Abstract
protracted global uncertainty combined with frequent episodes of capital flow volatility have intensified demand for liquidity support.
1. This supplement sets forth an illustrative set of decisions that would be needed to adopt the reforms outlined in Adequacy of the Global Financial Safety Net—Review of the Flexible Credit Line and Precautionary and Liquidity Line, and Proposals for Toolkit Reform, IMF Policy Paper, December 2017 (the “Paper”). A number of Directors have requested illustrative decisions to better understand the details of the policy changes discussed in the Paper. In this light, attached are an illustrative set of decisions that would: (i) complete the review of the Flexible Credit Line (FCL) and Precautionary and Liquidity Line (PLL) and set the deadline for the subsequent review of the FCL; (ii) eliminate the PLL; and (iii) establish the Short-term Liquidity Swap (SLS), and make the necessary changes to ancillary Fund policies to implement the proposed features of the SLS. Additionally, while staff does not propose such reforms, the set includes—at the request of some Directors—an illustrative decision that includes options to either steepen the current commitment fee schedule or introduce a time-based commitment fee. Based on the understandings reached at the Executive Board meeting scheduled for June 30, 2017, staff would subsequently circulate proposed decisions for adoption either at a follow-up Board meeting or on a lapse-of-time basis.
2. Completion of the FCL/PLL Review and Timing of Future FCL Review (Illustrative Decision I): Illustrative Decision I, which would be subject to adoption by a majority of the votes cast, would complete the FCL and PLL Review called for in Decision No. 15596-(14/46), adopted May 21, 2014 (paragraph 1). While the decision on streamlining of policy reviews (Decision No. 15764-(15/39), adopted April 23, 2015) currently contemplates that the next FCL review take place in five years or more, on an as needed basis, Illustrative Decision I would propose that the next FCL review take place within two years, at the same time as the review of the SLS, or earlier if aggregate outstanding credit and commitments under the FCL and the SLS exceed SDR 150 billion (paragraph 2). Subsequent reviews would then take place in five years or more, or on an as needed basis, in accordance with the streamlining policy. Consistent with the elimination of the PLL discussed below, the FCL would no longer be reviewed in conjunction with the PLL, and outstanding credit and commitments under the PLL would no longer count towards the SDR 150 billion review trigger (paragraph 3).
3. Elimination of the PLL (Illustrative Decision II): Illustrative Decision II, which would be subject to adoption by a majority of votes cast, would repeal the PLL, effective upon the expiration or cancellation of the PLL arrangement currently in effect (paragraph 1), and no new PLL arrangements would be approved (paragraph 2).
4. Establishment of the SLS and Related Decisions (Illustrative Decision III): Illustrative Decision III would establish the SLS as a special facility in the GRA (i.e., outside the credit tranches) and make the necessary changes to Fund policies to implement the proposed features of the SLS. Because all policy changes in Illustrative Decision III are necessary to establish the proposed features of the SLS, they are included in a single Decision. Adoption of Illustrative Decision III would require a majority carried by 85 percent of the total voting power because: (i) it establishes a special repurchase period for the SLS (12 months); and (ii) the SLS is proposed to “float” against the reserve tranche (i.e., members will maintain a reserve tranche position in the Fund despite making purchases under the SLS), both of which require an 85 percent majority under the Articles (Article V, Section 7(d) and Article XXX(c)(iii), respectively). While Illustrative Decision III would also include elements that independently would require adoption by either a majority of the votes cast (e.g., access policy) or 70 percent of total voting power (e.g., changes to charges and fees), when one decision makes changes that require different voting majorities, the highest voting majority applies. A detailed description of each section of Illustrative Decision III follows:
Establishment of the SLS (Section A of Illustrative Decision III): Section A would establish the SLS for members with the special balance of payments need outlined in paragraph 39 of the Paper (paragraph 1). While not proposed by staff, some Directors have expressed interest in approving the SLS for a limited period of time (e.g., eight years), with extension of the SLS after that time requiring approval by 85 percent of the total voting power. Members that informally express interest would be conditionally approved for an SLS arrangement if they meet the qualification criteria, which are the same as those for the FCL (paragraph 2), and would not be subject to any form of ex-post conditionality or reviews (paragraph 3). Access under an SLS arrangement would be approved for a qualifying member up to 145 percent of its quota, on a revolving basis both within and across SLS arrangements (paragraph 4), for a period of 12 months, unless cancelled before expiry by the member (paragraph 5). The process for approval, including the authorization to access audited financial information, is outlined in paragraph 6. Purchases under the SLS would not count against a member’s reserve tranche position (paragraph 7). The SLS would have a repurchase obligation of 12 months (paragraph 8). Finally, the SLS would be proposed to be reviewed within two years from the date of adoption, or whenever aggregate outstanding credit and commitments under the SLS and the FCL exceed SDR 150 billion (paragraph 11).
Access Policy (Section B of Illustrative Decision III): Section B would carve out access under the SLS from the access limits set forth in the policy on overall access to the Fund’s resources in the General Resources Account. This is because unlike other Fund arrangements, which define access on a flow basis, access under the SLS would be defined as a limit on the stock of Fund credit committed or outstanding, up to a maximum of 145 percent of quota. A member would be able to purchase at any given time up to the amount of approved access under the SLS, minus outstanding purchases. Repurchases would reconstitute access up to the approved access amount for the SLS arrangement in effect at the time of the repurchase (paragraph 4 of Section A). However, outstanding amounts under the SLS would count towards the access limits if a member subsequently requests access to Fund resources under another Fund facility.
Article IV Consultation Cycle (Section C of Illustrative Decision III): Section C would amend the Decision on Article IV Consultation Cycles to clarify that members with an SLS arrangement must remain or be placed on the 12-month Article IV consultation cycle.
Transparency Policy (Section D of Illustrative Decision III): Section D would amend the Decision on Publication of Reports to account for the SLS arrangement’s approval process, which differs from other Fund arrangements in that the Executive Board would “offer” an SLS arrangement to a member and the SLS arrangement would become effective upon confirmed receipt of a member’s acceptance of the offer. In this regard, changes would be made so that: (a) the publication deadline of the press release and staff report starts from the effective date of a member’s SLS arrangement, rather than the date the underlying staff report is discussed; and (b) the effectiveness of a member’s SLS arrangement is conditioned on the member’s consent to publish when it accepts the Fund’s offer of an SLS arrangement, unlike other requests for Fund arrangements, which require that the member consent to publication for management to recommend approval of an arrangement by the Executive Board.
Allocation of Repurchases (Section E of Illustrative Decision III): Section E would amend the Decision on Attribution of Reductions in the Fund’s Holdings of Currencies, for administrative purposes, to clarify that a member’s repurchases under the SLS will be applied first to the longest outstanding purchase under the SLS (i.e., a “first out, first in” rule will apply) as outlined in Box 5 of the Paper.
Surcharges (Section F of Illustrative Decision III): Section F would amend the level-based surcharge policy to include outstanding purchases under the SLS. Fund holdings of a member’s currency over 187.5 percent of quota resulting from purchases in the credit tranches, under the SLS and the Extended Fund Facility would be subject to a surcharge of 200 basis points per annum above the basic rate of charge. The illustrative decision reflects staff’s view that the purchases under the SLS should not be subject to the time-based surcharge because of their short-term repurchase obligation.
Service Charge and Commitment Fee (Section G of Illustrative Decision III): Section G would amend Rules I-1 and I-8 to set the service charge for purchases under the SLS at 21 bps (Rule I-1) and the commitment fee for the SLS at 8 basis points on a non-refundable basis (Rule I-8). The draft envisages that the commitment fee would be charged at the beginning of each SLS arrangement, and would not be refunded if the member makes purchases under the arrangement. A pro-rata portion of the commitment fee would be refunded, however, if the member cancels its arrangement before expiry. Consideration could be given to charging the commitment fee at the end of the arrangement, as an operational simplification with no impact on the amount the member would be charged.
5. Steepening the Commitment Fee Schedule or Establishing the Time-based Commitment Fee (Illustrative Decision IV, Option A and Option B): As noted in the Paper, staff does not propose either Option A or Option B, as its findings in the Paper reaffirm its view that the FCL has been used as intended. However, as some Directors have called for strengthening exit incentives from prolonged precautionary use of Fund facilities at high access levels, staff has included Illustrative Decision IV in this Supplement to inform the Board discussion. Adoption of Illustrative Decision IV would require a majority carried by 70 percent of total voting power, and would either make amendments to Rule I-8 of the Fund’s Rules and Regulations to steepen the commitment fee schedule (Option A, outlined in paragraph 27 of the Paper) or adopt new Rule I-8A to introduce a time-based commitment fee (Option B, described in paragraphs 28 through 30 and Annex V of the Paper). The illustrative Rule I-8A presents three possible options as to how the time calculation for the time-based commitment fee could operate. One option would be to include periods before the adoption of a decision to introduce a time-based commitment fee in the time calculation. A second option would be to “start the clock” only after the adoption of such decision. A final option would be to “start the clock” only upon the approval of a new arrangement, or augmentation of an existing arrangement, for a member. In each of these cases and notwithstanding how the time period is calculated, the time-based commitment fee would not be payable under current arrangements.
Annex I. Illustrative Example of Decisions to Complete the FCL/PLL Review, Eliminate the PLL, Establish the SLS (and related policy changes), and either Steepen the Commitment Fee Schedule or Introduce a Time-based Commitment Fee
Illustrative Decision I. Completion of Review of Decisions on FCL Arrangements and PLL Arrangements
1. Pursuant to Decision No. 15596-(14/46), adopted May 21, 2014, the Fund has reviewed the decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/29) adopted March 24, 2009, as amended, and the decision on Precautionary and Liquidity Line Arrangements, Decision No. 15017-(11/112), adopted November 21, 2011, as amended.
2. The next review of the decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/29) adopted March 24, 2009, as amended, shall take place within [two] years from the date of this Decision, jointly with the review of the Short-term Liquidity Swap, or earlier if aggregate outstanding credit and commitments under the Flexible Credit Line and the Short-term Liquidity Swap exceed SDR [150 billion]. Subsequent reviews shall take place on an as needed basis in accordance with Decision No. 15764-(15/39), adopted April 23, 2015, on implementing streamlining of policy reviews.
3. Paragraph 2 of Decision No. 15596-(14/46), adopted May 21, 2014, is hereby repealed.
Illustrative Decision II. Elimination of the Precautionary and Liquidity Line
1. Decision No. 15017-(11/112), adopted November 21, 2011, as amended, establishing the Precautionary and Liquidity Line (PLL), is hereby repealed, and all references in other Fund decisions to the PLL shall be deleted, effective on the date of expiration or cancellation of PLL arrangements that are in force on the date of this decision.
2. The Fund shall not approve any new arrangements under the Precautionary and Liquidity Line.
Illustrative Decision III. Establishment of the Short-Term Liquidity Swap and Related Amendments
A. Establishment of the Short-term Liquidity Swap1
1. The Fund is prepared to provide financial assistance under a Short-term Liquidity Swap (SLS) in accordance with the terms of this Decision to a member that faces short-term balance of payments difficulties that: (i) are only of a potential nature, reflected in pressure on the capital account and the member’s reserves; (ii) are resulting from volatility in international capital markets; and (iii) provided there is a reasonable expectation that the member’s difficulties will be limited in scale and will require, at most, fine-tuning of central bank policies.
2. Subject to paragraph 6(iv) below, an SLS arrangement shall be approved upon a member’s informal expression of its potential interest in an SLS arrangement and where the Fund assesses that the member:
(a) has very strong economic fundamentals and institutional policy frameworks,
(b) is implementing—and has a sustained track record of implementing—very strong policies, and
(c) remains committed to maintaining such policies in the future, all of which give confidence that the member will respond appropriately to the special balance of payments difficulties that it could encounter. In addition to a very positive assessment of the member’s policies by the Executive Board in the context of the most recent Article IV consultations, the relevant criteria for the purposes of assessing qualification for an SLS arrangement shall include: (i) a sustainable external position; (ii) a capital account position dominated by private flows; (iii) a track record of steady sovereign access to international capital markets at favorable terms; (iv) a reserve position that is relatively comfortable; (v) sound public finances, including a sustainable public debt position; (vi) low and stable inflation, in the context of a sound monetary and exchange rate policy framework; (vii) a sound financial system and the absence of solvency problems that may threaten systemic stability; (viii) effective financial sector supervision; and (ix) data transparency and integrity.
3. In light of the qualification criteria set out in paragraph 2 of this Decision, SLS arrangements shall not be subject to performance criteria or other forms of ex-post program monitoring and shall have no reviews.
4. SLS arrangements may be approved in an amount of up to 145 percent of the member’s quota, with this limit being cumulative for total credit outstanding under the SLS. There shall be no phasing under SLS arrangements. A member may make one or more purchases up to the amount of approved access under an SLS arrangement at any time during the period of such arrangement, subject to the provisions of this Decision, and provided that any outstanding amounts purchased by the member under the current or any previous SLS arrangement shall commensurately reduce the amount that can be purchased by the member during the course of an SLS arrangement. To the extent that a member makes a repurchase of amounts previously purchased under any SLS arrangement, the amount that can be subsequently purchased by the member under an SLS arrangement in effect shall be increased in an amount equal to such amounts repurchased, provided that at no time shall a member be entitled to purchase more than the approved access amount of its current SLS arrangement. The Fund shall not challenge a representation of need by a member for a purchase requested under an SLS arrangement.
5. (a) An SLS arrangement shall be approved for a period of 12 months.
(b) An SLS arrangement shall expire only upon the earlier of: (i) the expiration of the approved period of the arrangement; or (ii) the cancellation of the SLS arrangement by the member. Upon expiration of an SLS arrangement, the Fund may approve an additional SLS arrangement for the member in accordance with the terms of this Decision.
6. (a) The following procedures and arrangements for consultations with the Executive Board will apply following a member’s informal expression of potential interest in an SLS arrangement:
(i) Staff will conduct a confidential preliminary assessment of the qualification criteria set forth in paragraph 2.
(ii) When the Managing Director is prepared to recommend that a member be provided with the opportunity to avail itself of an SLS arrangement, the relevant documents, including a staff report that assesses the member’s qualification for financial assistance under the terms of this Decision, will be circulated to the Board.
(iii) The minimum periods applicable to the circulation of staff reports to the Executive Board shall apply to requests under this Decision, provided that the Executive Board will generally be prepared to consider a request within 48 to 72 hours after the circulation of the documentation in exceptional circumstances.
(iv) If the Executive Board assesses that the member qualifies for support under an SLS arrangement and approves an SLS arrangement for the member, such approval, which shall be communicated to the member within one business day, will be conditional to the receipt of a satisfactory written communication from the member confirming to the Fund that the member wishes to avail itself of the SLS arrangement. Such written communication shall be submitted no later than [two weeks] after the Board has conditionally approved an SLS arrangement for the member. Such written communication shall also outline that the member will maintain very strong policies during the course of the arrangement as well as its commitment, whenever relevant, to take adequate corrective measures to deal with shocks that may arise, and its consent to publication of the associated staff report.
(v) The SLS arrangement for the member shall become effective on the date on which the Fund confirms receipt of a written communication from the member that satisfies the requirements outlined in 6(a)(iv). A copy of the written communication shall be circulated for information to the Executive Board.
(b) A member that wishes to avail itself of an SLS arrangement would not be subject to the Fund’s policy on safeguards assessments for Fund arrangements. However, at the time of its written communication, such member will provide authorization for Fund staff to have access to the most recently completed annual independent audit of its central bank’s financial statements, whether or not the audit is published. This will include authorizing its central bank authorities and the central bank’s external auditors to discuss the audit findings with Fund staff, including any written observations by the external auditors regarding weaknesses observed in internal controls. The member will be expected to act in a cooperative manner during such discussions with the staff. For as long as Fund credit is outstanding under this Decision, the member will also provide staff with copies of annual audited financial statements and management letters, together with an authorization to discuss audit findings with the external auditor.
7. Purchases under this Decision and holdings resulting from such purchases shall be excluded for the purposes of the definition of reserve tranche purchase pursuant to Article XXX(c).
8. A member shall be obliged to repurchase any amounts purchased under an SLS arrangement no later than 12-months after the date of the purchase of such amounts.
9. The Emergency Financing Mechanism (EFM) procedures set forth in the “Summing Up by the Chairman—Emergency Financing Mechanism, Executive Board Meeting 95/85, September 12, 1995” shall not apply to requests for SLS arrangements.
10. In order to carry out the purposes of this Decision, the Fund will be prepared to grant a waiver of the limitation of 200 percent of quota in Article V, Section 3(b)(iii), whenever necessary to permit purchases under this Decision or to permit other purchases that would raise the Fund’s holdings of the purchasing member’s currency above that limitation because of purchases outstanding under this Decision.
11. The Fund will review this Decision by the earlier of (i) [two] years from the date of adoption of this Decision, or (ii) whenever aggregate outstanding credit and commitments under this Decision and under Decision No. 14283-(09/29) adopted March 24, 2009, as amended, on the Flexible Credit Line exceed SDR [150 billion].
B. Access Policy and Limits in the Credit Tranches and Under the Extended Fund Facility and Under the Short-Term Liquidity Swap and on Overall Access to the Fund’s General Resources, and Exceptional Access Policy—Review and Modification
Decision No. 14064-(08/18), adopted February 22, 2008, as amended, shall be further amended as follows:
I. Paragraph 2 shall be amended to read as follows:
“2. The overall access by members to the Fund’s general resources shall be subject to (i) an annual limit of 145 percent of quota; and (ii) a cumulative limit of 435 percent of quota, net of scheduled repurchases; provided that these limits will not apply in cases where a member requests a Flexible Credit Line arrangement and where a member requests a Short-term Liquidity Swap arrangement, although outstanding holdings of a member’s currency arising under such arrangements will be taken into account when applying these limits in cases involving requests for access under other Fund facilities.”
C. Article IV Consultation Cycles
Decision No. 14747-(10/96), adopted September 28, 2010, as amended, shall be further amended as follows:
1. The first sentence of Paragraph 2 shall be amended to read as follows:
“2. Whenever a Fund arrangement (other than an arrangement under the Flexible Credit Line (FCL), Precautionary and Liquidity Line (PLL), or Short-term Liquidity Swap (SLS)) or a Policy Support Instrument is approved for a member, that member shall automatically be placed on a 24-month consultation cycle.”
2. Paragraph 3 shall be amended to read as follows:
“3. Whenever an FCL, PLL, or SLS arrangement is approved for a member, that member will automatically be placed on a 12-month consultation cycle. Article IV consultations with such members will be conducted in accordance with the procedures specified below:
(a) if, prior to the approval of the FCL, PLL, or SLS arrangement, the member was on an extended cycle, the next Article IV consultation with that member will be expected to be completed by the later of (i) 6 months after the date of approval of the arrangement, and (ii) 12 months, plus a grace period of 3 months, after the date of completion of the previous Article IV consultation;
(b) if an FCL or a PLL arrangement is completed by drawing all amounts, expires with undrawn amounts, or is cancelled by the member, or if an SLS arrangement expires or is cancelled by the member, that member will remain on the standard 12-month cycle, unless the Executive Board determines that a different cycle will apply.”
D. Publication of Reports
Decision No. 15420-(13/61), adopted June 24, 2013, as amended, will be further amended as follows: 1. A new paragraph 4.c. shall be added to read as follows:
“4.c. The Executive Board’s decision to approve a Short-term Liquidity Swap (SLS) arrangement for a member shall be conditioned on receipt of the member’s consent to publication at the time the member accepts an SLS arrangement. The associated staff report and the authorities’ written communication would be expected to be published by the Fund no later than fourteen calendar days after the member’s SLS arrangement becomes effective.”
2. Paragraph 11 shall be amended to read as follows:
“11. After the Executive Board (i) adopts a decision regarding a member’s use of Fund resources (including a decision completing a review under a Fund arrangement), or (ii) adopts a decision approving a PSI, or conducts a review under a PSI, or (iii) completes a discussion on a member’s participation in the HIPC Initiative, or (iv) completes a discussion on a member’s I-PRSP, PRSP, PRSP preparation status report, APR, or EDD in the context of the use of Fund resources or a PSI, a Press Release, which will contain a Chairman’s statement on the discussion, emphasizing the key points made by Executive Directors, will be issued to the public. A Press Release containing a Chairman’s statement on the discussion, emphasizing the key points made by Executive Directors, will also be issued to the public after an SLS arrangement becomes effective. Where relevant, the Chairman’s statement will contain a summary of HIPC Initiative decisions pertaining to the member and the Executive Board’s views on the member’s I-PRSP, PRSP, PRSP preparation status report, APR, or EDD in the context of use of Fund resources or a PSI. Waivers for nonobservance, or of applicability, of performance criteria, and any other matter as may be decided by the Executive Board from time to time (Document 21), and waivers for nonobservance of assessment criteria, and any other matter as may be decided by the Executive Board from time-to-time (Document 22), will be mentioned in the factual statement section of the Press Release or in a factual statement issued in lieu of a Chairman’s statement as provided for in paragraph 13(b). Before a Press Release is issued, it will, if any Executive Director so requests, be read by the Chairman to the Executive Board and Executive Directors will have an opportunity to comment at that time. The Executive Director elected, appointed, or designated by the member concerned will have the opportunity to review the Chairman’s statement, to propose minor revisions, if any, and to consent to its publication immediately after the Executive Board meeting, or, in the case of the SLS, immediately after the SLS arrangement becomes effective. Notwithstanding the above, no Press Release published under this paragraph shall contain any reference to a discussion or decision pertaining to a member’s overdue financial obligations to the Fund, where a Press Release following an Executive Board decision to limit the member’s use of Fund resources because of the overdue financial obligations has not yet been issued. In the case of an Executive Board meeting pertaining solely to a discussion or decision with respect to a member’s overdue financial obligations, no Chairman’s statement will be published.”
3. Paragraph I(A)(11) shall be amended to read as follows:
“11. Letters of Intent and Memoranda of Economic and Financial Policies (LOIs/MEFPs), and Written Communications
4. A new paragraph 13.b.(iii) shall be added to read as follows:
“(iii) With respect to the consent provisions set forth in paragraph 4(c), if, after twenty-eight calendar days from the effective date of an SLS arrangement, the staff report has not been published, a brief factual statement will be issued stating the fact of the effectiveness of an SLS arrangement for a member and clarifying the authorities’ publication intention with respect to the staff report.”
E. Attribution of Reductions in Fund’s Holdings of Currencies
Decision 6831-(81/65), adopted April 22, 1981, as amended, shall be further amended to read as follows:
1. Paragraph 1(a) shall be amended to read as follows:
“(a) Subject to paragraphs (b), (c) and (e) below a member shall be free to attribute a reduction in the Fund’s holdings of its currency (i) to any obligation to repurchase, and (ii) to enlarge its reserve tranche.”
2. A new paragraph 1(c) shall be added to read as follows:
“(c) Repurchases of credit outstanding under the Short-term Liquidity Swap (SLS) shall be attributed to the first maturing repurchase obligation under the SLS.”
F. Surcharges on Purchases in Credit Tranches and Under Extended Fund Facility
Decision No. 12346-(00/117), adopted November 28, 2000, as amended, shall be further amended to read as follows:
1. Paragraph 1 shall be amended to read as follows:
“1. Subject to paragraphs 2 and 3 below, the rate of charge under Article V, Section 8(b) on the Fund’s combined holdings of a member’s currency in excess of 187.5 percent of the member’s quota in the Fund resulting from purchases in the credit tranches, under the Short-term Liquidity Swap and under the Extended Fund Facility shall be 200 basis points per annum above the rate of charge referred to in Rule I-6(4) as adjusted for purposes of burden sharing; and for the Fund’s combined holdings resulting from purchases in the credit tranches and under the Extended Fund Facility, it shall also include an additional 100 basis points per annum on such holdings in any case where they are outstanding for more than 36 months in the case of purchases in the credit tranches, or 51 months in the case of purchases under the Extended Fund Facility.
G. Rules and Regulations of the International Monetary Fund
Rule I-1 shall be amended as follows:
“I-1. The service charge payable by a member buying, in exchange for its own currency, the currency of another member or SDRs from the General Resources Account shall be 0.5 percent for purchases in the credit tranches and under the Extended Fund Facility and [0.21] percent for purchases under the Short-term Liquidity Swap. No service charge shall be payable in respect of any purchase to the extent that it is a reserve tranche purchase. The service charge shall be paid at the time the transaction is consummated.”
Rule I-8 shall be amended as follows:
1. The introductory clause of Rule I-8 shall be amended to read as follows:
“I-8. The following provisions (a) – (f) shall apply to all General Resources Account (“GRA”) arrangements, except the Short-term Liquidity Swap (“SLS”) arrangements, in which case provision (g) shall apply:”
2. A new paragraph I-8(g) shall be added to read as follows:2
“(g) With respect to SLS arrangements, a charge of [8/100] of 1 percent per annum on the total amount of access approved by the Fund for a member under a SLS arrangement shall be payable at the beginning of the arrangement. This charge shall not be refundable against purchases made during the course of the arrangement. If the member notifies the Fund that it wishes to cancel an SLS arrangement, the Fund shall repay to the member a portion of the charge. The portion repaid shall represent the prorated amount of the charge that corresponds to the period remaining unexpired at the date of cancellation. Such repayment shall be made in the media selected by the Fund.”
Illustrative Decision IV.
Option A. Adjustment to Schedule of Commitment Fees
Subparagraph (a)(iii) of Rule I-8 shall be amended to read as follows:
“(iii) [70–80/100] of 1 percent per annum on amounts in excess of [575] percent of the member’s quota that could be purchased during the relevant period; provided that for a member with a GRA arrangement in effect on [Date of Adoption of Decision], [3/5] of 1 percent per annum on amounts in excess of [575] percent of the member’s quota that could be purchased during the relevant period shall be the applicable charge until the earlier of the expiration or cancellation of the arrangement, or the date of the Fund’s approval of any augmentation of such arrangement.”
Option B. Time-Based Commitment Fee
A new Rule I-8A shall be adopted to read as follows:
“A member with an arrangement in the credit tranches approved or augmented after [Date of Adoption of Decision] (the “arrangement”) shall also be subject to the following provisions:
(a) The member shall pay a non-refundable charge of [10–20/100] of 1 percent per annum on credit tranche amounts in excess of [575] percent of the member’s quota that could be purchased by the member during each payment period, which shall be: (i) the period from the first point of time during the arrangement when the duration trigger (the “duration trigger”) is met, as determined under subparagraph (c) below, until the beginning of the next relevant period or through the end of the arrangement, whichever earlier, or thereafter (ii) each subsequent relevant period under the arrangement if the duration trigger continues to be met at the beginning of that relevant period. The charge shall be payable on the day following the end of each payment period.
(b) Under this Rule I-8A, a relevant period shall be defined in accordance with Rule I-8, and an amount that could be purchased by the member, as being calculated at any time during a relevant period, shall be the amount that could be purchased by the member from that time through the end of the same relevant period.
(c) The duration trigger is met if the amounts that could be purchased by the member during the relevant periods under arrangements in the credit tranches exceed [575] percent of the member’s quota for a cumulative duration of [48] months. Such arrangements would be measured in percent of the member’s quota in effect on the day on which the charge under subparagraph (a) above is payable, and [would include arrangements approved prior to [Date of Adoption of Decision]] OR [no period before [Date of Adoption of Decision] shall be included] OR [would only include new arrangements approved after [Date of Adoption of Decision] and, if augmentation for an arrangement in effect on [Date of Adoption of Decision] is approved after [Date of Adoption of Decision], the period from the date of approval of such augmentation]. For the purposes of accumulating time towards the total [48] months, only the period(s) of time during each relevant period, when credit tranche amounts that could be purchased by the member were in excess of [575] percent of the member’s quota, shall be counted. If there was any continuous period of [12] months or longer during which the credit tranche amounts that could be purchased by the member fell to [575] percent of the member’s quota or lower, then no time prior to that period shall be counted toward the accumulated [48] months required for the duration trigger to be met.”
If an approach that SLS arrangements would only be approved for a limited period of time were to garner sufficient support by Directors, paragraph 1 of Section A could include the following introductory phrase: “For a period of [8] years from the date of this Decision, …”
If consideration is given to charging the commitment fee for SLS arrangements at the end of the arrangement, the proposed Rule I-8(g) could be redrafted as follows: “(g) With respect to SLS arrangements, a non-refundable charge of [8/100] of 1 percent per annum on the total amount of access approved by the Fund for a member under an SLS arrangement shall be payable upon expiry of such arrangement, or the date on which the member notifies the Fund that it wishes to cancel such SLS arrangement. Where the member notifies the Fund that it wishes to cancel an SLS arrangement, the charge will be applied only to the period during which the arrangement was effective.”