines for Multiple Countries, October 2010.