The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy.


The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy.

Supplement on the IMF: IMF Adapts to Meet Members’ Needs in Rapidly Changing Global Environment

The IMF continued to be absorbed in 1995/96 (financial year 1996, May–April) by the challenge of adapting its work and resources to the evolving needs of its members and to the opportunities and risks posed by intensifying globalization.

IMF analyses of the Mexican financial crisis in late 1994 yielded a broad recognition that the world economy is undergoing fundamental change and that adjustment and structural change are now required of all economies—whether industrial, developing, or transition. The degree and extent of adaptiveness called for by globalization may be without historical precedent. Acknowledging this challenge, the IMF in 1995/96 stepped up its efforts to assist its member countries by providing strengthened surveillance, seeking expanded financial resources to ensure that crises are dealt with effectively, and working to avoid marginalization of low-income countries as the pace of globalization picks up. Indeed, the IMF’s commitment of financial resources to member countries reached a record level in 1995/96.

State of the World Economy

In aggregate terms, world economic growth moderated slightly in 1995/96. This minor change, however, masked more distinct movements at regional and other levels. Many industrial countries, as well as the developing countries of the Western Hemisphere, saw their expansion slow, but this slowing was largely offset by improved performances in the transition economies, Africa, and the Middle East. Asia’s emerging market economies continued to sustain impressive growth rates.

Against this backdrop, economic fundamentals remained favorable. Inflation continued to be kept in check in the industrial countries and to moderate in developing and transition economies. Long-term interest rates dropped notably in 1995/96 (though they would rise again in early 1996/97); exchange rates tracked fundamentals more consistently than they had in recent years; and equity markets rose sharply, reflecting both strong profits and lower interest rates. World trade expanded at twice the rate of world output—reflecting the synergy achieved through increased trade liberalization, currency convertibility, and intensifying globalization. The generally steady, and in some cases strong, economic performance in 1995/96—and the likelihood of its continuation into 1996/97—was shadowed, however, by substantial actual or prospective fiscal imbalances and structural rigidities that have constrained, or threaten to constrain, stronger growth. These imbalances and rigidities underscore the need for adjustment and structural change if countries are to keep pace with the rapidly evolving world economy.

Strengthening Surveillance

Good policies have always mattered, but globalization, the massively expanded role of private capital markets, and technology have now transformed the markets into a stern and impatient taskmaster. This, in turn, has vividly re-emphasized for IMF member countries, and for the IMF itself, the fundamental importance of good policies and the vital role that IMF surveillance can play in promoting such policies. IMF surveillance is grounded in the belief that sound policies offer the best chance for sustained growth and that the virtues of monetary stability, macroeconomic discipline, sound financial systems, and efficient market mechanisms engender their own real, and long-term, benefits.

To refine and strengthen its surveillance, the IMF regularly reviews its surveillance policies and procedures. In 1995/96, in response to both the stubborn long-term budget deficits in industrial countries and impending demographic changes and public pension crises, the IMF gave new urgency to the issue of fiscal balance. It also stressed the importance of banking soundness and reducing labor market rigidities, particularly in Europe. At the same time, the IMF took steps to strengthen its surveillance, namely by:

• encouraging more timely and complete provision of economic data by member countries to the IMF and by developing a standard for members’ dissemination of economic and financial data to the public;

• ensuring a more continuous process of surveillance that would serve to identify—and begin to address—problems at earlier stages; and

• sharpening the focus of IMF surveillance in three areas: on key issues, such as capital account developments; on countries whose domestic developments have international repercussions; and on the regional level.

Expanding IMF Resources

While strengthened IMF surveillance is intended to forestall major disruptions in the world economy or lessen their severity, crises cannot be entirely avoided. A key lesson of the “first crisis of the twenty-first century”—as Managing Director Camdessus termed the Mexican financial crisis—is that the size and speed with which these crises arise in a global economy are unmatched by past experience. This underscores the importance of the adequacy of the IMF’s resources to deal with these crises. It also points to the need for the IMF to respond quickly to potential crises; in this connection, the IMF has formalized procedures for providing rapid approval of conditional financial support in an emergency financing mechanism.

With regard to expanding IMF resources, the Eleventh General Review of Quotas is already under way. The review has focused on issues concerning the size and distribution of an overall increase in quotas. In view of the projected sharp fall in the IMF’s liquidity through 1997 and early 1998, most members favor a substantial increase in the IMF’s quotas. Agreement in principle has been reached between participants in the General Arrangements to Borrow (GAB) and a number of other countries with the capacity to support the international monetary system on the main features of new borrowing arrangements that would double the resources potentially available for borrowing by the IMF under the current GAB. Legal and operational details of the new arrangements are under preparation. The Interim Committee, the IMF’s principal advisory body, has stressed the importance of reaching an expeditious conclusion to both the quota exercise and the GAB expansion.

Assisting Low-Income Countries

The downside of a rapidly globalized world economy is that countries unable to adapt quickly and effectively risk not just falling behind but being left behind. The danger of marginalization of poor and heavily indebted member countries has spurred the IMF to press for funding to ensure the uninterrupted operation of its enhanced structural adjustment facility (ESAF)—the IMF’s chief means of assisting low-income member countries seeking to restructure their economies. The ESAF, which is expected to become self-financing in 2005, faces an interim period between 2000 and 2004 when it must raise “bridging” resources. The IMF is currently exploring a mix of options, including the sale of a limited amount of its gold, to keep the ESAF continuously operational.

The IMF, together with the World Bank, is also taking steps to address the unsustainable debt-service burden of a number of heavily indebted low-income countries. The initiative, which would operate in conjunction with bilateral and other lenders, seeks to put eligible countries’ debt burdens on a sustainable basis, enabling them to service their external debt without undue burden. The initiative stresses the crucial role of effective policies in putting these economies on the path to adjustment and growth. It would provide special assistance—enhanced debt relief and other financial support—to ensure that indebted countries following sound policies do not see the results of their adjustment effort overwhelmed by unsustainable debt-service burdens.

The IMF’s 1996 Annual Meetings will provide a forum for reaching decisions on the debt initiative. The meetings will provide for further discussion of the quota, borrowing, and ESAF financing issues. More generally, governors will continue the work of reshaping the IMF to meet the needs of its members in a rapidly globalizing world economy.

Organization: IMF Structure Shaped by Articles of Agreement

The IMF’s organizational structure is set out in its Articles of Agreement, which entered into force in December 1945. The Articles provide for a Board of Governors, an Executive Board, a Managing Director, and a staff of international civil servants. Since the mid-1970s, the Executive Board has received ministerial guidance from the Interim Committee of the Board of Governors on the International Monetary System (the Interim Committee) and the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (the Development Committee).


(as of August 15, 1996)


  • Alternate

  • Casting Votes1 of

  • (Percent of IMF total)

Karin Lissakers

  • Barry S. Newman

  • United States

  • (265,518-17.78 percent)

Bernd Esdar

  • Wolt-Dieter Donecker

  • Germany

  • (82,665-5.54 percent)

Hachiro Mesaki

  • Hideaki Ono

  • Japan

  • (82,665-5.54 percent)

Marc-Antoine Autheman

  • Ambroise Fayolle

  • France

  • (74,396-4.98 percent)

Huw Evans

  • Jon Shields

  • United Kingdom

  • (74,396-4.98 percent)

Willy Kiekens (Belgium)

  • Johann Prader (Austria)

  • Austria

  • Belarus

  • Belgium

  • Czech Republic

  • Hungary

  • Kazakstan

  • Luxembourg

  • Slovak Republic

  • Slovenia

  • Turkey

  • (75,983-5.09 percent)

J. de Beaufort Wunholds (Netherlands)

  • Yuriy G. Yakusha (Ukraine)

  • Armenia

  • Bulgaria

  • Croatia

  • Cyprus

  • Georgia

  • Israel

  • Macedonia, FYR of

  • Moldova

  • Netherlands

  • Romania

  • Ukraine

  • (72,814-4.88 percent)

Luis E. Berrizbeitia (Venezuela)

  • Vicente J. Fernández (Spain)

  • Costa Rica

  • El Salvador

  • Guatemala

  • Honduras

  • Mexico

  • Nicaragua

  • Spain

  • Venezuela

  • (64,295-4.31 percent)

Enzo R. Grilli (Italy)

  • Nikolaos Coumbis (Greece)

  • Albania

  • Greece

  • Italy

  • Malta

  • Portugal

  • San Marino

  • (59,987-4.02 percent)

Ian D. Clark (Canada)

  • Charles X. O’Loghlin (Ireland)

  • Antigua and Barbuda

  • Bahamas, The

  • Barbados

  • Belize

  • Canada

  • Dominica

  • Grenada

  • Ireland

  • Jamaica

  • St. Kitts and Nevis

  • St. Lucia

  • St. Vincent and the Grenadines

  • (55,500-3.72 percent)

Eva Srejber (Sweden)

  • Benny Andersen (Denmark)

  • Denmark

  • Estonia

  • Finland

  • Iceland

  • Latvia

  • Lithuania

  • Norway

  • Sweden

  • (51,771-3.47 percent)

Abdulrahman A. Al-Tuwaijri

  • Sulaiman M. Al-Turki

  • Saudi Arabia

  • (51,556-3.45 percent)

Ewen L. Waterman (Australia)

  • Jung-Ho Kang (Korea)

  • Australia

  • Kiribati

  • Korea

  • Marshall Islands

  • Micronesia, Fed. States of

  • Mongolia

  • New Zealand

  • Papua New Guinea

  • Philippines

  • Seychelles

  • Solomon Islands

  • Vanuatu

  • Western Samoa

  • (49,182-3.29 percent)

A. Shakour Shaalan (Egypt)

  • Yacoob Yousef Mohammed (Bahrain)

  • Bahrain

  • Egypt

  • Iraq

  • Jordan

  • Kuwait

  • Lebanon

  • Libya

  • Maldives

  • Oman

  • Qatar

  • Syrian Arab Republic

  • United Arab Emirates

  • Yemen. Republic of

  • (47,646-3.19 percent)

Dmitri Tulin

  • Aleksei V. Mozhin

  • Russia

  • (43,381-2.90 percent)

J. E. Ismael (Indonesia)

  • Latifah Merican Cheong (Malaysia)

  • Cambodia

  • Fiji

  • Indonesia

  • Lao PDR

  • Malaysia

  • Myanmar

  • Nepal

  • Singapore

  • Thailand

  • Tonga

  • Vietnam

  • (41,775-2.80 percent)

Daniel Kaeser (Switzerland)

  • Danuta Gotz-Kozierkiewicz (Poland)

  • Azerbaijan

  • Kyrgyz Rep.

  • Poland

  • Switzerland

  • Tajikistan

  • Turkmenistan

  • Uzbekistan

  • 41,229-2.76 percent)

Abbas Mirakhor (Islamic Republic of Iran)

  • Mohammed Daïri (Morocco)

  • Afghanistan, Islamic State of

  • Algeria

  • Ghana

  • Iran. Islamic Rep. of

  • Morocco

  • Pakistan

  • Tunisia

  • (39,542-2.65 percent)

Alexandre Kafka (Brazil)

  • Alberto Calderón (Colombia)

  • Brazil

  • Colombia

  • Dominica Republic

  • Ecuador

  • Guyana

  • Haiti

  • Panama

  • Suriname

  • Trinidad & Tobago

  • (39,270-2.63 percent)

M. R. Sivaraman (India)

  • H. B. Disanayaka (Sri Lanka)

  • Bangladesh

  • Bhutan

  • India

  • Sri Lanka

  • (38,561-2.58 percent)

Barnabas S. Dlamini (Swaziland)

  • Dinah Z. Guti (Zimbabwe)

  • Angola

  • Botswana

  • Burundi

  • Eritrea

  • Ethiopia

  • Gambia, The

  • Kenya

  • Lesotho

  • Liberia

  • Malawi

  • Mozambique

  • Namibia

  • Nigeria

  • Sierra Leone

  • Swaziland

  • Tanzania

  • Uganda

  • Zambia

  • Zimbabwe

  • (37,388-2.50 percent)

ZHANG Zhixiang

  • HAN Mingzhi

  • China

  • (34,102-2.28 percent)

Carlos Saito (Peru)

  • A. Guillarmo Zoccali (Argentina)

  • Argentina

  • Bolivia

  • Chile

  • Paraguay

  • Peru

  • Uruguay

  • (31,985-2.14 percent)

Yves-Marie T. Koissy (Côte d’Ivoire)

  • Alexandre Barro Chambrier (Gabon)

  • Benin

  • Burkina Faso

  • Cameroon

  • Cape Verde

  • Central African Republic

  • Chad

  • Comoros

  • Congo

  • Côte d’Ivoire

  • Djibouti

  • Equatorial Guinea

  • Gabon

  • Guinea

  • Guinea-Bissau

  • Madagascar

  • Mali

  • Mauritania

  • Mauritius

  • Niger

  • Rwanda

  • São Tomé and Príncipe

  • Senegal

  • Togo

  • (19,936-1.34 percent)

1 As of August 15, 1996, members’ votes totaled 1,493,331, and votes in the Executive Board amounted to 1,475,523. The latter does not include the votes of Bosnia and Herzegovina, Brunei Darussalam, Somalia, and South Africa, which did not participate in the 1994 Regular Election of Executive Directors. It also does not include the votes of Sudan and Zaïre, whose voting rights were suspended effective August 9, 1993, and June 2, 1994, respectively.

Board of Governors. The highest authority of the IMF resides in its Board of Governors, which consists of one Governor and one Alternate Governor appointed by each member country. The Board of Governors, whose members are usually drawn from ministers of finance or heads of central banks, normally meets once a year, but may meet or vote by mail at other times.

Interim Committee. The Interim Committee provides ministerial guidance to the Executive Board. Composed of 24 IMF Governors, ministers, or other officials of comparable rank, the Interim Committee meets twice a year and reports to the Board of Governors on the management and functioning of the international monetary system and on proposals to amend the Articles of Agreement.

Development Committee. The Development Committee, also composed of 24 Governors of the Bank or the IMF, ministers, or other officials of comparable rank, advises and reports to the Boards of Governors of the World Bank and the IMF on development issues.

Executive Board. The Board of Governors has delegated many of its powers to the IMF’s Executive Board, the IMF’s permanent decision-making organ. The Executive Board, which generally meets three times a week at the IMF’s headquarters in Washington, D.C., consists of 24 Executive Directors who are appointed or elected by member countries. It deals with a wide variety of policy, operational, and administrative matters, including surveillance of members’ exchange rate policies, provision of IMF financial assistance to member countries, and discussion of systemic issues in the global economy.

Managing Director. Selected by the Executive Board, the IMF’s Managing Director chairs the Executive Board and serves as head of the organization’s staff. Under the direction of the Executive Board, the Managing Director is responsible for conducting the day-to-day business of the IMF. The Managing Director serves a five-year term and may be re-elected to successive terms.

Staff. The Articles of Agreement require that staff appointed to the IMF demonstrate the highest standards of professionalism and technical competence and reflect the organization’s diverse membership. Approximately 130 nationalities are represented among the organization’s 2,300 staff members.

Quotas: Quotas Determine Members’ Voting Power, Financial Access

Each member of the IMF has a quota, expressed in SDRs, that is equal to its subscription in the IMF. The quota, which is designed broadly to reflect the relative size of the member’s economy, is the fundamental element in a member’s financial and organizational relations with the IMF. It determines a member’s voting power in the IMF, which is based on 1 vote for each SDR 100,000 of its quota plus the 250 basic votes to which each member is entitled. Each member’s quota also determines its maximum access to the IMF’s financial resources and its share in SDR allocations. A member is generally required to pay up to 25 percent of its subscription in SDRs or in the currencies of other members specified by the IMF, with the concurrence of the issuers; it pays the remainder in its own currency.

Evolution of Quota Formulas

The initial quotas of the original members of the IMF were related to, but not strictly determined by, the Bretton Woods formula. That formula included basic variables such as average annual import and export flows, gold holdings and dollar balances, the variability of export flows, and national income. It served as the basis for determining initial quotas of new members until the early 1960s.

In 1963, the Bretton Woods formula was revised and a number of other quota formulas were introduced. Taken together, these were used as guides in determining initial quotas of new members and increases in quotas. These formulas incorporated the economic data described above but also included parallel calculations that employed current receipts, current payments, and the variability of current receipts in place of the data on exports, imports, and the variability of exports.

In the early 1980s, the IMF simplified the procedures for calculating quotas and improved the quality of the economic data used in the formulas. GDP replaced national income, a broader measure of official reserves was employed, and more broadly based data for current receipts and payments replaced the corresponding data for “visible” trade.

Quotas of New Members

When a country applies for IMF membership, the IMF staff calculates a quota for the new member and compares it with the quotas of existing members of similar economic size and characteristics. The suggested initial quota or quota range is then considered by a membership committee of the Executive Board. After the country has agreed to the terms and conditions of membership—including the amount of the initial quota proposed by the committee—the full Executive Board considers the committee’s recommendations and forwards a proposed resolution on membership to the IMF’s Board of Governors. After the membership resolution is approved by the Board of Governors and appropriate domestic legal and procedural steps are effected, a representative of the country is invited to Washington to sign the Articles of Agreement, at which time the country becomes a member.

IMF Quotas1

(million SDRs)

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Quotas are those in effect as of August 15, 1996. As of that date, five members had not yet paid for their quota increases under the Ninth General Review of Quotas; the quotas listed for these members are those determined under the Eighth General Review. These members (with their Ninth General Review quotas, in millions of SDRs, appearing in parentheses) are as follows: Iraq (864.8). Liberia (96.2), Somalia (60.9), Sudan (233.1), and Zaïre (394.8).

As of August 1, 1996, 181 countries were members of the IMF, with total quotas amounting to about SDR 145.3 billion. In 1995/96, Brunei Darussalam became a member on October 10, 1995, and on December 20, 1995, the Executive Board determined that Bosnia and Herzegovina had fulfilled the necessary conditions to succeed to the membership of the former Socialist Federal Republic of Yugoslavia. The Federal Republic of Yugoslavia (Serbia/Montenegro) has not yet completed arrangements for succession to membership in the IMF.

Review of Quotas

The Board of Governors is required by the IMF’s Articles of Agreement to conduct a general review of quotas at intervals of not more than five years. These general reviews are meant to assess whether growth in the world economy and changes in the relative strength of members’ economies warrant quota adjustments.

The Ninth General Review of Quotas was the last review to result in an increase in IMF quotas. The Board of Governors concluded the Tenth Review without an increase in quotas, and the Executive Board decided to closely monitor the adequacy of members’ quotas and the IMF’s liquidity position. Developments in Mexico and Argentina in late 1994 and early 1995—as well as IMF financial support for adjustment programs in a number of transition economies—have since resulted in exceptionally large demands on the resources of the IMF and have heightened the importance of monitoring the IMF’s liquidity position in the period ahead.

The Executive Board has begun work on the Eleventh General Review of Quotas, which is to be completed by March 1998. In a series of meetings, a Committee of the Whole reviewed some of the issues concerning the size and distribution of an overall increase in quotas, with many members noting that the projected sharp drop in the IMF’s liquidity ratio through 1997 and early 1998 highlighted the need for a substantial increase in IMF quotas and a review of the IMF’s borrowing arrangements. At the April 1996 meeting of the Interim Committee, the Managing Director indicated that most member countries favor a substantial increase in IMF quotas.

Borrowing: Borrowing Supplements IMF’s Ordinary Resources

The IMF’s ordinary resources, currently totaling about SDR 145 billion, derive from its members’ quota subscriptions. The Articles of Agreement, however, authorize the IMF to borrow if necessary to supplement these resources. To date, the IMF has borrowed only from official sources, such as governments and central banks and the Bank for International Settlements, but it is also authorized to borrow from private sources.

The IMF’s General Arrangements to Borrow (GAB) are lines of credit from 11 industrial countries or their central banks that are available under specified circumstances at market-related rates of interest. Established in 1962 amid concerns about the adequacy of official sources of international liquidity and the disruptive effects of short-term capital movements, the GAB have been revised and renewed several times. The GAB participants are Belgium, Canada, the Deutsche Bundesbank, France, Italy, Japan, the Netherlands, the Sveriges Riksbank, the Swiss National Bank, the United Kingdom, and the United States. The IMF also has an associated arrangement with Saudi Arabia under similar terms. The GAB and the associated arrangement with Saudi Arabia are effective until December 26, 1998.

The potential amount of credit available to the IMF under the GAB currently totals SDR 17 billion, with an additional SDR 1.5 billion available under the associated arrangement with Saudi Arabia. The GAB credit lines may be made available to the IMF to finance any exchange transaction of GAB participants with the IMF needed “to forestall or cope with an impairment of the international monetary system.”

Stricter criteria are in place for nonparticipants: drawings must be in connection with an IMF-supported adjustment program (or an upper credit tranche drawing), and the IMF must be deemed to face an inadequacy of resources to meet actual and expected requests for financing that reflect an “exceptional situation associated with balance of payments problems of members of a character or aggregate size that could threaten the stability of the international monetary system.”

In June 1995, in the aftermath of the Mexican financial crisis and with the growing realization that substantially more resources might be needed for possible future financial crises, the Group of 7 industrial countries called for the development of financing arrangements that would double as soon as possible the amount available under the GAB to respond to financial emergencies. In May 1996, representatives of the Group of 10 countries—and a number of other countries with the financial capacity to support the international monetary system—reached agreement in principle on the main features of the new borrowing arrangements. These new arrangements are intended to serve as the first and principal recourse in the event of a need to provide supplementary resources to the IMF. The combined amount available under the GAB and the new borrowing arrangements will not exceed SDR 34 billion.

In recent months, the Interim Committee, and the Group of 7 at its July 1996 summit in Lyons, have indicated their support for a framework agreement that would double the resources available to the IMF under the General Arrangements to Borrow. At the same time, both stressed that the IMF remains a quota-based institution and that an increase in the IMF’s access to borrowed resources could not substitute for speedy action on an increase in the IMF’s quota resources.

Photo Credits: IMF Photo Unit, pages 1, 17, 21, and 25-28.

Surveillance: Surveillance Strengthened To Meet New Challenges

Central to the IMF’s purposes and operations is the mandate, under its Articles of Agreement, to “exercise firm surveillance over the exchange rate policies of members” and to adopt “specific principles for the guidance of all members with respect to those policies.” To carry out this mandate, the IMF examines international monetary issues and analyzes all aspects of members’ macroeconomic and related structural policies, since these policies taken together have important implications for the exchange rate system.

IMF surveillance strives to promote the balanced growth of world trade and an orderly and stable system of exchange rates. The IMF encourages members to adopt appropriate economic policies and helps identify issues and problems in a timely manner so that members can adopt corrective measures more quickly.

In recent years, fundamental shifts in the global economy—such as the rapid growth of private capital markets, increased regional and monetary integration, and the implementation of current account convertibility and market-oriented reform in a large number of countries—have heightened the importance of effective and timely surveillance. These transformations are being mirrored in increased responsibilities for the IMF. Its membership has grown rapidly, and its policy advice, financing, and technical assistance and training now extend to a record number of member countries.

Article IV Consultations

In accordance with Article IV of the IMF’s Articles of Agreement, IMF staff usually hold annual bilateral meetings with member country officials. These meetings are held to analyze economic developments and policies; examine fiscal, exchange rate, and monetary policies; review balance of payments and external debt developments; and assess the impact of policies—including exchange and trade restrictions—on a member’s external accounts. The staff’s report then forms the basis for an Executive Board discussion.

Article IV consultations also draw attention to the international implications of a member’s policies and developments and allow the IMF to deal promptly with a member’s request for the use of IMF resources. Over the years, both the policy content and the breadth of issues have expanded. Increased emphasis has been placed on the appropriateness of exchange rate policies, the medium-term implications of economic policies, structural reform efforts, and the stance of trade policies. Regional and cross-country issues have increasingly featured in Article IV consultations, as have the growth and welfare implications of a country’s macroeconomic and structural policies. To the extent that social, industrial, labor market, governance, and environmental issues influence macroeconomic policies and performance, these, too, form part of IMF Article IV consultations.

Tools of Surveillance

The IMF carries out its surveillance responsibilities mainly through regular—normally annual—consultations with member countries (known as “Article IV consultations,” because they are mandated under Article IV of the IMF’s Articles of Agreement), and through multilateral discussions held in the context of twice-yearly World Economic Outlook reviews by the Executive Board.

Article IV Consultations systematically review economic developments and policies in member countries and assess the impact of these policies on the exchange rate and the balance of payments. Structural policies are also examined as they are germane to macroeconomic developments and policies. In recent years, surveillance has taken more account of regional, social, industrial, labor market, income distribution, governance, and environmental issues, where these have important implications for macroeconomic policies and performance. Assessments in the context of Article IV consultations provide a comprehensive analysis of recent and prospective domestic and external developments and their effect on the international community.

World Economic Outlook discussions provide the Executive Board with a framework for reviewing members’ policies from a multilateral perspective, monitoring and analyzing the global economic situation, and assessing prospects for the international economy under various policy assumptions.

The Board supplements this systematic monitoring of global developments with informal Board sessions on significant developments in selected countries and on world economic and market developments. The Board also reviews developments in international capital markets twice a year. In addition, the IMF’s Managing Director takes part in some of the policy discussions of the Group of 7 major industrial countries, where he provides a global perspective by focusing on the international implications of G-7 policies.

Strengthening Surveillance

The Mexican financial crisis of late 1994 and the broader realization that the size, speed, and impact of financial crises were fundamentally altered in a more open and integrated world economy led the IMF to take important steps in 1995/96 to strengthen its surveillance. These efforts crystallized around three themes:

• the full and timely provision of data;

• the continuity of surveillance; and

• the focus of surveillance.

Article VIII

The IMF’s principal purpose is to facilitate the expansion and balanced growth of international trade. In this context, the IMF seeks to promote and maintain high levels of employment and real income and help establish a multilateral system of payments for current transactions between IMF members. The IMF does this in part by encouraging member countries to accept the obligations under Article VIII of its Articles of Agreement. By so doing, member countries agree not to impose restrictions on the making of payments and transfers for current international transactions and to refrain from engaging in discriminatory currency arrangements or multiple currency practices without the approval of the IMF. Historically, members have been slow to accept the obligations of Article VIII, Beginning in early 1993, however, the IMF staff intensified its efforts in this regard. By August 1996, 132 members had accepted Article VIII obligations, with 57 of these countries accepting since 1993.

Provision of Economic Data. The quality of the IMF’s surveillance depends critically on the availability of timely, reliable data. The IMF has identified a core set of economic and financial indicators and encouraged all members to report these data monthly to the IMF. Where shortcomings in member country data have been identified, the IMF and individual members have devised a cooperative strategy to remedy them. The IMF also provides technical assistance to help members compile and report economic data.

Timely, reliable data are also critically important for financial markets. The IMF has established the Special Data Dissemination Standard (SDDS) for members having, or seeking, access to international capital markets. (See box on SDDS, page 9.) A general standard toward which all members should strive is under development and should be established before the end of 1996/97.

Continuity of Surveillance. The globalization of international capital markets and the rapidity with which changed market perceptions of a country’s economic fundamentals affect these markets put a premium on continuous IMF surveillance. To ensure more continuous surveillance, the IMF has intensified its efforts on several fronts, including:

• supplementing annual consultations with interim staff visits for some members. In several cases, the IMF’s management has also followed up the Executive Board’s annual consultation discussions with letters to country authorities on important policy issues;

• holding informal Board meetings to review major developments in selected member countries on a monthly basis. These sessions facilitate the early identification of emerging financial tensions by focusing on potential problems and providing additional data; and

• holding twice-yearly Board discussions on the implementation of members’ policies in the context of surveillance, which focus on the principal issues arising in discussions with members during Article IV consultations. A report on these discussions serves as a bridge between the Board’s daily work on surveillance and the Interim Committee’s oversight role.

Focus of Surveillance. Increasing globalization underscores the likelihood of new issues and risks and re-inforces the importance of rigorously pursuing traditional areas of surveillance. To address both needs, the Executive Board has agreed that IMF surveillance should:

• concentrate, through its Article IV consultations, on core topics directly linked to the IMF’s statutory mandate to exercise “surveillance over exchange rate policies of members”;

• pay greater attention to capital account developments;

• follow more closely those countries in which economic developments have the potential to spill over to other countries; and

• continue to strengthen its regional surveillance where important economic policies are formulated at a supranational level.

Other Issues

Capital Account Convertibility. The movement of capital among countries is a central concern of the IMF. Over the past decade, all industrial countries and a significant number of developing countries have liberalized capital account transactions. This has improved the global allocation of savings but has posed new challenges for economic policymakers, most notably those relating to large swings in private capital flows. In April 1995, the Executive Board amended a 1977 decision to take explicit account of the role of such flows in IMF surveillance. It also agreed to discuss further whether it would be useful to extend the jurisdiction of the IMF to the capital account.

Strengthening Banking Systems. Since 1980, roughly two-thirds of the IMF’s member countries have had problems in their banking sectors, with many of the bank failures having international repercussions. These experiences illustrate not only that a sound banking system is important for macroeconomic stability and the efficient conduct of stabilization policies, but that macroeconomic and structural policies have an impact on the soundness of the banking system.

In March 1996, the Executive Board examined the relationship between banking system soundness and macroeconomic and structural policies. It also looked at ways in which bank soundness issues could be incorporated into surveillance, emphasizing that the IMF should concentrate on the links between macroeconomic policy and banking systems and provide guidance on monetary and prudential policies in support of bank soundness. Most Directors believed that IMF surveillance of financial sectors was critically important and that the IMF should have access to appropriate data. The Board supported a greater concentration on banking and financial sector issues in IMF surveillance and IMF-supported adjustment programs of its members.

Special Data Dissemination Standard Adopted

In April 1996, the IMF adopted the Special Data Dissemination Standard (SDDS) aimed at members that have, or seek, access to international capital markets. The goal of this standard, participation in which is voluntary, is to encourage the timely publication of economic data used by market participants in evaluating a country’s policies and prospects. It has four dimensions:

Coverage, Periodicity, and Timeliness. The SDDS focuses on crucial basic data that shed light on economic performance and policy in the real, fiscal, financial, and external sectors. The standard specifies the minimum coverage necessary, but countries are encouraged to disseminate other relevant data.

Access by the Public. Ready and equal access to data is a principal requirement for the public, including market participants. To support such access, the SDDS prescribes advance dissemination of release calendars and simultaneous release of data to all interested parties.

Integrity. To assist users in assessing the integrity of these data, the SDDS prescribes certain assurances for users, including: dissemination of terms and conditions under which official statistics are produced, including those relating to the confidentiality of individually identifiable information; identification of internal government access to data before release; identification of ministerial commentary on the occasion of statistical release; and provision of information about revision and advance notice of major changes in methodology.

Quality. Although quality is difficult to judge, monitorable proxies, designed to focus on information the user needs to judge quality, can be useful. To assist users in assessing quality, the SDDS prescribes dissemination of documentation on methodology and sources used in preparing statistics; and dissemination of component details, reconciliations with related data, and statistical frameworks that support statistical cross-checks and provide assurance of reasonableness.

Beginning in September 1996, the IMF will post on Internet a dissemination standards bulletin board. This will contain subscribing members’ “metadata”—information about the data disseminated and dissemination procedures.

Reviews of Surveillance

Every two years, the IMF reviews the principles and procedures that guide its surveillance. The latest review, concluded in April 1995, paid particular attention to the increased globalization of capital markets, the greater mobility of cross-border capital flows, and the ability of the IMF to identify emerging financial tensions at an early stage.

The Executive Board noted the progress made in improving the flexibility, timeliness, and continuity of IMF surveillance and welcomed the intensified contact with members between consultations. It also agreed on the need for greater transparency in key areas of surveillance, as well as more candid appraisals in staff reports.

To improve regional surveillance, Executive Directors agreed to annual discussions of reports on economic and currency unions and to continue the annual discussion of European Union policies—although they emphasized that Article IV consultations should remain the basic channel for surveillance. Finally, Directors supported the increased clustering of Article IV consultations among countries that shared common characteristics or common issues, provided that staffing resources permit.

Other Means of Collaborating

While Article IV consultations are the main form of collaboration between the IMF and a member country, members have also sought closer collaboration in other ways, including precautionary arrangements, informal monitoring (and “shadow” programs), and enhanced surveillance. Precautionary arrangements, by which members reach agreement with the IMF on stand-by or extended arrangements but do not use IMF resources, are useful in indicating the IMF’s endorsement of a member’s policies and serve to boost confidence in those policies. Informal monitoring provides members with a more intensive dialogue with the IMF staff and may take the shape of setting quantitative benchmarks under a shadow program or closer collaboration in formulating policies, but it does not constitute a formal IMF endorsement. Likewise, enhanced surveillance does not imply an IMF endorsement of policies; it was initially established in 1985 to facilitate multiyear debt-rescheduling agreements with commercial banks and has been used sparingly. These less formal arrangements offer members a flexible means of collaborating more closely with the IMF.

Conditionality: IMF Financing Is Tied to Strong Remedial Policies

When it provides financial support to a member country, the IMF must be sure the member is pursuing policies that will ameliorate or eliminate its external payments problem. The explicit commitment that members make to implement remedial measures in return for the IMF’s support is known as “conditionality.” This commitment also ensures that members are able to repay the IMF in a timely manner—which allows the IMF’s limited pool of financial resources to revolve and be available to members that subsequently seek assistance in addressing a balance of payments need. IMF financing, and the important catalytic effect it has in securing other financing, enables the country to adjust in an orderly fashion, without resort to measures that would be inimical to its own or other countries’ prosperity.

Conditions for IMF financial support may range from general commitments to cooperate with the IMF in setting policies to the formulation of specific, quantified plans for financial policies. IMF financing from its general resources in the “upper credit tranches” (that is, where larger amounts are disbursed in return for implementation of remedial measures) is phased. The IMF requires a “letter of intent,” which outlines a government’s policy intentions during the program period; policy changes to be taken before approval of the arrangement; performance criteria, which are objective indicators for certain policies that must be satisfied on a quarterly, semiannual, or in some instances a monthly basis for drawings to be made; and periodic reviews that allow the Executive Board to assess the consistency of policies with the objectives of the program.

Conditionality Is Flexible

Although IMF conditionality employs specified performance criteria, it does not rely on a rigid set of operational rules. The Executive Board’s guidelines on conditionality:

• encourage members to adopt corrective measures at an early stage;

• stress that the IMF pay due regard to members’ domestic social and political objectives, as well as economic priorities and circumstances;

• permit flexibility in determining the number and content of performance criteria; and

• emphasize that IMF arrangements are decisions of the IMF that set out—in consultation with members—the conditions for its financial assistance.

Conditionality in Practice

The IMF takes a pragmatic approach to helping members formulate economic reform programs in the recognition that no one model would suit all members. Each IMF-supported program is designed by the member country in close collaboration with the IMF staff. The process involves a comprehensive review of the member’s economy, including the causes and nature of the balance of payments problems and an analysis of the policies needed to achieve a sustainable balance between the demand for, and the availability of, resources.

IMF-supported programs emphasize certain key aggregate economic variables—domestic credit, the public-sector deficit, international reserves, and external debt—and crucial elements of the pricing system—including the exchange rate, interest rates, and, in some cases, commodity prices—that significantly affect the country’s public finances and foreign trade and the economy’s supply response.

During a stand-by or extended arrangement, a member’s reform program is monitored by the IMF through performance criteria selected according to the economic and institutional structure of the country, the availability of data, and the desirability of focusing on broad macroeconomic variables, among other considerations. Performance under programs is also monitored through periodic reviews.

Growth-Oriented Adjustment

To succeed in bringing about a sustained return to external viability, an adjustment program must elicit an adequate response from the supply side. Interest rates and exchange rates are particularly important, since they influence saving and investment decisions and a member’s growth prospects. IMF-supported policy adjustments by member countries focus on such supply-related actions as removing distortions that hamper export growth and increasing the efficiency of government spending—measures that help reduce a country’s imbalances and enhance its growth prospects. The IMF also continues to support appropriate measures that affect demand, which remain essential to achieving sustainable growth.

Given the importance of structural reform in IMF-supported programs, close collaboration between the IMF and the World Bank is important. This is particularly true in developing programs to support members’ requests for resources under the IMF’s extended Fund facility (EFF) and the enhanced structural adjustment facility (ESAF).

Social Safety Nets

Adjustment programs typically have an impact on income distribution, employment, and social services. While sound macroeconomic policies and effective structural reforms promote sustained growth and employment, the adjustment process itself may involve short-term social costs for vulnerable groups. Measures built into IMF-supported programs address these costs. In collaboration with the World Bank staff, the IMF staff analyzes the social implications of reform measures and advises the authorities on how best to design social safety nets and target them to assist the neediest groups.

Conditionality Reviews

Periodically, the Executive Board reviews members’ experience with stand-by and extended arrangements to evaluate the appropriateness of the policy design, the record of policy implementation, and the achievements. In 1994 it analyzed the experience of 45 stand-by and extended arrangements in 36 member countries. The Board reviewed the effectiveness of the three principal elements of the IMF’s approach toward adjustment and stabilization: reining in excessive domestic demand, adopting structural reforms, and mobilizing external financing.

Executive Directors concluded that this broad policy paradigm remained appropriate and was particularly effective in correcting external imbalances. But growth and investment were frequently slow to respond. IMF-supported programs should:

• be framed in a medium-term context to ensure consistency and credibility;

• pay close attention to the structure of government spending and revenue;

• limit upward pressure on real interest rates by emphasizing an appropriate balance between fiscal and monetary restraint and by measures to promote sound banking practices; and

• strive for a transparent and predictable timetable for structural reforms.

Structural reforms were essential, the Board concluded. Countries had made considerable progress in price, exchange, and trade liberalization, and notable strides in financial market reforms, particularly in auctions for central bank or government paper and in removing controls on a significant range of interest rates. Much still needed to be done to improve prudential controls and bank supervision, address weak bank portfolios, expedite privatization, and restructure public expenditures. In many countries, rigidities in labor markets and insufficient job creation remain serious problems that had not been addressed by adjustment programs.

Financial Facilities and Policies: IMF Financing Seeks to Cushion Impact of Members’ Adjustment Policies

The IMF’s financial resources are intended to assist members seeking to redress balance of payments problems and to help cushion the impact of adjustment. The IMF’s financing is provided through both its general resources and its concessional financing facilities, which are administered separately. IMF financing is subject to Executive Board approval and, in most cases, to the member’s commitment to take steps to address the causes of its payments imbalance (see Conditionality, page 10). Members using the IMF’s general resources “purchase” (or draw) other members’ currencies or SDRs with an equivalent amount of their own currency. The IMF levies charges on these drawings and requires that members “repurchase” (or buy back) their own currency from the IMF with other members’ currencies or SDRs within a specified time. Concessional financing under the enhanced structural adjustment facility (ESAF) is provided in the form of low-interest loans.

Regular Facilities

Reserve Tranche. A member has a reserve tranche position if the IMF’s holdings of its currency in the General Resources Account—excluding these holdings that reflect the member’s use of IMF resources—are less than its quota. A member may draw up to the full amount of its reserve tranche position at any time, subject only to the member’s representation of a balance of payments need. A reserve tranche drawing does not constitute a use of IMF credit and is not subject to charges or to an expectation or obligation to repay.

Credit Tranches. IMF credit is subject to different conditionality and phasing, depending on whether it is made available in the first credit “tranche” (or segment) of 25 percent of a member’s quota or in the upper credit tranches (any segment above 25 percent of quota). For drawings in the first credit tranche, members must demonstrate reasonable efforts to overcome their balance of payments difficulties.

Upper credit tranche drawings are made in installments and are released when established performance targets are met. Such drawings are normally associated with stand-by or extended arrangements, which typically seek to resolve balance of payments difficulties and to support structural policy reforms where appropriate. Performance criteria and periodic reviews are used to assess policy implementation.

Stand-By Arrangements. Stand-by arrangements give members the right to draw up to a specified amount of IMF financing during a prescribed period. Drawings are normally phased on a quarterly basis, with their release conditional upon meeting performance criteria and the completion of periodic reviews. Performance criteria generally cover credit policy, government or public-sector borrowing requirements, trade and payments restrictions, foreign borrowing, and reserve levels. These criteria allow both the member and the IMF to assess progress and may signal the need for further corrective policies.

Stand-by arrangements typically cover a 12–18 month period (although they can extend up to 3 years). Repayments are to be made within 3¼ to 5 years of each drawing.

In 1995/96, 19 new stand-by arrangements were approved. These include stand-by arrangements for five Latin American countries (Argentina, Costa Rica, El Salvador, Panama, and Uruguay), totaling SDR 1.0 billion; for eight former Soviet Union and central and eastern European countries (Armenia, Azerbaijan, Belarus, Georgia, Hungary, Kazakstan, the former Yugoslav Republic of Macedonia, and Uzbekistan), totaling SDR 1.0 billion; for three Asian and Middle Eastern countries (Pakistan, Papua New Guinea, and Yemen), totaling SDR 0.6 billion; and for three African countries (Cameroon, Djibouti, and Lesotho), totaling SDR 0.1 billion.

Extended Fund Facility (EFF). The EFF provides assistance for longer periods and in generally larger amounts than under stand-by arrangements. Extended arrangements, which normally run for three years (and can be extended for a fourth), are designed to rectify balance of payments difficulties that stem largely from structural problems and require a longer period of adjustment.

A member requesting an extended arrangement outlines its objectives and policies for the whole period of the arrangement and presents a detailed statement each year of the policies and measures to be pursued over the next 12 months. The phasing and performance criteria are comparable to those of stand-by arrangements, although phasing on a semiannual basis is possible. Countries using EFF resources must repay the currencies they have drawn within 4½ to 10 years of the drawing.

In 1995/96, the IMF approved four new extended arrangements totaling SDR 8.4 billion for Algeria, Gabon, Jordan, and Russia. The arrangement for Russia for SDR 6.9 billion (equivalent to 160 percent of Russia’s quota), which was approved in late March 1996, is the largest extended arrangement in the history of the IMF. As of April 30, 1996, seven countries had extended arrangements, with commitments totaling SDR 9.4 billion and undrawn balances of SDR 8.6 billion.

New commitments of IMF resources under stand-by and extended arrangements increased significantly in 1995/96 to SDR 18.0 billion. This level exceeds the SDR 15.4 billion committed in 1994/95 and the SDR 14.1 billion committed in 1982/83 at the height of the debt crisis. The record high level of commitments in 1995/96 was largely attributable to support for economies in transition to market-oriented systems—including an EFF arrangement for Russia—that reflect their progress in formulating macroeconomic and structural reform programs that could be supported under stand-by or extended arrangements.

Special Facilities

The IMF’s special facilities include the compensatory and contingency financing facility (CCFF); the buffer stock financing facility, which has not been used since 1984; and the systemic transformation facility (STF), which ceased operations at end-December 1995.

Compensatory and Contingency Financing Facility. The compensatory element of the CCFF provides financing to members experiencing a balance of payments need related to temporary shortfalls in export earnings (from goods and services, other than interest income) and/or temporary excesses in cereal import costs attributable to factors largely beyond their control. This element of the facility has been used particularly by commodity exporters. The contingency element helps members with IMF arrangements keep their adjustment programs on track when faced with unforeseen adverse external shocks that are largely beyond their control. The variables could include export earnings, import prices, and international interest rates. Workers’ remittances and tourism receipts may also be covered if they represent a significant element in the member’s current account. In 1995/96, Rwanda drew SDR 9 million under the CCFF; this compares with two drawings totaling SDR 286.5 million in 1994/95.

Buffer Stock Financing Facility. Under this facility, the IMF helps finance members’ contributions to approved international buffer stocks, if the member demonstrates a balance of payments need.

Systemic Transformation Facility. The STF was created in April 1993 as a temporary special facility. It provided financial assistance to countries facing balance of payments difficulties arising from severe disruptions in their traditional trade and payments arrangements owing to a shift from significant reliance on trading at nonmarket prices to multilateral market-based trade. The STF was designed to pave the way for these countries to move to regular IMF arrangements. Over the course of the STF’s operations, 20 countries made drawings of nearly SDR 4.0 billion. Operations under the STF were terminated at end-December 1995.


Total IMF Credit Outstanding to Members1

(billion SDRs; end of period)

Citation: IMF Survey 25, 001; 10.5089/9781451937442.023.A017

1 The IMF’s financial year begins on May 1 and ends on April 30.Data: IMF, Annual Report 1996

Concessional Facilities

Structural Adjustment Facility (SAF). Established in 1986, SAF arrangements provided low-income member countries with concessional loans in support of medium-term macroeconomic adjustment policies and structural reforms. In November 1993, the IMF’s Executive Board agreed that no new commitments would be made under the SAF, except for Sierra Leone and Zambia in connection with rights accumulation programs (see Arrears, page 23). Subsequently, SAF arrangements were approved for Sierra Leone and Zambia, in conjunction with ESAF arrangements, following the successful conclusion of their rights accumulation programs and clearance of arrears to the IMF.

Access Limits Are Guided by Quotas

The rules governing access to the IMF’s general resources apply uniformly to all members. Access is determined primarily by a member’s balance of payments need, the strength of its adjustment policies, and its capacity to repay the IMF. Access is permitted up to limits defined in relation to the member’s quota.

The Executive Board reviews the access limits in the credit tranches and under the extended Fund facility (EFF) annually in light of many elements, including the magnitude of members’ payments problems and developments in the IMF’s liquidity. Guided by the principle that strong adjustment programs deserve strong support and by the need to safeguard the monetary character and catalytic role of the IMF, the Executive Board decided that, for a three-year period beginning October 24, 1994, the annual limit for access to the IMF’s general resources in the credit tranches and under extended arrangements would rise to 100 percent of quota from 68 percent of quota. The cumulative access limit was left unchanged at 300 percent of quota, net of scheduled repayments.

These limits may be exceeded in exceptional cases. The limits exclude drawings under the compensatory and contingency financing facility (CCFF), the buffer stock financing facility (BSFF), the enhanced structural adjustment facility (ESAF), and the systemic transformation facility (STF). The current overall access limit under the CCFF is set at 95 percent of a member’s quota. For the BSFF, the access limit is 35 percent of quota.

Access under ESAF arrangements also differs according to members’ balance of payments needs, the strength of their adjustment efforts, and their capacity to repay. An eligible member country may borrow a maximum of 190 percent of its quota under a three-year ESAF arrangement, although this limit may be increased, under exceptional circumstances, up to a maximum of 255 percent of quota. ESAF access is expected to average about 110 percent of quota for first-time users.

Access Limits

(percent of member’s quota)

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Under exceptional circumstances, these limits may be exceeded.

When a member has a satisfactory balance of payments position—except for the effect of an export earnings shortfall or an excess in cereal import costs—a limit of 65 percent of quota applies to either the export earnings shortfall or the excess cereal import costs, with a joint limit of 80 percent.

A sublimit of 25 percent of quota applies on account of deviations in interest rates.

May be applied to supplement the amounts for export earnings shortfalls, excesses in cereal import costs, or contingency financing.

Average access expected at 110 percent of quota for first-time ESAF users.

Enhanced Structural Adjustment Facility (ESAF). Established by the Executive Board in 1987 and extended and enlarged in February 1994, ESAF arrangements are the principal means by which the IMF provides financial support, in the form of highly concessional loans, to low-income member countries facing protracted balance of payments problems.

ESAF resources are intended to support strong medium-term structural adjustment programs. Eligible members seeking the use of ESAF resources must develop, with the assistance of the staffs of the IMF and the World Bank, a policy framework paper (PFP) for a three-year adjustment program. The PFP, which is updated annually, describes the authorities’ economic objectives, macroeconomic and structural policies during the three-year period, and associated external financing needs and major sources of financing. The PFP, which is a document of the authorities, is intended to ensure a consistent framework for economic policies and to attract financial and technical assistance in support of the adjustment program.

Adjustment measures under ESAF-supported programs are expected to substantially strengthen a country’s balance of payments position and foster growth during the three-year period. Monitoring under ESAF arrangements is conducted through quarterly financial and structural benchmarks. In addition, semiannual performance criteria are set for key quantitative and structural targets. ESAF loans are disbursed semiannually, initially upon approval of an annual arrangement and subsequently based on the observance of performance criteria and after completion of a midterm review. ESAF loans are repaid in ten equal semiannual installments, beginning 5½ years and ending 10 years after the date of each disbursement. The interest rate on ESAF loans is 0.5 percent a year.

As of April 30, 1996, 28 ESAF arrangements were in effect. In 1995/96, the IMF approved 8 new three-year ESAF arrangements totaling SDR 1.4 billion for Armenia, Chad, Georgia, Ghana, Kenya, Malawi, Mali, and Zambia, along with increased access under the existing ESAF arrangements for Burkina Faso, the Kyrgyz Republic, and Sierra Leone.

Cumulative commitments under all approved SAF and ESAF arrangements (excluding undisbursed amounts under expired and canceled arrangements) totaled SDR 8.0 billion as of April 30, 1996, compared with SDR 6.9 billion a year earlier. SAF and ESAF disbursements during 1995/96 totaled SDR 1.5 billion, compared with SDR 0.6 billion in 1994/95, bringing cumulative disbursements through April 30, 1996 to SDR 6.5 billion. As of April 30, 1996, outstanding credit under SAF and ESAF arrangements accounted for 13.5 percent of total IMF credit outstanding of SDR 42.0 billion.

Under current projections, existing ESAF resources are expected to meet demands through 1999, possibly into 2000. Resources owned by the IMF, currently used to provide security for ESAF lenders against the risk of nonpayment by borrowers, will be freed as lenders are repaid. These resources are expected to support a “self-sustained” ESAF beginning in 2005, or possibly a little earlier. In the interim period, the ESAF will need financing to support a lending program estimated at SDR 1 billion annually. The sources of this interim funding have not yet been decided, but there is broad agreement that ESAF operations are, and will remain, the centerpiece of the IMF’s strategy to help low-income countries, including those most heavily indebted.

Adaptations of IMF Policies and Procedures

In 1995/96, the IMF moved to strengthen the financial support it makes available to member countries. It formalized the procedures used following the Mexican crisis as an emergency financing mechanism, established guidelines for IMF support of currency stabilization funds, and expanded the guidelines on the provision of emergency assistance to include post-conflict situations.

Emergency Financing Mechanism. The emergency financing mechanism is a set of procedures to facilitate rapid Executive Board approval of IMF financial support while ensuring the conditionality necessary to warrant such support. These emergency measures are used only in circumstances representing, or threatening to give rise to, a crisis in a member’s external accounts that requires an immediate IMF response.

Identification of such an emergency is based on an initial judgment by IMF management in consultation with the Executive Board. Conditions for activation of emergency procedures include the readiness of the member to begin immediately accelerated negotiations with the IMF, with the prospect of early implementation of agreed measures sufficiently strong to address the problem. Use of these emergency procedures is expected to be rare, and the IMF’s role will remain catalytic.

Support for Currency Stabilization Funds. In the framework of an upper credit tranche stand-by or extended arrangement, IMF financial support for the establishment of a currency stabilization fund provides, for a transitional period, additional confidence for an exchange-rate-based stabilization strategy. For currency stabilization funds to play their intended role, economic policies have to be sufficiently tight to deliver an inflation path compatible with the targeted exchange rate anchor, so that little, if any, use of the currency stabilization fund would be expected. The most appropriate arrangement to be supported by a currency stabilization fund would be an exchange rate peg with relatively narrow margins or a preannounced crawl.

IMF support would be conditional upon fiscal adjustment and credit creation consistent with targeted inflation, appropriate measures to deal with backward-looking wage and other indexation schemes, a high degree of current account convertibility and an open trade regime, contingency plans to deal with large capital account outflows or inflows, integrated management of foreign exchange reserves and intervention policy, and other structural and institutional elements designed to reduce inflation sharply.

Emergency Assistance. In the context of balance of payments assistance under its credit tranche policies, the IMF provides emergency assistance. Such assistance allows members to make drawings to meet balance of payments needs arising from sudden and unforeseeable natural disasters. These drawings do not entail performance criteria or a phasing of disbursements, although they often precede an arrangement from the IMF under its regular facilities.

Post-Conflict Countries. In September 1995, the Executive Board expanded the scope of the existing guidelines on emergency assistance to include post-conflict countries. In reviewing the IMF’s involvement in post-conflict situations, most Directors agreed IMF financial assistance would be appropriate where:

• a country’s institutional and administrative capacity had been disrupted by conflict, but the member, while not yet able to develop and implement a comprehensive economic program that could be supported by an IMF arrangement, had sufficient capacity for planning and policy implementation and a demonstrated commitment on the part of the authorities;

• there was an urgent balance of payments need to help rebuild reserves and meet essential external payments and a role for the IMF to catalyze support from other official sources; and

• IMF support would be part of a concerted international effort to address the aftermath of the conflict in a comprehensive way.

IMF resources in post-conflict cases are generally limited to one credit tranche (25 percent of the country’s quota), with the access policy under the existing emergency assistance guidelines sufficiently flexible to handle exceptional needs.

IMF financial assistance for post-conflict countries is available only if the member intends to move within a relatively short period of time to an upper credit tranche stand-by or extended arrangement, or to arrangements under the ESAF.

Prospective recipient countries would need to prepare a statement of economic policies and, where possible, a quantified macroeconomic framework. Part of the coordinated response would be a comprehensive technical assistance program, including institution-building aspects.

Debt Strategy: IMF Helps Members Cope With External Debt Problems

The IMF has played a central role, through its policy guidance and financial support, in helping member countries cope with both official and commercial external debt problems. The ultimate objective of IMF assistance in this area is to ensure that debtor countries achieve sustainable growth and balance of payments viability and establish normal relations with creditors, including access to international financial markets. While the instruments used have evolved over time, the basic elements of the IMF’s debt strategy continue to be:

• promotion of growth-oriented adjustment and structural reform in debtor countries;

• maintenance of a favorable global economic environment; and

• assurance of adequate financial support from official (bilateral and multilateral) and private sources.

The IMF’s Executive Board met frequently in 1995/96 to discuss the debt situation of developing countries. The Board gave particular attention to possible solutions to address the persistent cycle of debt and rescheduling that has entrapped some of the most heavily indebted poor countries.

Commercial Bank Debt Operations

The IMF continues to support commercial bank debt- and debt-service-reduction operations on a case-by-case basis. It evaluates proposed packages in light of the strength of the member’s economic policies, the likelihood that the country would regain access to credit markets and attain external viability with growth, and the assurance that the package represents an efficient use of scarce resources.

The Executive Board takes into account the appropriate balance between debt and debt-service reduction in bank debt packages. It considers whether the resulting debt-service profile on restructured debt is consistent with a country’s likely debt-service capacity; whether the package is cost effective; whether it would imply continued commercial bank involvement, where appropriate, and where it could facilitate a return to normal commercial financing; and whether the menu of options is both balanced and sufficiently broad to ensure a high rate of participation in the package.

Official Debt Rescheduling

Member countries seeking to reschedule official debt normally approach the Paris Club of official creditors. This arrangement provides a forum for indebted countries and their official bilateral creditors to work out agreements that generally provide for the rescheduling of eligible arrears and the flow of current maturities of eligible debt service falling due during the consolidation period, with a repayment period stretching over many years. To ensure that such relief helps restore balance of payments viability and achieves sustainable economic growth, the Paris Club links debt relief to the formulation of economic programs endorsed by the IMF. In deciding on the coverage and terms of individual rescheduling agreements, Paris Club creditors also draw upon the IMF’s analysis and assessment of countries’ debt situations.

In December 1994, Paris Club creditors agreed on “Naples terms,” under which debt service on eligible official development assistance debt for low-income countries could be reduced by up to 67 percent in net present value terms. Naples terms also provide concessional rescheduling of the stock of eligible debt for those countries that have demonstrated a good track record under rescheduling agreements and IMF-supported programs and that envisage no further reschedulings.

Sound policies coupled with new concessional financial assistance and debt relief under Naples terms are expected to allow most indebted developing countries to achieve debt sustainability over the medium term (sustainability meaning that a country’s export earnings, capital, and aid flows are sufficient to service its debt comfortably). For some heavily indebted poor countries, however, the burden of debt is likely to remain above sustainable levels over the medium term. Additional assistance is needed to ensure that continued high debt and debt-service burdens do not endanger adjustment and reform efforts. The Executive Board has recommended that future work on debt sustainability meet certain broad criteria, including:

• application of a case-by-case approach that focuses on the totality of a country’s debt;

• a strong track record on the part of the recipient country of reform and sound policies, with a proven ability to make good use of exceptional assistance;

• reliance on existing mechanisms, wherever possible;

• coordinated additional action on problem cases, so that broad and equitable treatment among all creditors is ensured;

• preservation of the financial integrity and creditor status of multilateral creditors; and

• new external finance for heavily indebted countries on appropriately concessional terms.

In April 1996, the Interim and Development Committees welcomed a draft framework for addressing the debt problems of the heavily indebted poor countries, jointly proposed by the Managing Director of the IMF and the President of the World Bank. The first stage of the proposed framework builds on the existing three-year track record required of countries to qualify for a stock-of-debt operation on Naples terms, together with at least comparable treatment from bilateral and commercial creditors.

The framework provides that countries able to exit from the debt-rescheduling process with stock-of-debt operations under Naples terms do so. Countries whose debt burdens cannot be brought to sustainable levels—defined as present value of all claims on the country not in excess of 200-250 percent of export earnings and debt service in the range of 20–25 percent of export earnings—would be expected to undertake a second three-year adjustment program. During this second program, these countries would receive enhanced debt relief and other financial support. And they would have a firm commitment from the international community—including the World Bank and the IMF—that their debt burden would be brought to a sustainable level upon the successful completion of the program.

Supporting operations by the IMF and other multilateral institutions would not involve any write-down of their claims. Rather, these institutions would provide special assistance to reduce the burden of debt for the relevant countries. A reduction in the net present value of claims on a country at the end of the second phase would entail the IMF’s providing resources on a more concessional basis than under the current enhanced structural adjustment facility (ESAF). Two possible ways in which more concessional IMF financing would be provided are through the provision of grants or loans on maturities longer than the 5½ to 10-year maturity of ESAF loans. Both mechanisms would effectively reduce the net present value of IMF claims on the indebted country. Decisions on these issues are expected to be reached at the IMF-World Bank Annual Meetings in September-October 1996.

Technical Assistance: Technical Assistance Complements IMF’s Surveillance and Financial Assistance

The expansion of the IMF’s membership and the adoption of market-oriented reforms by a large number of countries worldwide fueled a rapid growth of IMF technical assistance activity during 1990-94. Since then, owing to budgetary and staffing constraints, the quantity of technical assistance and training delivered by the IMF to its members has leveled off to slightly more than 300 years of staff and expert time, plus some $10 million annually for scholarships and trainees. This represents approximately 14 percent of the IMF’s total administrative expenditures.

An emerging consensus on the elements required for sustainable growth—macroeconomic stability, market reform, a liberalized trade and exchange regime, and accountable government—has facilitated the development of a more productive and synergetic relationship between macroeconomic policy and technical assistance objectives. Member countries and the IMF have become increasingly convinced that the timely provision of effective technical assistance is a key ingredient in supporting governments’ efforts to sustain policy and institutional reform.

Setting Priorities

Demand for the IMF’s technical assistance exceeds its capacity. This requires rigorous prioritization and allocation of technical assistance resources among member countries and regions. As part of this process, the IMF’s area (regional) departments play a major role in helping to identify and prioritize countries’ technical assistance needs, often in consultation with other donors. The allocation of resources and determination of the IMF’s technical assistance policies and procedures are facilitated by an interdepartmental committee of senior IMF staff, the Technical Assistance Committee.

The IMF’s Executive Board has paid increasing attention to technical assistance matters in recent years. In addition to commenting on the importance of technical assistance in individual country cases, the Board has provided guidance on evaluation of technical assistance, financing arrangements, and areas of priority. There is a growing consensus that a careful blending of policy and institution-building technical assistance in support of governments’ macroeconomic objectives is a critical ingredient for creating and maintaining sustainable growth. Indeed, technical assistance is viewed as one of the three legs of the IMF stool, along with surveillance and program design and financing.


IMF Technical Assistance: 1995/96

(In person years)

Citation: IMF Survey 25, 001; 10.5089/9781451937442.023.A017

Note: IMF technical assistance is conducted under the IMF’s own grant resources and through financing arrangements with the United Nations Development Program, the World Bank, the European Union, the Japanese government, and other donors.1Including legal and computer services.Data: IMF Technical Assistance Committee

Types of Technical Assistance

The IMF provides technical assistance and training in four broad areas: designing and implementing fiscal and monetary policies; institution-building (such as the development of central banks, treasuries, tax and customs administration); collecting and refining statistical data; and drafting and reviewing financial legislation. The IMF provides technical assistance through a number of its departments. These include:

The Monetary and Exchange Affairs Department. MAE focuses its assistance on central banking and exchange system issues and in designing or improving monetary policy instruments. In 1995/96, MAE’s assistance covered banking regulation, supervision, and restructuring; foreign exchange management and operations; central bank organization and management; Central banking accounting; clearing and settlement systems for payments; monetary operations and money market development; and monetary analysis and research.

The Fiscal Affairs Department is chiefly responsible for providing policy advice on tax and expenditure reform and on the design of social safety nets. As in previous years, FAD’s technical assistance activity in 1995/96 also embraced tax and customs administration and public expenditure management, as well as assistance in macro fiscal management issues.

The Statistics Department helps members comply with internationally accepted standards of statistical reporting. The recent agreement on the Special Data Dissemination Standard has already led to an increase in the demand for its technical assistance services, which cover monetary, balance of payments, real sector, and government finance statistics and includes a substantial training element through the organization of regional and local seminars.

The IMF Institute provides training for senior and midlevel officials at IMF headquarters, the Joint Vienna Institute, and national and regional centers in financial programming and policy, financial analysis, and external sector policies. New courses have been added on national accounts statistics and monetary and exchange operations.

The Legal Department provides advice for members wishing to draft new laws or recast their legal framework to support a market-oriented economy in areas such as central banking, commercial banking, foreign exchange, fiscal, and bankruptcy law.

In addition, the Treasurer’s Department provides technical assistance on the establishment and maintenance of IMF accounts, the IMF financial organization and operations, and matters related to members’ transactions with the IMF, including the payment of quota subscriptions. The Policy Development and Review Department provides advice on debt policy and management and on the design and implementation of trade policy reforms. The Bureau of Computing Services has assisted in the modernization of computer systems in central banks, finance ministries, and statistical offices.

Delivering Technical Assistance

Advisory missions, composed chiefly of IMF staff, provide much of the technical assistance. They offer advice on the monetary, fiscal, and statistical problems that often lie at the heart of the macroeconomic imbalances that countries wish to address.

Traditionally, technical assistance had a single, well-focused objective and a relatively short time span in which to accomplish it. In recent years, technical assistance projects have grown both larger and more complex. Time horizons, particularly for institution-building, have lengthened, and multiple sources of financing have been needed to underwrite costs. Large projects now commonly involve more than one IMF department and more than one donor.

External Cooperation and Coordination

Beginning in 1989, the IMF took formal steps to coordinate its technical assistance policies and cooperate with other multilateral and bilateral agencies to minimize conflicting advice and redundant activities. It also began to explore ways of complementing its own resources through various co-financing arrangements with other technical assistance suppliers. This cooperation has led to a more integrated approach to the planning and implementation of technical assistance—particularly at the country level, where comprehensive, multiyear programs of technical assistance are being implemented with, for example, the United Nations Development Program (UNDP), the World Bank, and the European Union. The Japanese government has continued its generous annual contribution to IMF technical assistance and is supporting a new scholarship program.

Coordination has also progressed at the global level through specialized technical steering committees and working groups. The IMF continues to participate in international forums, such as the Development Assistance Committee of the Organization for Economic Cooperation and Development, which reviews and coordinates technical assistance policies and procedures. In the central banking area, coordination has led to operational cooperation between the IMF and 24 central banks in providing technical assistance and training to the countries of the former Soviet Union. The IMF coordinates this arrangement with support from the Bank for International Settlements.

In recent years, the IMF has concluded general technical assistance agreements with the UNDP and the Japanese government, as well as several individual country agreements with the World Bank and the European Union. A number of bilateral donors have also supported IMF-administered technical assistance by making cash contributions to UNDP-IMF projects. To accommodate the growing interest of other potential donors in supporting IMF technical assistance, the Executive Board authorized the establishment of a Technical Assistance Framework Account in April 1995. Under the Framework Account, separate subaccounts are created for individual donors to support IMF technical assistance activities. Subaccounts can be established easily and quickly and can finance a variety of short- or long-term technical assistance and training activities that a donor may wish to support through the IMF.

SDR: An International Reserve Asset

The SDR (special drawing right) is an international reserve asset created by the IMF in 1969 and allocated to its members to supplement existing reserve assets. The IMF has allocated a total of SDR 21.4 billion in two allocations since 1970. As of April 30, 1996, holdings of SDRs by member countries amounted to 2.1 percent of their total nongold reserves.

Member countries of the IMF are eligible to receive allocations of SDRs and may use SDRs in transactions and operations among themselves, with 15 prescribed institutional holders, and with the IMF itself. The SDR is the unit of account of the IMF and is used as a unit of account, or as a basis for a unit of account, by a number of other international and regional organizations and international conventions. The SDR can also be used to denominate private financial instruments. In addition, as of April 30, 1996, the currencies of three member countries were pegged to the SDR.

SDR Valuation on August 21, 1996

article image

The currency components of the SDR basket.

Exchange rates in terms of currency units per U.S. dollar except for the pound sterling, which is expressed in U.S. dollars per pound.

The U.S. dollar equivalents of the currency amounts divided by the exchange rates.

The official SDR value of the US dollar, which is the reciprocal of the total of the US. dollar equivalent—that is, 1+1.456254, rounded to six significant digits.

Data: IMF Treasurer’s Department

The value of the SDR is determined daily on the basis of a basket of five currencies: the U.S. dollar, the deutsche mark, the French franc, the Japanese yen, and the pound sterling. The value of the SDR tends to be more stable than that of any single currency in the basket; movement in the exchange rate of any one component currency will tend to be partly or fully offset by movements in the exchange rates of the other currencies.

The SDR valuation basket is revised every five years, most recently on January 1, 1996. The currencies included in the current basket, which are those of the five member countries with the largest exports of goods and services during 1990–94, remain unchanged from the previous basket. However, the initial weights of these currencies were modified to reflect changes in their relative importance in international trade and reserves. The current basket will be in effect until December 31, 2000.

The SDR interest rate, which is adjusted weekly, is a weighted average of the yields on specified short-term instruments in the domestic money markets of the five countries whose currencies are included in the SDR basket. The financial instruments used in this calculation were reviewed in 1995 and remain unchanged. These instruments are the market yield on three-month U.S. treasury bills, the three-month German interbank deposit rate, the three-month rate on Japanese certificates of deposit, the three-month rate on French treasury bills, and the market yield on three-month U.K. treasury bills.

Use of SDRs

Members with a balance of payments need may use SDRs to acquire foreign exchange in a transaction “with designation”—that is, one in which another member, designated by the IMF, provides a freely usable currency in exchange for the SDRs. The IMF may designate members to provide currencies in exchange for SDRs on the basis of the strength of their balance of payments and reserve positions. A member’s obligation to provide currency is limited to three times its net cumulative allocation, although the IMF and a member may agree on a higher limit.

IMF members may use SDRs in a variety of voluntary transfers. These include transactions “by agreement”—that is, spot exchanges of SDRs for other monetary assets—and operations among themselves and with prescribed holders. In addition, SDRs may be used in operations under the enhanced structural adjustment facility. These operations require the involvement of prescribed holders because the IMF’s Special Disbursement Account and accounts administered by the IMF may not hold SDRs directly.

The uses of SDRs between members and the IMF consist of receipts of SDRs by the IMF’s General Resources Account from members and transfers of SDRs from the General Resources Account to members. IMF receipts mainly take the form of charges levied on members’ use of IMF resources, repurchases (repayments), and quota subscriptions. Transfers from the IMF consist mainly of purchases (drawings); remuneration on members’ creditor positions; and repayments of, and interest payments on, IMF borrowing.

SDR Transfers

The use of SDRs by member countries to discharge their financial obligations to the IMF increased sharply in 1995/96, and transfers among participants and prescribed holders grew substantially, along with a high level of transfers from the General Resources Account to participants. Total transfers of SDRs in 1995/96 rose to a record of SDR 27.4 billion.

Transfers of SDRs from participants to the General Resources Account more than doubled to SDR 7.7 billion in 1995/96, largely reflecting a jump in the use of SDRs for repurchases. With the growth in outstanding IMF credit, charges paid in SDRs increased to SDR 2.0 billion in 1995/96, despite a decline in the average rate of charge.

Substantial amounts of SDRs received by the General Resources Account during the year enabled the IMF to transfer to participants SDR 7.9 billion, exceeding the record level of such transfers in 1994/95. Members’ drawings from the IMF represented the largest category of transfers from the General Resources Account, followed by payments of remuneration to members with creditor positions vis-à-vis the IMF. Acquisitions of SDRs by member countries for the payment of charges fell to a small amount, reflecting generally higher holdings of SDRs by debtor countries and the larger supply of SDRs available through transactions by agreement.

Seminar Explores Future Role of SDR

In response to an Interim Committee request for a broad review of the role and function of the SDR in a rapidly changing world economy, the IMF in March 1996 sponsored a seminar on the future of the SDR. This seminar featured a wide range of outside experts, in addition to senior IMF officials. Participants examined whether the global economy still benefited from the existence of SDRs, whether the SDR would be enhanced by an allocation targeted at specific groups, whether the SDR could be redesigned to make it more attractive to private financial markets, and whether the SDR would ever become the principal reserve asset, as mandated by the IMF’s Articles of Agreement.

Four broad themes emerged from the seminar discussions:

• The SDR does not appear likely to become the principal reserve asset of the international monetary system. Nor does the SDR appear destined to evolve from an unconditional line of credit into a full-fledged world currency.

• The SDR should not be abolished, however, because it possesses the ability to serve as a valuable “safety net” should the international monetary system run into serious difficulty.

• The IMF and the international community agree that a way must be found to solve the “equity issue”—the fact that many IMF members have never received an SDR allocation.

• Reserve currency countries can obtain borrowed reserves at significantly lower costs than other countries. Opinions differed, however, as to whether this asymmetry provided a case either for an SDR allocation under the present Articles or for amending the allocation provision of the Articles.

In a subsequent Executive Board discussion in April, Executive Directors noted that there was little current support for the SDR becoming the principal reserve asset of the international monetary system. They also noted that many current IMF members had never received an SDR allocation, which led to concerns about equity. The Executive Board supported renewed efforts to resolve the equity issue as soon as possible. After consideration of the Board’s report on the SDR seminar, the Interim Committee in April asked the Executive Board to reflect further on the proposals made at the seminar on the role of the SDR and to reach a consensus on the equity issue.

Transfers among participants and prescribed holders increased to SDR 11.9 billion in 1995/96 from SDR 9.6 billion in 1994/95. Countries continued to acquire substantial amounts of SDRs in transactions by agreement during 1995/96 to discharge their financial obligations to the IMF and build up their holdings of SDRs.

Transactions by agreement totaled SDR 8.9 billion during the year, close to the record level of SDR 9.0 billion in 1994/95. These transactions continued to be facilitated by “two-way arrangements,” under which members stand ready to buy or sell SDRs for one or more freely usable currencies at any time, provided that their SDR holdings remain within certain limits.

SDR Allocations

One of the IMF’s principal goals is to facilitate the expansion and balanced growth of international trade, which requires adequate levels of reserves. If the IMF identifies a long-term global need for reserves, it can supplement existing assets through an allocation of SDRs—the timing and size of that allocation are determined by the Board of Governors. The IMF has authority to create unconditional liquidity by allocating SDRs to all member countries in proportion to their quotas. It cannot allocate SDRs to itself or to prescribed holders. The most recent allocation was on January 1, 1981, when SDR 4.1 billion was allocated to the IMF’s then 141 member countries. In response to an Interim Committee request, the Executive Board continued to consider the issue of an SDR allocation in 1995/96. At present, 38 new members of the IMF have never received an SDR allocation.

Liquidity: IMF Position Weakens Further

For the second year in a row, the liquidity position of the IMF weakened, owing to a record demand for its resources—predominantly by Russia and Mexico.

The liquid resources of the IMF consist of usable currencies and SDRs held in its General Resources Account. Usable currencies, the largest component of liquid resources, are those of members whose balance of payments and reserve positions are sufficiently strong to warrant the use of their currencies in financing IMF operations and transactions. At the end of April 1996, the IMF’s liquid resources had declined to SDR 56.4 billion, compared with SDR 61.6 billion a year earlier—primarily reflecting the large use of IMF resources during 1995/96.

In assessing the adequacy of the IMF’s liquidity, the stock of usable currencies is first reduced by the amount of resources committed under arrangements and expected to be drawn. The stock of usable currencies is reduced further to take account of the staff’s assessment of the need to maintain working balances of currencies and the possibility that the currencies of some members in relatively weak external positions could become unusable in financing IMF operations and transactions. After these adjustments were made, the IMF’s uncommitted and adjusted liquid resources totaled SDR 33.5 billion as of April 30, 1996, compared with SDR 42.5 billion a year earlier.

The ratio of the IMF’s uncommitted and adjusted liquid resources to its liquid liabilities—the liquidity ratio—declined to 89.8 percent at the end of April 1996 from 126.1 percent a year earlier. Although the current level of liquidity is adequate, demand for IMF resources is expected to remain relatively high over the next few years, and the decline in the liquidity ratio is likely to continue, albeit at a slower pace. In light of this, the Interim Committee asked the Executive Board to complete work on the Eleventh General Review of Quotas as soon as possible.

The IMF currently has no unused lines of credit and no outstanding borrowing. When supplementary resources are needed to prevent or cope with a crisis, the IMF can borrow under the General Arrangements to Borrow and under an associated agreement with Saudi Arabia. Currently, a new arrangement to borrow is being discussed that would double the resources available under the GAB (see page 6).


IMF Liquidity Ratio

(in percent; end of period)

Citation: IMF Survey 25, 001; 10.5089/9781451937442.023.A017

1Figure for 1996 is as of April 30.Data: IMF. Annual Report 1996

Income and Charges: Annual Net Income Target Supplements IMF Reserves

The IMF aims for a target amount of net income each financial year to add to its reserves, after both covering its expenses and remunerating its creditor members. The rate of charge on the use of IMF resources is currently linked to the SDR interest rate. At the beginning of each financial year, the IMF sets the rate of charge as a proportion of the weekly SDR interest rate so as to achieve a predetermined net income target. This ensures that the IMF’s operational income closely reflects its operational costs, which depend largely on the SDR interest rate, and minimizes the need for discretionary changes in the rate of charge.

For 1995/96, the IMF set the proportion of the rate of charge to the SDR interest rate at 102.5 percent, based on a net income target of 5 percent of the IMF’s reserves at the beginning of the financial year. After taking into account the return of net income in excess of the target to members paying charges during the year, the proportion of the rate of charge to the SDR interest rate for 1995/96 was effectively reduced to 101.7 percent.

To strengthen its financial position against the consequences of overdue obligations, the IMF has adopted “burden-sharing” measures to accumulate additional reserves and to distribute the financial burden of overdue obligations between debtor and creditor members. As part of this cooperative strategy to resolve protracted arrears, further adjustments (“extended burden sharing”) are made to the rate of charge and the rate of remuneration. The resources so generated are intended to protect the IMF against risks associated with rights accumulation programs (see Arrears) and to provide additional liquidity to finance drawings under those programs.

For 1995/96, the adjustments under burden sharing and extended burden sharing resulted in an average rate of charge of 4.59 percent and an average rate of remuneration of 3.40 percent. Net income for 1995/96 equaled the target amount of SDR 89 million, which was placed in the IMF’s reserves. This addition increased IMF reserves to SDR 1.88 billion as of April 30, 1996, from SDR 1.79 billion a year earlier. The Executive Board established a net income target of SDR 94 million for 1996/97 and set the proportion for the rate of charge at 109.4 percent of the SDR interest rate.

Arrears: IMF Strategy Stresses Prevention, Cooperation

To maintain the cooperative nature and protect the monetary character of the IMF, members must meet their financial obligations on time. When arrears do arise, they are expected to be settled as quickly as possible. The IMF’s strengthened cooperative strategy, introduced in 1990, has made an important contribution to deterring new cases of arrears from emerging or be-coming protracted and in assisting members that are willing to cooperate with the IMF in finding a solution to their arrears problems. At the same time, the strategy provides a framework within which appropriate remedial actions have been taken in cases of failure to cooperate with the IMF. The strategy emphasizes the intensification of collaboration among the IMF, the World Bank, and other international financial organizations in encouraging cooperating member countries to resolve their arrears problems.

Prevention. The first key element of the IMF’s arrears strategy is to prevent new cases of arrears from emerging and to keep existing arrears from becoming protracted. To forestall new arrears, the IMF applies conditionality on the use of its resources; assesses borrowers’ medium-term balance of payments viability and capacity to repay; cooperates with donors and other official creditors to ensure that IMF-supported adjustment programs are adequately financed; and provides technical assistance to help members formulate and implement appropriate adjustment programs.

During the past year, the introduction of debt sustainability analyses prepared jointly by the IMF and the World Bank staffs for the heavily indebted poor countries, as well as strengthened surveillance, has reinforced the IMF’s ability to assess a member’s capacity to repay. These analyses have also helped identify potential problems during the period in which IMF resources remain outstanding.

Remedial Measures. The arrears strategy includes a timetable of remedial measures—of increasing intensity—to be applied when members with protracted arrears do not actively cooperate with the IMF in resolving their arrears problems. The timetable provides a framework for the consideration of the measures, which are implemented if the Executive Board—taking into account the individual country’s circumstances—believes a member is not cooperating with the IMF in addressing its overdue obligations.

The steps can range from a temporary limitation on the member’s use of IMF resources through the final and most severe sanction: compulsory withdrawal. In accordance with the timetable, three notifications were issued to the Executive Board at the one-month stage of arrears in 1995/96. In two cases, the arrears were cleared before a complaint was issued to the Board. In the third, a report and complaint by the Managing Director—a further deterrent measure—were issued in February 1996. In the case of Sudan, which has the largest and most protracted overdue obligations to the IMF, the procedure for compulsory withdrawal has been initiated and the matter was considered three times by the Board during 1995/96.

Intensified Collaboration and the Rights Approach. The IMF continued to work closely with countries in arrears during 1995/96 to help them resolve their overdue financial obligations. Intensified collaboration is designed to coordinate the efforts of the member and the IMF. This collaboration provided a framework for countries in arrears to establish a track record of policy and payments performance, mobilize resources from international creditors and donors, and normalize relations with the IMF, including the clearance of overdue obligations. A country’s economic policies might be formulated in the context of a “rights accumulation program” or an IMF- or staff-monitored program. A rights accumulation program shares many of the features of a regular IMF-supported macroeconomic stabilization and structural reform program. It allows a country in protracted arrears to accumulate rights to future drawings of IMF resources in accordance with a phased schedule and in amounts up to the level of arrears outstanding at the beginning of the program. Disbursements are made only after the arrears are cleared and are conditional upon satisfactory conclusion of the rights program and IMF approval of a successor arrangement or arrangements.

Outstanding overdue obligations to the International Monetary Fund fell significantly in 1995/96 to SDR 2.2 billion.

The availability of the rights approach is limited to the 11 countries that were in protracted arrears to the IMF at the end of 1989. Five of the original 11 eligible countries—Cambodia, Guyana, Honduras, Panama, and Vietnam—cleared their arrears to the IMF without recourse to the rights approach. Peru, Sierra Leone, and Zambia adopted rights accumulation programs and have successfully completed those programs and cleared their arrears. The rights approach remains available for Liberia, Somalia, and Sudan, although progress has been hindered by a number of factors.


The level of outstanding overdue financial obligations to the IMF declined significantly in 1995/96 to SDR 2.2 billion on April 30, 1996 from SDR 3.0 billion on April 30, 1995. This decrease resulted largely from the clearance of arrears in December 1995 by Zambia (SDR 830.2 million) and Bosnia and Herzegovina (SDR 25.1 million). No new cases of protracted overdue obligations to the IMF arose in 1995/96, and the number of countries in arrears to the IMF by six months or more decreased to six from eight. As of April 30, 1996, four countries remained ineligible to use the IMF’s general resources. Declarations of noncooperation remained in effect for three countries.

In April 1996, the Executive Board approved an extension of the rights approach for another year, until the time of the spring 1997 Interim Committee meeting, with the proviso that it would be reviewed earlier in connection with progress on financing a continuation of ESAF operations.

A Chronology: Over Half a Century of Challenge and Change: Highlights of the IMF’s Evolution

July 1-22 1944

IMF and World Bank Articles of Agreement formulated at the International Monetary and Financial Conference, Bretton Woods, New Hampshire.

December 27 1945

Articles of Agreement enter into force upon signature by 29 governments, representing 80 percent of original quotas.

March 8-18 1946

Inaugural meeting of Board of Governors in Savannah, Georgia: by-laws adopted, agreement to locate IMF headquarters in Washington, first Executive Directors elected.

May 6

Twelve Executive Directors—five appointed and seven elected—hold inaugural meeting in Washington.

September 27-October 5

First Annual Meetings of Boards of Governors of IMF and World Bank in Washington.

March 1 1947

IMF begins operations.

May 8

First drawing from IMF (by France).

August 13-14 1952

Germany and Japan become members.

October 1

Executive Board approves proposals for standardized stand-by arrangements.

January 5 1962

Executive Board adopts terms and conditions of General Arrangements to Borrow (GAB).

February 27 1963

Compensatory financing facility created.

September 29 1967

Board of Governors approves plan to establish special drawing rights (SDRs).

June 25 1969

Buffer stock financing facility established.

July 28

First Amendment to Articles of Agreement, establishing a facility based on the SDR, takes effect after acceptance by three-fifths of membership representing four-fifths of voting power.

January 1 1970

First allocation of SDRs.

August 15 1971

United States informs IMF it will no longer freely buy and sell gold to settle international transactions. Par values and convertibility of the dollar—two main features of Bretton Woods system—cease to exist.

December 18

After four months of negotiating, Smithsonian Agreement provides for realignment of industrial country currencies and increase in price of gold. IMF establishes temporary regime of central rates and wider margins.

July 26 1972

Board of Governors adopts resolution establishing a Committee on Reform of the International Monetary System, known as the Committee of 20.

March 19 1973

“Generalized floating” begins as European Community countries introduce joint float for their currencies against U.S. dollar.

January 17-18 1974

Committee of 20 agrees that world economic conditions require evolutionary approach to monetary reform.

June 12-13

Committee of 20 concludes work, agreeing on immediate program to help monetary system evolve. Executive Board establishes oil facility; adopts “Guidelines for the Management of Floating Exchange Rates,” and new method of SDR valuation based on basket of 16 currencies.

September 13

IMF sets up extended Fund facility to give medium-term assistance to members with balance of payments problems owing to structural economic changes.

October 3

Interim Committee holds inaugural meeting, following its establishment on October 2.

August 1 1975

Executive Board establishes a Subsidy Account to assist the most seriously affected members using the oil facility, to be funded by contributions.

January 7-8 1976

Interim Committee agrees on “interim reform” of monetary system, including amendment of Article IV, and other issues.

May 5

Executive Board establishes a Trust Fund to provide balance of payments assistance to developing country members with profits from sale of gold. The Board decides on policies and procedures for selling gold.

June 2

IMF holds first gold auction under Interim Committee understandings on disposition of one-third of IMF gold holdings. Proceeds of sales to go to Trust Fund to benefit developing countries.

February 4 1977

IMF makes first loan disbursements under Trust Fund.

August 29

Executive Board establishes supplementary financing facility.

April 1 1978

Second Amendment of Articles of Agreement enters into force, establishing right of members to adopt exchange rate arrangements of their choice.

September 24

Interim Committee approves 50 percent quota increase under Seventh Review, which, when accepted by all members, raises IMF general resources to SDR 58.6 billion; it also agrees on new allocations of SDR 4 billion each year for three years beginning January 1979.

December 13

Board of Governors adopts resolutions enabling members to increase their quotas by 50 percent under Seventh General Review of Quotas and provides for allocation of SDR 12 billion during 1979-81.

February 23 1979

Supplementary financing facility enters into force.

April 25 1980

Interim Committee agrees IMF should be ready to play growing role in adjustment and financing of payments imbalances by providing assistance over longer periods and in larger amounts.

September 17

IMF decides to unify and simplify, as of January 1, 1981, currency baskets determining value and interest rate on SDR. Unified basket to be composed of currencies of five members with largest exports of goods and services during 1975-79—U.S. dollar, deutsche mark, French franc, Japanese yen, and pound sterling.

December 1

IMF announces that 128 members have consented to quota increases under Seventh General Review, meeting minimum participation requirement for quota increase, under which aggregate quotas would be raised to SDR 60 billion.

January 1 1981

IMF begins to use simplified basket of five currencies to determine daily valuation of SDR.

March 13

IMF decides to institute policy of enlarged access to its resources following full commitment of resources from supplementary financing facility and until Eighth General Review of Quotas takes effect.

April 23

IMF announces decisions to enhance SDR’s attractiveness as reserve asset. Measures include making interest rate more competitive and eliminating reconstitution requirement (allowing members to use SDRs permanently).

May 7

IMF Managing Director and Governor of Saudi Arabian Monetary Agency (SAMA) sign loan agreement allowing IMF to borrow up to SDR 8 billion to finance IMF’s policy of enlarged access, which thus becomes operative.

May 13

IMF reaches agreement in principle with central banks or official agencies of 13 industrial countries, under which they will make available SDR 1.1 billion over two years to help finance the IMF’s policy on enlarged access.

May 21

IMF extends financing to members encountering balance of payments difficulties produced by excesses in cost of cereal imports. Assistance integrated into IMF’s compensatory financing facility.

January 13 1982

Executive Board adopts guidelines for borrowing by IMF as important temporary measure, but member country quotas remain main source of IMF financing.

August 13

Mexico encounters serious problems servicing its foreign debt, marking onset of debt crisis. In following months, IMF supports major adjustment programs in Mexico and several other countries facing severe debt-servicing difficulties.

February-March 1983

Interim Committee agrees to increase IMF quotas under Eighth General Review. IMF Board of Governors adopts resolution on quota increase.

November 30

Increases in quotas under Eighth General Review take effect.

December 30

Ten participants in General Arrangements to Borrow (GAB) concur on plans to revise and enlarge the GAB.

October 6-7 1985

Interim Committee agrees that approximately SDR 2.7 billion in Trust Fund reflows to become available during 1985-91 be used to provide concessional lending to low-income members.

December 2

IMF Managing Director and World Bank President express broad support for the debt initiative proposed by U.S. Treasury Secretary James A. Baker. It calls for comprehensive adjustment measures by debtors, increased and more effective structural lending by multilateral development banks, and expanded lending by commercial banks.

March 27 1986

IMF establishes structural adjustment facility (SAF) to provide balance of payments assistance on concessional terms to low-income developing countries.

April 9-10

Interim Committee calls for enhanced policy coordination to improve functioning of floating exchange rate system.

February 22 1987

Finance ministers of six major nations meet; IMF Managing Director participates. Ministers agree, in Louvre Accord, to intensify policy coordination by periodically reviewing medium-term economic objectives and projections and regularly examining current economic developments, and agree to cooperate closely to foster stability of exchange rates “around current levels.”

December 29

IMF establishes enhanced structural adjustment facility (ESAF) to provide resources to low-income members under-taking strong three-year macroeconomic and structural programs to improve their balance of payments and foster growth.

April 14-15 1988

Interim Committee agrees on measures to strengthen IMF assistance to members. Extended Fund facility strengthened, and contributor countries agree to make ESAF operational.

August 23

IMF Executive Board establishes compensatory and contingency financing facility, to compensate members with shortfalls in export earnings because of circumstances beyond their control and to help maintain adjustment programs in the face of external shocks.

September 25-26

Interim Committee endorses intensified collaborative approach to arrears problem.

April 3-4 1989

Interim Committee asks Executive Board to consider proposals for developing country debt relief, based in part on proposals by U.S. Treasury Secretary Nicholas F. Brady.

May 23

Executive Board adopts guidelines to deal with developing country debt problem. These include linking support for debt-reduction strategies to sustained medium-term adjustment programs with strong element of structural reform and access to IMF resources for debt or debt-service reduction.

May 7-8 1990

Interim Committee agrees to 50 percent quota increase. Committee suggests Executive Board propose Third Amendment to Articles of Agreement, providing for suspension of voting and other membership rights for members that do not fulfill financial obligations to IMF. Committee also approves rights accumulation program, which permits members with protracted arrears to establish a track record on policies and payments performance and accumulate rights for future drawings.

June 28

Executive Board proposes increasing total IMF quotas from SDR 90.1 billion to SDR 135.2 billion under the Ninth General Review of Quotas.


Executive Board approves temporary expansion of IMF facilities to support countries affected by Middle East crisis.

October 5 1991

U.S.S.R. signs agreement with IMF providing for technical assistance, pending its application for full membership.

April-May 1992

Executive Board approves membership of many states of former Soviet Union.

August 5

IMF approves SDR 719 million stand-by arrangement for Russia.


Executive Board adopts Third Amendment of Articles of Agreement. Executive Board also determines that requirements for quota increases under Ninth General Review of Quotas have been met.

April 16 1993

Executive Board approves creation of systemic transformation facility (STF)—to assist countries facing balance of payments difficulties arising from transformation from a planned to a market economy—to be in place through 1994.

May 13

Kyrgyz Republic is first member to use STF.

February 23 1994

Executive Board initiates operations under renewed and enlarged ESAF.


IMF approves arrangements for 13 countries of the CFA franc zone, following January realignment of CFA franc.

June 6

IMF announces creation of three Deputy Managing Director posts—first major change in structure of senior management since 1949.

October 2

Interim Committee adopts the Madrid Declaration, calling on industrial countries to sustain growth, reduce unemployment, and prevent a resurgence of inflation; developing countries to extend growth; and transition economies to pursue bold stabilization and reform efforts.

February 1 1995

Executive Board approves a stand-by arrangement of SDR 12.1 billion for Mexico, the largest financial commitment in IMF history.

April 11

Executive Board approves SDR 4.3 billion stand-by arrangement for Russia.

March 26 1996

Executive Board approves an SDR 6.9 billion extended Fund facility arrangement for Russia—the largest EFF in IMF history.

April 16

IMF establishes voluntary Special Data Dissemination Standard for member countries having, or seeking, access to international capital markets. A general data dissemination standard, reflecting an agreement by the IMF and its members on the coverage, periodicity, and timeliness of the data that members provide to the IMF, is expected by the end of 1996/97.

David M. Cheney, Editor

Sara Kane • John Starrels

Senior Editors

Sheila Meehan

Assistant Editor

Sharon Metzger

Editorial Assistant

Lijun Li

Staff Assistant

Philip Torsani

Art Editor

In-Ok Yoon

Graphic Artist

The IMF Survey (ISSN 0047-083X) is published by the International Monetary Fund 23 times a year, in addition to an annual Supplement on the IMF, an annual Index, and other occasional supplements. Editions are also published in French and Spanish. Opinions and materials in the IMF Survey, including any legal aspects, do not necessarily reflect the official views of the IMF. Address editorial correspondence to Current Publications Division, Room IS9-1300, International Monetary Fund, Washington, DC 20431 U.S.A. Telephone: (202) 623-8585. The IMF Survey is mailed by first class mail in Canada, Mexico, and the United States, and by airspeed elsewhere. Private firms and individuals are charged an annual rate of US$79.00. Apply for subscriptions to Publication Services, Box XS600, IMF, Washington, DC 20431 U.S.A. Telephone: (202) 623-7430. Cable: Interfund. Fax: (202) 623-7201. Internet:

IMF Survey: Volume 25 1996
Author: International Monetary Fund. External Relations Dept.