© International Monetary Fund

Cover Photo: IMF Staff Photographer/Eugene Salazar


Cataloging-in-Publication Data

International Monetary Fund handbook : its functions, policies, and operations / Bernhard Fritz-Krockow
and Parmeshwar Ramlogan, editors — Washington, D.C. : International Monetary Fund, Secretary’s Dept.,
2007.
p. cm.
Includes bibliographical references.
ISBN 978-1-58906-625-0

1. International Monetary Fund — Handbooks, manuals, etc. 2. Economic policy — Handbooks, manuals,
etc. 3. Balance of payments — Handbooks, manuals, etc. 4. Special drawing rights — Handbooks, manuals,
etc. 5. Technical assistance — Handbooks, manuals, etc. 6. World Bank — Handbooks, manuals, etc. 7. World
Trade Organization — Handbooks, manuals, etc.. I. Fritz-Krockow, Bernhard. II. Ramlogan, Parmeshwar.
III. International Monetary Fund. Secretary’s Dept.

HG3881.5.I58 I584 2007


iii



CONTENTS
CONTENTS iii
Foreword viii
Abbreviations and Acronyms ix
1. Overview of the IMF 1
Mandate....................................................................................................................................................1
Functions..................................................................................................................................................1
Surveillance over Members’ Economic Policies ............................................................................1
Financing Temporary Balance of Payments Needs ........................................................................2
Combating Poverty in Low-Income Countries ...............................................................................2
Mobilizing External Financing.......................................................................................................2
Strengthening the International Monetary System..........................................................................2
Increasing the Global Supply of International Reserves.................................................................2
Building Capacity through Technical Assistance and Training......................................................2
Dissemination of Information and Research...................................................................................2
Medium-Term Strategy............................................................................................................................3
Origins of the IMF ...................................................................................................................................3
Size and Membership...............................................................................................................................4
Staff..........................................................................................................................................................4
2. Surveillance Over Members’ Economic Policies 7
Surveillance in the Articles of Agreement ...............................................................................................7
Article IV of the IMF’s Articles of Agreement ..............................................................................7
Articles VIII and XIV of the IMF’s Articles of Agreement ...........................................................8
Characteristics of Surveillance.................................................................................................................9
Universality ....................................................................................................................................9
Uniformity of Treatment.................................................................................................................9
Flexibility .......................................................................................................................................9
Cooperation ....................................................................................................................................9
Candor ............................................................................................................................................9
Comprehensiveness ........................................................................................................................9
Focus.............................................................................................................................................10
Modalities of Surveillance .....................................................................................................................10
Bilateral Surveillance....................................................................................................................10
Multilateral Surveillance ..............................................................................................................11


iviv



Regional Surveillance...................................................................................................................13
Strengthening Surveillance to Prevent Financial Crises.........................................................................14
External Vulnerability Assessments .............................................................................................14
Financial Sector Assessment Program..........................................................................................16
Financial Soundness Indicators ....................................................................................................17
Anti-Money Laundering and Combating the Financing of Terrorism..........................................17
Offshore Financial Center Assessments .......................................................................................17
Data Provision to the IMF for Surveillance Purposes...................................................................18
Surveillance in Program Countries ...............................................................................................18
3. Financing Temporary Balance of Payments Needs 19
Sources of IMF Financing......................................................................................................................19
Quota Subscriptions......................................................................................................................19
Borrowing.....................................................................................................................................19
Grants for Subsidized Interest Rates and Debt Relief...................................................................20
Gold Sales.....................................................................................................................................20
The IMF’s Capacity to Lend..................................................................................................................20
IMF Financing to Member Countries.....................................................................................................21
Purchases and Repurchases ..........................................................................................................21
Arrangements................................................................................................................................21
Outright Purchases........................................................................................................................22
Program Design............................................................................................................................22
Approval of an Arrangement ........................................................................................................23
Program Review...........................................................................................................................23
General Policies Governing the Use of IMF Resources.........................................................................24
Reserve Tranche Policies..............................................................................................................24
Access Policy................................................................................................................................24
Exceptional Access.......................................................................................................................24
Terms of IMF Lending .................................................................................................................25
Conditionality...............................................................................................................................25
Overdue Financial Obligations to the IMF...................................................................................26
Lending into Arrears.....................................................................................................................27
Prolonged Use of IMF Resources and Ex Post Assessments........................................................28
Misreporting and Noncomplying Purchases and Disbursements..................................................29
Safeguards on the Use of IMF Resources.....................................................................................29
Financing Facilities and Arrangements..................................................................................................30
The Credit Tranches .....................................................................................................................30

v



Stand-By Arrangement .................................................................................................................31
Extended Fund Facility.................................................................................................................31
Supplemental Reserve Facility .....................................................................................................34
Compensatory Financing Facility.................................................................................................34
Emergency Assistance Policy.......................................................................................................34
Poverty Reduction and Growth Facility .......................................................................................35
Exogenous Shocks Facility...........................................................................................................36
Trade Integration Mechanism.......................................................................................................37
Special Instruments ................................................................................................................................37
Enhanced Surveillance..................................................................................................................37
Rights-Accumulation Programs....................................................................................................38
Staff-Monitored Programs ............................................................................................................38
Post-Program Monitoring.............................................................................................................38
The Policy Support Instrument .....................................................................................................39
4. Special Drawing Rights 40
The SDR as an International Reserve Asset...........................................................................................40
Main Characteristics of the SDR System...............................................................................................40
Separation of SDR and GRA Accounts........................................................................................40
Holders of SDRs...........................................................................................................................40
Allocation and Cancellation of SDRs...........................................................................................41
Use of SDRs...........................................................................................................................................41
Valuation of the SDR.............................................................................................................................42
Yield and Cost of SDRs .........................................................................................................................42
5. Combating Poverty in Low-Income Countries 44
Poverty Reduction Strategy Framework ................................................................................................45
Preparation of a Poverty Reduction Strategy Document ..............................................................45
Content of a PRSP or I-PRSP.......................................................................................................45
Joint Staff Advisory Note on the PRS Document.........................................................................46
Alignment of the PRGF with the PRSP........................................................................................46
Aid Coordination and Effectiveness .............................................................................................47
HIPC Initiative .......................................................................................................................................47
Operational Aspects of the HIPC Initiative ..................................................................................49
Eligibility Requirements for the HIPC Initiative ..........................................................................49
Definition of Debt Sustainability and Debt Relief........................................................................49
Requirement of a Track Record....................................................................................................50
Amount of IMF HIPC Assistance.................................................................................................50
Terms of IMF HIPC Assistance....................................................................................................50


vivi



Use of Resources Freed by Debt Relief........................................................................................50
Multilateral Debt Relief Initiative ..........................................................................................................51
6. Capacity Building: Technical Assistance and Training 52
Role of Capacity Building......................................................................................................................52
Technical Assistance ....................................................................................................................52
Training ........................................................................................................................................53
Types of Technical Assistance and Training..........................................................................................53
Capacity Building Priorities ...................................................................................................................53
Sources and Uses of Capacity Building Resources................................................................................54
Modes of Delivery of Capacity Building ...............................................................................................54
Short-Term Visits by Staff and Headquarters-Based Consultants................................................54
Long-Term Advisors ....................................................................................................................54
Regional Technical Assistance Centers........................................................................................54
Training ........................................................................................................................................56
Cooperation with Other Technical Assistance Providers .......................................................................57
7. Strengthening the International Financial System 58
Introduction............................................................................................................................................58
The Standards and Codes Initiatives ......................................................................................................58
Data Dissemination Standards......................................................................................................59
Code of Good Practices on Fiscal Transparency ..........................................................................61
Code of Good Practices on Transparency in Monetary and Financial Policies ............................61
Reports on the Observance of Standards and Codes.....................................................................61
Transparency at the IMF........................................................................................................................62
Private Sector Involvement in Crisis Prevention and Resolution...........................................................63
Rationale for Private Sector Involvement.....................................................................................63
Access to Capital Market Financing.............................................................................................63
8. Collaboration with the World Bank and the World Trade Organization 66
Collaboration with the World Bank .......................................................................................................66
Overlap of IMF and World Bank Activities .................................................................................66
Lead Roles of the IMF and the World Bank.................................................................................67
Principles of IMF-World Bank Collaboration ..............................................................................67
Collaboration with the World Trade Organization.................................................................................68
Consultations ................................................................................................................................69
Trade Liberalization in Least-Developed Countries.....................................................................69
9. Governance and Decision-Making 70
Board of Governors................................................................................................................................70
International Monetary and Financial Committee..................................................................................70
Development Committee........................................................................................................................71
Executive Board.....................................................................................................................................72
Size and Composition...................................................................................................................72

vii



Board Procedures..........................................................................................................................72
Board Committees ........................................................................................................................73
Voting and Consensus Decision-Making......................................................................................74
Summings Up ...............................................................................................................................74
Managing Director and Deputy Managing Directors.............................................................................77
Independent Evaluation Office...............................................................................................................77
External Audit Mechanism.....................................................................................................................77
10. Internal Organization and Financing 78
Organizational Structure ........................................................................................................................78
Office of the Managing Director ..................................................................................................78
Area Departments .........................................................................................................................79
Functional and Special Services Departments..............................................................................79
The External Relations Department and Liaison Offices .............................................................83
Support Departments ....................................................................................................................83
Financing of IMF Operations.................................................................................................................84

Boxes
1.1 The IMF’s Quota System................................................................................................................. 6
2.1 Article IV Consultation Cycles ........................................................................................................12
5.1 Summary of Key Features of PRGF-Supported Programs...............................................................48
7.1 Internationally-Monitored Standards and Codes..............................................................................60
9.1 The IMF’s Voting System ...............................................................................................................75
9.2 Voice and Representation.................................................................................................................76

Figure
10.1 IMF Organization Chart .................................................................................................................80

Tables
3.1 The IMF’s Lending Capacity ...........................................................................................................22
3.2 Terms and Conditions of IMF Lending............................................................................................32
4.1 Calculation of the SDR Value..........................................................................................................43
4.2 Calculation of the SDR Interest Rate ...............................................................................................43
6.1 Technical Assistance Resources and Delivery, FY2002—FY2006.................................................55
6.2 Overview of Regional Technical Assistance Centers in FY 2005....................................................56
6.3 IMF Institute Training Programs, FY 2002–FY 2006......................................................................57
10.1 General Department, Operational Income......................................................................................85

Appendix
Quotas and Voting Power ......................................................................................................................86

Endnotes.................................................................................................................................................91


viiiviii



FOREWORD
This Handbook is intended to give a general overview of the IMF’s functions, policies and operations, although it
is not intended to serve as an authoritative description of the rules governing these functions, policies, and
operations. The Handbook provides, without commentary, a general and factual description of the IMF’s mandate,
its governance and internal organization, the policies that guide its day-to-day operations and interactions with
member countries, and the internal procedures through which these policies are executed. The Handbook should
be useful to new IMF staff members, to Executive Directors and their staff, and to members of the public in
general who are interested in the IMF’s mandate, policies, and operations. However, it is important to note that the
publication provides but a snapshot of the IMF at the time of writing, as the continued evolution in the demands of
the global economy and the role of the IMF therein will be persistent forces of change that will continue shaping
the IMF’s functions, policies, and operations.
The Handbook draws heavily on IMF documents and, for accuracy, the language is kept as close as possible to the
originals. The source documents include the Articles of Agreement, Executive Board decisions, summings up of
Executive Board discussions, annual reports of the IMF, staff reports and memoranda, pamphlets, fact-sheets, and
IMF staff publications. All of the documents are available to the public and many are also accessible through the
IMF’s external website. The Handbook provides references in the endnotes to the relevant IMF documents, while
footnotes provide some additional information that could be of interest to the reader.
The authors are grateful for the assistance of Elena Michaels, Antonella Tarantino, Henry Mooney, and Wasima
Rahman-Garrett in the preparation of this publication. We also want to thank Celia Zufriategui, Lorna Sibblies,
and Choon Hwee Lee for facilitating the production and publication. The present publication has been reviewed
by staff from the Secretary’s Department and from other departments, and the authors gratefully acknowledge the
extensive comments and suggestions received.


ix



ABBREVIATIONS AND ACRONYMS
ACB Africa Capacity-Building Initiative
ACBF African Capacity Building Foundation
AFRITAC African Regional Technical Assistance Center
AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism
AREAER Annual Review of Exchange Arrangements and Exchange Restrictions
ASEAN Association of Southeast Asian Nations
BIS Bank of International Settlements
CAC Collective Action Clause
CAM Committee on Executive Board Administrative Matters
CARTAC Caribbean Regional Technical Assistance Center
CCL Contingent Credit Lines
CEMAC Central African Economic and Monetary Community
CFF Compensatory Financing Facility
CMCG Capital Markets Consultative Group
DC Development Committee
DQAF Data Quality Assessment Framework
DSA Debt Sustainability Analysis
DSBB Dissemination Standards Bulletin Board
ECCB Eastern Caribbean Central Bank
ECCU Eastern Caribbean Currency Union
ECOSOC Economic and Social Council
EFF Extended Fund Facility
EFM Emergency Financing Mechanism
ENDA Emergency Natural Disaster Assistance
EPCA Emergency Post Conflict Assistance
ESAF Enhanced Structural Adjustment Facility
ESF Exogenous Shocks Facility
EU European Union
EURIBOR Euro Interbank Offered Rate
FAA Framework Administered Account for Technical Assistance Activities
FAD Fiscal Affairs Department
FATF Financial Action Task Force
FCC Forward Commitment Capacity
FIRST Financial Sector Reform and Strengthening Initiative
FSAP Financial Sector Assessment Program
FSI Financial Soundness Indicator
FSLC Bank-Fund Financial Sector Liaison Committee
FSRB FATF-Style Regional Body
FSSA Financial System Stability Assessment
FY Fiscal Year
GAB General Arrangements to Borrow


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GATT General Agreement on Tariffs and Trade
GCC Gulf Cooperation Council
GDDS General Data Dissemination System
GFSR Global Financial Stability Report
GRA General Resources Account
HIPC Heavily-Indebted Poor Countries
IEO Independent Evaluation Office
IIF Institute for International Finance
IMFC International Monetary and Financial Committee
INS IMF Institute
I-PRSP Interim Poverty Reduction Strategy Paper
JIC Joint IMF/World Bank Implementation Committee
JSA Joint Staff Assessments
JSAN Joint Staff Advisory Note
LEG Legal Department
LIBOR London Interbank Offered Rate
LOI Letter of Intent
MCM Monetary and Capital Markets Department
MD Managing Director
MDG Millennium Development Goals
MDRI Multilateral Debt Relief Initiative
MEFP Memorandum on Economic and Financial Policies
METAC Middle Eastern Regional Technical Assistance Center
MTS Medium Term Strategy
NAB New Arrangements to Borrow
OECD Organization for Economic Cooperation and Development
OFC Offshore Financial Center
OIA Office of Internal Audit
PACT Partnership for Capacity Building in Africa
PFTAC Pacific Financial Technical Assistance Center
RAP Rights-Accumulation Program
PIN Public Information Notice
PPM Post-Program Monitoring
PRGF Poverty Reduction and Growth Facility
PRS Poverty Reduction Strategy
PRSP Poverty Reduction Strategy Paper
PSI Policy Support Instrument
PSIA Poverty and Social Impact Analysis
ROSC Report on the Observance of Standards and Codes
RTAC Regional Technical Assistance Center
SAF Structural Adjustment Facility
SBA Stand-By Arrangement
SDA Special Disbursement Account
SDDS Special Data Dissemination Standard
SDR Special Drawing Right
SEC Secretary’s Department

xi



SM Staff Memorandum
SMP Staff-Monitored Program
SRF Supplemental Reserve Facility
STA Statistics Department
TIM Trade Integration Mechanism
TMU Technical Memorandum of Understanding
TPRM Trade Policy Review Mechanism
UN United Nations
UNDP United Nations Development Programme
WEMD World Economic and Market Developments
WAEMU West African Economic and Monetary Union
WEO World Economic Outlook
WTO World Trade Organization

INTERNATIONAL MONETARY FUND

1


CHAPTER 1
OVERVIEW OF THE IMF
Mandate
The IMF is an independent international organization.
It is a cooperative of 185 member countries, whose
objective is to promote world economic stability and
growth.
1
The member countries are the shareholders
of the cooperative, providing the capital of the IMF
through quota subscriptions (Box 1.1 and the
Appendix). In return, the IMF provides its members
with macroeconomic policy advice, financing in
times of balance of payments need, and technical
assistance and training to improve national economic
management.
The IMF is one of several autonomous organizations
designated by the United Nations (UN) as
“Specialized Agencies,” with which the UN has
established working relationships.
2
The IMF is a
permanent observer at the UN.
The Articles of Agreement that created the IMF and
govern its operations were adopted at the United
Nations Monetary and Financial Conference in
Bretton Woods, New Hampshire, on July 22, 1944,
and entered into force on December 27, 1945.
3

Article I sets out the mandate of the IMF as follows:
• To promote international monetary
cooperation through a permanent institution
which provides the machinery for consultation
and collaboration on international monetary
problems;
• To facilitate the expansion and
balanced growth of international trade, and to
contribute thereby to the promotion and
maintenance of high levels of employment and
real income and to the development of the
productive resources of all members as
primary objectives of economic policy;
• To promote exchange stability, to
maintain orderly exchange arrangements
among members, and to avoid competitive
exchange depreciation;
• To assist in the establishment of a
multilateral system of payments in respect of
current transactions between members and in
the elimination of foreign exchange
restrictions which hamper the growth of world
trade;
• To give confidence to members by
making the general resources of the IMF
temporarily available to them under adequate
safeguards, thus providing them with
opportunity to correct maladjustments in their
balance of payments without resorting to
measures destructive of national or
international prosperity; and
• To shorten the duration and lessen the
degree of disequilibrium in the international
balances of payments of members.
This mandate gives the IMF its unique character as an
international monetary institution, with broad
oversight responsibilities for the orderly functioning
and development of the international monetary and
financial system.
Functions
The IMF pursues the various facets of its mandate in
a number of ways. These are summarized below, and
described more detail in later chapters.
Surveillance over Members’ Economic
Policies
In becoming members of the IMF, countries agree to
pursue economic policies that are consistent with the
objectives of the IMF. The Articles of Agreement
confer on the IMF the legal authority to oversee
compliance by members with this obligation, making
the IMF “the only organization that has a mandate to
examine on a regular basis the economic
circumstances of virtually every country in the
world.”
4

1 OVERVIEW OF THE IMF

22



Financing Temporary Balance of
Payments Needs
The Articles of Agreement enable the IMF to lend to
member countries that have a balance of payments
need to provide temporary respite and enable
countries to put in place orderly corrective measures
and avoid a disorderly adjustment of the external
imbalance. Such lending is usually undertaken in the
context of an economic adjustment program
implemented by the borrowing country to correct the
balance of payments difficulties, which also
safeguards IMF resources. In addition to providing
direct financing to its member countries, the IMF
plays an important catalytic role in helping member
countries to mobilize external financing for their
balance of payments needs.
Combating Poverty in Low-Income
Countries
The IMF provides concessional loans to low-income
member countries to help support these countries’
efforts to eradicate poverty. In this venture, the IMF
works closely with the World Bank and other
development partners. In this area the IMF also plays
a critical catalytic role to mobilize external financing
and donor support for the countries’ balance of
payments and development needs. The IMF also
participates in two international initiatives to provide
debt relief: the Heavily Indebted Poor Countries
(HIPC) Initiative and the Multilateral Debt Relief
Initiative (MDRI).
Mobilizing External Financing
IMF endorsement of a country’s policies serves as an
important catalyst for mobilizing resources from
bilateral and multilateral lenders and donors. They
rely on an IMF endorsement of a country’s economic
policies or might even require a formal IMF-
supported economic program before committing or
disbursing their own resources to that country or
granting debt relief. IMF policy assessments and
recommendations also provide important signals to
investors and financial markets regarding a country’s
economic future, and impact on investor and market
confidence in the economy.
Strengthening the International Monetary
System
The IMF is the central institution in the international
monetary system. It serves as a forum for
consultation and collaboration by members on
international monetary and financial matters, and
works with other multilateral institutions to devise
international rules that would facilitate the prevention
and orderly resolution of international economic
problems.
Increasing the Global Supply of
International Reserves
The IMF is authorized to issue an international
reserve asset called the Special Drawing Right (SDR)
if there is a global need to supplement existing
reserve assets. These allocated SDRs are part of the
net international reserves of members and can be
exchanged for convertible currencies. They are not a
claim on the IMF. The SDR is also the IMF’s unit of
account for all financial transactions with members.
Building Capacity through Technical
Assistance and Training
Technical assistance and training are provided in the
core areas of IMF expertise to help member countries
design economic policies and improve economic
management capabilities, which in turn can help
reduce the risk of policy failures and the countries’
resilience to shocks, and facilitating program design
and implementation. These activities are particularly
important in developing countries, where resources
are scarce and institutions often weak.
Dissemination of Information and
Research
The IMF is a premier source for economic analysis of
its member countries’ economic policies and
statistical information. Information is disseminated
through its numerous economic reports and research
studies on member countries, as well as specialized
statistical publications. The IMF also conducts
research in areas relevant to its mandate and
operations, mainly to improve its economic analysis
and its advice to member countries. The results of
this research are disseminated through books, IMF
and academic journals and working papers,
occasional papers, and the internet.
INTERNATIONAL MONETARY FUND

3


Medium-Term Strategy
In light of the economic transformation wrought by
21
st
century globalization, the IMF embarked on a
review of its future direction, publishing the
Managing Director’s Report on Implementing the
Fund’s Medium-Term Strategy (MTS) in April 2006.
The strategy concluded that the emergence of new
economic powers, integrated financial markets,
unprecedented capital flows, and new ideas to
promote economic development required an updated
interpretation of the IMF’s mandate as the steward of
international financial cooperation and stability.
Without new focus and carefully chosen priorities,
the institution risked being pulled in too many
directions and losing its relevance to large parts of the
membership.
The proposals put forward in the MTS cover the
following issues:
• New directions in surveillance. The
difficulties in tackling unprecedented global
imbalances, and the challenges facing
individual countries, underscore the need for
stronger exercise of surveillance by the IMF.
At the global level, the MTS calls for efforts to
identify—and promote effective responses
to—risks to economic stability, including from
payments imbalances, currency
misalignments, and financial market
disturbances. At the country level, the MTS
calls for efforts to choosing focus and
effectiveness over comprehensiveness, with
deeper analysis of financial systems, a greater
multilateral perspective to surveillance, and
more regional context and outreach.
5
In this
context, discussions are ongoing about the
introduction of a new surveillance remit—
understood as a statement of objectives,
priorities, and responsibilities—to strengthen
the effectiveness of surveillance.
6

• The changing role of the IMF in
emerging market countries. In the many
countries that have already emerged to become
major global players, the MTS calls for efforts
to augment candid and focused
macroeconomic analysis with enhanced
surveillance over financial and capital
markets. At the same time, the MTS calls for
efforts to improve crisis prevention and
response.
• More effective engagement in low-
income countries. The MTS calls for efforts to
marshal the expected rise in aid flows,
including from debt relief, to achieve higher
growth and the Millennium Development
Goals. Helping countries do so requires a
deeper but more focused engagement by the
IMF, including new understandings with the
World Bank and other agencies on the division
of labor.
• Governance. Quota and voice reform
is central to the legitimacy and effectiveness of
the IMF. During the 2006 Singapore Annual
Meetings, a two-year package was initiated
with, as a first step, an ad-hoc increase in
quotas for four countries. The MTS calls for
efforts to address other aspects of governance,
including transparent selection of management
and better definition of the role of the Board.
• Capacity building. The MTS calls for
targeted efforts in this area to help members
implement reforms. Capacity building also
needs to be part of the strategy to address
vulnerabilities identified in surveillance. The
IMF’s efforts to build macroeconomic
institutions can be strengthened with better
prioritization and country ownership.
• Streamlining. The MTS calls for
action to control procedure and
documentation, lest the work, messages, and
governance of the institution are lost in a sea
of paper, and to enable management and the
Board to shift attention from routine and detail
to broader, strategic issues.
• Medium-term budget. The MTS calls
for these efforts to be reconciled within a
medium-term budget that deals with the
projected fall in the IMF’s income. But even
with a decline in real spending, the MTS notes
that a new business model is needed to finance
IMF activity in the future, with less reliance on
margins from lending and more on steady,
long-term sources of income.
A number of initiatives derived from the MTS have
already been put in place or are near-completion.
These include the ad-hoc changes in the quotas of
four member countries or initiatives such as the
streamlining of consultations.
Origins of the IMF
The origin of the IMF lies in the experience of
countries during the inter-war period, including the
1 OVERVIEW OF THE IMF

44



Great Depression. In the 1920s and 1930s, many
countries attempted to maintain domestic income in
the face of shrinking markets through competitive
devaluation of their currencies and resort to exchange
and trade restrictions. Such measures could achieve
their objectives only by aggravating the difficulties of
trading partners who, in self-defense, were led to
adopt similar policies, leading to a destructive vicious
cycle. There was growing recognition of the largely
self-defeating nature of these policies at the country
level and the increasing global welfare losses,
resulting in a widening acceptance of the need for a
globally agreed code of conduct in international trade
and financial matters.
It was in this context that representatives of 45
countries reached an agreement in Bretton Woods,
New Hampshire during July 1-22, 1944, on the
constitution and functions of an international
institution to supervise and promote an open and
stable international monetary system.
7
The IMF came
into existence on December 27, 1945, when
29 countries signed the Articles of Agreement.
8
The
inaugural meeting of the Board of Governors was
convened in Savannah, Georgia, on March 8, 1946,
and the first meeting of the Executive Board was held
in Washington, D.C. on May 6, 1946. The IMF began
its operations on March 1, 1947, and France became
the first country to draw funds from the IMF in May
1947.
Size and Membership
Since its inception, the IMF’s size and structure,
responsibilities and priorities, and mode of operations
have undergone considerable expansion or
transformation in response to changes in the world
economic environment. To continue to fulfill its core
mandate as set out in the Articles of Agreement, the
IMF has continuously adapted to meet new
challenges in the evolving world economy.
*
In this
context, it is important to bear in mind that this
Handbook presents a snapshot of the IMF today, and
today’s IMF is the product of historical forces that
will continue to evolve and to shape the future of the

*
A substantive account of the historical evolution
of the IMF in response to the changing global
economic needs can be found in some of the
sources cited in endnote 1.
institution. Its present governance and organizational
structures are described in more detail in Chapter 10.
Since 1945, membership has expanded steadily to
include nearly all countries in the world today.
Eligibility for membership is based on three basic
requirements: the applicant must be a country; it must
be in control of its foreign affairs; and it must be
willing and able to fulfill the obligations of
membership. Informal inquiries and discussions
usually precede the formal membership process,
while the operational procedure of the formal
membership process is: (i) an application is submitted
to the Managing Director; (ii) the Executive Board
decides whether to proceed with a formal
investigation of an application for membership; (iii) a
staff membership mission produces a report that
contains quota recommendations; (iv) an ad hoc
membership committee considers the staff report to
determine the terms and conditions of membership
and the quota; (v) the chairman of the ad hoc
committee ascertains whether the proposed terms and
conditions and quota are acceptable to the applicant;
(vi) the Executive Board considers the ad hoc
committee's report, and, if the recommendations are
acceptable, the draft membership resolution is
submitted to the Board of Governors for adoption;
and (vii) the Board of Governors may adopt a
membership resolution with a simple majority,
provided the requisite quorum is achieved.
Members also have the right to withdraw from the
IMF at any time by transmitting a notice in writing to
the IMF. Article XXVI also makes provision for the
compulsory withdrawal of a member that fails to
fulfill its obligations under the Articles of Agreement,
and sets out a procedure for compulsory withdrawal.
However, compulsory withdrawal is a last resort and
the member is given ample opportunities to correct its
policies and fulfill its obligations to the IMF.
The size of the IMF is often also viewed in terms of
the total quota of all its members. In nominal (SDR)
terms, the total quota has expanded significantly over
time, reflecting the growth in membership, in the size
of the world economy, and in the financing needs of
the membership (Box 1 and Appendix). However, the
total quota has been declining relative to world GDP.
Staff
As the membership has expanded, so has the size and
diversity of the staff of the IMF. In September 1946,
about 100 staff members from 15 countries worked in
INTERNATIONAL MONETARY FUND

5


five Divisions: a Research Division, an Operations
Division, a Legal Division, the Secretary’s Office,
and an Administrative Services Unit. At end-2006
there were about 2,800 staff members, from more
than two-thirds of the member countries, and a much
more elaborate organizational structure, as described
in Chapter 10.
The IMF staff comprises mainly economists, but also
includes financial specialists, accountants,
statisticians, lawyers, linguists, writers, editors, and
support personnel. Most staff members work at the
IMF’s headquarters in Washington, D.C., USA. The
IMF currently maintains small offices in Paris,
Brussels, Geneva, and Tokyo, and at the United
Nations in New York. In addition, the IMF has
resident representative offices in many member
countries and a number of regional technical
assistance and training centers.
The Articles of Agreement state that the IMF staff
should be of the highest caliber in terms of standards
of efficiency and technical competence, while the
appointments should also pay due regard to the
importance of recruiting personnel on as wide a
geographical basis as possible.
9
Furthermore, the
Articles of Agreement indicate that the staff of the
IMF, in the discharge of their functions, shall owe
their duty entirely to the IMF and to no other
authority, and require each member country to
respect the international character of this duty and to
refrain from all attempts to influence any of the staff
in the discharge of their functions. Staff are immune
from legal process with respect to acts performed by
them in their official capacity, except when the IMF
waives this immunity.


1 OVERVIEW OF THE IMF



6


Box 1.1. The IMF’s Quota System
1

Quotas as the Basis of Capital Subscriptions to the IMF. Each member of the IMF is assigned a quota
expressed in special drawing rights (SDRs), the IMF’s unit of account for financial transactions with member
countries. The member’s capital subscription to the IMF is equal to its quota. Members pay up to 25 percent of
their quota in the form of reserve assets and the remainder in their own currency. A member borrows from the
IMF by purchasing reserve assets using its own currency, and repays the IMF by repurchasing its own currency
using reserve assets. The total quota or capital subscription of all members is currently SDR 212.8 billion.
Other Functions of Quotas. Quotas determine the size of the IMF and play a central role in the IMF’s
operations.
• Lending Capacity. Quota subscriptions by members provide by far the bulk of the resources (reserve
assets) available to the IMF to finance its lending operations. Therefore, quotas to a large extent determine the
lending capacity of the IMF.
• Voting Power. Quotas largely determine the distribution of the voting power of the IMF and, therefore,
the relative influence of individual members in decision-making at the IMF.
• Access Limits. The limit of members’ access to IMF resources is stated as a percent of quota, so that
quotas in principle determine the maximum level of a country’s access. These access limits vary according to the
type of borrowing arrangement between the member and the IMF. For example, under the credit tranches and the
Extended Fund Facility, borrowing is subject to an annual limit of 100 percent of quota and a cumulative limit of
300 percent of quota.
• SDR Allocations. Quotas determine a member’s share in a general allocation of Special Drawing Rights.
How Quotas Are Determined. The Board of Governors determines the aggregate quota and the distribution of
this aggregate among the individual member countries. The aggregate quota is set taking into account the IMF’s
capacity to satisfy the projected financing needs of the membership, while individual quotas are based broadly on
members’ relative economic sizes in the world economy. The IMF normally conducts general quota reviews every
five years with a view to adjusting, if necessary, the aggregate size and distribution of members’ quotas to reflect
developments in the world economy and changes in members’ relative economic sizes. Quota reviews have
focused on the role and size of the IMF; the adequacy of IMF resources and the need for a possible quota
increase; the distribution of quotas, including possible changes to quota formulas; and governance and
representation. The IMF may also undertake ad hoc quota adjustments at the request of individual members, both
within and outside the context of a general review, although significant adjustments in quota shares have tended to
take place in the context of general quota increases. The twelfth general review of quotas was concluded in
January 2003 with no change in quotas. An 85 percent majority of the total voting power of the Board of
Governors is required for any change of quotas.
Quota Formulas. Quota formulas exist to calculate the quotas of member countries. Five quota formulas are
currently used for this purpose, incorporating variables that measure the economic size, external position,
openness to trade, and variability of export earnings of member countries. In principle, calculated quotas help
guide decisions regarding the aggregate size and distribution of members’ actual quotas. In practice, the IMF has
tended to distribute the bulk of quota increases as a uniform percentage of existing quotas, with the result that
actual quotas of individual members differ significantly from the calculated quotas. The quota formulas have not
produced quota shares that would be considered acceptable to the IMF’s membership, in part because of the
politically-sensitive nature of quota shares and perceived deficiencies of the formulas themselves. The formulas
are currently being reviewed with a view to simplifying and updating them.
______________
1
See Articles of Agreement; IMF, Financial Organization and Operations of the IMF, Pamphlet Series No.
45, sixth edition, 2001.


7


CHAPTER 2
SURVEILLANCE OVER MEMBERS’ ECONOMIC POLICIES
Surveillance in the Articles of
Agreement
The Articles of Agreement set out the obligations of
member countries and the IMF, which form the legal
basis of IMF surveillance over members’ economic
policies.
10
The core article in this respect is Article
IV of the IMF’s Articles of Agreement. The
principles and procedures of surveillance were set out
in further detail in a 1977 Executive Board Decision,
which established how surveillance would be
conducted after the adoption of the Second
Amendment to the Articles.
*

Article IV of the IMF’s Articles of
Agreement
Article IV is the core article outlining the members’
and the IMF’s responsibilities in surveillance.
Section 1 requires member countries to pursue
economic policies consistent with the IMF’s purpose,
and stipulates that “each member undertakes to
collaborate with the Fund and other members to
assure orderly exchange arrangements and to promote
a stable system of exchange rates.” In addition to this
general undertaking to collaborate with the IMF and
other members, Section 1 identifies four specific
obligations for members. Each member is required to:
• Endeavor to direct its economic and
financial policies toward the objective of
fostering orderly economic growth with
reasonable price stability.
• Seek to promote stability by fostering
orderly underlying economic and financial
conditions and a monetary system that does
not tend to produce erratic disruptions.

*
The implementation of the IMF’s surveillance
and of the 1977 decision on surveillance is
reviewed on a triennial basis by the Executive
Board.
• Avoid manipulating exchange rates or
the international monetary system in order to
prevent effective balance of payments
adjustment or to gain an unfair competitive
advantage over other members.
• Follow exchange policies compatible
with the undertakings of Article IV, Section 1.
Section 2 allows members to set the exchange rate
arrangements of their choice, with the exception of
arrangements that would set gold as a value
denominator. It requires members to notify the IMF
promptly of these arrangements and any changes to
them.
Section 3 (a) empowers the IMF to “oversee the
international monetary system in order to ensure its
effective operation” and to “oversee the compliance
of each member with its obligations under Section 1
of this Article.”
Section 3 (b) states that, in order to fulfill its
functions under Section 3 (a), the IMF “shall exercise
firm surveillance over the exchange rate policies of
members, and shall adopt specific principles for the
guidance of all members with respect to those
policies.” Furthermore, “Each member shall provide
the Fund with the information necessary for such
surveillance, and, when requested by the Fund, shall
consult with it on the member’s exchange rate
policies.”
The 1977 Decision on Surveillance over Exchange
Rate Policies adopted principles for the guidance of
members on their exchange rate policies, and
principles of IMF surveillance providing guidance to
the IMF in monitoring the observance by members of
these principles through the specification of
indicators.
The IMF relies upon the information provided by the
members to conduct its surveillance under Article IV.
In this context, Article VIII, Section 5 of the IMF’s
Articles of Agreement stipulates that the IMF may
require members to furnish it with information as it
deems necessary for its activities (including
surveillance), and specifies a list of data that the IMF
deems the minimum necessary to conduct its duties.
1 OVERVIEW OF THE IMF

88



The list includes data relating to the central
government, the balance of payments, external
reserves, exchange controls, the international
investment position, national accounts, prices, the
central bank, and the banking system.
11

The term “surveillance” refers to bilateral
surveillance that is conducted pursuant to Article IV
and is mandatory for all members. Some activities
associated with surveillance, such as the multilateral
surveillance exercises initiated in 2006, the Financial
Sector Assessment Program (FSAP), and the work on
standards and codes, are voluntary arrangements
between member countries and the IMF (see Chapter
7). These activities are not mandatory for countries
and have been developed in recent years to strengthen
surveillance. Nevertheless, they are often included
under the general term of “surveillance”—for
example, the FSAP is referred to as “financial sector
surveillance.” For this reason, when speaking of
members’ obligations under the Articles of
Agreement, surveillance is usually referred to as
“Article IV surveillance.”
Articles VIII and XIV of the IMF’s Articles
of Agreement
The IMF, within the context of an Article IV
consultation, often addresses issues that fall outside
the scope of surveillance entirely and are beyond its
oversight of a member’s compliance with the
obligations specified under Article IV, Section 1. For
example, as explained in the section on modalities of
surveillance, the IMF uses the occasion of an Article
IV consultation to consult with members with respect
to the retention of exchange restrictions under
Articles VIII and XIV. These Article VIII and XIV
consultations are “comprehended” by the Article IV
consultation but they do not form part of the Article
IV consultation. They are legally different from the
IMF surveillance activities and serve different
purposes.
Article VIII, Sections 2, 3, and 4, provides the legal
basis for the member countries’ obligations to
maintain currency convertibility and exchange
regimes free of restrictions or discriminatory
practices, and to provide adequate information.
• Section 2 prohibits members from
imposing restrictions on the making of
payments and transfers for current
international transactions without the approval
of the IMF. The IMF will only approve
restrictions if it is satisfied that they are
necessary for balance of payments purposes,
and that their use will be temporary, and that
they are not discriminatory, while the member
is seeking to eliminate the need for them.
12



• Section 3 prohibits members from
engaging in any discriminatory currency
arrangements or multiple currency practices
except as authorized under the Articles of
Agreement or approved by the IMF. Members
maintaining such arrangements or practices are
expected to consult with the IMF as to their
progressive removal, unless they are
maintained or imposed under the Article XIV,
Section 2.
• Section 4 requires members to
maintain the convertibility of their currency,
by buying balances of their currency held by
other members when requested by these other
members.
Article XIV provides transitional arrangements for
countries that have not yet accepted the obligations
under Article VIII.
• Section 1 requires members to notify
the IMF upon joining whether they intend to
avail themselves of the transitional
arrangements in Section 2 of this Article, or
whether they are prepared to accept the
obligations of Article VIII, Sections 2, 3,
and 4.
• Section 2 permits members to maintain
and adapt to changing circumstances the
restrictions on payments and transfers for
current international transactions that were in
effect on the date on which they became
members. However, members are expected to
withdraw restrictions maintained under this
Section, and to accept the obligations under
Article VIII, Sections 2, 3, and 4, as soon as
balance of payments conditions permit.
• Section 3 stipulates that the IMF shall
make annual reports on the restrictions in force
under Section 2 of this Article. Any member
retaining any restrictions inconsistent with
Article VIII, Sections 2, 3, and 4 is required to
consult annually with the IMF as to their
further retention.
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Characteristics of Surveillance
Universality
Bilateral surveillance under Article IV is mandatory
for all member countries. Furthermore, according to
the 1977 surveillance decision, the principles and
procedures that guide surveillance apply “to all
member countries whatever their exchange
arrangements and whatever their balance of payments
position.”
13
Surveillance consultations are held
routinely with every IMF member country,
irrespective of their level of development or the
strength or weakness of their economic policies.
Uniformity of Treatment
The Executive Board has at various times stressed the
importance of maintaining the uniformity of
treatment of member countries.
14
This principle
applies to all IMF activities, and not just to the
conduct of surveillance. It requires that members in
similar circumstances be treated similarly.
Flexibility
Article 3 (b) states that surveillance principles “shall
respect the domestic social and political policies of
members, and in applying these principles the Fund
shall pay due regard to the circumstances of
members.” The 1977 Decision on Surveillance over
Exchange Rate policies also provides that the
surveillance of exchange rate policies shall be
adapted to the needs of international adjustment as
they develop, while the 2002 biennial review
reiterated its support for flexibility in surveillance
procedures, emphasizing that coverage of
surveillance should be molded to country-specific
circumstances.
15

Flexibility is applied in two ways. First, there have
been changes in the breadth, depth, and intensity of
surveillance over the years in response to new
challenges and demands in the global economy, to
new research findings on relevant policy issues, and
to the need to better manage staff and Executive
Board resources. Second, the conduct of surveillance
varies with individual country circumstances—for
example, with respect to timing, frequency, and focus
of consultations with members.
Cooperation
Although the conduct of bilateral surveillance is an
obligation for both the IMF and the members, the
IMF seeks to work in a cooperative spirit with
member countries, based on mutual trust and
confidence. The Executive Board has repeatedly
expressed strong support for the cooperative
approaches underlying the IMF’s relations with
members.
16
The IMF recognizes that the success of
surveillance depends in part on the extent to which
member countries implement its advice, and that
implementation will be more likely if members
“own” the policies that IMF staff recommend. Thus it
emphasizes, among other things, effective
communication and close policy dialogue with
countries, including with legislative bodies, in order
to enhance ownership. In addition, some of the IMF’s
monitoring activities, such as the financial sector
assessment program and the work on standards and
codes, rely on the voluntary participation of
members.
Candor
The effectiveness of surveillance depends crucially,
among other things, on sound policy advice based on
accurate analysis of a country’s economic problems
and challenges. The IMF recognizes that the quality
of its analysis and advice depends in part on complete
frankness by IMF staff in the surveillance exercise.
At the 2002 biennial review, the Executive Board
stressed the importance of candid staff reports and
summings up to convey clear and strong messages to
member governments on required policy actions.
During the discussion of the IMF’s transparency
policy in June 2005 the Board again emphasized that
candor in the IMF’s dialogue with members and in
reporting to the Board remains essential for effective
surveillance.
17
Also, the Board stressed in 2004 that a
thorough and candid discussion of exchange rate
issues remains critical for surveillance.
18
However,
under the IMF’s policy for deletions and corrections,
market-sensitive information in staff reports may be
deleted prior to publication of the reports, at the
request of the member country.
Comprehensiveness
Comprehensiveness is understood to mean coverage
of all policies that are relevant for macroeconomic
performance. The 1977 surveillance decision states:
“The Fund’s appraisal of a member’s exchange rate
policies shall ... be made within the framework of a
1 OVERVIEW OF THE IMF

1010



comprehensive analysis of the general economic
situation and economic policy strategy of the
member... .” This statement reflects the
understanding that exchange rate developments are
closely linked to the broad policy regime of the
country.
Over the years, the scope of surveillance has
expanded from a relatively narrow focus on fiscal,
monetary, and exchange rate policies to a broader
purview encompassing external vulnerability
assessments, external debt sustainability analyses,
and financial sector vulnerabilities, which have an
impact on macroeconomic conditions. The increased
focus on these issues was particularly noticeable after
the Asian crises of the mid-1990s, when the IMF
stepped up its crisis prevention efforts. This broader
coverage constitutes a necessary and positive
adaptation of surveillance to a changing global
environment—most notably to the rapid expansion of
international capital flows—and to the recognition
that structural factors are important determinants of
economic performance. At the same time, the IMF
has reduced the scope of surveillance by limiting the
analysis of other structural and institutional policies
that could have an impact on macroeconomic
conditions.
The IMF does not always have the expertise or
experience necessary to cover all issues that may at
times be critical to a country’s macroeconomic
stability. On such issues, the IMF would normally
draw on the expertise of other institutions, such as the
World Bank, regional development banks, or
specialized agencies.
Focus
A careful balance needs to be maintained between
comprehensiveness and focus. This is done first by
ensuring that coverage is adapted to country-specific
circumstances. Also, there are two closely-related
criteria to guide the selection of issues to be covered
in the Fund’s consultations with member countries:
macroeconomic relevance and the IMF’s hierarchy of
surveillance concerns:
• Macroeconomic relevance. The
macroeconomic relevance criterion is that
policy issues should be covered in surveillance
discussions only when they have a sizeable
influence on macroeconomic developments.
• Hierarchy of surveillance concerns.
Within the range of macroeconomically-
relevant issues, there is a hierarchy of
surveillance concerns. Matters that would be
given prominent attention are: external
sustainability; vulnerability to balance of
payments or currency crises; sustainable
economic growth with price stability; and, for
systemically-important countries, conditions
and policies affecting the global or regional
economic outlook.
19

Modalities of Surveillance
IMF surveillance takes three forms: bilateral,
regional, and multilateral. Bilateral surveillance
traditionally has been one of the core surveillance
activities. However, regional and multilateral
surveillance have assumed greater importance in
recent years, as the need for more systematic
treatment of contagion and cross-country themes in
bilateral surveillance became obvious following the
Mexican crisis. This has been accompanied by more
reporting to the Executive Board on regional and
multilateral developments as the backdrop for
bilateral consultations. Regional and multilateral
surveillance help strengthen the effectiveness of the
IMF’s bilateral surveillance.
Bilateral Surveillance
Article IV Consultations
Article IV consultations are the principal tool of
bilateral surveillance. They involve bilateral
discussions between the IMF and individual member
countries. They begin with a mission of IMF staff to
the country to gather information and conduct
discussions with country officials. Missions normally
last two to three weeks and discussions are held
primarily with government officials. The mission also
tries to meet with representatives from the private
sector, labor unions, non-government organizations,
regional organizations, or academia. The objective is
for the staff to gain as wide a perspective as possible
on the country’s economic situation and
vulnerabilities.
At the end of the mission, final discussions are held
with the authorities to present the missions’
preliminary findings on developments,
vulnerabilities, outlooks, and recommendations. A
INTERNATIONAL MONETARY FUND

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member of the Executive Director’s office would
normally attend these discussions. The staff might
also leave with the authorities a statement
summarizing its findings. Upon return to
headquarters, the staff writes a report setting out
recent developments, the policy discussions, the
short- and medium-term outlook, and the staff’s
appraisal of the country’s economic situation and the
authorities’ policy stance.
The staff report, supplemented by a “buff” statement
by the Executive Director to amplify the country’s
perspective on the issues involved, forms the basis for
an Executive Board discussion.
*
This discussion
normally takes within place 65 days of the mission’s
return to headquarters (or three months for members
eligible for the Poverty Reduction and Growth
Facility).
20

The Executive Director representing the country
takes an important part in the Board discussion,
clarifying points about the country's economy and its
policies as necessary. The Board discussion
concludes the Article IV consultation and initiates the
next consultation cycle (Box 2.1). The summing up
of the Board discussion is transmitted to the country’s
authorities and, if the authorities agree, is published
in a Public Information Notice (PIN).
Article XIV and Article VIII Consultations
The IMF conducts annual consultations with
countries that maintain exchange restrictions under
the transitional arrangements under Article XIV of
the Articles of Agreement as to their further retention.
Members are strongly encouraged to accept the
obligations of Article VIII, Sections 2, 3, and 4 when
the exchange restrictions are deemed to be no longer
justified. However, before members notify the IMF
that they are accepting the obligations of Article VIII,
Sections 2, 3, and 4 it is desirable that they eliminate
the exchange measures which would require the
approval of the IMF under Article VIII, Section 2 (a)
and 3, and that they satisfy themselves that they are
not likely to need recourse to such measures in the
foreseeable future.

*
The term “buff” derives from the distribution of
these statements on buff or similarly colored paper.
Statements by other Executive Directors are called
“gray” statements for a similar reason, although
these statements are now distributed electronically.
As noted earlier, Article XIV and Article VIII
consultations are normally “comprehended” in
Article IV consultations. Staff findings and
recommendations regarding restrictions maintained
under Article XIV and subject to Article VIII
Sections 2 and 3 are set out in the staff report for the
Article IV consultation, and the consultations are
normally concluded together with the Article IV
consultation. However, Article XIV consultations are
required to be concluded every 12 months. Thus, in
the event that the Article IV consultation is to be
concluded beyond the 12 month period, the Article
XIV (and Article VIII consultations) must be
concluded independently. This is normally done by
the Executive Board on a lapse-of-time basis.
Multilateral Surveillance
Multilateral surveillance plays an important role in
the IMF’s efforts to strengthen surveillance, by
detecting and heightening awareness of systemic
risks and inter-dependencies in the global economy.
It reviews developments in the global economy and
financial markets and the outlook, highlighting the
spillover effects of policy changes in systemically-
important countries. As part of its multilateral
surveillance efforts, the IMF is working to strengthen
its effectiveness as a global forum for discussion of
economic inter-linkages among countries.

1 OVERVIEW OF THE IMF



12



Box 2.1. Article IV Consultation Cycles
The Standard 12-Month Consultation Cycle
The standard Article IV consultation cycle is one year. This means that Board conclusion of the
consultation must normally take place within one year of the date of conclusion of the last consultation,
though there is a grace period of three months. Delays beyond the 15-month period must be approved by
the Board. Such approvals are granted based on staff justification of the delay.
Non-program countries are expected to be on the 12-month consultation cycle if they satisfy one or more
of the following criteria: (i) they are of systemic or regional importance; (ii) they have completed an IMF
arrangement in the past year; (iii) they have outstanding IMF credit above 25 percent of quota; and (iv)
they are potentially subject to risk because of policy imbalances or exogenous developments, or they have
pressing policy issues of broad interest to the IMF membership. However, the Executive Board,
recognizing the need for flexibility in the context of strains on staff resources, has allowed for longer
consultation cycles, not exceeding 24 months, for non-program countries that do not satisfy these criteria.
Countries have to agree to move to a longer consultation cycle, and there may be interim staff visits.
Consultation Cycle for Program Countries
Member countries receiving financial assistance under an IMF arrangement or member countries
benefiting from a Policy Support Instrument (PSI) move automatically to a 24-month consultation cycle.
This is done to reduce the strain on staff resources, and in recognition that the Board is kept routinely
informed of developments in program countries through periodic program reviews. However, the
consultation cycle is shortened under the following circumstances:
• Where the most recent Article IV consultation was concluded 6 months or more before the date of
approval of an arrangement or PSI, the next Article IV consultation should be completed within (i)
6 months of the date of approval of the arrangement or PSI, or (ii) 12 months, plus a grace period
of three months, of the date of completion of the previous Article IV consultation, whichever is
later.
• Where a program review is delayed, the next Article IV consultation should be completed within
(i) 6 months of the original date of completion of the review, or (ii) 12 months, plus a grace period
of three months, of the date of completion of the previous Article IV consultation, whichever is
later. However, if the review is completed before the later of these two dates, the next Article IV
consultation should be completed within 24 months of the date of completion of the previous
Article IV consultation.
Upon the expiration or cancellation of an arrangement or termination of a PSI, the next Article IV
consultation should be concluded within (i) 6 months of the date of expiration, cancellation, or
termination, or (ii) 12 months, plus a grace period of three months, of the date of completion of the
previous Article IV consultation, whichever is later, but not more than 24 months after the completion of
the previous Article IV consultation, after which the country reverts to the standard 12-month consultation
cycle.
The 24- Months Consultation Cycle for Non-Program Countries
Non-program countries can be on a 24-month consultation cycle if they satisfy the following criteria: (i)
they are not of systemic or regional importance; (ii) they have not completed an IMF-supported
arrangement in the past year; (iii) they have outstanding IMF credit under 25 percent of quota; and (iv)
they are not potentially subject to risk because of policy imbalances or exogenous developments, or they
do not have pressing policy issues of broad interest to the IMF membership. Countries have to agree to
move to a longer consultation cycle, and there may be interim staff visits.

INTERNATIONAL MONETARY FUND

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Multilateral consultations, the World Economic
Outlook report, the global financial market
surveillance reports, and the Annual Review of
Exchange Arrangements and Exchange Restrictions
(AREAER) are key instruments for multilateral
surveillance:
• Multilateral consultation. This form
of consultation was introduced in 2006 as part
of the IMF’s Medium-Term Strategy and is
expected to take a more defined role over
time.
21
Each multilateral consultation is
intended to focus on a specific international
economic or financial issue and directly
involves selected countries that are a major
party to that issue. The consultation aims at
facilitating a policy dialogue among members
when a collaborative solution may be required.
Focusing on cooperative action, the
multilateral consultation is complementary to
the bilateral Article IV consultations. These
consultations do not oversee members’
compliance with their obligations under
Article IV, and the staff discusses issues of
multilateral surveillance with the key parties
both individually and jointly. The associated
staff report is discussed by the Executive
Board and by the IMFC.
• World Economic Outlook (WEO).
This report is the primary vehicle for
surveillance of global economic developments
and prospects. It is prepared and published
twice-yearly by the Research Department, in
the spring and autumn, as background
information for the meetings of the IMFC, but
on occasion is produced more frequently when
rapid changes in the world economy warrant.
Its preparation is a cooperative effort with
other departments, particularly the area
departments. The WEO report offers a
comprehensive analysis of prospects and
policies for the world economy, major regions,
and individual countries, including forecasts of
global macroeconomic variables and
commodity price trends. Each report also
contains staff studies of topical issues relevant
to the global economy. WEO report forecasts
are based on country-by-country forecasts
from area departments and also constitute an
important input into the work of the area
departments.
• Global Financial Stability Report
(GFSR): This is the main instrument of global
financial market surveillance. The GFSR is
prepared and published semi-annually,
providing timely and comprehensive coverage
of both mature and emerging financial
markets. Its main objectives are to identify
potential vulnerabilities in the international
financial system from a multilateral
perspective and to analyze linkages between
developments in mature financial centers and
capital flows to emerging markets. Through
the Capital Markets Consultative Group, the
staff maintains a dialogue with representatives
of internationally-active private financial
institutions on issues such as the development
of investor relations programs or the
promotion of standards and codes.
The WEO and GFSR reports are supplemented with
regular informal Board sessions on world economic
and market developments (WEMD) and financial
market updates. These sessions typically provide an
update on recent developments, the near-term
outlook, and policy implications.
22

• Annual Review of Exchange
Arrangements and Exchange Restrictions
(AREAER). This is prepared in consultation
with national authorities on the basis of data
they provide. The publication includes
information on the exchange rate and foreign
trade regimes, and exchange controls of
countries. In addition, the biannual review of
exchange arrangements and exchange
restrictions, which is based on the AREAER
data, provides analysis of the latest
developments and trends in exchange rate
regimes and exchange controls on both current
international and capital account transactions.
Regional Surveillance
Surveillance is also undertaken of regional
developments and policies pursued by supra-national
authorities. It complements bilateral Article IV
consultation discussions with individual member
countries by providing a regional dimension to
country policy issues, and there is increasing
integration of the two. Regional surveillance is
particularly relevant for members of currency unions,
for which policies in key areas of IMF surveillance
are determined at the regional level. Discussions with
regional authorities are coordinated with Article IV
discussions with country officials, while staff reports
on the regional discussions are considered by the
2 SURVEILLANCE OVER MEMBERS’ ECONOMIC POLICIES

1414



Executive Board separately or together with the
Article IV reports.
Formal procedures exist for conducting surveillance
over the monetary and exchange rate policies of the
euro area, reflecting the systemic importance of the
region.
23
These involve twice-yearly discussions with
EU institutions responsible for common policies in
the euro area. Such discussions are held separately
from the discussions with individual countries, but
are considered an integral part of the Article IV
surveillance for individual countries. The discussions
with individual euro area countries are clustered as
much as possible around the regional discussions,
which cover monetary and exchange rate policies as
well as, from a regional perspective, other economic
policies relevant for IMF surveillance. There is an
annual staff report and Executive Board discussion on
euro area policies in the context of the Article IV
consultations with member countries. A summing up
of the Board discussion is produced, which is cross-
referenced in the summings up for the bilateral
Article IV consultations with individual euro-area
countries and, if relevant, in the bilateral
consultations with EU member countries that are not
part of the euro area.
Formal discussions at the regional level are also held
with the three other currency unions—the West
African Economic and Monetary Union (WAEMU),
the Central African Economic and Monetary
Community (CEMAC), and the East Caribbean
Currency Union (ECCU)—in addition to the bilateral
consultations with the member countries of these
groups. A formal regional surveillance procedure has
been established for these discussions, similar to that
for the euro area. Annual regional reports are
prepared by the staff and discussed by the Executive
Board, and a summing up of the Board discussion is
produced. The coverage of regional discussions with
these currency unions is broadly comparable to that
of the euro area.
24

Regional surveillance outside the currency unions
encompasses the regular regional outlook documents
and other notes, the maintenance of a dialogue with
various regional fora, and research on regional issues.
Most of these activities are conducted informally.
The results feed into IMF’s bilateral surveillance
through information sharing, strengthened policy
analysis, and enhanced policy outreach. In Asia, in
addition to the regional office in Tokyo, the IMF has
been designated as the technical secretariat of the
Manila Framework Group that was established
specifically to undertake macroeconomic
surveillance. The IMF also maintains dialogues with
the Association of South East Asian Nations
(ASEAN) and the Gulf Cooperation Council (GCC).
Strengthening Surveillance to
Prevent Financial Crises
As noted above, external sustainability and
vulnerability to balance of payments or currency
crises constitute the zenith of the IMF’s surveillance
concerns. In recent years the IMF has strengthened its
surveillance efforts to deal with these concerns. A
number of initiatives have been taken to enhance the
effectiveness of bilateral surveillance and crisis
prevention. These initiatives include external
vulnerability assessments, strengthening financial
sector surveillance (including the Financial Sector
Assessment Program, combating money laundering
and terrorism financing, and offshore financial center
assessments), improving data provision to the IMF,
and re-examining surveillance in program countries,
all of which are discussed in the remainder of this
section. The increased emphasis on regional and
multilateral surveillance to monitor and analyze
cross-border transmission of macroeconomic risks is
part of these efforts. Other initiatives, including those
to strengthen international standards and codes, are
explained in Chapter 7. Ongoing efforts to strengthen
and focus surveillance will be put in place within the
framework of the IMF’s Medium-Term Strategy.
External Vulnerability Assessments
The IMF has incorporated vulnerability assessments
in its surveillance work, and the use of vulnerability
scenarios and indicators—such as external debt and
reserve adequacy indicators—is now common in
Article IV staff reports.
25
Much of this effort relates
to the assessment of countries’ vulnerability to
changes in external circumstances and, in particular,
to capital market conditions. A prime objective is to
forestall crises by recommending policies that reduce
vulnerabilities and strengthen the economies’
resilience to shocks.
External Vulnerability Assessment Framework
for Emerging Market Economies
Vulnerability assessments are routinely conducted
under the normal surveillance work of the IMF.
However, special attention is placed on the external
INTERNATIONAL MONETARY FUND

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vulnerability of emerging market economies, given
their high sensitivity to changes in global capital
market conditions. In May 2001, a new framework
was set up for bringing together staff’s assessments
of vulnerabilities in these countries. It entails semi-
annual inter-departmental exercises to identify
underlying vulnerabilities and crisis risks drawing on
quantitative vulnerability indicators, qualitative staff
assessments, market information, and analyses of
different scenarios for the global economic and
financial market environment. Countries identified as
vulnerable are kept under continuous surveillance.
Reports on the results of these exercises are sent to
Management and department heads. The Executive
Board is kept informed through the informal country
matters sessions, routine bilateral and multilateral
surveillance reports, and ad hoc reports in times of
particular turbulence.
Vulnerability assessments combine traditional flow
indicators with indicators of balance sheet
vulnerabilities, drawing on analyses of international
liquidity or reserve adequacy, the fiscal position and
the size and composition of debt and its
sustainability, and financial soundness indicators.
26

The Balance Sheet Approach
The balance sheet approach focuses on an analysis of
the country’s aggregate and sectoral balance sheets to
determine balance sheet exposure to shocks. The key
sectoral balance sheets analyzed are those of the
government, financial, household, and corporate
sectors, with attention being placed on the
composition of assets and liabilities and the inter-
linkages among the sectoral balance sheets. The
analysis focuses on four potential sources of balance
sheet risks:
27
(i) maturity mismatches (differences in
the term structure of assets and liabilities), which
result in insufficient liquid assets being available to
cover liabilities falling due in the short term;
(ii) currency mismatches (differences in the currency
composition of assets and liabilities), which lead to
capital losses or gains in the event of a change in the
exchange rate; (iii) capital structure problems
(excessive reliance on debt financing), which leave
firms vulnerable to revenue and interest rate shocks;
and (iv) solvency problems, where assets are
insufficient to cover liabilities. Inter-sectoral linkages
result in spillover of shocks from one sector to other
sectors. Data availability is an important impediment
to a wider usage of balance sheet analysis.
Liquidity Management
The focus here is on assessing the adequacy of a
country’s level of foreign exchange reserves as a
means of determining the country’s ability to
withstand shocks. Measures of reserve adequacy
currently used for this purpose include the ratio of
reserves to short-term debt by remaining maturity,
and to imports of goods and services. They are
complemented by an analysis of, and careful
judgments about, a country’s macroeconomic
conditions and its structural and institutional
characteristics, including its exchange rate regime.
Measures have also been designed to broaden the
analysis of reserve adequacy so as to capture the
country’s ability to withstand a liquidity crisis
stemming from certain kinds of imbalances in the
balance sheets of residents. In addition, attention is
being given to assessing the role of public debt
management and private sector liability management
in improving a country’s public and private sector
balance sheets and reducing the risk of liquidity
crises.
Debt Sustainability Analysis
Debt sustainability assessments (DSAs) form part of
the IMF’s policy analysis in surveillance and program
contexts. While there are central features of the debt
sustainability analysis, a distinction is made between
countries with significant capital market access and
low-income countries. Debt sustainability analysis for
low-income countries is modified to take account of
special characteristics such as reliance on official
financing, the nature of the shocks to which they are
subject, and constraints on the resources necessary to
repay their debts.
Debt sustainability analyses for countries with
significant market access is undertaken mainly for
emerging market countries, but also for industrialized
countries. The analysis has three core elements: a
baseline projection of medium- and long-term debt
sustainability indicators, scenario analysis to
determine the impact of varying the assumptions
about the future trend of key variables, and inferences
about the vulnerability of the country to a crisis. The
analysis is done separately for public debt (external
and domestic) and external debt (public and private),
and the results are used to derive an understanding of
overall debt sustainability.
The framework for debt sustainability analysis for
low-income countries was developed in 2005.
28
Its
primary purpose is to form judgments on appropriate
future borrowing policies taking into account
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country-specific circumstances in setting the debt-
sustainability thresholds, without understanding them
as rigid ceilings. It should also provide the basis for
designing a country-specific borrowing strategy that
is compatible with the country’s prospective
repayment capacity. These DSAs should be prepared
jointly with World Bank staff, and annual joint IMF-
World Bank DSAs are required for all PRGF-eligible,
IDA-only countries. The framework also constitutes
an important addition to the IMF's toolkit to assess
the appropriate balance between adjustment, lending,
grants, and debt restructuring or relief in low-income
countries. The DSA should also enable other
international financial institutions and donors to
establish a coordinated approach to concessionality
and guide the decisions of donors and creditors.
Within the group of low-income countries, debt
sustainability analyses are required for countries that
are actual or potential beneficiaries of the Heavily
Indebted Poor Countries (HIPC) Initiative. The HIPC
Initiative seeks to restore debt sustainability by
providing debt relief. It is not a permanent
mechanism, does not benefit all low-income
countries, uses a single debt-sustainability threshold
for all countries, and supports but does not guarantee
debt sustainability in the future. The 2005 low-
income country DSA provides transitional
arrangements for the use of the new DSA framework
for HIPC cases.
Financial Sector Assessment Program
The financial sector plays a key role in the generation
and transmission of vulnerabilities. The existence of a
wide and diversified set of sound, well-managed
financial institutions and markets reduces the
likelihood and magnitude of a financial crisis. The
IMF launched the Financial Sector Assessment
Program (FSAP) in May 1999, jointly with the World
Bank, on a pilot basis, and the program became a
regular activity of the IMF and the World Bank at
end-2000.
29
The objective of FSAP is to strengthen
countries’ financial sectors through comprehensive,
in-depth assessments to identify their strengths and
vulnerabilities, and their linkages with the real
economy, identify critical development priorities, and
to provide country authorities with appropriate policy
recommendations. These assessments feed into the
Article IV surveillance process, the design of IMF-
supported programs, and IMF technical assistance
activities.
30

Participation in the program is voluntary. A variety of
criteria are used to establish priorities in selecting
countries in the face of limited resources, including a
country’s systemic importance, its external sector
weakness or financial vulnerability, the nature of its
exchange rate or monetary regime, and geographical
balance among countries. Overall, the selection of
countries is such as to help maximize the program’s
contribution to the strengthening of national and
international financial stability.
In addition to their own staff, the IMF and the World
Bank draw on the knowledge of experts from a range
of cooperating central banks, supervisory agencies,
standard setting bodies and other international
institutions in carrying out the assessments. In
addition to augmenting the pool of expertise already
available in the World Bank and the IMF, outside
experts provide a valuable element of peer review to
the analysis undertaken in the FSAP, particularly as
regards the assessments of observance of financial
sector standards and codes, which are an integral part
of the program.
The FSAP provides important input into the Article
IV consultation process. Ideally, FSAP mission work
is completed about three months prior to the Article
IV consultation mission to allow sufficient time for
the draft FSAP findings to be available for discussion
during the Article IV mission, in which FSAP team
leaders usually participate. The FSAP assessments,
combined with discussions of the FSAP findings
during the subsequent Article IV consultation
mission, serve as the basis for a Financial Stability
Assessment (FSSA) report, which emphasizes
stability issues of relevance to surveillance and which
is provided to the Executive Board as part of the
Article IV consultation documentation for a country.
Summary assessments of financial sector standards
prepared in the FSAP are included in the FSSA and
are issued as Reports on the Observance of Standards
and Codes (ROSCs). Publication of the FSSA reports
has occurred in about 70 percent of cases, but this is
voluntary and there is no presumption of publication.
The FSAP uses a number of complementary
analytical tools to establish an overall assessment of
the financial sector. These include financial
soundness indicators and stress testing to identify
risks and vulnerabilities; standards and codes to
assess institutional and regulatory structures;
assessment of the broader financial stability policy
framework to determine the robustness of the
financial sector infrastructure; and assessment of
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systemic liquidity arrangements, the governance and
transparency framework, and financial safety nets and
solvency regimes. Improved prioritization and
streamlining have resulted in assessments that are
better tailored to country circumstances.
Since the inception of FSAP, the program has been
constantly improving. In particular, after the 2003
review of the Executive Board, measures were taken
to ensure more focused assessments that are better
tailored to countries’ circumstances. The 2005 review
streamlined and rationalized the framework for FSAP
updates, which were growing in importance since
more countries had completed their initial
assessments. FSAP updates may be targeted or
comprehensive in cases where there have been
extensive changes since the original FSAP. Typically,
updates are undertaken about five years after the
original FSAP, although the timing is flexible based
on country circumstances. In 2006, the Board
discussed an evaluation of FSAP by the Independent
Evaluation office (IEO) and decided on a number of
improvements, including better presentation of FSAP
to facilitate its integration in the surveillance process,
and strengthening of prioritization procedures.
Financial Soundness Indicators
These are indicators compiled to monitor the
soundness of financial institutions and markets, and
of their corporate and household counterparts. They
are a subset of the broader class of macroprudential
indicators that IMF staff use in macroprudential
surveillance of the financial system. Financial
soundness indicators comprise a core set and an
encouraged set. The core set currently includes only
banking sector indicators, and are given high priority
in financial sector surveillance. The encouraged set
includes additional banking sector indicators as well
as indicators for the corporate and household sectors,
non-bank financial institutions, and financial and real
estate markets. A Compilation Guide on Financial
Soundness Indicators has been published in
collaboration with experts from member countries
and from other international and regional
organizations, to facilitate compilation of the
indicators by national authorities.
Anti-Money Laundering and Combating
the Financing of Terrorism
Since September 2001, the IMF has intensified its
contribution to international efforts in anti-money
laundering and combating the financing of terrorism
(AML/CFT).
31
These efforts seek to prevent the
abuse of financial systems and to protect and enhance
the integrity of the international financial system.
Work on combating money laundering and terrorism
financing was made a regular part of the IMF’s work
in March 2004. It includes technical assistance to
countries to help strengthen their ability to combat
money laundering and terrorism financing. The
IMF’s work in this area is undertaken in close
cooperation with the World Bank, the Financial
Action Task Force (FATF), and FATF-style regional
bodies (FSRBs).
Offshore Financial Center Assessments
The IMF initiated the offshore financial center (OFC)
assessment program in June 2000 on a pilot basis in
response to concerns about potential risks posed to
other financial systems by activities undertaken in
offshore financial centers. The OFC program was
permanently incorporated into its financial sector
surveillance work in November 2003.
32
Participation
in OFC assessments and monitoring is voluntary.
The program has four broad components: regular
jurisdiction-specific monitoring of OFCs' activities
and compliance with supervisory standards, improved
transparency, technical assistance, and collaboration
with standard-setters and supervisors to strengthen
standards and information exchange. Assessments are
closely coordinated with the FSAP to identify
weaknesses in consolidated supervision, but the OFC
program is currently independent of the FSAP, and
members sometimes choose to have an FSAP rather
than an OFC assessment. The program allows for a
step-by-step process of assessment in three modules:
• Module 1 assessments are a self-
assessment of compliance with particular
standards, undertaken by the jurisdiction with
technical assistance as needed to begin the
assessment process.
• Module 2 assesses compliance of
supervisory and regulatory systems with
international standards in the banking sector
and, if activity is significant, in the insurance
and securities sectors, as well evaluating the
regime for combating money laundering and
terrorism financing. These are conducted
every 4-5 years. In November 2003, the
Executive Board agreed that the Module 2
main report would henceforth be reclassified
as a staff report and circulated to the Board for
information.
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• Module 3 assesses additional
compliance with standards, cross-border and
domestic risks and vulnerabilities and focuses
on jurisdictions that are not covered by the
FSAP. No jurisdiction has as yet opted for a
Module 3 assessment.
Data Provision to the IMF for Surveillance
Purposes
Comprehensive, timely, and accurate economic data
are critical for prudent national policymaking, crisis
prevention, and for effective surveillance. Article IV
staff reports devote considerable attention to data
issues and discuss the implications of data
deficiencies for macroeconomic analysis and policy.
The Articles of Agreement require member countries
to provide the IMF with the information it deems
necessary to carry out its surveillance activities. In
particular, Article VIII, Section 5 (a), specifically
lists categories of data that members are required to
provide, consistent with their capacity. In January
2004, the IMF expanded the categories of
information deemed necessary for the conduct of its
activities through the adoption of an additional list of
data required to be provided by members. Beyond
this minimum, the IMF relies on members’
cooperation to obtain data needed for surveillance,
and in practice members voluntarily provide
extensive data to the IMF that far exceed the
requirements of Article VIII, Section 5.
33

Article VIII, Section 5 requires members to report
information to the IMF only to the extent that they
have the capacity to do so. Therefore, there is no
breach of obligation if a member is unable to provide
the information required under this Article, or to
provide more accurate information than it has
provided. However, a member that is unable to
provide final data is obligated to provide provisional
data to the best of its ability until it is in a position to
provide the IMF with the final data. Assessment of
members’ capacity to report required information
involves an element of judgment on the basis of best
statistical practice and experience, and the IMF
normally gives the member the benefit of the doubt.
Where a member reports required data inaccurately,
or fails to report it, despite having the capacity to do
so, the IMF makes every effort to secure a
cooperative solution through intensified contacts. In
those rare cases that are not amenable to cooperative
approaches, the IMF acts in accordance with a
framework of sanctions that takes account of
remedies and corrective actions voluntarily taken by
the member. In practice, the Managing Director first
issues a report to the Executive Board describing the
alleged breach under Article VIII, Section 5, after
notifying the authorities of his intention to issue such
a report and giving them sufficient time to
demonstrate that they are unable to provide the
information or to provide more accurate information.
Within 90 days of issuance of this report, the
Executive Board takes a decision on whether the
member has breached its obligation and may call
upon the member to take remedial actions. If the
member fails to implement the specified actions
within the deadline, the IMF may decide to issue a
declaration of censure against the member. Following
the issuance of the declaration of censure, and in case
of a continued failure by the member to adopt
remedial actions, the IMF may decide to impose the
sanctions of Article XXVI.
Surveillance in Program Countries
The IMF has emphasized the special role that
surveillance has to play in program countries by
providing a fresh perspective on economic conditions
and policies.
34
Surveillance and IMF balance of
payments support promote or restore macroeconomic
stability, external viability, and sustained economic
growth. Nevertheless, in countries with IMF-
supported economic programs, “stepping back” from
the program environment provides a broader
perspective on the economic challenges facing the
country and the adequacy of current policies to meet
those challenges. This is particularly relevant for
countries that are prolonged users of IMF resources.
Consequently, surveillance consultation cycles have
been made more flexible in program countries, in
recognition that surveillance is more effective at
some points in the program cycle—for example,
before a program is negotiated, when a program has
moved off-track, or when a major change in program
strategy is envisaged between programs—than at
others. To further separate program and surveillance
analysis, separate mission teams have been used in
some cases for surveillance and program discussions.
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CHAPTER 3
FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS
According to Article I of the IMF’s Articles of
Agreement, the purposes of the IMF include making
the resources of the IMF temporarily available to
member countries under adequate safeguards to
provide an opportunity to the countries to correct
balance of payments imbalances and to shorten the
duration and lessen the degree of these imbalances.
Sources of IMF Financing
Quota Subscriptions
The primary source of the IMF’s loanable funds is
quota subscriptions by members.
35
As noted in
Box 1.1, a quarter of the quota subscription is
normally paid in reserve assets (SDRs or currencies
of other members deemed by the IMF to be readily
available and accepted for international payments),
and the balance is paid in the member’s own
currency. Members’ currencies are deemed usable or
unusable. Usable currencies are those of member
countries whose external position is strong enough
for them to be called upon to finance IMF credit to
other members. The IMF uses its pool of usable
currencies and SDR holdings to extend credit to
member countries. Since some currencies are
unusable, this pool of loanable funds is less than the
sum total of quota subscriptions.
Quota-based funds are held in the IMF’s General
Resources Account (GRA). Any member can request
a loan from the pool of quota resources at any time
and such a request will be granted if certain criteria
are satisfied.
Borrowing
The Articles of Agreement (Article VII, Section 1)
allow the IMF to replenish its holdings of any
member’s currency through borrowing, when needed
in connection with its transactions. Such borrowing is
undertaken on a temporary basis and is subject to
continuous monitoring and a regular review of the
IMF’s liquidity by the Executive Board.
Borrowing to Supplement Quota-Based
Resources
The IMF currently maintains two standing borrowing
arrangements with official lenders, the General
Arrangements to Borrow (GAB, effective since
October 1962) and the New Arrangements to Borrow
(NAB, effective since November 1998). The GAB
and NAB supplement the quota-based, non-
concessional lending resources in the GRA to help
the IMF forestall or cope with an impairment of the
international monetary system. Borrowing takes place
at market-related interest rates. In the past there have
been several other borrowing arrangements with
official creditors under which the IMF borrowed
extensively when payments imbalances were large.
The IMF can borrow in private markets, if necessary,
but to date has never done so.
The GAB enable the IMF to borrow specified
amounts of currencies from 11 industrial countries or
their central banks. The potential amount of credit
available is SDR 17 billion, and an additional
SDR 1.5 billion of credit is available under an
associated agreement with Saudi Arabia. The NAB
were set up following the Mexican financial crisis of
December 1994, out of concern that substantially
more resources might be needed to respond to future
financial crises. They are a set of credit arrangements
between the IMF and 26 member countries or
institutions. The combined financing available to the
IMF under the GAB and the NAB amounts to SDR
34 billion, twice that available under the GAB alone.
The NAB is normally the first and principal recourse
in the event of a need for supplementary financing by
the IMF. Both sets of arrangements are in effect for
renewable five-year terms; the GAB has been
extended for five years beginning December 26,
2003, and the NAB for five years beginning
November 17, 2003.
Borrowing to Finance Concessional Lending
The IMF borrows from official bilateral sources to
finance concessional lending to low-income countries
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2020



under the Poverty Reduction and Growth Facility
(PRGF) and the Exogenous Shocks Facility (ESF),
which are administered by the IMF through the
PRGF-ESF Trust. Borrowing for PRGF-ESF lending
usually takes place at market interest rates. However,
since these funds are on-lent to low-income
borrowers at a concessional rate of 0.5 percent (or
interest-free in the case of debt relief), the difference
between the market borrowing rate and the
concessional lending rate has to be subsidized. This
subsidy is covered through bilateral grants (see
below) or through IMF borrowing from official
bilateral sources at below-market interest rates. In the
latter case, the difference between the market interest
rate and the below-market rate paid to the creditor is
the creditor’s contribution to the interest subsidy.
Grants for Subsidized Interest Rates and
Debt Relief
Bilateral grants help finance the interest subsidy on
concessional loans to low-income countries,
including PRGF/ESF loans and loans to low-income
countries that access the IMF's emergency assistance.
While the loans are made from the IMF’s quota-
based GRA resources and therefore carry non-
concessional interest rates, a concessionality element
is incorporated through an interest rate subsidy. The
interest subsidy is the difference between the IMF’s
basic GRA rate of charge and the effective
concessional lending rate of 0.5 percent. Bilateral
grants also partly finance the IMF’s contribution to
debt relief under the HIPC Initiative, the remainder of
which was financed through gold sales (see below).
Gold Sales
The IMF acquired virtually all of its holdings of gold
prior to the Second Amendment of the Articles of
Agreement in 1978. Prior to this Amendment, gold
played a central role in the functioning of the
international monetary system: the first 25 percent of
members’ quota subscriptions and quota increases
was normally paid in gold, interest on outstanding
IMF credit was normally paid in gold, and members
could also use gold to purchase reserve currencies or
repay debt to the IMF. The Second Amendment
severely limited the use of gold in IMF transactions:
the IMF may only sell gold at prevailing market
prices and accept gold in the discharge of a member’s
obligations to the IMF; no other transactions in gold
are permitted. The IMF holds around 100 million
ounces (3,200 metric tons) of gold at designated
depositories, valued on its balance sheet at around
SDR 6 billion on the basis of historical cost, while
the market value, as of mid-2006, exceeds
SDR 40 billion.
The IMF has sold gold on various occasions in the
past to support its operations, mostly prior to 1980.
Since gold is valued at historical cost in the IMF’s
accounts and the market value is usually substantially
higher than the book value, the sale of gold results in
a profit for the IMF. These profits were placed in a
Special Disbursement Account, from where they
were transferred to other special-purpose accounts, in
particular for financial assistance to low-income
countries, including debt relief.
During 1976-80 the IMF sold gold to finance a Trust
Fund that supported concessional lending by the IMF
to low-income countries. When the Trust Fund
ceased new lending in March 1981, its resources were
used to finance concessional lending under the
Structural Adjustment Facility (SAF) until 1987.
Since 1987, repayments of Trust Fund and SAF loans
have been accumulated to provide collateral for
borrowing under the IMF’s concessional lending
operations. In 1993, the IMF pledged to sell up to 3
million ounces of gold if these accumulated reserves
were insufficient to repay creditors who provided
loans to enable members with protracted arrears to
the IMF to clear these arrears under the rights
accumulation approach. This is an outstanding pledge
that the IMF so far has not been called upon to honor.
Also, to help finance its contribution to debt relief
under the HIPC Initiative, the IMF conducted a series
of off-market transactions in gold in 1999-2000 that
left its gold holdings unchanged.
36

The IMF’s Capacity to Lend
The IMF’s lending capacity is monitored constantly
and reviewed semi-annually by the Executive Board
to ensure that the IMF has adequate resources to
fulfill its responsibilities. A set of indicators has been
developed to gauge the IMF’s liquidity and lending
capacity. Since December 2002, the primary measure
of the short-term lending capacity is the one-year
Forward Commitment Capacity (FCC), which
indicates the amount of quota-based resources
available for new lending over the coming 12 months
(Table 3.1).
37

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IMF Financing to Member
Countries
Purchases and Repurchases
The IMF extends financing from GRA resources
through a form of a swap. The IMF provides reserve
assets to the borrower from the reserve asset
subscriptions of members or by calling on countries
that are considered financially strong to exchange
their currency subscriptions for reserve assets. The
borrower purchases these reserve assets with its own
currency. This increases the IMF’s holdings of the
borrower’s currency and reduces its holdings of
reserve assets or the currencies of the creditor
countries. Creditors (who provide reserve assets or
their currencies to the IMF) now have a claim on the
IMF equal to the reduction in the IMF’s holdings of
their reserve assets or currencies: their reserve
tranche positions increase.
38
The borrower later
repurchases its currency from the IMF with reserve
assets. This reduces the IMF’s holdings of the debtor
country’s currency, and increases its holdings of
reserve assets or currencies of the creditor countries,
back to their original levels. Creditors’ claims on the
IMF are correspondingly extinguished and their
reserve tranche positions decline.
39

Through the purchase/repurchase mechanism of IMF
financing, the value of the pool of subscribed assets
of the IMF remains constant, though its composition
changes. The IMF decides quarterly, based on
projections of purchases and repurchases, which
currencies are to be used (and up to what amounts)
for purchases, and which currencies (and in what
amounts) to accept in repurchases. These decisions
are reflected in a quarterly financial transactions plan.
Since 1999, preparation of the financial transactions
plan has been governed by the principle that creditor
members’ reserve tranche positions should remain
broadly equal relative to their quotas.
Arrangements
IMF financing, whether from GRA resources or
concessional resources, is provided primarily under
“arrangements” from the IMF, which are similar to
lines of credit. An arrangement is a decision by the
Executive Board that assures a member that it will be
able to make purchases or receive disbursements
from the IMF in accordance with the terms of the
decision during a specified period of time and up to a
specified amount. Member countries request an
arrangement under one or more of several IMF
financing facilities or policies, described below.
These arrangements can be either on concessional or
non-concessional terms. In this respect, IMF
terminology distinguishes between “purchases,”
which relate to non-concessional lending, and
“disbursements,” which related to concessional
lending.
IMF lending under arrangements takes place in the
context of an economic adjustment program
implemented by the member country to resolve its
balance of payments difficulties. The first
disbursement takes place after the Executive Board
has approved the arrangement. Subsequent
disbursements under an arrangement are phased on a
quarterly or semi-annual basis and are conditional
upon satisfactory progress in implementing the
economic program. For this purpose, specific
performance criteria and other conditions are set in
the economic program (see discussion below on
conditionality), and disbursements are conditional
upon observance of these criteria.
When a member seeks an IMF-supported program,
but does not face a pressing balance of payments
need, it may treat a IMF arrangement as
precautionary—a pure “stand by”—which provides
the right, conditional on implementation of specific
policies, to make drawings should the need arise.
40

Members retain and accumulate the rights to make
drawings during the period of the arrangement,
provided they have observed all the performance
criteria for each drawing.

3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS

2222



2001 2002 2003 2004 2005
I. Total resources 217.1 218.1 219.1 220.6 221.1
Members' currencies 209.0 210.3 211.3 213.1 213.4
SDR holdings 1.5 1.2 1.1 0.8 1.1
Gold holdings 5.9 5.9 5.9 5.9 5.9
Other assets 0.7 0.8 0.9 0.8 0.8
Available under GAB/NAB activation - - - - -
II. Less: Non-usable resources 114.7 117.9 118.4 109.2 75.9
Of which: Credit oustanding 53.5 63.6 65.0 55.4 28.4
III. Equals: Usable resources 102.5 100.2 100.7 111.3 145.2
IV. Less: Undrawn balances under GRA arrangements 25.8 31.9 22.8 19.4 12.7
V. Equals: Uncommitted usable resources 76.7 68.3 77.9 91.9 132.5
VI. Plus: Repurchases one year forward 15.2 19.0 9.2 12.9 8.0
VII. Less: Prudential balance 30.9 32.6 32.8 32.8 34.1
VIII. Equals: One-year forward commitment capacity 61.0 54.7 54.2 71.9 106.4
Memorandum items:
Potential GAB/NAB borrowing 34.0 34.0 34.0 34.0 34.0
Quotas of members that finance IMF transactions 154.7 163.1 164.1 164.1 170.5
Liquid liabilities 56.9 66.1 66.5 55.7 28.6
Liquidity ratio (in percent) 114.9 83.8 104.2 149.5 411.3
US$ per SDR 1.25673 1.35952 1.48597 1.55301 1.42927
Source: Finance Department
Table 3.1. The IMF's Lending Capacity
(in billions of SDRs unless otherwise stated; end-of-period)


Outright Purchases
Under certain circumstances, the IMF lends outside
of an arrangement with a borrowing member country.
Purchases made in the absence of an arrangement are
called “outright purchases.” Outright purchases apply
to first credit tranche borrowing under the credit
tranches (although such borrowing normally does
take place in the context of an arrangement), to
emergency assistance for natural disasters or to post-
conflict countries, and to temporary net export
shortfall-financing under the Compensatory
Financing Facility (see below).
41
IMF lending in
these circumstances does not require that the country
adopt an economic adjustment program, and therefore
disbursements are not subject to phasing and
performance criteria.
42
Members would be required
only to describe the general policies they intend to
pursue to resolve their balance of payments problem,
including their intention to avoid introducing or
intensifying exchange and trade restrictions. Loans
are approved and disbursed if the IMF is satisfied that
the member will cooperate in an effort to find, where
appropriate, solutions for its balance of payments
difficulties.
Program Design
When member countries express a need for IMF
financing, discussions begin between IMF staff and
the country authorities on an economic program that
could be supported by the IMF (in circumstances
where an economic program is required). Discussions
cover, among other things, the type of arrangement to
be requested and the lending facility to be used, the
policies to be pursued during the program period, the
level and phasing of purchases or drawings, and the
performance criteria and other types of conditionality
to be used in monitoring the implementation of the
program. It is understood that the economic program
INTERNATIONAL MONETARY FUND

23


is entirely that of the country authorities and that the
authorities are seeking IMF-support for their
program. This country ownership of the economic
program is critical to build domestic support for the
adjustment effort and increases the chances that the
program will be successfully implemented.
Approval of an Arrangement
Following the staff’s agreement that the authorities’
program is adequate and realistic, the member
submits a request for an arrangement from the IMF.
The request takes the form of a Letter of Intent (LOI)
from the authorities to the Managing Director of the
IMF, often accompanied by a more detailed
Memorandum on Economic and Financial Policies
(MEFP) and a Technical Memorandum of
Understanding (TMU). These documents are
prepared by the authorities with the cooperation and
assistance of the IMF staff. They set out the agreed
policy goals and strategies in the economic program,
as well as conditionality and how observance will be
monitored. In exceptional cases, members may
communicate confidential policy understandings to
the IMF in a side letter addressed to the Managing
Director and disclosed to the Executive Board in a
restricted session. The use of side letters will
normally be limited to cases in which the premature
release of the information would cause adverse
market reactions or undermine the country
authorities’ efforts to prepare the groundwork for a
measure.
The documents submitted by the authorities are
accompanied by a report prepared by the staff that
verifies the balance of payments need and assesses
the appropriateness of the program in light of the
nature of the country’s balance of payments
difficulties, and constitute the basis for an Executive
Board decision on the request. These documents need
to assure the Board that the member’s program is
consistent with the IMF’s provisions and that the
member is committed to carry out policies that will
solve the balance of payments problems. Programs
are approved by the IMF on the understanding that
the member’s representations are accurate.
Program Review
Upon approval of the arrangement, the authorities
may make the first purchase. Subsequent purchases
are normally contingent on the observance of
performance criteria and other types of conditionality.
However, some purchases do not require a review,
e.g., in case of a Stand-By Arrangement that has
quarterly purchases but semi-annual reviews. If a
review is required, the IMF reviews program
implementation prior to the purchase to ascertain
whether the relevant conditions for that purchase
have been observed. These reviews also have a
forward-looking element and also allow for the
assessment of progress on policies that cannot easily
be quantified or defined. If the reviews ascertain that
performance criteria have been observed and the
program remains on track to achieve its objectives,
the purchase becomes available to the member. Their
request, along with a staff report on the review, is
considered by the Executive Board. Board approval
of the authorities’ request completes the review and
the loan is then disbursed. In considering the
authorities’ request, the Executive Board takes into
consideration the member’s past performance
(including observance of performance criteria and
other conditionality), policy understandings for the
future, and the need to safeguard IMF resources.
If one or more performance criteria are not observed,
the authorities may request waivers of observance of
each of the performance criteria that were not
observed to enable the disbursement to take place.
The Executive Board grants a waiver only if it is
satisfied that, notwithstanding the nonobservance, the
program will be successfully implemented, either
because of the minor or temporary nature of the
nonobservance or because of corrective actions taken
by the authorities.
In certain instances, where the information necessary
to assess observance of a performance criterion is not
available, the member may request a waiver of
applicability of that performance criterion. This
happens for example in cases where a review is
delayed, slips past a subsequent test date, and the
later performance criteria become binding. Such a
waiver can only be supported by the staff and granted
by the Executive Board if they are satisfied that the
program will be successfully implemented and there
is no clear evidence that the performance criterion
has not been met. Waivers of applicability allow a
window within which the purchase associated with
the review may made, despite the unavailability of
relevant data. Such waivers do not, however, apply to
purchases after the date specified in the waiver,
which can only proceed if the relevant performance
criteria are met or waivers of non-compliance are
granted.
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24

General Policies Governing the
Use of IMF Resources
Reserve Tranche Policies
A member’s reserve tranche position in the IMF is
equal to the difference between the member’s quota
and the IMF’s holdings of the member’s currency,
excluding any holdings of the currency stemming
from the use of IMF credit. The reserve tranche
position is initially 25 percent of quota, the amount of
the capital subscription paid in reserve assets, but
fluctuates with members’ borrowing from or lending
to the IMF. The IMF pays interest (remuneration) on
members’ reserve tranche positions, except on a
small portion equal to 25 percent of the member’s
quota on April 1, 1978—that part of the quota that
was paid in gold prior to the Second Amendment of
the Articles of Agreement.
*
The basic rate of
remuneration is equal to the SDR interest rate, which
is a market-determined rate. For countries that joined
the IMF after April 1, 1978, the unremunerated
reserve tranche is determined in two steps—first, the
average unremunerated reserve tranche of all other
members as a percent of their quota is calculated on
the date the new members joined the IMF; and
second, this percentage is applied to the new
members’ quotas to obtain the new members’
unremunerated reserve tranche. The unremunerated
reserve tranche is fixed in nominal terms, so it
declines as a percentage of quota when quotas are
raised.
The reserve tranche position forms part of the
member’s foreign exchange reserves, as the member
country may draw upon it at any time.
43
Reserve
tranche purchases constitute use of IMF resources,
but are not subject to conditionality, interest charges,
or repurchase expectations or obligations. A member
may draw on its reserve tranche before making use of
IMF credit, or it may choose to use IMF credit
without drawing on its reserve tranche.
Access Policy
While surveillance is a preventive tool, access to IMF
resources under appropriate terms and conditions
serves to assist members who find themselves in

*
The gold tranche is not remunerated, since gold
held by the IMF does not earn interest income that
could be passed on to the membership.
balance of payments difficulties.
44
Defining an
appropriate access policy is thus a key element of the
IMF’s efforts to help resolve economic and financial
crises. Access policies are reviewed every two years
by the Executive Board, taking into consideration the
magnitude of members’ balance of payments
problems and developments in the IMF’s liquidity
position.
45

Access limits under the IMF’s different lending
facilities are summarized in Table 3.2. These limits
do not constitute targets or entitlements. The actual
amount of access in individual cases will vary
according to the circumstances of the borrower in
accordance with criteria established by the Executive
Board, and is determined on a case-by-case basis.
Three general considerations govern the actual
amount of IMF resources that a member may borrow:
• The member’s actual or potential need
for resources from the IMF, taking into
account other sources of financing and the
desirability of maintaining a reasonable level
of reserves.
• The ability of the member to service its
indebtedness to the Fund, including the
strength of the adjustment program.
• The amount of the member’s
outstanding use of IMF credit and its past
record in using and repaying IMF resources.
Exceptional Access
The possibility of exceptional access to IMF
resources—access above the normal limits indicated
previously—has always existed. During the Mexican
crisis of 1994-95, the Asian crises of 1997-98, and
subsequently, the IMF in several cases provided
financing in amounts well above the access limits that
normally apply to SBA or EFF arrangements.
The Executive Board formalized conditions for the
use of exceptional access in September 2002 and
March 2003, when it confirmed that such access will
sometimes be necessary, particularly if the IMF is to
provide meaningful assistance to countries facing a
capital account crisis. There is a presumption that
exceptional access will be provided under the SRF.
Exceptional access needs to be justified in light of the
following four criteria:
• The member is experiencing
exceptional balance of payments pressures on
the capital account resulting in the need for
INTERNATIONAL MONETARY FUND

25


IMF financing that cannot be met within the
normal access limits.
• A rigorous and systematic analysis
indicates that there is a high probability that
debt will remain sustainable.
• The member has good prospects of
regaining access to private capital markets
within the time frame that IMF resources
would be outstanding, so that the IMF’s
financing would provide a bridge to this
access.
• The policy program of the member
country provides a reasonably strong prospect
of success, including not only the member’s
adjustment plans but also its institutional and
political capacity to deliver that adjustment.
46

The procedures for decision-making on all requests
for exceptional access, not just those involving
capital account crises, were reviewed in 2003 and
2005. The changes emphasize early consultation with
the Executive Board in cases where new or
augmented exceptional access to IMF resources may
be needed, including through informal meetings prior
to Board consideration of the request. The evaluation
of a country’s eligibility for exceptional access can be
presented to the Board as part of the staff report on
the authorities’ request for IMF resources. Finally, as
a rule, there would be an ex post evaluation of
programs with exceptional access within one year of
the end of the arrangement.
47

Terms of IMF Lending
Loans from the GRA carry a basic rate of charge that
may be supplemented by surcharges, service charges,
and commitment fees (see Table 3.2).
48
The basic
rate of charge is determined as a margin in basis
points above the weekly interest rate on SDRs, and
therefore fluctuates with the market interest rates on
which the SDR rate is based. It is set at the beginning
of each financial year at a level calculated to achieve
a targeted net income for that financial year, and is
reviewed mid-year.
Surcharges are imposed on borrowing under the
credit tranches, the EFF, and the SRF in order to
discourage large use of IMF resources. Under the
SRF, the surcharges are higher and increase over time
in order to encourage early repayment of the loans.
Surcharges do not apply to loans under the CFF,
Emergency Assistance Policy, or the PRGF.
Commitment fees are paid on GRA funds committed
under an IMF arrangement, but these are refunded to
the extent that purchases are made. They are not
refunded in cases of precautionary arrangements, as
funds are not drawn.
All borrowing from the IMF is subject to pre-
determined repayment schedules, which are the
borrowing member’s repayment obligations.
However, since the IMF’s resources are for financing
only temporary balance of payments needs and they
are of a revolving character, the Articles of
Agreement stipulate that borrowing members are
expected to repay their loans as their balance of
payments and reserve position improves.
49

Accordingly, borrowing from the IMF, except under
the Emergency Assistance Policy and the PRGF, are
subject to pre-determined repurchase expectations
schedules, as set out in Table 3.2, which the member
is expected to meet if its external position is stronger
than had been expected at the time the arrangement
was approved.
A failure to meet a repurchase expectation results in
the suspension of further lending to the member
country. The suspension includes lending under the
PRGF and under existing arrangements. However,
the member would not be in default of its obligations
to the IMF. Default arises only when the member
does not meet a repayment obligation. However, the
IMF may, upon request by a borrowing member,
amend the schedule of repurchase expectations if the
member’s external position is judged to be not
sufficiently strong for payments to be made in
accordance with that schedule.
Conditionality
Conditionality refers to policies and actions that a
borrowing member agrees to carry out as a condition
for the use of IMF resources.
50
The purpose of
conditionality is to ensure assistance to members to
resolve their balance of payments crisis in a manner
that is consistent with the IMF’s Articles and that
establishes adequate safeguards for the temporary use
of the IMF’s resources. The key principles guiding
the design and setting of conditionality are:
• National ownership of reform
programs.
• Parsimony in program-related
conditions.
3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS

26

• Tailoring of programs to a member’s
circumstances.
• Effective coordination with other
multilateral institutions.
• Clarity in the specification of
conditions.
Conditionality is understood as the more stringent
conditions that are applied to purchases in the upper
credit tranches. First credit tranche conditions apply
to outright purchases and to Stand-By Arrangements
that do not extend credit beyond the first credit
tranche, and the term “conditionality” is not normally
used in this context.
Conditionality may take the form of prior actions,
performance criteria, indicative targets, and structural
benchmarks:
• Prior actions. these are policy
measures that the member country may be
expected to adopt prior to the IMF’s approval
of an arrangement, completion of a review, or
the granting of a waiver with respect to a
performance criterion, when it is critical for
the successful implementation of the program
that such actions be taken to underpin the
upfront implementation of important
measures. The normal practice is that all prior
actions must be carried out at least five
working days before the Board discussion to
which they relate.
• Performance Criteria. A performance
criterion is a variable or measure whose
observance or implementation is established as
a formal condition for the making of purchases
or disbursements under an IMF arrangement.
Performance criteria should apply to clearly-
specified variables or measures that can be
objectively monitored and that are so critical
for the achievement of the program goals or
for monitoring implementation that purchases
or disbursements under the arrangement
should be interrupted in cases of
nonobservance. There are two types of
performance criteria: quantitative and
structural, the former covering the
macroeconomic elements of the program and
the latter covering the structural elements.
Quantitative performance criteria often contain
embedded adjusters that automatically adjust
the program targets for the relevant variable or
measure to take into account pre-specified
developments beyond the control of the
authorities.
• Indicative Targets. These may be
established because of substantial uncertainty
about economic trends and converted to
performance criteria as uncertainty is reduced.
Indicative targets may also be established in
addition to performance criteria as quantitative
indicators to assess the member’s progress in
meeting the objectives of a program.
• Structural Benchmarks. A measure
may be established as a structural benchmark
where it cannot be specified in terms that may
be objectively monitored, or where its non-
implementation would not, by itself, warrant
an interruption of purchases or disbursements
under an arrangement. They are intended to
serve as clear markers in the assessment of
progress in the implementation of critical
structural reforms. Noncompliance does not
require formal waivers by the Executive
Board.
In recent years the IMF has been seeking to
streamline the number of conditions attached to its
loans. Conditions are established only regarding
measures that are critical for the achievement of the
goals of the member’s program or for monitoring the
implementation of the program, or that are necessary
for the implementation of specific provisions of the
Articles of Agreement. They normally consist of
measures that are within the IMF’s core areas of
responsibility, although measures may be included in
other areas if they are macro-relevant and critical.
The IMF’s core areas of responsibility in this context
are macroeconomic stabilization; monetary; fiscal,
and exchange rate policies, including the underlying
institutional arrangements and closely related
structural measures; and financial system issues
related to the functioning of domestic and
international financial markets.
Overdue Financial Obligations to the IMF
The IMF’s strategy on overdue obligations comprises
three elements: prevention, intensified collaboration
(including the rights approach), and remedial
measures.
Preventive measures include IMF surveillance of
members’ economic policies, policy conditionality,
technical assistance, the assurance of adequate
balance of payments financing for members under
IMF-supported programs, and other measures to
INTERNATIONAL MONETARY FUND

27


protect the IMF’s resources, including safeguards
assessments of members’ central banks.
As part of an intensified collaboration, staff-
monitored programs and rights accumulation
programs (RAPs) help members in arrears to
establish a track record on policies and payments,
leading to eventual clearance of arrears to the IMF.
Remedial measures are applied—using an escalating
timetable—to member countries with overdue
obligations that do not actively cooperate with the
IMF to resolve their arrears problems.
51
The intensity
of remedial measures increases according to the
timetable, although the country specific
circumstances are taken into account. For example,
civil conflicts, the absence of a functioning
government, or international sanctions may prevent
the Fund from assessing the member’s cooperation,
thereby the application of remedial measures may be
postponed. As long as a member remains in payments
arrears to Fund, it has no access to the Fund’s general
resources, HIPC or PRGF-ESF resources.
Increasingly severe sanctions are invoked as such
arrears become more protracted, which could
culminate in a suspension of the member’s voting and
representation rights and eventually in the
compulsory withdrawal of the member from the IMF
if the member is deemed to be non-cooperating with
the IMF and remains non-cooperating. Technical
assistance is also suspended once the member is
declared non-cooperating.
To address the burden of overdue obligations to the
IMF, the Fund has put in place a “burden-sharing”
mechanism. Under this mechanism, the financial
consequences for the IMF stemming from overdue
financial obligations of members are shared equally
between debtor and creditor member countries, with
the sharing being applied in a simultaneous and
symmetric fashion. The interest rate paid to creditors
on their reserve tranche positions, normally the SDR
rate, is adjusted downward by this mechanism, while
the basic rate of charge is adjusted upward for
borrowing countries. Arrears to the Trust Fund and
the PRGF-ESF Trust are met by transfers from the
Reserve Account of the PRGF-ESF Trust, thereby
reducing the amount of resources that would accrue
to for the benefit of the IMF’s low-income members.
In 1990, the IMF established the rights accumulation
approach to help members who are in arrears to the
IMF, and who are cooperating with the IMF,
mobilize bilateral and multilateral support to clear
their arrears to the IMF and other creditors. Under a
Rights Accumulation Program (RAP), a member
earns rights, conditioned upon satisfactory
performance under an adjustment program monitored
by the IMF. These rights accumulate toward a
disbursement from the IMF once the member’s
overdue obligations have been cleared and upon
approval of a successor arrangement with the IMF.
RAPs are usually of a three-year duration, although
there is flexibility to tailor the length of the track
record to the member’s specific circumstances. The
member is expected, at a minimum, to remain current
with respect to obligations to the IMF and the World
Bank falling due during the period of the rights
accumulation program. A support group of donors is
established to mobilize the financial resources
necessary to clear the member’s arrears. This is
necessary as a form of bridge-financing pending the
completion of the RAP, but the support can extend
beyond the scope of the RAP in cases where arrears
exceed the borrowing ceilings. Eligibility for the
rights approach is limited to the 11 members who
were in protracted arrears to the IMF at the end of
1989. Of these, only Liberia, Somalia, and Sudan
remain with protracted arrears. Another member,
Zimbabwe, has protracted arrears to the PRGF Trust.
Lending into Arrears
While the IMF is concerned with all forms of arrears
(whether domestic or external, private or sovereign),
arrears to external creditors have a distinctive place in
IMF policies. The IMF has acknowledged that the
incurrence of external payments arrears is perhaps the
most disorderly way of responding to balance of
payments pressures, as they undermine relations with
creditors and damage the international trade and
payments system. For these reasons, the IMF has
developed specific policies for dealing with external
payments arrears in the context of the use of IMF
resources. More specifically, the lending into arrears
(LIA) policy applies to arrears incurred to private
creditors, whereas the IMF’s general policy on the
non-toleration of arrears applies to arrears incurred to
multilateral and official bilateral creditors.
The IMF does not to lend to countries that are not
making a good-faith effort to eliminate their arrears
with creditors.
52
However, under certain
circumstances, the IMF will lend to member
countries that have defaulted on their debt service
payments to private creditors, or that have imposed
exchange controls that have resulted in payments
arrears to private creditors by non-sovereign
borrowers. Lending into sovereign arrears to private
3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS

28

creditors is undertaken on a case-by-case basis and
only where:
• Prompt IMF support is considered
essential for the successful implementation of
the member’s adjustment program; and
• The member is pursuing appropriate
policies and is making a good faith effort to
reach a collaborative agreement with its
creditors.
In addition, lending into non-sovereign arrears
stemming from the imposition of exchange controls
also requires a finding that good prospects exist for
the removal of exchange controls.
The “good faith” criterion is applied flexibly to
accommodate the characteristics of each specific
case, to avoid putting debtors at a disadvantage in the
negotiations with creditors, and to avoid prolonged
negotiations that could hamper the ability of the IMF
to provide timely assistance. The following principles
guide the IMF’s judgments about members’ “good
faith” efforts:
• First, when a member has reached a
judgment that a restructuring of its debt is
necessary, it should engage in an early
dialogue with its creditors, which should
continue until the restructuring is complete.
• Second, the member should share
relevant, non-confidential information with all
creditors on a timely basis.
• Third, the member should provide
creditors with an early opportunity to give
input on the design of restructuring strategies
and the design of individual instruments.
The modalities guiding the debtor’s dialogue with its
private creditors are normally tailored to the specific
features of each individual case. However, the debtor
is expected to initiate a dialogue with its creditors
prior to agreeing on an IMF-supported program.
Purchases made while a member has outstanding
arrears are subject to financing assurances reviews.
These are conducted in cases where the IMF is
providing financial assistance to a member that has
outstanding sovereign external payments arrears to
private creditors or that, by virtue of the imposition of
exchange controls, has outstanding non-sovereign
external payments arrears. The financing assurances
review determines whether adequate safeguards exist
for the further use of IMF resources and whether the
member’s adjustment efforts are undermined by
developments in creditor-debtor relations. Every
purchase or disbursement made available after the
approval of an arrangement is, while such arrears
remain outstanding, made subject to the completion
of a financing assurances review. Financing
assurances reviews may also be established where the
member has outstanding arrears to official creditors.
Prolonged Use of IMF Resources and
Ex Post Assessments
IMF balance of payments support is intended to be of
a short-term nature. However, in some cases long-
term IMF financial engagement can help member
countries to address deep-seated problems that, by
their nature, require many years to resolve. These
problems have been particularly prevalent in low-
income countries and countries in transition.
However, at times prolonged use of IMF resources
can stem from inadequate progress in dealing with
key economic problems, which could reflect
inadequate program design and implementation.
53

Prolonged use can compromise the revolving
character of IMF resources.
A country is considered to be a prolonged user when
it has spent 7 or more of the last 10 years under an
IMF-supported program financed from the IMF’s
general resources or once the country completes two
consecutive concessional arrangements. However,
this excludes precautionary arrangements that remain
undrawn or access of the Policy Support Instrument
(PSI). Prolonged users are reviewed under an Ex Post
Assessments (EPA). To avoid frequent EPAs in a
single country, which is less likely to offer new
insights, prolonged users are reviewed under an EPA
at roughly five year intervals.
54

An EPA provides the IMF with the opportunity to
step back from ongoing program relations with a
member country and to take a fresh look at the
overall strategic approach with the focus on
identifying lessons for future IMF involvement. It
involves a longer-term analysis of the economic
problems facing the country, a critical and frank
review of progress made during the period of IMF-
supported programs, and a forward-looking
assessment that takes into account lessons learned
and that presents a strategy for future IMF
engagement with the country. Where appropriate, the
assessment presents an explicit strategy for the
country to exit from the use of IMF resources. The
assessment reflects input from the World Bank, and
may also draw on outside experts.
The assessment is undertaken by an inter-
departmental staff team that is usually different from
INTERNATIONAL MONETARY FUND

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the mission team and led by a mission chief from a
department other than the home area department. The
EPA report is usually discussed by the Board jointly
with either the Article IV consultation when the
arrangement is substantially complete or where this is
not feasible, with the last program review. In
exceptional cases, a stand-alone discussion can be
considered.
Misreporting and Noncomplying
Purchases and Disbursements
All IMF loan disbursements to a member are made on
the condition that the data or other information
provided by the member pertaining to the purchase or
disbursement are accurate.
55
Misreporting occurs
when the information provided by the member is
inaccurate, regardless of the source of the inaccuracy.
Misreporting may stem from administrative lapses,
weaknesses in statistical capacity, inherent
subjectivity of certain data, negligence, and deliberate
misrepresentation. A purchase or disbursement that a
member was not entitled to under the terms of the
arrangement or decision governing the purchase or
disbursement is called a “noncomplying purchase”
(or in the case of a disbursement, a “noncomplying
disbursement”).The purchase or disbursement was
made because, on the basis of the information
provided to it at the time, the IMF was satisfied that
all performance criteria or other conditions applicable
to the purchase or disbursement had been observed,
but this information later proved to be incorrect.
A member receiving IMF resources on the basis of
incorrect information is expected to repurchase or
reimburse the IMF normally within 30 days, unless
the Executive Board grants a waiver.
*
Waivers may
be granted only if the deviation from the relevant
performance criterion or other condition is minor or
temporary, or if the member has adopted additional
policy measures to achieve the objectives of the
economic program supported by the IMF. Failure to
repay within the specified time period will lead to a
suspension of further disbursements or repurchases
under the arrangement, and suspension of further
lending to the member country.

*
In practice, where waivers have not been granted,
noncomplying disbursements have often been
repaid over a period longer than 30 days.
Modifications to make misreporting policies less
onerous in de minimis cases were introduced in July
2006, as misreporting procedures could be
disproportionately heavy for minor deviations from a
performance criterion or other specified condition
(e.g., prior actions).
56
In addition to reducing the
stigma and burden of misreporting, these
modifications contribute to the general objective of
streamlining IMF procedures expressed in the MTS.
To be considered de minimis, a deviation would be so
small as to be trivial with no impact on the
assessment of performance under the member’s
program. However, a decision whether a particular
case should be considered to be de minimis will
require judgment—first by management and staff,
and ultimately by the Executive Board. In case of a
de minimis misreporting, a waiver of a performance
criterion or other specified condition is granted, in
accordance with regular procedures. However,
changes are applied to the regular misreporting
procedures to reduce the administrative and
publication requirements.
Safeguards on the Use of IMF Resources
The IMF has put in place a policy of safeguards
assessments of central banks in member countries as
an ex ante mechanism to help prevent the possible
misuse of IMF resources, and to minimize the
possibility of misreporting.
57
This policy was
introduced on an experimental basis in March 2000
and adopted as a permanent policy in March 2002.
The safeguards policy complements other policies to
safeguard the use of IMF resources, such as
conditionality and monitoring, technical assistance,
transparency and governance initiatives, and the
policy on misreporting. It has been widely accepted
by central banks, and has helped improve their
operations and accounting procedures while
enhancing the IMF’s reputation as a prudent lender.
However, safeguards assessments are not intended to
be an institution-building exercise; IMF
conditionality in this area is limited to measures
highly relevant to safeguarding the use of IMF
resources. Nonetheless, where critical vulnerabilities
are identified, concrete corrective measures may need
to be adopted as a condition for IMF financing.
The assessments have the objective of providing
reasonable assurance to the IMF that the central
bank’s control, accounting, reporting, and auditing
systems in place to manage resources, including IMF
disbursements, are adequate to ensure the integrity of
operations. Assessments cover five key areas: the
3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS

30

external audit mechanism, the legal structure and
independence of the central bank, the financial
reporting framework, the internal audit mechanism,
and the system of internal controls. A key element of
the safeguards policy is that central banks of member
countries making use of IMF resources publish
annual financial statements independently audited by
auditors external to the central banks in accordance
with internationally accepted auditing standards.
All member countries receiving a new IMF
arrangement are subject to a safeguards assessment of
the central bank.
58
The Finance Department conducts
the assessment in consultation with the Area
Departments. The assessment is usually initiated
three months before the anticipated date of Board
discussion of a new arrangement. It entails, among
other things, a review of documents provided by the
central bank, discussions with the central bank’s
external auditors, a safeguards assessment mission if
needed, and preparation of a report and a summary of
findings and recommendations of the assessment. The
assessment should preferably be completed prior to
the date of the Executive Board’s approval of the
arrangement, but in any case no later than the first
program review under the arrangement.
Commitments made by the authorities to implement
the recommendations of safeguards assessments
reports are monitored in conjunction with overall
program conditionality.
The safeguards frameworks of central banks are
monitored for as long as Fund credit remains
outstanding. The Finance Department, in consultation
with Area Departments, reviews safeguards-related
developments at central banks, particularly with
respect to the external audit mechanism. The findings
of the monitoring process may result in new
recommendations to address emerging vulnerabilities
in a central bank’s safeguards framework. The results
of initial safeguards assessments and the monitoring
process form the basis for an updated assessment in
case of successor IMF arrangements.
Financing Facilities and
Arrangements
Member countries can access the IMF’s resources
through a variety of channels.
59
The original and
basic channel is the use of quota-based resources
through what is known as the credit tranches. Any
member is eligible to request IMF’s resources in the
credit tranches at any time simply by representing
that it has a balance of payments need. Members may
also access the IMF’s resources through a number of
special facilities or policies that the IMF has set up to
accommodate the specific balance of payments needs
and circumstances of the membership. These have
eligibility requirements beyond a mere general
balance of payments need.
The channel of access a member selects depends on
the particular circumstances of the country. The
member normally would make a decision in
consultation with IMF staff. The different channels of
access are explained below. All, except the Poverty
Reduction and Growth Facility (PRGF) and the
Exogenous Shocks Facility (ESF), provide access to
the general resources of the IMF. As the IMF’s
Articles of Agreement require that a uniform rate of
charge for credit out of the General Resources
Account, the PRGF and the ESF have been
established under a separate trust account (the PRGF-
ESF Trust) administered by the IMF

to provide highly
concessional loan resources to low-income countries.

60

The facilities and arrangements described below are
ones that currently exist. In the past, several special
purpose facilities and policies have been created that
were subsequently eliminated.
61
For example, the
Contingent Credit Lines facility—which was created
in 1999 to provide automatic financing to members
who pre-qualified, in order to prevent a capital
account crisis—was never used and was allowed to
lapse at the end of November 2003. Under the
Medium-Term Strategy, the IMF is exploring the
possibility of creating a new liquidity instrument to
provide high access contingent financing to emerging
market economies, and is also considering ways to
enhance its support of regional and other
arrangements for pooling reserves.
The Credit Tranches
Initially the IMF made credit available to its members
in tranches, each equal to 25 percent of quota.
62

However, as cumulative access limits in the credit
tranches are now substantially above 100 percent of
quota, a distinction is now drawn simply between
first credit tranche borrowing and upper credit
tranche borrowing, the latter referring to any
borrowing above the first credit tranche. The
distinction is necessary as first credit tranche
borrowing is not subject to conditionality, i.e., it is
usually available immediately upon request to
member countries. Access to IMF resources in the
credit tranches may be through outright purchases or
through a formal arrangement. Outright purchases are
limited to the first credit tranche, while upper credit
INTERNATIONAL MONETARY FUND

31


tranche borrowing requires a formal arrangement
such as a Stand-By Arrangement.
Stand-By Arrangement
Stand-By Arrangements (SBA) are the usual vehicle
for members to access upper credit tranche financing.
Requests for resources in the upper credit tranches
require substantial justification in the form of a
balance of payments need and the authorities’
promise of appropriate adjustment policies that return
the economy to a sustainable balance of payments
position over a specific time-frame.
63
First credit
tranche borrowing may also be made through an
SBA, but it is not subject to phasing and performance
clauses—unless the member has outstanding
purchases under other facilities in the GRA.
The normal period for an SBA is 12 to 18 months,
but it may extend up to a maximum of three years.
All upper credit tranche borrowing is subject to
phasing and observance of performance criteria,
normally on a quarterly basis. Purchases in the credit
tranches are subject to an annual limit of 100 percent
of quota and a cumulative limit of 300 percent of
quota (Table 3.2). However, the IMF may grant
access beyond these limits in exceptional
circumstances.
Extended Fund Facility
The IMF established the Extended Fund Facility
(EFF) in 1974 as a vehicle for providing medium-
term assistance to (a) an economy suffering serious
payments imbalances relating to structural
maladjustments in production and trade and where
price and cost distortions have been widespread, or
(b) an economy characterized by slow growth and an
inherently weak balance of payments position which
prevents pursuit of an active development policy.
64

The EFF was created in view of the fact that balance
of payments problems could have structural origins
and would require a longer period of adjustment.
Consequently, the EFF offers longer repayment
periods than those under credit tranche policies, but
requires more action in the structural area than is
typical of Stand-By Arrangements.
Members whose balance of payments problems are of
a medium-term character as described above, and
who have an appropriately strong structural reform
program to deal with the embedded institutional or
economic weaknesses, may access the resources in
the EFF through an Extended Arrangement. These are
normally three-year arrangements, but they may
extend for a fourth year. Purchases and performance
criteria are phased on a quarterly or semi-annual
basis. EFF purchases are subject to an annual limit of
100 percent of quota and a cumulative limit of
300 percent of quota, but the IMF may grant access
beyond these limits in exceptional circumstances.



3


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2

3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS

34


Supplemental Reserve Facility
The IMF established the Supplemental Reserve
Facility (SRF) in December 1997 to provide
financing for member countries experiencing
exceptional balance of payments problems owing to a
large short-term financing need resulting from a
sudden and disruptive loss of market confidence
reflected in pressure on the capital account and the
member’s reserves.
65
There has to be a reasonable
expectation of an early correction of the difficulties
based on the implementation of adjustment policies
and adequate financing. The SRF is likely to be
utilized in cases where the magnitude of the outflows
may create a risk of contagion that could pose a
potential threat to the international monetary system.
Assistance under the SRF is made available if four
criteria are met, specifically exceptional balance of
payments pressures in the capital account, an
expectation of a re-entry to capital markets, a high
probability that debt will remain sustainable, and
strong program design and implementation
prospects.
66
In approving a request for the use of IMF
resources under the SRF, the IMF takes into account
the financing provided by other creditors, both
official and private.
Access under the SRF is separate from the access
limits under the credit tranches and the EFF, and has
no explicit limits of its own. SRF resources are
provided under Stand-By or Extended Arrangements,
to supplement credit tranche or EFF resources, when
projected access to credit tranche or EFF resources
would exceed the annual or cumulative limits under
these facilities. There is a strong presumption that
exceptional access will be provided under the SRF in
capital account crises. However, access would
generally be within access limits in cases of debt
restructuring to avoid moral hazard. The
conditionality in an arrangement involving the use of
SRF resources is the same as that of the associated
Stand-By or Extended Arrangement. The repurchase
period for SRF resources is much shorter than that for
credit tranche and EFF resources, reflecting the
expectation of an early correction and a quicker
turnaround in the balance of payments.
Compensatory Financing Facility
Under the Compensatory Financing Facility (CFF),
the IMF may provide resources to cover export
shortfalls or excess cereal import costs that are
temporary and arise from events beyond the
members’ control.
67
Access to CFF resources may be
stand-alone or in conjunction with access to other
resources under a Stand-By, Extended, or PRGF
Arrangement.
Stand-alone access is granted where the member’s
balance of payments position is deemed satisfactory
apart from the temporary export shortfall or cereal
import excess. In this case, access takes the form of
outright purchases. Usually the entire amount of the
financing is made available in one purchase.
However, if estimated data are used for 9 months or
more of the 12-month period for which the export
shortfall is calculated (in accordance with a pre-
determined formula), the purchase is made in two
tranches, with the amount of the second purchase
adjusted if necessary on the basis of actual data for at
least 6 months of the 12-month period.
Where the member has a balance of payments need
beyond the need caused by the effect of an export
shortfall or cereal import excess, the request for CFF
resources will be considered in the context of
approving a new arrangement, completing a review
or determining that the program is on track. In this
case, purchases after the initial purchase are subject
to phasing and observance of the performance criteria
specified in the associated arrangement.
Access under the CFF is subject to its own limits,
which range from 45 percent of quota for each of the
export shortfall and excess cereal import cost
elements to a combined limit of 55 percent of quota.
Such access does not count toward the access limits
under the credit tranches and the EFF, but they do
count for the purpose of determining the threshold for
upper credit tranche conditionality. Thus a member
with outstanding CFF purchases of 25 percent of
quota or more is subject to upper credit tranche
conditionality even on first credit tranche purchases
under a Stand-By Arrangement.
Emergency Assistance Policy
The IMF may provide emergency assistance for
natural disasters and to countries in post-conflict
situations under the Emergency Assistance Policy.
68

Judgment on a member’s eligibility for emergency
assistance is made on a case-by-case basis.
INTERNATIONAL MONETARY FUND

35

In most cases where a member is afflicted by a
natural disaster, assistance would be provided under
the CFF, ESF, through Stand-By and Extended
Arrangements, or through augmentations of existing
PRGF arrangements. However, in those cases where
a member cannot meet its immediate financing needs
arising from a natural disaster without serious
depletion of its external reserves, emergency
assistance in the form of quick, outright purchases
would be provided. Emergency Natural Disaster
Assistance (ENDA) is designed to provide only
limited foreign exchange required for immediate
relief. Understandings with the member country are
needed to ensure that inappropriate policies do not
compound the problems caused by the natural
disaster.
In 1995, the emergency assistance policy was
expanded to cover post-conflict cases. Emergency
Post Conflict Assistance (EPCA) is available for
countries emerging from civil unrest or international
armed conflict that are unable to implement regular
IMF-supported programs because of damage to their
institutional and administrative capacity, but that
have sufficient capacity for planning and policy
implementation and a demonstrated commitment on
the part of the authorities. IMF assistance is provided
to meet an urgent balance of payments need to help
rebuild external reserves and meet essential external
payments, as part of a concerted international effort
to address the aftermath of the conflict in a
comprehensive way. Conditions for such assistance
include a statement of economic policies, a quantified
macroeconomic framework to the extent possible,
and a statement by the authorities of their intention to
move as soon as possible to a SBA, extended
arrangement or PRGF arrangement. However, the
EPCA is also intended to play a catalytic role in post-
conflict situations by attracting support from other
official sources. The EPCA places heavy emphasis on
institution building, also through increased technical
assistance.
Access under the Emergency Assistance Policy is
normally 25 percent of quota. An additional
25 percent of quota can be provided in exceptional
circumstances, particularly where capacity rebuilding
is slow and the member is not in a position to
implement an IMF arrangement after about a year or
more under a program supported by emergency
assistance, and where there is sufficient evidence of
the authorities’ commitment to reform and capacity to
implement policies. EPCA-supported programs can
be as long as 3 years. The additional 25 percent of
quota would normally be tranched, with each
purchase requiring Executive Board approval and
subject to satisfactory progress in rebuilding capacity
and macroeconomic stability.
*
Access under the
Emergency Assistance Policy does not count toward
the limits under the credit tranches and the EFF, but
they do count for the purpose of determining the
threshold for upper credit tranche conditionality.
Since 2001, purchases under the Emergency
Assistance Policy can benefit from interest subsidies
for PRGF-eligible countries, financed by grant
contributions from bilateral donors to subsidize this
interest rate down to 0.5 percent per year, subject to
the availability of resources for this purpose.
Poverty Reduction and Growth Facility
The IMF put in place a concessional lending facility
through the establishment of the Trust Fund in 1976.
In 1986, the IMF established the Structural
Adjustment Facility (SAF) to provide concessional
assistance to low-income countries by recycling
resources lent under the Trust Fund. This was
followed in 1987 by the establishment of the
Enhanced Structural Adjustment Facility (ESAF) to
foster stronger adjustment and reform measures than
those under the SAF and to augment its concessional
lending resources. In 1999, the ESAF was re-named
the Poverty Reduction and Growth Facility (PRGF),
and the facility’s objective was broadened to include
an explicit focus on poverty reduction in the context
of a comprehensive growth-oriented strategy.
69

The PRGF is currently financed through bilateral
loans and grants. However, in the near future the
PRGF is due to become self-sustaining through the
revolving use of resources accumulating in the
Reserve Account of the PRGF-ESF Trust, possibly
supplemented by additional loan resources.
70

Eligibility is based principally on the IMF's
assessment of a country's per capita income, drawing
on the cutoff point for eligibility to World Bank
concessional lending. PRGF loans are provided under
three-year PRGF arrangements (which can be
extended for a fourth year). Disbursements are

*
Tranching is different from phasing in that
purchases are not conditional upon observance of
pre-specified performance criteria. Rather, requests
for purchases are considered on their own
individual merits.
3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS

36


normally on a semi-annual basis, and are subject to
phasing and the observance of performance criteria.
In cases where closer monitoring is needed, the
arrangement may provide for quarterly phasing,
performance criteria, and reviews.
An eligible country may borrow up to 140 percent of
its quota under a three-year arrangement, and up to
185 percent of quota in exceptional circumstances.
Unlike access to GRA facilities, there are no annual
or cumulative access limits under the PRGF. There is
a general presumption of declining access in
successive PRGF arrangements. In March 2004 the
Executive Board approved the following norms for
access under successive PRGF arrangements: 90 and
65 percent for first and second arrangements, and 55,
45, 35, and 25 percent of quota for third, fourth, fifth,
and subsequent arrangements. These norms are
neither maxima nor entitlements. In addition, the
Executive Board agreed that even lower access (such
as 10 percent or less of quota) would be appropriate
for countries that have limited balance of payments
need for concessional resources. Access limits are
reviewed by the Executive Board bi-annually.
71

Exogenous Shocks Facility
The IMF approved the establishment of the
Exogenous Shocks Facility (ESF) to become
effective in January 2006. It strengthens the IMF’s
capacity to provide policy support to low-income
countries and in recognition that exogenous shocks
can have a significant adverse impact on poverty and
growth.
72
The ESF is directed at PRGF-eligible
members that do not have in place a PRGF
arrangement and experience a sudden and exogenous
shock. Countries with a PRGF arrangement would
qualify for augmentation of access under that
arrangement. The ESF aims to facilitate quick access
to financing, while assisting the country’s efforts to
put in place an appropriate adjustment to the
underlying shock and ensuring adequate safeguards
for the use of PRGF-ESF Trust resources. It provides
financing under an ESF arrangement for a maximum
period of two years in support of a macroeconomic
and structural adjustment program. A member may
not have more than one ESF arrangement for the
same shock, but resources committed under an ESF
arrangement may be augmented to help the member
meet a larger than expected balance of payments
need. A member also may not receive financial
assistance from the ESF and the PRGF at the same
time.
To qualify for assistance under the ESF, a PRGF-
eligible member must have a balance of payments
need arising from a sudden and exogenous shock. An
exogenous shock is understood to be an event beyond
the control of the authorities, with a significant
negative impact on the economy. There is no specific,
pre-defined set of qualifying shocks. Examples of
shocks that may qualify for the ESF are terms of
trade shocks, natural disasters, shocks to demands for
exports, or conflicts or crises in neighboring countries
that may have adverse effects on the balance of
payments. However, shocks resulting from the
variability of aid flows would not normally qualify
for the ESF, nor would balance of payments needs
arising primarily from domestic policy slippages.
With its focus on adjustment to the underlying shock,
a program supported by the ESF will rely more on
macroeconomic adjustment and likely be less
ambitious in terms of structural reform than PRGF-
supported programs. Nevertheless, structural issues
considered important for adjustment to the shock, or
for mitigating the impact of future shocks, are
expected to be adequately addressed.
The terms and conditions of ESF-supported programs
are similar to those of PRGF-supported programs.
These programs must meet the standards required by
upper credit tranche conditionality. However,
structural reforms could be less ambitious than under
a PRGF arrangement, comprising mainly structural
issues deemed important for adjustment to the
underlying shock. Disbursements may be at semi-
annual or quarterly intervals, depending on factors
such as the arrangement’s duration, the balance of
payments need, and administrative capacity
constraints on the part of the authorities. Except for
the disbursement available upon approval of the
arrangement, subsequent disbursements are subject to
phasing and the observance of performance criteria,
and in most cases completion of a review.
Furthermore, the member country must represent that
it has an actual balance of payments need arising
from a shock at the time of each disbursement. While
the IMF will not challenge ex ante a member’s
representation of a balance of payments need,
remedial action would be taken if it were later
discovered that an ESF disbursement was made in the
absence of a need, namely, the member may be
expected to repay the IMF the amount of
disbursement provided in the absence of the need.
INTERNATIONAL MONETARY FUND

37

Given the diverse nature of exogenous shocks and the
uncertainty about their net impact on the balance of
payments need, access will be assessed on a case-by-
case basis. The actual access, determined at the time
of the request for assistance, depends on the balance
of payments need, the size and likely persistence of
the shock, the strength of the adjustment program,
projected response from donors, the outstanding use
of credit from the IMF, and the member’s record in
using IMF credit in the past. However, the norm for
annual access under the ESF is 25 percent of quota.
The maximum limit on total outstanding access to
ESF resources is 50 percent of quota, but this limit
may be exceeded in exceptional circumstances. For
low-income countries subject to a blending of
concessional and non-concessional IMF financing,
the annual access norm is 12.5 percent of quota under
the ESF. Similar to the PRGF, loans under the ESF
carry an annual interest rate of 0.5 percent, with
repayments made semiannually, beginning 5½ years
and ending 10 years after the disbursement.
Concessional lending under the ESF is administered
by the IMF, as trustee, through the PRGF-ESF Trust.
The Trust borrows from central banks, governments,
and official institutions generally at market-related
interest rates, and lends them on a pass-through basis
to PRGF-eligible countries. The difference between
the market-related interest rate paid to PRGF-ESF
Trust lenders and the rate of interest paid by the
borrowing members is financed by contributions
from bilateral donors and the IMF's own resources.
Trade Integration Mechanism
The IMF is a strong advocate of multilateral trade
liberalization, and has pressed for the completion of
the Doha Round, as well as of earlier rounds of
multilateral trade negotiations. To help advance the
Doha Round discussions, in April 2004 the Executive
Board approved the establishment of a Trade
Integration Mechanism (TIM) to address balance of
payments difficulties that may result from
implementation of trade liberalization measures
undertaken by other countries.
73

Eligibility to use the TIM is limited to countries that
experience balance of payments difficulties arising
from trade liberalization measures introduced by
other countries that result in more open market access
for goods and services or that remove trade-distorting
subsidies. Qualifying liberalization measures would
normally be limited to measures introduced either
under a World Trade Organization (WTO) agreement
or on a non-discriminatory basis, irrespective of
context. Members are not eligible to use the TIM for
the adverse effects of their own trade liberalization
measures that are not specific to multilateral trade
negotiations, but these measures remain standard part
of IMF-supported adjustment programs.
The TIM is not a new lending facility that will
provide resources on special terms; it is a policy that
will provide access under the IMF’s existing facilities
(SBA, EFF, or PRGF). The TIM may be accessed in
conjunction with a new arrangement or in the context
of a program review under an existing arrangement.
Access will be governed by the access policies and
the terms and conditions of the underlying
arrangement through which the policy is activated.
The amount of access is governed by an initial
baseline projection of the impact of the trade
measures, but it could be augmented by up to
10 percent under simplified procedures if the actual
(ex post) balance of payments effect is larger than
expected.
The TIM was envisaged to be a temporary policy that
would lapse after the specified trade policies agreed
under the Doha Round had been fully implemented.
In light of the delays in advancing the Doha Round, it
is expected that a decision on the duration of the TIM
will be taken in light of the expected completion of
the negotiations.
74

Special Instruments
Special arrangements exist to review members’
economic conditions and policies outside the
framework of Article IV consultations and outside of
IMF arrangements. These instruments serve special
purposes, involve more intensive scrutiny of
members’ economic policies than under normal
Article IV consultation procedures, and do not
involve the use of IMF resources. These instruments
comprise enhanced surveillance, rights-accumulation
programs, staff-monitored programs, post-program
monitoring, and the policy support instrument.
Enhanced Surveillance
Enhanced surveillance was developed in 1985 as a
signaling device to assist members in addressing their
debt problems with commercial creditors. The
procedure facilitated commercial bank multi-year
rescheduling agreements by providing private
creditors with information about the member’s
economic program and progress in its
3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS



38
not just to mobilize external financing. Enhanced
surveillance does not imply IMF approval or
endorsement of the member’s economic program.
The procedure has not been used since the early
1990s.
75

Rights-Accumulation Programs
The rights-accumulation program (RAP), established
in 1990, allows members to resolve large and
protracted arrears to the IMF in the context of the
“rights approach” as part of the Fund’s strengthened
cooperative strategy on arrears.
76
Eligibility to the
RAP is limited to the eleven members that had
protracted arrears to the Fund at end-1989.
*
Under a
RAP, member would earn rights towards a
disbursement from the Fund once members’ arrears
to the Fund had been cleared, and upon the approval
by the Executive Board of a successor Fund
arrangement.
77

A RAP adheres to the macroeconomic and structural
policy standards consistent with upper credit tranche
conditionality, but does not involve the use of IMF
resources. A member would be expected to make
maximum efforts to reduce its arrears to the Fund
during the RAP, and would, at a minimum, remain
current on obligations falling due to the Fund and the
World Bank. The member would also be expected to
obtain financing assurances from external creditors
needed to finance its adjustment and reform program.
The IMF monitors implementation based on quarterly
performance targets. Observance of program targets
serves to establish a track record of performance and
cooperation prior to the clearance of arrears. The
length of the RAP is normally three years, but with
scope for variation in either direction on a case-by-
case basis.

*
These were Cambodia, Guyana, Honduras,
Liberia, Panama, Peru, Sierra Leone, Somalia,
Sudan, Vietnam, and Zambia. RAPs facilitated the
clearance of arrears with Peru (1993), Sierra Leone
(1994), and Zambia (1995), and with the
availability of the approach having been extended,
it remains available for Liberia, Somalia, and
Sudan.
Staff-Monitored Programs
A staff-monitored program (SMP) may be used in
cases where member countries need to establish a
track record of policy implementation before
discussions can begin on an IMF-supported economic
program, or a re-activation of a program that has
gone off-track.
An SMP closely resembles a formal IMF-supported
program. However, it is an informal arrangement to
monitor the implementation of the authorities’
economic program without entailing Executive Board
endorsement. It also does not have to meet the
standards of upper credit tranche conditionality.
SMPs’ normal duration is 6 to 18 months, although
longer durations are possible. Similar to a formal
IMF-supported program, they are based on a
quantitative macroeconomic framework and include
quarterly performance benchmarks. Assessments are
completed on a quarterly or semi-annual basis. The
Executive Board has the opportunity to comment on
SMPs during Article IV consultation discussions,
informal country matters sessions, or it may also
request formal discussion of an SMP that was
submitted to it for information.
The policy content of an SMP is guided by previous
country reports. If an SMP is initiated during or
between Article IV consultations, the policy content
is guided by the current or preceding Article IV
consultation discussions; if an SMP is intended to
reactivate IMF support after a program has gone off-
track, it must be consistent with the achievement of
the original or updated objectives of the IMF-
supported program.
Post-Program Monitoring
In September 2000, the IMF introduced a policy of
enhanced monitoring of economic developments and
policies in member countries that have come to the
end of their IMF arrangement and whose credit
outstanding exceeds 100 percent of quota.
78
This
post-program monitoring (PPM) was first applied to
use of credit in the IMF’s General Resources
Account, but was expanded in March 2005 to include
the use of resources in the Poverty Reduction and
Growth Facility (PRGF).
79
PPM is not automatically
triggered, but there is a presumption that the
Managing Director will recommend it to the
Executive Board when a member meets the relevant
criteria. PPM may also be triggered if credit
outstanding is less than 100 percent of quota, if there
INTERNATIONAL MONETARY FUND
39



are developments that suggest the need of such a
process, particularly where developments call into
question the member's progress toward external
viability.
PPM is intended to provide an early warning of
policies that could call into question a member’s
continued progress toward external viability, which
could eventually imperil IMF resources or indicate
that IMF resources are not being used for their
intended purpose. It also serves as a mechanism for
bringing these concerns to the attention of the
authorities and the Board and stimulating action to
improve the situation.
PPM focuses on macroeconomic and structural
policies that have a bearing on external viability.
Member countries are expected to engage in policy
discussions with the IMF staff, including with regard
to a quantified macroeconomic framework, much as
is done in Article IV consultation discussions. The
staff formally reports to the Board on the member’s
policies, including the consistency of these policies
with the objective of medium-term viability and their
implications for the member’s capacity to repay the
IMF. There are normally two PPM Board discussions
a year: at the time of the Article IV consultation and a
mid-term review between Article IV consultations.
As with Article IV consultations, PPM discussions
can be concluded on a lapse-of-time basis.
The Policy Support Instrument
In October 2005, the IMF introduced the Policy
Support Instrument (PSI). The PSI is a non-financial
instrument for low-income countries that either do
not want or need financial assistance from the IMF,
but still want IMF advice, monitoring, and
endorsement of their economic policies. The PSI is
available alongside existing IMF instruments and is
intended to meet the needs of members without
PRGF arrangements or who are about to graduate
from PRGF arrangements. PSIs are designed to (i)
promote a close policy dialogue between the IMF and
the member country, (ii) provide more frequent IMF
assessments of the member country’s economic and
financial policies, and (iii) deliver clear signals that
could be taken into account by donors, creditors, and
the general public on the strength of these policies. It
is planned that a review of the experience with the
PSI will be conducted in 2008.
The PSI is available to all PRGF-eligible IMF
members with a poverty reduction strategy in place
and that have a policy framework focused on
consolidating macroeconomic stability and debt
sustainability, while deepening structural reforms in
key areas in which growth and poverty reduction are
constrained. Such countries are considered to be
“mature stabilizers.” PSI-supported programs are
expected to focus on medium-term growth-enhancing
reforms and would benefit from a medium-term
framework for donor assistance.
The Executive Board considers approval of a PSI
based on a staff report and the authorities’
Memorandum of Economic and Financial Policies
(MEFP), provided eligibility conditions are met, and
the members’ policies meet conditionality
requirements. A PRS document should have been
issued within the previous 18 months. A PSI can be
approved for 1-3 years, but can be extended for up to
4 years. PSI reviews will normally be scheduled
semi-annually. Publication of PSI-related documents
is voluntary but presumed, particularly given the
signaling function of the PSI.


40


CHAPTER 4
SPECIAL DRAWING RIGHTS
The SDR as an International
Reserve Asset
The SDR was created as a result of the First
Amendment of the Articles of Agreement, which
became effective in 1969. It was created as a
supplement to existing reserve assets as the demand
for reserves was expected to grow substantially over
time in line with growing world trade.
80
Specifically,
there were concerns that the growth in the supply of
reserves (which comprised mainly gold and the
U.S. dollar) would be insufficient since it depended
on a diminishing supply of newly-mined gold
entering into official reserves and on continued and
unsustainable deficits in the balance of payments of
the United States. It was also thought that U.S. gold
stocks would decline relative to U.S. dollar liabilities,
which would eventually make the par value of the
U.S. dollar relative to gold unsustainable and
precipitate an international monetary crisis. The
intention was therefore to establish the SDR system
to expand world reserves independently of the growth
of official holdings of gold and foreign exchange.
Further changes to the SDR system came about as a
result of the Second Amendment of the Articles of
Agreement, which had as an objective to make the
SDR the principal reserve asset in the international
monetary system. The SDR is also the unit of account
that is used by the IMF.
However, the role of the SDR as a reserve asset has
been very limited and SDRs currently comprise only
a small fraction of members’ international reserves.
To date, only two series of SDR allocations have
been made, totaling SDR 21.4 billion. International
monetary conditions did not evolve as envisaged at
the time of creation of the SDR. The Bretton Woods
par value system broke down in the early 1970s and
was replaced by a system of managed floating
exchange rates. Furthermore, the growth of
international capital markets meant that many
countries could augment their international reserves
through borrowing. Consequently, a shortage of
international reserves did not materialize as expected.
In addition, the SDR can only be held by official
entities or approved official holders, and used in
official transactions and operations. While these
factors limited the role of the SDR as a reserve asset,
the SDR helps lower the cost of holding reserves by
reducing the need for borrowed reserves.
Main Characteristics of the SDR
System
Separation of SDR and GRA Accounts
All operations and transactions involving SDRs are
conducted through a Special Drawing Rights
Department. All other operations and transactions on
account of the IMF, including those involving the use
of IMF resources, are conducted through the General
Department. Assets held in the SDR Department are
not available to finance the operations of the General
Department, and vice-versa, except that the General
Department pays the expenses of conducting the
business of the SDR Department and is reimbursed in
SDRs by the SDR Department. Separate financial
statements are produced for the two departments.
Holders of SDRs
All IMF members have chosen to participate in the
SDR Department. Participants receive allocations of
SDRs, and only participants, the IMF, and prescribed
official entities may hold or use SDRs. There are
currently 15 prescribed official holders.
81
The IMF
and prescribed holders acquire and use SDRs through
transactions with participants and with each other.
The IMF receives and disburses SDRs in transactions
conducted through the GRA, and holds SDRs in the
GRA. Sources of IMF holdings include quota
subscriptions, repurchases, interest on loans to
members and on GRA holdings, and re-imbursements
for the cost of conducting the business of the SDR
Department. Uses of SDRs by the IMF include
purchases, remuneration on members’ creditor
INTERNATIONAL MONETARY FUND

41

positions, repayments of and interest on IMF
borrowing, and acquisition by members to pay
charges and assessments.
Allocation and Cancellation of SDRs
Decisions on the allocation and cancellation of SDRs
are usually made for successive basic periods of five
years each. To date there has not been any
cancellation. Decisions to allocate SDRs are based on
a judgment that a long-term global need to augment
international liquidity exists, and require approval by
an 85 percent majority of the total voting power of
the SDR Department. A participant that votes against
the allocation or notifies the IMF that it does not wish
to receive any allocation will not participate in the
allocation. The IMF cannot allocate SDRs to itself or
to other prescribed official holders.
Allocations or cancellations within a basic period
take place at yearly intervals, although the IMF can
decide to put in place other intervals. Members who
become participants after a basic period starts receive
allocations beginning with the next basic period in
which allocations are made, unless the IMF decides
that the new participant shall start to receive
allocations beginning with the next allocation within
the current basic period.
A proposal for a special one-time allocation of SDRs
was approved by the IMF's Board of Governors in
September 1997 through the proposed Fourth
Amendment of the Articles of Agreement.
82
This
amendment has not yet entered into effect. The
allocation would double cumulative SDR allocations
to SDR 42.8 billion. Its intent is to enable all
members of the IMF to participate in the SDR system
on an equitable basis and correct for the fact that
countries that joined the IMF subsequent to 1981—
more than one fifth of the current IMF membership—
have never received an SDR allocation. The Fourth
Amendment will become effective when three fifths
of the IMF membership (111 members) with 85
percent of the total voting power accept it. As of end-
October, 2006, 131 members with 77.3 percent of
total voting power had accepted the proposed
amendment. Approval by the United States is
necessary to put the amendment into effect.


Use of SDRs
The SDR serves as the unit of account of the IMF and
a number of other international organizations. In
addition, some countries peg their currencies to the
SDR or to a basket of currencies including the SDR.
To serve its purpose as a reserve asset, the SDR must
be fully convertible into foreign currency. The
Articles of Agreement provide for two mechanisms to
ensure the SDRs convertibility: by designating IMF
members with a strong external position to purchase
SDRs on demand, and by arranging voluntary
exchanges between participants.
Transactions by Designation
Under the designation mechanism, participants whose
balance of payments and reserve positions are
deemed sufficiently strong may be obliged, when
designated by the IMF, to provide freely usable
currencies in exchange for SDRs, up to specified
amounts.
83
Members are expected to use transactions
by designation only if they have a balance of
payments or reserve need, not for the sole purpose of
changing the composition of their reserves. The IMF
prepares a quarterly designation plan to facilitate
transactions by designation. The amount of
designation is determined so as to promote over time
a balanced distribution of holdings of SDRs among
individual participants. This plan designates
participants in such manner as to achieve a common
lowest excess holdings ratio (that is, holdings of
SDRs in excess of net cumulative allocations as a
percent of their quota). Since September 1987 no
transactions by designation have taken place; all
exchanges of SDRs for currency have been executed
through voluntary transactions by agreement.
Transactions by Agreement
A member may enter into an agreement with another
member to use its SDRs to obtain an equivalent
amount of currency from that member. Members may
use this mechanism whether or not they have a
balance of payments or reserve need. Transactions by
agreement are facilitated by voluntary arrangements
under which members commit to buy or sell SDRs if
their holdings fall within a specified range, or to sell
SDRs if their holdings rise above a specified
minimum, or to buy SDRs if their holdings fall below
a specified upper limit. Currently there are 12
members and one prescribed holder (the European
Central Bank) with buy-sell arrangements, and one
member with a sell-only arrangement.
84
There are
currently no buy-only arrangements. Transactions by
agreement between these members and others
wishing to sell or buy SDRs are arranged by the IMF.
The IMF initiates sales and purchases on behalf of
members and matches sellers and buyers to ensure
that all demands for currency and SDRs are satisfied.
These arrangements have helped ensure the liquidity
of the SDR system.
4 SPECIAL DRAWING RIGHTS

42


Operations
Besides transactions by designation or agreement, the
IMF has also listed seven types of operations in
which members and prescribed holders may use their
SDRs, and the terms of and conditions under which
these operations may take place.
85
These operations
are: to settle financial obligations, to make loans, to
make pledges, as security for the settlement of
financial obligations, in swap operations, in forward
operations, and to make donations.
86
Operations take
place by agreement among participants and
prescribed holders. All transactions and operations in
SDRs are conducted at the fixed SDR exchange rate
set by the IMF using a basket of four currencies, as
explained below.
Valuation of the SDR
The value of the SDR is the sum of the values of
specified amounts of the four currencies that satisfy
the following criteria:
87
(i) they are issued by IMF
members, or by monetary unions that include IMF
members, that have the largest value of exports of
goods and services; and (ii) they have been deemed
by the IMF to be freely usable currencies.
88
These
four currencies currently are the U.S. dollar, the Euro,
the Japanese yen, and the pound sterling (Table 4.1).
The SDR value is calculated daily in terms of the
U.S. dollar, using the midpoint of the buying and
selling spot exchange rates for each currency against
the U.S. dollar at noon on the London exchange
market as determined by the Bank of England.
89

To fix the specified amounts of each currency
referred to above, first the percentage weight of each
currency in the SDR basket is determined. The
percentage weight is determined by (i) the value of
the balances of that currency held by monetary
authorities other than those of the issuing member
(the relative importance of the currency as a reserve
asset) and (ii) the value of the exports of goods and
services of the issuing member (the relative
importance of the issuing member in world trade).
The specified amount of each currency used in the
calculation of the SDR value is then the amount of
each currency, valued at the average exchange rate
for the three-month period ending on the date on
which the calculation is being made, required to give
the percentage weight of that currency in the SDR
basket. The list of currencies, and the amount of each,
used to calculate the SDR value is reviewed every
five years and are specified in Rule O-1 of the By-
Laws, Rules, and Regulations of the IMF.
Yield and Cost of SDRs
The IMF pays interest on the SDR holdings by
member countries to increase its attractiveness as a
reserve asset. It also levies a charge on the
cumulative SDR allocations to members. The rate of
charge is equal to the rate of interest. Therefore,
members whose holdings equal their cumulative
allocation neither earn nor pay interest on SDRs on a
net basis. Members who use their SDRs and thus hold
less than their cumulative allocation—such as net
debtors to the SDR Department—pay net charges,
while members that hold more than their cumulative
allocation—such as net creditors to the SDR
Department—receive net interest on their excess
holdings. For all members taken together, SDR
interest and charges cancel out so that the net income
of the SDR Department is always zero. To cover the
operating cost of the SDR Department, the IMF
levies an annual assessment, at the same rate for all
participants in the SDR Department, on a
participant’s cumulative SDR allocations.
The SDR interest rate is the weighted average of
short-term market interest rates in the four countries
or monetary areas whose currencies are used to
determine the SDR exchange rate (Table 4.2). The
interest rates used are the market yield for three-
month U.S. Treasury bills, the three-month Eurepo
rate, the thirteen-week Japanese Government
financing bills rate, and the market yield for three-
month U.K. treasury bills. The weights are the SDR
equivalents of the currency amounts that are in the
SDR valuation basket. As in the SDR valuation, the
weights are fixed for a five-year period. The SDR
interest rate is calculated weekly.
INTERNATIONAL MONETARY FUND

43

Currency
Initial weight
2/
(in
percent)
Currency amount
3/
Exchange rate
4/
U.S. dollar equivalent
Euro 34 0.4100 1.26590 0.519019
Japanese yen 11 18.4000 117.59000 0.156476
Pound sterling 11 0.0903 1.88090 0.169845
U.S. dollar 44 0.6320 1.00000 0.632000
SDR 1.483151
1/ Data as of September 19, 2006.
2/ Decision No. 13595-(05/99), effective January 1, 2006.
3/ Under rule O-1.
Table 4.1 Calculation of the SDR Value
1/
Source: IMF, Finance Department.
4/ The exchange rate for the Japanese yen is expressed in terms of currency units per U.S. dollar; other
rates are expressed as U.S. dollars per currency unit.


Currency
amount
2/
Exchange rate
against the SDR
3/
Interest rate
4/
(in percent)
Product
(A)

(B)
(C) (A) x (B) x (C)
Euro 0.4100 0.857314 3.3053 0.519019
Japanese yen 18.4000 0.00574471 0.3350 0.156476
Pound sterling 0.0903 1.27268 4.8700 0.169845
U.S. dollar 0.6320 0.676382 4.9500 0.632000
SDR Interest Rate
5/
3.87
2/ Under rule O-1.
3/ SDR per currency rates are based on the representative exchange rate for each currency.
Table 4.2. Calculation of the SDR Interest Rate
1/
4/ Interest rate on the financial instrument of each component currency in the SDR basket, expressed as an
equivalent annual bond yield: three-month Eurepo rate; Japanese Government thirteen-week financing bills;
three-month UK Treasury bills; and three-month US Treasury bills.
5/ IMF Rule T-1(b) specifies that the SDR interest rate for each weekly period commencing each Monday
shall be equal to the combined market interest rate as determined by the Fund. Under IMF Rule T-1(c), the
combined market interest rate is the sum, as of the Friday preceding each weekly period, rounded to the two
nearest decimal places, of the products that result from multiplying each yield or rate listed above by the
value in terms of SDRs of the amount of the corresponding currency specified in Rule O-1. If a yield or rate
is not available for a particular Friday, the calculation shall be made on the basis of the latest available yield
or rate.
1/ For the week of September 18 to 24, 2006. Data as of Friday, September 15, 2006.
Currency
Source: IMF, Finance Department.




44


CHAPTER 5
COMBATING POVERTY IN LOW-INCOME COUNTRIES
A central objective of the IMF in low-income
countries is to support sustained poverty reduction
through policies that promote economic growth,
employment generation, and targeted assistance to the
poor. This follows from the IMF’s mandate to
contribute “to the promotion and maintenance of high
levels of employment and real income and to the
development of the productive resources of all
members as primary objectives of economic policy.”
In doing so, the IMF works in four main broad
areas—policy advice and program design, capacity
building, financial support and debt relief, and
coordinated international efforts. The IMF focuses on
its core areas of responsibility and expertise, where it
has a clear comparative advantage, namely: the
pursuit of stable macroeconomic conditions and
macro-relevant structural reforms, with supporting
financial and technical assistance. In its work in low-
income countries, the IMF works in close
collaboration with other development partners,
particularly the World Bank, which is the lead
institution for poverty reduction.
90

The IMF, in conjunction with other development
partners, has endorsed a two-pillar strategy for
tackling poverty in low-income countries.
*
First, low-
income countries must be proactive in implementing
sound policies, strengthening institutions, and
improving governance. Second, for those countries
that implement sound policies and reforms, the
international community must provide strong support
through greater trade opportunities and increased and
better-delivered aid flows.
The IMF has been working on both elements of the
two-pillar strategy. The thrust of its efforts has been

*
The international community endorsed this
strategy at the United Nations’ Conference on
Financing for Development held in Monterrey,
Mexico, March 2002, and at the World Summit on
Sustainable Development in Johannesburg, South
Africa, in August 2002.
in assisting low-income countries in developing and
implementing country-owned poverty reduction
strategies and policies; mobilizing the necessary
financial and technical support from the international
community, including debt relief; and promoting an
international economic environment that is conducive
to poverty reduction and the attainment of the
Millennium Development Goals (MDGs). In this last
regard, examples include the support of efforts to
improve market access for developing countries’
exports, reduce trade-distorting subsidies in advanced
economies, or eliminate barriers to trade among
developing countries.
The IMF and the World Bank have pioneered the
development of two initiatives to tackle poverty in
low-income countries. The first initiative is the
Poverty Reduction Strategy (PRS) framework for the
provision of international development assistance to
low-income countries, including concessional lending
from the IMF and the World Bank. The PRS
framework has become the basis of IMF and World
Bank concessional lending operations. The second
initiative is the Heavily Indebted Poor Countries
(HIPC) Initiative for the provision of debt relief by
the international community to low-income countries.
These two initiatives have been widely adopted by
low-income countries and by the international donor
community. In addition, the IMF also participates in
the Multilateral Debt Relief Initiative (MDRI) in
response to a proposal by the Group of Eight (G-8)
industrial countries to cancel the obligations of low-
income countries to specific multilateral institutions.
The IMF’s principal vehicle for concessional
financial support to low-income countries is the
Poverty Reduction and Growth Facility (PRGF). An
IMF instrument available to low-income countries
that may not need or want access to IMF financial
resources is provided through the Policy Support
Instrument (PSI). Additional instruments available to
low-income countries are the Emergency Post-
Conflict-Assistance (EPCA) and the Exogenous
Shocks Facility (ESF). All these facilities or special
instruments are described in more detail in Chapter 3.
INTERNATIONAL MONETARY FUND

45

The Medium-Term Strategy (MTS), discussed in
Chapter 1, will have an impact on the IMF’s role in
low-income countries, namely by envisaging a
refocusing of the IMF’s work on macro-critical areas,
improved collaboration with other institutions,
greater flexibility in conditionality, increased
involvement in managing the implications of debt
relief, and assessing the relationship between aid
inflows, resources needs related to the Millennium
Development Goals and macroeconomic stability.
Poverty Reduction Strategy
Framework
A central goal of the IMF’s engagement with low-
income countries is to support their efforts for
achieving their Millennium Development Goals. In
that context, the Poverty Reduction Strategy (PRS)
has been broadly accepted as the framework for
coordinating the efforts of low-income countries and
development partners to achieve the MDGs. The IMF
supports, in line with the MTS, sustained poverty
reduction and reaching the MDGs through its work
promoting macroeconomic stability and sustained
growth. Moreover, the IMF plays a critical role in
helping low-income countries address the
macroeconomic challenges of increased aid inflows.
Poverty Reduction Strategy documents are prepared
by the member countries through a participatory
process involving domestic stakeholders and external
development partners, including the IMF. The PRSP
framework is intended to focus policies and resources
of both low-income countries and the international
donor community on poverty reduction. The strategy
to combat poverty is embodied within a poverty
reduction strategy document, which can be Poverty
Reduction Strategy Paper (PRSP), an Interim PRSP
(I-PRSP), a PRSP preparation status report, or a
PRSP or Annual Progress Report. The PRSP
describes the country's macroeconomic, structural
and social policies and programs over a three year or
longer horizon to promote broad-based growth and
reduce poverty, as well as associated external
financing needs and major sources of financing. It is
updated every three years with Annual Progress
Reports. I-PRSPs summarize the current knowledge
and analysis of a country's poverty situation, describe
the existing poverty reduction strategy, and lay out
the process for producing a fully developed PRSP in
a participatory fashion. The country documents are
made available on the IMF website by agreement
with the member country.
These documents form the basis on which the IMF,
the World Bank, and other donors base their
concessional lending decisions and debt relief.
91

However, IMF and the World Bank Boards do not
need to endorse the poverty reduction strategy
documents as a satisfactory basis for concessional
lending.
92
IMF support under the PRSP framework is
provided under the Poverty Reduction and Growth
Facility (PRGF).
Preparation of a Poverty Reduction
Strategy Document
Requests for a PRGF arrangement with the IMF
require that a PRS document be issued within the
previous 18 months. Countries also need to have a
PRSP in order to qualify for debt relief under the
Heavily Indebted Poor Countries (HIPC) Initiative, as
explained below.
Where a country is unable to prepare a full PRSP in a
timely manner to support its request for financial
assistance or debt relief under the HIPC Initiative, it
may submit an I-PRSP under a transitional
arrangement. In this case, the full PRSP should be
completed prior to the start of the second year of the
program. Where completion of the full PRSP is
expected to be delayed beyond the start of the second
year, a progress report on the implementation of the
I-PRSP and the status of preparation of the full PRSP
can provide the basis for continued access to
concessional assistance.
Countries should preferably update their PRSPs every
three years, to ensure that the PRSP and PRGF cycles
coincide and to ensure that PRGF arrangements are
based on updated PRSPs. In between updates,
countries need to prepare an annual progress report
on implementation of the PRS.
A key element of the PRSP framework is the
country’s ownership. The PRSP or I-PRSP should be
prepared using a broad participatory process,
involving consultations among a wide spectrum of
the civil society and the international donor
community. This helps to ensure that there is a
national consensus regarding the appropriateness of
the poverty reduction strategy, and a political
commitment to its successful implementation.
Content of a PRSP or I-PRSP
PRSPs reflect country-specific circumstances, and
therefore their content will vary from country to
5 COMBATING POVERTY IN LOW-INCOME COUNTRIES

46


country and over time within a given country.
However, the IMF and the World Bank have
suggested the following as possible core elements of
a PRSP:
• A comprehensive diagnostic of the
nature, causes, and incidence of poverty;
• A clear and detailed statement of the
medium- and long-term outcome-oriented
targets for the country’s poverty reduction
strategy, and the macroeconomic, structural,
and social policies that together comprise a
comprehensive strategy for achieving these
outcomes;
• A description of the framework and
mechanisms for monitoring implementation,
including the extent and planned development
of participatory processes designed to
strengthen accountability, the indicators to be
monitored, and the planned frequency of
reporting and monitoring; and
• An assessment of the external financial
and technical assistance that would be required
to achieve the objectives of the poverty
reduction strategy.
The I-PRSP includes the following:
• An interim report by the government
presenting its commitment to poverty
reduction, the main elements of its poverty
reduction strategy consistent with the extent of
diagnosis that has been conducted, and a
timeline and a consultative process by which
the PRSP will emerge.
• A jointly agreed but tentative three-
year macroeconomic framework and three-
year policy matrix, focusing on poverty
reduction, which will be revised when the
interim document is replaced by a full PRSP.
Joint Staff Advisory Note on the PRS
Document
A request for a PRGF arrangement is granted only if
the Executive Boards of the IMF and the World Bank
are satisfied that the PRS document constitutes a
sound basis for concessional lending to the country.
The Executive Boards’ judgment on the PRS
document is based in large part on the Joint Staff
Advisory Note (JSAN), which is an assessment report
prepared jointly by the staffs of the IMF and the
World Bank.
93
The JSAN is circulated to the
Executive Boards at the same time as the PRS
document and provides detailed feedback to the
country authorities on the strengths and weaknesses
of their poverty reduction strategies. The Medium-
Term Strategy is contemplating the elimination of
JSANs.
Alignment of the PRGF with the PRSP
The PRSP is the basis for IMF lending to the country
under a PRGF arrangement. This is intended to
ensure that PRGF-supported economic policies are
fully consistent with the poverty reduction strategy.
94

This is accomplished through the requirement that the
PRSP contain a realistic macroeconomic policy
framework that is fully aligned with the poverty
reduction goals, targets, and policies. PRGF-
supported economic programs are drawn directly
from the PRSP by implementing the macroeconomic
component of the PRSP, and thereby directly
contributing to the attainment of the country’s
poverty reduction goals. Where PRSPs lack
specificity—i.e., do not contain sufficiently specific
targets and policy measures—PRGF-supported
programs, like other donor-supported programs, may
include measures that are not specified or foreseen in
the PRSP, but that are consistent with, and critical
for, reaching the country’s growth and poverty
reduction objectives.
Consistent with the PRSP approach, IMF-supported
economic programs in low-income countries have
been redesigned to make them more poverty-oriented,
country-driven, and collaborative. They now place
more emphasis on country ownership of economic
policies; flexibility of fiscal policy to accommodate
economic growth and poverty objectives;
reorientation of public expenditure toward the social
sectors; and improvement of public resource
management, public accountability, and governance
(Box 5.1). They are also more focused on the IMF’s
core areas of expertise, in line with the IMF’s general
move to streamline structural conditionality. This
means greater reliance on, and coordination with,
programs supported by the World Bank and other
donors. The design and conditionality of PRGF-
supported programs also increasingly integrates
poverty and social impact analyses (PSIAs), which
are led by the World Bank.
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47

Given capacity and data constraints, many countries
are as yet unable to engage in broader and deeper
analysis of the macroeconomic frameworks and of
policy choices in PRGF-supported programs. The
IMF provides technical assistance to help countries
build capacity in macroeconomic and financial
programming, and in economic statistics.
Aid Coordination and Effectiveness
The PRS framework facilitates the coordination
across different development agencies, reduces
transactions costs, and increases the effectiveness of
external aid in reducing poverty. To this end, the IMF
systematically shares information with other
donors—on the timing and results of negotiation and
review missions, on the conditions and proposed
timing of donor disbursements, and on the technical
assistance provided by the IMF—and takes into
account the impact of policies supported by other
donors in PRGF-supported programs. Together with
the World Bank, the IMF is also engaged in efforts to
increase alignment of donor support with the PRS
and the national budget cycle, so that individual
donors can derive the content and conditionality of
their programs directly from the PRS whenever
possible. This helps address problems of focus and
overly burdensome conditionality in uncoordinated
donor programs. Finally, the IMF encourages donors
to make medium-term commitments of aid, where
possible, to increase the predictability of external
financing and strengthen the national budgetary
process.
HIPC Initiative
The HIPC Initiative, established in 1996, provides
exceptional assistance to eligible member countries to
reduce their external public debt burdens to
sustainable levels, thereby enabling them to service
their external debts without the need for further debt
relief and without compromising poverty reduction
efforts or economic growth.
95
It is a comprehensive
approach to debt relief which involves other
multilateral creditors as well as official bilateral and
commercial creditors. The IMF’s launching of the
HIPC Initiative is consistent with its mandate to
provide balance of payments assistance as well as
promote economic growth in member countries. In
September 1999, the IMF and the World Bank agreed
to strengthen the HIPC Initiative to provide broader,
deeper, and faster debt relief by lowering the
threshold and the performance period requirement,
thereby increasing also the number of eligible
countries. At the same time, the links between debt
relief and poverty-reduction efforts were strengthened
through the PSRP framework.
*

The HIPC Initiative was defined as a temporary
initiative, but has been extended a number of times. A
sunset clause, which had already been extended four
times since its introduction in 1996, is taking effect at
end-2006. However, allowing the sunset clause to
take effect without any modification would have left
a number of countries with debt burdens in excess of
the Initiative’s threshold and without a
comprehensive framework. Instead, the Board
decided in October 2006 to grandfather all countries
that are assessed to have met the income and
indebtedness criteria based on end-2004 data,
including countries that might meet these criteria at
some point in the future.
96



*
The post-September 1999 HIPC Initiative is
sometimes referred to as the “enhanced HIPC
Initiative.” Here, the original term “HIPC
Initiative” is retained for simplicity, but it and the
term “Initiative” are understood to refer to the
post-September 1999 framework.
5 COMBATING POVERTY IN LOW-INCOME COUNTRIES



48

Box 5.1. Summary of Key Features of PRGF-Supported Programs
1

Programs Are Based on Broad Participation and Ownership
• Main elements of PRGF are drawn from the country’s PRSP.
• Country authorities produce PRSP in a transparent process with broad participation.
Programs Are Embedded in the Overall Strategy for Growth and Poverty Reduction
• PRGF-supported program is derived from, and reflects, the overall growth and poverty reduction strategy.
• Macroeconomic and structural policies are fully integrated with growth and poverty objectives.
• Emphasis is put on policies to promote private sector development.
• PRGF support of the strategy is focused on areas within the IMF’s area of expertise and responsibility.
Budgets Are More Poverty-Oriented
• Government spending is oriented toward activities that benefit the poor, directly or indirectly.
• Priority is given to improving the efficiency and targeting of growth and poverty-related spending.
• Emphasis is put on improving data and monitoring in order to track expenditures.
• Tax reforms seek to improve tax efficiency and equity while generating resources for poverty reduction
Fiscal Targets Are More Flexible
• More normative macro-projections may be presented to signal financing needs.
• Where warranted, commitments of higher aid flows are sought from donors and built into the program.
• PRSP may identify contingent expenditures that could be added if more aid were forthcoming.
• Fiscal targets may be modified in the event of key shocks.
Structural Conditionality Is More Selective
• Conditionality is focused on key measures that are central to the success of the strategy.
• Conditionality is limited to measures that are in the IMF’s domain; exceptions must be justified.
Emphasis Is Placed on Measures to Improve Public Resource Management and Accountability
• Fiscal policies and objectives should be open to public debate.
• Transparent monitoring systems should be used to improve delivery of public services.
• For HIPCs, programs include specific mechanisms for monitoring use of debt relief.
• Selective conditionality on fiscal governance measures may be used.
Social Impact Analysis of Major Policies and Reforms Are Integrated into Program Design
• Distributional effects of substantial macro-adjustments or structural reforms are taken into consideration.
• Countervailing measures are incorporated to offset temporary adverse effects on the poor.
• World Bank leads impact analysis; PRGF documents describe work done and how analysis influenced
policies.
_________________________
1
See Key Features of PRGF-Supported Programs, August 16, 2000, available on the Internet at:
http://www.imf.org/external/np/prgf/2000/eng/key.htm.

INTERNATIONAL MONETARY FUND

49


Operational Aspects of the HIPC Initiative
An eligible member that has satisfied the necessary
conditions for assistance under the Initiative receives
a commitment of debt relief at the “decision point”,
which is the date at which the IMF and the World
Bank decide that the member country qualifies for
assistance under the Initiative. The committed
amount of debt relief is the amount calculated by the
IMF and the World Bank, on the basis of a loan-by-
loan debt sustainability analysis, as necessary to
reduce the member’s external debt to a level deemed
sustainable. Countries that reach the decision point
may begin to receive limited interim debt relief. Once
the member country meets the conditions for
assistance established for it at the decision point, the
full amount of debt relief committed at the decision
point, less any interim assistance disbursed, is
delivered at the “completion point”, which is the date
at which the IMF and the World Bank decide that
necessary conditions have been met and a decision is
taken to disburse the assistance committed. A
topping-up decision can also be taken, as is discussed
later, but, briefly, involves the disbursement of
assistance over and above that which was committed
at the decision point. The debt relief provided to a
member at the completion point is irrevocable and is
provided with no further policy conditionality.
Eligibility Requirements for the HIPC
Initiative
IMF assistance under the HIPC Initiative is limited to
countries that:
• are PRGF-eligible (described in detail
in Chapter 3);
• are pursuing a program of adjustment
and reform supported by the IMF through a
PRGF or Extended Arrangement, a Stand-By
Arrangement, a decision on rights of
accumulation, or Emergency Post Conflict
Assistance; and
• have received, or are eligible to
receive, assistance to the full extent available
under traditional debt relief mechanisms. Even
after the full application of these traditional
debt relief mechanisms, the member’s external
debt situation, based on end-2004 data, is
unsustainable, as defined under the HIPC
Initiative.
To qualify for assistance (i.e., to reach the decision
point) under the Initiative, an eligible member must
have:
• an unsustainable external debt, even
after the application of traditional debt relief
mechanisms, based on the latest available
external debt data;
• a satisfactory poverty reduction
strategy set out in an PRS document issued to
the Executive Board within the previous 18
months;
• not agreed on an exit operation with
Paris club creditors on Naples terms after
September 1999;
• established a track record of strong
policy performance under IMF-supported
programs, covering macroeconomic policies
and structural and social policy reforms; and
• a commitment from all other creditors
(holding debt claims above a certain minimum
amount) to participate in the Initiative.
Definition of Debt Sustainability and Debt
Relief
A sustainable debt is defined under the HIPC
Initiative as an external public debt that is equal in
net present value terms to no more than 150 percent
of exports of goods and non-factor services calculated
on the basis of data available at the decision point.
Thus, the total amount of HIPC Initiative assistance
to the country committed at the decision point by all
creditors is calculated so as to bring the net present
value of the debt down to 150 percent of exports. In
the special case of a country that has, at the decision
point, (i) an exports-to-GDP ratio of at least
30 percent and (ii) a fiscal revenue-to-GDP ratio of at
least 15 percent, a debt sustainability target of below
150 percent for the debt-to-exports ratio at the
decision point may be set, with the specific target set
to reduce the external debt in net present value terms
to 250 percent of fiscal revenue at the decision point.
5 COMBATING POVERTY IN LOW-INCOME COUNTRIES

50


Requirement of a Track Record
The requirement of a track record of strong policy
performance is normally satisfied by an initial three-
year performance period leading up to the decision
point, followed by a second performance period
leading up to the completion point. In the case of the
first three-year period leading to the decision point,
the member’s economic program could be supported
by arrangements under the PRGF, ESF or EFF. In
some cases, these programs could also be supported
by a Stand-By Arrangement, decisions on rights
accumulation, or the policy on emergency assistance
for post-conflict countries. Members could receive
credit toward the decision point for programs that
were underway prior to the adoption of the HIPC
Initiative. In the case of the second performance
period leading up to the completion point, the
member’s program must be supported by PRGF, ESF
or Extended Arrangements.
The second performance period is not fixed; it ends
when the member has satisfactorily implemented a
set of pre-defined key policy reforms, has a stable
macroeconomic position, and has kept on track with
its IMF-supported program. In addition, the member
would need to have prepared a PRSP and
implemented the poverty strategy satisfactorily for at
least a year by the completion point. The completion
point is thus described as a “floating” completion
point: it triggers whenever the above conditions are
satisfied. The use of floating completion points
provides an incentive for countries to implement
reforms quickly, thereby permitting strong
performers to reach the completion point earlier. It
also allows HIPC countries greater ownership over
the reform timetable.
Amount of IMF HIPC Assistance
The IMF’s share of total HIPC Initiative assistance is
based on:
• the IMF’s share in the present value of
the multilateral debt of the member at the
decision point; and
• the assistance to be provided by
multilateral creditors in terms of a reduction in
the net present value of the debt owed to them
by the member sufficient to achieve the debt
sustainability targets. This is calculated taking
into account the exceptional assistance to be
provided by Paris Club creditors and at least
comparable action by other official bilateral
and commercial creditors under the Initiative.
During the interim period between the decision point
and the completion point, the IMF may advance to
the member, as interim assistance, a portion of its
committed assistance not to exceed (i) 20 percent of
the total assistance committed for each 12-month
period following the decision point and (ii) a
maximum of 60 percent of the total assistance
committed. These amounts may be raised to
25 percent and 75 percent respectively, in exceptional
circumstances. However, the amount of interim
assistance in any 12-month period cannot exceed the
amount of debt service falling due to the IMF during
that period.
At the completion point, the IMF disburses the
amount committed at the decision point, less any
interim disbursements made after the decision point.
The HIPC Initiative allows for the provision of
additional debt relief under exceptional circumstances
to countries at the completion point. However, a
reassessment of the amount of debt relief committed
at the decision point is not automatic. Additional debt
relief—referred to as “topping-up assistance”—under
the Initiative could be considered, to achieve a
sustainable debt ratio, only if the deterioration in debt
sustainability since the decision point is attributable
primarily to a fundamental change in the member’s
circumstances owing to exogenous factors.
97
The
IMF approves all disbursements under the HIPC
Initiative in the context of satisfactory assurances
regarding the assistance to be provided under the
Initiative by the member’s other creditors.
Terms of IMF HIPC Assistance
IMF HIPC assistance may be given as grants or
loans, as determined on a case-by-case basis, taking
into account the objective of bringing the debt-to-
exports ratio down to the debt sustainability target
agreed at the decision point. Such loans and grants
are used at the completion point as an early
repayment of the member’s qualifying debt to the
IMF. Debt-relief loans are provided interest-free, and
have a grace period of 5½ - 10½ years and a maturity
of 10-20 years. The actual maturity is determined on
a case-by-case basis. Repayment of these loans
cannot be rescheduled. To date, all HIPC Initiative
debt relief has been given in the form of grants, in
order to avoid a further accumulation of debt by
HIPC countries.
Use of Resources Freed by Debt Relief
Debt relief under the HIPC Initiative is an integral
part of international efforts to eradicate poverty in
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low-income countries. One of the main benefits of the
Initiative is that, by reducing annual debt-service
payments, it will make possible the accommodation
of higher levels of expenditure to accelerate poverty
reduction, including social spending. Therefore,
beneficiaries of HIPC Initiative assistance are
expected to use the resources released from debt
service payments to finance spending that directly or
indirectly reduces poverty and improves living
conditions. In particular, spending on the social
sectors is expected to be higher than what it otherwise
would have been. However, the IMF and World Bank
emphasize that, in addition to increasing spending,
countries should take steps to improve the efficiency
of public spending, in terms of both the inter-sectoral
composition of spending and the allocation of
spending within sectors.
To ensure that additional spending on poverty
reduction takes place and is appropriately targeted,
the IMF provides technical assistance to beneficiary
countries to strengthen their public expenditure
management systems and expenditure tracking
mechanisms, so that countries can effectively track
public spending. The IMF also emphasizes
transparency and accountability in the management
of the freed resources. This allows countries to
demonstrate to the donor community that the
resources are being used effectively for poverty
reduction, and helps sustain or increase aid flows to
low-income countries.
Multilateral Debt Relief Initiative
In November 2005, the IMF decided to adopt a new
Initiative to provide debt relief to low-income
countries (including two member countries that were
not HIPCs) in addition to the debt relief provided
under the HIPC Initiative. This initiative, called the
Multilateral Debt Relief Initiative (MDRI), provides
grant assistance to eligible low-income member
countries to repay all of their qualifying outstanding
debt to the IMF.
98
The vehicles to facilitate these
grants are the MDRI-I and MDRI-II Trust Accounts,
which came into effect in January 2006, following
consent of all contributors to the PRGF Subsidy
Account to the transfer of their contributions to the
MDRI-II Trust Account.
In order to receive MDRI Trust assistance, low-
income member countries must meet eligibility
criteria, and then pass a separate threshold for
qualification.
The countries that may benefit from MDRI debt relief
from the IMF include:
• all HIPC countries once they reach the
completion point under the HIPC Initiative;
and
• all non-HIPC counties at or below the
US$380 per capita income threshold.
At the time when the MDRI was established, the
Executive Board requested that the following
qualification criteria be established:
• Post-HIPC completion point countries
would need to meet a number of criteria to
qualify for MDRI relief. In addition to being
current on their obligations to the IMF, they
needed to demonstrate satisfactory
performance in three key areas:
(a) macroeconomic performance;
(b) implementation of a poverty reduction strategy
detailed in a Poverty Reduction Strategy Paper
(PRSP) or a similar framework; and
(c) public expenditure management systems.
• Countries that have not yet reached the
completion point under the HIPC Initiative
will qualify for MDRI relief upon reaching the
completion point.
Upon determination of qualification, the applicable
MDRI-I or MDRI-II Trusts will repay to the IMF an
amount equivalent to the member’s outstanding
eligible debt to the IMF, subject to the availability of
resources. “Eligible outstanding debt” is that part of
the member’s debt to the IMF (including to the IMF
as trustee) outstanding as of December 31, 2004 that
has not been (or is not scheduled to be) repaid by the
member, or with assistance committed or disbursed
under the HIPC Initiative.



52


CHAPTER 6
CAPACITY BUILDING: TECHNICAL ASSISTANCE AND TRAINING
Capacity building is provided by the IMF to member
countries mostly in the form of advice and training
provided by IMF staff, headquarters-based technical
assistance experts, and experts in the field employed
by the IMF. Requests for technical assistance arise
from the authorities’ initiatives to identify and correct
weaknesses in policy formulation or implementation.
They may also result from discussions in the context
of IMF surveillance or lending operations or as
follow-up on FSAP and ROSC exercises.
Role of Capacity Building
Technical Assistance
Technical assistance is a crucial aspect of the IMF’s
operations and helps members in strengthening their
policy formulation and implementation, and the legal,
institutional, and market frameworks within which
they operate. It also constitutes an important
complement to IMF surveillance and lending
operations in member countries. In surveillance and
lending operations, IMF staff work with country
authorities to identify the policies and reforms
required to correct particular macroeconomic and
structural problems. Technical assistance, on the
other hand, focuses on the implementation of these
policies and reforms.
99
Thus technical assistance
enhances the effectiveness of the IMF’s surveillance
and lending operations in member countries, and
there is emphasis on better integrating it with these
operations. In addition, by increasing the likelihood
that economic programs will be fully and successfully
implemented, technical assistance strengthens
members’ capacity to repay the IMF and thus helps
preserve the revolving character of the IMF’s loan
resources.
Technical assistance is provided by the IMF to
member countries mostly in the form of human
resources. The human resources comprise IMF staff,
headquarters-based consultants, and experts hired by
the IMF, who provide their services to member
countries in response to specific requests for
assistance from the authorities. These requests for
assistance may originate in the context of surveillance
discussions or lending operations, ROSC exercises,
or the work of regional technical assistance centers
(RTACs). They may also stem from the authorities’
own initiative to identify and correct weaknesses in
policy implementation.
The IMF provides technical assistance only upon
request by members. However, demand for technical
assistance from the IMF is strong, as it confers
substantial benefits at a modest cost or no cost to
most member countries and is provided without
conditionality. Under current procedures, most
technical assistance is provided free of charge and
charges for technical assistance account for less than
one percent of the cost of IMF technical assistance.
100

From the member country’s perspective, technical
assistance satisfies an immediate or short-run need
for technical skills to support the policy dialogue and
formulation and to implement specific
macroeconomic policies and structural reforms. It
also helps to develop long-term national capacity to
design and implement economic policies and reforms.
Technical assistance also constitutes a channel for
learning from the experiences of other countries, and
ensuring that legal and institutional frameworks meet
international standards and strengthen national
ownership of economic programs and policies.
In these ways technical assistance helps to address
resource constraints, improves national economic
management and governance, and contributes to
macroeconomic stability and economic growth in
member countries. It is a particularly valuable
resource for developing, transition, and post-conflict
countries, where institutional weaknesses are
important constraints on policy design and
implementation. In post-conflict countries, technical
assistance is helpful in the reconstruction of
economic institutions and may pave the way for IMF
financial support.
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Training
The IMF, principally through the IMF Institute,
delivers training that enhances the ability of member
country officials to analyze economic developments
and formulate and implement effective economic
policies. It is an important aspect of capacity building
that supports and complements the IMF’s
surveillance, lending, and technical assistance
activities, emphasizing practical applications of
theory to real-world policy issues that academic
institutions often treat in the abstract. IMF training is
heavily demanded by the membership, as—like
technical assistance—it offers countries sizeable
benefits at little cost to them.
Types of Technical Assistance
and Training
The main IMF departments providing capacity
building services in the IMF are the Fiscal Affairs
Department (FAD), the IMF Institute (INS), the
Monetary and Capital Markets Department (MCM),
the Statistics Department (STA), and the Legal
Department (LEG).
101

• The Fiscal Affairs Department
provides advice on tax policy advice in the
areas of income tax, value-added tax, and
taxation of natural resources, and support for
the design and implementation of strengthened
tax and customs administration, social security
contribution collection, and major tax policy
changes. Advice in public financial
management includes legal and regulatory
frameworks, budget management, cash
management, accounting, reporting, and debt
management. Advice also covers expenditure
policy, macro-fiscal management, public-
private partnerships and fiscal risks, and fiscal
decentralization.
• The IMF Institute delivers, in
collaboration with other IMF departments,
courses and seminars on macroeconomic
management in general and on policies related
to the financial sector, the budget, and the
balance of payments, including how to
strengthen the statistical, legal, and
administrative framework in these areas. INS
offerings encompass long-standing courses
such as financial programming and policies
and newer, more specialized courses is such
areas as macroeconomic diagnostics, inflation
targeting, financial markets, and debt, while
other departments deliver training within the
INS program to complement their technical
assistance activities.
• The Monetary and Capital Markets
Department provides advice on central
banking and currency arrangements, monetary
and exchange policy operations, public debt
management, reserves management, financial
market development, exchange systems and
currency convertibility, payments systems,
bank supervision and regulation and financial
market integrity, bank restructuring and
banking safety nets, and the implementation of
international standards. In the area of capital
markets, MCM provides advice on market
access, asset and liability management,
financial instruments, investor relations
programs, corporate sector’s needs and
vulnerabilities, investment climate issues, and
local capital markets.
• The Statistics Department provides
advice on balance of payments, international
investment positions, and external debt
statistics, reserve assets and foreign currency
liquidity, and external debt statistics,
government finance statistics, monetary and
financial statistics, financial soundness
indicators, national accounts and price
statistics, and data dissemination standards.
• The Legal Department provides
technical assistance primarily relating to the
review or drafting of laws or regulations in the
areas of tax and fiscal matters; central
banking, commercial banking (including bank
insolvency and deposit protection schemes);
payments systems; creditor rights (corporate
insolvency and restructuring, secured
transactions, and enforcement of financial
claims); foreign exchange; and on combating
money laundering and the financing of
terrorism.
Capacity Building Priorities
As the demand for technical assistance and training
from the IMF outstrips the supply, the IMF prioritizes
assistance to allocate its available resources.
102
The
IMF provides technical assistance and training
mainly in the areas that are within its core mandate
and only provides technical assistance and training in
6 CAPACITY BUILDING: TECHNICAL ASSISTANCE AND TRAINING

54


the areas of secondary priority where it would have a
significant macroeconomic impact, and in other areas
only in exceptional circumstances. Following the
assessment by the Independent Evaluation Office
(IEO) of the IMF’s technical assistance, and
reinforced by the Medium-Term Strategy, the focus
has shifted away from the previous use of
prioritization filters to a much closer integration
between technical assistance and the IMF's
surveillance and lending operations, and a greater
role of area departments.
103
Other important factors
are the macroeconomic criticality of the problem, the
track-record of implementation by the authorities, and
the extent to which other technical assistance
providers are able to provide follow-up assistance to
help implement reform programs and action plans
developed by the IMF’s technical assistance.
Sources and Uses of Capacity
Building Resources
About three-quarters of technical assistance provided
during 2002-2006 is financed out of the IMF’s own
resources (Table 6.1). The remainder is financed
through contributions from bilateral or multilateral
donors through accounts established at the IMF for
the administration of such resources. To facilitate the
opening of such accounts, the IMF has set up an
umbrella Framework Administered Account for
Technical Assistance Activities (FAA). Japan
provides about half of the externally provided
resources.
Modes of Delivery of Capacity
Building
There has been a movement away from ad-hoc stand-
alone short-term staff visits and from long-term
resident experts towards greater use of short-term
experts, and in particular peripatetic support (series of
expert visits). There is also growing emphasis on
regional approaches to technical assistance delivery
through the establishment of regional technical
assistance centers. There has likewise been a shift
toward delivering training through a network of
regional training centers.
Short-Term Visits by Staff and
Headquarters-Based Consultants
Short-term visits usually last two to three weeks, at
the end of which the staff or consultants write a
report setting out their analysis, conclusions, and
recommendations. There may be follow-up visits to
assist with and monitor the implementation of the
recommendations. Most short-term technical
assistance visits cover a specific subject within a
given economic sector. However, the Statistics
Department also undertakes multi-sector missions.
Long-Term Advisors
Where the member country would need on-site
advice and assistance over an extended period of time
to implement reforms, the IMF posts an advisor in the
country. Advisors are usually posted in the central
bank, Ministry of Finance, or statistical office, for
periods ranging from six months to three years. They
may also be regional advisors, covering two or more
countries in a region or working with regional
institutions. They collaborate closely with
headquarters-based staff and submit periodic reports
on their activities.
Regional Technical Assistance Centers
Increasingly, technical assistance is delivered through
regional technical assistance centers (RTACs).
RTACs have resident staff, and work closely with the
regional governments in identifying technical
assistance needs and in designing and implementing
technical assistance programs. They are a cost-
effective way of providing technical assistance to a
group of countries, maximizing the use of local
expertise, and tailoring assistance and advice to local
conditions. RTACs provide about 17 percent of all of
the IMF’s technical assistance.
104



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FY2002 FY2003 FY2004 FY2005 FY2006
IMF technical assistance budget 268.8 262.2 262.1 283.4 341.1
Staff 172.2 174.1 186.1 195.6 258.7
Headquarters-based consultants 23.2 20.1 20.6 27.4 23.7
Field experts 73.4 68.0 55.4 60.4 58.7
External technical assistance resources 77.8 93.5 105.3 97.2 88.1
United Nations Development Program 9.6 9.6 8.1 5.8 5.0
Japan 56.2 61.9 61.6 52.5 45.6
Other cofinanciers 12.0 22.0 35.6 38.9 37.6
Total technical assistance resources 346.6 355.7 367.4 380.6 429.2
Technical assistance regional delivery 2/ 280.0 286.5 291.1 301.4 290.9
Africa 71.9 72.1 83.8 86.9 82.7
Asia and Pacific 63.1 67.5 69.0 68.2 59.8
Europe I 30.3 27.7 -- -- --
Europe II 32.6 25.1 -- -- --
Europe -- -- 35.5 34.5 37.3
Middle East 22.4 26.5 -- -- --
Middle East & Central Asia -- -- 40.1 45.1 56.3
Western Hemisphere 28.0 32.6 26.6 32.7 40.5
Regional and Interregional 31.7 35.1 36.0 33.9 14.4
Technical assistance management and administration 3/ 66.6 69.2 76.4 79.2 138.3
Total technical assistance delivery 346.6 355.7 367.4 380.6 429.2
Total technical assistance delivery by department 346.6 355.7 367.4 380.6 429.2
Monetary and Financial Systems Department 115.5 120.0 122.0 127.0 125.7
Fiscal Affairs Department 97.5 94.3 95.6 99.5 100.2
IMF Institute 56.0 55.4 53.6 57.0 80.7
Statistics Department 49.2 55.7 59.0 53.1 54.3
Legal Department 15.5 19.6 23.9 23.5 20.0
Other 4/ 12.9 10.7 13.3 20.4 48.3
Table 6.1. IMF Technical Assistance Resources and Delivery
(in effective person-years)
1/
1/ An effective person-year of technical assistance is 260 days.
2/ In FY2004 the former European II Department was dissolved, and its countries were absorbed by the new European
Department and the Middle East and Central Asia Department.
3/ Indirect technical assistance, including technical assistance policy, management, evaluation, and other related activities.
4/ Includes the Policy Development and Review Department, the Technology and General Services Department, and the
Office of Technical Assistance Management.
Source: IMF, Office of Technical Assistance Management.




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56


There are five regional technical assistance centers: the
Pacific Financial Technical Assistance Center (PFTAC)
in Suva, Fiji, established in 1993; the Caribbean
Regional Technical Assistance Center (CARTAC) in
Bridgetown, Barbados, established in 2001; the East-
African Regional Technical Assistance Center (East-
AFRITAC) in Dar es Salaam, Tanzania established in
2002; the West-African Regional Technical Assistance
Center (West-AFRITAC) in Bamako, Mali, established
in 2003; and the Middle-Eastern Regional Technical
Assistance Center (METAC), established in Beirut,
Lebanon in 2004. A Central-AFRITAC will be opened
in Libreville, Gabon in early-2007. The AFRITACs
were established under the umbrella of the IMF’s
Africa Capacity-Building Initiative, which was
launched in 2002 in response to a request by African
Heads of State for enhanced IMF support (Table 6.2).
105

Training
The IMF Institute’s strategy emphasizes delivery of
training in participants’ own regions. This allows it to
tailor the training more closely to regional needs and
foster collaboration and mutual learning within regions.
Regional delivery of training is also generally more cost
effective, as participant travel costs are lower than for
travel to and from IMF headquarters in Washington.
Most of this overseas training is conducted though the
IMF’s regional training programs (Table 6.3). This
strategy has attracted substantial donor support which
has enabled the IMF Institute to expand training
considerably over the past decade. Courses are also
conducted in collaboration with regional training
institutions, in large member countries, in countries
with special training needs, and through distance
learning. Close to one-third of training continues to be
delivered in Washington, to address needs that cannot
be met satisfactorily through the regional programs.
Training is delivered in Arabic, English, French and
Spanish, with interpretation into Chinese, Russian and
other languages where relevant.







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FY 2002 FY 2003 FY 2004 FY 2005 FY 2006
Headquarters training
1/
Course weeks 74 84 77 80 78
Participant weeks 2,746 3,083 2,848 2,993 2,867
Regional training institutes and programs
2/
Course weeks 133 121 140 148 152
Participant weeks 4,261 3,969 4,449 4,541 4,808
Other overseas training
Course weeks 30 31 32 27 38
Participant weeks 828 899 949 797 1,124
Distance learning
Course weeks 13 13 9 16 16
Participant weeks 519 481 324 594 602
Total course weeks 250 249 258 271 284
Total participant weeks 8,354 8,432 8,570 8,925 9,402
Source: IMF Institute.
Table 6.3. IMF Institute Training Programs, FY 2002–FY 2006
1/ Excludes residential component of distance learning courses, which are counted below under distance learning.
2/ Includes the Joint Vienna Institute (JVI), the IMF-Singapore Regional Training Institute (STI), the IMF-Arab
Monetary Fund Regional Training Program, the Joint Africa Institute (JAI), the Joint China-IMF Training Program, and
the Joint Regional Training Center for Latin America. Data for the JAI do not include courses delivered by the African
Development Bank and the World Bank, which are partially financed by the Fund, and data for the JVI do not include
courses delivered by the Austrian authorities, which have been partially funded by the IMF from FY 2004.



Cooperation with Other Technical
Assistance Providers
The IMF actively cooperates with other technical
assistance providers to exploit synergies and bring in
additional inputs that the IMF does not provide (such as
office and computer equipment, training equipment and
other materials) or where it does not have a comparative
advantage, thus leveraging the IMF’s limited technical
assistance resources and avoiding duplication of effort
or inconsistent technical advice. Such cooperation takes
various forms, such as exchange of information,
provision of complementary forms of technical
assistance, and joint approaches to the delivery of
technical assistance. Some joint approaches have
already been mentioned above: the coordination,
mobilization, and financing of efforts to combat money
laundering and terrorism financing; international efforts
in the area of standards and codes; and the regional
technical assistance centers. In addition, the IMF joined
the African Capacity Building Foundation (ACBF),
which is the implementing agency of the Partnership for
Capacity Building in Africa (PACT), as part of the
IMF’s Africa Capacity Building Initiative.
106
The IMF
also joined the Financial Sector Reform and
Strengthening (FIRST) Initiative in April 2002. The
FIRST Initiative is a channel for funding the
involvement of the private sector in technical assistance
to the financial sector.


58



CHAPTER 7
STRENGTHENING THE INTERNATIONAL FINANCIAL SYSTEM
Introduction
The discussion of the reform of the international
financial system rose to prominence in the late 1990s in
the aftermath of the economic and financial crises in the
Asian countries. The package of reforms grouped under
the rubric of “international financial architecture” is
designed to respond to the lessons of the crises with the
aim of reducing the frequency and magnitude of future
crises. They complement the increased attention being
given to external vulnerability analyses and to the
conditions governing access to IMF resources.
The IMF collaborates closely with national and other
international agencies in the effort to strengthen the
international financial system. It takes the lead in those
areas that fall within its mandate, whereas other
agencies take the lead in areas that fall within their
mandate.
The reforms to strengthen the international financial
system seek to promote transparency in economic
policy-making, improve oversight of domestic financial
systems, encourage adoption of international best
practices in business and government operations,
enhance the flow and accuracy of economic data, and
limit moral hazard.
107
They may be grouped into four
categories:
• Improving financial sector surveillance.
• Development of standards and codes of
good practice.
• Enhancement of transparency in the IMF
and its member countries.
• Involvement of the private sector in crisis
resolution.
Financial sector surveillance was discussed in
Chapter 2, under “Strengthening Surveillance to
Prevent Financial Crises.” The other three categories of
reforms are discussed below.
The Standards and Codes
Initiatives
The development, dissemination, and adoption of
internationally accepted standards and codes of good
practice in various areas of policy-making contributes
to improved economic policy implementation by
indicating areas in which transparency and hence
governance more widely, can be enhanced by
increasing the accountability and credibility of
economic policy. It improves the working of markets by
allowing participants and policy makers to compare
information on country practices against agreed
benchmarks of good practice. Standards and codes help
highlight potential vulnerabilities and enhance market
discipline, and are thus an important component of
crisis prevention.
The IMF and World Bank have endorsed internationally
recognized standards and codes in twelve areas as
important for their work, and for which ROSCs are
prepared (Box 7.1).
108
These fall into three groups:
transparency standards, financial sector standards, and
market integrity standards. The IMF takes the lead in
the development and monitoring of the transparency
standards. The IMF and World Bank jointly assess
observance of, but do not develop, the financial sector
standards in the context of the FSAP—except in the
area of combating money laundering and terrorism
financing, for which assessments can be conducted
either by the IMF or the World Bank, or by the FATF
or FSRBs, as mentioned previously. The World Bank
and other international standard-setters take the lead in
the development of and monitoring of the market
integrity standards.
The Executive Board periodically reviews such work on
standards and codes, most recently in July 2005.
109
In
addition, summary information on published ROSCs is
available on the IMF’s website.
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Data Dissemination Standards
The 1994 Mexican financial crisis heightened the
awareness in the international community of the
essential role of data transparency in support of the
operation of financial markets and in reducing the
likelihood of financial crises. In 1996 and 1997, the
IMF established data dissemination standards in 1995 to
guide members in the publication (“dissemination”) of
their economic and financial data. Those standards were
to consist of two tiers: a voluntary general standard, the
General Data Dissemination System (GDDS), that
should apply to all IMF members and would focus on
improving statistical systems; and a more demanding
standard, the Special Data Dissemination Standard
(SDDS), that should apply to those member countries
having or seeking access to international capital
markets.
110
Participation in the GDDS and the SDDS is
voluntary and by end-2005, about one-third of member
countries had subscribed to the SDDS and about 45
percent participated in the GDDS system, while close to
20 percent of the member countries do not yet
participate in either the GDDS or the SDDS.
As a cornerstone of the implementation of the GDDS
and the SDDS, the IMF maintains an electronic
Dissemination Standards Bulletin Board (DSBB) on the
Internet.
111
The DSBB identifies member countries
subscribing to the GDDS and the SDDS, and provides
wide and easy access to their metadata (which describe
countries' statistical practices with respect to data
production and dissemination). Both the GDDS and the
SDDS are implemented flexibly to adapt to changing
circumstances and are reviewed periodically to make
needed adjustments.
The GDDS and the SDDS provide guidance on four
dimensions of data production and dissemination in
terms of (i) coverage, periodicity, and timeliness of
data; (ii) access by the public; (iii) integrity of the
disseminated data; and (iv) quality of the disseminated
data. For each of the four areas, the GDDS and the
SDDS describe two to four good practices that
countries should follow.
The General Data Dissemination System
The GDDS provides a framework for member countries
to evaluate and prioritize their needs for data
improvement, and hence to mobilize technical
assistance; and guides member countries in the
dissemination of comprehensive, timely, accessible, and
reliable economic, financial, and socio-demographic
statistics.
112
It offers recommendations on good
practice, based on current practices of national
statistical agencies, for producing and disseminating
core and encouraged sets of data. However, data cannot
be accessed directly through the GDDS site on the
DSBB.
The Special Data Dissemination Standard
Unlike the GDDS, whose objective is to improve data
quality over time, the SDDS focuses on data
dissemination by countries that, in general, already
meet high data quality standards.
113
Its purpose is to
guide member countries in the provision to the public of
comprehensive, timely, accessible, and reliable
economic and financial statistics. The SDDS is more
prescriptive than the GDDS, and sets specific standards
that must be observed by subscribing countries. . The
SDDS covers primarily macroeconomic and financial
data, while the GDDS also covers socio-demographic
indicators. Member subscription to the SDDS carries a
commitment to provide certain information about their
compilation and dissemination practices of economic
and financial data. Subscribers must agree (i) to post
information about their data dissemination practices on
the IMF’s external website on the DSBB, and (ii) to
establish an Internet site containing the actual data,
called a National Summary Data Page, which is
accessible via hyperlinks on the DSBB. Starting for
2006, the Fund will prepare and publish annual
observance reports for each SDDS subscriber.



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Box 7.1. Internationally-Monitored Standards and Codes
Transparency Standards
The standards in these areas were developed by the IMF who also assesses their observance by members.
They cover issues of data and policy transparency.
• Data Transparency: The IMF's Special Data Dissemination Standard/General Data Dissemination
System (SDDS/GDDS).
• Fiscal Transparency: The IMF's Code of Good Practices on Fiscal Transparency.
• Monetary and Financial Policy Transparency: The IMF's Code of Good Practices on Transparency
in Monetary and Financial Policies (usually assessed by the IMF and the World Bank under the
Financial Sector Assessment Program).
Financial Sector Standards
The standards in these areas have been developed by other institutions and members’ observance is generally
assessed under the FSAP.
• Banking Supervision: Basel Committee's Core Principles for Effective Banking Supervision.
• Securities: International Organization of Securities Commissions' Objectives and Principles for
Securities Regulation.
• Insurance: International Association of Insurance Supervisors' Insurance Core Principles.
• Payments Systems: Committee on Payments and Settlements Systems' Core Principles for Systemicall
Important Payments Systems, complemented by the Recommendations for Securities Settlement
Systems.
• Anti-Money Laundering and Combating the Financing of Terrorism: Financial Action Task Force's
40+9 Recommendations.
Market Integrity Standards
Standards in these areas have been developed by relevant institutions and the World Bank is in the lead in
undertaking assessments. Some of these areas may be assessed under the FSAP.
• Corporate Governance: OECD's Principles of Corporate Governance.
• Accounting: International Accounting Standards Board's International Accounting Standards (IAS).
• Auditing: International Federation of Accountants' International Standards on Auditing.
• Insolvency and Creditor Rights: World Bank’s Principles and Guidelines for Insolvency and Creditor
Rights System and United Nations Commission on International Trade Law’s (UNCITRAL’s)
Legislative Guide on Insolvency Law
1
.
________________________________________
1
Staffs of the World Bank and UNCITRAL, in consultation with IMF staff, have recently reached agreement to unify their
approaches and produce a single standard.




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The Data Quality Assessment Framework
Following experience gained in implementing the data
standards initiative, and responding to the need to focus
on high-quality data in the crisis prevention and
resolution strategy, the Data Quality Assessment
Framework (DQAF) was developed to complement the
GDDS and the SDDS. The DQAF enables policy
makers and market participants to look beyond data
dissemination and assess countries' data quality,
institutional environments, statistical processes, and
characteristics of the statistical products, and to
compare these against international standards.
114

Beginning in 2001, the data modules of the ROSCs (see
below) have integrated the DQAF into the assessment
of member practices in data compilation and
dissemination. By early 2007, the metadata of SDDS
countries will be presented on the electronic bulletin
board (DSBB) in the DQAF view in addition to the
traditional SDDS view. A query function will also be
added, making the DSBB a more user-friendly resource
for research.
Code of Good Practices on Fiscal
Transparency
The Code of Good Practices on Fiscal Transparency
was approved by the Executive Board in 2001 and is to
be updated in early-2007.
115
The present Code is based
on the following four core principles, which are
intended to be maintained in the proposed update in
2007:
• Institutional Clarity. Government’s role
and the way its agencies interact.
• Open Budget Processes. Budget
preparation, execution and reporting.
• Public Information. Government’s
commitment to make information available.
• Integrity. Strong oversight and data
quality information.
The Code sets out the principles and practices that
governments should follow in order to achieve these
objectives. These principles and practices have been
distilled from the IMF's knowledge of fiscal
management practices in member countries. An
accompanying manual explains the requirements of the
Code and provides illustrations of the various good
practices relative these requirements. A related
questionnaire is designed to gather basic information on
fiscal institutions and practices as a basis for review of
a country’s fiscal management system. Reporting of
country specific fiscal ROSCs are published on the IMF
Website.
116

Code of Good Practices on Transparency in
Monetary and Financial Policies
The IMF developed the Code of Good Practices on
Transparency in Monetary and Financial Policies in
cooperation with the Bank for International Settlements
and in consultation with a representative group of
central banks, financial agencies, other relevant
international and regional organizations, and selected
academic experts. It was adopted in September 1999.
117

The Code covers two sets of policies and institutions—
monetary policies/central banks and financial
policies/financial agencies. It contains a list of broad
principles and practices that should guide central banks
and financial agencies toward the goal of transparency
in monetary and financial policies. The Code rests on
two principles:
• Monetary and financial policies can be
made more effective if the public knows the
goals and instruments of policy and if the
authorities make a credible commitment to
meeting them.
• Good governance calls for central banks
and financial agencies to be accountable,
particularly where the monetary and financial
authorities are granted a high degree of
autonomy.
Reports on the Observance of Standards
and Codes
ROSCs are the primary instrument for reporting on an
assessment of countries’ observance of standards and
codes.
118
They are being increasingly integrated into
IMF operations in countries that agree voluntarily to
take part.
119
Publication of ROSCs is also voluntary. In
defining the ROSC program, priority is given to
members where the exercise would have the highest
return in terms of stability for the country and the
international financial system, and members for which
the developmental impact is likely to be important,
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including in a regional context. In addition to these
criteria, updates are prioritized according to the
significance of gaps in observance identified in
previous standard assessments. As part of the IMF’s
Medium-Term Strategy and the implementation of the
recommendations of the 2005 review of the initiative,
the IMF introduced a number of operational changes to
its work on standards and codes. These aimed at
improving the country coverage and prioritization of
ROSCs to make more efficient use of resources; the
integration of ROSCs with IMF surveillance and
technical assistance, for a better use of ROSC findings
and greater support of reform efforts; and the clarity
and timeliness of ROSCs.
Fiscal ROSC’s have been instrumental in enhancing the
effectiveness of surveillance. Notably, fiscal ROSCs for
emerging market economies can help detect and
identify weaknesses in the budgetary framework and
budget management practices or in the fiscal data that
could mask underlying fiscal vulnerabilities. Fiscal
ROSCs also can help prevent crises by creating
incentives to improve budget management and the
quality of fiscal data as more fiscal transparency tends
to be rewarded by better credit ratings and a lower
sovereign premium.
120

Data and fiscal ROSC assessments are usually stand-
alone exercises, not undertaken as part of any other
surveillance function; financial sector ROSCs are
normally undertaken in the context of the FSAP. Where
important aspects of regulation or policy formulation
are done at the supranational level, a ROSC for a
regional group⎯such as the European Monetary
Union—may be undertaken. ROSC assessments are
voluntary and must be requested by country authorities.
Publication of the ROSC is also voluntary, but
publication is presumed.
Transparency at the IMF
There has been a major shift toward openness at the
IMF within the last decade. The institution has taken a
number of steps that aim to encourage greater
transparency of members’ policies and data, and to
enhance the Fund’s own external communications.
121

These include an expanded publication program and an
extensive Internet web site. Most papers submitted to
the Executive Board, whether on country matters or
policy issues, are now published under the IMF’s
Transparency Policy. Internal and external reviews of
IMF policies and operations, often conducted in
consultation with the public, are also released. Contacts
with and outreach to non-government organizations and
national legislators, think tanks, and media have
expanded.
Since July 2004, a policy of voluntary but presumed
publication applies to practically all country documents
submitted to the Executive Board, including most
surveillance and supporting documents, those on the
use of IMF resources by a member, and those on Policy
Support Instruments (PSI). A presumption of
publication means that, although the express consent of
the member concerned is required for publication of a
document covered by the Transparency policy, such
publication is expected within 30 calendar days of the
Executive Board meeting at which that document was
considered. The member’s intentions regarding
publication should preferably be indicated prior to the
Executive Board meeting.
Since July 2004, the Managing Director generally will
not recommend that the Executive Board approve a
member’s request for exceptional access to the IMF’s
general resources, unless the member consents to the
publication of the associated staff report. Further, the
Managing Director will not recommend Executive
Board approval of various decisions involving PRGF
arrangements, HIPC debt relief, or PSIs if the member
concerned does not consent to publication of the PRS
documents.
Publication is voluntary but not presumed for the
following country documents: ROSCs, FSSAs, FSAP
technical notes that are not circulated to the Executive
Board as background information for Article IV
consultations, and documents related to staff-monitored
programs—although the IMF encourages members to
publish these reports.
Publication of IMF policy documents that do not deal
with administrative matters is presumed, unless the
Executive Board decides otherwise. Publication of
policy documents that are related to administrative
matters is decided by the Executive Board on a case-by-
case basis.
Prior to publication, the authorities may request that
information that is either highly market-sensitive—
mainly on exchange rates and interest rates, in banking
and fiscal areas, and in vulnerability assessments—or
involves the premature disclosure of policy intentions
be deleted from the published version. Deletions do not
apply to information that is in the public domain or to
politically sensitive information that is not highly
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market sensitive. When deletions requested by the
authorities would, in the view of the Managing
Director, undermine the overall assessment and
credibility of the IMF, he (she) may recommend to the
Board that the document not be published. IMF
documents may also be modified prior to publication to
correct factual errors, including errors in characterizing
the authorities’ views.
Members generally have the opportunity to make a
statement regarding IMF reports and discussions on
their country, and this statement is published together
with the staff report, if the authorities wish.
Publication of IMF policy documents that do not deal
with administrative matters is presumed, unless the
Executive Board decides otherwise. Publication of
policy documents that are related to administrative
matters is decided by the Executive Board on a case-by-
case basis. Prior to publication of an IMF policy
document, the Managing Director may make necessary
factual corrections and deletions (including of highly
market-sensitive material and country-specific
references), provided that staff’s proposals shall not be
modified prior to publication.
Private Sector Involvement in
Crisis Prevention and Resolution
Rationale for Private Sector Involvement
The IMF has intensified its work with member
countries to strengthen the involvement of the private
sector in preventing and resolving financial crises.
122

Efforts to involve the private sector are based on several
considerations:
• Economic programs need to be fully
financed. A country’s financing gap is closed by
a mixture of external financing and domestic
adjustment. However, official financing is
limited, and there may be social limits to the size
of an economic adjustment that a country could
undertake. This would necessitate a financing
contribution from the private sector, particularly
in cases where countries’ exposure to this sector
is significant.
• There is a need for orderly international
adjustment. Where countries face financing
difficulties, sovereign defaults and/or the
imposition of exchange controls should be
avoided to the maximum extent possible.
Voluntary and market-based adjustment
mechanisms that seek to honor contractual
obligations are emphasized. Countries need to
resolve their financing difficulties in ways that
facilitate confidence and economic growth and
minimize the disruption to the international
financial system. The involvement of private
creditors would be important to achieve this
objective.
• Equitable burden-sharing among
creditors is required to ensure inter-creditor
equity, which must involve private creditors.
• The use of official resources to shelter
private creditors from the consequences of their
previous lending decisions could give rise to
moral hazard. By reducing the incentives for
efficient assessment and management of risk,
this could encourage private creditors to over-
lend, thereby increasing the likelihood of future
crises. An important principle underlying private
sector involvement in crisis resolution is that
both creditors and debtors must take
responsibility for their financing decisions.
The private sector can contribute to crisis prevention
and resolution by providing financing in the amounts
and on the terms needed to help close a country’s
financing gaps and maintain or restore the country’s
medium-term external viability. It can do so in two
ways: (i) by providing capital market financing on
appropriate terms; and (ii) by agreeing to a debt
restructuring that lowers the country's debt service
payments. The method the IMF relies on in individual
cases to secure the private sector’s contribution depends
on its judgment about the size of the country’s
financing gap, the country’s underlying debt service
capacity, and the country’s prospects for rapidly
regaining market access where such access has been cut
off.
Access to Capital Market Financing
An important element of the IMF’s strategy to prevent
or resolve financial crises is to help countries maintain
or restore their access to capital market financing on
terms that are compatible with medium-term external
sustainability. To achieve this objective, the IMF may
rely on the confidence-building effect of a credible,
IMF-backed comprehensive adjustment program to
persuade private creditors to provide the required
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financing. The IMF would normally use this catalytic
approach if the member’s financing requirements are
moderate or, if the financing requirements are large, the
member has good prospects for rapidly regaining
capital market access on appropriate terms based on the
strength of its economic program. In case of a large
financing requirement, any exceptional access to IMF
resources would require substantial justification and
would serve as bridge financing until capital market
access is regained. Use of the catalytic approach
requires judgments regarding the country’s prospects
for regaining medium-term external sustainability and
the pace at which the combination of strong policies
and official financing will allow members to regain
capital market access.
Where the catalytic approach is judged to be
insufficient to lead to a quick change in confidence and
restoration of market access, the IMF may back more
concerted efforts by the member country and the
international community to obtain the required
financing from the private sector. A broad range of
instruments may be used under this more concerted
approach. Some of these are based on the voluntary
participation of the private sector, while others are
statutory-based. These instruments would normally be
used in conjunction with a comprehensive adjustment
program and therefore complement the catalytic
approach.

Some of the instruments used by member
countries in recent years are summarized below:
123

• Debt Restructuring. Where countries
face severe budget financing problems, early
restoration of full market access on terms
consistent with medium-term external
sustainability appears unrealistic, and the fiscal
adjustment needed to continue servicing the debt
is not feasible, a sovereign debt restructuring
may become necessary. In this case, an IMF-
supported program can provide an acceptable,
realistic, and financeable framework and a viable
medium-term debt service profile. If countries
decide to temporarily suspend debt service
payments pending sufficient action by their
creditors to support the restoration of medium-
term external viability, the IMF could invoke its
lending into arrears policy to enable countries’
continued access to official financing while they
undertake good faith efforts to negotiate a
comprehensive debt restructuring with private
creditors. In recent years, Ecuador, Pakistan,
Russia, Ukraine, and Uruguay have reached
agreement on international sovereign bond
restructurings.
124

• Voluntary Debt Swaps. Reprofiling
debt-service obligations by persuading investors
to exchange obligations that mature in the near
term for instruments that mature over the
medium and long term—used by Argentina and
Turkey in 2001.
• Rollover of Interbank Lines of Credit.
Securing agreement with international
commercial banks to voluntarily maintain
exposure to interbank and trade-related credits,
since withdrawal of such financing in crises can
exert pressure on official reserves, limit domestic
bank lending, and amplify upward pressures on
domestic interest rates that may call into
question fiscal and corporate solvency—used by
Brazil in 1999, Indonesia in 1998-99, Korea in
1998, and Turkey in 2000-01.
• Private Contingent Credit Lines.
Mobilizing financial resources from private
creditors in times of difficulty through credit
lines negotiated and priced in periods of relative
tranquility, as insurance against adverse liquidity
developments that could disrupt private market
financing—used by Argentina in 1996, Indonesia
in 1994-97, and Mexico in 1997.
• Rollover Agreements with Domestic
Investors. Seeking agreement with domestic
investors to maintain or increase exposure to
sovereign debt instruments, which may require
regulatory action or the use of moral suasion—
used by Argentina in 2001.
• Regulatory Requirement for
Investment. Requiring domestic financial
institutions to hold government debt over and
above that needed for normal liquidity purposes,
so as to increase demand for government
securities or to reduce rollover risk for the
government—used by Argentina in 2001.
Collective Action Clauses in International
Sovereign Bond Contracts
The IMF endorses the use of collective action clauses
(CACs) in international sovereign bond contracts, in
recognition of their potential role in facilitating the
restructuring of international sovereign bonds in an
orderly manner.
125
The IMF—and the official
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community more generally—is actively promoting the
use of collective action clauses. Such clauses include,
but are not limited to: (i) majority restructuring
provisions, which enable a requisite majority of
bondholders to bind the minority to the terms of a
restructuring agreement and (ii) majority enforcement
provisions, which enable the requisite majority to
prevent a minority from initiating litigation during the
period when negotiations are taking place. The focus is
on jurisdictions where such bonds are not yet the
market standard.
126
The IMF has issued an operational
guidance note on encouraging the use of CACs during
Article IV consultations and amended its Guidelines for
Public Debt Management to reflect the use of CACs.
The IMF is also developing an international sovereign
bond database for use by IMF staff.
Principles for Stable Capital Flows and Fair Debt
Restructuring in Emerging Markets
The IMF has supported the creation of the Principles
for Stable Capital Flows and Fair Debt Restructuring
in Emerging Markets under the umbrella of the Institute
for International Finance. The Principles were issued in
November 2004 and endorsed by the G-20. This is a set
of voluntary market-based guidelines that promote
greater direct cooperation between sovereign-debt
issuers in emerging markets and their investors and
creditors, in order to avoid crises or, if necessary, cope
with those that arise.
IMF staff also maintains an active dialogue with issuers
of emerging market bonds and with private market
participants. A Forum for Public Debt Managers has
been established to provide opportunities for public
debt managers to discuss market developments and
exchange views and experiences—including on
proactive liability management operations, the use of
CACs, and the development of systematic investor
relations programs.


66



CHAPTER 8
COLLABORATION WITH THE WORLD BANK AND THE WORLD
TRADE ORGANIZATION
The original Bretton Woods conference called for the
creation of three international organizations. While the
IMF and the World Bank were created shortly after the
conference, an international organization devoted to the
facilitation of international trade was only created in
1996, when the World Trade Organization (WTO) was
established incorporating the General Agreement on
Tariffs and Trade (GATT). While the IMF cooperates
with a large number of international organizations,
including all the regional development banks, the
common origin and complementary mandates of the
IMF, World Bank, and WTO led to intense and well-
defined forms of cooperation.
Collaboration with the World
Bank
Overlap of IMF and World Bank Activities
The IMF and the World Bank were given different, but
complementary, mandates. The World Bank was
established to promote post-war reconstruction and the
flow of capital to developing countries. Its core
objective today is to promote economic growth and
conditions conducive to efficient resource allocation
and poverty reduction, which it pursues through project
financing and through sectoral and structural
adjustment lending.
Though their core mandates are different, there has
always been some overlap of activities and policy
concerns:
• Structural policies. IMF surveillance
and lending operations moved away from a
narrow focus on exchange rate and other
macroeconomic policies to a broader focus
encompassing structural policy issues, given
their impact on macroeconomic stability and the
sustainability of policies. There are two reasons
for this: (a) the IMF’s recognition of the longer-
term and supply-oriented nature of the balance of
payments adjustment process and (b) the IMF’s
increased involvement, over time, in surveillance
and lending operations in developing and
transition countries, where long-run structural
problems are of central importance to economic
stabilization and growth. The creation of the
Structural Adjustment Facility in 1986, the
Enhanced Structural Adjustment Facility in
1987, and the Poverty Reduction and Growth
Facility in 1999 reflected this shift in emphasis.
• Poverty-reduction. The IMF has
become increasingly concerned about the social
and poverty impact of its policy advice in low-
income countries.
• Macroeconomic policy environment.
The World Bank’s experience led to the
recognition that the overall macroeconomic
policy environment is crucial to the success of
individual investment projects and sectoral
programs. In response to the serious balance of
payments problems affecting many developing
countries stemming from the sharp deterioration
of the terms of trade and from the weakness in
domestic policies and institutions, the Bank
introduced structural adjustment lending in 1980
to support policies to promote economy-wide
structural changes. Subsequently, it introduced
sector adjustment lending to support structural
changes in specific sectors.
The overlap and increasing integration of the activities
and policy concerns of the two institutions required
strategic decisions to avoid potentially undesirable
consequences, including cross-conditionality and
conflicting policy advice, duplication of effort and
waste of resources, and confusion among the
membership regarding which institution is responsible
for what. Accordingly, the IMF and the World Bank
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have in place guidelines for collaboration between the
two institutions since 1966, which have been revised
and strengthened on a number of occasions since then.
The current procedures are set out in a 1989 Concordat
(Bank-Fund Collaboration in Assisting Member
Countries); and a 1998 Report of the Managing
Director and the President on Bank-Fund
Collaboration. Additional guidelines exist for Bank-
Fund collaboration in financial sector work and on
public expenditure issues.
127

An External Review Committee on Bank-Fund
Collaboration has been set up to review basic
parameters of Fund-Bank collaboration. The committee
is preparing a report that will benefit from extensive
discussions with IMF and World Bank staff,
management, and Boards, and will be discussed with
the G-20.
Lead Roles of the IMF and the World Bank
The 1989 Concordat and the 1998 Report of the
Managing Director and the President re-affirm the
original mandates of the IMF and the World Bank, and
set out the primary areas of responsibility of each
institution in the pursuit of that mandate. In situations
where both institutions are involved in policy-based
lending to a country, each institution takes the lead role
in the areas in which it has primary responsibility.
Where responsibility is shared, the lead agency is
determined on a case by case basis. Staff reports on the
use of IMF resources usually contain a box explaining
the allocation responsibilities for structural measures
between the IMF and the World Bank and which
agency takes the lead role in individual reform areas.
Areas of primary responsibility of the IMF include
macroeconomic analysis and forecasting,
macroeconomic policy advice, budgeting and public
expenditure management, fiscal and macroeconomic
management, institutional arrangements underlying
monetary and exchange rate policies, balance of
payments adjustment and financing, crisis prevention
and resolution, offshore financial center assessments,
transparency standards, collection, compilation, and
dissemination of macroeconomic statistics, and training
in macroeconomics.
Areas of primary responsibility of the World Bank
include national development strategies and policies,
poverty analysis and monitoring, social protection,
sector strategies and policies, project financing, public
administration, public enterprise reform, product and
labor market reforms, market integrity standards, and
training in development economics.
Areas of shared responsibility include tax policy and
administration, financial sector work, trade policy,
public expenditure policy and administration, public
debt management, and the establishment of an
environment conducive to private sector development.
To oversee and strengthen collaboration in their work
on the financial sector and on low-income countries, the
IMF and World Bank set up a Financial Sector Liaison
Committee (FSLC) in September 1998 and a Joint
HIPC/PRSP Implementation Committee (JIC) in April
2000.
128
The committees work to resolve differences of
view between the staff of two institutions, ensure
seamless cooperation, and coordinate work programs
and the production of reports and briefings to the
Executive Boards of the two institutions. The FSLC has
played a critical role in coordinating and monitoring
FSAP exercises, as well as devising measures to
improve the program in recent years. A forthcoming
report of the External Review Committee may make
recommendations on the division of labor.
Principles of IMF-World Bank Collaboration
The 1989 Concordat and the 1998 Report of the
Managing Director and the President set out the broad
principles that should guide collaboration between the
IMF and the World Bank.
• Countries in which both institutions are
actively involved should have a clear
understanding of which institution has primary
responsibility in any given area of policy advice
and reform.
• Before finalizing its position on key
elements of a country’s policies and reform
agenda, each institution will solicit the views of
the other and share its own thinking at as early a
stage as feasible. When there are differences of
view between the two institutions about policies
and priorities in countries where both are
involved, the disagreement should be resolved at
the staff level or raised to the level of senior
management for resolution. If the issue cannot be
resolved at the management level before a World
Bank lending operation or IMF-supported
program is to be presented to the respective
Executive Board, then management would
highlight the disagreement to the Board prior to
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68


the Board discussion, and at the time of meeting,
indicate the nature of the disagreement and
ensure that staff from the other institution are
present at the Executive Board to present their
views.
• Where a country’s program supported by
one institution includes macroeconomic and
structural measures which fall within the other
institution’s areas of primary responsibility,
advice to the authorities on the design of
measures in the country’s program and the
subsequent monitoring should be provided by
the institution with primary responsibility.
Program reviews by each institution should be
closely coordinated to the maximum extent
possible.
• Integration and coordination of the views
of either institution requires timely input from
the other institution. In situations where either
institution does not have the capacity or is unable
to provide policy advice and expertise,
whichever institution can provide input should
do so in order to ensure that the country’s
program does not suffer. At the same time, the
institution that is unable to provide input would
review its work priorities with a view to better
aligning them to the requirements of the
country’s program.
• Programs supported by the IMF and the
World Bank should be complementary and part
of an overall reform agenda owned by the
member country. When presenting documents to
their respective Executive Boards, the staff of the
two institutions will indicate how programs
supported by both institutions complement each
other in supporting the overall reform agenda of
the government.
• Each institution retains separate
accountability for its lending decisions. Each
institution proceeds with its own financial
assistance according to the standards laid down
in its Articles of Agreement and the policies
adopted by its Executive Board.
• There should be a systematic exchange of
information between the two institutions on
future country work and mission plans by
country. Deviations from the work plan or
calendar would be communicated to the other
institution without delay. Mission briefing
papers and terms of reference should be shared
with the other institution before they are
finalized, to the extent feasible.
• The daily interactions and ad hoc
contacts involving management and staff, and
the monthly as well as ad hoc meetings between
the Managing Director and the President, are
supplemented with regular meetings of the senior
staff of each institution. In addition, meetings are
held to review the strategies of each institution
for countries of common concern.
• Cross-participation in each institution’s
missions and parallel missions are effective ways
to facilitate the coordination and timely
integration of macroeconomic and structural
policies in countries’ programs and reform
agendas. To be most effective, in cross-
participation and joint missions the participating
Bank or IMF staff should have a clear
assignment of responsibilities.
Collaboration with the World
Trade Organization
The IMF and the WTO work together on many levels,
with the aim of ensuring greater coherence in global
economic policymaking and reflecting the underlying
common policy goal of limiting the use of restrictions
on the international flow of goods and services, which
can be affected through exchange or trade restrictions.
On an operational level, the IMF established the Trade
Integration Mechanism (TIM) in April 2004 to support
progress under the WTO’s Doha round of trade talks
(TIM is discussed in Chapter 5).
The collaboration of the IMF and the WTO was
formalized in an agreement shortly after the creation of
the WTO in 1996.
129
Article X of the IMF’s Articles of
Agreement calls for the IMF to cooperate with any
general international organization and with public
international organizations having specialized
responsibility in related fields, while Article III.5 of the
Marrakesh Agreement Establishing the World Trade
Organization specifically calls for the WTO to
cooperate with the International Monetary Fund such as
reciprocal attendance at meeting sharing documents and
IMF participation in the Balance of Payments
Committee of the WTO.
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The IMF has observer status at the WTO, and
participates actively in many meetings of WTO
committees, working groups, and bodies. For this
purpose, the IMF maintains an office in Geneva to
facilitate the regular interaction with the WTO. Trade
policy issues feature prominently in IMF program and
surveillance work wherever macro-relevant. Equally,
IMF surveillance reports, including assessments of
exchange rate policies, are important inputs to the
WTO’s Trade Policy Review Mechanism (TPRM) and
the periodic reports on member countries’ trade policies
(Trade Policy Reviews).
Consultations
The WTO is required to consult the IMF when it deals
with issues concerning monetary reserves, balance of
payments, and foreign exchange arrangements. For
example, WTO agreements allow countries to apply
trade restrictions in the event of balance of payments
difficulties. The WTO’s Balance of Payments
Committee bases its assessments of restrictions on the
IMF’s determination of a member’s balance of
payments situation.
Informal consultations between IMF and WTO staff
concern mainly trade policy developments and advice
for individual countries. The IMF and WTO also
regularly share data and research. For example, in the
context of the Doha Development Agenda and in
response to a WTO request, the IMF completed studies
on the erosion of preferences, trade-related loss of fiscal
revenue, export subsidies, balance of payments
safeguards, and exchange rate volatility and trade.
Trade Liberalization in Least-Developed
Countries
The IMF and the WTO work together in the Integrated
Framework for Trade-Related Technical Assistance to
Least-Developed Countries that was put in place in
1997. The Integrated Framework aims at strengthening
the capacity of these countries to formulate trade policy,
negotiate trade agreements, and tackle production
challenges in their domestic economies. In addition, the
Integrated Framework seeks to ensure that poorer
member countries incorporate appropriate trade reforms
into their Poverty Reduction Strategy documents, which
form the basis for concessional support by the IMF.


70



CHAPTER 9
GOVERNANCE AND DECISION-MAKING
The IMF is governed by a Board of Governors, an
Executive Board, and a Managing Director supported
by three Deputy Managing Directors. Two advisory
bodies, the International Monetary and Financial
Committee and the Development Committee, provide a
bridge between the Board of Governors and the
Executive Board.
130

Board of Governors
The Board of Governors is the highest decision-making
body of the IMF.
131
The Board of Governors consists of
one Governor for each of the 185 member countries of
the IMF and one Alternate. They are usually ministers
of finance or governors of central banks. They do not
serve fixed terms, but hold their positions until
successors are appointed. The Board selects one of the
Governors as Chair.
The Board of Governors has delegated most of its
authority to the Executive Board for its day-to-day
operations. However, it has retained several important
powers, including that to admit and suspend member
countries, to increase or decrease the authorized quotas
or shareholdings of the IMF, or to amend the Articles of
Agreement of the IMF. The Board of Governors also
endorses the IMF’s budget and financial statements.
The Board of Governors meets annually, usually in a
joint session with its counterpart in the World Bank,
and usually in September or October. Special meetings
of the Board of Governors may be called whenever
requested by fifteen members or by members having
one-quarter of the total voting power, but this has never
been done to date. A quorum for any meeting is a
majority of Governors having not less than two-thirds
of the total voting power. Since 1953, two consecutive
Annual Meetings are held in Washington, D.C., USA,
and every third meeting is held in a member country
other than the United States. Procedures also exist for
the Board of Governors to take a vote on a specific
question without calling a meeting.
International Monetary and
Financial Committee
A Committee on Reform of the International Monetary
System and Related Matters (The Committee of
Twenty) was established in 1972 to study various
aspects of the international monetary system after the
collapse of the Bretton Woods par value system in
1971. The Committee recommended the creation of a
permanent Council with appropriate powers. The
Council would supervise the management and
adaptation of the international monetary system,
including the continuing operation of the adjustment
process and developments in global liquidity, and in
this connection would review developments in the
transfer of real resources to developing countries.
132

Pending the establishment of the Council, an Interim
Committee of the Board of Governors on the
International Monetary System was established in
October 1974 and the Committee of Twenty was
dissolved.
The Interim Committee had a composition similar to
that proposed for the Council; but the Interim
Committee was an advisory body, whereas the Council
would be a decision-making body. The Second
Amendment of the Articles of Agreement in 1978 made
provision for a Council to be established by an
85 percent majority decision of the Board of Governors;
however, to date the Council has not been established.
In September 1999, the Board of Governors
strengthened and transformed the Interim Committee
into the International Monetary and Financial
Committee (IMFC), to enhance the effectiveness of
member oversight of the IMF at the political level.
133

The IMFC remains an advisory body. It advises, and
reports to, the Board of Governors on matters pertaining
to:
• The management and adaptation of the
international monetary and financial system,
including the continuing operation of the
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adjustment process, and developments in global
liquidity and the transfer of real resources to
developing countries.
• Proposals by the Executive Board to
amend the Articles of Agreement.
• Sudden disturbances that might threaten
the international monetary and financial system.
• Ad hoc requests by the Board of
Governors.
IMFC members are governors of the IMF, Ministers, or
others of comparable rank. Each member of the IMF
that appoints an Executive Director, and each member
or group of members that elects an Executive Director,
is entitled to appoint one member of the IMFC and up
to seven associates. Thus the IMFC has the same
number of members and the same constituency
groupings as the Executive Board of the IMF, although
the IMFC member is not always from the same country
as the Executive Director.
In practice, the IMFC selects a Chair from among its
members, who serves for such period as the IMFC
determines. Members of the IMFC, their associates, and
Executive Directors or their alternates are entitled to
attend the meetings of the IMFC, unless the IMFC
decides to hold a more restricted session. In addition,
the Managing Director participates in all IMFC
meetings, and may be accompanied by up to two staff
unless the session is a restricted one. The Secretary of
the IMF serves as the Secretary of the IMFC. The
IMFC may invite observers to attend its meetings.
The IMFC ordinarily meets twice a year, in April and at
the time of the Annual Meetings of the Board of
Governors, but ad hoc meetings may be requested at
any time by any member of the Committee. In addition,
in September 1999 the Board of Governors decided that
meetings of the IMFC will normally be preceded by a
preparatory meeting of “Deputies,” or representatives of
IMFC members. The IMFC Chair calls meetings of
Deputies in consultation with other IMFC members.
The IMFC issues a communiqué after each meeting
summarizing the outcome of its discussions and giving
strategic direction to the IMF’s policy work for the near
to medium term. On the basis of the communiqué, the
Managing Director draws up a work program for the
IMF for the coming 6-12 months. After discussion by
the Executive Board, and amended as necessary, the
work program forms the basis for the Board’s work and
calendar of meetings in the period ahead. An interactive
relationship exists between the deliberations of the
IMFC and the work of the Executive Board, in which
the IMFC sets every six months the strategic direction
going forward based on a thorough review of the
progress made by the Executive Board in executing its
work program during the preceding period.
Development Committee
The Committee of Twenty also recommended the
establishment of a joint ministerial committee of the
Boards of Governors of the IMF and the International
Bank for Reconstruction and Development to carry
forward the study of the broad question of the transfer
of real resources to developing countries. Based on this
recommendation, in October 1974 the Boards of
Governors of the IMF and the World Bank established
the Joint Ministerial Committee of the Boards of
Governors of the Bank and the Fund on the Transfer of
Real Resources to Developing Countries, called the
Development Committee, to advise both Boards on
development issues.
The Development Committee:
• Maintains an overview of the
development process, giving urgent attention to
the problems of least developed countries and
those developing countries most seriously
affected by balance of payments difficulties.
• Advises and reports to the Boards of
Governors of the World Bank and the IMF on all
aspects of the transfer of real resources to
developing countries in relation to existing or
prospective arrangements among countries,
including those involving international trade and
payments, the flow of capital, investment, and
official development assistance.
• Makes suggestions regarding the
implementation of its conclusions, and reviews,
on a continuing basis, the progress made in
implementing these suggestions.
Members of the Development Committee are governors
of the World Bank, governors of the IMF, Ministers, or
others of comparable rank. They are appointed in turn
for successive periods of two years by members of the
Bank and members of the IMF. Each member of the
World Bank or the IMF that appoints or elects an
Executive Director and each group of members of the
World Bank or the IMF that elects an Executive
Director is entitled to appoint one member of the
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72


Development Committee and up to seven associates.
The Committee selects one of its members as Chair and
appoints an Executive Secretary.
The Development Committee reports not less than once
a year to the Boards of Governors of the IMF and the
World Bank. It meets at the time of the annual meetings
of the Boards of Governors, and, in addition, as often as
required. In practice, the Committee normally meets
twice a year, at the same time and location as the IMFC.
The President of the World Bank and the Managing
Director of the IMF participate in all meetings of the
Development Committee, thus ensuring coordination of
the work of the Development Committee with the work
of the Executive Boards of the IMF and the Bank. The
Development Committee issues a communiqué at the
end of its meetings.
Executive Board
The Executive Board, under the chairmanship of the
Managing Director, conducts the day-to-day business of
the IMF through powers delegated to it by the Board of
Governors.
134
It is the policy-making organ of the IMF,
and is responsible for the approval of all IMF lending
operations.
Size and Composition
The Executive Board currently comprises 24 Executive
Directors, each of whom appoints an Alternate with full
power to act for him/her when he/she is not present (see
Appendix). Five Executive Directors are appointed by
the five member countries having the largest quotas—
currently the United States, Japan, Germany, the United
Kingdom, and France—and serve at the discretion of
the appointing member. The remaining 19 Executive
Directors are elected by the rest of the membership (180
member countries) and serve for renewable two-year
terms. Elections are normally held at the time of the
annual meetings of the Board of Governors, in even-
numbered years, but by-elections are held when needed.
From among the 180 member countries that elect 19
Executive Directors, Saudi Arabia, China, and Russia,
by virtue of the size of their capital subscriptions to the
IMF, are able on their own to elect an Executive
Director. The remaining 177 member countries are
organized into 16 multi-country constituencies to elect
the remaining 16 Directors on the Board. Members
decide among themselves which constituency to join,
and vote for an Executive Director to represent the
constituency. Geographical considerations have
generally been important in the formation of
constituencies, but some constituencies include both
industrial and developing countries or members from
different regions. In some constituencies the Executive
Director is selected from the country with the largest
voting power, while in others the post is rotated.
Normally the Alternate Executive Director in multi-
country constituencies is of a different nationality from
the Director.
At the time of each election, the Board of Governors,
by an 85 percent majority vote, may decide to increase
or decrease the number of elected Directors.
Furthermore, if, at the time of each election, the
members entitled to appoint an Executive Director do
not include the two members whose currency had been
the most used in IMF transactions during the preceding
two years, then these two members become entitled to
appoint an Executive Director—and the number of
elected Executive Directors may be reduced
accordingly, unless the Board of Governors, by an
85 percent majority, decides not to do so because a
reduction would hinder the effective discharge of the
functions of the Executive Board or of Executive
Directors or would threaten to upset a desirable balance
in the Executive Board.
The custom of the Executive Board has been to have its
most senior member serve as the Dean. The Dean
fulfills functions such as addressing the Board when a
formal occasion calls for a spokesman of the Executive
Board. However, the Dean never speaks for the
Executive Board on policy matters.
135

Board Procedures
Executive Directors are stationed full-time at the IMF’s
headquarters in Washington, D.C., and the Executive
Board functions in continuous session—it meets as
often as IMF business dictates. Usually meetings are
held three times a week. Any Executive Director can
request a meeting on any matter. The Chair normally
notifies the Executive Board of meetings at least two
business days in advance, and prepares the agenda for
each meeting. A quorum exists when a majority of
Executive Directors having not less than 50 percent of
the total voting power is present, but the practice is for
all chairs to be occupied at all times, either by the
Director, Alternate Director, or a designated Temporary
Alternate Director.
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The Executive Board meets in ordinary or executive
sessions. Most meetings are in ordinary sessions, and
ordinary meetings may be formal or informal. Board
decisions are taken only in formal sessions. Informal
sessions are a forum for an open exchange of views on
issues that are not yet at the stage at which a formal
decision can be taken. They are often an occasion for
the Board to be briefed by management and the staff on
sensitive country developments, or to provide
preliminary views on important policy matters or
program discussions. Informal sessions are not subject
to the minimum advance notice required of formal
Board meetings, and may be called on very short notice.
Ordinary meetings are open to attendance by members
of the offices of Executive Directors, the Secretary, and
such other members of staff as the Chair may
determine.
136

Executive sessions are held whenever the Managing
Director or any Executive Director so desires.
Attendance at executive sessions is limited to Executive
Directors, the Managing Director, and the Deputy
Managing Directors, except that for any particular
session the Executive Board may permit other specified
individuals to attend, such as the Secretary.
The starting point of a formal Executive Board meeting
on any matter is generally one or more Board papers
prepared by the staff and approved by the Managing
Director or a Deputy Managing Director. These papers
contain Management’s and the staff’s analysis and
recommendations on the subject, and are issued to the
Executive Board two to three weeks in advance of a
Board meeting to give Executive Directors sufficient
time to consult with their authorities and prepare an
adequate response. There is usually no documentation
for informal Board meetings—mostly a summary table
or two issued just prior to the meeting.
Executive Directors express their views in written
statements issued prior to the Board meeting or in oral
statements during the meeting. The written statements,
called “gray statements” or “grays,” are preliminary and
may be modified by Executive Directors after they are
issued. Executive Directors are not subject to formal
length or time constraints on their statements, though
there are guidelines for effective and efficient
interventions in the case of Article IV surveillance
discussions.
137
They may intervene at any point during
the meeting to ask questions and make comments, and
discussions are frequently of an interactive nature.
Typically the Board spends about two-thirds of its time
on member country surveillance and program matters.
Most of its remaining time is spent on policy issues
concerning the international monetary system and the
world economy. In addition, there are administrative
issues, such as the budget. Several Board committees
have been set up, each overseeing a particular subject-
matter. However, the Executive Board conducts the
bulk of its work in the formal sessions of the Board, not
through Committees. Executive Directors may travel
frequently, especially to participate in policy
discussions between IMF staff and member countries.
Board Committees
The Board maintains a number of standing committees
that include Executive Directors. These committees are
reconstituted every 2 years following the regular
election of Directors and on the basis of proposals by
the Managing Director. Membership in the committees
should provide a reasonable distribution of workload,
continuity, and geographical balance. There are also
some formal requirements for some committees
concerning the number of members. Other Executive
Directors may participate in all regular meetings of
these committees. There are currently 10 standing
committees, the functions of which are described
below.
• Agenda and Procedures Committee.
Contributes to the development and smooth
implementation of the Executive Board’s work
program.
• Committee on the Annual Report.
Reviews and makes recommendations to the
Board on the format and content of the IMF’s
Annual Report in line with the provisions of the
Articles of Agreement and By-Laws, as well as
with the IMF’s commitment to transparency and
its role in the international monetary system.
• Committee on the Budget. Considers
from a broad perspective the Managing
Director’s budget proposals and other material
circulated by the Managing Director regarding
the IMF’s administrative and capital budgets.
• Committee on Executive Board
Administrative Matters. Considers and reports
to the Executive Board on aspects of
administrative policy regarding those employed
in Executive Directors’ offices.
• Committee on Interpretation.
Considers and makes reports and
9 GOVERNANCE AND DECISION-MAKING





74
recommendations to the Executive Board on
questions of interpretation. Legal questions are
sent to the Committee by the Executive Board at
the request of an Executive Director.
• Evaluation Committee. Follows closely
the evaluation function in the IMF and advises
the Executive Board on matters relating to
evaluations.
• Pension Committee. Decides matters of
a general policy nature arising under the Staff
Retirement Plan.
• Ethics Committee. Considers matters
relating to the Code of Conduct for IMF staff
and may also provide guidance to Executive
Directors, at their request, on ethical aspects of
the conduct of their staff.
Executive Directors hold the chairmanship of all but the
two committees on budget, and pensions, which are
chaired by the Managing Director. The Secretary of the
IMF or his or her representative serves as the Secretary
of every committee except the Ethics Committee.
Voting and Consensus Decision-Making
The Executive Board’s formal voting and decision-
making system is described in Box 9.1. In practice,
however, the Executive Board rarely takes a formal
vote. Instead, because the IMF is a cooperative
institution, the Executive Board seeks to work by
consensus. Rule C-10 of the By-Laws, Rules, and
Regulations stipulates that “The Chairman shall
ordinarily ascertain the sense of the meeting in lieu of a
formal vote.” Any Executive Director may request that
a formal vote be taken; however, this rarely happens.
The “sense of the meeting” is a position supported by
Executive Directors having sufficient votes to adopt
that position if a vote were taken.
Consensus decision-making by the Executive Board
facilitates broad participation by members in the
governance of the IMF. Since a formal vote is not
taken, the official record of the meeting does not reflect
individual voting positions unless Executive Directors
specifically request that their position be recorded in the
minutes. In recent years the IMF has been seeking ways
of strengthening the participation of developing
countries and countries in transition in decision-making
at the institution. These efforts are summarized in
Box 9.2.
Some Board decisions are taken without a Board
meeting. In these cases, decisions are circulated to the
Board for approval on a lapse-of-time basis.
Summings Up
Executive Board meetings may or may not conclude
with a formal decision. Where they do not, the sense of
the meeting is normally captured in a summing up of
the Executive Board’s discussion, prepared by the
Secretary’s Department of the IMF. In cases where a
formal decision is not taken, the summing up may carry
the force of a formal decision. Even if a formal decision
is taken at the end of the meeting, a summing up of the
discussion is normally prepared to document the
context in which the Executive Board took the decision.
The summing up may document any significant
minority views. This occurs rarely in the cases of
country discussions, but it is routine in cases of policy
discussions. When the Executive Board’s discussion of
a matter is of an exploratory or continuing nature, not
intended to arrive at a decision of any sort, the Chair
may make concluding remarks at the end of the
discussion in lieu of a formal summing up of the
discussion.
The summing up is read out at the end of the Board
meeting for comment by Executive Directors. It may be
revised on the basis of any such comments. In the case
of a country discussion, the revised summing up is
cleared by the Executive Director representing the
particular country, before it is formally issued by the
IMF. In the case of a policy discussion, the revised
summing up is sent for clearance by all Executive
Directors, after which it is formally issued. At the final
clearance stage, Executive Directors may suggest
further changes to the summing up. All the changes can
only be accepted if they are consistent with the record
of the discussion and the practice is to limit changes to
the summing up, after it is read out at the end of the
Board meeting, to only those that are necessary to
ensure that the summing up accurately captures the
sense of the Board discussion.
The summing up, and any formal decision, forms part
of the minutes of the meeting. The minutes constitute
the IMF’s official record of the Executive Board’s
discussion of the subject.
Press statements are issued by the IMF after most Board
meetings, in the form of a Public Information Notice
(PIN) for policy and country surveillance discussions or
a Chair’s Statement or Acting Chair’s Statement for
country discussions involving the use of IMF resources.

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Box 9.1. The IMF’s Voting System
1
Voting Power of Individual Members and Constituencies
Voting in the IMF is weighted by the relative sizes of members’ quotas. Article XII, Section 5 (a) of the IMF’s
Articles of Agreement stipulates that “Each member shall have two hundred fifty votes plus one additional vote
for each part of its quota equivalent to one hundred thousand special drawing rights.” Based on this formula,
and on quotas prevailing as of November 2006, the distribution of voting power among individual members of
the IMF and among constituency groupings as of November 2006 is shown in the Appendix.
The IMF’s voting system distributes voting power largely on the basis of members’ relative contributions to the
IMF’s resources. The “basic” votes—the 250 votes assigned to each member independent of quota—have a
small equalizing effect on the distribution of voting power, offsetting slightly the impact of quotas, and hence
benefit the members of the IMF with smaller quotas. Thus, the share of total voting power of these members
slightly exceeds their share of total quota, and the opposite is true in the case of members with larger quotas.
However, the number of basic votes per member has remained unchanged since inception, while members’
quotas have increased. As a result, the share of basic votes in total votes has fallen from 15.6 percent in 1958 to
2.1 percent since 1998, which has increased the dominance of quotas in determining relative voting strength at
the IMF.
Voting Majorities
Under the IMF’s Articles of Agreement, most Executive Board decisions are made by a majority of the votes
cast. However, a number of decisions require special majorities of 70 percent or 85 percent of the total voting
power.
2
A 70 percent majority is required to resolve financial and operational issues such as the rate of charge
on the use of the IMF’s resources and the rate of interest on SDR holdings. An 85 percent majority is required
for the most important decisions, such as admission of new members, increases in quotas, allocations of Special
Drawing Rights, and amendments to the Articles of Agreement. Given the voting structure, the United States
alone, the European Union, or groups of other constituencies voting as a bloc can veto decisions requiring an
85 percent majority.
In multi-country constituencies, where differences of views may exist among constituents on matters before the
Board, Executive Directors may present these differences of views to the Board for the record; however, in the
event of a vote on any matter, the Executive Director must cast all the votes of the members in his or her
constituency as a block, thus bringing his or her own judgment to bear on the matter.
____________________
1
See Articles of Agreement.
2
See Financial Organization and Operations of the IMF, Appendix II, for a selected list of decisions
requiring special majorities. Also: Leo van Houtven, Governance of the IMF, Appendix I.

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76

Box 9.2. Voice and Representation
Background. There has been growing emphasis recently on voice and governance issues in the IMF.
The “Monterrey Consensus” of March 2002 encouraged the IMF and the World Bank to find pragmatic
and innovative ways “to continue to enhance participation of all developing countries and countries with
economies in transition in their decision-making, and thereby to strengthen the international dialogue
and the work of these institutions as they address the development needs and concerns of these
countries.” In September 2002, the Development Committee requested the IMF and the World Bank to
undertake a study on ways of broadening and strengthening the voice and participation of developing
economies and economies in transition in decision-making at the Bretton Woods Institutions.
Subsequent reports by the staffs of the IMF and of World Bank have been discussed by the IMFC and
the Development Committee,
1
and work is continuing. The Board of Governors approved a resolution
on quota and voice reform in September 2006.
Strengthening the Voice and Representation of Developing and Transition Countries. IMF and
World Bank staff have identified various possibilities for strengthening the voice and representation of
developing and transition economies, including: greater support for large, multi-country constituencies;
increasing the effectiveness of the constituency system; increasing the size or reviewing the regional
composition of the Executive Boards; strengthening developing and transition countries’ voice at the
Development Committee and the IMFC; and increasing the quota shares of developing and transition
countries. At present, the Executive Board of the IMF is pursuing voice and representation issues on
two different tracks—quota-related topics and administrative and capacity-building initiatives.
Quota Issues. The basic issues are whether some countries are “over-” or “under-” represented in the
IMF based on economic size, and how best to achieve changes in quota shares to reflect such
developments. Since voting power in both the IMF and the World Bank under the present system is
strongly influenced by IMF quotas, the relative size of individual quotas has a direct bearing on the
issue of participation in decision-making. In this regard, the approval of the resolution on quota and
voice reform was a crucial first step. This resolution approved ad hoc quota increases for four clearly
underrepresented countries (China, Korea, Mexico, and Turkey). Additional steps include a new quota
formula, a second round of ad hoc quota increases, and an increase in basic votes. Progress will require
a high degree of consensus among the membership. However, it should be noted that the tradition of
relying on consensus decision-making at the Executive Board allows member countries to have a
greater voice in decision-making than their voting shares might suggest.
Capacity-Building Initiatives. These initiatives seek to enhance the capacity of Executive Directors
from developing and transition countries to participate effectively in decision making in the IMF and
thereby better serve member countries. The following steps have already been taken: expanding the staff
in offices of Executive Directors representing constituencies that have 20 or more members (namely, the
offices of the two Executive Directors representing sub-Saharan African countries); making available
informal, voluntary guidelines on the qualifications and duties of staff in Executive Directors’ offices in
order to attract high-quality staff; providing additional training and orientation for new members of staff
in Executive Directors’ offices; and using technological advances to facilitate close and effective
communication by Executive Directors with their authorities in capitals, including the development of
an Extranet in 2001—a secure vehicle for making electronic versions of Board documents available
quickly to authorities in capitals—and the use of video-conferencing technology.
________________________
1
See Report of the IMF Executive Board to the International Monetary and Financial Committee
(IMFC) on Quotas, Voice and Representation, available on the Internet at:
http://www.imf.org/external/np/fin/2003/quota/eng/091203.htm.


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Managing Director and Deputy
Managing Directors
The Managing Director chairs the Executive Board, but
has no vote except a deciding vote in the event of a tie.
He or she is selected by the Executive Board for a five-
year, renewable term. The Managing Director, in turn,
appoints a First Deputy Managing Director and two
Deputy Managing Directors to provide managerial
support. One of the Deputies chairs the Board in the
Managing Director’s absence. An Executive Director
selected by the Board acts as Chair in the absence of the
Managing Director and the Deputy Managing Directors,
although this is a rare occurrence. The Executive
Director retains the right to vote when serving as Acting
Chair.
The Managing Director is chief of the operating staff of
the IMF and conducts the ordinary business of the IMF
under the direction of the Executive Board. He or she is
ultimately responsible for all aspects of the internal
management and working of the institution and its
relations and communications with the outside world.
The three Deputy Managing Directors share oversight
of the IMF’s relationship with individual member
countries, chair selected Executive Board meetings, and
oversee staff work in specific areas.
Independent Evaluation Office
The Independent Evaluation Office (IEO) was
established by the Executive Board in July 2001 to
provide an objective and independent evaluation of the
IMF’s policies and operations. It focuses on (i) the
systematic evaluations of the IMF's general policies;
(ii) comparative cross-country analyses of the IMF's
economic policy advice, in the context of surveillance
as well as IMF-supported economic programs; and
(iii) evaluations of completed country operations. These
studies complement the review and evaluation work
undertaken within the IMF.
The IEO operates independently of IMF management
and at arm's length from the Executive Board. To
ensure the IEO’s independence, the Director of the IEO
is appointed by the Executive Board for a non-
renewable term of six years. The Director is an official
of the IMF but not a staff member, and may not be
appointed to the IMF staff at the end of the term. The
Director is solely responsible for the selection of IEO
staff on terms and conditions set by the Executive
Board. IEO staff are not IMF staff members and report
only to the Director of the IEO. The IEO’s budget is
approved by the Executive Board, but its preparation is
independent of the budgetary process over which IMF
management has authority. The IEO's work program is
determined by the Director in light of consultations
with interested stakeholders from both inside and
outside the IMF. The work program is presented to the
Executive Board for review but is not subject to the
Board's approval. The IEO has sole responsibility for
drafting evaluation reports, annual reports, press
releases, and other public statements.
External Audit Mechanism
The IMF’s external audit arrangements consist of an
External Audit Committee and an external audit firm.
The External Audit Committee has general oversight of
the external audit function and internal control
processes and consists of three members selected by the
Executive Board and appointed by the Managing
Director. The members serve for three years on a
staggered basis. They are independent, are nationals of
different IMF member countries and must possess the
qualifications required to carry out the oversight of the
annual audit. The responsibility for performing the
external audit and issuing the opinion rests with an
external audit firm, which is selected by the Executive
Board in consultation with the External Audit
Committee and appointed by the Managing Director.


78


CHAPTER 10
INTERNAL ORGANIZATION AND FINANCING
The present chapter provides a brief overview of the
internal organization of the IMF. In addition, the
chapter discusses the structure of the IMF’s income,
making particular reference to the ongoing efforts to
remedy the operational deficit and restructure the
income sources and position of the IMF.
Organizational Structure
Office of the Managing Director
At the apex of the IMF’s internal structure is the office
of the Managing Director, which includes the offices of
the Deputy Managing Directors. The Managing
Director’s office has four units, which oversee pension
fund investments, budget and planning, internal audit
and inspection, and technical assistance management.
The rest of the IMF comprises the area departments,
functional and special services departments,
information and liaison department and offices, and
support departments. Each department and each unit in
the Managing Director’s Office is headed by a Director
who reports to the Managing Director.
Investment Office
• Manages the assets of the Staff
Retirement Plan and the Retired Staff Benefits
Investment Account.
Office of Budget and Planning
• Prepares the medium-term budget to help
deliver the IMF’s strategy.
• Issues guidelines to departments and
offices for the preparation of their budgets and
business plans.
• Monitors and controls expenditures
within the overall budget.
• Coordinates budget policy and
administrative issues with Senior Budget
Managers and the Board’s Committee on the
Budget.
• Plays a lead role in developing a system
of performance indicators for the IMF.
Office of Internal Audit and Inspection
• Performs independent and objective
audits and reviews of the effectiveness of the
accounting and financial controls, and
administrative processes of the IMF, and
presents analyses and advice to IMF
management and staff for improvement.
• Provides advisory services for business
processes and work practices to help ensure that
they are structured and conducted in a manner
that enables the IMF to fulfill its objectives.
• Conducts internal investigations
requested by the Managing Director.
• Assists the external audit process and
supports the activities of the External Audit
Committee.
Office of Technical Assistance Management
• Oversees technical assistance policy
development, implementation, and reporting.
• Assesses the adequacy and the
appropriate allocation of technical assistance
resources, and mobilizes technical assistance
resources.
• Promotes interdepartmental cooperation
and coordination in the planning and delivery of
technical assistance, and manages, with the
relevant area department, the IMF’s six regional
technical assistance centers.
• Oversees the IMF’s cooperation with all
sources of external technical assistance
financing.
INTERNATIONAL MONETARY FUND

79


Area Departments
Currently there are five area departments, with
responsibilities divided roughly along geographical
lines: the African Department, Asia and Pacific
Department, European Department, Middle East and
Central Asia Department, and Western Hemisphere
Department. These, along with the functional and
special services departments described below, are the
core operational departments of the IMF. The area
departments are the focal points for relations with
member countries, and the IMF’s economic policy
discussions and lending operations with member
countries are conducted primarily by these departments.
The area departments:
• Execute the IMF’s bilateral and regional
surveillance functions, and assist in the
preparation of multilateral surveillance reports;
• Negotiate lending programs with member
countries and monitor implementation of these
programs;
• Help arrange financing packages when
members’ financing needs cannot be met by the
IMF alone;
• Report to, and seek guidance from,
management and the Executive Board on
discussions with member countries;
• Liaise closely with the World Bank and
other donors on economic policy advice and
financial assistance to member countries;
• Maintain resident representative offices
in many countries that have IMF-supported
economic programs or that are of systemic
importance; and
• Maintain regional technical assistance
centers to enhance the provision of technical
assistance.
Functional and Special Services
Departments
The nine functional and special services departments
are primarily responsible for the IMF’s work in the
areas of policy design and development, strengthening
the international monetary system, technical assistance,
multilateral surveillance, and financial transactions with
member countries. Their core functions are summarized
below.
Policy Development and Review Department
• Oversees the design, implementation, and
evaluation of the IMF’s general policies related
to surveillance and the use of IMF resources,
strengthening the international monetary system,
the role of the IMF in low-income countries, and
IMF-World Bank collaboration, and works
closely with other departments to this end.
• Through the internal review of country
work—that is, by providing comments on
briefing papers for management approval or staff
reports for Board approval—aims at ensuring an
even-handed application of IMF policies and
practices across the entire membership and staff
recommendations that conform to established
policies and practices.
• Advises management and prepares Board
papers in the development and review of IMF
policies and facilities, including on surveillance
and Article IV consultation policies and
procedures, on aspects of the architecture of the
international monetary system, on policies for
the use of IMF financial resources, and on issues
related to balance of payments need, financing
assurances, and external viability and capacity to
repay the IMF.
• Contributes to the wider dissemination of
the IMF's analyses, policies and views, and to
efforts aimed at greater openness and
transparency by the IMF.
• Plays a central role in the IMF’s dealings
with the IMFC and the Development Committee,
and serves as the focal point for general
collaboration with the World Bank, United
Nations, other international organizations,
bilateral aid agencies, and regional country
groupings such as the G-10 and G-24.

10 INTERNAL ORGANIZATION



80


Figure 10.1. IMF Organization Chart
as of December 2006


INTERNATIONAL MONETARY FUND

81


Fiscal Affairs Department
• Contributes to fiscal sector surveillance
and fiscal policy design in member countries,
and reviews the fiscal content of IMF policy
advice and IMF-supported adjustment
programs.
• Undertakes the IMF’s work on fiscal
transparency—including the preparation of
ROSCs and development of the Code of Good
Practices on Fiscal Transparency and the
Manual on Fiscal Transparency—and on
social sector issues, public expenditure policy
issues, and the environment.
• Fosters work within the IMF on the
integration of poverty and social impact
analyses of macroeconomic and structural
policies into the design of PRGF-supported
programs.
• Provides technical assistance to
member countries on public finance issues.
Monetary and Capital Markets Department
• Provides technical assistance to
member countries on monetary, financial
sector, exchange rate, and capital markets
issues.
• Conducts financial sector surveillance
in close collaboration with area departments,
including: assessment of financial sector
soundness and stability through the Financial
Sector Assessment Program (FSAP),
assessment of anti-money laundering and anti-
terrorism financing regimes, offshore financial
center assessments, and other financial-sector-
related work in collaboration with the World
Bank and other international agencies.
• Assists in the development of
internationally-recognized standards and codes
in the financial sector, assesses their
observance by member countries, and
promotes the dissemination of good policies
and best practices.
• Oversees, in collaboration with the
Legal Department, members’ foreign
exchange arrangements and restrictions on
external current payments and transfers; assists
in developing international best practices in
the areas of exchange arrangements, currency
convertibility on both the current and capital
accounts, and exchange market development
and operations; and compiles and disseminates
information on members' exchange
arrangements.
• Monitors developments and trends in
international capital markets, assesses
systemic risks and policy issues arising from
such developments and trends, and develops
analytical and operational approaches to
dealing with systemic issues in international
capital markets (including capital account
liberalization).
• Publishes the daily Global Market
Monitor and the semi-annual Global Financial
Stability Report.
• Serves as the IMF’s main point of
contact with the official and private sector on
issues relating to international capital markets,
and oversees the development and
implementation of the IMF’s policies on
private sector involvement in the resolution of
financial crises.
• Supports multilateral surveillance by
contributing to the preparation of the WEO,
WEMD, and surveillance notes for regional
groupings such as the G-7 and G-20, and
advises area departments and member
countries on all aspects of access to
international capital markets and relations with
creditors.
Statistics Department
• Develops internationally accepted
methodologies and manuals for compiling
macroeconomic statistics, including financial
soundness indicators.
• Develops and maintains standards for
the dissemination of data by member
countries, including the GDDS and SDDS.
• Provides technical assistance and
training to help member countries improve the
production and dissemination of economic and
financial statistics (see Chapter 6).
• Maintains databases of country,
regional, and global economic statistics; and
disseminates such statistics through the IMF’s
10 INTERNAL ORGANIZATION



82


global statistical publications: International
Financial Statistics, Government Finance
Statistics Yearbook, Balance of Payments
Statistics Yearbook, and Direction of Trade
Statistics.
Research Department
• Plays the central role in the IMF’s
multilateral surveillance work mainly not
related to financial market developments, and
assists in a broad range of bilateral
surveillance activities, including monitoring
exchange rates, commodity and energy
markets.
• Prepares the World Economic Outlook
(WEO) report for meetings of the IMFC,
periodic reports on World Economic and
Market Developments (WEMD) for the
Executive Board, surveillance notes for
regional groupings such as the G-7 and G-20,
and multilateral assessments of exchange rates
for key advanced and emerging market
economies.
• Develops and maintains: early warning
indicators of potential financial crises,
macroeconomic models for use in analyzing
issues in multilateral and bilateral surveillance,
and the IMF’s database on commodity prices
and emerging market economies.
• Prepares policy papers for the
Executive Board on the international monetary
system, exchange rate issues, and other key
issues raised by the Executive Board, the
IMFC, and IMF management, or suggested by
the Department’s ongoing research.
Finance Department
• Mobilizes financial resources in the
context of reviews of IMF quotas, IMF
borrowing arrangements, and resources
devoted for concessional support; advises
management and the Executive Board on the
IMF’s liquidity and income positions; invests
the Fund’s assets held in trust; and monitors
and assesses the financial position in the trust
funds, implements the IMF’s trustee functions
and investment strategy for the trust funds.
• Develops policies and advises on the
financial aspects of access to IMF resources
and the design of IMF facilities, assesses
financial risks to the IMF of large lending
arrangements, and maintains the IMF’s
accounts in accordance with international
accounting standards.
• Undertakes safeguards assessments of
central banks of member countries making use
of IMF resources to ensure that adequate
control, reporting, and auditing systems are in
place.
• Conducts all financial transactions with
member countries; provides comprehensive
financial information on the IMF’s website;
and develops and implements policies to
address arrears.
• Undertakes comptroller responsibilities
for and administers all payments and receipts
under the administrative and capital budgets
and under externally provided technical
assistance agreements.
Legal Department
• Advises the Executive Board,
management, and the staff on the applicable
rules of law, and serves as legal counsel to the
IMF in litigation and arbitration cases.
• Prepares most of the decisions and
other legal instruments necessary for the
IMF’s activities.
• Arrives at legal findings regarding IMF
jurisdiction on exchange measures and
restrictions, assesses the consistency of laws
and regulations with selected international
standards and codes, and responds to inquiries
from national authorities and international
organizations on the laws of the IMF.
• Provides technical assistance to
member countries on legislative reform.
IMF Institute
• Provides training in macroeconomic
policy design and implementation for
government officials of member countries.
INTERNATIONAL MONETARY FUND

83


• Conducts an internal economics
training program for IMF economists on
policy issues of relevance to the IMF’s work.
The External Relations Department and
Liaison Offices
External Relations Department
• Promotes public understanding of, and
support for, the work of the IMF through press
and public contacts and dissemination of
information about the IMF.
• Advises management on the core
messages on which external communications
should focus, and how to deliver those
messages effectively and efficiently.
• Maintains the IMF’s external website
and publishes the IMF Survey, Finance and
Development, and the Annual Report of the
IMF.
Offices in Europe
The three Offices in Europe—Office in Brussels,
Office in Geneva, and Office in Paris—are managed
by a single administrative entity, the Offices in
Europe. The offices:
• Contribute to the IMF's bilateral,
regional, and multilateral surveillance work by
enhancing the monitoring of regional
developments and the activities of regional
governments and organizations.
• Contribute to policy development and
liaison with regional and international bodies
that provide policy advice and set rules having
a bearing on the international economic and
financial system (OECD, WTO, BIS,
European Union institutions, other European-
based agencies).
• Contribute to representation,
communication, and outreach to explain IMF
activities to various audiences, and to keep the
IMF informed about the views of others
regarding IMF policies.
• Support recruitment and a broad range
of other activities by other departments and
offices.
Regional Office for Asia and the Pacific
• Assists headquarters in monitoring and
assessing economic and financial
developments in the region as well as the
progress in regional cooperation and
integration.
• Facilitates the implementation of IMF
policies and initiatives in the region, and helps
enhance the understanding of the IMF and its
policies.
• Promotes capacity building in the
governments of Asia and the Pacific, through
the organization of seminars and the
administration of the Japan-IMF and
Australia-IMF scholarship programs.
Office at the United Nations in New York
• Participates in inter-governmental
activities in the IMF’s capacity as permanent
observer at the United Nations—follows the
regular session of the General Assembly in
September-December and annual session of
the Economic and Social Council (ECOSOC)
in June/July, and participates in the special
high-level meeting between ECOSOC, the
Bretton Woods Institutions, and the World
Trade Organization in March/April.
• Interacts with the secretariats of all UN
organizations, through inter-agency
coordination mechanisms and bilateral
contacts.
• Undertakes outreach activities through
briefings for UN delegates, students, and non-
government organizations.
Support Departments
Secretary’s Department
• Provides secretariat support for the
IMF’s governing and advisory bodies—the
Board of Governors, the Executive Board, the
IMFC, and the Development Committee
(jointly with the World Bank)—and makes the
administrative arrangements (jointly with the
World Bank) for the meetings of the Boards of
Governors, the IMFC, and the Development
Committee.
10 INTERNAL ORGANIZATION



84


• Manages the day-to-day work program
of the Executive Board, liaises between
management and staff and the Executive
Board, oversees the summings up of Executive
Board discussions, maintains the official
records of the IMF’s governing bodies, and
prepares the minutes of Executive Board
meetings.
• Helps prepare the communiqués of the
IMFC, the G-24, or the Development
Committee.
• Has central responsibility for
communications with the IMF’s governing
bodies, printing and distribution of official
documents, information security, membership
matters, and administrative matters for the
offices of Executive Directors.
Technology and General Services Department
• The Technology and General Services
Department provides services in three areas.
• Administrative services: building
projects, facilities management, libraries,
archives and records management,
procurement, transportation, field and
headquarters security, information security,
and executive protective services.
• Information technology services:
information systems, technology
infrastructure, multimedia services, and
document management.
• Language services (i.e., translation and
interpretation).
Human Resources Department
The Human Resources Department manages the
human resources of the IMF in partnership with other
departments, overseeing policy development and
implementation with respect to recruitment,
compensation and benefits, and staff development.
Financing of IMF Operations
The IMF relies primarily on the income from its
lending operations to meet its operational costs. This
financing model has generated adequate income in
the past. However, in recent years, the substantial
decline in countries experiencing balance of
payments problems has led to a reduction in IMF
lending activities and income (Tables 10.1).
The decline in IMF lending is a positive
development, reflecting the strength of the global
economy and the IMF’s success in assisting its
members to resolve and prevent balance of payments
difficulties through the promotion of sound
macroeconomic policies. The IMF’s balance sheet is
strong and the current level of precautionary reserves
could absorb administrative deficits for a number of
years. However, the declining net interest revenue
stream does require the IMF to find the means to
close the gap between its income and its running
costs and, more fundamentally, to review its structure
and sources of revenue and find a financing model
that more appropriately reflects the IMF’s role in a
changing global economy, compared to the present
financing model that relies primarily on income
generated by lending activities.
As noted in the Managing Director’s Review of the
IMF’s Medium Term Strategy (MTS), the IMF must
secure a predictable and stable source of income to
finance its central role in the global financial system,
including its surveillance activities and provision of
technical assistance. However, the IMF is restricted
in its financing activities by the Articles of
Agreement, which limit the use of its quota resources
to balance of payments adjustment credit and limit
the use of its substantial gold holdings. The IMF is
currently pursuing a range of options to address this
challenge:
• As a first step, in May 2006 the
Executive Board approved the establishment
of an investment account to generate
additional income, which was funded by the
IMF’s reserves of US$8.7 billion at the time.
A similar structure was maintained between
1956 and 1972, initially to meet a temporary
income deficit, and subsequently to build up a
special reserve. The Executive Board also
decided to suspend the accumulation of
additional precautionary balances, to use the
IMF’s existing reserves to meet any income
shortfall, and to continue a tight budgetary
stance.
INTERNATIONAL MONETARY FUND

85


• The second and more critical long-term
aspect of the strategy is to ensure a lasting and
sustainable solution to the IMF’s income
needs. For this purpose, the Managing
Director has appointed an external Committee
of Eminent Persons to advise on a lasting
solution to the issue of the financing of the
IMF’s running costs in the future.



Table 10.1. General Department, Operational Income
(In thousands of SDRs)
Fiscal year ended April 30
2002 2003 2004 2005 2006
Net operational income 492,449 707,915 864,726 665,507 280,136
Operational income 2,364,204 2,516,348 2,379,922 2,372,558 1,801,100
Interest and charges 2,032,921 2,295,250 2,231,678 2,270,044 1,671,502
Interest on SDR holdings 41,284 28,038 16,630 16,322 58,330
Income of the Special Disbursement Account 132,503 61,431 40,938 52,157 48,710
Investment income 131,372 61,431 40,938 52,157 44,770
Interest on Structural Adjustment Facility Loans 1,131 0 0 0 0
MDRI-I Trust
1/
0 0 0 0 3,940
Other charges and income 157,496 131,629 90,676 34,035 22,558
Operational expenses 1,871,755 1,808,433 1,515,196 1,707,051 1,520,964
Remuneration 1,246,961 1,201,347 966,404 1,033,847 828,298
Allocation to the Special Contingent Account
2/
94,000 0 0 0 0
Administrative expenses 530,794 607,086 548,792 673,204 692,666
Net operational income of the General Department 492,449 707,915 864,726 665,507 280,136
comprises
Income of the General Resources Account 359,946 646,484 823,788 613,350 235,524
Income of the Special Disbursement Account 132,503 61,431 40,938 52,157 44,612
Source: Finance Department
1/ For the year ended April 30, 2006, MDRI-I Trust was consolidated with the Special Disbursement Account and consolidated
financial statements were presented.
2/ Beginning in FY 2003, the adjustments to charges and remuneration for the allocation to the Special Contingency Account are
reflected as a liability in the balance sheet.





APPENDIX

86


Appendix 1. Quotas and Voting Power
As of January 18, 2007
Countries
Quotas
(Millions of
SDRs)
Percent
of Fund
Total
1
Number of
Votes
4
Percent of
Fund Total
5
Afghanistan, Islamic Republic of 161.9 0.07 1869 0.08
Albania 48.7 0.02 737 0.03
Algeria 1,254.7 0.58 12,797 0.58
Angola 286.3 0.13 3,113 0.14
Antigua and Barbuda 13.5 0.01 385 0.02
Argentina 2,117.1 0.98 21,421 0.97
Armenia 92.0 0.04 1,170 0.05
Australia 3,236.4 1.49 32,614 1.48
Austria 1,872.3 0.86 18,973 0.86
Azerbaijan 160.9 0.07 1,859 0.08
Bahamas, The 130.3 0.06 1,553 0.07
Bahrain 135.0 0.06 1,600 0.07
Bangladesh 533.3 0.25 5,583 0.25
Barbados 67.5 0.03 925 0.04
Belarus 386.4 0.18 4,114 0.19
Belgium 4,605.2 2.12 46,302 2.10
Belize 18.8 0.01 438 0.02
Benin 61.9 0.03 869 0.04
Bhutan 6.3 0.00 313 0.01
Bolivia 171.5 0.08 1,965 0.09
Bosnia and Herzegovina 169.1 0.08 1,941 0.09
Botswana 63.0 0.03 880 0.04
Brazil 3,036.1 1.40 30,611 1.39
Brunei Darussalam 215.2 0.10 2,402 0.11
Bulgaria 640.2 0.30 6,652 0.30
Burkina Faso 60.2 0.03 852 0.04
Burundi 77.0 0.04 1,020 0.05
Cambodia 87.5 0.04 1,125 0.05
Cameroon 185.7 0.09 2,107 0.10
Canada 6,369.2 2.94 63,942 2.89
Cape Verde 9.6 0.00 346 0.02
Central African Republic 55.7 0.03 807 0.04
Chad 56.0 0.03 810 0.04
Chile 856.1 0.39 8,811 0.40
China 8,090.1 3.73 81,151 3.67
Colombia 774.0 0.36 7,990 0.36
Comoros 8.9 0.00 339 0.02
Congo, Democratic Republic of 533.0 0.25 5,580 0.25
Congo, Republic of 84.6 0.04 1,096 0.05
Costa Rica 164.1 0.08 1,891 0.09



87


Countries
Quotas
(Millions of
SDRs)
Percent
of Fund
Total
1
Number of
Votes
4
Percent of
Fund Total
5
Côte d'Ivoire 325.2 0.15 3,502 0.16
Croatia 365.1 0.17 3,901 0.18
Cyprus 139.6 0.06 1,646 0.07
Czech Republic 819.3 0.38 8,443 0.38
Denmark 1,642.8 0.76 16,678 0.76
Djibouti 15.9 0.01 409 0.02
Dominica 8.2 0.00 332 0.02
Dominican Republic 218.9 0.10 2,439 0.11
Ecuador 302.3 0.14 3,273 0.15
Egypt 943.7 0.44 9,687 0.44
El Salvador 171.3 0.08 1,963 0.09
Equatorial Guinea 32.6 0.02 576 0.03
Eritrea 15.9 0.01 409 0.02
Estonia 65.2 0.03 902 0.04
Ethiopia 133.7 0.06 1,587 0.07
Fiji 70.3 0.03 953 0.04
Finland 1,263.8 0.58 12,888 0.58
France 10,738.5 4.95 107,635 4.87
Gabon 154.3 0.07 1,793 0.08
Gambia, The 31.1 0.01 561 0.03
Georgia 150.3 0.07 1,753 0.08
Germany 13,008.2 6.00 130,332 5.90
Ghana 369.0 0.17 3,940 0.18
Greece 823.0 0.38 8,480 0.38
Grenada 11.7 0.01 367 0.02
Guatemala 210.2 0.10 2,352 0.11
Guinea 107.1 0.05 1,321 0.06
Guinea-Bissau 14.2 0.01 392 0.02
Guyana 90.9 0.04 1,159 0.05
Haiti 81.9 0.04 1,069 0.05
Honduras 129.5 0.06 1,545 0.07
Hungary 1,038.4 0.48 10,634 0.48
Iceland 117.6 0.05 1,426 0.06
India 4,158.2 1.92 41,832 1.89
Indonesia 2,079.3 0.96 21,043 0.95
Iran, Islamic Republic of 1,497.2 0.69 15,222 0.69
Iraq 1,188.4 0.55 12,134 0.55
Ireland 838.4 0.39 8,634 0.39
Israel 928.2 0.43 9,532 0.43
Italy 7,055.5 3.26 70,805 3.21
Jamaica 273.5 0.13 2,985 0.14
Japan 13,312.8 6.14 133,378 6.04
Jordan 170.5 0.08 1,955 0.09



88


Countries
Quotas
(Millions of
SDRs)
Percent
of Fund
Total
1
Number of
Votes
4
Percent of
Fund Total
5
Kazakhstan 365.7 0.17 3,907 0.18
Kenya 271.4 0.13 2,964 0.13
Kiribati 5.6 0.00 306 0.01
Korea 2,927.3 1.35 29,523 1.34
Kuwait 1,381.1 0.64 14,061 0.64
Kyrgyz Republic 88.8 0.04 1,138 0.05
Lao People's Democratic Republic 52.9 0.02 779 0.04
Latvia 126.8 0.06 1,518 0.07
Lebanon 203.0 0.09 2,280 0.10
Lesotho 34.9 0.02 599 0.03
Liberia
2
71.3 0.03 - 0.00
Libyan Arab Jamahiriya 1,123.7 0.52 11,487 0.52
Lithuania 144.2 0.07 1,692 0.08
Luxembourg 279.1 0.13 3,041 0.14
Macedonia, former Yugoslav Republic of 68.9 0.03 939 0.04
Madagascar 122.2 0.06 1,472 0.07
Malawi 69.4 0.03 944 0.04
Malaysia 1,486.6 0.69 15,116 0.68
Maldives 8.2 0.00 332 0.02
Mali 93.3 0.04 1,183 0.05
Malta 102.0 0.05 1,270 0.06
Marshall Islands 3.5 0.00 285 0.01
Mauritania 64.4 0.03 894 0.04
Mauritius 101.6 0.05 1,266 0.06
Mexico 2,585.8 1.19 26,108 1.18
Micronesia, Federated States of 5.1 0.00 301 0.01
Moldova 123.2 0.06 1,482 0.07
Mongolia 51.1 0.02 761 0.03
Montenegro 27.5 0.01 525 0.02
Morocco 588.2 0.27 6,132 0.28
Mozambique 113.6 0.05 1,386 0.06
Myanmar 258.4 0.12 2,834 0.13
Namibia 136.5 0.06 1,615 0.07
Nepal 71.3 0.03 963 0.04
Netherlands 5,162.4 2.38 51,874 2.35
New Zealand 894.6 0.41 9,196 0.42
Nicaragua 130.0 0.06 1,550 0.07
Niger 65.8 0.03 908 0.04
Nigeria 1,753.2 0.81 17,782 0.80
Norway 1,671.7 0.77 16,967 0.77
Oman 194.0 0.09 2,190 0.10
Pakistan 1,033.7 0.48 10,587 0.48
Palau 3.1 0.00 281 0.01
Panama 206.6 0.10 2,316 0.10
Papua New Guinea 131.6 0.06 1,566 0.07
Paraguay 99.9 0.05 1,249 0.06
Peru 638.4 0.29 6,634 0.30



89


Countries
Quotas
(Millions of
SDRs)
Percent
of Fund
Total
1
Number of
Votes
4
Percent of
Fund Total
5
Philippines 879.9 0.41 9,049 0.41
Poland 1,369.0 0.63 13,940 0.63
Portugal 867.4 0.40 8,924 0.40
Qatar 263.8 0.12 2,888 0.13
Romania 1,030.2 0.48 10,552 0.48
Russia 5,945.4 2.74 59,704 2.70
Rwanda 80.1 0.04 1,051 0.05
Samoa 11.6 0.01 366 0.02
San Marino 17.0 0.01 420 0.02
São Tomé and Príncipe 7.4 0.00 324 0.01
Saudi Arabia 6,985.5 3.22 70,105 3.17
Senegal 161.8 0.07 1,868 0.08
Serbia, Republic of 467.7 0.22 4,927 0.22
Seychelles 8.8 0.00 338 0.02
Sierra Leone 103.7 0.05 1,287 0.06
Singapore 862.5 0.40 8,875 0.40
Slovak Republic 357.5 0.16 3,825 0.17
Slovenia 231.7 0.11 2,567 0.12
Solomon Islands 10.4 0.00 354 0.02
Somalia 44.2 0.02 692 0.03
South Africa 1,868.5 0.86 18,935 0.86
Spain 3,048.9 1.41 30,739 1.39
Sri Lanka 413.4 0.19 4,384 0.20
St. Kitts and Nevis 8.9 0.00 339 0.02
St. Lucia 15.3 0.01 403 0.02
St. Vincent and the Grenadines 8.3 0.00 333 0.02
Sudan 169.7 0.08 1,947 0.09
Suriname 92.1 0.04 1,171 0.05
Swaziland 50.7 0.02 757 0.03
Sweden 2,395.5 1.11 24,205 1.10
Switzerland 3,458.5 1.60 34,835 1.58
Syrian Arab Republic 293.6 0.14 3,186 0.14
Tajikistan 87.0 0.04 1,120 0.05
Tanzania 198.9 0.09 2,239 0.10
Thailand 1,081.9 0.50 11,069 0.50
Timor-Leste 8.2 0.00 332 0.02
Togo 73.4 0.03 984 0.04
Tonga 6.9 0.00 319 0.01
Trinidad and Tobago 335.6 0.15 3,606 0.16
Tunisia 286.5 0.13 3,115 0.14
Turkey 1,191.3 0.55 12,163 0.55
Turkmenistan 75.2 0.03 1,002 0.05
Uganda 180.5 0.08 2,055 0.09
Ukraine 1,372.0 0.63 13,970 0.63
United Arab Emirates 611.7 0.28 6,367 0.29
United Kingdom 10,738.5 4.95 107,635 4.87



90


Countries
Quotas
(Millions of
SDRs)
Percent
of Fund
Total
1
Number of
Votes
4
Percent of
Fund Total
5
United States 37,149.3 17.14 371,743 16.83
Uruguay 306.5 0.14 3,315 0.15
Uzbekistan 275.6 0.13 3,006 0.14
Vanuatu 17.0 0.01 420 0.02
Venezuela, República Bolivariana de 2,659.1 1.23 26,841 1.22
Vietnam 329.1 0.15 3,541 0.16
Yemen, Republic of 243.5 0.11 2,685 0.12
Zambia 489.1 0.23 5,141 0.23
Zimbabwe
3
353.4 0.16 - 0.00
TOTAL OF FUND QUOTAS AND VOTES
6
216,747.8 100.00 2,208,981 100.00
Notes:
4
Voting power varies on certain matters pertaining to the General Department with use of the Fund's resources in that Department.
5
Percentages of total votes, 2,208,981 in the General Department and the Special Drawing Rights Department.
6
This figure may differ from the sum of the percentages shown for individual countries because of rounding.
On September 18, 2006, the Board of Governors adopted Resolution No. 61-5 approving, among other things, an increase in the
quotas of China, Korea, Mexico and Turkey, and establishing a thirty-day period after the date of the Resolution, ending on October
18, 2006, for these members to consent in writing to, and pay for, the increase. For Mexico, the period for consent and payment of the
quota increases provided for under paragraph 1 of Board of Governors' Resolution No. 61-5, effective September 18, 2006, is
extended until March 31, 2007 (Decision No. 13844-(06/107)). Depending on the outcome of this process, Mexico's quota and vote
will remain as detailed in the table above or increased to SDR 3,152.8 million and 31,778 respectively.
1
At the present time all 185 members are participants in the Special Drawing Rights Department.
3
Zimbabwe's voting rights were suspended effective June 6, 2003 pursuant to Article XXVI, Section 2(b) of the Articles of
Agreement.
2
Liberia's voting rights were suspended effective March 5, 2003 pursuant to Article XXVI, Section 2(b) of the Articles of Agreement.



91




ENDNOTES
1
See James Boughton, Silent Revolution: The International Monetary Fund, 1979-89, IMF, Washington, D.C.,
2001; International Monetary Fund, Articles of Agreement of the International Monetary Fund, IMF,
Washington, D.C., 1993; Margaret Garritsen de Vries, Balance of Payments Adjustment, 1945 to 1986: The
IMF Experience, IMF, Washington, D.C., 1987; Margaret Garritsen de Vries, The International Monetary Fund,
1972-78: Cooperation on Trial, IMF, Washington, D.C., 1985; Margaret Garritsen de Vries, The International
Monetary Fund, 1966-71: The System Under Stress, IMF, Washington, D.C., 1976; J. Keith Horsefield, The
International Monetary Fund, 1945-1965: Twenty Years of International Cooperation, IMF, Washington, D.C.,
1969.
2
The agreement between the IMF and the UN establishing such a relationship came into force on
November 15, 1947.
3
The Articles of Agreement were amended on July 28, 1969, on April 1, 1978, and on November 11, 1992. A
fourth amendment is pending (see Chapter 9).
4
Report on the External Evaluation of Fund Surveillance, June 30, 1999.
5
See also The Acting Chair’s Summing Up, Review of the 1977 Decision on Surveillance Over Exchange Rate
Policies—Preliminary Considerations, Executive Board Meeting 06/66, July 19, 2006, available on the IMF’s
external website http://www.imf.org/external/np/pp/eng/2006/pc.pdf.
6
A Factsheet – IMF Surveillance – The 2007 Decision on Bilateral Surveillance, available on the Internet at:
http://www.imf.org/external/np/exr/facts/surv07.htm.
7
A timeline of major events in the history of the IMF is available on the Internet at:
http://www.imf.org/external/np/exr/chron/chron2.asp.
8
These 29 countries were: Belgium, Bolivia, Brazil, Canada, China, Colombia, Costa Rica, Czechoslovakia,
Ecuador, Egypt, Ethiopia, France, Greece, Guatemala, Honduras, Iceland, India, Iraq, Luxembourg, the
Netherlands, Norway, Paraguay, the Phillipines, Poland, the Union of South Africa, the United Kingdom, the
United States, Uruguay, and Yugoslavia. In addition, the Dominican Republic, Iran, Chile, Cuba, Mexico, and
Peru signed before the end of the year, bringing to 35 the number of countries that ratified and signed the
Articles of Agreement by December 31, 1945, the deadline set for the Articles of Agreement to come into force.
The ten countries that did not sign the Agreement by December 31, 1945 were Australia, Denmark, El Salvador,
Haiti, Liberia, New Zealand, Nicaragua, Panama, the Soviet Union, and Venezuela.
9
Article XII, Section 4 (d) of the Articles of Agreement. Available on the Internet at:
http://www.imf.org/external/pubs/ft/aa/index.htm.
10
Articles of Agreement of the International Monetary Fund, available on the Internet at:
http://www.imf.org/external/pubs/ft/aa/index.htm; “Biennial Review of the Implementation of the Fund’s
Surveillance and of the 1977 Surveillance Decision—Overview”, available on the Internet at:
http://www.imf.org/external/np/pdr/surv/2004/082404.htm; “Biennial Review of the Implementation of the
Fund's Surveillance and of the 1977 Surveillance Decision: Framework and Conduct of Surveillance in 2000-
01. March 14, 2002”, available on the Internet at: http://www.imf.org/external/np/pdr/surv/2002/031402.pdf;
“Biennial Review of the Implementation of the Fund’s Surveillance and of the 1977 Surveillance Decision,
Overview. March 13, 2002,” available on the Internet at:
http://www.imf.org/external/np/pdr/surv/2002/031302.pdf; “Review of the 1977 Decision on Surveillance Over



92



Exchange Rate Policies Preliminary Considerations, Background Information, and Summing Up of the Board
Meeting, July 19, 2006,” available on the Internet at: http://www.imf.org/external/np/pp/eng/2006/pc.pdf;
“Biennial Review of the Implementation of the IMF's Surveillance and of the 1977 Surveillance Decision,”
available on the Internet at: http://www.imf.org/external/np/pdr/surv/2002/index.htm.
11
The list was expanded effective January 1, 2005 and will be reviewed no later than December 31, 2007.
Decision No. 13183-(04/10) January 30, 2004, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=13183-(04/10).
12
However, members can impose restrictions solely for the preservation of national or international security, for
which IMF approval is not required, since the IMF is not a suitable forum for discussion of the political and
military considerations that lead to restrictions. A member intending to impose restrictions solely for the
preservation of national or international security is expected to inform the IMF before doing so, or, if this is not
possible, within 30 days of doing so. The IMF will not object to restrictions that it is satisfied are imposed
solely for security reasons. Decision No. 144-(52/51), August 14, 1952, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=144-(52/51).
13
The 1977 Decision on Surveillance over Exchange Rate Policies was reviewed in 2006 under “Review of the
1977 Decision on Surveillance Over Exchange Rate Policies Preliminary Considerations, Background
Information, and Summing Up of the Board Meeting, July 19, 2006, ” available on the Internet at:
http://www.imf.org/external/np/pp/2007/eng/062107.htm.
14
See, for example, “Managing Director's Report to the International Monetary and Financial Committee--
Streamlining and Focusing Conditionality and Enhancing Ownership of Fund-Supported Programs, April 16,
2002,” available on the Internet at: http://www.imf.org/external/np/omd/2002/041702.htm.
15
The Chairman’s Summing Up—Biennial Review of the Implementation of the Fund’s Surveillance and of the
1977 Surveillance Decision, Executive Board Meeting 04/72, July 23, 2004, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0495.htm.
16
Review of the 1977 Decision on Surveillance Over Exchange Rate Policies Preliminary Considerations,
Background Information, and Summing Up of the Board Meeting, July 19, 2006, available on the Internet at:
http://www.imf.org/external/np/pp/eng/2006/pc.pdf.
17
The Acting Chair’s Summing Up, The Fund’s Transparency Policy—Issues and Next Steps, available on the
Internet at: http://www.imf.org/external/np/sec/pn/2003/pn03122.htm; The Acting Chair’s Summing Up,
Review of the Fund’s Transparency Policy, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2005/pn05116.htm.
18
The Chairman's Summing Up, Biennial Review of the Implementation of the Fund's Surveillance and of the
1977 Surveillance Decision, Executive Board Meeting 04/72, July 23, 2004, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0495.htm.
19
The Chairman's Summing Up, Biennial Review of the Implementation of the Fund's Surveillance and of the
1977 Surveillance Decision, Executive Board Meeting 04/72, July 23, 2004, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0495.htm.
20
The 1977 surveillance decision states: “Not later than three months after the termination of discussions
between the member and the staff, the Executive Board shall reach conclusions and thereby complete the
consultation under Article IV.” In this connection, see also Surveillance Procedures—Implementation of Three-
Month Period, Decision No. 7427-(83/83), 6/8/83, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=7427-(83/83). The decisions on streamlining in
November 2006 reduced the lag from three months to 65 days, except for PRGF-eligible members, where the
lag is maintained at three months.
21
Implementing the Fund’s Medium-Term Strategy, available on the Internet at:
http://www.imf.org/external/np/exr/ib/2006/041806.htm, The Managing Directors’ Report on Implementing the



93



Fund’s Medium-Term Strategy, available available on the Internet:
http://www.imf.org/external/pp/longres.aspx?id=548 , and Communiqué of the International Monetary and
Financial Committee of the Board of Governors of the International Monetary Fund, available on the Internet
at: http://www.imf.org/external/np/sec/pr/2006/pr0681.htm.
22
The typical schedule is: January – WEMD; March – WEO/WEMD; May/June – WEMD/Financial Markets
Update; September – WEO/WEMD; November – WEMD/Financial Markets Update.
23
Modalities for Surveillance over Euro-Area Policies in the Context of Article IV Consultations with Member
Countries, Decision No. 12899-(02/119), 12/4/02, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=12899-(02/119).
24
Board Decisions No. 13654-(06/1), available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=13654-(06/1), No. 13655-(06/1), available on the
Internet at: http://www.imf.org/external/pubs/ft/sd/index.asp?decision=13655-(06/1), No. 13656-(06/1),
available on the Internet at: http://www.imf.org/external/pubs/ft/sd/index.asp?decision=13656-(06/1).
25
See, in addition to the documents for the 2000 biennial review of surveillance, Factsheet – Vulneralility
Indicators, available on the Internet at: http://www.imf.org/external/np/exr/facts/vul.htm; A Balance Sheet
Approach to Financial Crisis, IMF Working Paper WP/02/210, available on the Internet at:
http://www.imf.org/external/pubs/cat/longres.cfm?sk=16167.0; The Balance Sheet Approach and its
Application at the Fund, on the Internet at: http://www.imf.org/external/np/pdr/bal/2003/eng/063003.htm;
Integrating the Balance Sheet Approach into Fund Operations, available on the Internet at:
http://www.imf.org/external/np/pdr/bal/2004/eng/022304.htm; Assessing Sustainability, available on the
Internet at: http://www.imf.org/external/np/pdr/sus/2002/eng/052802.htm; Sustainability Assessments—Review
of Application and Methodological Refinements, available on the Internet at:
http://www.imf.org/external/np/pdr/sustain/2003/061003.pdf; The Acting Chair’s Summing Up, Sustainability
Assessments—Review of Application and Methodological Refinements, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2003/pn03111.htm; Debt Sustainability in Low-Income Countries—
Towards a Forward-Looking Strategy, available on the Internet at:
http://www.imf.org/external/np/pdr/sustain/2003/052303.htm; Debt-Sustainability in Low-Income Countries—
Proposal for an Operational Framework and Policy Implications, available on the Internet at:
http://www.imf.org/external/np/pdr/sustain/2004/020304.pdf.
26
Summing Up by the Acting Chair, Review of Data Provision to the Fund for Surveillance Purposes,
Executive Board Meeting 04/25, March 15, 2004, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0437.htm.
27
A Balance Sheet Approach to Financial Crisis, IMF Working Paper WP/02/210, available on the Internet at:
http://www.imf.org/external/pubs/cat/longres.cfm?sk=16167.0.
28
The Acting Chair's Summing Up, Operational Framework for Debt Sustainability Assessments in Low-
Income Countries-Further Considerations, Executive Board Meeting 05/34, April 11, 2005, available on the
Internet at: http://www.imf.org/external/np/sec/pn/2005/pn0559.htm.
29
See Financial Sector Assessment: A Handbook, Monetary and Capital Markets Department, September 29,
2005, available on the Internet at: http://www.imf.org/external/pubs/ft/fsa/eng/index.htm. Financial Soundness
Indicators, available on the Internet at: http://www.imf.org/external/np/sta/fsi/eng/2003/051403.htm; Financial
Soundness Indicators—Background Paper, available on the Internet at:
http://www.imf.org/external/np/sta/fsi/eng/2003/051403b.htm; Concluding Remarks by the Acting Chair,
Financial Soundness Indicators, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2003/pn0371.htm; V. Sundararajan et al, Financial Soundness
Indicators: Analytical Aspects and Country Practices, IMF, Occasional Paper 212, 2002, available on the
Internet at: http://www.imf.org/external/pubs/nft/op/212/index.htm.



94



30
The Acting Chair's Summing Up—Financial Sector Assessment Program-Review, Lessons, and Issues Going
Forward, Executive Board Meeting 05/26, March 18, 2005, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2005/pn0547.htm.
31
See Joint Report on Review of the Twelve-Month Pilot Program of Anti-Money Laundering and Combating
the Financing of Terrorism (AML/CFT) Assessments, available on the Internet at:
http://www.imf.org/external/np/aml/eng/2004/031004.htm; and The Acting Chair’s Summing Up, Twelve-
Month Pilot Program of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)
Assessments—Joint Report on the Review of the Pilot Program, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0433.htm.
32
See "Offshore Financial Centers--The Assessment Program--A Progress Report and the Future of the
Program," 7/31/03; available available on the Internet:
http://www.imf.org/external/np/mae/oshore/2003/eng/073103.htm.
33
Articles of Agreement of the International Monetary Fund, available on the Internet at:
http://www.imf.org/external/pubs/ft/aa/index.htm; Review of Data Provision to the Fund for Surveillance
Purposes, available on the Internet at: http://www.imf.org/external/np/pdr/surv/2004/022404.htm; Summing Up
by the Acting Chair—Review of Data Provision to the Fund for Surveillance Purposes, available on the Internet
at: http://www.imf.org/external/np/sec/pn/2004/pn0437.htm; Strengthening the Effectiveness of Article VIII,
Section 5—Decision No. 13183-(04/10), 1/30/04, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=13183-(04/10); Strengthening the Effectiveness of
Article VIII, Section 5, available on the Internet at: http://www.imf.org/external/np/a8/eng/2003/050203.htm.
34
The Acting Chair's Summing Up Strengthening IMF-World Bank Collaboration on Country Programs and
Conditionality-Progress Report, Executive Board Meeting 04/26, March 17, 2004, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0436.htm; The Acting Chair's Summing Up, The Fund's Role in
Low-Income Member Countries-Considerations on Instruments and Financing, Executive Board Meeting 04/32,
March 31, 2004, available on the Internet at: http://www.imf.org/external/np/sec/pn/2004/pn0440.htm; The
Chairman's Summing Up, Biennial Review of the Implementation of the Fund's Surveillance and of the 1977
Surveillance Decision, Executive Board Meeting 04/72, July 23, 2004, available on Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0495.htm; The Chairman's Summing Up, Crisis Prevention and
Precautionary Arrangements-Status Report, Executive Board Meeting 04/90, September 24, 2004, available on
the Internet at: http://www.imf.org/external/np/sec/pn/2004/pn04117.htm.
35
General sources: Articles of Agreement of the International Monetary Fund, available on the Internet at:
http://www.imf.org/external/pubs/ft/aa/index.htm; Financial Organization and Operations of the IMF, IMF
Pamphlet Series No. 45, Sixth Edition, available on the Internet at:
http://www.imf.org/external/pubs/cat/longres.cfm?sk=15251.0. See also: General Arrangements to Borrow,
Decision No. 1289-(62/1), 1/5/62, as amended, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=1289-(62/1); General Arrangements to Borrow:
Borrowing Agreement with Saudi Arabia, Decision No. 7403-(83/73), 5/20/83, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=7403-(83/73); New Arrangements to Borrow,
Decision No. 11428-(97/6), 1/27/97, as amended, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=11428-(97/6); Guidelines for Borrowing by the
Fund, Decision No. 9862-(91/156), 11/15/91, available available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=9862-(91/156); Instrument to Establish the Poverty
Reduction and Growth Facility Trust, Annex to Poverty Reduction and Growth Facility Trust, Decision No.
12087-(99/118) PRGF, 10/21/99, as amended, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=12087-(99/118); Instrument to Establish a Trust for
Special PRGF Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations,
Annex to Decision No. 11436-(97/10), as amended, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=11436-(97/10).



95



36
Gold was sold at market price by the IMF to Brazil and Mexico, and then the immediate returned at the same
price to the IMF by these countries in repayment of obligations falling due. The transactions left the IMF’s
holdings of gold unchanged, but with a net profit of SDR 2.226 billion.
37
The one-year FCC is defined as the stock of usable resources plus projected repayments during the coming 12
months, less undrawn balances under existing arrangements, less a prudential balance intended to safeguard the
liquidity of creditors’ claims and to take account of any potential erosion of the IMF’s resource base.
38
See section on the reserve tranche position below.
39
The terms “purchase” to draw down a loan and “repurchase” to repay a loan are used when financing is
provided from GRA resources. When financing is provided from concessional resources, the terms
“disbursement” and “repayment” are used.
40
Public Information Notice (PIN) No. 06/94, 10/10/06, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2006/pn0694.htm.
41
Under certain conditions, borrowing from the Compensatory Financing Facility does require an arrangement.
42
Again, there are exceptions to this general rule in connection with borrowing from the first credit tranche and
the Compensatory Financing Facility.
43
Formally, the member has to make a representation to the IMF that it has a balance of payments need. As
such a representation cannot be challenged by the IMF, access to the reserve tranche is de facto automatic.
44
Criteria for the Amount of Access in Individual Cases, EBS/83/233, 10/31/83; The Chairman’s Summing Up
at the Conclusion of the Discussion on Criteria for the Amount of Access in Individual Cases, BUFF/83/279,
12/6/83; Summing Up by the Acting Chair, Access Policy in Capital Account Crises, available on the Internet
at: http://www.imf.org/external/np/tre/access/2003/072902.htm ; The Acting Chair’s Summing Up, Review of
Access Policy Under the Credit Tranches and the Extended Fund Facility, and Access Policy in Capital Account
Crises—Modifications to the Supplemental Reserve Facility and Follow-Up Issues Related to Exceptional
Access Policy, available on the Internet at: http://www.imf.org/external/np/sec/pn/2003/pn0337.htm; Review of
Exceptional Access Policy, available on the Internet at:
http://www.imf.org/external/np/acc/2004/eng/032304.pdf ; Summing Up by the Acting Chair—Review of
Exceptional Access Policy, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0454.htm.
45
Decision No. 13462-(05/32), April 1, 2005, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=13462-(05/32).

46
http://www.imf.org/external/np/tre/access/2003/072902.htm.
47
Decision No. 13462-(05/32), April 1, 2005, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=13462-(05/32).
48
Early Repurchases, Decision No. 5704-(78/39), 2/22/78; Guidelines for Early Repurchase, Decision No.
6172-(79/101), 6/2/79, as amended by Decision No. 12425-(01/14), 2/9/01, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=6172-(79/101).
49
Article V, Section 7 (b), available on the Internet at: http://www.imf.org/external/pubs/ft/aa/index.htm.
50
Guidelines on Conditionality, Decision No. 12864-(02/102), 9/25/02, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=12864-(02/102); Concluding Remarks by the
Chairman, The Modalities of Conditionality—Further Considerations, BUFF/02/13, 2/1/02; Relationship
Between Performance Criteria and Phasing of Purchases Under Fund Arrangements—Operational Guidelines,
Decision No. 7925-(85/38), 3/8/85, as amended by Decision No. 8887-(88/89), 6/6/88, available on the Internet
at: http://www.imf.org/external/pubs/ft/sd/index.asp?decision=7925-(85/38). See also
http://www.imf.org/external/np/exr/facts/conditio.htm.



96



51
Summing Up by the Chairman, Operational Modalities of the Rights Approach, Executive Board Meeting
90/97, 6/20/90, BUFF/90/130, 6/22/90; Statement by the Managing Director on the Strengthened Cooperative
Strategy on Overdue Financial Obligations to the Fund, Executive Board Meeting 90/37, 3/16/90, BUFF/90/58,
3/15/90.
52
Arrears to Creditors and Debt Strategy, Decision No. 3153-(70/95), 10/26/70, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=3153-(70/95); Review of Fund Policies and
Procedures on Payments Arrears, EBS/80/190, 8/27/80; Summing Up by the Chairman—Management of the
Debt Situation, Executive Board Meeting 91/48, 4/3/91, BUFF/91/65, 4/5/91. The Acting Chairman’s Summing
Up on Fund Policy on Arrears to Private Creditors—Further Considerations, Executive Board Meeting 99/64,
6/14/99, BUFF/99/71, 6/18/99. The Acting Chair’s Summing Up, Fund Policy on Lending Into Arrears to
Private Creditors—Further Consideration of the Good Faith Criterion, Executive Board Meeting 02/92, 9/4/02,
available on the Internet at: http://www.imf.org/external/np/sec/pn/2002/pn02107.htm.
53
Conclusions of the Task Force on the Prolonged Use of Fund Resources, available on the Internet at:
http://www.imf.org/external/np/pdr/ufr/2003/020403.pdf; The Acting Chair’s Summing Up—Conclusions of
the Task Force on Prolonged Use of Fund Resources, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2003/pn0349.htm; Guidance Note on Prolonged Use of Fund Resources,
avaliable available on the Internet at: http://www.imf.org/external/np/pdr/ufr/2003/082003.htm.
54
Review of Ex Post Assessments and Issues Relating to the Policy on Longer-Term Program Engagement,
available on the Internet at: http://www.imf.org/external/np/pp/eng/2006/032006r.pdf.
55
Misreporting and Noncomplying Disbursements in Arrangements Under the Poverty Reduction and Growth
Facility—Provisions on Corrective Action, Appendix I of Poverty Reduction and Growth Facility Trust,
available on the Internet at: http://www.imf.org/external/pubs/ft/sd/index.asp?decision=8759-(87/176) ;
Decision No. 12087-(99/118) PRGF, 10/21/99, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=12087-(99/118); The Acting Chair’s Concluding
Remarks—Strengthening the Effectiveness of Article VIII, Section, available on the Internet at:
http://www.imf.org/external/np/a8/eng/2003/050203.htm.
56
The Acting Chair’s Summing Up, Making the Misreporting Policies Less Onerous in De Minimis Cases,
July 26, 2006, available on the Internet at: http://www.imf.org/external/np/sec/pn/2006/pn0695.htm.
57
Safeguards Assessment—Review of Experience and Next Steps, available on the Internet at:
http://www.imf.org/external/np/tre/safegrds/2002/review.pdf; The Acting Chair’s Summing Up, Safeguards
Assessment—Review of Experience and Next Steps, available on the Internet at:
http://www.imf.org/external/np/sec/pr/2002/pr0219.htm. Summing Up by the Acting Chairman, Strengthening
Safeguards on the Use of Fund Resources and Misreporting on Information to the Fund, March 23, 2000,
available on the Internet at: http://www.imf.org/external/np/sec/pn/2000/pn0028.htm.
58
However, in the case of the CFF, the policy applies if the member is using the CFF in conjunction with an
IMF arrangement.
59
Review of Fund Facilities—Preliminary Considerations, available on the Internet at:
http://www.imf.org/external/np/pdr/fac/2000/faciliti.pdf; Review of Fund Facilities—Further Considerations,
available on the Internet at: http://www.imf.org/external/np/pdr/roff/2000/eng/fc/index.htm; Review of Fund
Facilities—Follow Up, available on the Internet at:
http://www.imf.org/external/np/pdr/roff/2000/eng/fu/index.htm; Summing Up by the Acting Chairman, Review
of Fund Facilities—Proposed Decisions and Implementation Guidelines, BUFF/00/175, 11/27/00; Summing Up
by the Acting Chairman, Review of Fund Facilities—Supplementary Information, BUFF/00/153, 9/18/00;
Summing Up by the Acting Chairman, Review of Fund Facilities—Follow Up, BUFF/00/145, 9/8/00; Summing
Up by the Acting Chairman, Review of Fund Facilities—Preliminary Considerations, BUFF/00/41, 3/24/00.
60
In December 2005, when the Exogenous Shocks Facility was established, the PRGF Trust and PRGF-HIPC
Trusts were re-named the PRGF-ESF Trust and the PRGF-ESF-HIPC Trust, respectively.



97



61
See Financial Organization and Operations of the IMF, Box II.5.
62
Guidelines on Conditionality—Stand-By Arrangements, Decision No. 12865-(02/102), 9/25/02, available on
the Internet at: http://www.imf.org/external/pubs/ft/sd/index.asp?decision=12865-(02/102).
63
Annual Report of the Executive Directors, 1963, page 16. (Cited in Selected Decisions and Selected
Documents of the International Monetary Fund, 29
th
issue, June 30, 2005.)
64
Extended Fund Facility, Decision No. 4377-(74/114), 9/13/74, as amended, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=4377-(74/114).
65
Supplemental Reserve Facility and Contingent Credit Lines, Decision No. 11627-(97/123), 12/17/97, as
amended, available on the Internet at: http://www.imf.org/external/pubs/ft/sd/index.asp?decision=11627-
(97/123).
66
Access Policy in Capital Account Crises, Modifications to the Supplemental Reserve Facility (SRF) and
Follow-up Issues Related to Exceptional Access Policy, available on the Internet at:
http://www.imf.org/external/np/tre/access/2003/pdf/011403.pdf.
67
Compensatory Financing Facility, Decision No. 8955-(88/126), 8/23/88, as amended, available on the
Internet at: http://www.imf.org/external/pubs/ft/sd/index.asp?decision=8955-(88/126).
68
Fund Policies with Regard to Emergency Assistance Related to Natural Disasters, SM/82/7, 1/8/82; An
Emergency Financing Mechanism, SM/95/216, 8/22/95; Summing Up by the Chairman, Fund Involvement in
Post-Conflict Countries, BUFF/95/98, 9/19/95; Fund Assistance to Post-Conflict Countries, EBS/99/46,
3/19/99; Summing Up by the Acting Chairman, Fund Assistance to Post-Conflict Countries, BUFF/99/48,
4/9/99; Conversion of Emergency Assistance into a Special Policy, Decision No. 12341-(00/117), 11/28/00,
available on the Internet at: http://www.imf.org/external/pubs/ft/sd/index.asp?decision=12341-(00/117); The
Acting Chair's Summing Up HIPC Initiative-Status of Implementation; and Update of PRGF and HIPC
Operations and Subsidization of Post-Conflict Emergency Assistance, Executive Board Meeting 02/94,
September 6, 2002, available on the Internet at: http://www.imf.org/external/np/sec/pn/2002/pn02112.htm; The
Acting Chair's Summing Up, The Fund's Role in Low-Income Member Countries-Considerations on
Instruments and Financing, Executive Board Meeting 04/32, March 31, 2004, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0440.htm.
69
The Fund’s Support of Low-Income Member Countries—Considerations on Instruments and Financing,
SM/04/53, 2/24/04, available on the Internet at: http://www.imf.org/external/np/pdr/lic/2004/eng/022404.htm;
The Acting Chair’s Summing Up, The Fund’s Role in Low-Income Member Countries—Considerations on
Instruments and Financing, available on the Internet at:
http://www.imf.org/external/np/sec/pn/2004/pn0440.htm; Poverty Reduction and Growth Facility Trust,
Decision No. 12087-(99/118) PRGF, 10/21/99, as amended, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=12087-(99/118).
70
Update on the Financing of the Fund’s Concessional Assistance and Debt Relief to Low-Income Member
Countries, August 20, 2006, available on the Internet at:
http://www.imf.org/external/np/pp/eng/2006/083006a.pdf.
71
Decision No. 13463-(05/32), April 1, 2005, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=13463-(05/32).
72
The Acting Chair’s Summing Up: Multilateral Debt Relief and Exogenous Shocks Facility—Proposed
Decisions, available on the Internet at: http://www.imf.org/external/np/pp/eng/2005/111605.pdf; The
Chairman’s Summing Up—Establishment of an Exogenous Shocks Facility Under the Poverty Reduction and
Growth Facility Trust, available on the Internet at: http://www.imf.org/external/np/sec/pn/2005/pn05163.htm;
Establishment of an Exogenous Shocks Facility Under the Poverty Reduction and Growth Facility Trust,
available on the Internet at: http://www.imf.org/external/np/pp/eng/2005/100405.pdf.



98



73
Fund Support for Trade-Related Balance of Payments Adjustments, available on the Internet at:
http://www.imf.org/external/np/pdr/tim/2004/eng/022704.htm; The Acting Chair’s Summing Up, Fund Support
for Trade-Related Balance of Payments Adjustments, BUFF/04/72, 4/9/04.
74
Decision No. 13229-(04/33), April 2, 2004, available on the Internet at:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=13229-(04/33).

75
SM/92/234; Summing Up by the Chairman Biennial Review of the Fund's Surveillance Policy, Executive
Board Meeting 93/15, January 29, 1993 (SUR/93/15); The Chairman’s Summing Up of the Discussion of the
Role of the Fund in Assisting Members with Commercial Banks and Official Creditors, Executive Board
Meeting 85/132, 9/4/85 (BUFF/85/152).
76
Summing Up by the Chairman, Operational Modalities of the Rights Approach, EBM/90/97, 6/20/90,
(BUFF/90/130); Statement by the Managing Director on the Strengthened Cooperative Strategy on Overdue
Financial Obligations to the Fund, Executive Board Meeting 90/37, 3/16/90 (BUFF/90/58).
77
The Acting Chairman's Summing Up, Overdue Financial Obligations-De-escalation of Remedial Measures
under the Strengthened Cooperative Strategy-Further Considerations, Executive Board Meeting 99/79, July 22,
1999 (BUFF/99/90). See also the section on overdue obligations to the IMF in Chapter 3.
78
Review of Fund Facilities, available on the Internet at:
http://www.imf.org/external/np/pdr/fac/2000/02/index.htm.
79
Guidance Note on the Implementation of Post-Program Monitoring, Annex III, available on the Internet at:
http://www.imf.org/external/np/pdr/fac/2000/02/index.htm.
80
Article XV, Section 1 of the Articles of Agreement, available on the Internet at:
http://www.imf.org/external/pubs/ft/aa/index.htm. See also Article XVIII, Section 1 (a) of the Articles of
Agreement; Financial Organization and Operations of the IMF, IMF Pamphlet Series No. 45, Sixth Edition,
available on the Internet at: http://www.imf.org/external/pubs/cat/longres.cfm?sk=15251.0; SDR Allocations—
The Concept of Long-Term Global Need to Supplement Existing Reserve Assets and the Objective of Making the
SDR the Principal Reserve Asset, SM/93/146, 7/6/93; The Future of the SDR as a Reserve Asset, EBS/93/89,
6/15/93.
81
The African Development Bank, African Development Fund, Andean Reserve Fund, Arab Monetary Fund,
Asian Development Bank, Bank of Central African States, Bank for International Settlements, Central Bank of
West African States, Eastern Caribbean Central Bank, European Central Bank, International Bank for
Reconstruction and Development and International Development Association, International Fund for
Agricultural Development, Islamic Development Bank, Latin American Reserve Fund, and Nordic Investment
Bank.
82
Communiqué of the International Monetary and Financial Committee of the Board of Governors of the
International Monetary Fund, September 17, 2006, available on the Internet at:
http://www.imf.org/external/np/cm/2006/091706.htm.
83
Review of Rules for Designation and Method of Calculating Designation Amounts, Decision No. 6209-
(79/124) S, 7/24/79; Rules for Designation—Revision, Decision No. 11976-(99/59) S, 6/3/99.
84
Twelve of these arrangements are currently active.
85
A “transaction” refers to the exchange of SDRs for another monetary asset; an “operation” refers to other uses
of SDRs.
86
Use of SDRs in Settlement of Financial Transactions, Decision No. 6000-(79/1) S, 12/28/78, as amended by
Decision No. 6438-(80/37) S, 3/5/80; Use of SDRs in Loans, Decision No. 6001-(79/1) S, 12/28/78; Use of
SDRs in Pledges, Decision No. 6053-79/34) S, 2/26/79, as amended by Decision No. 6438-(80/37) S, 3/5/80;
Use of SDRs in Transfers as Security for the Performance of Financial Obligations, Decision No. 6054-(79/34)



99



S, 2/26/79, as amended by Decision No. 6438-(80/37) S, 3/5/80; Use of SDRs in Swap Operations, Decision
No. 6336-(79/178) S, 11/28/79; Use of SDRs in Forward Operations, Decision No. 6337-(79/178) S, 11/28/79;
and Use of SDRs in Donations, Decision No. 6437-(80/37) S, 3/5/80.
87
SDR Valuation Basket—Revised Guidelines for Calculation of Currency Amounts, Decision No. 12281-
(00/98), 10/11/00; SDR Valuation Basket—Guidelines for the Calculation of Currency Amounts, Decision No.
8160-(85/186) G/S, 12/23/85, as amended by Decision No. 12383-(00/98), 10/11/00; and Method of Collecting
Exchange Rates for the Calculation of the Value of the SDR for the Purposes of Rule O-2(a), Decision No.
6709-(80/189) S, 12/19/80 as amended by Decision No. 12157-(00/24) S, 3/9/00; By-Laws, Rules and
Regulations of the International Monetary Fund, Sixtieth Issue, May 2006, available on the Internet at:
http://www.imf.org/external/pubs/ft/bl/blcon.htm.
88
A freely usable currency is defined in Article XXX (f) as one that the IMF determines to be widely used to
make payments for international transactions and widely traded in the principal exchange markets.
89
If the exchange rate for any currency cannot be obtained from the London exchange market, the midpoint
noon rate on the New York market is used; if not available there, the midpoint of the euro reference rates of the
European System of Central Banks communicated by the European Central Bank is used.
90
Report of the Acting Managing Director to the International Monetary and Financial Committee on the IMF’s
Policy Agenda, available on the Internet at: http://www.imf.org/external/np/omd/2004/eng/041904.htm; The
Fund’s Support of Low-Income Member Countries—Considerations on Instruments and Financing, available on
the Internet at: http://www.imf.org/external/np/pdr/lic/2004/eng/022404.htm; The Acting Chair’s Summing Up,
The Fund’s Role in Low-Income Member Countries—Considerations on Instruments and Financing, available
on the Internet at: http://www.imf.org/external/np/sec/pn/2004/pn0440.htm; and Report of the Managing
Director to the International Monetary and Financial Committee on the Role of the IMF in Low-Income
Countries, available on the Internet at: http://www.imf.org/external/np/omd/2002/041502.htm.
91
Poverty Reduction Strategy Papers—Operational Issues, available on the Internet at:
http://www.imf.org/external/np/pdr/prsp/poverty1.htm; The Poverty Reduction and Growth Facility—
Operational Issues, available on the Internet at: http://www.imf.org/external/np/pdr/prsp/poverty2.htm;
Concluding Remarks by the Chairman, available on the Internet at:
http://www.imf.org/external/np/pdr/prsp/1999/991221.htm; and Review of the Poverty Reduction Strategy
Paper Approach—Main Findings, available on the Internet at:
http://www.imf.org/External/NP/prspgen/review/2002/031502a.htm.
92
Poverty Reduction Strategy Documents – Updated Staff Guidance, available on the Internet at:
http://www.imf.org/external/np/pp/eng/2005/063005.htm, Poverty Reduction Strategy Papers – Progress in
Implementation, available on the Internet at: http://www.imf.org/external/np/prspgen/2004/092004.htm.
93
Guidelines for Joint Staff Assessment of a Poverty Reduction Strategy Paper, Annex 2 of Poverty Reduction
Strategy Papers—Progress in Implementation, available on the Internet at:
http://www.imf.org/external/np/prsp/2001/042001.htm; and Poverty Reduction Strategy Papers—Proposed
Amendments to the PRGF Trust and PRGF-HIPC Trust Instruments, available on the Internet at:
http://www.imf.org/external/np/prsp/2004/110404.htm.
94
Aligning the Poverty Reduction and Growth Facility (PRGF) and the Poverty Reduction Strategy Paper
(PRSP) Approach—Issues and Options, available available on the Internet at
http://www.imf.org/external/np/prsp/2003/eng/042503.htm; Key Features of PRGF-Supported Programs,
available on the Internet at: http://www.imf.org/external/np/prgf/2000/eng/key.htm.
95
See Instrument to Establish a Trust for Special PRGF Operations for the Heavily Indebted Poor Countries and
Interim PRGF Subsidy Operations, Annex to Decision No. 11436-(97/10), as amended, available on the Internet
at: http://www.imf.org/external/pubs/ft/sd/index.asp?decision=11436-(97/10); Debt Relief for Low-Income
Countries: The HIPC Initiative, IMF Pamphlet Series No. 51, available on the Internet at:
http://www.imf.org/external/pubs/ft/pam/pam51/contents.htm; Debt Relief for Poverty Reduction: The Role of



100



the Enhanced HIPC Initiative, pamphlet prepared by the IMF and the World Bank, available on the Internet at:
http://www.imf.org/external/pubs/ft/exrp/debt/eng/index.htm.
96
Initiative for Heavily Indebted Poor Countries—Issues Related to the Sunset Clause, available on the Internet
at: http://www.imf.org/external/np/pp/eng/2006/081606.pdf.
97
Summing Up by the Acting Chair: Enhanced HIPC Initiative-Completion Point Considerations, available on
the Internet at: http://www.imf.org/external/np/sec/pn/2001/pn01100.htm; Heavily Indebted Poor Countries
(HIPC) Initiative – Status of Implementation, August 19, 2005, available on the Internet at:
http://www.imf.org/external/np/pp/eng/2005/081905.pdf.
98
Summing Up by the Chairman: Multilateral Debt Relief Initiative—A First Assessment of Eligible Countries,
available on the Internet at: http://www.imf.org/external/np/sec/pn/2005/pn05168.htm.
99
Review of Technical Assistance Policy and Experience, available on the Internet at:
http://www.imf.org/external/np/ta/2002/eng/061202.pdf; Review of Technical Assistance, available on the
Internet at: http://www.imf.org/external/np/ta/2004/eng/021704.htm; Policy Statement on IMF Technical
Assistance, Office of Technical Assistance Management, April 2001, available on the Internet at:
http://www.imf.org/external/pubs/ft/psta/index.htm.
100
See Ensuring Alignment of Technical Assistance with the IMF’s Policy Priorities, SM/00/284, 12/20/00.
101
See the Annex to OTM’s Policy Statement on IMF Technical Assistance, available on the Internet at:
http://www.imf.org/external/pubs/ft/psta/index.htm.
102
Ensuring Alignment of Technical Assistance with the IMF’s Policy Priorities, SM/00/284 and Supplement 1,
12/20/00, and Correction 1, 12/27/00.
103
Conclusions of the Task Force on IMF Technical Assistance, available on the Internet at:
http://www.imf.org/external/np/pp/eng/2005/071205.htm.
104
The Acting Chair’s Summing Up, Review of the Fund’s Technical Assistance Program, available on the
Internet at: http://www.imf.org/external/np/sec/pn/2004/pn0421.htm.
105
The Acting Chair’s Summing Up, The Fund’s Africa Capacity-Building Initiative, available on the Internet
at: http://www.imf.org/external/np/sec/pr/2002/pr0224.htm.
106
Progress Report on the Implementation of the Fund’s Africa Capacity-Building Initiative, available on the
Internet at: http://www.imf.org/external/np/afr/2003/121103.htm ; The Fund’s Africa Capacity-Building
Initiative, available on the Internet at: http://www.imf.org/external/np/afr/2002/042302.pdf.
107
Report of the Managing Director to the International Monetary and Financial Committee on the IMF in the
Process of Change, available on the Internet at: http://www.imf.org/external/np/omd/2002/092502.pdf;
Communiqué of the International Monetary and Financial Committee of the Board of Governors of the
International Monetary Fund, 9/24/00, available on the Internet at:
http://www.imf.org/external/np/sec/pr/2000/pr0054.htm; Reform of the International Financial Architecture: A
Work in Progress, Remarks by Horst Köhler, Managing Director of the International Monetary Fund, at the
Central Bank Governors’ Symposium, Bank of England Conference Center, 7/5/02, available on the Internet at:
http://www.imf.org/external/np/speeches/2002/070502.htm; Asia-Pacific Economic Cooperation—Revised
Report on Progress in Crisis Prevention and the Reform of the International Financial Architecture, SM/01/265,
Revision 1, 10/18/01; Communiqué of the Interim Committee of the Board of Governors of the International
Monetary Fund, 4/27/99, available on the Internet at: http://www.imf.org/external/np/cm/1999/042799a.htm.
108
International Standards and Fund Surveillance, EBS/98/116, 7/10/98; Summing Up by the Acting Chairman,
International Standards and Fund Surveillance, SUR/98/95, 7/30/98; International Standards and Fund
Surveillance—Further Issues, EBS/99/34, 3/10/99; Summing Up by the Acting Chairman, International
Standards and Fund Surveillance—Further Issues, SUR/99/42, 3/31/99; International Standards—Strengthening
Surveillance, Domestic Institutions, and International Markets, available on the Internet at:



101



http://www.imf.org/external/np/pdr/sac/2003/030503.htm; Summing Up by the Acting Chair, International
Standards—Strengthening Surveillance, Domestic Institutions, and International Markets, available on the
Internet at: http://www.imf.org/external/np/sec/pn/2003/pn0343.htm.
109
The Standards and Codes Initiative—Is It Effective? And How Can It Be Improved?, available on the
Internet at: http://www.imf.org/external/np/pp/eng/2005/070105a.pdf; The Acting Chairman’s Summing Up,
The Standards and Codes Initiative—Is It Effective? And How Can It Be Improved?, available on the Internet
at: http://www.imf.org/external/np/sec/pn/2005/pn05106.htm.
110
Summing Up by the Acting Chairman, Standards for the Dissemination of Economic and Financial Statistics
to the Public by Member Countries and Implementation of the SDDS, available on the Internet at:
http://www.imf.org/external/np/sec/pr/1996/pr9618.htm. The General Data Dissemination System, SM/97/275,
11/26/97 and Correction 1, 12/17/97; Summing Up by the Acting Chairman, The General Data Dissemination
System, BUFF/97/128, 12/24/97; IMF Executive Board Approves Amendment to General Data Dissemination
System Designed to Enhance Statitstical Reporting Related to the Millennium Development Goals, Press
Release No. 03/184, 11/6/03, available on the Internet at:
http://www.imf.org/external/np/sec/pr/2003/pr03184.htm.
111
Dissemination Standard Bulletin Board, available available on the Internet:
http://dsbb.imf.org/Applications/web/sddshome.
112
Dissemination Standard Bulletin Board, available available on the Internet:
http://dsbb.imf.org/Applications/web/gdds/gddshome.
113
Dissemination Standard Bulletin Board, available available on the Internet:
http://dsbb.imf.org/Applications/web/sddshome.
114
Data Quality Assessment Framework, available available on the Internet:
http://dsbb.imf.org/Applications/web/dqrs/dqrsdqaf.
115
Code of Good Practices on Fiscal Transparency, available available on the Internet:
http://www.imf.org/external/pp/longres.aspx?id=4175.
116
Standards & Codes, available available on the Internet: http://www.imf.org/external/standards/index.htm.
117
Code of Good Practices on Fiscal Transparency, available available on the Internet:
http://www.imf.org/external/pp/longres.aspx?id=4175.
118
Reports on the Observance of Standards and Codes (ROSCs), available available on the Internet:
http://www.imf.org/external/np/rosc/rosc.asp.
119
Standards & Codes, available available on the Internet: http://www.imf.org/external/standards/index.htm.
120
On the effectiveness of fiscal ROSCs, see Farhan Hameed, "Fiscal Transparency and Economic Outcomes,"
IMF Working Paper No. 05/225 (Washington).
121
Transparency and Fund Policies--Publication Policies, Decision No. 13564-(05/85), 10/5/05; Review of the
Fund’s Transparency Policy, 5/24/05, available on the Internet:
http://www.imf.org/external/np/pp/eng/2005/052405.htm.
122
Progress Report to the International Monetary and Financial Committee on Crisis Resolution, 4/20/04,
available on the Internet at: http://www.imf.org/external/np/pdr/cr/2004/eng/042004.htm; Charles Collyns and
G. Russell Kincaid (eds.), Managing Financial Crises: Recent Experience and Lessons for Latin America,
Chapter VIII, IMF Occasional Paper No. 217 (Washington, 2003); Involving the Private Sector in Resolving
Financial Crises—Experience and Principles, EBS/00/42, 3/7/00; Involving the Private Sector in the Resolution
of Financial Crises—Further Considerations, EBS/99/194, 10/19/99.
123
Involving the Private Sector in the Resolution of Financial Crises—Complementing the Catalytic Approach,
EBS/02/2, 1/8/02; Concluding Remarks by the Acting Chair, Involving the Private Sector in the Resolution of



102



Financial Crises—Complementing the Catalytic Approach, and the Restructuring of International Sovereign
Bonds—Further Considerations, BUFF/02/19, 2/15/02.
124
Seminar on Involving the Private Sector in the Resolution of Financial Crises: The Restructuring of
International Sovereign Bonds—Further Considerations, EBS/02/15, 1/31/02; Anne O. Krueger, A New
Approach to Sovereign Debt Restructuring (Washington: IMF, April 2002), available on the Internet:
http://www.imf.org/external/pubs/cat/longres.cfm?sk=15722.0.
125
The IMF staff had proposed a Sovereign Debt Restructuring Mechanism (SDRM), but this was not accepted
by the Executive Board. In its place, the IMF endorses CACs.
126
Collective Action Clauses—Recent Developments and Issues, 3/25/03, available on the Internet:
http://www.imf.org/external/np/psi/2003/032503.htm.
127
Bank-Fund Collaboration in Assisting Member Countries, SM/89/54, Revision 1, 3/31/89; Report of the
Managing Director and the President on Bank-Fund Collaboration, SM/98/226, Revision 1, 9/25/98 and
Correction 1, 9/29/98; Bank-Fund Collaboration in Strengthening Financial Sectors, SM/97/200, 8/1/97;
Review of Bank-Fund Collaboration in Strengthening Financial Systems, SM/98/224, 9/2/98; Guidelines on
Collaboration Between the Bank and the Fund in Financial Sector Work, SM/99/158, 7/2/99; Bank-Fund
Collaboration on Public Expenditure Work, EBD/95/123, 9/7/95; World Bank and IMF, Civil Service Reform:
Strengthening World Bank and IMF Collaboration (Washington: World Bank, 2002).
128
See also Poverty Reduction Strategy Papers—Operational Issues, 12/10/99, available on the Internet at:
http://www.imf.org/external/np/pdr/prsp/poverty1.htm; The Acting Chair's Summing Up, Operational
Framework for Debt Sustainability Assessments in Low-Income Countries--Further Considerations, 3/28/05,
available on the Internet at: http://www.imf.org/External/np/pp/eng/2005/032805.htm.
129
Decision No. 11381-(96/105), November 25, 1996, available available on the Internet:
http://www.imf.org/external/pubs/ft/sd/index.asp?decision=11381-(96/105).
130
See Articles of Agreement of the International Monetary Fund; By-Laws, Rules, and Regulations of the
International Monetary Fund, IMF, May 2001; Board of Governors, Composite Resolution on the Work of the
Ad Hoc Committee on Reform of the International Monetary System and Related Issues and on a Program of
Immediate Action, October 2, 1974 and as amended September 30, 1999 (available in IMF, Selected Decisions
and Selected Documents of the International Monetary Fund, 30
th
Issue, December 31, 2005); Leo Van
Houtven, Governance of the IMF, IMF Pamphlet Series No. 53, August 2002.
131
Article XII declares: “All powers of the Fund shall be vested in the Board of Governors.”
132
Articles of Agreement, Schedule D.
133
Van Houtven, Chapter V.
134
Margaret Garritsen de Vries, The International Monetary Fund, 1972-78: Cooperation on Trial, Volume II,
p. 997.
135
Rule C-3 of the By-Laws, Rules, and Regulations.

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© International Monetary Fund Cover Photo: IMF Staff Photographer/Eugene Salazar

Cataloging-in-Publication Data International Monetary Fund handbook : its functions, policies, and operations / Bernhard Fritz-Krockow and Parmeshwar Ramlogan, editors — Washington, D.C. : International Monetary Fund, Secretary’s Dept., 2007. p. cm. Includes bibliographical references. ISBN 978-1-58906-625-0 1. International Monetary Fund — Handbooks, manuals, etc. 2. Economic policy — Handbooks, manuals, etc. 3. Balance of payments — Handbooks, manuals, etc. 4. Special drawing rights — Handbooks, manuals, etc. 5. Technical assistance — Handbooks, manuals, etc. 6. World Bank — Handbooks, manuals, etc. 7. World Trade Organization — Handbooks, manuals, etc.. I. Fritz-Krockow, Bernhard. II. Ramlogan, Parmeshwar. III. International Monetary Fund. Secretary’s Dept. HG3881.5.I58 I584 2007

........1 Financing Temporary Balance of Payments Needs ....................................CONTENTS CONTENTS Foreword Abbreviations and Acronyms 1....................................................................................................................................................7 Article IV of the IMF’s Articles of Agreement .............................................................................................................................2 Medium-Term Strategy...............................................................9 Flexibility ......................................................9 Candor ............................................................................................................................................................................3 Origins of the IMF ................................................................................................................................................................................................................... iii viii ix Overview of the IMF 1 Mandate..............10 Modalities of Surveillance ..........................................................................................................9 Uniformity of Treatment...........................................................1 Functions...............................................................................2 Increasing the Global Supply of International Reserves..........................................................................2 Combating Poverty in Low-Income Countries ................................................................................................................................................................................................................................................................................................................................................................10 Multilateral Surveillance ........1 Surveillance over Members’ Economic Policies ....................................................................2 Mobilizing External Financing ...........................................................9 Focus......................................................................................................................................................................................................................2 Dissemination of Information and Research...................................................................................................................................................................................... Surveillance Over Members’ Economic Policies 7 Surveillance in the Articles of Agreement ..........................................................2 Strengthening the International Monetary System............................................................................11 iii .......................................................9 Comprehensiveness .....................................................................3 Size and Membership.....4 2..............................................................................................................9 Universality ..........................................................9 Cooperation .........................................................................................................................................................................................................8 Characteristics of Surveillance....................................................7 Articles VIII and XIV of the IMF’s Articles of Agreement ....................................4 Staff........................................................................................10 Bilateral Surveillance......................................................................................................................................2 Building Capacity through Technical Assistance and Training..................................................................

............................25 Overdue Financial Obligations to the IMF ..................24 Reserve Tranche Policies..............................................................................................................................19 Borrowing.................20 IMF Financing to Member Countries...............Regional Surveillance..............................30 iviv ....................19 Grants for Subsidized Interest Rates and Debt Relief.........................................................................................................................................................................................22 Approval of an Arrangement ..............................................................................................................17 Offshore Financial Center Assessments ............................................................................28 Misreporting and Noncomplying Purchases and Disbursements....................................................22 Program Design .............................................23 Program Review ............................................................................... Financing Temporary Balance of Payments Needs 19 Sources of IMF Financing.21 Purchases and Repurchases ...............................................26 Lending into Arrears.................................................................................................................................................................................................................................................................................23 General Policies Governing the Use of IMF Resources............................14 Financial Sector Assessment Program.................................................................................................................................................................................................................................................................................................................................................................................21 Outright Purchases.........27 Prolonged Use of IMF Resources and Ex Post Assessments.........................................................................................................................................................................................................................................................................................................18 Surveillance in Program Countries .................................................................21 Arrangements............................................................................................................................................................................................................................................29 Financing Facilities and Arrangements ....................................................................................................................13 Strengthening Surveillance to Prevent Financial Crises...........................................................................................................................................................................................................24 Terms of IMF Lending ..................................................17 Data Provision to the IMF for Surveillance Purposes..............................................................................................................................................................................................................24 Access Policy..........................................................................................................................................29 Safeguards on the Use of IMF Resources.................................................................................................................................................................17 Anti-Money Laundering and Combating the Financing of Terrorism..........................................................................................................................................25 Conditionality ......................24 Exceptional Access........................................................................................................20 Gold Sales.........................30 The Credit Tranches .............18 3.......14 External Vulnerability Assessments ......16 Financial Soundness Indicators ........................................19 Quota Subscriptions.............................................................................................20 The IMF’s Capacity to Lend .................................................................................

................................................................................38 Post-Program Monitoring .....................38 The Policy Support Instrument ...........................................................................................................47 Operational Aspects of the HIPC Initiative ...........................................................42 Yield and Cost of SDRs .............................................................40 Separation of SDR and GRA Accounts ...................................................................................34 Emergency Assistance Policy.....................49 Requirement of a Track Record...........................................................................................................................36 Trade Integration Mechanism................................................................................................46 Alignment of the PRGF with the PRSP....................................................................................................34 Compensatory Financing Facility..............................50 Amount of IMF HIPC Assistance.....................................................................45 Joint Staff Advisory Note on the PRS Document...41 Use of SDRs..................................................................................................................................................................................37 Rights-Accumulation Programs..................................................................................................................................................................................................34 Poverty Reduction and Growth Facility .....................................................................................................................................................................................................31 Supplemental Reserve Facility ..........................38 Staff-Monitored Programs ......................................49 Definition of Debt Sustainability and Debt Relief..................................................................................................................................................................................................... Special Drawing Rights 40 The SDR as an International Reserve Asset.....................................................................31 Extended Fund Facility.........................................................................50 Terms of IMF HIPC Assistance.......37 Special Instruments ...............................................................................................................................................................35 Exogenous Shocks Facility...............................................................................47 HIPC Initiative ....................................................................................................................46 Aid Coordination and Effectiveness ...................................................................................................................................................................................................................................................................................40 Holders of SDRs.................................................................................................................................................................................................................................................................45 Content of a PRSP or I-PRSP...................................................................................................................................................39 4............................................................37 Enhanced Surveillance........ Combating Poverty in Low-Income Countries 44 Poverty Reduction Strategy Framework .....Stand-By Arrangement .........40 Allocation and Cancellation of SDRs.........................41 Valuation of the SDR ..................................................................................................................................................................................................50 v ...40 Main Characteristics of the SDR System ..............................................................................45 Preparation of a Poverty Reduction Strategy Document ..........49 Eligibility Requirements for the HIPC Initiative ...............................................................................................................................................................................................42 5.......................................................................................

......................54 Long-Term Advisors ...................................................................................................................53 Sources and Uses of Capacity Building Resources ..........................................................................................................................................................................................................................52 Technical Assistance .........................................72 vivi .................................................................................................................................................................................................................................................................................................................53 Types of Technical Assistance and Training..............................69 9...................................................67 Principles of IMF-World Bank Collaboration ...............................57 7..............................................................................................................................66 Overlap of IMF and World Bank Activities .................................................................52 Training .......68 Consultations ......................67 Collaboration with the World Trade Organization....................53 Capacity Building Priorities .........................Use of Resources Freed by Debt Relief...................................... Strengthening the International Financial System 58 Introduction...............70 International Monetary and Financial Committee............ Governance and Decision-Making 70 Board of Governors........................................................................................................................................54 Training ...........................................63 Rationale for Private Sector Involvement....59 Code of Good Practices on Fiscal Transparency .................................54 Short-Term Visits by Staff and Headquarters-Based Consultants ...........................................................................................................................................................................69 Trade Liberalization in Least-Developed Countries........ Collaboration with the World Bank and the World Trade Organization 66 Collaboration with the World Bank ....................................................63 Access to Capital Market Financing........50 Multilateral Debt Relief Initiative ..........................................................58 The Standards and Codes Initiatives .........61 Reports on the Observance of Standards and Codes.......................................................66 Lead Roles of the IMF and the World Bank.....................................54 Regional Technical Assistance Centers ...............................61 Transparency at the IMF ..................................................................................................................61 Code of Good Practices on Transparency in Monetary and Financial Policies ....................................................................................54 Modes of Delivery of Capacity Building ...............................................................................................................72 Size and Composition ...............63 8...............................58 Data Dissemination Standards .....................................................................................................................................................................................................................................................................................................................................................70 Development Committee...............................................................71 Executive Board ..........................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................51 6...................................................................................................................................................................................................................................................................56 Cooperation with Other Technical Assistance Providers .............. Capacity Building: Technical Assistance and Training 52 Role of Capacity Building...........62 Private Sector Involvement in Crisis Prevention and Resolution..............................................................................

............................................................77 External Audit Mechanism......83 Financing of IMF Operations............................ Operational Income.....................................................................................48 7............ 6 2.....1 The IMF’s Lending Capacity ......80 Tables 3.....................2 Terms and Conditions of IMF Lending..............1 The IMF’s Quota System .......................................1 Internationally-Monitored Standards and Codes..............................................................................................................................................................................................1 IMF Organization Chart ..........1 Technical Assistance Resources and Delivery.............................................12 5.........................................1 Article IV Consultation Cycles ................................................................................................... Internal Organization and Financing 78 Organizational Structure ....................................................................................................................................................................................................................................84 Boxes 1...........1 Calculation of the SDR Value ........................3 IMF Institute Training Programs.........................................................43 4......................................................91 vii ........78 Area Departments .......2 Overview of Regional Technical Assistance Centers in FY 2005............................................2 Voice and Representation................................32 4.........................79 Functional and Special Services Departments ...............................................................................................................................................................................55 6...................................................................................................74 Summings Up ......................................................................................................................................................................73 Voting and Consensus Decision-Making.....................................75 9...............77 Independent Evaluation Office............60 9.......................1 General Department................................................................................................................................................Board Procedures...........................................................1 The IMF’s Voting System ........................................56 6...................74 Managing Director and Deputy Managing Directors .........................................................................83 Support Departments ................76 Figure 10............................................................................................................................................................................22 3......... FY2002—FY2006 ...............................................................................................................57 10............ FY 2002–FY 2006..............85 Appendix Quotas and Voting Power ...............79 The External Relations Department and Liaison Offices .............................................................72 Board Committees .............................................2 Calculation of the SDR Interest Rate .............................................................77 10...........................................................................................................................................................................................1 Summary of Key Features of PRGF-Supported Programs...................................................................................................................................................................................................................86 Endnotes................................................78 Office of the Managing Director ..........................................................43 6.....................................................................

All of the documents are available to the public and many are also accessible through the IMF’s external website. staff reports and memoranda. and Choon Hwee Lee for facilitating the production and publication. policies. while footnotes provide some additional information that could be of interest to the reader. to Executive Directors and their staff. Executive Board decisions. and operations. policies. and the internal procedures through which these policies are executed. The Handbook provides. and to members of the public in general who are interested in the IMF’s mandate. pamphlets. and operations. The Handbook draws heavily on IMF documents and. it is important to note that the publication provides but a snapshot of the IMF at the time of writing. policies and operations. annual reports of the IMF. a general and factual description of the IMF’s mandate. The source documents include the Articles of Agreement. and the authors gratefully acknowledge the extensive comments and suggestions received. the language is kept as close as possible to the originals.FOREWORD This Handbook is intended to give a general overview of the IMF’s functions. The authors are grateful for the assistance of Elena Michaels. and operations. Antonella Tarantino. policies. the policies that guide its day-to-day operations and interactions with member countries. Lorna Sibblies. The Handbook should be useful to new IMF staff members. as the continued evolution in the demands of the global economy and the role of the IMF therein will be persistent forces of change that will continue shaping the IMF’s functions. The Handbook provides references in the endnotes to the relevant IMF documents. its governance and internal organization. fact-sheets. Henry Mooney. for accuracy. summings up of Executive Board discussions. and IMF staff publications. However. and Wasima Rahman-Garrett in the preparation of this publication. The present publication has been reviewed by staff from the Secretary’s Department and from other departments. although it is not intended to serve as an authoritative description of the rules governing these functions. without commentary. viiiviii . We also want to thank Celia Zufriategui.

ABBREVIATIONS AND ACRONYMS ACB ACBF AFRITAC AML/CFT AREAER ASEAN BIS CAC CAM CARTAC CCL CEMAC CFF CMCG DC DQAF DSA DSBB ECCB ECCU ECOSOC EFF EFM ENDA EPCA ESAF ESF EU EURIBOR FAA FAD FATF FCC FIRST FSAP FSI FSLC FSRB FSSA FY GAB Africa Capacity-Building Initiative African Capacity Building Foundation African Regional Technical Assistance Center Anti-Money Laundering and Combating the Financing of Terrorism Annual Review of Exchange Arrangements and Exchange Restrictions Association of Southeast Asian Nations Bank of International Settlements Collective Action Clause Committee on Executive Board Administrative Matters Caribbean Regional Technical Assistance Center Contingent Credit Lines Central African Economic and Monetary Community Compensatory Financing Facility Capital Markets Consultative Group Development Committee Data Quality Assessment Framework Debt Sustainability Analysis Dissemination Standards Bulletin Board Eastern Caribbean Central Bank Eastern Caribbean Currency Union Economic and Social Council Extended Fund Facility Emergency Financing Mechanism Emergency Natural Disaster Assistance Emergency Post Conflict Assistance Enhanced Structural Adjustment Facility Exogenous Shocks Facility European Union Euro Interbank Offered Rate Framework Administered Account for Technical Assistance Activities Fiscal Affairs Department Financial Action Task Force Forward Commitment Capacity Financial Sector Reform and Strengthening Initiative Financial Sector Assessment Program Financial Soundness Indicator Bank-Fund Financial Sector Liaison Committee FATF-Style Regional Body Financial System Stability Assessment Fiscal Year General Arrangements to Borrow ix .

GATT GCC GDDS GFSR GRA HIPC IEO IIF IMFC INS I-PRSP JIC JSA JSAN LEG LIBOR LOI MCM MD MDG MDRI MEFP METAC MTS NAB OECD OFC OIA PACT PFTAC RAP PIN PPM PRGF PRS PRSP PSI PSIA ROSC RTAC SAF SBA SDA SDDS SDR SEC General Agreement on Tariffs and Trade Gulf Cooperation Council General Data Dissemination System Global Financial Stability Report General Resources Account Heavily-Indebted Poor Countries Independent Evaluation Office Institute for International Finance International Monetary and Financial Committee IMF Institute Interim Poverty Reduction Strategy Paper Joint IMF/World Bank Implementation Committee Joint Staff Assessments Joint Staff Advisory Note Legal Department London Interbank Offered Rate Letter of Intent Monetary and Capital Markets Department Managing Director Millennium Development Goals Multilateral Debt Relief Initiative Memorandum on Economic and Financial Policies Middle Eastern Regional Technical Assistance Center Medium Term Strategy New Arrangements to Borrow Organization for Economic Cooperation and Development Offshore Financial Center Office of Internal Audit Partnership for Capacity Building in Africa Pacific Financial Technical Assistance Center Rights-Accumulation Program Public Information Notice Post-Program Monitoring Poverty Reduction and Growth Facility Poverty Reduction Strategy Poverty Reduction Strategy Paper Policy Support Instrument Poverty and Social Impact Analysis Report on the Observance of Standards and Codes Regional Technical Assistance Center Structural Adjustment Facility Stand-By Arrangement Special Disbursement Account Special Data Dissemination Standard Special Drawing Right Secretary’s Department xx .

SM SMP SRF STA TIM TMU TPRM UN UNDP WEMD WAEMU WEO WTO Staff Memorandum Staff-Monitored Program Supplemental Reserve Facility Statistics Department Trade Integration Mechanism Technical Memorandum of Understanding Trade Policy Review Mechanism United Nations United Nations Development Programme World Economic and Market Developments West African Economic and Monetary Union World Economic Outlook World Trade Organization xi .

.

1 The member countries are the shareholders of the cooperative. • To assist in the establishment of a multilateral system of payments in respect of 1 current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade. whose objective is to promote world economic stability and growth.1 and the Appendix).” with which the UN has established working relationships.”4 . to maintain orderly exchange arrangements among members. and entered into force on December 27. making the IMF “the only organization that has a mandate to examine on a regular basis the economic circumstances of virtually every country in the world. The Articles of Agreement that created the IMF and govern its operations were adopted at the United Nations Monetary and Financial Conference in Bretton Woods. with broad oversight responsibilities for the orderly functioning and development of the international monetary and financial system. • To facilitate the expansion and balanced growth of international trade. The IMF is one of several autonomous organizations designated by the United Nations (UN) as “Specialized Agencies. providing the capital of the IMF through quota subscriptions (Box 1. Surveillance over Members’ Economic Policies In becoming members of the IMF. New Hampshire. • To give confidence to members by making the general resources of the IMF temporarily available to them under adequate safeguards. and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy. and • To shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.3 Article I sets out the mandate of the IMF as follows: • To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.2 The IMF is a permanent observer at the UN. and described more detail in later chapters. It is a cooperative of 185 member countries. Functions The IMF pursues the various facets of its mandate in a number of ways. These are summarized below. on July 22. the IMF provides its members with macroeconomic policy advice. This mandate gives the IMF its unique character as an international monetary institution. In return. financing in times of balance of payments need. and technical assistance and training to improve national economic management. thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. 1945. and to avoid competitive exchange depreciation. 1944. • To promote exchange stability. countries agree to pursue economic policies that are consistent with the objectives of the IMF.INTERNATIONAL MONETARY FUND CHAPTER 1 OVERVIEW OF THE IMF Mandate The IMF is an independent international organization. The Articles of Agreement confer on the IMF the legal authority to oversee compliance by members with this obligation.

They rely on an IMF endorsement of a country’s economic policies or might even require a formal IMFsupported economic program before committing or disbursing their own resources to that country or granting debt relief. where resources are scarce and institutions often weak. Increasing the Global Supply of International Reserves The IMF is authorized to issue an international reserve asset called the Special Drawing Right (SDR) if there is a global need to supplement existing reserve assets. IMF and academic journals and working papers.1 OVERVIEW OF THE IMF Financing Temporary Balance of Payments Needs The Articles of Agreement enable the IMF to lend to member countries that have a balance of payments need to provide temporary respite and enable countries to put in place orderly corrective measures and avoid a disorderly adjustment of the external imbalance. the IMF works closely with the World Bank and other development partners. Dissemination of Information and Research The IMF is a premier source for economic analysis of its member countries’ economic policies and statistical information. They are not a claim on the IMF. and works with other multilateral institutions to devise international rules that would facilitate the prevention and orderly resolution of international economic problems. as well as specialized statistical publications. Mobilizing External Financing IMF endorsement of a country’s policies serves as an important catalyst for mobilizing resources from bilateral and multilateral lenders and donors. These activities are particularly important in developing countries. Information is disseminated through its numerous economic reports and research studies on member countries. and facilitating program design and implementation. mainly to improve its economic analysis and its advice to member countries. Building Capacity through Technical Assistance and Training Technical assistance and training are provided in the core areas of IMF expertise to help member countries design economic policies and improve economic management capabilities. which in turn can help reduce the risk of policy failures and the countries’ resilience to shocks. The results of this research are disseminated through books. 22 . occasional papers. The SDR is also the IMF’s unit of account for all financial transactions with members. and impact on investor and market confidence in the economy. Strengthening the International Monetary System The IMF is the central institution in the international monetary system. The IMF also participates in two international initiatives to provide debt relief: the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). In addition to providing direct financing to its member countries. These allocated SDRs are part of the net international reserves of members and can be exchanged for convertible currencies. Such lending is usually undertaken in the context of an economic adjustment program implemented by the borrowing country to correct the balance of payments difficulties. In this venture. Combating Poverty in Low-Income Countries The IMF provides concessional loans to low-income member countries to help support these countries’ efforts to eradicate poverty. The IMF also conducts research in areas relevant to its mandate and operations. In this area the IMF also plays a critical catalytic role to mobilize external financing and donor support for the countries’ balance of payments and development needs. It serves as a forum for consultation and collaboration by members on international monetary and financial matters. IMF policy assessments and recommendations also provide important signals to investors and financial markets regarding a country’s economic future. the IMF plays an important catalytic role in helping member countries to mobilize external financing for their balance of payments needs. and the internet. which also safeguards IMF resources.

with less reliance on margins from lending and more on steady. including the 3 . and governance of the institution are lost in a sea of paper. currency misalignments. • More effective engagement in lowincome countries. a greater multilateral perspective to surveillance. The MTS calls for action to control procedure and documentation. Origins of the IMF The origin of the IMF lies in the experience of countries during the inter-war period. The strategy concluded that the emergence of new economic powers. and responsibilities—to strengthen the effectiveness of surveillance. to achieve higher growth and the Millennium Development Goals. discussions are ongoing about the introduction of a new surveillance remit— understood as a statement of objectives. These include the ad-hoc changes in the quotas of four member countries or initiatives such as the streamlining of consultations. • Medium-term budget. the MTS calls for efforts to improve crisis prevention and response. The difficulties in tackling unprecedented global imbalances. including from debt relief. integrated financial markets. At the global level. At the country level. the MTS calls for efforts to choosing focus and effectiveness over comprehensiveness. and financial market disturbances. The MTS calls for efforts to address other aspects of governance. the institution risked being pulled in too many directions and losing its relevance to large parts of the membership. and new ideas to promote economic development required an updated interpretation of the IMF’s mandate as the steward of international financial cooperation and stability. and the challenges facing individual countries. At the same time. an ad-hoc increase in quotas for four countries. lest the work. with deeper analysis of financial systems. the MTS calls for efforts to identify—and promote effective responses to—risks to economic stability. Capacity building. the MTS calls for efforts to augment candid and focused macroeconomic analysis with enhanced surveillance over financial and capital markets.INTERNATIONAL MONETARY FUND Medium-Term Strategy In light of the economic transformation wrought by 21st century globalization. The MTS calls for these efforts to be reconciled within a medium-term budget that deals with the projected fall in the IMF’s income. Capacity building also needs to be part of the strategy to address vulnerabilities identified in surveillance. Helping countries do so requires a deeper but more focused engagement by the IMF. • Governance. including new understandings with the World Bank and other agencies on the division of labor. and to enable management and the Board to shift attention from routine and detail to broader. including transparent selection of management and better definition of the role of the Board. long-term sources of income. The IMF’s efforts to build macroeconomic institutions can be strengthened with better prioritization and country ownership. the IMF embarked on a review of its future direction.6 • The changing role of the IMF in emerging market countries. Quota and voice reform is central to the legitimacy and effectiveness of the IMF. In the many countries that have already emerged to become major global players. Without new focus and carefully chosen priorities. The MTS calls for efforts to marshal the expected rise in aid flows. The MTS calls for • targeted efforts in this area to help members implement reforms. underscore the need for stronger exercise of surveillance by the IMF. unprecedented capital flows. • Streamlining. A number of initiatives derived from the MTS have already been put in place or are near-completion. publishing the Managing Director’s Report on Implementing the Fund’s Medium-Term Strategy (MTS) in April 2006. strategic issues. But even with a decline in real spending. a two-year package was initiated with. The proposals put forward in the MTS cover the following issues: • New directions in surveillance. messages. as a first step. During the 2006 Singapore Annual Meetings. including from payments imbalances. priorities. the MTS notes that a new business model is needed to finance IMF activity in the future. and more regional context and outreach.5 In this context.

7 The IMF came into existence on December 27.* In this context. the total quota has expanded significantly over time. so has the size and diversity of the staff of the IMF. and mode of operations have undergone considerable expansion or transformation in response to changes in the world economic environment. it must be in control of its foreign affairs. The size of the IMF is often also viewed in terms of the total quota of all its members.C. were led to adopt similar policies. and.8 The inaugural meeting of the Board of Governors was convened in Savannah. Eligibility for membership is based on three basic requirements: the applicant must be a country. To continue to fulfill its core mandate as set out in the Articles of Agreement. 1946. while the operational procedure of the formal membership process is: (i) an application is submitted to the Managing Director. Article XXVI also makes provision for the compulsory withdrawal of a member that fails to fulfill its obligations under the Articles of Agreement. 1947. Since 1945. institution. D. the IMF’s size and structure. Its present governance and organizational structures are described in more detail in Chapter 10. it is important to bear in mind that this Handbook presents a snapshot of the IMF today. many countries attempted to maintain domestic income in the face of shrinking markets through competitive devaluation of their currencies and resort to exchange and trade restrictions. the total quota has been declining relative to world GDP. the draft membership resolution is submitted to the Board of Governors for adoption. and in the financing needs of the membership (Box 1 and Appendix). Informal inquiries and discussions usually precede the formal membership process. when 29 countries signed the Articles of Agreement. (iv) an ad hoc membership committee considers the staff report to determine the terms and conditions of membership and the quota. (iii) a staff membership mission produces a report that contains quota recommendations. and the first meeting of the Executive Board was held in Washington. However. There was growing recognition of the largely self-defeating nature of these policies at the country level and the increasing global welfare losses. resulting in a widening acceptance of the need for a globally agreed code of conduct in international trade and financial matters. However. and (vii) the Board of Governors may adopt a membership resolution with a simple majority. In September 1946. reflecting the growth in membership. Such measures could achieve their objectives only by aggravating the difficulties of trading partners who. In nominal (SDR) terms. 1944. responsibilities and priorities. 1946. if the recommendations are acceptable. and sets out a procedure for compulsory withdrawal.1 OVERVIEW OF THE IMF Great Depression. It was in this context that representatives of 45 countries reached an agreement in Bretton Woods. compulsory withdrawal is a last resort and the member is given ample opportunities to correct its policies and fulfill its obligations to the IMF. provided the requisite quorum is achieved. In the 1920s and 1930s. New Hampshire during July 1-22. membership has expanded steadily to include nearly all countries in the world today. Size and Membership Since its inception. * Staff As the membership has expanded. Members also have the right to withdraw from the IMF at any time by transmitting a notice in writing to the IMF. (vi) the Executive Board considers the ad hoc committee's report. and France became the first country to draw funds from the IMF in May 1947. the IMF has continuously adapted to meet new challenges in the evolving world economy. in self-defense. on May 6. 1945. leading to a destructive vicious cycle. (ii) the Executive Board decides whether to proceed with a formal investigation of an application for membership. on the constitution and functions of an international institution to supervise and promote an open and stable international monetary system. on March 8. (v) the chairman of the ad hoc committee ascertains whether the proposed terms and conditions and quota are acceptable to the applicant. about 100 staff members from 15 countries worked in 44 . and it must be willing and able to fulfill the obligations of membership. The IMF began its operations on March 1. and today’s IMF is the product of historical forces that will continue to evolve and to shape the future of the A substantive account of the historical evolution of the IMF in response to the changing global economic needs can be found in some of the sources cited in endnote 1. Georgia. in the size of the world economy.

9 Furthermore. Staff are immune from legal process with respect to acts performed by them in their official capacity. and an Administrative Services Unit. but also includes financial specialists. and at the United Nations in New York. the Secretary’s Office. Geneva. lawyers. The Articles of Agreement state that the IMF staff should be of the highest caliber in terms of standards of efficiency and technical competence. shall owe their duty entirely to the IMF and to no other authority. and support personnel. accountants. writers.C. At end-2006 there were about 2. an Operations Division. Brussels. and require each member country to respect the international character of this duty and to refrain from all attempts to influence any of the staff in the discharge of their functions. The IMF currently maintains small offices in Paris. and Tokyo. and a much more elaborate organizational structure. except when the IMF waives this immunity.800 staff members. editors. while the appointments should also pay due regard to the importance of recruiting personnel on as wide a geographical basis as possible. linguists. In addition. in the discharge of their functions. statisticians. the Articles of Agreement indicate that the staff of the IMF. from more than two-thirds of the member countries. 5 .INTERNATIONAL MONETARY FUND five Divisions: a Research Division. The IMF staff comprises mainly economists. D. Most staff members work at the IMF’s headquarters in Washington. USA. a Legal Division. as described in Chapter 10.. the IMF has resident representative offices in many member countries and a number of regional technical assistance and training centers.

calculated quotas help guide decisions regarding the aggregate size and distribution of members’ actual quotas. How Quotas Are Determined. 6 . ______________ 1 See Articles of Agreement. A member borrows from the IMF by purchasing reserve assets using its own currency. The IMF’s Quota System1 Quotas as the Basis of Capital Subscriptions to the IMF. borrowing is subject to an annual limit of 100 percent of quota and a cumulative limit of 300 percent of quota. These access limits vary according to the type of borrowing arrangement between the member and the IMF. 2001.8 billion. The Board of Governors determines the aggregate quota and the distribution of this aggregate among the individual member countries. The twelfth general review of quotas was concluded in January 2003 with no change in quotas. The member’s capital subscription to the IMF is equal to its quota. The formulas are currently being reviewed with a view to simplifying and updating them. Quotas determine the size of the IMF and play a central role in the IMF’s operations. Quota formulas exist to calculate the quotas of member countries. including possible changes to quota formulas. and governance and representation. the relative influence of individual members in decision-making at the IMF. Other Functions of Quotas. • SDR Allocations. quotas to a large extent determine the lending capacity of the IMF. Quota subscriptions by members provide by far the bulk of the resources (reserve assets) available to the IMF to finance its lending operations. with the result that actual quotas of individual members differ significantly from the calculated quotas. Quota reviews have focused on the role and size of the IMF. the aggregate size and distribution of members’ quotas to reflect developments in the world economy and changes in members’ relative economic sizes. while individual quotas are based broadly on members’ relative economic sizes in the world economy. • Voting Power. Financial Organization and Operations of the IMF. under the credit tranches and the Extended Fund Facility. The IMF normally conducts general quota reviews every five years with a view to adjusting. 45. external position. Five quota formulas are currently used for this purpose. The IMF may also undertake ad hoc quota adjustments at the request of individual members. IMF. the adequacy of IMF resources and the need for a possible quota increase.1 OVERVIEW OF THE IMF Box 1. and variability of export earnings of member countries. The total quota or capital subscription of all members is currently SDR 212. • Access Limits. Members pay up to 25 percent of their quota in the form of reserve assets and the remainder in their own currency. For example. Quota Formulas. so that quotas in principle determine the maximum level of a country’s access. the IMF has tended to distribute the bulk of quota increases as a uniform percentage of existing quotas. the IMF’s unit of account for financial transactions with member countries. therefore. although significant adjustments in quota shares have tended to take place in the context of general quota increases. The aggregate quota is set taking into account the IMF’s capacity to satisfy the projected financing needs of the membership. the distribution of quotas. if necessary. Each member of the IMF is assigned a quota expressed in special drawing rights (SDRs). sixth edition. • Lending Capacity. Therefore. Pamphlet Series No. incorporating variables that measure the economic size. Quotas largely determine the distribution of the voting power of the IMF and. openness to trade. both within and outside the context of a general review. An 85 percent majority of the total voting power of the Board of Governors is required for any change of quotas. The quota formulas have not produced quota shares that would be considered acceptable to the IMF’s membership. Quotas determine a member’s share in a general allocation of Special Drawing Rights.1. In practice. and repays the IMF by repurchasing its own currency using reserve assets. The limit of members’ access to IMF resources is stated as a percent of quota. in part because of the politically-sensitive nature of quota shares and perceived deficiencies of the formulas themselves. In principle.

and.CHAPTER 2 SURVEILLANCE OVER MEMBERS’ ECONOMIC POLICIES Surveillance in the Articles of Agreement The Articles of Agreement set out the obligations of member countries and the IMF. • Seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions. Section 1 identifies four specific obligations for members. which established how surveillance would be conducted after the adoption of the Second Amendment to the Articles. which form the legal basis of IMF surveillance over members’ economic policies. • Follow exchange policies compatible with the undertakings of Article IV. “Each member shall provide the Fund with the information necessary for such surveillance. The IMF relies upon the information provided by the members to conduct its surveillance under Article IV. Section 5 of the IMF’s Articles of Agreement stipulates that the IMF may require members to furnish it with information as it deems necessary for its activities (including surveillance). Section 1 requires member countries to pursue economic policies consistent with the IMF’s purpose.* • Avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.” The 1977 Decision on Surveillance over Exchange Rate Policies adopted principles for the guidance of members on their exchange rate policies. 10 The core article in this respect is Article IV of the IMF’s Articles of Agreement. Section 2 allows members to set the exchange rate arrangements of their choice. the IMF “shall exercise firm surveillance over the exchange rate policies of members. The implementation of the IMF’s surveillance and of the 1977 decision on surveillance is reviewed on a triennial basis by the Executive Board.” Furthermore. with the exception of arrangements that would set gold as a value denominator. and principles of IMF surveillance providing guidance to the IMF in monitoring the observance by members of these principles through the specification of indicators. It requires members to notify the IMF promptly of these arrangements and any changes to them. Section 3 (a) empowers the IMF to “oversee the international monetary system in order to ensure its effective operation” and to “oversee the compliance of each member with its obligations under Section 1 of this Article. * 7 .” Section 3 (b) states that. in order to fulfill its functions under Section 3 (a). and stipulates that “each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In this context. The principles and procedures of surveillance were set out in further detail in a 1977 Executive Board Decision. Each member is required to: • Endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability. and specifies a list of data that the IMF deems the minimum necessary to conduct its duties. shall consult with it on the member’s exchange rate policies. when requested by the Fund. and shall adopt specific principles for the guidance of all members with respect to those policies.” In addition to this general undertaking to collaborate with the IMF and other members. Article IV of the IMF’s Articles of Agreement Article IV is the core article outlining the members’ and the IMF’s responsibilities in surveillance. Section 1. Article VIII.

and that their use will be temporary. Some activities associated with surveillance. the IMF uses the occasion of an Article IV consultation to consult with members with respect to the retention of exchange restrictions under Articles VIII and XIV. within the context of an Article IV consultation. Article VIII. Sections 2. members are expected to withdraw restrictions maintained under this Section. Nevertheless. exchange controls. 3. Sections 2. and that they are not discriminatory. and to provide adequate information. Members maintaining such arrangements or practices are expected to consult with the IMF as to their progressive removal. Section 1. or whether they are prepared to accept the obligations of Article VIII. such as the multilateral surveillance exercises initiated in 2006. unless they are maintained or imposed under the Article XIV. they are often included under the general term of “surveillance”—for example. the international investment position. the central bank. the FSAP is referred to as “financial sector surveillance. while the member is seeking to eliminate the need for them. and to accept the obligations under Article VIII. by buying balances of their currency held by other members when requested by these other members.” For this reason. The IMF will only approve 88 . 3. provides the legal basis for the member countries’ obligations to maintain currency convertibility and exchange regimes free of restrictions or discriminatory practices. • Section 2 prohibits members from imposing restrictions on the making of payments and transfers for current international transactions without the approval of the IMF. 3. 3. external reserves. They are legally different from the IMF surveillance activities and serve different purposes. as soon as balance of payments conditions permit. Sections 2.1 OVERVIEW OF THE IMF The list includes data relating to the central government. Articles VIII and XIV of the IMF’s Articles of Agreement The IMF.” restrictions if it is satisfied that they are necessary for balance of payments purposes. and 4. These Article VIII and XIV consultations are “comprehended” by the Article IV consultation but they do not form part of the Article IV consultation. • Section 2 permits members to maintain and adapt to changing circumstances the restrictions on payments and transfers for current international transactions that were in effect on the date on which they became members. For example. the Financial Sector Assessment Program (FSAP). Any member retaining any restrictions inconsistent with Article VIII. national accounts. and 4 is required to consult annually with the IMF as to their further retention.11 The term “surveillance” refers to bilateral surveillance that is conducted pursuant to Article IV and is mandatory for all members. and the banking system. as explained in the section on modalities of surveillance. the balance of payments. Section 2. and the work on standards and codes. However. when speaking of members’ obligations under the Articles of Agreement. These activities are not mandatory for countries and have been developed in recent years to strengthen surveillance. • Section 3 stipulates that the IMF shall make annual reports on the restrictions in force under Section 2 of this Article. and 4. often addresses issues that fall outside the scope of surveillance entirely and are beyond its oversight of a member’s compliance with the obligations specified under Article IV. surveillance is usually referred to as “Article IV surveillance. • Section 1 requires members to notify the IMF upon joining whether they intend to avail themselves of the transitional arrangements in Section 2 of this Article. are voluntary arrangements between member countries and the IMF (see Chapter 7). • Section 4 requires members to maintain the convertibility of their currency. Article XIV provides transitional arrangements for countries that have not yet accepted the obligations under Article VIII. prices. 12 • Section 3 prohibits members from engaging in any discriminatory currency arrangements or multiple currency practices except as authorized under the Articles of Agreement or approved by the IMF. Sections 2. and 4.

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Characteristics of Surveillance
Universality
Bilateral surveillance under Article IV is mandatory for all member countries. Furthermore, according to the 1977 surveillance decision, the principles and procedures that guide surveillance apply “to all member countries whatever their exchange arrangements and whatever their balance of payments position.”13 Surveillance consultations are held routinely with every IMF member country, irrespective of their level of development or the strength or weakness of their economic policies.

Cooperation
Although the conduct of bilateral surveillance is an obligation for both the IMF and the members, the IMF seeks to work in a cooperative spirit with member countries, based on mutual trust and confidence. The Executive Board has repeatedly expressed strong support for the cooperative approaches underlying the IMF’s relations with members.16 The IMF recognizes that the success of surveillance depends in part on the extent to which member countries implement its advice, and that implementation will be more likely if members “own” the policies that IMF staff recommend. Thus it emphasizes, among other things, effective communication and close policy dialogue with countries, including with legislative bodies, in order to enhance ownership. In addition, some of the IMF’s monitoring activities, such as the financial sector assessment program and the work on standards and codes, rely on the voluntary participation of members.

Uniformity of Treatment
The Executive Board has at various times stressed the importance of maintaining the uniformity of treatment of member countries.14 This principle applies to all IMF activities, and not just to the conduct of surveillance. It requires that members in similar circumstances be treated similarly.

Candor
The effectiveness of surveillance depends crucially, among other things, on sound policy advice based on accurate analysis of a country’s economic problems and challenges. The IMF recognizes that the quality of its analysis and advice depends in part on complete frankness by IMF staff in the surveillance exercise. At the 2002 biennial review, the Executive Board stressed the importance of candid staff reports and summings up to convey clear and strong messages to member governments on required policy actions. During the discussion of the IMF’s transparency policy in June 2005 the Board again emphasized that candor in the IMF’s dialogue with members and in reporting to the Board remains essential for effective surveillance.17 Also, the Board stressed in 2004 that a thorough and candid discussion of exchange rate issues remains critical for surveillance.18 However, under the IMF’s policy for deletions and corrections, market-sensitive information in staff reports may be deleted prior to publication of the reports, at the request of the member country.

Flexibility
Article 3 (b) states that surveillance principles “shall respect the domestic social and political policies of members, and in applying these principles the Fund shall pay due regard to the circumstances of members.” The 1977 Decision on Surveillance over Exchange Rate policies also provides that the surveillance of exchange rate policies shall be adapted to the needs of international adjustment as they develop, while the 2002 biennial review reiterated its support for flexibility in surveillance procedures, emphasizing that coverage of surveillance should be molded to country-specific circumstances.15 Flexibility is applied in two ways. First, there have been changes in the breadth, depth, and intensity of surveillance over the years in response to new challenges and demands in the global economy, to new research findings on relevant policy issues, and to the need to better manage staff and Executive Board resources. Second, the conduct of surveillance varies with individual country circumstances—for example, with respect to timing, frequency, and focus of consultations with members.

Comprehensiveness
Comprehensiveness is understood to mean coverage of all policies that are relevant for macroeconomic performance. The 1977 surveillance decision states: “The Fund’s appraisal of a member’s exchange rate policies shall ... be made within the framework of a 9

1 OVERVIEW OF THE IMF

comprehensive analysis of the general economic situation and economic policy strategy of the member... .” This statement reflects the understanding that exchange rate developments are closely linked to the broad policy regime of the country. Over the years, the scope of surveillance has expanded from a relatively narrow focus on fiscal, monetary, and exchange rate policies to a broader purview encompassing external vulnerability assessments, external debt sustainability analyses, and financial sector vulnerabilities, which have an impact on macroeconomic conditions. The increased focus on these issues was particularly noticeable after the Asian crises of the mid-1990s, when the IMF stepped up its crisis prevention efforts. This broader coverage constitutes a necessary and positive adaptation of surveillance to a changing global environment—most notably to the rapid expansion of international capital flows—and to the recognition that structural factors are important determinants of economic performance. At the same time, the IMF has reduced the scope of surveillance by limiting the analysis of other structural and institutional policies that could have an impact on macroeconomic conditions. The IMF does not always have the expertise or experience necessary to cover all issues that may at times be critical to a country’s macroeconomic stability. On such issues, the IMF would normally draw on the expertise of other institutions, such as the World Bank, regional development banks, or specialized agencies.

• Hierarchy of surveillance concerns. Within the range of macroeconomicallyrelevant issues, there is a hierarchy of surveillance concerns. Matters that would be given prominent attention are: external sustainability; vulnerability to balance of payments or currency crises; sustainable economic growth with price stability; and, for systemically-important countries, conditions and policies affecting the global or regional economic outlook. 19

Modalities of Surveillance
IMF surveillance takes three forms: bilateral, regional, and multilateral. Bilateral surveillance traditionally has been one of the core surveillance activities. However, regional and multilateral surveillance have assumed greater importance in recent years, as the need for more systematic treatment of contagion and cross-country themes in bilateral surveillance became obvious following the Mexican crisis. This has been accompanied by more reporting to the Executive Board on regional and multilateral developments as the backdrop for bilateral consultations. Regional and multilateral surveillance help strengthen the effectiveness of the IMF’s bilateral surveillance.

Bilateral Surveillance
Article IV Consultations Article IV consultations are the principal tool of bilateral surveillance. They involve bilateral discussions between the IMF and individual member countries. They begin with a mission of IMF staff to the country to gather information and conduct discussions with country officials. Missions normally last two to three weeks and discussions are held primarily with government officials. The mission also tries to meet with representatives from the private sector, labor unions, non-government organizations, regional organizations, or academia. The objective is for the staff to gain as wide a perspective as possible on the country’s economic situation and vulnerabilities. At the end of the mission, final discussions are held with the authorities to present the missions’ preliminary findings on developments, vulnerabilities, outlooks, and recommendations. A

Focus
A careful balance needs to be maintained between comprehensiveness and focus. This is done first by ensuring that coverage is adapted to country-specific circumstances. Also, there are two closely-related criteria to guide the selection of issues to be covered in the Fund’s consultations with member countries: macroeconomic relevance and the IMF’s hierarchy of surveillance concerns: • Macroeconomic relevance. The macroeconomic relevance criterion is that policy issues should be covered in surveillance discussions only when they have a sizeable influence on macroeconomic developments.

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member of the Executive Director’s office would normally attend these discussions. The staff might also leave with the authorities a statement summarizing its findings. Upon return to headquarters, the staff writes a report setting out recent developments, the policy discussions, the short- and medium-term outlook, and the staff’s appraisal of the country’s economic situation and the authorities’ policy stance. The staff report, supplemented by a “buff” statement by the Executive Director to amplify the country’s perspective on the issues involved, forms the basis for an Executive Board discussion.* This discussion normally takes within place 65 days of the mission’s return to headquarters (or three months for members eligible for the Poverty Reduction and Growth Facility).20 The Executive Director representing the country takes an important part in the Board discussion, clarifying points about the country's economy and its policies as necessary. The Board discussion concludes the Article IV consultation and initiates the next consultation cycle (Box 2.1). The summing up of the Board discussion is transmitted to the country’s authorities and, if the authorities agree, is published in a Public Information Notice (PIN). Article XIV and Article VIII Consultations The IMF conducts annual consultations with countries that maintain exchange restrictions under the transitional arrangements under Article XIV of the Articles of Agreement as to their further retention. Members are strongly encouraged to accept the obligations of Article VIII, Sections 2, 3, and 4 when the exchange restrictions are deemed to be no longer justified. However, before members notify the IMF that they are accepting the obligations of Article VIII, Sections 2, 3, and 4 it is desirable that they eliminate the exchange measures which would require the approval of the IMF under Article VIII, Section 2 (a) and 3, and that they satisfy themselves that they are not likely to need recourse to such measures in the foreseeable future.

As noted earlier, Article XIV and Article VIII consultations are normally “comprehended” in Article IV consultations. Staff findings and recommendations regarding restrictions maintained under Article XIV and subject to Article VIII Sections 2 and 3 are set out in the staff report for the Article IV consultation, and the consultations are normally concluded together with the Article IV consultation. However, Article XIV consultations are required to be concluded every 12 months. Thus, in the event that the Article IV consultation is to be concluded beyond the 12 month period, the Article XIV (and Article VIII consultations) must be concluded independently. This is normally done by the Executive Board on a lapse-of-time basis.

Multilateral Surveillance
Multilateral surveillance plays an important role in the IMF’s efforts to strengthen surveillance, by detecting and heightening awareness of systemic risks and inter-dependencies in the global economy. It reviews developments in the global economy and financial markets and the outlook, highlighting the spillover effects of policy changes in systemicallyimportant countries. As part of its multilateral surveillance efforts, the IMF is working to strengthen its effectiveness as a global forum for discussion of economic inter-linkages among countries.

The term “buff” derives from the distribution of these statements on buff or similarly colored paper. Statements by other Executive Directors are called “gray” statements for a similar reason, although these statements are now distributed electronically.

*

11

The 24. Article IV Consultation Cycles The Standard 12-Month Consultation Cycle The standard Article IV consultation cycle is one year. the next Article IV consultation should be completed within (i) 6 months of the original date of completion of the review. • Where a program review is delayed. cancellation. plus a grace period of three months. or termination. and there may be interim staff visits. the consultation cycle is shortened under the following circumstances: • Where the most recent Article IV consultation was concluded 6 months or more before the date of approval of an arrangement or PSI. the Executive Board. not exceeding 24 months. Upon the expiration or cancellation of an arrangement or termination of a PSI. though there is a grace period of three months. Non-program countries are expected to be on the 12-month consultation cycle if they satisfy one or more of the following criteria: (i) they are of systemic or regional importance.1 OVERVIEW OF THE IMF Box 2. and in recognition that the Board is kept routinely informed of developments in program countries through periodic program reviews. the next Article IV consultation should be concluded within (i) 6 months of the date of expiration. (ii) they have not completed an IMF-supported arrangement in the past year. This means that Board conclusion of the consultation must normally take place within one year of the date of conclusion of the last consultation. or (ii) 12 months. the next Article IV consultation should be completed within 24 months of the date of completion of the previous Article IV consultation. or (ii) 12 months. plus a grace period of three months. 12 . plus a grace period of three months. for non-program countries that do not satisfy these criteria. However. has allowed for longer consultation cycles. Countries have to agree to move to a longer consultation cycle. (ii) they have completed an IMF arrangement in the past year. if the review is completed before the later of these two dates.Months Consultation Cycle for Non-Program Countries Non-program countries can be on a 24-month consultation cycle if they satisfy the following criteria: (i) they are not of systemic or regional importance. Countries have to agree to move to a longer consultation cycle. (iii) they have outstanding IMF credit above 25 percent of quota. Consultation Cycle for Program Countries Member countries receiving financial assistance under an IMF arrangement or member countries benefiting from a Policy Support Instrument (PSI) move automatically to a 24-month consultation cycle. Delays beyond the 15-month period must be approved by the Board. of the date of completion of the previous Article IV consultation. However. However. This is done to reduce the strain on staff resources. Such approvals are granted based on staff justification of the delay. and there may be interim staff visits. of the date of completion of the previous Article IV consultation. whichever is later. but not more than 24 months after the completion of the previous Article IV consultation. and (iv) they are not potentially subject to risk because of policy imbalances or exogenous developments. and (iv) they are potentially subject to risk because of policy imbalances or exogenous developments. or (ii) 12 months. of the date of completion of the previous Article IV consultation. or they do not have pressing policy issues of broad interest to the IMF membership. or they have pressing policy issues of broad interest to the IMF membership.1. the next Article IV consultation should be completed within (i) 6 months of the date of approval of the arrangement or PSI. after which the country reverts to the standard 12-month consultation cycle. whichever is later. (iii) they have outstanding IMF credit under 25 percent of quota. recognizing the need for flexibility in the context of strains on staff resources. whichever is later.

the global financial market surveillance reports. the staff maintains a dialogue with representatives of internationally-active private financial institutions on issues such as the development of investor relations programs or the promotion of standards and codes. Regional Surveillance Surveillance is also undertaken of regional developments and policies pursued by supra-national authorities. the biannual review of exchange arrangements and exchange restrictions. in the spring and autumn. The WEO and GFSR reports are supplemented with regular informal Board sessions on world economic and market developments (WEMD) and financial market updates. The associated staff report is discussed by the Executive Board and by the IMFC.22 • Annual Review of Exchange Arrangements and Exchange Restrictions (AREAER).21 Each multilateral consultation is intended to focus on a specific international economic or financial issue and directly involves selected countries that are a major party to that issue. as background information for the meetings of the IMFC. and policy implications. providing timely and comprehensive coverage of both mature and emerging financial markets. It is prepared and published twice-yearly by the Research Department. This is prepared in consultation with national authorities on the basis of data they provide. The WEO report offers a comprehensive analysis of prospects and policies for the world economy. which is based on the AREAER data. These sessions typically provide an update on recent developments. The GFSR is prepared and published semi-annually. Regional surveillance is particularly relevant for members of currency unions. and the staff discusses issues of multilateral surveillance with the key parties both individually and jointly. Each report also contains staff studies of topical issues relevant to the global economy. the World Economic Outlook report. and exchange controls of countries. including forecasts of global macroeconomic variables and commodity price trends. In addition. Focusing on cooperative action. This form of consultation was introduced in 2006 as part of the IMF’s Medium-Term Strategy and is expected to take a more defined role over time. for which policies in key areas of IMF surveillance are determined at the regional level. WEO report forecasts are based on country-by-country forecasts from area departments and also constitute an important input into the work of the area departments. Its preparation is a cooperative effort with other departments. and there is increasing integration of the two. while staff reports on the regional discussions are considered by the 13 .INTERNATIONAL MONETARY FUND Multilateral consultations. It complements bilateral Article IV consultation discussions with individual member countries by providing a regional dimension to country policy issues. • Global Financial Stability Report (GFSR): This is the main instrument of global financial market surveillance. particularly the area departments. the multilateral consultation is complementary to the bilateral Article IV consultations. and individual countries. but on occasion is produced more frequently when rapid changes in the world economy warrant. • World Economic Outlook (WEO). This report is the primary vehicle for surveillance of global economic developments and prospects. provides analysis of the latest developments and trends in exchange rate regimes and exchange controls on both current international and capital account transactions. The publication includes information on the exchange rate and foreign trade regimes. These consultations do not oversee members’ compliance with their obligations under Article IV. and the Annual Review of Exchange Arrangements and Exchange Restrictions (AREAER) are key instruments for multilateral surveillance: • Multilateral consultation. Through the Capital Markets Consultative Group. major regions. Discussions with regional authorities are coordinated with Article IV discussions with country officials. The consultation aims at facilitating a policy dialogue among members when a collaborative solution may be required. the near-term outlook. Its main objectives are to identify potential vulnerabilities in the international financial system from a multilateral perspective and to analyze linkages between developments in mature financial centers and capital flows to emerging markets.

external sustainability and vulnerability to balance of payments or currency crises constitute the zenith of the IMF’s surveillance concerns. In recent years the IMF has strengthened its surveillance efforts to deal with these concerns. the Central African Economic and Monetary Community (CEMAC). A number of initiatives have been taken to enhance the effectiveness of bilateral surveillance and crisis prevention. are explained in Chapter 7. Most of these activities are conducted informally. reflecting the systemic importance of the region. and enhanced policy outreach. and re-examining surveillance in program countries. the IMF has been designated as the technical secretariat of the Manila Framework Group that was established 1414 specifically to undertake macroeconomic surveillance. A formal regional surveillance procedure has been established for these discussions. There is an annual staff report and Executive Board discussion on euro area policies in the context of the Article IV consultations with member countries. and a summing up of the Board discussion is produced. strengthened policy analysis. The results feed into IMF’s bilateral surveillance through information sharing. combating money laundering and terrorism financing. all of which are discussed in the remainder of this section.24 Regional surveillance outside the currency unions encompasses the regular regional outlook documents and other notes. which cover monetary and exchange rate policies as well as. in the bilateral consultations with EU member countries that are not part of the euro area. strengthening financial sector surveillance (including the Financial Sector Assessment Program. which is crossreferenced in the summings up for the bilateral Article IV consultations with individual euro-area countries and. but are considered an integral part of the Article IV surveillance for individual countries. and research on regional issues. These initiatives include external vulnerability assessments. Ongoing efforts to strengthen and focus surveillance will be put in place within the framework of the IMF’s Medium-Term Strategy. Formal discussions at the regional level are also held with the three other currency unions—the West African Economic and Monetary Union (WAEMU). improving data provision to the IMF. Formal procedures exist for conducting surveillance over the monetary and exchange rate policies of the euro area. Annual regional reports are prepared by the staff and discussed by the Executive Board. other economic policies relevant for IMF surveillance. The IMF also maintains dialogues with the Association of South East Asian Nations (ASEAN) and the Gulf Cooperation Council (GCC). from a regional perspective. A prime objective is to forestall crises by recommending policies that reduce vulnerabilities and strengthen the economies’ resilience to shocks. External Vulnerability Assessment Framework for Emerging Market Economies Vulnerability assessments are routinely conducted under the normal surveillance work of the IMF. and the use of vulnerability scenarios and indicators—such as external debt and reserve adequacy indicators—is now common in Article IV staff reports.23 These involve twice-yearly discussions with EU institutions responsible for common policies in the euro area. the maintenance of a dialogue with various regional fora. The coverage of regional discussions with these currency unions is broadly comparable to that of the euro area. Strengthening Surveillance to Prevent Financial Crises As noted above. Other initiatives. External Vulnerability Assessments The IMF has incorporated vulnerability assessments in its surveillance work. In Asia. 25 Much of this effort relates to the assessment of countries’ vulnerability to changes in external circumstances and. including those to strengthen international standards and codes. to capital market conditions. A summing up of the Board discussion is produced. Such discussions are held separately from the discussions with individual countries. However. The increased emphasis on regional and multilateral surveillance to monitor and analyze cross-border transmission of macroeconomic risks is part of these efforts. similar to that for the euro area. and the East Caribbean Currency Union (ECCU)—in addition to the bilateral consultations with the member countries of these groups. in particular. special attention is placed on the external . in addition to the regional office in Tokyo.2 SURVEILLANCE OVER MEMBERS’ ECONOMIC POLICIES Executive Board separately or together with the Article IV reports. The discussions with individual euro area countries are clustered as much as possible around the regional discussions. if relevant. and offshore financial center assessments).

Inter-sectoral linkages result in spillover of shocks from one sector to other sectors. which leave firms vulnerable to revenue and interest rate shocks. drawing on analyses of international liquidity or reserve adequacy. While there are central features of the debt sustainability analysis. a new framework was set up for bringing together staff’s assessments of vulnerabilities in these countries. The key sectoral balance sheets analyzed are those of the government. given their high sensitivity to changes in global capital market conditions. Debt sustainability analysis for low-income countries is modified to take account of special characteristics such as reliance on official financing. The analysis focuses on four potential sources of balance sheet risks:27 (i) maturity mismatches (differences in the term structure of assets and liabilities). and constraints on the resources necessary to repay their debts. routine bilateral and multilateral surveillance reports. and analyses of different scenarios for the global economic and financial market environment. Debt Sustainability Analysis Debt sustainability assessments (DSAs) form part of the IMF’s policy analysis in surveillance and program contexts. and corporate sectors.26 The Balance Sheet Approach The balance sheet approach focuses on an analysis of the country’s aggregate and sectoral balance sheets to determine balance sheet exposure to shocks. In May 2001. which lead to capital losses or gains in the event of a change in the exchange rate. and financial soundness indicators. Reports on the results of these exercises are sent to Management and department heads. The analysis is done separately for public debt (external and domestic) and external debt (public and private). and to imports of goods and services. Data availability is an important impediment to a wider usage of balance sheet analysis. The analysis has three core elements: a baseline projection of medium. The framework for debt sustainability analysis for low-income countries was developed in 2005.and long-term debt sustainability indicators. financial. The Executive Board is kept informed through the informal country matters sessions.28 Its primary purpose is to form judgments on appropriate future borrowing policies taking into account 15 . including its exchange rate regime. qualitative staff assessments. Measures have also been designed to broaden the analysis of reserve adequacy so as to capture the country’s ability to withstand a liquidity crisis stemming from certain kinds of imbalances in the balance sheets of residents. and the results are used to derive an understanding of overall debt sustainability. and inferences about the vulnerability of the country to a crisis. and ad hoc reports in times of particular turbulence. where assets are insufficient to cover liabilities. (iii) capital structure problems (excessive reliance on debt financing). It entails semiannual inter-departmental exercises to identify underlying vulnerabilities and crisis risks drawing on quantitative vulnerability indicators. but also for industrialized countries. attention is being given to assessing the role of public debt management and private sector liability management in improving a country’s public and private sector balance sheets and reducing the risk of liquidity crises. Measures of reserve adequacy currently used for this purpose include the ratio of reserves to short-term debt by remaining maturity. the nature of the shocks to which they are subject. which result in insufficient liquid assets being available to cover liabilities falling due in the short term. Liquidity Management The focus here is on assessing the adequacy of a country’s level of foreign exchange reserves as a means of determining the country’s ability to withstand shocks. household.INTERNATIONAL MONETARY FUND vulnerability of emerging market economies. In addition. (ii) currency mismatches (differences in the currency composition of assets and liabilities). scenario analysis to determine the impact of varying the assumptions about the future trend of key variables. the fiscal position and the size and composition of debt and its sustainability. market information. Vulnerability assessments combine traditional flow indicators with indicators of balance sheet vulnerabilities. Countries identified as vulnerable are kept under continuous surveillance. a distinction is made between countries with significant capital market access and low-income countries. with attention being placed on the composition of assets and liabilities and the interlinkages among the sectoral balance sheets. and (iv) solvency problems. Debt sustainability analyses for countries with significant market access is undertaken mainly for emerging market countries. They are complemented by an analysis of. a country’s macroeconomic conditions and its structural and institutional characteristics. and careful judgments about.

In addition to their own staff. uses a single debt-sustainability threshold for all countries. combined with discussions of the FSAP findings during the subsequent Article IV consultation mission. and assessment of 1616 Financial Sector Assessment Program The financial sector plays a key role in the generation and transmission of vulnerabilities. standards and codes to assess institutional and regulatory structures. well-managed financial institutions and markets reduces the likelihood and magnitude of a financial crisis. without understanding them as rigid ceilings. Summary assessments of financial sector standards prepared in the FSAP are included in the FSSA and are issued as Reports on the Observance of Standards and Codes (ROSCs). particularly as regards the assessments of observance of financial sector standards and codes. and to provide country authorities with appropriate policy recommendations. and supports but does not guarantee debt sustainability in the future.2 SURVEILLANCE OVER MEMBERS’ ECONOMIC POLICIES country-specific circumstances in setting the debtsustainability thresholds. and their linkages with the real economy. serve as the basis for a Financial Stability Assessment (FSSA) report. on a pilot basis. The HIPC Initiative seeks to restore debt sustainability by providing debt relief. lending. assessment of the broader financial stability policy framework to determine the robustness of the financial sector infrastructure. These DSAs should be prepared jointly with World Bank staff. supervisory agencies. the nature of its exchange rate or monetary regime. In addition to augmenting the pool of expertise already available in the World Bank and the IMF. including a country’s systemic importance. The FSAP assessments. These assessments feed into the Article IV surveillance process. The FSAP uses a number of complementary analytical tools to establish an overall assessment of the financial sector. Overall. does not benefit all low-income countries. The FSAP provides important input into the Article IV consultation process. The existence of a wide and diversified set of sound. and debt restructuring or relief in low-income countries.30 . The framework also constitutes an important addition to the IMF's toolkit to assess the appropriate balance between adjustment. standard setting bodies and other international institutions in carrying out the assessments. jointly with the World Bank. FSAP mission work is completed about three months prior to the Article IV consultation mission to allow sufficient time for the draft FSAP findings to be available for discussion during the Article IV mission. IDA-only countries. Publication of the FSSA reports has occurred in about 70 percent of cases. identify critical development priorities. but this is voluntary and there is no presumption of publication. It is not a permanent mechanism. debt sustainability analyses are required for countries that are actual or potential beneficiaries of the Heavily Indebted Poor Countries (HIPC) Initiative. Ideally. the selection of countries is such as to help maximize the program’s contribution to the strengthening of national and international financial stability. the IMF and the World Bank draw on the knowledge of experts from a range of cooperating central banks. and annual joint IMFWorld Bank DSAs are required for all PRGF-eligible. and the program became a regular activity of the IMF and the World Bank at end-2000.29 The objective of FSAP is to strengthen countries’ financial sectors through comprehensive. the design of IMFsupported programs. outside experts provide a valuable element of peer review to the analysis undertaken in the FSAP. and geographical balance among countries. It should also provide the basis for designing a country-specific borrowing strategy that is compatible with the country’s prospective repayment capacity. The 2005 lowincome country DSA provides transitional arrangements for the use of the new DSA framework for HIPC cases. Participation in the program is voluntary. grants. in-depth assessments to identify their strengths and vulnerabilities. A variety of criteria are used to establish priorities in selecting countries in the face of limited resources. and IMF technical assistance activities. its external sector weakness or financial vulnerability. Within the group of low-income countries. which are an integral part of the program. The IMF launched the Financial Sector Assessment Program (FSAP) in May 1999. These include financial soundness indicators and stress testing to identify risks and vulnerabilities. in which FSAP team leaders usually participate. The DSA should also enable other international financial institutions and donors to establish a coordinated approach to concessionality and guide the decisions of donors and creditors. which emphasizes stability issues of relevance to surveillance and which is provided to the Executive Board as part of the Article IV consultation documentation for a country.

The OFC program was permanently incorporated into its financial sector surveillance work in November 2003. The 2005 review streamlined and rationalized the framework for FSAP updates. and FATF-style regional bodies (FSRBs). Work on combating money laundering and terrorism financing was made a regular part of the IMF’s work in March 2004. Anti-Money Laundering and Combating the Financing of Terrorism Since September 2001. The encouraged set includes additional banking sector indicators as well as indicators for the corporate and household sectors. and are given high priority in financial sector surveillance.32 Participation in OFC assessments and monitoring is voluntary. and financial and real estate markets. FSAP updates may be targeted or comprehensive in cases where there have been extensive changes since the original FSAP. Offshore Financial Center Assessments The IMF initiated the offshore financial center (OFC) assessment program in June 2000 on a pilot basis in response to concerns about potential risks posed to other financial systems by activities undertaken in offshore financial centers. A Compilation Guide on Financial Soundness Indicators has been published in collaboration with experts from member countries and from other international and regional organizations. non-bank financial institutions. which were growing in importance since more countries had completed their initial assessments. and financial safety nets and solvency regimes. the IMF has intensified its contribution to international efforts in anti-money laundering and combating the financing of terrorism 17 . to facilitate compilation of the indicators by national authorities. undertaken by the jurisdiction with technical assistance as needed to begin the assessment process. if activity is significant. but the OFC program is currently independent of the FSAP. as well evaluating the regime for combating money laundering and terrorism financing.31 These efforts seek to prevent the abuse of financial systems and to protect and enhance the integrity of the international financial system. technical assistance. measures were taken to ensure more focused assessments that are better tailored to countries’ circumstances. Since the inception of FSAP. It includes technical assistance to countries to help strengthen their ability to combat money laundering and terrorism financing. Financial Soundness Indicators These are indicators compiled to monitor the soundness of financial institutions and markets. including better presentation of FSAP to facilitate its integration in the surveillance process. and of their corporate and household counterparts. although the timing is flexible based on country circumstances. after the 2003 review of the Executive Board. updates are undertaken about five years after the original FSAP. in the insurance and securities sectors. These are conducted every 4-5 years. the program has been constantly improving. the Financial Action Task Force (FATF). the Executive Board agreed that the Module 2 main report would henceforth be reclassified as a staff report and circulated to the Board for information. Financial soundness indicators comprise a core set and an encouraged set. The program has four broad components: regular jurisdiction-specific monitoring of OFCs' activities and compliance with supervisory standards. Typically. • Module 2 assesses compliance of supervisory and regulatory systems with international standards in the banking sector and. the governance and transparency framework. In particular. They are a subset of the broader class of macroprudential indicators that IMF staff use in macroprudential surveillance of the financial system. (AML/CFT). and collaboration with standard-setters and supervisors to strengthen standards and information exchange.INTERNATIONAL MONETARY FUND systemic liquidity arrangements. the Board discussed an evaluation of FSAP by the Independent Evaluation office (IEO) and decided on a number of improvements. The IMF’s work in this area is undertaken in close cooperation with the World Bank. In November 2003. In 2006. Assessments are closely coordinated with the FSAP to identify weaknesses in consolidated supervision. The core set currently includes only banking sector indicators. and members sometimes choose to have an FSAP rather than an OFC assessment. Improved prioritization and streamlining have resulted in assessments that are better tailored to country circumstances. The program allows for a step-by-step process of assessment in three modules: Module 1 assessments are a self• assessment of compliance with particular standards. and strengthening of prioritization procedures. improved transparency.

Consequently. and in case of a continued failure by the member to adopt remedial actions. Article IV staff reports devote considerable attention to data issues and discuss the implications of data deficiencies for macroeconomic analysis and policy. the IMF expanded the categories of information deemed necessary for the conduct of its activities through the adoption of an additional list of data required to be provided by members. when a program has moved off-track. a member that is unable to provide final data is obligated to provide provisional data to the best of its ability until it is in a position to provide the IMF with the final data. or fails to report it. crisis prevention. Therefore. in countries with IMFsupported economic programs. Data Provision to the IMF for Surveillance Purposes Comprehensive.2 SURVEILLANCE OVER MEMBERS’ ECONOMIC POLICIES • Module 3 assesses additional compliance with standards. Beyond this minimum. Assessment of members’ capacity to report required information involves an element of judgment on the basis of best statistical practice and experience. consistent with their capacity. timely. the Executive Board takes a decision on whether the member has breached its obligation and may call upon the member to take remedial actions. 1818 . This is particularly relevant for countries that are prolonged users of IMF resources. external viability. specifically lists categories of data that members are required to provide. In those rare cases that are not amenable to cooperative approaches. the IMF may decide to impose the sanctions of Article XXVI. Nevertheless. the Managing Director first issues a report to the Executive Board describing the alleged breach under Article VIII. the IMF acts in accordance with a framework of sanctions that takes account of remedies and corrective actions voluntarily taken by the member. No jurisdiction has as yet opted for a Module 3 assessment. Where a member reports required data inaccurately. If the member fails to implement the specified actions within the deadline. separate mission teams have been used in some cases for surveillance and program discussions. Section 5.33 Article VIII. In practice. Section 5. Section 5 requires members to report information to the IMF only to the extent that they have the capacity to do so. Section 5 (a). and accurate economic data are critical for prudent national policymaking. surveillance consultation cycles have been made more flexible in program countries. after notifying the authorities of his intention to issue such a report and giving them sufficient time to demonstrate that they are unable to provide the information or to provide more accurate information. or to provide more accurate information than it has provided. the IMF makes every effort to secure a cooperative solution through intensified contacts. Surveillance in Program Countries The IMF has emphasized the special role that surveillance has to play in program countries by providing a fresh perspective on economic conditions and policies. and in practice members voluntarily provide extensive data to the IMF that far exceed the requirements of Article VIII. Article VIII. In particular. and the IMF normally gives the member the benefit of the doubt. Within 90 days of issuance of this report. and for effective surveillance. Following the issuance of the declaration of censure. before a program is negotiated. However. The Articles of Agreement require member countries to provide the IMF with the information it deems necessary to carry out its surveillance activities. despite having the capacity to do so. To further separate program and surveillance analysis.34 Surveillance and IMF balance of payments support promote or restore macroeconomic stability. there is no breach of obligation if a member is unable to provide the information required under this Article. cross-border and domestic risks and vulnerabilities and focuses on jurisdictions that are not covered by the FSAP. the IMF may decide to issue a declaration of censure against the member. or when a major change in program strategy is envisaged between programs—than at others. “stepping back” from the program environment provides a broader perspective on the economic challenges facing the country and the adequacy of current policies to meet those challenges. the IMF relies on members’ cooperation to obtain data needed for surveillance. In January 2004. in recognition that surveillance is more effective at some points in the program cycle—for example. and sustained economic growth.

The NAB were set up following the Mexican financial crisis of December 1994. Section 1) allow the IMF to replenish its holdings of any member’s currency through borrowing. effective since October 1962) and the New Arrangements to Borrow (NAB. out of concern that substantially more resources might be needed to respond to future financial crises. Borrowing to Finance Concessional Lending The IMF borrows from official bilateral sources to finance concessional lending to low-income countries 19 Sources of IMF Financing Quota Subscriptions The primary source of the IMF’s loanable funds is quota subscriptions by members. The potential amount of credit available is SDR 17 billion. and the NAB for five years beginning November 17. Borrowing to Supplement Quota-Based Resources The IMF currently maintains two standing borrowing arrangements with official lenders.35 As noted in Box 1. when needed in connection with its transactions. if necessary. Borrowing The Articles of Agreement (Article VII. Such borrowing is undertaken on a temporary basis and is subject to continuous monitoring and a regular review of the IMF’s liquidity by the Executive Board. and an additional SDR 1. a quarter of the quota subscription is normally paid in reserve assets (SDRs or currencies of other members deemed by the IMF to be readily available and accepted for international payments). Any member can request a loan from the pool of quota resources at any time and such a request will be granted if certain criteria are satisfied. Usable currencies are those of member countries whose external position is strong enough for them to be called upon to finance IMF credit to other members. the General Arrangements to Borrow (GAB. The IMF can borrow in private markets. the GAB has been extended for five years beginning December 26. Both sets of arrangements are in effect for renewable five-year terms. Since some currencies are unusable. . The IMF uses its pool of usable currencies and SDR holdings to extend credit to member countries.5 billion of credit is available under an associated agreement with Saudi Arabia. The GAB and NAB supplement the quota-based. The NAB is normally the first and principal recourse in the event of a need for supplementary financing by the IMF. and the balance is paid in the member’s own currency. nonconcessional lending resources in the GRA to help the IMF forestall or cope with an impairment of the international monetary system. Members’ currencies are deemed usable or unusable. Borrowing takes place at market-related interest rates. 2003. twice that available under the GAB alone. effective since November 1998). this pool of loanable funds is less than the sum total of quota subscriptions. the purposes of the IMF include making the resources of the IMF temporarily available to member countries under adequate safeguards to provide an opportunity to the countries to correct balance of payments imbalances and to shorten the duration and lessen the degree of these imbalances.1. The GAB enable the IMF to borrow specified amounts of currencies from 11 industrial countries or their central banks. They are a set of credit arrangements between the IMF and 26 member countries or institutions. but to date has never done so. Quota-based funds are held in the IMF’s General Resources Account (GRA). The combined financing available to the IMF under the GAB and the NAB amounts to SDR 34 billion. 2003.INTERNATIONAL MONETARY FUND CHAPTER 3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS According to Article I of the IMF’s Articles of Agreement. In the past there have been several other borrowing arrangements with official creditors under which the IMF borrowed extensively when payments imbalances were large.

The IMF holds around 100 million ounces (3. These profits were placed in a Special Disbursement Account. This is an outstanding pledge that the IMF so far has not been called upon to honor. The IMF has sold gold on various occasions in the past to support its operations. The Second Amendment severely limited the use of gold in IMF transactions: the IMF may only sell gold at prevailing market prices and accept gold in the discharge of a member’s obligations to the IMF. A set of indicators has been developed to gauge the IMF’s liquidity and lending capacity. the primary measure of the short-term lending capacity is the one-year Forward Commitment Capacity (FCC). the difference between the market borrowing rate and the concessional lending rate has to be subsidized.5 percent (or interest-free in the case of debt relief). and members could also use gold to purchase reserve currencies or repay debt to the IMF. interest on outstanding IMF credit was normally paid in gold. Prior to this Amendment. While the loans are made from the IMF’s quotabased GRA resources and therefore carry nonconcessional interest rates. repayments of Trust Fund and SAF loans have been accumulated to provide collateral for borrowing under the IMF’s concessional lending operations. no other transactions in gold The IMF’s Capacity to Lend The IMF’s lending capacity is monitored constantly and reviewed semi-annually by the Executive Board to ensure that the IMF has adequate resources to fulfill its responsibilities. In the latter case.5 percent. The interest subsidy is the difference between the IMF’s basic GRA rate of charge and the effective concessional lending rate of 0. are permitted. Gold Sales The IMF acquired virtually all of its holdings of gold prior to the Second Amendment of the Articles of Agreement in 1978. Since gold is valued at historical cost in the IMF’s accounts and the market value is usually substantially higher than the book value. gold played a central role in the functioning of the international monetary system: the first 25 percent of members’ quota subscriptions and quota increases was normally paid in gold. from where they were transferred to other special-purpose accounts. This subsidy is covered through bilateral grants (see below) or through IMF borrowing from official bilateral sources at below-market interest rates. valued on its balance sheet at around SDR 6 billion on the basis of historical cost.3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS under the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF).1). Bilateral grants also partly finance the IMF’s contribution to debt relief under the HIPC Initiative. which indicates the amount of quota-based resources available for new lending over the coming 12 months (Table 3. exceeds SDR 40 billion. Since 1987. mostly prior to 1980. its resources were used to finance concessional lending under the Structural Adjustment Facility (SAF) until 1987. a concessionality element is incorporated through an interest rate subsidy. Borrowing for PRGF-ESF lending usually takes place at market interest rates.37 2020 . to help finance its contribution to debt relief under the HIPC Initiative. while the market value. the difference between the market interest rate and the below-market rate paid to the creditor is the creditor’s contribution to the interest subsidy. When the Trust Fund ceased new lending in March 1981. including debt relief. including PRGF/ESF loans and loans to low-income countries that access the IMF's emergency assistance.36 Grants for Subsidized Interest Rates and Debt Relief Bilateral grants help finance the interest subsidy on concessional loans to low-income countries. the IMF pledged to sell up to 3 million ounces of gold if these accumulated reserves were insufficient to repay creditors who provided loans to enable members with protracted arrears to the IMF to clear these arrears under the rights accumulation approach. Since December 2002. However. the IMF conducted a series of off-market transactions in gold in 1999-2000 that left its gold holdings unchanged. since these funds are on-lent to low-income borrowers at a concessional rate of 0. Also. In 1993. the sale of gold results in a profit for the IMF. the remainder of which was financed through gold sales (see below). which are administered by the IMF through the PRGF-ESF Trust.200 metric tons) of gold at designated depositories. as of mid-2006. in particular for financial assistance to low-income countries. During 1976-80 the IMF sold gold to finance a Trust Fund that supported concessional lending by the IMF to low-income countries.

Subsequent disbursements under an arrangement are phased on a quarterly or semi-annual basis and are conditional upon satisfactory progress in implementing the economic program. IMF terminology distinguishes between “purchases. These arrangements can be either on concessional or non-concessional terms. The borrower purchases these reserve assets with its own currency. is provided primarily under “arrangements” from the IMF. which currencies are to be used (and up to what amounts) for purchases. based on projections of purchases and repurchases. it may treat a IMF arrangement as precautionary—a pure “stand by”—which provides the right. When a member seeks an IMF-supported program. preparation of the financial transactions plan has been governed by the principle that creditor members’ reserve tranche positions should remain broadly equal relative to their quotas. Since 1999. to make drawings should the need arise. which are similar to lines of credit. whether from GRA resources or concessional resources. specific performance criteria and other conditions are set in the economic program (see discussion below on conditionality). described below. IMF lending under arrangements takes place in the context of an economic adjustment program implemented by the member country to resolve its balance of payments difficulties. and which currencies (and in what amounts) to accept in repurchases. conditional on implementation of specific policies. These decisions are reflected in a quarterly financial transactions plan. 21 . but does not face a pressing balance of payments need. This reduces the IMF’s holdings of the debtor country’s currency. The IMF provides reserve assets to the borrower from the reserve asset subscriptions of members or by calling on countries that are considered financially strong to exchange their currency subscriptions for reserve assets. and disbursements are conditional upon observance of these criteria. This increases the IMF’s holdings of the borrower’s currency and reduces its holdings of reserve assets or the currencies of the creditor countries. Arrangements IMF financing. For this purpose. Member countries request an arrangement under one or more of several IMF financing facilities or policies.39 Through the purchase/repurchase mechanism of IMF financing. though its composition changes.INTERNATIONAL MONETARY FUND IMF Financing to Member Countries Purchases and Repurchases The IMF extends financing from GRA resources through a form of a swap. Creditors’ claims on the IMF are correspondingly extinguished and their reserve tranche positions decline.38 The borrower later repurchases its currency from the IMF with reserve assets.” which relate to non-concessional lending. An arrangement is a decision by the Executive Board that assures a member that it will be able to make purchases or receive disbursements from the IMF in accordance with the terms of the decision during a specified period of time and up to a specified amount. and increases its holdings of reserve assets or currencies of the creditor countries.” which related to concessional lending. the value of the pool of subscribed assets of the IMF remains constant. The first disbursement takes place after the Executive Board has approved the arrangement. The IMF decides quarterly. back to their original levels. In this respect.40 Members retain and accumulate the rights to make drawings during the period of the arrangement. provided they have observed all the performance criteria for each drawing. and “disbursements. Creditors (who provide reserve assets or their currencies to the IMF) now have a claim on the IMF equal to the reduction in the IMF’s holdings of their reserve assets or currencies: their reserve tranche positions increase.

9 0. III.8 109.0 34.6 54.9 32.2 55.7 149.0 154. where appropriate.8 54.8 117.1 211.48597 2004 220. VI.9 9.1 5.7 132.7 34.1 66.5 28.0 100.4 91.9 28.2 32.8 76.9 0.9 34. Loans are approved and disbursed if the IMF is satisfied that the member will cooperate in an effort to find. VIII. Program Design When member countries express a need for IMF financing. Discussions cover. end-of-period) 2001 I. the level and phasing of purchases or drawings.0 164.1 55.1.8 75.9 114.3 19.5 102. including their intention to avoid introducing or 2222 intensifying exchange and trade restrictions.5 1.8 71.7 53.7 15. V.41 IMF lending in these circumstances does not require that the country adopt an economic adjustment program.9 68.9 61. Total resources Members' currencies SDR holdings Gold holdings Other assets Available under GAB/NAB activation Less: Non-usable resources Of which: Credit oustanding Equals: Usable resources Less: Undrawn balances under GRA arrangements Equals: Uncommitted usable resources Plus: Repurchases one year forward Less: Prudential balance Equals: One-year forward commitment capacity Memorandum items: Potential GAB/NAB borrowing Quotas of members that finance IMF transactions Liquid liabilities Liquidity ratio (in percent) US$ per SDR Source: Finance Department 217. solutions for its balance of payments difficulties.8 77.35952 2003 219.1 66.1 210.9 0.1 213.1 0.6 411. and the performance criteria and other types of conditionality to be used in monitoring the implementation of the program.2 12.2 31.1 106.3 19.9 1.1 5. the IMF lends outside of an arrangement with a borrowing member country. IV.42 Members would be required only to describe the general policies they intend to pursue to resolve their balance of payments problem.” Outright purchases apply to first credit tranche borrowing under the credit tranches (although such borrowing normally does take place in the context of an arrangement).3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS Table 3. Outright Purchases Under certain circumstances.0 32. It is understood that the economic program . Purchases made in the absence of an arrangement are called “outright purchases. among other things.6 213. the type of arrangement to be requested and the lending facility to be used.3 1. to emergency assistance for natural disasters or to postconflict countries.25673 2002 218.9 63.4 111. and therefore disbursements are not subject to phasing and performance criteria.7 114.5 5.5 104. The IMF's Lending Capacity (in billions of SDRs unless otherwise stated.2 34.0 34.9 118. and to temporary net export shortfall-financing under the Compensatory Financing Facility (see below). the policies to be pursued during the program period.0 163.6 100.9 0.4 145.5 8.4 65.2 5.0 164.0 170.3 1.2 1.1 83.1 209.0 1.8 5.7 56.5 25.55301 2005 221. VII.9 12. discussions begin between IMF staff and the country authorities on an economic program that could be supported by the IMF (in circumstances where an economic program is required).4 1.2 30.42927 II.4 34.8 1.7 22.9 0.3 1.

INTERNATIONAL MONETARY FUND

is entirely that of the country authorities and that the authorities are seeking IMF-support for their program. This country ownership of the economic program is critical to build domestic support for the adjustment effort and increases the chances that the program will be successfully implemented.

Approval of an Arrangement
Following the staff’s agreement that the authorities’ program is adequate and realistic, the member submits a request for an arrangement from the IMF. The request takes the form of a Letter of Intent (LOI) from the authorities to the Managing Director of the IMF, often accompanied by a more detailed Memorandum on Economic and Financial Policies (MEFP) and a Technical Memorandum of Understanding (TMU). These documents are prepared by the authorities with the cooperation and assistance of the IMF staff. They set out the agreed policy goals and strategies in the economic program, as well as conditionality and how observance will be monitored. In exceptional cases, members may communicate confidential policy understandings to the IMF in a side letter addressed to the Managing Director and disclosed to the Executive Board in a restricted session. The use of side letters will normally be limited to cases in which the premature release of the information would cause adverse market reactions or undermine the country authorities’ efforts to prepare the groundwork for a measure. The documents submitted by the authorities are accompanied by a report prepared by the staff that verifies the balance of payments need and assesses the appropriateness of the program in light of the nature of the country’s balance of payments difficulties, and constitute the basis for an Executive Board decision on the request. These documents need to assure the Board that the member’s program is consistent with the IMF’s provisions and that the member is committed to carry out policies that will solve the balance of payments problems. Programs are approved by the IMF on the understanding that the member’s representations are accurate.

However, some purchases do not require a review, e.g., in case of a Stand-By Arrangement that has quarterly purchases but semi-annual reviews. If a review is required, the IMF reviews program implementation prior to the purchase to ascertain whether the relevant conditions for that purchase have been observed. These reviews also have a forward-looking element and also allow for the assessment of progress on policies that cannot easily be quantified or defined. If the reviews ascertain that performance criteria have been observed and the program remains on track to achieve its objectives, the purchase becomes available to the member. Their request, along with a staff report on the review, is considered by the Executive Board. Board approval of the authorities’ request completes the review and the loan is then disbursed. In considering the authorities’ request, the Executive Board takes into consideration the member’s past performance (including observance of performance criteria and other conditionality), policy understandings for the future, and the need to safeguard IMF resources. If one or more performance criteria are not observed, the authorities may request waivers of observance of each of the performance criteria that were not observed to enable the disbursement to take place. The Executive Board grants a waiver only if it is satisfied that, notwithstanding the nonobservance, the program will be successfully implemented, either because of the minor or temporary nature of the nonobservance or because of corrective actions taken by the authorities. In certain instances, where the information necessary to assess observance of a performance criterion is not available, the member may request a waiver of applicability of that performance criterion. This happens for example in cases where a review is delayed, slips past a subsequent test date, and the later performance criteria become binding. Such a waiver can only be supported by the staff and granted by the Executive Board if they are satisfied that the program will be successfully implemented and there is no clear evidence that the performance criterion has not been met. Waivers of applicability allow a window within which the purchase associated with the review may made, despite the unavailability of relevant data. Such waivers do not, however, apply to purchases after the date specified in the waiver, which can only proceed if the relevant performance criteria are met or waivers of non-compliance are granted.

Program Review
Upon approval of the arrangement, the authorities may make the first purchase. Subsequent purchases are normally contingent on the observance of performance criteria and other types of conditionality.

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3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS

General Policies Governing the Use of IMF Resources
Reserve Tranche Policies
A member’s reserve tranche position in the IMF is equal to the difference between the member’s quota and the IMF’s holdings of the member’s currency, excluding any holdings of the currency stemming from the use of IMF credit. The reserve tranche position is initially 25 percent of quota, the amount of the capital subscription paid in reserve assets, but fluctuates with members’ borrowing from or lending to the IMF. The IMF pays interest (remuneration) on members’ reserve tranche positions, except on a small portion equal to 25 percent of the member’s quota on April 1, 1978—that part of the quota that was paid in gold prior to the Second Amendment of the Articles of Agreement.* The basic rate of remuneration is equal to the SDR interest rate, which is a market-determined rate. For countries that joined the IMF after April 1, 1978, the unremunerated reserve tranche is determined in two steps—first, the average unremunerated reserve tranche of all other members as a percent of their quota is calculated on the date the new members joined the IMF; and second, this percentage is applied to the new members’ quotas to obtain the new members’ unremunerated reserve tranche. The unremunerated reserve tranche is fixed in nominal terms, so it declines as a percentage of quota when quotas are raised. The reserve tranche position forms part of the member’s foreign exchange reserves, as the member country may draw upon it at any time.43 Reserve tranche purchases constitute use of IMF resources, but are not subject to conditionality, interest charges, or repurchase expectations or obligations. A member may draw on its reserve tranche before making use of IMF credit, or it may choose to use IMF credit without drawing on its reserve tranche.

balance of payments difficulties.44 Defining an appropriate access policy is thus a key element of the IMF’s efforts to help resolve economic and financial crises. Access policies are reviewed every two years by the Executive Board, taking into consideration the magnitude of members’ balance of payments problems and developments in the IMF’s liquidity position.45 Access limits under the IMF’s different lending facilities are summarized in Table 3.2. These limits do not constitute targets or entitlements. The actual amount of access in individual cases will vary according to the circumstances of the borrower in accordance with criteria established by the Executive Board, and is determined on a case-by-case basis. Three general considerations govern the actual amount of IMF resources that a member may borrow: • The member’s actual or potential need for resources from the IMF, taking into account other sources of financing and the desirability of maintaining a reasonable level of reserves. • The ability of the member to service its indebtedness to the Fund, including the strength of the adjustment program. • The amount of the member’s outstanding use of IMF credit and its past record in using and repaying IMF resources.

Exceptional Access
The possibility of exceptional access to IMF resources—access above the normal limits indicated previously—has always existed. During the Mexican crisis of 1994-95, the Asian crises of 1997-98, and subsequently, the IMF in several cases provided financing in amounts well above the access limits that normally apply to SBA or EFF arrangements. The Executive Board formalized conditions for the use of exceptional access in September 2002 and March 2003, when it confirmed that such access will sometimes be necessary, particularly if the IMF is to provide meaningful assistance to countries facing a capital account crisis. There is a presumption that exceptional access will be provided under the SRF. Exceptional access needs to be justified in light of the following four criteria: • The member is experiencing exceptional balance of payments pressures on the capital account resulting in the need for

Access Policy
While surveillance is a preventive tool, access to IMF resources under appropriate terms and conditions serves to assist members who find themselves in The gold tranche is not remunerated, since gold held by the IMF does not earn interest income that could be passed on to the membership.
*

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IMF financing that cannot be met within the normal access limits. • A rigorous and systematic analysis indicates that there is a high probability that debt will remain sustainable. • The member has good prospects of regaining access to private capital markets within the time frame that IMF resources would be outstanding, so that the IMF’s financing would provide a bridge to this access. • The policy program of the member country provides a reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment. 46 The procedures for decision-making on all requests for exceptional access, not just those involving capital account crises, were reviewed in 2003 and 2005. The changes emphasize early consultation with the Executive Board in cases where new or augmented exceptional access to IMF resources may be needed, including through informal meetings prior to Board consideration of the request. The evaluation of a country’s eligibility for exceptional access can be presented to the Board as part of the staff report on the authorities’ request for IMF resources. Finally, as a rule, there would be an ex post evaluation of programs with exceptional access within one year of the end of the arrangement.47

Commitment fees are paid on GRA funds committed under an IMF arrangement, but these are refunded to the extent that purchases are made. They are not refunded in cases of precautionary arrangements, as funds are not drawn. All borrowing from the IMF is subject to predetermined repayment schedules, which are the borrowing member’s repayment obligations. However, since the IMF’s resources are for financing only temporary balance of payments needs and they are of a revolving character, the Articles of Agreement stipulate that borrowing members are expected to repay their loans as their balance of payments and reserve position improves.49 Accordingly, borrowing from the IMF, except under the Emergency Assistance Policy and the PRGF, are subject to pre-determined repurchase expectations schedules, as set out in Table 3.2, which the member is expected to meet if its external position is stronger than had been expected at the time the arrangement was approved. A failure to meet a repurchase expectation results in the suspension of further lending to the member country. The suspension includes lending under the PRGF and under existing arrangements. However, the member would not be in default of its obligations to the IMF. Default arises only when the member does not meet a repayment obligation. However, the IMF may, upon request by a borrowing member, amend the schedule of repurchase expectations if the member’s external position is judged to be not sufficiently strong for payments to be made in accordance with that schedule.

Terms of IMF Lending
Loans from the GRA carry a basic rate of charge that may be supplemented by surcharges, service charges, and commitment fees (see Table 3.2). 48 The basic rate of charge is determined as a margin in basis points above the weekly interest rate on SDRs, and therefore fluctuates with the market interest rates on which the SDR rate is based. It is set at the beginning of each financial year at a level calculated to achieve a targeted net income for that financial year, and is reviewed mid-year. Surcharges are imposed on borrowing under the credit tranches, the EFF, and the SRF in order to discourage large use of IMF resources. Under the SRF, the surcharges are higher and increase over time in order to encourage early repayment of the loans. Surcharges do not apply to loans under the CFF, Emergency Assistance Policy, or the PRGF.

Conditionality
Conditionality refers to policies and actions that a borrowing member agrees to carry out as a condition for the use of IMF resources.50 The purpose of conditionality is to ensure assistance to members to resolve their balance of payments crisis in a manner that is consistent with the IMF’s Articles and that establishes adequate safeguards for the temporary use of the IMF’s resources. The key principles guiding the design and setting of conditionality are: • National ownership of reform programs. • Parsimony in program-related conditions.

25

warrant an interruption of purchases or disbursements under an arrangement. and remedial measures. by itself. indicative targets. Performance criteria should apply to clearlyspecified variables or measures that can be objectively monitored and that are so critical for the achievement of the program goals or for monitoring implementation that purchases or disbursements under the arrangement should be interrupted in cases of nonobservance. Quantitative performance criteria often contain embedded adjusters that automatically adjust the program targets for the relevant variable or measure to take into account pre-specified developments beyond the control of the authorities. A measure may be established as a structural benchmark where it cannot be specified in terms that may be objectively monitored. Indicative targets may also be established in addition to performance criteria as quantitative indicators to assess the member’s progress in meeting the objectives of a program. • Clarity in the specification of conditions. In recent years the IMF has been seeking to streamline the number of conditions attached to its loans. including the underlying institutional arrangements and closely related structural measures. Conditionality may take the form of prior actions. They are intended to serve as clear markers in the assessment of progress in the implementation of critical structural reforms. They normally consist of measures that are within the IMF’s core areas of responsibility. A performance criterion is a variable or measure whose observance or implementation is established as a formal condition for the making of purchases or disbursements under an IMF arrangement. • Effective coordination with other multilateral institutions. and other measures to 26 . performance criteria. • Indicative Targets. These may be established because of substantial uncertainty about economic trends and converted to performance criteria as uncertainty is reduced. the former covering the macroeconomic elements of the program and the latter covering the structural elements. Preventive measures include IMF surveillance of members’ economic policies. There are two types of performance criteria: quantitative and structural. fiscal. monetary. although measures may be included in other areas if they are macro-relevant and critical. and structural benchmarks: • Prior actions. First credit tranche conditions apply to outright purchases and to Stand-By Arrangements that do not extend credit beyond the first credit tranche. The normal practice is that all prior actions must be carried out at least five working days before the Board discussion to which they relate. these are policy measures that the member country may be expected to adopt prior to the IMF’s approval of an arrangement. and financial system issues related to the functioning of domestic and international financial markets. or the granting of a waiver with respect to a performance criterion. The IMF’s core areas of responsibility in this context are macroeconomic stabilization.3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS • Tailoring of programs to a member’s circumstances. Overdue Financial Obligations to the IMF The IMF’s strategy on overdue obligations comprises three elements: prevention. Noncompliance does not require formal waivers by the Executive Board. policy conditionality. technical assistance. completion of a review. and the term “conditionality” is not normally used in this context. Conditions are established only regarding measures that are critical for the achievement of the goals of the member’s program or for monitoring the implementation of the program. and exchange rate policies. Conditionality is understood as the more stringent conditions that are applied to purchases in the upper credit tranches. when it is critical for the successful implementation of the program that such actions be taken to underpin the upfront implementation of important measures. or that are necessary for the implementation of specific provisions of the Articles of Agreement. the assurance of adequate balance of payments financing for members under IMF-supported programs. • Structural Benchmarks. or where its nonimplementation would not. intensified collaboration (including the rights approach). • Performance Criteria.

normally the SDR rate. thereby the application of remedial measures may be postponed. The member is expected. To address the burden of overdue obligations to the IMF. with the sharing being applied in a simultaneous and symmetric fashion. and who are cooperating with the IMF. Increasingly severe sanctions are invoked as such arrears become more protracted. This is necessary as a form of bridge-financing pending the completion of the RAP. The IMF does not to lend to countries that are not making a good-faith effort to eliminate their arrears with creditors. staffmonitored programs and rights accumulation programs (RAPs) help members in arrears to establish a track record on policies and payments. As part of an intensified collaboration. but the support can extend beyond the scope of the RAP in cases where arrears exceed the borrowing ceilings. The interest rate paid to creditors on their reserve tranche positions. RAPs are usually of a three-year duration. although the country specific circumstances are taken into account.52 However. private or sovereign). or international sanctions may prevent the Fund from assessing the member’s cooperation. 51 The intensity of remedial measures increases according to the timetable. is adjusted downward by this mechanism. Under this mechanism.INTERNATIONAL MONETARY FUND protect the IMF’s resources. under certain circumstances. In 1990. at a minimum. the lending into arrears (LIA) policy applies to arrears incurred to private creditors. while the basic rate of charge is adjusted upward for borrowing countries. the Fund has put in place a “burden-sharing” mechanism. A support group of donors is established to mobilize the financial resources necessary to clear the member’s arrears. the IMF established the rights accumulation approach to help members who are in arrears to the IMF. Eligibility for the rights approach is limited to the 11 members who were in protracted arrears to the IMF at the end of 1989. Of these. Another member. which could culminate in a suspension of the member’s voting and representation rights and eventually in the compulsory withdrawal of the member from the IMF if the member is deemed to be non-cooperating with the IMF and remains non-cooperating. only Liberia. leading to eventual clearance of arrears to the IMF. These rights accumulate toward a disbursement from the IMF once the member’s overdue obligations have been cleared and upon approval of a successor arrangement with the IMF. to remain current with respect to obligations to the IMF and the World Bank falling due during the period of the rights accumulation program. the absence of a functioning government. has protracted arrears to the PRGF Trust. Lending into sovereign arrears to private . whereas the IMF’s general policy on the non-toleration of arrears applies to arrears incurred to multilateral and official bilateral creditors. As long as a member remains in payments arrears to Fund. civil conflicts. Zimbabwe. a member earns rights. thereby reducing the amount of resources that would accrue to for the benefit of the IMF’s low-income members. The IMF has acknowledged that the incurrence of external payments arrears is perhaps the most disorderly way of responding to balance of payments pressures. HIPC or PRGF-ESF resources. including safeguards assessments of members’ central banks. it has no access to the Fund’s general resources. the financial consequences for the IMF stemming from overdue financial obligations of members are shared equally between debtor and creditor member countries. as they undermine relations with creditors and damage the international trade and payments system. the IMF has developed specific policies for dealing with external payments arrears in the context of the use of IMF resources. the IMF will lend to member countries that have defaulted on their debt service payments to private creditors. More specifically. and Sudan remain with protracted arrears. Lending into Arrears While the IMF is concerned with all forms of arrears (whether domestic or external. or that have imposed exchange controls that have resulted in payments arrears to private creditors by non-sovereign borrowers. Somalia. For example. mobilize bilateral and multilateral support to clear their arrears to the IMF and other creditors. Technical assistance is also suspended once the member is declared non-cooperating. conditioned upon satisfactory performance under an adjustment program monitored by the IMF. Arrears to the Trust Fund and the PRGF-ESF Trust are met by transfers from the Reserve Account of the PRGF-ESF Trust. Remedial measures are applied—using an escalating timetable—to member countries with overdue obligations that do not actively cooperate with the IMF to resolve their arrears problems. Under a 27 Rights Accumulation Program (RAP). although there is flexibility to tailor the length of the track record to the member’s specific circumstances. arrears to external creditors have a distinctive place in IMF policies. For these reasons.

The assessment is undertaken by an interdepartmental staff team that is usually different from . to avoid putting debtors at a disadvantage in the negotiations with creditors. These problems have been particularly prevalent in lowincome countries and countries in transition. • Second. It involves a longer-term analysis of the economic problems facing the country. while such arrears remain outstanding. by their nature. To avoid frequent EPAs in a single country. However. In addition. lending into non-sovereign arrears stemming from the imposition of exchange controls also requires a finding that good prospects exist for the removal of exchange controls. when a member has reached a judgment that a restructuring of its debt is necessary. which should continue until the restructuring is complete. The assessment reflects input from the World Bank. has outstanding non-sovereign external payments arrears. A country is considered to be a prolonged user when it has spent 7 or more of the last 10 years under an IMF-supported program financed from the IMF’s general resources or once the country completes two consecutive concessional arrangements.53 Prolonged use can compromise the revolving character of IMF resources. by virtue of the imposition of exchange controls. and to avoid prolonged negotiations that could hamper the ability of the IMF to provide timely assistance.3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS creditors is undertaken on a case-by-case basis and only where: • Prompt IMF support is considered essential for the successful implementation of the member’s adjustment program. the member should share relevant. made subject to the completion of a financing assurances review. Prolonged Use of IMF Resources and Ex Post Assessments IMF balance of payments support is intended to be of a short-term nature. non-confidential information with all creditors on a timely basis. These are conducted in cases where the IMF is providing financial assistance to a member that has outstanding sovereign external payments arrears to private creditors or that. a critical and frank review of progress made during the period of IMFsupported programs. it should engage in an early dialogue with its creditors. However. the member should provide creditors with an early opportunity to give input on the design of restructuring strategies and the design of individual instruments. Purchases made while a member has outstanding arrears are subject to financing assurances reviews. the assessment presents an explicit strategy for the country to exit from the use of IMF resources. The modalities guiding the debtor’s dialogue with its private creditors are normally tailored to the specific features of each individual case. which could reflect inadequate program design and implementation. The following principles guide the IMF’s judgments about members’ “good faith” efforts: • First. the debtor is expected to initiate a dialogue with its creditors prior to agreeing on an IMF-supported program. prolonged users are reviewed under an EPA at roughly five year intervals. in some cases longterm IMF financial engagement can help member countries to address deep-seated problems that. and a forward-looking assessment that takes into account lessons learned and that presents a strategy for future IMF engagement with the country. and may also draw on outside experts. The “good faith” criterion is applied flexibly to accommodate the characteristics of each specific case. require many years to resolve. Financing assurances reviews may also be established where the member has outstanding arrears to official creditors. Prolonged users are reviewed under an Ex Post Assessments (EPA). and • The member is pursuing appropriate policies and is making a good faith effort to reach a collaborative agreement with its creditors.54 An EPA provides the IMF with the opportunity to step back from ongoing program relations with a member country and to take a fresh look at the overall strategic approach with the focus on identifying lessons for future IMF involvement. However. this excludes precautionary arrangements that remain undrawn or access of the Policy Support Instrument (PSI). The financing assurances review determines whether adequate safeguards exist for the further use of IMF resources and whether the member’s adjustment efforts are undermined by developments in creditor-debtor relations. which is less likely to offer new insights. Every 28 purchase or disbursement made available after the approval of an arrangement is. at times prolonged use of IMF resources can stem from inadequate progress in dealing with key economic problems. However. • Third. Where appropriate.

Modifications to make misreporting policies less onerous in de minimis cases were introduced in July 2006.57 This policy was introduced on an experimental basis in March 2000 and adopted as a permanent policy in March 2002. IMF conditionality in this area is limited to measures highly relevant to safeguarding the use of IMF resources. The assessments have the objective of providing reasonable assurance to the IMF that the central bank’s control. in accordance with regular procedures. It has been widely accepted by central banks. the IMF was satisfied that all performance criteria or other conditions applicable to the purchase or disbursement had been observed. In exceptional cases. However. In case of a de minimis misreporting. reporting. negligence. 55 Misreporting occurs when the information provided by the member is inaccurate. and deliberate misrepresentation. where waivers have not been granted. a waiver of a performance criterion or other specified condition is granted. and suspension of further lending to the member country. * . a stand-alone discussion can be considered. safeguards assessments are not intended to be an institution-building exercise. or if the member has adopted additional policy measures to achieve the objectives of the economic program supported by the IMF. prior actions). and to minimize the possibility of misreporting. regardless of the source of the inaccuracy. a “noncomplying disbursement”). a decision whether a particular case should be considered to be de minimis will require judgment—first by management and staff. To be considered de minimis. with the last program review. and has helped improve their operations and accounting procedures while enhancing the IMF’s reputation as a prudent lender. However. but this information later proved to be incorrect. accounting.g.56 In addition to reducing the stigma and burden of misreporting. technical assistance. The safeguards policy complements other policies to safeguard the use of IMF resources.. Assessments cover five key areas: the 29 In practice. are adequate to ensure the integrity of operations. A purchase or disbursement that a member was not entitled to under the terms of the arrangement or decision governing the purchase or disbursement is called a “noncomplying purchase” (or in the case of a disbursement. inherent subjectivity of certain data. A member receiving IMF resources on the basis of incorrect information is expected to repurchase or reimburse the IMF normally within 30 days. transparency and governance initiatives.* Waivers may be granted only if the deviation from the relevant performance criterion or other condition is minor or temporary.The purchase or disbursement was made because. on the basis of the information provided to it at the time. Failure to repay within the specified time period will lead to a suspension of further disbursements or repurchases under the arrangement. and ultimately by the Executive Board. such as conditionality and monitoring. Misreporting may stem from administrative lapses. as misreporting procedures could be disproportionately heavy for minor deviations from a performance criterion or other specified condition (e. The EPA report is usually discussed by the Board jointly with either the Article IV consultation when the arrangement is substantially complete or where this is not feasible. a deviation would be so small as to be trivial with no impact on the assessment of performance under the member’s program. Nonetheless. weaknesses in statistical capacity. including IMF disbursements. Safeguards on the Use of IMF Resources The IMF has put in place a policy of safeguards assessments of central banks in member countries as an ex ante mechanism to help prevent the possible misuse of IMF resources. and the policy on misreporting.INTERNATIONAL MONETARY FUND the mission team and led by a mission chief from a department other than the home area department. changes are applied to the regular misreporting procedures to reduce the administrative and publication requirements. where critical vulnerabilities are identified. unless the Executive Board grants a waiver. However. noncomplying disbursements have often been repaid over a period longer than 30 days. concrete corrective measures may need to be adopted as a condition for IMF financing. Misreporting and Noncomplying Purchases and Disbursements All IMF loan disbursements to a member are made on the condition that the data or other information provided by the member pertaining to the purchase or disbursement are accurate. and auditing systems in place to manage resources. these modifications contribute to the general objective of streamlining IMF procedures expressed in the MTS.

. special facilities or policies that the IMF has set up to accommodate the specific balance of payments needs and circumstances of the membership. The assessment should preferably be completed prior to the date of the Executive Board’s approval of the arrangement. as cumulative access limits in the credit tranches are now substantially above 100 percent of quota.58 The Finance Department conducts the assessment in consultation with the Area Departments. The Credit Tranches Initially the IMF made credit available to its members in tranches. The distinction is necessary as first credit tranche borrowing is not subject to conditionality. discussions with the central bank’s external auditors. All. the IMF is exploring the possibility of creating a new liquidity instrument to provide high access contingent financing to emerging market economies. particularly with respect to the external audit mechanism. The channel of access a member selects depends on the particular circumstances of the country. As the IMF’s Articles of Agreement require that a uniform rate of charge for credit out of the General Resources Account. it is usually available immediately upon request to member countries. Access to IMF resources in the credit tranches may be through outright purchases or through a formal arrangement. These have eligibility requirements beyond a mere general balance of payments need. among other things. A key element of the safeguards policy is that central banks of member countries making use of IMF resources publish annual financial statements independently audited by auditors external to the central banks in accordance with internationally accepted auditing standards. provide access to the general resources of the IMF. 62 However. the PRGF and the ESF have been established under a separate trust account (the PRGFESF Trust) administered by the IMF to provide highly concessional loan resources to low-income countries. in order to prevent a capital account crisis—was never used and was allowed to lapse at the end of November 2003. the Contingent Credit Lines facility—which was created in 1999 to provide automatic financing to members who pre-qualified. while upper credit Financing Facilities and Arrangements Member countries can access the IMF’s resources through a variety of channels. The Finance Department. the latter referring to any borrowing above the first credit tranche. In the past. and the system of internal controls. and is also considering ways to enhance its support of regional and other arrangements for pooling reserves. Any member is eligible to request IMF’s resources in the credit tranches at any time simply by representing that it has a balance of payments need. The different channels of access are explained below.e. Members may also access the IMF’s resources through a number of 30 . except the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF). Under the Medium-Term Strategy.61 For example. in consultation with Area Departments. a distinction is now drawn simply between first credit tranche borrowing and upper credit tranche borrowing. the legal structure and independence of the central bank. reviews safeguards-related developments at central banks. the internal audit mechanism. a review of documents provided by the central bank.59 The original and basic channel is the use of quota-based resources through what is known as the credit tranches. 60 The facilities and arrangements described below are ones that currently exist. and preparation of a report and a summary of findings and recommendations of the assessment. i. The findings of the monitoring process may result in new recommendations to address emerging vulnerabilities in a central bank’s safeguards framework. The safeguards frameworks of central banks are monitored for as long as Fund credit remains outstanding. each equal to 25 percent of quota. Outright purchases are limited to the first credit tranche. The member normally would make a decision in consultation with IMF staff. Commitments made by the authorities to implement the recommendations of safeguards assessments reports are monitored in conjunction with overall program conditionality. the financial reporting framework. The assessment is usually initiated three months before the anticipated date of Board discussion of a new arrangement.3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS external audit mechanism. The results of initial safeguards assessments and the monitoring process form the basis for an updated assessment in case of successor IMF arrangements. All member countries receiving a new IMF arrangement are subject to a safeguards assessment of the central bank. several special purpose facilities and policies have been created that were subsequently eliminated. a safeguards assessment mission if needed. but in any case no later than the first program review under the arrangement. It entails.

2). However. may access the resources in the EFF through an Extended Arrangement. normally on a quarterly basis.64 The EFF was created in view of the fact that balance of payments problems could have structural origins and would require a longer period of adjustment. but it is not subject to phasing and performance clauses—unless the member has outstanding purchases under other facilities in the GRA. Purchases in the credit tranches are subject to an annual limit of 100 percent of quota and a cumulative limit of 300 percent of quota (Table 3. Members whose balance of payments problems are of a medium-term character as described above. and who have an appropriately strong structural reform program to deal with the embedded institutional or economic weaknesses. Consequently.63 First credit tranche borrowing may also be made through an SBA. Requests for resources in the upper credit tranches require substantial justification in the form of a balance of payments need and the authorities’ promise of appropriate adjustment policies that return the economy to a sustainable balance of payments position over a specific time-frame. but it may extend up to a maximum of three years. but they may extend for a fourth year. or (b) an economy characterized by slow growth and an inherently weak balance of payments position which prevents pursuit of an active development policy. The normal period for an SBA is 12 to 18 months. Purchases and performance criteria are phased on a quarterly or semi-annual basis. the EFF offers longer repayment periods than those under credit tranche policies. Extended Fund Facility The IMF established the Extended Fund Facility (EFF) in 1974 as a vehicle for providing medium- 31 . Stand-By Arrangement Stand-By Arrangements (SBA) are the usual vehicle for members to access upper credit tranche financing. All upper credit tranche borrowing is subject to phasing and observance of performance criteria. term assistance to (a) an economy suffering serious payments imbalances relating to structural maladjustments in production and trade and where price and cost distortions have been widespread. EFF purchases are subject to an annual limit of 100 percent of quota and a cumulative limit of 300 percent of quota. but the IMF may grant access beyond these limits in exceptional circumstances. but requires more action in the structural area than is typical of Stand-By Arrangements. These are normally three-year arrangements. the IMF may grant access beyond these limits in exceptional circumstances.INTERNATIONAL MONETARY FUND tranche borrowing requires a formal arrangement such as a Stand-By Arrangement.

cumulative: 300% of quota 4 ½-10 Basic rate plus surcharge (100 basis points on amounts above 200% of quota. with structural agenda. with annual detailed statement of policies for the next 12 months Semiannual Supplemental Reserve Facility (1997) Available for capital account crisis only in context of StandBy or Extended Arrangements with associated program and with strengthened policies to address loss of market confidence 2-2 ½ Semiannual Compensatory Available only when the Financing Facility shortfall/excess is largely (1988) beyond the control of the authorities and a member has an arrangement with upper credit tranche conditionality. access under the facility only when access under associated regular arrangement would otherwise exceed either annual or cumulative limit 45% of quota each for export and cereal components. disbursements are in two phases 3 ¼-5 2 ¼. 200 basis points on amounts above 300% )3 Facility available for one year. 200 basis points on amounts above 300%)3 Extended Fund Facility (1974) Adopt 3-year program. or when its balance of payments position excluding the shortfall/excess is satisfactory Stand-alone disbursements or. if there is an arrangement. Terms and Conditions of IMF Lending 2 Credit Facility Charges Conditions Phasing and Monitoring Access Limits 1 Repurchase (Repayment) Terms Obligation Expectation Schedule Schedule Installments (years) (years) 3 ¼-5 2 ¼-4 Quarterly The Credit Adopt policies that provide Tranches (1952) confidence that the member’s balance of payments difficulties will be resolved within a reasonable period Quarterly purchases (disbursements) contingent on observance of performance criteria and other conditions Quarterly or semiannual purchases (disbursements) contingent on observance of performance criteria and other conditions Annual: 100% of quota. with two or more purchases (disbursements) No access limits. Combined limit of 55% of quota for both components Basic rate Basic rate plus surcharge (300 basis points rising by 50 basis points a year after first disbursement and every 6 months thereafter to a maximum of 500 basis points) 2 ½-3 4 ½-7 Annual: 100% of quota.3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS Table 3.2. cumulative: 300% of quota Basic rate plus surcharge (100 basis points on amounts above 200% of quota.4 Quarterly .

Semiannual or quarterly disbursements.5% per exceptional cases annum from resources contributed to an administered account. 3 Surcharges are applied to the combined amount of outstanding credit resulting from purchases made after November 2000 in the credit tranches and under the EFF. at the time of the transaction. an up-front commitment fee (25 basis points on committed amounts up to 100% of quota. and integrating macroeconomic. 2000. contingent on observance of performance criteria and reviews. Terms and Conditions of IMF Lending (concluded) Repurchase (Repayment) Terms 1 2 Credit Facility Charges Conditions Phasing and Monitoring Access Limits Obligation Expectation Schedule Schedule Installments (years) (years) Emergency Assistance (1) Natural disasters (1962) (2) Post-Conflict (1995) None. PRGF-eligible members Generally limited to would—upon 25% of quota.2. Available in support of a macroeconomic and structural adjustment program. and poverty reduction policies 140% of quota.5 percent is levied on each drawing of IMF resources in the General Resources Account. Subject to resource availability. PRGF-supported programs are based on a Poverty Reduction Strategy Paper (PRSP) prepared by the country in a participatory process. but only if structural reforms needed to adjust to the shock are not of the type that would normally be supported by a PRGF arrangement. The fee is.50% 5 ½-10 Not applicable Semiannual Source: IMF. 185% of quota in exceptional circumstances Semiannual disbursements (or quarterly where closer monitoring is needed) contingent on observance of performance criteria and reviews 5 ½-10 Not applicable Semiannual Exogenous Shocks Facility (2005) Have a balance of payments need whose primary source is a sudden and exogenous shock. structural. although post conflict assistance can be segmented into two or more purchases 3 ¼-5 (1) Reasonable efforts to overcome balance of payments difficulties (2) Focus on institutional and administrative capacity building to pave the way toward an upper credit tranche arrangement or PRGF Basic rate. 2 For purchases made after November 28. In addition to the basic rate plus surcharge. the IMF may upon request by a member amend the schedule of repurchase expectations if the Executive Board agrees that the member’s external position has not improved sufficiently for repurchases to be made. 50% of quota.50% Adopt 3-year PRGF-supported program. however. A one-time service charge of 0. . refunded on a proportionate basis as subsequent drawings are made under the arrangement. though larger amounts can be made available in exceptional circumstances. Not applicable Quarterly Poverty Reduction and Growth Facility (1999) 0. 0.INTERNATIONAL MONETARY FUND Table 3. other than reserve tranche drawings. Finance Department 1 The basic rate of charge on funds disbursed from the General Resources Account (GRA) is set as a margin in basis points above the weekly interest rate on SDRs and is applied to the daily balance of all outstanding GRA drawings during each IMF financial quarter. 10 basis points thereafter) is charged on the amount that may be drawn during each (annual) period under a StandBy or Extended Arrangement. request—receive a though larger subsidy to bring the rate amounts can be of charge on the financial made available in assistance to 0. members are expected to make repurchases (repayments) in accordance with the schedule of expectations.

access would generally be within access limits in cases of debt restructuring to avoid moral hazard. Thus a member with outstanding CFF purchases of 25 percent of quota or more is subject to upper credit tranche conditionality even on first credit tranche purchases under a Stand-By Arrangement. However.3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS Supplemental Reserve Facility The IMF established the Supplemental Reserve Facility (SRF) in December 1997 to provide financing for member countries experiencing exceptional balance of payments problems owing to a large short-term financing need resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and the member’s reserves. a high probability that debt will remain sustainable. shortfalls or excess cereal import costs that are temporary and arise from events beyond the members’ control. The conditionality in an arrangement involving the use of SRF resources is the same as that of the associated Stand-By or Extended Arrangement. Stand-alone access is granted where the member’s balance of payments position is deemed satisfactory apart from the temporary export shortfall or cereal import excess. but they do count for the purpose of determining the threshold for upper credit tranche conditionality. an expectation of a re-entry to capital markets. to supplement credit tranche or EFF resources. access takes the form of outright purchases. Where the member has a balance of payments need beyond the need caused by the effect of an export shortfall or cereal import excess. Access under the CFF is subject to its own limits. Assistance under the SRF is made available if four criteria are met. specifically exceptional balance of payments pressures in the capital account. However. SRF resources are provided under Stand-By or Extended Arrangements. with the amount of the second purchase adjusted if necessary on the basis of actual data for at least 6 months of the 12-month period. In this case. when projected access to credit tranche or EFF resources would exceed the annual or cumulative limits under these facilities. the IMF takes into account the financing provided by other creditors. The repurchase period for SRF resources is much shorter than that for credit tranche and EFF resources. the purchase is made in two tranches. completing a review or determining that the program is on track. the request for CFF resources will be considered in the context of approving a new arrangement. Compensatory Financing Facility Under the Compensatory Financing Facility (CFF). reflecting the expectation of an early correction and a quicker turnaround in the balance of payments. if estimated data are used for 9 months or more of the 12-month period for which the export shortfall is calculated (in accordance with a predetermined formula). Emergency Assistance Policy The IMF may provide emergency assistance for natural disasters and to countries in post-conflict situations under the Emergency Assistance Policy. Access under the SRF is separate from the access limits under the credit tranches and the EFF. The SRF is likely to be utilized in cases where the magnitude of the outflows may create a risk of contagion that could pose a potential threat to the international monetary system. purchases after the initial purchase are subject to phasing and observance of the performance criteria specified in the associated arrangement.65 There has to be a reasonable expectation of an early correction of the difficulties based on the implementation of adjustment policies and adequate financing. Such access does not count toward the access limits under the credit tranches and the EFF. or PRGF Arrangement. and strong program design and implementation prospects. both official and private.67 Access to CFF resources may be stand-alone or in conjunction with access to other resources under a Stand-By. There is a strong presumption that exceptional access will be provided under the SRF in capital account crises.66 In approving a request for the use of IMF resources under the SRF. Extended. the IMF may provide resources to cover export 34 . which range from 45 percent of quota for each of the export shortfall and excess cereal import cost elements to a combined limit of 55 percent of quota. Usually the entire amount of the financing is made available in one purchase.68 Judgment on a member’s eligibility for emergency assistance is made on a case-by-case basis. In this case. and has no explicit limits of its own.

assistance would be provided under the CFF. EPCA-supported programs can be as long as 3 years. the ESAF was re-named the Poverty Reduction and Growth Facility (PRGF). PRGF loans are provided under three-year PRGF arrangements (which can be extended for a fourth year). a quantified macroeconomic framework to the extent possible. An additional 25 percent of quota can be provided in exceptional circumstances. with each purchase requiring Executive Board approval and subject to satisfactory progress in rebuilding capacity and macroeconomic stability. Understandings with the member country are needed to ensure that inappropriate policies do not compound the problems caused by the natural disaster. Since 2001. Conditions for such assistance include a statement of economic policies. and a statement by the authorities of their intention to move as soon as possible to a SBA. In 1995. and where there is sufficient evidence of the authorities’ commitment to reform and capacity to implement policies. emergency assistance in the form of quick. but they do count for the purpose of determining the threshold for upper credit tranche conditionality. as part of a concerted international effort to address the aftermath of the conflict in a comprehensive way. subject to the availability of resources for this purpose. through Stand-By and Extended Arrangements. particularly where capacity rebuilding is slow and the member is not in a position to implement an IMF arrangement after about a year or more under a program supported by emergency assistance. purchases under the Emergency Assistance Policy can benefit from interest subsidies for PRGF-eligible countries. 35 . The additional 25 percent of quota would normally be tranched. requests for purchases are considered on their own individual merits. Disbursements are * Tranching is different from phasing in that purchases are not conditional upon observance of pre-specified performance criteria. also through increased technical assistance. However.* Access under the Emergency Assistance Policy does not count toward the limits under the credit tranches and the EFF. In 1986.INTERNATIONAL MONETARY FUND In most cases where a member is afflicted by a natural disaster. the EPCA is also intended to play a catalytic role in postconflict situations by attracting support from other official sources.70 Eligibility is based principally on the IMF's assessment of a country's per capita income. or through augmentations of existing PRGF arrangements. This was followed in 1987 by the establishment of the Enhanced Structural Adjustment Facility (ESAF) to foster stronger adjustment and reform measures than those under the SAF and to augment its concessional lending resources. ESF. the emergency assistance policy was expanded to cover post-conflict cases. In 1999.69 The PRGF is currently financed through bilateral loans and grants. in those cases where a member cannot meet its immediate financing needs arising from a natural disaster without serious depletion of its external reserves. and the facility’s objective was broadened to include an explicit focus on poverty reduction in the context of a comprehensive growth-oriented strategy. drawing on the cutoff point for eligibility to World Bank concessional lending. IMF assistance is provided to meet an urgent balance of payments need to help rebuild external reserves and meet essential external payments. However. Emergency Post Conflict Assistance (EPCA) is available for countries emerging from civil unrest or international armed conflict that are unable to implement regular IMF-supported programs because of damage to their institutional and administrative capacity. extended arrangement or PRGF arrangement. financed by grant contributions from bilateral donors to subsidize this interest rate down to 0. Rather. but that have sufficient capacity for planning and policy implementation and a demonstrated commitment on the part of the authorities. possibly supplemented by additional loan resources. outright purchases would be provided. Emergency Natural Disaster Assistance (ENDA) is designed to provide only limited foreign exchange required for immediate relief.5 percent per year. Poverty Reduction and Growth Facility The IMF put in place a concessional lending facility through the establishment of the Trust Fund in 1976. The EPCA places heavy emphasis on institution building. in the near future the PRGF is due to become self-sustaining through the revolving use of resources accumulating in the Reserve Account of the PRGF-ESF Trust. Access under the Emergency Assistance Policy is normally 25 percent of quota. the IMF established the Structural Adjustment Facility (SAF) to provide concessional assistance to low-income countries by recycling resources lent under the Trust Fund. However.

Furthermore. shocks resulting from the variability of aid flows would not normally qualify for the ESF. 45. but resources committed under an ESF arrangement may be augmented to help the member meet a larger than expected balance of payments need. the member country must represent that it has an actual balance of payments need arising from a shock at the time of each disbursement. natural disasters. An eligible country may borrow up to 140 percent of its quota under a three-year arrangement. structural reforms could be less ambitious than under a PRGF arrangement. In cases where closer monitoring is needed. a PRGFeligible member must have a balance of payments need arising from a sudden and exogenous shock. 36 Exogenous Shocks Facility The IMF approved the establishment of the Exogenous Shocks Facility (ESF) to become effective in January 2006. A member may not have more than one ESF arrangement for the same shock. There is no specific. fifth. These programs must meet the standards required by upper credit tranche conditionality. It strengthens the IMF’s capacity to provide policy support to low-income countries and in recognition that exogenous shocks can have a significant adverse impact on poverty and growth. the Executive Board agreed that even lower access (such as 10 percent or less of quota) would be appropriate for countries that have limited balance of payments need for concessional resources. Access limits are reviewed by the Executive Board bi-annually. are expected to be adequately addressed. With its focus on adjustment to the underlying shock.71 assistance from the ESF and the PRGF at the same time. While the IMF will not challenge ex ante a member’s representation of a balance of payments need. Unlike access to GRA facilities. there are no annual or cumulative access limits under the PRGF. A member also may not receive financial . performance criteria. subsequent disbursements are subject to phasing and the observance of performance criteria. with a significant negative impact on the economy. structural issues considered important for adjustment to the shock. 35. and 55. while assisting the country’s efforts to put in place an appropriate adjustment to the underlying shock and ensuring adequate safeguards for the use of PRGF-ESF Trust resources. and up to 185 percent of quota in exceptional circumstances. or conflicts or crises in neighboring countries that may have adverse effects on the balance of payments. In addition. Except for the disbursement available upon approval of the arrangement. Countries with a PRGF arrangement would qualify for augmentation of access under that arrangement. or for mitigating the impact of future shocks. and administrative capacity constraints on the part of the authorities. the member may be expected to repay the IMF the amount of disbursement provided in the absence of the need. and 25 percent of quota for third. the arrangement may provide for quarterly phasing. fourth.3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS normally on a semi-annual basis. Disbursements may be at semiannual or quarterly intervals. remedial action would be taken if it were later discovered that an ESF disbursement was made in the absence of a need. comprising mainly structural issues deemed important for adjustment to the underlying shock. depending on factors such as the arrangement’s duration. and subsequent arrangements. There is a general presumption of declining access in successive PRGF arrangements. pre-defined set of qualifying shocks. shocks to demands for exports. namely. The terms and conditions of ESF-supported programs are similar to those of PRGF-supported programs. It provides financing under an ESF arrangement for a maximum period of two years in support of a macroeconomic and structural adjustment program. In March 2004 the Executive Board approved the following norms for access under successive PRGF arrangements: 90 and 65 percent for first and second arrangements. The ESF aims to facilitate quick access to financing. These norms are neither maxima nor entitlements. and reviews. However. Examples of shocks that may qualify for the ESF are terms of trade shocks. and in most cases completion of a review. nor would balance of payments needs arising primarily from domestic policy slippages. Nevertheless. However. To qualify for assistance under the ESF. the balance of payments need. and are subject to phasing and the observance of performance criteria. An exogenous shock is understood to be an event beyond the control of the authorities. a program supported by the ESF will rely more on macroeconomic adjustment and likely be less ambitious in terms of structural reform than PRGFsupported programs.72 The ESF is directed at PRGF-eligible members that do not have in place a PRGF arrangement and experience a sudden and exogenous shock.

The actual access. through the PRGF-ESF Trust. the size and likely persistence of the shock. and the policy support instrument. and the member’s record in using IMF credit in the past. Concessional lending under the ESF is administered by the IMF. the strength of the adjustment program. as trustee. projected response from donors. determined at the time of the request for assistance. The amount of access is governed by an initial baseline projection of the impact of the trade measures. or PRGF). it is expected that a decision on the duration of the TIM will be taken in light of the expected completion of the negotiations. Qualifying liberalization measures would normally be limited to measures introduced either under a World Trade Organization (WTO) agreement 37 Enhanced Surveillance Enhanced surveillance was developed in 1985 as a signaling device to assist members in addressing their debt problems with commercial creditors. The TIM was envisaged to be a temporary policy that would lapse after the specified trade policies agreed under the Doha Round had been fully implemented. and official institutions generally at market-related interest rates. beginning 5½ years and ending 10 years after the disbursement. The procedure facilitated commercial bank multi-year rescheduling agreements by providing private creditors with information about the member’s economic program and progress in its . the norm for annual access under the ESF is 25 percent of quota. These instruments serve special purposes. The Trust borrows from central banks. but these measures remain standard part of IMF-supported adjustment programs. loans under the ESF carry an annual interest rate of 0.INTERNATIONAL MONETARY FUND Given the diverse nature of exogenous shocks and the uncertainty about their net impact on the balance of payments need. as well as of earlier rounds of multilateral trade negotiations. it is a policy that will provide access under the IMF’s existing facilities (SBA. post-program monitoring. Similar to the PRGF. EFF. irrespective of context. rights-accumulation programs. and has pressed for the completion of the Doha Round. and lends them on a pass-through basis to PRGF-eligible countries. These instruments comprise enhanced surveillance. The maximum limit on total outstanding access to ESF resources is 50 percent of quota.5 percent. the outstanding use of credit from the IMF.5 percent of quota under the ESF. However. For low-income countries subject to a blending of concessional and non-concessional IMF financing. access will be assessed on a case-bycase basis. The TIM is not a new lending facility that will provide resources on special terms. but it could be augmented by up to 10 percent under simplified procedures if the actual (ex post) balance of payments effect is larger than expected. Access will be governed by the access policies and the terms and conditions of the underlying arrangement through which the policy is activated. The TIM may be accessed in conjunction with a new arrangement or in the context of a program review under an existing arrangement.73 Eligibility to use the TIM is limited to countries that experience balance of payments difficulties arising from trade liberalization measures introduced by other countries that result in more open market access for goods and services or that remove trade-distorting subsidies. Trade Integration Mechanism The IMF is a strong advocate of multilateral trade liberalization. involve more intensive scrutiny of members’ economic policies than under normal Article IV consultation procedures. Members are not eligible to use the TIM for the adverse effects of their own trade liberalization measures that are not specific to multilateral trade negotiations. The difference between the market-related interest rate paid to PRGF-ESF Trust lenders and the rate of interest paid by the borrowing members is financed by contributions from bilateral donors and the IMF's own resources. and do not involve the use of IMF resources. but this limit may be exceeded in exceptional circumstances. in April 2004 the Executive Board approved the establishment of a Trade Integration Mechanism (TIM) to address balance of payments difficulties that may result from implementation of trade liberalization measures undertaken by other countries. To help advance the Doha Round discussions. the annual access norm is 12. governments. or on a non-discriminatory basis. staff-monitored programs. In light of the delays in advancing the Doha Round. with repayments made semiannually.74 Special Instruments Special arrangements exist to review members’ economic conditions and policies outside the framework of Article IV consultations and outside of IMF arrangements. depends on the balance of payments need.

if an SMP is intended to reactivate IMF support after a program has gone offtrack. and upon the approval by the Executive Board of a successor Fund arrangement. The member would also be expected to obtain financing assurances from external creditors needed to finance its adjustment and reform program. Vietnam. Somalia.77 A RAP adheres to the macroeconomic and structural policy standards consistent with upper credit tranche conditionality. or a re-activation of a program that has gone off-track. or it may also request formal discussion of an SMP that was submitted to it for information. RAPs facilitated the clearance of arrears with Peru (1993). but was expanded in March 2005 to include the use of resources in the Poverty Reduction and Growth Facility (PRGF). Sierra Leone (1994). An SMP closely resembles a formal IMF-supported program. Observance of program targets serves to establish a track record of performance and cooperation prior to the clearance of arrears. The policy content of an SMP is guided by previous country reports. the IMF introduced a policy of enhanced monitoring of economic developments and policies in member countries that have come to the end of their IMF arrangement and whose credit outstanding exceeds 100 percent of quota. and would. PPM may also be triggered if credit outstanding is less than 100 percent of quota. A member would be expected to make maximum efforts to reduce its arrears to the Fund during the RAP. SMPs’ normal duration is 6 to 18 months. Honduras.78 This post-program monitoring (PPM) was first applied to use of credit in the IMF’s General Resources Account. they are based on a quantitative macroeconomic framework and include quarterly performance benchmarks. Liberia. However.3 FINANCING TEMPORARY BALANCE OF PAYMENTS NEEDS not just to mobilize external financing. remain current on obligations falling due to the Fund and the World Bank.75 Staff-Monitored Programs A staff-monitored program (SMP) may be used in cases where member countries need to establish a track record of policy implementation before discussions can begin on an IMF-supported economic program. If an SMP is initiated during or between Article IV consultations. Assessments are completed on a quarterly or semi-annual basis. The length of the RAP is normally three years. allows members to resolve large and protracted arrears to the IMF in the context of the “rights approach” as part of the Fund’s strengthened cooperative strategy on arrears. the policy content is guided by the current or preceding Article IV consultation discussions. and Zambia. Sierra Leone. and Sudan. Sudan.76 Eligibility to the RAP is limited to the eleven members that had protracted arrears to the Fund at end-1989. although longer durations are possible. Similar to a formal IMF-supported program. it remains available for Liberia. but with scope for variation in either direction on a case-bycase basis. at a minimum. It also does not have to meet the standards of upper credit tranche conditionality.* Under a RAP. and Zambia (1995). Enhanced surveillance does not imply IMF approval or endorsement of the member’s economic program. but there is a presumption that the Managing Director will recommend it to the Executive Board when a member meets the relevant criteria. Rights-Accumulation Programs The rights-accumulation program (RAP). it must be consistent with the achievement of the original or updated objectives of the IMFsupported program. but does not involve the use of IMF resources. member would earn rights towards a disbursement from the Fund once members’ arrears to the Fund had been cleared. informal country matters sessions. and with the availability of the approach having been extended. The procedure has not been used since the early 1990s. Peru. if there 38 * These were Cambodia. Guyana. Panama. established in 1990.79 PPM is not automatically triggered. Post-Program Monitoring In September 2000. Somalia. The Executive Board has the opportunity to comment on SMPs during Article IV consultation discussions. it is an informal arrangement to monitor the implementation of the authorities’ economic program without entailing Executive Board endorsement. . The IMF monitors implementation based on quarterly performance targets.

It also serves as a mechanism for bringing these concerns to the attention of the authorities and the Board and stimulating action to improve the situation. including the consistency of these policies with the objective of medium-term viability and their implications for the member’s capacity to repay the IMF. endorsement of their economic policies. particularly given the signaling function of the PSI. while deepening structural reforms in key areas in which growth and poverty reduction are constrained. much as is done in Article IV consultation discussions. PPM focuses on macroeconomic and structural policies that have a bearing on external viability. which could eventually imperil IMF resources or indicate that IMF resources are not being used for their intended purpose. PPM is intended to provide an early warning of policies that could call into question a member’s continued progress toward external viability. including with regard to a quantified macroeconomic framework. and the members’ policies meet conditionality requirements. It is planned that a review of the experience with the PSI will be conducted in 2008. and (iii) deliver clear signals that could be taken into account by donors. The PSI is available alongside existing IMF instruments and is intended to meet the needs of members without PRGF arrangements or who are about to graduate from PRGF arrangements. The PSI is available to all PRGF-eligible IMF members with a poverty reduction strategy in place and that have a policy framework focused on consolidating macroeconomic stability and debt sustainability. As with Article IV consultations. (ii) provide more frequent IMF assessments of the member country’s economic and financial policies. but still want IMF advice. creditors. The Executive Board considers approval of a PSI based on a staff report and the authorities’ Memorandum of Economic and Financial Policies (MEFP). the IMF introduced the Policy Support Instrument (PSI). Such countries are considered to be “mature stabilizers.INTERNATIONAL MONETARY FUND are developments that suggest the need of such a process. and the general public on the strength of these policies. monitoring.” PSI-supported programs are expected to focus on medium-term growth-enhancing reforms and would benefit from a medium-term framework for donor assistance. A PSI can be approved for 1-3 years. Publication of PSI-related documents is voluntary but presumed. PSI reviews will normally be scheduled semi-annually. PSIs are designed to (i) promote a close policy dialogue between the IMF and the member country. but can be extended for up to 4 years. Member countries are expected to engage in policy discussions with the IMF staff. The PSI is a non-financial instrument for low-income countries that either do not want or need financial assistance from the IMF. and 39 . PPM discussions can be concluded on a lapse-of-time basis. particularly where developments call into question the member's progress toward external viability. The staff formally reports to the Board on the member’s policies. The Policy Support Instrument In October 2005. A PRS document should have been issued within the previous 18 months. provided eligibility conditions are met. There are normally two PPM Board discussions a year: at the time of the Article IV consultation and a mid-term review between Article IV consultations.

To date.S. and vice-versa. International monetary conditions did not evolve as envisaged at the time of creation of the SDR. The IMF receives and disburses SDRs in transactions conducted through the GRA. Sources of IMF holdings include quota subscriptions. It was created as a supplement to existing reserve assets as the demand for reserves was expected to grow substantially over time in line with growing world trade. and re-imbursements for the cost of conducting the business of the SDR Department. The SDR is also the unit of account that is used by the IMF. the SDR helps lower the cost of holding reserves by reducing the need for borrowed reserves. a shortage of international reserves did not materialize as expected. the SDR can only be held by official entities or approved official holders. except that the General Department pays the expenses of conducting the business of the SDR Department and is reimbursed in SDRs by the SDR Department. totaling SDR 21. including those involving the use of IMF resources. which had as an objective to make the SDR the principal reserve asset in the international monetary system. the IMF. and prescribed official entities may hold or use SDRs. repurchases. Further changes to the SDR system came about as a result of the Second Amendment of the Articles of Agreement. Furthermore. In addition.81 The IMF and prescribed holders acquire and use SDRs through transactions with participants and with each other. the role of the SDR as a reserve asset has been very limited and SDRs currently comprise only a small fraction of members’ international reserves. The intention was therefore to establish the SDR system to expand world reserves independently of the growth of official holdings of gold and foreign exchange. there were concerns that the growth in the supply of reserves (which comprised mainly gold and the U. dollar) would be insufficient since it depended on a diminishing supply of newly-mined gold entering into official reserves and on continued and unsustainable deficits in the balance of payments of the United States. interest on loans to members and on GRA holdings. Consequently. dollar relative to gold unsustainable and precipitate an international monetary crisis. dollar liabilities.CHAPTER 4 SPECIAL DRAWING RIGHTS The SDR as an International Reserve Asset The SDR was created as a result of the First Amendment of the Articles of Agreement. only two series of SDR allocations have been made. Participants receive allocations of SDRs. The Bretton Woods par value system broke down in the early 1970s and was replaced by a system of managed floating exchange rates. and used in official transactions and operations. and only participants. Holders of SDRs All IMF members have chosen to participate in the SDR Department. the growth of international capital markets meant that many countries could augment their international reserves through borrowing. 80 Specifically. Separate financial statements are produced for the two departments. There are currently 15 prescribed official holders. which became effective in 1969. Uses of SDRs by the IMF include purchases. However. While these factors limited the role of the SDR as a reserve asset. Assets held in the SDR Department are not available to finance the operations of the General Department. and holds SDRs in the GRA.S. All other operations and transactions on account of the IMF.4 billion. are conducted through the General Department. which would eventually make the par value of the U. It was also thought that U. remuneration on members’ creditor 40 .S. Main Characteristics of the SDR System Separation of SDR and GRA Accounts All operations and transactions involving SDRs are conducted through a Special Drawing Rights Department.S. gold stocks would decline relative to U.

This plan designates participants in such manner as to achieve a common lowest excess holdings ratio (that is. the SDR must be fully convertible into foreign currency. Transactions by Designation Under the designation mechanism. 82 This amendment has not yet entered into effect. and require approval by an 85 percent majority of the total voting power of the SDR Department. The Fourth Amendment will become effective when three fifths of the IMF membership (111 members) with 85 percent of the total voting power accept it. up to specified amounts. A participant that votes against the allocation or notifies the IMF that it does not wish to receive any allocation will not participate in the allocation. Its intent is to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the IMF subsequent to 1981— more than one fifth of the current IMF membership— have never received an SDR allocation. to provide freely usable currencies in exchange for SDRs. and acquisition by members to pay charges and assessments. The IMF prepares a quarterly designation plan to facilitate transactions by designation. Transactions by Agreement A member may enter into an agreement with another member to use its SDRs to obtain an equivalent amount of currency from that member.84 There are currently no buy-only arrangements. and by arranging voluntary exchanges between participants. Currently there are 12 members and one prescribed holder (the European Central Bank) with buy-sell arrangements. unless the IMF decides that the new participant shall start to receive allocations beginning with the next allocation within the current basic period. although the IMF can decide to put in place other intervals. when designated by the IMF. all exchanges of SDRs for currency have been executed through voluntary transactions by agreement. or to buy SDRs if their holdings fall below a specified upper limit. The IMF initiates sales and purchases on behalf of members and matches sellers and buyers to ensure that all demands for currency and SDRs are satisfied.8 billion. and one member with a sell-only arrangement. participants whose balance of payments and reserve positions are deemed sufficiently strong may be obliged. holdings of SDRs in excess of net cumulative allocations as a percent of their quota). Members may use this mechanism whether or not they have a balance of payments or reserve need. repayments of and interest on IMF borrowing.INTERNATIONAL MONETARY FUND positions. 2006. These arrangements have helped ensure the liquidity of the SDR system. Members who become participants after a basic period starts receive allocations beginning with the next basic period in which allocations are made. A proposal for a special one-time allocation of SDRs was approved by the IMF's Board of Governors in September 1997 through the proposed Fourth Amendment of the Articles of Agreement. The Articles of Agreement provide for two mechanisms to ensure the SDRs convertibility: by designating IMF members with a strong external position to purchase SDRs on demand.3 percent of total voting power had accepted the proposed amendment. Approval by the United States is necessary to put the amendment into effect. To serve its purpose as a reserve asset. Transactions by agreement are facilitated by voluntary arrangements under which members commit to buy or sell SDRs if their holdings fall within a specified range. The allocation would double cumulative SDR allocations to SDR 42. 131 members with 77. some countries peg their currencies to the SDR or to a basket of currencies including the SDR. The IMF cannot allocate SDRs to itself or to other prescribed official holders. not for the sole purpose of changing the composition of their reserves. . To date there has not been any cancellation. or to sell SDRs if their holdings rise above a specified minimum. In addition. The amount of designation is determined so as to promote over time a balanced distribution of holdings of SDRs among individual participants. Transactions by agreement between these members and others wishing to sell or buy SDRs are arranged by the IMF. Allocations or cancellations within a basic period take place at yearly intervals. Since September 1987 no transactions by designation have taken place. Allocation and Cancellation of SDRs Decisions on the allocation and cancellation of SDRs are usually made for successive basic periods of five years each. 83 Members are expected to use transactions by designation only if they have a balance of payments or reserve need. 41 Use of SDRs The SDR serves as the unit of account of the IMF and a number of other international organizations. Decisions to allocate SDRs are based on a judgment that a long-term global need to augment international liquidity exists. As of endOctober.

the Euro. the IMF levies an annual assessment.4 SPECIAL DRAWING RIGHTS Operations Besides transactions by designation or agreement. The SDR interest rate is calculated weekly. As in the SDR valuation. in swap operations. dollar. that have the largest value of exports of goods and services.88 These four currencies currently are the U.89 To fix the specified amounts of each currency referred to above. the weights are fixed for a five-year period. The percentage weight is determined by (i) the value of the balances of that currency held by monetary authorities other than those of the issuing member (the relative importance of the currency as a reserve asset) and (ii) the value of the exports of goods and services of the issuing member (the relative importance of the issuing member in world trade). The weights are the SDR equivalents of the currency amounts that are in the SDR valuation basket. and the terms of and conditions under which these operations may take place. as security for the settlement of financial obligations.1). The list of currencies. 86 Operations take place by agreement among participants and prescribed holders. the Japanese yen. in forward operations. as explained below. and Regulations of the IMF. 42 . members whose holdings equal their cumulative allocation neither earn nor pay interest on SDRs on a net basis. The specified amount of each currency used in the calculation of the SDR value is then the amount of each currency. and the market yield for threemonth U. dollar. to make loans.2). For all members taken together. 85 These operations are: to settle financial obligations. valued at the average exchange rate for the three-month period ending on the date on which the calculation is being made. required to give the percentage weight of that currency in the SDR basket. at the same rate for all participants in the SDR Department. SDR interest and charges cancel out so that the net income of the SDR Department is always zero. treasury bills. while members that hold more than their cumulative allocation—such as net creditors to the SDR Department—receive net interest on their excess holdings.S. and (ii) they have been deemed by the IMF to be freely usable currencies. The SDR value is calculated daily in terms of the U. and to make donations. to make pledges.S. All transactions and operations in SDRs are conducted at the fixed SDR exchange rate set by the IMF using a basket of four currencies.S. It also levies a charge on the cumulative SDR allocations to members. the IMF has also listed seven types of operations in which members and prescribed holders may use their SDRs. Rules. the thirteen-week Japanese Government financing bills rate. To cover the operating cost of the SDR Department. Yield and Cost of SDRs The IMF pays interest on the SDR holdings by member countries to increase its attractiveness as a reserve asset. Therefore.S. Members who use their SDRs and thus hold less than their cumulative allocation—such as net debtors to the SDR Department—pay net charges. or by monetary unions that include IMF members. the three-month Eurepo rate. and the amount of each. first the percentage weight of each currency in the SDR basket is determined. using the midpoint of the buying and selling spot exchange rates for each currency against the U. used to calculate the SDR value is reviewed every five years and are specified in Rule O-1 of the ByLaws. The rate of charge is equal to the rate of interest. and the pound sterling (Table 4. Valuation of the SDR The value of the SDR is the sum of the values of specified amounts of the four currencies that satisfy the following criteria: 87 (i) they are issued by IMF members. The interest rates used are the market yield for threemonth U. Treasury bills. on a participant’s cumulative SDR allocations. The SDR interest rate is the weighted average of short-term market interest rates in the four countries or monetary areas whose currencies are used to determine the SDR exchange rate (Table 4.K. dollar at noon on the London exchange market as determined by the Bank of England.

27268 0. 3/ Under rule O-1. three-month UK Treasury bills. Japanese Government thirteen-week financing bills. dollar SDR Interest Rate 5/ 0.4000 0.59000 1.88090 1. Finance Department. as of the Friday preceding each weekly period. 2006. 1/ For the week of September 18 to 24. rounded to the two nearest decimal places. dollar SDR Source: IMF.169845 0.4100 18.483151 0. 2006.156476 0.0903 0. expressed as an equivalent annual bond yield: three-month Eurepo rate. dollars per currency unit. Initial weight 2/ (in percent) 34 11 11 44 Currency amount 3/ Exchange rate 4/ U. of the products that result from multiplying each yield or rate listed above by the value in terms of SDRs of the amount of the corresponding currency specified in Rule O-1.S. 3/ SDR per currency rates are based on the representative exchange rate for each currency.632000 1. other rates are expressed as U. 43 .519019 0. Data as of Friday.S.4100 18.519019 0. September 15. effective January 1.676382 3.0903 0.INTERNATIONAL MONETARY FUND Table 4. 5/ IMF Rule T-1(b) specifies that the SDR interest rate for each weekly period commencing each Monday shall be equal to the combined market interest rate as determined by the Fund. Under IMF Rule T-1(c).1 Calculation of the SDR Value 1/ Currency Euro Japanese yen Pound sterling U. dollar equivalent 1. 2006.S.3053 0.4000 0.9500 0.169845 0. 2/ Under rule O-1.857314 0. and three-month US Treasury bills.S.S.8700 4. the calculation shall be made on the basis of the latest available yield or rate.00000 0.156476 0.6320 0.26590 117. 2006.632000 3.3350 4. 1/ Data as of September 19. If a yield or rate is not available for a particular Friday.87 Source: IMF.00574471 1. Calculation of the SDR Interest Rate 1/ Currency amount 2/ (A) Currency Exchange rate against the SDR 3/ (B) Interest rate 4/ (in percent) Product (A) x (B) x (C) (C) Euro Japanese yen Pound sterling U. 4/ Interest rate on the financial instrument of each component currency in the SDR basket. Finance Department.2. 4/ The exchange rate for the Japanese yen is expressed in terms of currency units per U. the combined market interest rate is the sum. dollar.6320 Table 4. 13595-(05/99). 2/ Decision No.

90 The IMF. The IMF focuses on its core areas of responsibility and expertise. the IMF works in four main broad areas—policy advice and program design. and promoting an international economic environment that is conducive to poverty reduction and the attainment of the Millennium Development Goals (MDGs). employment generation. In addition. the international community must provide strong support through greater trade opportunities and increased and better-delivered aid flows. In this last regard. The first initiative is the Poverty Reduction Strategy (PRS) framework for the provision of international development assistance to low-income countries. These two initiatives have been widely adopted by low-income countries and by the international donor community. This follows from the IMF’s mandate to contribute “to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy. The thrust of its efforts has been * in assisting low-income countries in developing and implementing country-owned poverty reduction strategies and policies. namely: the pursuit of stable macroeconomic conditions and macro-relevant structural reforms. The international community endorsed this strategy at the United Nations’ Conference on Financing for Development held in Monterrey. mobilizing the necessary financial and technical support from the international community. or eliminate barriers to trade among developing countries.” In doing so. The second initiative is the Heavily Indebted Poor Countries (HIPC) Initiative for the provision of debt relief by the international community to low-income countries. and at the World Summit on Sustainable Development in Johannesburg. and targeted assistance to the poor. Additional instruments available to low-income countries are the Emergency PostConflict-Assistance (EPCA) and the Exogenous Shocks Facility (ESF). particularly the World Bank.CHAPTER 5 COMBATING POVERTY IN LOW-INCOME COUNTRIES A central objective of the IMF in low-income countries is to support sustained poverty reduction through policies that promote economic growth. All these facilities or special instruments are described in more detail in Chapter 3. which is the lead institution for poverty reduction. examples include the support of efforts to improve market access for developing countries’ exports. including debt relief. lowincome countries must be proactive in implementing sound policies. including concessional lending from the IMF and the World Bank. with supporting financial and technical assistance. reduce trade-distorting subsidies in advanced economies. 44 . the IMF also participates in the Multilateral Debt Relief Initiative (MDRI) in response to a proposal by the Group of Eight (G-8) industrial countries to cancel the obligations of lowincome countries to specific multilateral institutions. strengthening institutions. in August 2002. March 2002. The IMF’s principal vehicle for concessional financial support to low-income countries is the Poverty Reduction and Growth Facility (PRGF). and improving governance. financial support and debt relief. An IMF instrument available to low-income countries that may not need or want access to IMF financial resources is provided through the Policy Support Instrument (PSI). Second. In its work in lowincome countries. where it has a clear comparative advantage. Mexico. and coordinated international efforts. capacity building. has endorsed a two-pillar strategy for tackling poverty in low-income countries. in conjunction with other development partners.* First. The IMF and the World Bank have pioneered the development of two initiatives to tackle poverty in low-income countries. The PRS framework has become the basis of IMF and World Bank concessional lending operations. the IMF works in close collaboration with other development partners. for those countries that implement sound policies and reforms. South Africa. The IMF has been working on both elements of the two-pillar strategy.

Countries also need to have a PRSP in order to qualify for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. structural and social policies and programs over a three year or longer horizon to promote broad-based growth and reduce poverty. In this case. Where completion of the full PRSP is expected to be delayed beyond the start of the second year. I-PRSPs summarize the current knowledge and analysis of a country's poverty situation. the IMF plays a critical role in helping low-income countries address the macroeconomic challenges of increased aid inflows. the full PRSP should be completed prior to the start of the second year of the program. a PRSP preparation status report. Moreover. These documents form the basis on which the IMF. Poverty Reduction Strategy documents are prepared by the member countries through a participatory process involving domestic stakeholders and external development partners. Where a country is unable to prepare a full PRSP in a timely manner to support its request for financial assistance or debt relief under the HIPC Initiative. The PRSP framework is intended to focus policies and resources of both low-income countries and the international donor community on poverty reduction. Content of a PRSP or I-PRSP PRSPs reflect country-specific circumstances. namely by envisaging a refocusing of the IMF’s work on macro-critical areas. The PRSP or I-PRSP should be prepared using a broad participatory process. resources needs related to the Millennium Development Goals and macroeconomic stability. the Poverty Reduction Strategy (PRS) has been broadly accepted as the framework for coordinating the efforts of low-income countries and development partners to achieve the MDGs. as well as associated external financing needs and major sources of financing. a progress report on the implementation of the I-PRSP and the status of preparation of the full PRSP can provide the basis for continued access to concessional assistance. and other donors base their concessional lending decisions and debt relief. In between updates. to ensure that the PRSP and PRGF cycles coincide and to ensure that PRGF arrangements are based on updated PRSPs. In that context. improved collaboration with other institutions. involving consultations among a wide spectrum of the civil society and the international donor community. and a political commitment to its successful implementation. discussed in Chapter 1. describe the existing poverty reduction strategy. 45 Preparation of a Poverty Reduction Strategy Document Requests for a PRGF arrangement with the IMF require that a PRS document be issued within the previous 18 months. This helps to ensure that there is a national consensus regarding the appropriateness of the poverty reduction strategy.INTERNATIONAL MONETARY FUND The Medium-Term Strategy (MTS). in line with the MTS. Poverty Reduction Strategy Framework A central goal of the IMF’s engagement with lowincome countries is to support their efforts for achieving their Millennium Development Goals. will have an impact on the IMF’s role in low-income countries. The IMF supports. which can be Poverty Reduction Strategy Paper (PRSP). and assessing the relationship between aid inflows. and lay out the process for producing a fully developed PRSP in a participatory fashion. countries need to prepare an annual progress report on implementation of the PRS. increased involvement in managing the implications of debt relief. 91 However. A key element of the PRSP framework is the country’s ownership. including the IMF. as explained below. The PRSP describes the country's macroeconomic. it may submit an I-PRSP under a transitional arrangement.92 IMF support under the PRSP framework is provided under the Poverty Reduction and Growth Facility (PRGF). IMF and the World Bank Boards do not need to endorse the poverty reduction strategy documents as a satisfactory basis for concessional lending. and therefore their content will vary from country to . sustained poverty reduction and reaching the MDGs through its work promoting macroeconomic stability and sustained growth. greater flexibility in conditionality. Countries should preferably update their PRSPs every three years. an Interim PRSP (I-PRSP). or a PRSP or Annual Progress Report. the World Bank. It is updated every three years with Annual Progress Reports. The country documents are made available on the IMF website by agreement with the member country. The strategy to combat poverty is embodied within a poverty reduction strategy document.

Advisory Note (JSAN). • A clear and detailed statement of the medium.e. A description of the framework and • mechanisms for monitoring implementation. and improvement of public resource management. programs supported by the World Bank and other donors. and incidence of poverty. The Executive Boards’ judgment on the PRS document is based in large part on the Joint Staff . Alignment of the PRGF with the PRSP The PRSP is the basis for IMF lending to the country under a PRGF arrangement. the main elements of its poverty reduction strategy consistent with the extent of diagnosis that has been conducted. focusing on poverty reduction. and coordination with. They now place more emphasis on country ownership of economic policies. and critical for.5 COMBATING POVERTY IN LOW-INCOME COUNTRIES country and over time within a given country. and policies. flexibility of fiscal policy to accommodate economic growth and poverty objectives. including the extent and planned development of participatory processes designed to strengthen accountability.and long-term outcome-oriented targets for the country’s poverty reduction strategy.94 This is accomplished through the requirement that the PRSP contain a realistic macroeconomic policy framework that is fully aligned with the poverty reduction goals. PRGFsupported economic programs are drawn directly from the PRSP by implementing the macroeconomic component of the PRSP. structural. Consistent with the PRSP approach. They are also more focused on the IMF’s core areas of expertise. This means greater reliance on. and thereby directly contributing to the attainment of the country’s poverty reduction goals. which will be revised when the interim document is replaced by a full PRSP. 46 Joint Staff Advisory Note on the PRS Document A request for a PRGF arrangement is granted only if the Executive Boards of the IMF and the World Bank are satisfied that the PRS document constitutes a sound basis for concessional lending to the country. and the macroeconomic. do not contain sufficiently specific targets and policy measures—PRGF-supported programs. like other donor-supported programs. and collaborative. The design and conditionality of PRGFsupported programs also increasingly integrates poverty and social impact analyses (PSIAs). and the planned frequency of reporting and monitoring.. IMF-supported economic programs in low-income countries have been redesigned to make them more poverty-oriented. Where PRSPs lack specificity—i. The I-PRSP includes the following: • An interim report by the government presenting its commitment to poverty reduction.1). country-driven. This is intended to ensure that PRGF-supported economic policies are fully consistent with the poverty reduction strategy. public accountability. However. the IMF and the World Bank have suggested the following as possible core elements of a PRSP: • A comprehensive diagnostic of the nature. and social policies that together comprise a comprehensive strategy for achieving these outcomes. targets. and governance (Box 5. and • An assessment of the external financial and technical assistance that would be required to achieve the objectives of the poverty reduction strategy. the indicators to be monitored. in line with the IMF’s general move to streamline structural conditionality. reorientation of public expenditure toward the social sectors. causes. may include measures that are not specified or foreseen in the PRSP. The MediumTerm Strategy is contemplating the elimination of JSANs. which is an assessment report prepared jointly by the staffs of the IMF and the World Bank. reaching the country’s growth and poverty reduction objectives. but that are consistent with.93 The JSAN is circulated to the Executive Boards at the same time as the PRS document and provides detailed feedback to the country authorities on the strengths and weaknesses of their poverty reduction strategies. which are led by the World Bank. and a timeline and a consultative process by which the PRSP will emerge. • A jointly agreed but tentative threeyear macroeconomic framework and threeyear policy matrix.

In September 1999. and faster debt relief by lowering the threshold and the performance period requirement. The IMF provides technical assistance to help countries build capacity in macroeconomic and financial programming. many countries are as yet unable to engage in broader and deeper analysis of the macroeconomic frameworks and of policy choices in PRGF-supported programs. 47 * The post-September 1999 HIPC Initiative is sometimes referred to as the “enhanced HIPC Initiative. is taking effect at end-2006. reduces transactions costs. to increase the predictability of external financing and strengthen the national budgetary process. The IMF’s launching of the HIPC Initiative is consistent with its mandate to provide balance of payments assistance as well as promote economic growth in member countries. . thereby enabling them to service their external debts without the need for further debt relief and without compromising poverty reduction efforts or economic growth. the original term “HIPC Initiative” is retained for simplicity. allowing the sunset clause to take effect without any modification would have left a number of countries with debt burdens in excess of the Initiative’s threshold and without a comprehensive framework. To this end.INTERNATIONAL MONETARY FUND Given capacity and data constraints. but has been extended a number of times. the IMF systematically shares information with other donors—on the timing and results of negotiation and review missions. provides exceptional assistance to eligible member countries to reduce their external public debt burdens to sustainable levels. where possible.* The HIPC Initiative was defined as a temporary initiative.95 It is a comprehensive approach to debt relief which involves other multilateral creditors as well as official bilateral and commercial creditors. and in economic statistics. A sunset clause. but it and the term “Initiative” are understood to refer to the post-September 1999 framework. Instead. HIPC Initiative The HIPC Initiative. Finally. deeper. This helps address problems of focus and overly burdensome conditionality in uncoordinated donor programs. including countries that might meet these criteria at some point in the future. thereby increasing also the number of eligible countries. which had already been extended four times since its introduction in 1996. However. so that individual donors can derive the content and conditionality of their programs directly from the PRS whenever possible. the IMF encourages donors to make medium-term commitments of aid. Together with the World Bank. and increases the effectiveness of external aid in reducing poverty.” Here. the Board decided in October 2006 to grandfather all countries that are assessed to have met the income and indebtedness criteria based on end-2004 data. the IMF is also engaged in efforts to increase alignment of donor support with the PRS and the national budget cycle. At the same time. and on the technical assistance provided by the IMF—and takes into account the impact of policies supported by other donors in PRGF-supported programs. established in 1996. on the conditions and proposed timing of donor disbursements. the IMF and the World Bank agreed to strengthen the HIPC Initiative to provide broader. the links between debt relief and poverty-reduction efforts were strengthened through the PSRP framework.96 Aid Coordination and Effectiveness The PRS framework facilitates the coordination across different development agencies.

Summary of Key Features of PRGF-Supported Programs1 Programs Are Based on Broad Participation and Ownership • • • • • • • • • • • • • • • • • • • • • • • Main elements of PRGF are drawn from the country’s PRSP. Distributional effects of substantial macro-adjustments or structural reforms are taken into consideration. Emphasis is put on improving data and monitoring in order to track expenditures. Selective conditionality on fiscal governance measures may be used. PRSP may identify contingent expenditures that could be added if more aid were forthcoming. Government spending is oriented toward activities that benefit the poor. Emphasis is put on policies to promote private sector development. Priority is given to improving the efficiency and targeting of growth and poverty-related spending. World Bank leads impact analysis. For HIPCs. Country authorities produce PRSP in a transparent process with broad participation.1. the overall growth and poverty reduction strategy.imf. directly or indirectly. Countervailing measures are incorporated to offset temporary adverse effects on the poor. exceptions must be justified. PRGF-supported program is derived from. Conditionality is focused on key measures that are central to the success of the strategy. Transparent monitoring systems should be used to improve delivery of public services.org/external/np/prgf/2000/eng/key. Where warranted. 2000. Macroeconomic and structural policies are fully integrated with growth and poverty objectives. Fiscal targets may be modified in the event of key shocks. Programs Are Embedded in the Overall Strategy for Growth and Poverty Reduction Budgets Are More Poverty-Oriented Fiscal Targets Are More Flexible Structural Conditionality Is More Selective Emphasis Is Placed on Measures to Improve Public Resource Management and Accountability Social Impact Analysis of Major Policies and Reforms Are Integrated into Program Design _________________________ 1 See Key Features of PRGF-Supported Programs. available on the Internet at: http://www. Conditionality is limited to measures that are in the IMF’s domain. PRGF support of the strategy is focused on areas within the IMF’s area of expertise and responsibility. Tax reforms seek to improve tax efficiency and equity while generating resources for poverty reduction More normative macro-projections may be presented to signal financing needs. PRGF documents describe work done and how analysis influenced policies. August 16. and reflects.5 COMBATING POVERTY IN LOW-INCOME COUNTRIES Box 5.htm. 48 . programs include specific mechanisms for monitoring use of debt relief. Fiscal policies and objectives should be open to public debate. commitments of higher aid flows are sought from donors and built into the program.

or Emergency Post Conflict Assistance. as defined under the HIPC Initiative. A topping-up decision can also be taken. The committed amount of debt relief is the amount calculated by the IMF and the World Bank. involves the disbursement of assistance over and above that which was committed at the decision point. Thus.e. • not agreed on an exit operation with Paris club creditors on Naples terms after September 1999. based on end-2004 data. To qualify for assistance (i. • are pursuing a program of adjustment and reform supported by the IMF through a PRGF or Extended Arrangement. is Definition of Debt Sustainability and Debt Relief A sustainable debt is defined under the HIPC Initiative as an external public debt that is equal in net present value terms to no more than 150 percent of exports of goods and non-factor services calculated on the basis of data available at the decision point. (i) an exports-to-GDP ratio of at least 30 percent and (ii) a fiscal revenue-to-GDP ratio of at least 15 percent. briefly. as is discussed later. or are eligible to receive. and • a commitment from all other creditors (holding debt claims above a certain minimum amount) to participate in the Initiative. on the basis of a loan-byloan debt sustainability analysis. the member’s external debt situation. a debt sustainability target of below 150 percent for the debt-to-exports ratio at the decision point may be set. Even after the full application of these traditional debt relief mechanisms. covering macroeconomic policies and structural and social policy reforms. the total amount of HIPC Initiative assistance to the country committed at the decision point by all creditors is calculated so as to bring the net present value of the debt down to 150 percent of exports. The debt relief provided to a member at the completion point is irrevocable and is provided with no further policy conditionality. a Stand-By Arrangement. Countries that reach the decision point may begin to receive limited interim debt relief. Once the member country meets the conditions for assistance established for it at the decision point. but. based on the latest available external debt data. 49 . and • have received. less any interim assistance disbursed. a decision on rights of accumulation. In the special case of a country that has. assistance to the full extent available under traditional debt relief mechanisms. which is the date at which the IMF and the World Bank decide that necessary conditions have been met and a decision is taken to disburse the assistance committed..INTERNATIONAL MONETARY FUND Operational Aspects of the HIPC Initiative An eligible member that has satisfied the necessary conditions for assistance under the Initiative receives a commitment of debt relief at the “decision point”. the full amount of debt relief committed at the decision point. which is the date at which the IMF and the World Bank decide that the member country qualifies for assistance under the Initiative. • a satisfactory poverty reduction strategy set out in an PRS document issued to the Executive Board within the previous 18 months. Eligibility Requirements for the HIPC Initiative IMF assistance under the HIPC Initiative is limited to countries that: • are PRGF-eligible (described in detail in Chapter 3). unsustainable. at the decision point. an eligible member must have: • an unsustainable external debt. with the specific target set to reduce the external debt in net present value terms to 250 percent of fiscal revenue at the decision point. as necessary to reduce the member’s external debt to a level deemed sustainable. even after the application of traditional debt relief mechanisms. to reach the decision point) under the Initiative. • established a track record of strong policy performance under IMF-supported programs. is delivered at the “completion point”.

ESF or EFF. a portion of its committed assistance not to exceed (i) 20 percent of the total assistance committed for each 12-month period following the decision point and (ii) a maximum of 60 percent of the total assistance committed. and • the assistance to be provided by multilateral creditors in terms of a reduction in the net present value of the debt owed to them by the member sufficient to achieve the debt sustainability targets. However. Additional debt relief—referred to as “topping-up assistance”—under the Initiative could be considered. To date. The actual maturity is determined on a case-by-case basis. or the policy on emergency assistance for post-conflict countries. the member would need to have prepared a PRSP and implemented the poverty strategy satisfactorily for at least a year by the completion point. The second performance period is not fixed. However. This is calculated taking into account the exceptional assistance to be provided by Paris Club creditors and at least comparable action by other official bilateral and commercial creditors under the Initiative. the amount of interim assistance in any 12-month period cannot exceed the amount of debt service falling due to the IMF during that period.10½ years and a maturity of 10-20 years.5 COMBATING POVERTY IN LOW-INCOME COUNTRIES Requirement of a Track Record The requirement of a track record of strong policy performance is normally satisfied by an initial threeyear performance period leading up to the decision point. taking into account the objective of bringing the debt-toexports ratio down to the debt sustainability target agreed at the decision point. In the case of the second performance period leading up to the completion point. as interim assistance. less any interim disbursements made after the decision point. all HIPC Initiative debt relief has been given in the form of grants. The use of floating completion points provides an incentive for countries to implement reforms quickly. In addition. ESF or Extended Arrangements. the member’s program must be supported by PRGF. and has kept on track with its IMF-supported program. and have a grace period of 5½ . Debt-relief loans are provided interest-free. the IMF disburses the amount committed at the decision point. these programs could also be supported by a Stand-By Arrangement. Terms of IMF HIPC Assistance IMF HIPC assistance may be given as grants or loans. Such loans and grants are used at the completion point as an early repayment of the member’s qualifying debt to the IMF. Members could receive credit toward the decision point for programs that were underway prior to the adoption of the HIPC Initiative. followed by a second performance period leading up to the completion point. has a stable macroeconomic position. Repayment of these loans cannot be rescheduled. Amount of IMF HIPC Assistance The IMF’s share of total HIPC Initiative assistance is based on: • the IMF’s share in the present value of the multilateral debt of the member at the decision point. decisions on rights accumulation. These amounts may be raised to 25 percent and 75 percent respectively. In the case of the first three-year period leading to the decision point. The completion point is thus described as a “floating” completion point: it triggers whenever the above conditions are satisfied. At the completion point. the member’s economic program could be supported by arrangements under the PRGF. The HIPC Initiative allows for the provision of additional debt relief under exceptional circumstances to countries at the completion point. During the interim period between the decision point and the completion point. It also allows HIPC countries greater ownership over the reform timetable. as determined on a case-by-case basis. In some cases. the IMF may advance to the member. in exceptional circumstances.97 The IMF approves all disbursements under the HIPC Initiative in the context of satisfactory assurances regarding the assistance to be provided under the Initiative by the member’s other creditors. Use of Resources Freed by Debt Relief Debt relief under the HIPC Initiative is an integral part of international efforts to eradicate poverty in 50 . thereby permitting strong performers to reach the completion point earlier. a reassessment of the amount of debt relief committed at the decision point is not automatic. it ends when the member has satisfactorily implemented a set of pre-defined key policy reforms. only if the deterioration in debt sustainability since the decision point is attributable primarily to a fundamental change in the member’s circumstances owing to exogenous factors. to achieve a sustainable debt ratio. in order to avoid a further accumulation of debt by HIPC countries.

The countries that may benefit from MDRI debt relief from the IMF include: • all HIPC countries once they reach the completion point under the HIPC Initiative. by reducing annual debt-service payments. including social spending. and • all non-HIPC counties at or below the US$380 per capita income threshold. In particular. This allows countries to demonstrate to the donor community that the resources are being used effectively for poverty reduction. which came into effect in January 2006. In order to receive MDRI Trust assistance. 2004 that has not been (or is not scheduled to be) repaid by the member. and helps sustain or increase aid flows to low-income countries. One of the main benefits of the Initiative is that. and then pass a separate threshold for qualification. spending on the social sectors is expected to be higher than what it otherwise would have been. it will make possible the accommodation of higher levels of expenditure to accelerate poverty reduction. the IMF provides technical assistance to beneficiary countries to strengthen their public expenditure management systems and expenditure tracking mechanisms. provides grant assistance to eligible low-income member countries to repay all of their qualifying outstanding debt to the IMF. the IMF decided to adopt a new Initiative to provide debt relief to low-income countries (including two member countries that were not HIPCs) in addition to the debt relief provided under the HIPC Initiative. the IMF and World Bank emphasize that. In addition to being current on their obligations to the IMF. subject to the availability of resources.INTERNATIONAL MONETARY FUND low-income countries. in terms of both the inter-sectoral composition of spending and the allocation of spending within sectors. Upon determination of qualification. To ensure that additional spending on poverty reduction takes place and is appropriately targeted. in addition to increasing spending. called the Multilateral Debt Relief Initiative (MDRI). the applicable MDRI-I or MDRI-II Trusts will repay to the IMF an amount equivalent to the member’s outstanding eligible debt to the IMF. Therefore. so that countries can effectively track public spending. and (c) public expenditure management systems. (b) implementation of a poverty reduction strategy detailed in a Poverty Reduction Strategy Paper (PRSP) or a similar framework. • Countries that have not yet reached the completion point under the HIPC Initiative will qualify for MDRI relief upon reaching the completion point. 51 . The IMF also emphasizes transparency and accountability in the management of the freed resources. beneficiaries of HIPC Initiative assistance are expected to use the resources released from debt service payments to finance spending that directly or indirectly reduces poverty and improves living conditions. However.98 The vehicles to facilitate these grants are the MDRI-I and MDRI-II Trust Accounts. or with assistance committed or disbursed under the HIPC Initiative. Multilateral Debt Relief Initiative In November 2005. lowincome member countries must meet eligibility criteria. they needed to demonstrate satisfactory performance in three key areas: (a) macroeconomic performance. countries should take steps to improve the efficiency of public spending. the Executive Board requested that the following qualification criteria be established: • Post-HIPC completion point countries would need to meet a number of criteria to qualify for MDRI relief. following consent of all contributors to the PRGF Subsidy Account to the transfer of their contributions to the MDRI-II Trust Account. This initiative. “Eligible outstanding debt” is that part of the member’s debt to the IMF (including to the IMF as trustee) outstanding as of December 31. At the time when the MDRI was established.

and ensuring that legal and institutional frameworks meet international standards and strengthen national ownership of economic programs and policies. and the legal. In addition. transition. institutional.100 From the member country’s perspective. most technical assistance is provided free of charge and charges for technical assistance account for less than one percent of the cost of IMF technical assistance. However. It also helps to develop long-term national capacity to design and implement economic policies and reforms. focuses on the implementation of these policies and reforms. on the other hand.99 Thus technical assistance enhances the effectiveness of the IMF’s surveillance and lending operations in member countries. Technical assistance is provided by the IMF to member countries mostly in the form of human resources. technical assistance is helpful in the reconstruction of economic institutions and may pave the way for IMF financial support. ROSC exercises. In post-conflict countries. technical assistance satisfies an immediate or short-run need for technical skills to support the policy dialogue and formulation and to implement specific macroeconomic policies and structural reforms. Requests for technical assistance arise from the authorities’ initiatives to identify and correct weaknesses in policy formulation or implementation. IMF staff work with country authorities to identify the policies and reforms required to correct particular macroeconomic and structural problems. as it confers substantial benefits at a modest cost or no cost to most member countries and is provided without conditionality. In surveillance and lending operations. Role of Capacity Building Technical Assistance Technical assistance is a crucial aspect of the IMF’s operations and helps members in strengthening their policy formulation and implementation. improves national economic management and governance. These requests for assistance may originate in the context of surveillance discussions or lending operations. It is a particularly valuable resource for developing. The IMF provides technical assistance only upon request by members. headquarters-based consultants. technical assistance strengthens members’ capacity to repay the IMF and thus helps preserve the revolving character of the IMF’s loan resources. and experts in the field employed by the IMF. who provide their services to member 52 . It also constitutes an important complement to IMF surveillance and lending operations in member countries. Under current procedures. They may also result from discussions in the context of IMF surveillance or lending operations or as follow-up on FSAP and ROSC exercises. and contributes to macroeconomic stability and economic growth in member countries. and market frameworks within which they operate. demand for technical assistance from the IMF is strong. countries in response to specific requests for assistance from the authorities. where institutional weaknesses are important constraints on policy design and implementation. and experts hired by the IMF. Technical assistance. headquarters-based technical assistance experts. by increasing the likelihood that economic programs will be fully and successfully implemented. The human resources comprise IMF staff.CHAPTER 6 CAPACITY BUILDING: TECHNICAL ASSISTANCE AND TRAINING Capacity building is provided by the IMF to member countries mostly in the form of advice and training provided by IMF staff. and there is emphasis on better integrating it with these operations. In these ways technical assistance helps to address resource constraints. and post-conflict countries. Technical assistance also constitutes a channel for learning from the experiences of other countries. or the work of regional technical assistance centers (RTACs). They may also stem from the authorities’ own initiative to identify and correct weaknesses in policy implementation.

monetary and exchange policy operations. and on combating money laundering and the financing of terrorism. and the balance of payments. payments systems. exchange systems and currency convertibility. while other departments deliver training within the INS program to complement their technical assistance activities. inflation 53 Capacity Building Priorities As the demand for technical assistance and training from the IMF outstrips the supply. • The Statistics Department provides advice on balance of payments. more specialized courses is such areas as macroeconomic diagnostics. national accounts and price statistics. the Statistics Department (STA). international investment positions. INS offerings encompass long-standing courses such as financial programming and policies and newer. and major tax policy changes. and taxation of natural resources. value-added tax. reserves management. accounting. lending.INTERNATIONAL MONETARY FUND Training The IMF. targeting.101 • The Fiscal Affairs Department provides advice on tax policy advice in the areas of income tax. and data dissemination standards. legal. central banking. principally through the IMF Institute. delivers training that enhances the ability of member country officials to analyze economic developments and formulate and implement effective economic policies. Types of Technical Assistance and Training The main IMF departments providing capacity building services in the IMF are the Fiscal Affairs Department (FAD). payments systems. and debt management. bank restructuring and banking safety nets. Advice in public financial management includes legal and regulatory frameworks. as—like technical assistance—it offers countries sizeable benefits at little cost to them. investor relations programs. secured transactions. government finance statistics. cash management. and local capital markets. social security contribution collection. and the Legal Department (LEG). financial markets. asset and liability management. monetary and financial statistics. investment climate issues. the Monetary and Capital Markets Department (MCM). and administrative framework in these areas. macro-fiscal management. emphasizing practical applications of theory to real-world policy issues that academic institutions often treat in the abstract. in collaboration with other IMF departments. Advice also covers expenditure policy. commercial banking (including bank insolvency and deposit protection schemes).102 The IMF provides technical assistance and training mainly in the areas that are within its core mandate and only provides technical assistance and training in . and the implementation of international standards. It is an important aspect of capacity building that supports and complements the IMF’s surveillance. • The Monetary and Capital Markets Department provides advice on central banking and currency arrangements. budget management. corporate sector’s needs and vulnerabilities. financial soundness indicators. foreign exchange. reserve assets and foreign currency liquidity. the IMF prioritizes assistance to allocate its available resources. bank supervision and regulation and financial market integrity. reporting. financial market development. courses and seminars on macroeconomic management in general and on policies related to the financial sector. and support for the design and implementation of strengthened tax and customs administration. IMF training is heavily demanded by the membership. and external debt statistics. including how to strengthen the statistical. the IMF Institute (INS). publicprivate partnerships and fiscal risks. MCM provides advice on market access. • The IMF Institute delivers. the budget. and enforcement of financial claims). and debt. In the area of capital markets. and fiscal decentralization. • The Legal Department provides technical assistance primarily relating to the review or drafting of laws or regulations in the areas of tax and fiscal matters. public debt management. creditor rights (corporate insolvency and restructuring. and external debt statistics. and technical assistance activities. financial instruments.

However. the Statistics Department also undertakes multi-sector missions. at the end of which the staff or consultants write a report setting out their analysis. Japan provides about half of the externally provided resources. Long-Term Advisors Where the member country would need on-site advice and assistance over an extended period of time to implement reforms. They collaborate closely with headquarters-based staff and submit periodic reports on their activities. toward delivering training through a network of regional training centers. conclusions. and tailoring assistance and advice to local conditions. technical assistance is delivered through regional technical assistance centers (RTACs). The remainder is financed through contributions from bilateral or multilateral donors through accounts established at the IMF for the administration of such resources. the track-record of implementation by the authorities. Most short-term technical assistance visits cover a specific subject within a given economic sector. They may also be regional advisors. RTACs have resident staff. Regional Technical Assistance Centers Increasingly. They are a costeffective way of providing technical assistance to a group of countries. There has likewise been a shift 54 . There may be follow-up visits to assist with and monitor the implementation of the recommendations. and in particular peripatetic support (series of expert visits). and in other areas only in exceptional circumstances.6 CAPACITY BUILDING: TECHNICAL ASSISTANCE AND TRAINING the areas of secondary priority where it would have a significant macroeconomic impact. and work closely with the regional governments in identifying technical assistance needs and in designing and implementing technical assistance programs. and the extent to which other technical assistance providers are able to provide follow-up assistance to help implement reform programs and action plans developed by the IMF’s technical assistance. the IMF has set up an umbrella Framework Administered Account for Technical Assistance Activities (FAA). Short-Term Visits by Staff and Headquarters-Based Consultants Short-term visits usually last two to three weeks. for periods ranging from six months to three years.1). Ministry of Finance. and reinforced by the Medium-Term Strategy. Following the assessment by the Independent Evaluation Office (IEO) of the IMF’s technical assistance. maximizing the use of local expertise. and recommendations. or statistical office. and a greater role of area departments. To facilitate the opening of such accounts. 104 Modes of Delivery of Capacity Building There has been a movement away from ad-hoc standalone short-term staff visits and from long-term resident experts towards greater use of short-term experts. covering two or more countries in a region or working with regional institutions. There is also growing emphasis on regional approaches to technical assistance delivery through the establishment of regional technical assistance centers. 103 Other important factors are the macroeconomic criticality of the problem. RTACs provide about 17 percent of all of the IMF’s technical assistance. Advisors are usually posted in the central bank. the focus has shifted away from the previous use of prioritization filters to a much closer integration between technical assistance and the IMF's surveillance and lending operations. Sources and Uses of Capacity Building Resources About three-quarters of technical assistance provided during 2002-2006 is financed out of the IMF’s own resources (Table 6. the IMF posts an advisor in the country.

8 69.7 FY2004 262.9 79.6 35.6 -22.6 429.6 367.0 355.1 61.3 FY2005 283.3 20.0 76.8 9.8 172.1 258.1 20.4 60.0 53.5 14.2 174.0 71.7 66.4 122.1 5.4 -28.6 36.2 5.0 31. 268.1 186.5 -40. including technical assistance policy.6 280.5 -45.2 355.1.4 195.1 30.4 86.6 27.9 FY2003 262.7 58. and other related activities.3 40.3 -56.4 291.4 138.9 13.5 57.4 367. the Technology and General Services Department.7 355.6 55.7 88.2 12.1 67.2 80.3 32.0 94.2 380.7 59.0 346.0 48.5 12.6 37.8 52.2 429. management. and its countries were absorbed by the new European Department and the Middle East and Central Asia Department.5 27.7 54.2 73. IMF Technical Assistance Resources and Delivery (in effective person-years) 1/ FY2002 IMF technical assistance budget Staff Headquarters-based consultants Field experts External technical assistance resources United Nations Development Program Japan Other cofinanciers Total technical assistance resources Technical assistance regional delivery 2/ Africa Asia and Pacific Europe I Europe II Europe Middle East Middle East & Central Asia Western Hemisphere Regional and Interregional Technical assistance management and administration 3/ Total technical assistance delivery Total technical assistance delivery by department Monetary and Financial Systems Department Fiscal Affairs Department IMF Institute Statistics Department Legal Department Other 4/ Source: IMF.2 290.7 23.6 127.2 15.6 61.4 97.0 99.7 25. evaluation.5 56.5 -32.0 23. 1/ An effective person-year of technical assistance is 260 days.5 9.6 115.2 --34.2 23.7 286.1 -26.7 33.2 125. 4/ Includes the Policy Development and Review Department.6 59. Office of Technical Assistance Management.6 35.9 63.INTERNATIONAL MONETARY FUND Table 6.6 346.6 53.1 83.6 380.8 --37.3 55.5 38.3 55 .1 69.6 10.6 56. 2/ In FY2004 the former European II Department was dissolved.1 23.6 301.7 19.7 100.9 68.4 FY2006 341.3 8.9 22.3 429.9 380.0 45.4 55.5 72.0 49.0 93. and the Office of Technical Assistance Management.1 20.0 --35.9 82.1 68.5 97.4 105.4 367.1 32.7 120.4 77.0 95. 3/ Indirect technical assistance.5 20.1 26.6 346.

the Caribbean Regional Technical Assistance Center (CARTAC) in Bridgetown. Barbados. which was launched in 2002 in response to a request by African Heads of State for enhanced IMF support (Table 6. in countries with special training needs. Tanzania established in 2002. with interpretation into Chinese. Regional delivery of training is also generally more cost effective. Close to one-third of training continues to be delivered in Washington. Most of this overseas training is conducted though the IMF’s regional training programs (Table 6. Mali. established in Beirut. the EastAfrican Regional Technical Assistance Center (EastAFRITAC) in Dar es Salaam. English. to address needs that cannot be met satisfactorily through the regional programs.3). established in 2003. Training is delivered in Arabic. This strategy has attracted substantial donor support which has enabled the IMF Institute to expand training considerably over the past decade.6 CAPACITY BUILDING: TECHNICAL ASSISTANCE AND TRAINING There are five regional technical assistance centers: the Pacific Financial Technical Assistance Center (PFTAC) in Suva. and the Middle-Eastern Regional Technical Assistance Center (METAC). This allows it to tailor the training more closely to regional needs and foster collaboration and mutual learning within regions.105 Training The IMF Institute’s strategy emphasizes delivery of training in participants’ own regions. Gabon in early-2007. established in 1993. Fiji. The AFRITACs were established under the umbrella of the IMF’s Africa Capacity-Building Initiative. A Central-AFRITAC will be opened in Libreville. the West-African Regional Technical Assistance Center (West-AFRITAC) in Bamako. Courses are also conducted in collaboration with regional training institutions. established in 2001. and through distance learning. in large member countries. 56 . Russian and other languages where relevant. Lebanon in 2004.2). as participant travel costs are lower than for travel to and from IMF headquarters in Washington. French and Spanish.

In addition. as part of the IMF’s Africa Capacity Building Initiative.354 84 3. the Joint Africa Institute (JAI). international efforts in the area of standards and codes. such as exchange of information. 2/ Includes the Joint Vienna Institute (JVI).402 Cooperation with Other Technical Assistance Providers The IMF actively cooperates with other technical assistance providers to exploit synergies and bring in additional inputs that the IMF does not provide (such as office and computer equipment.INTERNATIONAL MONETARY FUND Table 6. and data for the JVI do not include courses delivered by the Austrian authorities. which is the implementing agency of the Partnership for Capacity Building in Africa (PACT).969 31 899 13 481 249 8. Data for the JAI do not include courses delivered by the African Development Bank and the World Bank.746 133 4.848 140 4. and joint approaches to the delivery of technical assistance. which are partially financed by the Fund. thus leveraging the IMF’s limited technical assistance resources and avoiding duplication of effort or inconsistent technical advice.083 121 3. the IMF joined the African Capacity Building Foundation (ACBF). and the Joint Regional Training Center for Latin America. the Joint China-IMF Training Program.106 The IMF also joined the Financial Sector Reform and Strengthening (FIRST) Initiative in April 2002.993 148 4. provision of complementary forms of technical assistance. FY 2003 FY 2004 FY 2005 FY 2006 74 2.261 30 828 13 519 250 8.432 77 2.3. Such cooperation takes various forms. and financing of efforts to combat money laundering and terrorism financing. IMF Institute Training Programs.925 78 2. the IMF-Singapore Regional Training Institute (STI). FY 2002–FY 2006 FY 2002 Headquarters training 1/ Course weeks Participant weeks Regional training institutes and programs 2/ Course weeks Participant weeks Other overseas training Course weeks Participant weeks Distance learning Course weeks Participant weeks Total course weeks Total participant weeks Source: IMF Institute.808 38 1. which have been partially funded by the IMF from FY 2004. which are counted below under distance learning.867 152 4. 1/ Excludes residential component of distance learning courses. Some joint approaches have already been mentioned above: the coordination. the IMF-Arab Monetary Fund Regional Training Program. 57 . mobilization. The FIRST Initiative is a channel for funding the involvement of the private sector in technical assistance to the financial sector.124 16 602 284 9.570 80 2. training equipment and other materials) or where it does not have a comparative advantage.541 27 797 16 594 271 8. and the regional technical assistance centers.449 32 949 9 324 258 8.

The Standards and Codes Initiatives The development. The IMF and World Bank jointly assess observance of. They complement the increased attention being given to external vulnerability analyses and to the conditions governing access to IMF resources. as mentioned previously. • Enhancement of transparency in the IMF and its member countries. • Involvement of the private sector in crisis resolution. • Development of standards and codes of good practice. summary information on published ROSCs is available on the IMF’s website. The IMF takes the lead in the development and monitoring of the transparency standards. under “Strengthening Surveillance to Prevent Financial Crises. and limit moral hazard. It improves the working of markets by allowing participants and policy makers to compare information on country practices against agreed benchmarks of good practice. The Executive Board periodically reviews such work on standards and codes. It takes the lead in those areas that fall within its mandate. and are thus an important component of crisis prevention. 58 . and market integrity standards.” The other three categories of reforms are discussed below.107 They may be grouped into four categories: • Improving financial sector surveillance. can be enhanced by increasing the accountability and credibility of economic policy. Standards and codes help highlight potential vulnerabilities and enhance market discipline. The package of reforms grouped under the rubric of “international financial architecture” is designed to respond to the lessons of the crises with the aim of reducing the frequency and magnitude of future crises. The IMF collaborates closely with national and other international agencies in the effort to strengthen the international financial system. enhance the flow and accuracy of economic data. financial sector standards. The World Bank and other international standard-setters take the lead in the development of and monitoring of the market integrity standards. dissemination. the financial sector standards in the context of the FSAP—except in the area of combating money laundering and terrorism financing. but do not develop.108 These fall into three groups: transparency standards.109 In addition. improve oversight of domestic financial systems. most recently in July 2005. The reforms to strengthen the international financial system seek to promote transparency in economic policy-making. or by the FATF or FSRBs. The IMF and World Bank have endorsed internationally recognized standards and codes in twelve areas as important for their work. encourage adoption of international best practices in business and government operations. whereas other agencies take the lead in areas that fall within their mandate.CHAPTER 7 STRENGTHENING THE INTERNATIONAL FINANCIAL SYSTEM Introduction The discussion of the reform of the international financial system rose to prominence in the late 1990s in the aftermath of the economic and financial crises in the Asian countries. for which assessments can be conducted either by the IMF or the World Bank. and adoption of internationally accepted standards and codes of good practice in various areas of policy-making contributes to improved economic policy implementation by indicating areas in which transparency and hence governance more widely. Financial sector surveillance was discussed in Chapter 2. and for which ROSCs are prepared (Box 7.1).

and reliable economic and financial statistics. the Fund will prepare and publish annual observance reports for each SDDS subscriber.113 Its purpose is to guide member countries in the provision to the public of comprehensive.111 The DSBB identifies member countries subscribing to the GDDS and the SDDS. Those standards were to consist of two tiers: a voluntary general standard. already meet high data quality standards. and guides member countries in the dissemination of comprehensive. the IMF established data dissemination standards in 1995 to guide members in the publication (“dissemination”) of their economic and financial data. while the GDDS also covers socio-demographic indicators. . Starting for 2006. 59 . timely. based on current practices of national statistical agencies. However. in general. and sets specific standards that must be observed by subscribing countries. the IMF maintains an electronic Dissemination Standards Bulletin Board (DSBB) on the Internet. accessible. periodicity. data cannot be accessed directly through the GDDS site on the DSBB. Both the GDDS and the SDDS are implemented flexibly to adapt to changing circumstances and are reviewed periodically to make needed adjustments. financial. Member subscription to the SDDS carries a commitment to provide certain information about their compilation and dissemination practices of economic and financial data. about one-third of member countries had subscribed to the SDDS and about 45 percent participated in the GDDS system. Subscribers must agree (i) to post information about their data dissemination practices on the IMF’s external website on the DSBB.110 Participation in the GDDS and the SDDS is voluntary and by end-2005. the SDDS focuses on data dissemination by countries that.INTERNATIONAL MONETARY FUND Data Dissemination Standards The 1994 Mexican financial crisis heightened the awareness in the international community of the essential role of data transparency in support of the operation of financial markets and in reducing the likelihood of financial crises. The SDDS is more prescriptive than the GDDS. accessible. and socio-demographic statistics. and reliable economic. the GDDS and the SDDS describe two to four good practices that countries should follow. In 1996 and 1997. The GDDS and the SDDS provide guidance on four dimensions of data production and dissemination in terms of (i) coverage. whose objective is to improve data quality over time.112 It offers recommendations on good practice. (ii) access by the public. The General Data Dissemination System The GDDS provides a framework for member countries to evaluate and prioritize their needs for data improvement. and (iv) quality of the disseminated data. The SDDS covers primarily macroeconomic and financial data. and (ii) to establish an Internet site containing the actual data. and hence to mobilize technical assistance. As a cornerstone of the implementation of the GDDS and the SDDS. which is accessible via hyperlinks on the DSBB. For each of the four areas. while close to 20 percent of the member countries do not yet participate in either the GDDS or the SDDS. the Special Data Dissemination Standard (SDDS). and timeliness of data. that should apply to those member countries having or seeking access to international capital markets. The Special Data Dissemination Standard Unlike the GDDS. called a National Summary Data Page. (iii) integrity of the disseminated data. timely. the General Data Dissemination System (GDDS). for producing and disseminating core and encouraged sets of data. that should apply to all IMF members and would focus on improving statistical systems. and a more demanding standard. and provides wide and easy access to their metadata (which describe countries' statistical practices with respect to data production and dissemination).

Auditing: International Federation of Accountants' International Standards on Auditing. Financial Sector Standards The standards in these areas have been developed by other institutions and members’ observance is generally assessed under the FSAP. They cover issues of data and policy transparency. • Market Integrity Standards Standards in these areas have been developed by relevant institutions and the World Bank is in the lead in undertaking assessments. Insurance: International Association of Insurance Supervisors' Insurance Core Principles.7 STRENGTHENING THE INTERNATIONAL FINANCIAL SYSTEM Box 7. • Data Transparency: The IMF's Special Data Dissemination Standard/General Data Dissemination System (SDDS/GDDS). complemented by the Recommendations for Securities Settlement Systems. Securities: International Organization of Securities Commissions' Objectives and Principles for Securities Regulation. Insolvency and Creditor Rights: World Bank’s Principles and Guidelines for Insolvency and Creditor Rights System and United Nations Commission on International Trade Law’s (UNCITRAL’s) Legislative Guide on Insolvency Law1. in consultation with IMF staff. ________________________________________ 1 Staffs of the World Bank and UNCITRAL. Monetary and Financial Policy Transparency: The IMF's Code of Good Practices on Transparency in Monetary and Financial Policies (usually assessed by the IMF and the World Bank under the Financial Sector Assessment Program). • Corporate Governance: OECD's Principles of Corporate Governance. Anti-Money Laundering and Combating the Financing of Terrorism: Financial Action Task Force's 40+9 Recommendations.1. • • Fiscal Transparency: The IMF's Code of Good Practices on Fiscal Transparency. Payments Systems: Committee on Payments and Settlements Systems' Core Principles for Systemicall Important Payments Systems. • • • • Banking Supervision: Basel Committee's Core Principles for Effective Banking Supervision. • • • Accounting: International Accounting Standards Board's International Accounting Standards (IAS). Internationally-Monitored Standards and Codes Transparency Standards The standards in these areas were developed by the IMF who also assesses their observance by members. Some of these areas may be assessed under the FSAP. have recently reached agreement to unify their approaches and produce a single standard. 60 .

117 The Code covers two sets of policies and institutions— monetary policies/central banks and financial policies/financial agencies. 115 The present Code is based on the following four core principles. particularly where the monetary and financial authorities are granted a high degree of autonomy. Government’s role and the way its agencies interact.116 Code of Good Practices on Transparency in Monetary and Financial Policies The IMF developed the Code of Good Practices on Transparency in Monetary and Financial Policies in cooperation with the Bank for International Settlements and in consultation with a representative group of central banks.INTERNATIONAL MONETARY FUND The Data Quality Assessment Framework Following experience gained in implementing the data standards initiative. and characteristics of the statistical products. Reporting of country specific fiscal ROSCs are published on the IMF Website. institutional environments. In defining the ROSC program. priority is given to members where the exercise would have the highest return in terms of stability for the country and the international financial system. • Open Budget Processes. By early 2007. Budget preparation. other relevant international and regional organizations.118 They are being increasingly integrated into IMF operations in countries that agree voluntarily to take part. and selected academic experts. the data modules of the ROSCs (see below) have integrated the DQAF into the assessment of member practices in data compilation and dissemination. The Code sets out the principles and practices that governments should follow in order to achieve these objectives. • Integrity. • Public Information. statistical processes. which are intended to be maintained in the proposed update in 2007: • Institutional Clarity. Code of Good Practices on Fiscal Transparency The Code of Good Practices on Fiscal Transparency was approved by the Executive Board in 2001 and is to be updated in early-2007. The DQAF enables policy makers and market participants to look beyond data dissemination and assess countries' data quality. and to compare these against international standards. the Data Quality Assessment Framework (DQAF) was developed to complement the GDDS and the SDDS. It was adopted in September 1999. execution and reporting. It contains a list of broad principles and practices that should guide central banks and financial agencies toward the goal of transparency in monetary and financial policies. Government’s commitment to make information available. • Good governance calls for central banks and financial agencies to be accountable. the metadata of SDDS countries will be presented on the electronic bulletin board (DSBB) in the DQAF view in addition to the traditional SDDS view. An accompanying manual explains the requirements of the Code and provides illustrations of the various good 61 Reports on the Observance of Standards and Codes ROSCs are the primary instrument for reporting on an assessment of countries’ observance of standards and codes. These principles and practices have been distilled from the IMF's knowledge of fiscal management practices in member countries. and members for which the developmental impact is likely to be important. The Code rests on two principles: • Monetary and financial policies can be made more effective if the public knows the goals and instruments of policy and if the authorities make a credible commitment to meeting them. practices relative these requirements. financial agencies.119 Publication of ROSCs is also voluntary. and responding to the need to focus on high-quality data in the crisis prevention and resolution strategy. Strong oversight and data quality information. making the DSBB a more user-friendly resource for research. A query function will also be added. A related questionnaire is designed to gather basic information on fiscal institutions and practices as a basis for review of a country’s fiscal management system. .114 Beginning in 2001.

In addition to these criteria. Internal and external reviews of IMF policies and operations. Contacts with and outreach to non-government organizations and national legislators. the authorities may request that information that is either highly market-sensitive— mainly on exchange rates and interest rates.7 STRENGTHENING THE INTERNATIONAL FINANCIAL SYSTEM including in a regional context. in banking and fiscal areas. the Managing Director will not recommend Executive Board approval of various decisions involving PRGF arrangements. a policy of voluntary but presumed publication applies to practically all country documents submitted to the Executive Board. and documents related to staff-monitored programs—although the IMF encourages members to publish these reports. As part of the IMF’s Medium-Term Strategy and the implementation of the recommendations of the 2005 review of the initiative. and in vulnerability assessments—or involves the premature disclosure of policy intentions be deleted from the published version.120 Data and fiscal ROSC assessments are usually standalone exercises. updates are prioritized according to the significance of gaps in observance identified in previous standard assessments. are now published under the IMF’s Transparency Policy. FSAP technical notes that are not circulated to the Executive Board as background information for Article IV consultations. although the express consent of the member concerned is required for publication of a document covered by the Transparency policy. Prior to publication. consultation with the public.121 These include an expanded publication program and an extensive Internet web site. Where important aspects of regulation or policy formulation are done at the supranational level. Publication is voluntary but not presumed for the following country documents: ROSCs. Most papers submitted to the Executive Board. Deletions do not apply to information that is in the public domain or to politically sensitive information that is not highly 62 Transparency at the IMF There has been a major shift toward openness at the IMF within the last decade. Publication of IMF policy documents that do not deal with administrative matters is presumed. Publication of policy documents that are related to administrative matters is decided by the Executive Board on a case-bycase basis. a ROSC for a regional group⎯such as the European Monetary Union—may be undertaken. are also released. and media have expanded. including most surveillance and supporting documents. whether on country matters or policy issues. those on the use of IMF resources by a member. ROSC assessments are voluntary and must be requested by country authorities. financial sector ROSCs are normally undertaken in the context of the FSAP. fiscal ROSCs for emerging market economies can help detect and identify weaknesses in the budgetary framework and budget management practices or in the fiscal data that could mask underlying fiscal vulnerabilities. but publication is presumed. for a better use of ROSC findings and greater support of reform efforts. Further. The member’s intentions regarding publication should preferably be indicated prior to the Executive Board meeting. A presumption of publication means that. and to enhance the Fund’s own external communications. not undertaken as part of any other surveillance function. think tanks. the IMF introduced a number of operational changes to its work on standards and codes. such publication is expected within 30 calendar days of the Executive Board meeting at which that document was considered. FSSAs. unless the member consents to the publication of the associated staff report. Publication of the ROSC is also voluntary. and the clarity and timeliness of ROSCs. and those on Policy Support Instruments (PSI). The institution has taken a number of steps that aim to encourage greater transparency of members’ policies and data. Since July 2004. Since July 2004. or PSIs if the member concerned does not consent to publication of the PRS documents. the integration of ROSCs with IMF surveillance and technical assistance. Notably. unless the Executive Board decides otherwise. HIPC debt relief. often conducted in . Fiscal ROSCs also can help prevent crises by creating incentives to improve budget management and the quality of fiscal data as more fiscal transparency tends to be rewarded by better credit ratings and a lower sovereign premium. These aimed at improving the country coverage and prioritization of ROSCs to make more efficient use of resources. Fiscal ROSC’s have been instrumental in enhancing the effectiveness of surveillance. the Managing Director generally will not recommend that the Executive Board approve a member’s request for exceptional access to the IMF’s general resources.

A country’s financing gap is closed by a mixture of external financing and domestic adjustment. The involvement of private creditors would be important to achieve this objective. Publication of IMF policy documents that do not deal with administrative matters is presumed. and this statement is published together with the staff report. The method the IMF relies on in individual cases to secure the private sector’s contribution depends on its judgment about the size of the country’s financing gap. which must involve private creditors. • There is a need for orderly international adjustment. • The use of official resources to shelter private creditors from the consequences of their previous lending decisions could give rise to moral hazard. including errors in characterizing the authorities’ views. Countries need to resolve their financing difficulties in ways that facilitate confidence and economic growth and minimize the disruption to the international financial system. if the authorities wish. avoided to the maximum extent possible. However. Where countries face financing difficulties. in the view of the Managing Director. the Managing Director may make necessary factual corrections and deletions (including of highly market-sensitive material and country-specific references). IMF documents may also be modified prior to publication to correct factual errors. official financing is limited. It can do so in two ways: (i) by providing capital market financing on appropriate terms. • Equitable burden-sharing among creditors is required to ensure inter-creditor equity. Private Sector Involvement in Crisis Prevention and Resolution Rationale for Private Sector Involvement The IMF has intensified its work with member countries to strengthen the involvement of the private sector in preventing and resolving financial crises. IMF-backed comprehensive adjustment program to persuade private creditors to provide the required 63 . 122 Efforts to involve the private sector are based on several considerations: • Economic programs need to be fully financed. thereby increasing the likelihood of future crises. To achieve this objective. Publication of policy documents that are related to administrative matters is decided by the Executive Board on a case-bycase basis. and the country’s prospects for rapidly regaining market access where such access has been cut off. sovereign defaults and/or the imposition of exchange controls should be Access to Capital Market Financing An important element of the IMF’s strategy to prevent or resolve financial crises is to help countries maintain or restore their access to capital market financing on terms that are compatible with medium-term external sustainability. unless the Executive Board decides otherwise. By reducing the incentives for efficient assessment and management of risk. Voluntary and market-based adjustment mechanisms that seek to honor contractual obligations are emphasized. the country’s underlying debt service capacity. this could encourage private creditors to overlend. The private sector can contribute to crisis prevention and resolution by providing financing in the amounts and on the terms needed to help close a country’s financing gaps and maintain or restore the country’s medium-term external viability. An important principle underlying private sector involvement in crisis resolution is that both creditors and debtors must take responsibility for their financing decisions. the IMF may rely on the confidence-building effect of a credible. Prior to publication of an IMF policy document. he (she) may recommend to the Board that the document not be published. When deletions requested by the authorities would. undermine the overall assessment and credibility of the IMF. and (ii) by agreeing to a debt restructuring that lowers the country's debt service payments.INTERNATIONAL MONETARY FUND market sensitive. provided that staff’s proposals shall not be modified prior to publication. Members generally have the opportunity to make a statement regarding IMF reports and discussions on their country. particularly in cases where countries’ exposure to this sector is significant. and there may be social limits to the size of an economic adjustment that a country could undertake. This would necessitate a financing contribution from the private sector.

Korea in 1998. Some of the instruments used by member countries in recent years are summarized below:123 • Debt Restructuring. and Mexico in 1997. the IMF may back more concerted efforts by the member country and the international community to obtain the required financing from the private sector. an IMFsupported program can provide an acceptable. Seeking agreement with domestic investors to maintain or increase exposure to sovereign debt instruments. Pakistan. since withdrawal of such financing in crises can exert pressure on official reserves. the member has good prospects for rapidly regaining capital market access on appropriate terms based on the strength of its economic program. Russia. realistic. and Uruguay have reached agreement on international sovereign bond restructurings. so as to increase demand for government securities or to reduce rollover risk for the government—used by Argentina in 2001. in recognition of their potential role in facilitating the restructuring of international sovereign bonds in an orderly manner. as insurance against adverse liquidity developments that could disrupt private market financing—used by Argentina in 1996. Indonesia in 1994-97. the IMF could invoke its lending into arrears policy to enable countries’ continued access to official financing while they undertake good faith efforts to negotiate a comprehensive debt restructuring with private creditors. • Rollover Agreements with Domestic Investors. if the financing requirements are large. Securing agreement with international commercial banks to voluntarily maintain exposure to interbank and trade-related credits. In recent years. Where countries face severe budget financing problems. In case of a large financing requirement. and Turkey in 2000-01. Ecuador. If countries decide to temporarily suspend debt service payments pending sufficient action by their creditors to support the restoration of mediumterm external viability. Use of the catalytic approach requires judgments regarding the country’s prospects for regaining medium-term external sustainability and the pace at which the combination of strong policies and official financing will allow members to regain capital market access. Mobilizing financial resources from private creditors in times of difficulty through credit lines negotiated and priced in periods of relative tranquility. • Private Contingent Credit Lines. which may require regulatory action or the use of moral suasion— used by Argentina in 2001. while others are statutory-based. early restoration of full market access on terms consistent with medium-term external sustainability appears unrealistic. In this case. Reprofiling debt-service obligations by persuading investors to exchange obligations that mature in the near term for instruments that mature over the medium and long term—used by Argentina and Turkey in 2001. The IMF would normally use this catalytic approach if the member’s financing requirements are moderate or. • Rollover of Interbank Lines of Credit. and amplify upward pressures on domestic interest rates that may call into question fiscal and corporate solvency—used by Brazil in 1999. Indonesia in 1998-99. A broad range of instruments may be used under this more concerted approach.125 The IMF—and the official 64 . Some of these are based on the voluntary participation of the private sector. Collective Action Clauses in International Sovereign Bond Contracts The IMF endorses the use of collective action clauses (CACs) in international sovereign bond contracts. any exceptional access to IMF resources would require substantial justification and would serve as bridge financing until capital market access is regained. These instruments would normally be used in conjunction with a comprehensive adjustment program and therefore complement the catalytic approach. Where the catalytic approach is judged to be insufficient to lead to a quick change in confidence and restoration of market access. limit domestic bank lending.7 STRENGTHENING THE INTERNATIONAL FINANCIAL SYSTEM financing. Requiring domestic financial institutions to hold government debt over and above that needed for normal liquidity purposes. a sovereign debt restructuring may become necessary. Ukraine. • Regulatory Requirement for Investment. 124 • Voluntary Debt Swaps. and the fiscal adjustment needed to continue servicing the debt is not feasible. and financeable framework and a viable medium-term debt service profile.

INTERNATIONAL MONETARY FUND community more generally—is actively promoting the use of collective action clauses. in order to avoid crises or. A Forum for Public Debt Managers has been established to provide opportunities for public debt managers to discuss market developments and exchange views and experiences—including on proactive liability management operations. Such clauses include. which enable the requisite majority to prevent a minority from initiating litigation during the period when negotiations are taking place. and the development of systematic investor relations programs. which enable a requisite majority of bondholders to bind the minority to the terms of a restructuring agreement and (ii) majority enforcement provisions. IMF staff also maintains an active dialogue with issuers of emerging market bonds and with private market participants. but are not limited to: (i) majority restructuring provisions. cope with those that arise. The Principles were issued in November 2004 and endorsed by the G-20. 126 The IMF has issued an operational guidance note on encouraging the use of CACs during Article IV consultations and amended its Guidelines for Public Debt Management to reflect the use of CACs. This is a set of voluntary market-based guidelines that promote greater direct cooperation between sovereign-debt issuers in emerging markets and their investors and creditors. 65 . if necessary. the use of CACs. Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets The IMF has supported the creation of the Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets under the umbrella of the Institute for International Finance. The focus is on jurisdictions where such bonds are not yet the market standard. The IMF is also developing an international sovereign bond database for use by IMF staff.

for this: (a) the IMF’s recognition of the longerterm and supply-oriented nature of the balance of payments adjustment process and (b) the IMF’s increased involvement. including all the regional development banks. The World Bank was established to promote post-war reconstruction and the flow of capital to developing countries. While the IMF and the World Bank were created shortly after the conference. when the World Trade Organization (WTO) was established incorporating the General Agreement on Tariffs and Trade (GATT). Accordingly. the IMF and the World Bank Collaboration with the World Bank Overlap of IMF and World Bank Activities The IMF and the World Bank were given different. there has always been some overlap of activities and policy concerns: • Structural policies. given their impact on macroeconomic stability and the sustainability of policies. mandates. Though their core mandates are different. Its core objective today is to promote economic growth and conditions conducive to efficient resource allocation and poverty reduction. it introduced sector adjustment lending to support structural changes in specific sectors.CHAPTER 8 COLLABORATION WITH THE WORLD BANK AND THE WORLD TRADE ORGANIZATION The original Bretton Woods conference called for the creation of three international organizations. Subsequently. The creation of the Structural Adjustment Facility in 1986. The World Bank’s experience led to the recognition that the overall macroeconomic policy environment is crucial to the success of individual investment projects and sectoral programs. an international organization devoted to the facilitation of international trade was only created in 1996. duplication of effort and waste of resources. in surveillance and lending operations in developing and transition countries. including cross-conditionality and conflicting policy advice. and WTO led to intense and welldefined forms of cooperation. over time. and the Poverty Reduction and Growth Facility in 1999 reflected this shift in emphasis. The IMF has become increasingly concerned about the social and poverty impact of its policy advice in lowincome countries. but complementary. which it pursues through project financing and through sectoral and structural adjustment lending. and confusion among the membership regarding which institution is responsible for what. the Enhanced Structural Adjustment Facility in 1987. World Bank. The overlap and increasing integration of the activities and policy concerns of the two institutions required strategic decisions to avoid potentially undesirable consequences. IMF surveillance and lending operations moved away from a narrow focus on exchange rate and other macroeconomic policies to a broader focus encompassing structural policy issues. the Bank introduced structural adjustment lending in 1980 to support policies to promote economy-wide structural changes. While the IMF cooperates with a large number of international organizations. • Macroeconomic policy environment. • Poverty-reduction. the common origin and complementary mandates of the IMF. There are two reasons 66 . In response to the serious balance of payments problems affecting many developing countries stemming from the sharp deterioration of the terms of trade and from the weakness in domestic policies and institutions. where long-run structural problems are of central importance to economic stabilization and growth.

• Before finalizing its position on key elements of a country’s policies and reform agenda. A forthcoming report of the External Review Committee may make recommendations on the division of labor. Where responsibility is shared. as well as devising measures to improve the program in recent years. The FSLC has played a critical role in coordinating and monitoring FSAP exercises. which have been revised and strengthened on a number of occasions since then. ensure seamless cooperation. project financing. institutional arrangements underlying monetary and exchange rate policies.128 The committees work to resolve differences of view between the staff of two institutions. management. The current procedures are set out in a 1989 Concordat (Bank-Fund Collaboration in Assisting Member Countries). • Countries in which both institutions are actively involved should have a clear understanding of which institution has primary responsibility in any given area of policy advice and reform. and training in development economics. balance of payments adjustment and financing. macroeconomic policy advice. The committee is preparing a report that will benefit from extensive discussions with IMF and World Bank staff. and set out the primary areas of responsibility of each institution in the pursuit of that mandate. collection. the IMF and World Bank set up a Financial Sector Liaison Committee (FSLC) in September 1998 and a Joint HIPC/PRSP Implementation Committee (JIC) in April 2000. To oversee and strengthen collaboration in their work on the financial sector and on low-income countries. public administration. Areas of shared responsibility include tax policy and administration. the disagreement should be resolved at the staff level or raised to the level of senior management for resolution. budgeting and public expenditure management. and will be discussed with the G-20. market integrity standards. and Boards. each institution takes the lead role in the areas in which it has primary responsibility. In situations where both institutions are involved in policy-based lending to a country. and a 1998 Report of the Managing Director and the President on Bank-Fund Collaboration. Additional guidelines exist for BankFund collaboration in financial sector work and on public expenditure issues. offshore financial center assessments. transparency standards. poverty analysis and monitoring. public debt management. financial sector work. compilation.127 An External Review Committee on Bank-Fund Collaboration has been set up to review basic parameters of Fund-Bank collaboration. Areas of primary responsibility of the IMF include macroeconomic analysis and forecasting. Staff reports on the use of IMF resources usually contain a box explaining the allocation responsibilities for structural measures between the IMF and the World Bank and which agency takes the lead role in individual reform areas. then management would highlight the disagreement to the Board prior to . and the establishment of an environment conducive to private sector development. and dissemination of macroeconomic statistics. Lead Roles of the IMF and the World Bank The 1989 Concordat and the 1998 Report of the Managing Director and the President re-affirm the original mandates of the IMF and the World Bank.INTERNATIONAL MONETARY FUND have in place guidelines for collaboration between the two institutions since 1966. If the issue cannot be resolved at the management level before a World Bank lending operation or IMF-supported program is to be presented to the respective Executive Board. Areas of primary responsibility of the World Bank include national development strategies and policies. public enterprise reform. When there are differences of view between the two institutions about policies and priorities in countries where both are involved. labor market reforms. fiscal and macroeconomic management. social protection. and training in macroeconomics. each institution will solicit the views of the other and share its own thinking at as early a stage as feasible. public expenditure policy and administration. crisis prevention and resolution. trade policy. the lead agency is determined on a case by case basis. product and 67 Principles of IMF-World Bank Collaboration The 1989 Concordat and the 1998 Report of the Managing Director and the President set out the broad principles that should guide collaboration between the IMF and the World Bank. sector strategies and policies. and coordinate work programs and the production of reports and briefings to the Executive Boards of the two institutions.

with the aim of ensuring greater coherence in global economic policymaking and reflecting the underlying common policy goal of limiting the use of restrictions on the international flow of goods and services. 129 Article X of the IMF’s Articles of Agreement calls for the IMF to cooperate with any general international organization and with public international organizations having specialized responsibility in related fields. Collaboration with the World Trade Organization The IMF and the WTO work together on many levels. • Where a country’s program supported by one institution includes macroeconomic and structural measures which fall within the other institution’s areas of primary responsibility.8 COLLABORATION WITH THE WORLD BANK AND THE WORLD TRADE ORGANIZATION the Board discussion. whichever institution can provide input should do so in order to ensure that the country’s program does not suffer. On an operational level. the IMF established the Trade Integration Mechanism (TIM) in April 2004 to support progress under the WTO’s Doha round of trade talks (TIM is discussed in Chapter 5). • Cross-participation in each institution’s missions and parallel missions are effective ways to facilitate the coordination and timely integration of macroeconomic and structural policies in countries’ programs and reform agendas. while Article III. Programs supported by the IMF and the • World Bank should be complementary and part of an overall reform agenda owned by the member country. • There should be a systematic exchange of information between the two institutions on future country work and mission plans by country. meetings are held to review the strategies of each institution for countries of common concern. advice to the authorities on the design of measures in the country’s program and the subsequent monitoring should be provided by the institution with primary responsibility. to the extent feasible. • Each institution retains separate accountability for its lending decisions. and the monthly as well as ad hoc meetings between the Managing Director and the President. When presenting documents to their respective Executive Boards. indicate the nature of the disagreement and ensure that staff from the other institution are present at the Executive Board to present their views. Deviations from the work plan or calendar would be communicated to the other institution without delay. • The daily interactions and ad hoc contacts involving management and staff. At the same time. . are supplemented with regular meetings of the senior staff of each institution. which can be affected through exchange or trade restrictions. In situations where either institution does not have the capacity or is unable to provide policy advice and expertise. in crossparticipation and joint missions the participating Bank or IMF staff should have a clear assignment of responsibilities. The collaboration of the IMF and the WTO was formalized in an agreement shortly after the creation of the WTO in 1996. In addition. the staff of the two institutions will indicate how programs supported by both institutions complement each other in supporting the overall reform agenda of the government. Integration and coordination of the views • of either institution requires timely input from the other institution. Mission briefing 68 papers and terms of reference should be shared with the other institution before they are finalized. Each institution proceeds with its own financial assistance according to the standards laid down in its Articles of Agreement and the policies adopted by its Executive Board. Program reviews by each institution should be closely coordinated to the maximum extent possible.5 of the Marrakesh Agreement Establishing the World Trade Organization specifically calls for the WTO to cooperate with the International Monetary Fund such as reciprocal attendance at meeting sharing documents and IMF participation in the Balance of Payments Committee of the WTO. and at the time of meeting. To be most effective. the institution that is unable to provide input would review its work priorities with a view to better aligning them to the requirements of the country’s program.

and tackle production challenges in their domestic economies. working groups. For this purpose. Trade Liberalization in Least-Developed Countries The IMF and the WTO work together in the Integrated Framework for Trade-Related Technical Assistance to Least-Developed Countries that was put in place in 1997. including assessments of exchange rate policies. and participates actively in many meetings of WTO committees. negotiate trade agreements. export subsidies. the IMF maintains an office in Geneva to facilitate the regular interaction with the WTO. The Integrated Framework aims at strengthening the capacity of these countries to formulate trade policy. Equally. balance of payments safeguards. WTO agreements allow countries to apply trade restrictions in the event of balance of payments difficulties. Trade policy issues feature prominently in IMF program and surveillance work wherever macro-relevant. the IMF completed studies on the erosion of preferences. IMF surveillance reports. are important inputs to the WTO’s Trade Policy Review Mechanism (TPRM) and the periodic reports on member countries’ trade policies (Trade Policy Reviews). For example. For example. which form the basis for concessional support by the IMF.INTERNATIONAL MONETARY FUND The IMF has observer status at the WTO. In addition. and bodies. The IMF and WTO also regularly share data and research. Consultations The WTO is required to consult the IMF when it deals with issues concerning monetary reserves. the Integrated Framework seeks to ensure that poorer member countries incorporate appropriate trade reforms into their Poverty Reduction Strategy documents. Informal consultations between IMF and WTO staff concern mainly trade policy developments and advice for individual countries. The WTO’s Balance of Payments Committee bases its assessments of restrictions on the IMF’s determination of a member’s balance of payments situation. and foreign exchange arrangements. in the context of the Doha Development Agenda and in response to a WTO request. balance of payments. 69 . and exchange rate volatility and trade. trade-related loss of fiscal revenue.

Two advisory bodies. The Board of Governors meets annually. Procedures also exist for the Board of Governors to take a vote on a specific question without calling a meeting. and usually in September or October. to enhance the effectiveness of member oversight of the IMF at the political level. the Board of Governors strengthened and transformed the Interim Committee into the International Monetary and Financial Committee (IMFC). including the continuing operation of the adjustment process and developments in global liquidity. It advises.131 The Board of Governors consists of one Governor for each of the 185 member countries of the IMF and one Alternate. The Second Amendment of the Articles of Agreement in 1978 made provision for a Council to be established by an 85 percent majority decision of the Board of Governors. The Council would supervise the management and adaptation of the international monetary system. to date the Council has not been established.133 The IMFC remains an advisory body. They do not serve fixed terms. and a Managing Director supported by three Deputy Managing Directors. A quorum for any meeting is a majority of Governors having not less than two-thirds of the total voting power. However. the Board of Governors on matters pertaining to: • The management and adaptation of the international monetary and financial system. and every third meeting is held in a member country other than the United States. an Interim Committee of the Board of Governors on the International Monetary System was established in October 1974 and the Committee of Twenty was dissolved.132 Pending the establishment of the Council. or to amend the Articles of Agreement of the IMF. provide a bridge between the Board of Governors and the Executive Board. USA. including the continuing operation of the 70 Board of Governors The Board of Governors is the highest decision-making body of the IMF. They are usually ministers of finance or governors of central banks. The Board of Governors has delegated most of its authority to the Executive Board for its day-to-day operations. an Executive Board.. but the Interim Committee was an advisory body. The Board of Governors also endorses the IMF’s budget and financial statements. including that to admit and suspend member countries. Special meetings of the Board of Governors may be called whenever requested by fifteen members or by members having one-quarter of the total voting power. and reports to. D. but hold their positions until successors are appointed. 130 International Monetary and Financial Committee A Committee on Reform of the International Monetary System and Related Matters (The Committee of Twenty) was established in 1972 to study various aspects of the international monetary system after the collapse of the Bretton Woods par value system in 1971. but this has never been done to date. however. it has retained several important powers.C. The Board selects one of the Governors as Chair. the International Monetary and Financial Committee and the Development Committee. The Interim Committee had a composition similar to that proposed for the Council.CHAPTER 9 GOVERNANCE AND DECISION-MAKING The IMF is governed by a Board of Governors. two consecutive Annual Meetings are held in Washington. In September 1999. usually in a joint session with its counterpart in the World Bank. and in this connection would review developments in the transfer of real resources to developing countries. . whereas the Council would be a decision-making body. to increase or decrease the authorized quotas or shareholdings of the IMF. The Committee recommended the creation of a permanent Council with appropriate powers. Since 1953.

Ministers. who serves for such period as the IMFC determines. The IMFC ordinarily meets twice a year. their associates. • Advises and reports to the Boards of Governors of the World Bank and the IMF on all aspects of the transfer of real resources to developing countries in relation to existing or prospective arrangements among countries. governors of the IMF. IMFC members are governors of the IMF. on a continuing basis.” or representatives of IMFC members. The IMFC Chair calls meetings of Deputies in consultation with other IMFC members. The Development Committee: Maintains an overview of the • development process. Thus the IMFC has the same number of members and the same constituency groupings as the Executive Board of the IMF. The IMFC may invite observers to attend its meetings. although the IMFC member is not always from the same country as the Executive Director. unless the IMFC decides to hold a more restricted session. giving urgent attention to the problems of least developed countries and those developing countries most seriously affected by balance of payments difficulties. In practice. Members of the IMFC. to advise both Boards on development issues. Each member of the World Bank or the IMF that appoints or elects an Executive Director and each group of members of the World Bank or the IMF that elects an Executive Director is entitled to appoint one member of the . including those involving international trade and payments. investment. the Managing Director draws up a work program for the IMF for the coming 6-12 months. • Makes suggestions regarding the implementation of its conclusions. and developments in global liquidity and the transfer of real resources to developing countries. and may be accompanied by up to two staff unless the session is a restricted one. the progress made in implementing these suggestions.INTERNATIONAL MONETARY FUND adjustment process. called the Development Committee. the Managing Director participates in all IMFC meetings. On the basis of the communiqué. is entitled to appoint one member of the IMFC and up to seven associates. in October 1974 the Boards of Governors of the IMF and the World Bank established the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries. in which the IMFC sets every six months the strategic direction going forward based on a thorough review of the progress made by the Executive Board in executing its work program during the preceding period. In addition. The IMFC issues a communiqué after each meeting summarizing the outcome of its discussions and giving strategic direction to the IMF’s policy work for the near to medium term. • Sudden disturbances that might threaten the international monetary and financial system. or others of comparable rank. Members of the Development Committee are governors of the World Bank. or others of comparable rank. and official development assistance. The Secretary of the IMF serves as the Secretary of the IMFC. Each member of the IMF that appoints an Executive Director. in September 1999 the Board of Governors decided that meetings of the IMFC will normally be preceded by a preparatory meeting of “Deputies. After discussion by the Executive Board. Ministers. and Executive Directors or their alternates are entitled to attend the meetings of the IMFC. but ad hoc meetings may be requested at any time by any member of the Committee. In addition. Based on this recommendation. • Ad hoc requests by the Board of Governors. An interactive 71 relationship exists between the deliberations of the IMFC and the work of the Executive Board. and each member or group of members that elects an Executive Director. in April and at the time of the Annual Meetings of the Board of Governors. the flow of capital. and reviews. the work program forms the basis for the Board’s work and calendar of meetings in the period ahead. • Proposals by the Executive Board to amend the Articles of Agreement. Development Committee The Committee of Twenty also recommended the establishment of a joint ministerial committee of the Boards of Governors of the IMF and the International Bank for Reconstruction and Development to carry forward the study of the broad question of the transfer of real resources to developing countries. and amended as necessary. They are appointed in turn for successive periods of two years by members of the Bank and members of the IMF. the IMFC selects a Chair from among its members.

unless the Board of Governors. The custom of the Executive Board has been to have its most senior member serve as the Dean. Any Executive Director can request a meeting on any matter. are able on their own to elect an Executive Director. the United Kingdom. and is responsible for the approval of all IMF lending operations. but the practice is for all chairs to be occupied at all times. In practice. may decide to increase or decrease the number of elected Directors. each of whom appoints an Alternate with full power to act for him/her when he/she is not present (see Appendix). while in others the post is rotated.9 GOVERNANCE AND DECISION-MAKING Development Committee and up to seven associates. The Development Committee issues a communiqué at the end of its meetings. The Dean fulfills functions such as addressing the Board when a formal occasion calls for a spokesman of the Executive Board. and the Executive Board functions in continuous session—it meets as often as IMF business dictates. at the same time and location as the IMFC. the members entitled to appoint an Executive Director do not include the two members whose currency had been the most used in IMF transactions during the preceding two years. However. Members decide among themselves which constituency to join. Geographical considerations have generally been important in the formation of constituencies. if. Japan. Alternate Director. Saudi Arabia. D. The Development Committee reports not less than once a year to the Boards of Governors of the IMF and the World Bank. The Committee selects one of its members as Chair and appoints an Executive Secretary. It meets at the time of the annual meetings of the Boards of Governors. and vote for an Executive Director to represent the Board Procedures Executive Directors are stationed full-time at the IMF’s headquarters in Washington. as often as required. at the time of each election.. or a designated Temporary Alternate Director. Furthermore. The Chair normally notifies the Executive Board of meetings at least two business days in advance.C. Five Executive Directors are appointed by the five member countries having the largest quotas— currently the United States. the Board of Governors. The remaining 19 Executive Directors are elected by the rest of the membership (180 member countries) and serve for renewable two-year terms. under the chairmanship of the Managing Director. The President of the World Bank and the Managing Director of the IMF participate in all meetings of the Development Committee. Usually meetings are held three times a week. At the time of each election. 72 . but some constituencies include both industrial and developing countries or members from different regions. and. in evennumbered years. but by-elections are held when needed. either by the Director. decides not to do so because a reduction would hinder the effective discharge of the functions of the Executive Board or of Executive Directors or would threaten to upset a desirable balance in the Executive Board. China. the Dean never speaks for the Executive Board on policy matters. Germany. thus ensuring coordination of the work of the Development Committee with the work of the Executive Boards of the IMF and the Bank. by virtue of the size of their capital subscriptions to the IMF. by an 85 percent majority vote. Size and Composition The Executive Board currently comprises 24 Executive Directors. and prepares the agenda for each meeting. A quorum exists when a majority of Executive Directors having not less than 50 percent of the total voting power is present. Normally the Alternate Executive Director in multicountry constituencies is of a different nationality from the Director.135 Executive Board The Executive Board. by an 85 percent majority. constituency. in addition. From among the 180 member countries that elect 19 Executive Directors. and France—and serve at the discretion of the appointing member. the Committee normally meets twice a year. Elections are normally held at the time of the annual meetings of the Board of Governors.134 It is the policy-making organ of the IMF. In some constituencies the Executive Director is selected from the country with the largest voting power. The remaining 177 member countries are organized into 16 multi-country constituencies to elect the remaining 16 Directors on the Board. then these two members become entitled to appoint an Executive Director—and the number of elected Executive Directors may be reduced accordingly. and Russia. conducts the day-to-day business of the IMF through powers delegated to it by the Board of Governors.

such as the Secretary.” are preliminary and may be modified by Executive Directors after they are issued. They are often an occasion for the Board to be briefed by management and the staff on sensitive country developments. • Agenda and Procedures Committee. and ordinary meetings may be formal or informal. • Committee on Executive Board Administrative Matters. or to provide preliminary views on important policy matters or program discussions. Ordinary meetings are open to attendance by members of the offices of Executive Directors. Attendance at executive sessions is limited to Executive Directors. These committees are reconstituted every 2 years following the regular election of Directors and on the basis of proposals by the Managing Director. called “gray statements” or “grays. These papers contain Management’s and the staff’s analysis and recommendations on the subject. and such other members of staff as the Chair may determine. and may be called on very short notice. and the Deputy Managing Directors. Most meetings are in ordinary sessions. 73 Most of its remaining time is spent on policy issues concerning the international monetary system and the world economy.INTERNATIONAL MONETARY FUND The Executive Board meets in ordinary or executive sessions. Informal sessions are not subject to the minimum advance notice required of formal Board meetings. as well as with the IMF’s commitment to transparency and its role in the international monetary system. Reviews and makes recommendations to the Board on the format and content of the IMF’s Annual Report in line with the provisions of the Articles of Agreement and By-Laws. However. Considers and makes reports and .136 Executive sessions are held whenever the Managing Director or any Executive Director so desires. Considers and reports to the Executive Board on aspects of administrative policy regarding those employed in Executive Directors’ offices. • Committee on Interpretation. There are also some formal requirements for some committees concerning the number of members. Membership in the committees should provide a reasonable distribution of workload. and are issued to the Executive Board two to three weeks in advance of a Board meeting to give Executive Directors sufficient time to consult with their authorities and prepare an adequate response. Executive Directors may travel frequently. Considers from a broad perspective the Managing Director’s budget proposals and other material circulated by the Managing Director regarding the IMF’s administrative and capital budgets. In addition. there are administrative issues.137 They may intervene at any point during the meeting to ask questions and make comments. especially to participate in policy discussions between IMF staff and member countries. the functions of which are described below. continuity. Contributes to the development and smooth implementation of the Executive Board’s work program. Several Board committees have been set up. Other Executive Directors may participate in all regular meetings of these committees. the Secretary. Typically the Board spends about two-thirds of its time on member country surveillance and program matters. the Executive Board conducts the bulk of its work in the formal sessions of the Board. The starting point of a formal Executive Board meeting on any matter is generally one or more Board papers prepared by the staff and approved by the Managing Director or a Deputy Managing Director. • Committee on the Annual Report. There is usually no documentation for informal Board meetings—mostly a summary table or two issued just prior to the meeting. and geographical balance. though there are guidelines for effective and efficient interventions in the case of Article IV surveillance discussions. not through Committees. and discussions are frequently of an interactive nature. Board decisions are taken only in formal sessions. Informal sessions are a forum for an open exchange of views on issues that are not yet at the stage at which a formal decision can be taken. • Committee on the Budget. Executive Directors are not subject to formal length or time constraints on their statements. There are currently 10 standing committees. each overseeing a particular subjectmatter. The written statements. Executive Directors express their views in written statements issued prior to the Board meeting or in oral statements during the meeting. Board Committees The Board maintains a number of standing committees that include Executive Directors. except that for any particular session the Executive Board may permit other specified individuals to attend. the Managing Director. such as the budget.

1. Rules. These efforts are summarized in Box 9. In recent years the IMF has been seeking ways of strengthening the participation of developing countries and countries in transition in decision-making at the institution. the Chair may make concluding remarks at the end of the discussion in lieu of a formal summing up of the discussion. the Executive Board rarely takes a formal vote. In the case of a policy discussion. after which it is formally issued. but it is routine in cases of policy discussions. It may be revised on the basis of any such comments. Even if a formal decision is taken at the end of the meeting. Legal questions are sent to the Committee by the Executive Board at the request of an Executive Director. Since a formal vote is not taken. • Ethics Committee. • Pension Committee. forms part of the minutes of the meeting. Press statements are issued by the IMF after most Board meetings. decisions are circulated to the Board for approval on a lapse-of-time basis. however. to only those that are necessary to ensure that the summing up accurately captures the sense of the Board discussion. however. Executive Directors may suggest further changes to the summing up. not intended to arrive at a decision of any sort. Rule C-10 of the By-Laws. At the final clearance stage. Some Board decisions are taken without a Board meeting. The summing up. after it is read out at the end of the Board meeting. which are chaired by the Managing Director. The minutes constitute the IMF’s official record of the Executive Board’s discussion of the subject. The Secretary of the IMF or his or her representative serves as the Secretary of every committee except the Ethics Committee. Follows closely the evaluation function in the IMF and advises the Executive Board on matters relating to evaluations. The “sense of the meeting” is a position supported by Executive Directors having sufficient votes to adopt that position if a vote were taken. this rarely happens.” Any Executive Director may request that a formal vote be taken. and Regulations stipulates that “The Chairman shall ordinarily ascertain the sense of the meeting in lieu of a formal vote. the Executive Board seeks to work by consensus. In practice. In the case of a country discussion. Consensus decision-making by the Executive Board facilitates broad participation by members in the governance of the IMF. in the form of a Public Information Notice (PIN) for policy and country surveillance discussions or a Chair’s Statement or Acting Chair’s Statement for country discussions involving the use of IMF resources. Instead. on ethical aspects of the conduct of their staff. the official record of the meeting does not reflect individual voting positions unless Executive Directors specifically request that their position be recorded in the minutes. Where they do not. at their request. The summing up may document any significant minority views. Executive Directors hold the chairmanship of all but the two committees on budget.2.9 GOVERNANCE AND DECISION-MAKING recommendations to the Executive Board on questions of interpretation. Voting and Consensus Decision-Making The Executive Board’s formal voting and decisionmaking system is described in Box 9. The summing up is read out at the end of the Board meeting for comment by Executive Directors. a summing up of the discussion is normally prepared to document the context in which the Executive Board took the decision. because the IMF is a cooperative institution. • Evaluation Committee. the revised summing up is cleared by the Executive Director representing the particular country. 74 . and pensions. the sense of the meeting is normally captured in a summing up of the Executive Board’s discussion. In these cases. In cases where a formal decision is not taken. the revised summing up is sent for clearance by all Executive Directors. before it is formally issued by the IMF. Summings Up Executive Board meetings may or may not conclude with a formal decision. When the Executive Board’s discussion of a matter is of an exploratory or continuing nature. and any formal decision. This occurs rarely in the cases of country discussions. All the changes can only be accepted if they are consistent with the record of the discussion and the practice is to limit changes to the summing up. the summing up may carry the force of a formal decision. Decides matters of a general policy nature arising under the Staff Retirement Plan. prepared by the Secretary’s Department of the IMF. Considers matters relating to the Code of Conduct for IMF staff and may also provide guidance to Executive Directors.

offsetting slightly the impact of quotas. Appendix I. Voting Majorities Under the IMF’s Articles of Agreement. Executive Directors may present these differences of views to the Board for the record. An 85 percent majority is required for the most important decisions.2 A 70 percent majority is required to resolve financial and operational issues such as the rate of charge on the use of the IMF’s resources and the rate of interest on SDR holdings. the number of basic votes per member has remained unchanged since inception. the distribution of voting power among individual members of the IMF and among constituency groupings as of November 2006 is shown in the Appendix. Given the voting structure. the share of total voting power of these members slightly exceeds their share of total quota. the United States alone. most Executive Board decisions are made by a majority of the votes cast. However. Thus. or groups of other constituencies voting as a bloc can veto decisions requiring an 85 percent majority. thus bringing his or her own judgment to bear on the matter. Also: Leo van Houtven. which has increased the dominance of quotas in determining relative voting strength at the IMF. The IMF’s voting system distributes voting power largely on the basis of members’ relative contributions to the IMF’s resources. Governance of the IMF. Article XII. and hence benefit the members of the IMF with smaller quotas. in the event of a vote on any matter. See Financial Organization and Operations of the IMF. a number of decisions require special majorities of 70 percent or 85 percent of the total voting power. where differences of views may exist among constituents on matters before the Board. 75 . and on quotas prevailing as of November 2006. and the opposite is true in the case of members with larger quotas.INTERNATIONAL MONETARY FUND Box 9. the Executive Director must cast all the votes of the members in his or her constituency as a block.1. the share of basic votes in total votes has fallen from 15. The IMF’s Voting System1 Voting Power of Individual Members and Constituencies Voting in the IMF is weighted by the relative sizes of members’ quotas. such as admission of new members.” Based on this formula. Section 5 (a) of the IMF’s Articles of Agreement stipulates that “Each member shall have two hundred fifty votes plus one additional vote for each part of its quota equivalent to one hundred thousand special drawing rights. while members’ quotas have increased. However. As a result.6 percent in 1958 to 2. increases in quotas. allocations of Special Drawing Rights. Appendix II. however. ____________________ 1 2 See Articles of Agreement. the European Union. and amendments to the Articles of Agreement. The “basic” votes—the 250 votes assigned to each member independent of quota—have a small equalizing effect on the distribution of voting power. for a selected list of decisions requiring special majorities.1 percent since 1998. In multi-country constituencies.

Quota Issues. the Executive Board of the IMF is pursuing voice and representation issues on two different tracks—quota-related topics and administrative and capacity-building initiatives.2. 76 . Progress will require a high degree of consensus among the membership. including the development of an Extranet in 2001—a secure vehicle for making electronic versions of Board documents available quickly to authorities in capitals—and the use of video-conferencing technology. the approval of the resolution on quota and voice reform was a crucial first step. including: greater support for large. voluntary guidelines on the qualifications and duties of staff in Executive Directors’ offices in order to attract high-quality staff. Voice and Representation.” In September 2002. Voice and Representation Background. The basic issues are whether some countries are “over-” or “under-” represented in the IMF based on economic size. The following steps have already been taken: expanding the staff in offices of Executive Directors representing constituencies that have 20 or more members (namely. it should be noted that the tradition of relying on consensus decision-making at the Executive Board allows member countries to have a greater voice in decision-making than their voting shares might suggest. Capacity-Building Initiatives. making available informal. the Development Committee requested the IMF and the World Bank to undertake a study on ways of broadening and strengthening the voice and participation of developing economies and economies in transition in decision-making at the Bretton Woods Institutions. Mexico. increasing the effectiveness of the constituency system. providing additional training and orientation for new members of staff in Executive Directors’ offices. Additional steps include a new quota formula. The “Monterrey Consensus” of March 2002 encouraged the IMF and the World Bank to find pragmatic and innovative ways “to continue to enhance participation of all developing countries and countries with economies in transition in their decision-making. In this regard. The Board of Governors approved a resolution on quota and voice reform in September 2006. ________________________ 1 See Report of the IMF Executive Board to the International Monetary and Financial Committee (IMFC) on Quotas. and Turkey). Subsequent reports by the staffs of the IMF and of World Bank have been discussed by the IMFC and the Development Committee.9 GOVERNANCE AND DECISION-MAKING Box 9. the relative size of individual quotas has a direct bearing on the issue of participation in decision-making. Korea. and increasing the quota shares of developing and transition countries. However. Strengthening the Voice and Representation of Developing and Transition Countries.1 and work is continuing. increasing the size or reviewing the regional composition of the Executive Boards. and using technological advances to facilitate close and effective communication by Executive Directors with their authorities in capitals. the offices of the two Executive Directors representing sub-Saharan African countries). available on the Internet at: http://www. a second round of ad hoc quota increases. This resolution approved ad hoc quota increases for four clearly underrepresented countries (China. At present. and how best to achieve changes in quota shares to reflect such developments. and thereby to strengthen the international dialogue and the work of these institutions as they address the development needs and concerns of these countries.imf. These initiatives seek to enhance the capacity of Executive Directors from developing and transition countries to participate effectively in decision making in the IMF and thereby better serve member countries. and an increase in basic votes. multi-country constituencies. There has been growing emphasis recently on voice and governance issues in the IMF. strengthening developing and transition countries’ voice at the Development Committee and the IMFC.htm.org/external/np/fin/2003/quota/eng/091203. IMF and World Bank staff have identified various possibilities for strengthening the voice and representation of developing and transition economies. Since voting power in both the IMF and the World Bank under the present system is strongly influenced by IMF quotas.

and may not be appointed to the IMF staff at the end of the term. It focuses on (i) the systematic evaluations of the IMF's general policies. The IEO operates independently of IMF management and at arm's length from the Executive Board. The IEO’s budget is approved by the Executive Board. are nationals of different IMF member countries and must possess the qualifications required to carry out the oversight of the annual audit. The Managing Director is chief of the operating staff of the IMF and conducts the ordinary business of the IMF under the direction of the Executive Board. but has no vote except a deciding vote in the event of a tie. The Director is an official of the IMF but not a staff member. press releases. These studies complement the review and evaluation work undertaken within the IMF. in the context of surveillance as well as IMF-supported economic programs. The responsibility for performing the external audit and issuing the opinion rests with an external audit firm. (ii) comparative cross-country analyses of the IMF's economic policy advice. and other public statements.9 GOVERNANCE AND DECISION MAKING Managing Director and Deputy Managing Directors The Managing Director chairs the Executive Board. The members serve for three years on a staggered basis. appoints a First Deputy Managing Director and two Deputy Managing Directors to provide managerial support. An Executive Director selected by the Board acts as Chair in the absence of the Managing Director and the Deputy Managing Directors. The External Audit Committee has general oversight of the external audit function and internal control processes and consists of three members selected by the Executive Board and appointed by the Managing Director. The Director is solely responsible for the selection of IEO staff on terms and conditions set by the Executive Board. The Managing Director. and (iii) evaluations of completed country operations. The IEO has sole responsibility for drafting evaluation reports. The work program is presented to the Executive Board for review but is not subject to the Board's approval. He or she is ultimately responsible for all aspects of the internal management and working of the institution and its relations and communications with the outside world. and oversee staff work in specific areas. although this is a rare occurrence. They are independent. but its preparation is independent of the budgetary process over which IMF management has authority. One of the Deputies chairs the Board in the Managing Director’s absence. which is selected by the Executive Board in consultation with the External Audit Committee and appointed by the Managing Director. He or she is selected by the Executive Board for a fiveyear. Independent Evaluation Office The Independent Evaluation Office (IEO) was established by the Executive Board in July 2001 to provide an objective and independent evaluation of the IMF’s policies and operations. The Executive Director retains the right to vote when serving as Acting Chair. To ensure the IEO’s independence. the Director of the IEO is appointed by the Executive Board for a nonrenewable term of six years. renewable term. External Audit Mechanism The IMF’s external audit arrangements consist of an External Audit Committee and an external audit firm. The three Deputy Managing Directors share oversight of the IMF’s relationship with individual member countries. IEO staff are not IMF staff members and report only to the Director of the IEO. annual reports. in turn. 77 . The IEO's work program is determined by the Director in light of consultations with interested stakeholders from both inside and outside the IMF. chair selected Executive Board meetings.

• Promotes interdepartmental cooperation and coordination in the planning and delivery of technical assistance. internal audit and inspection. • Assesses the adequacy and the appropriate allocation of technical assistance resources. • Issues guidelines to departments and offices for the preparation of their budgets and business plans. Investment Office • Manages the assets of the Staff Retirement Plan and the Retired Staff Benefits Investment Account. Organizational Structure Office of the Managing Director At the apex of the IMF’s internal structure is the office of the Managing Director. Office of Internal Audit and Inspection • Performs independent and objective audits and reviews of the effectiveness of the accounting and financial controls. which oversee pension fund investments. and manages. and reporting. functional and special services departments.CHAPTER 10 INTERNAL ORGANIZATION AND FINANCING The present chapter provides a brief overview of the internal organization of the IMF. The Managing Director’s office has four units. Office of Technical Assistance Management • Oversees technical assistance policy development. with the relevant area department. and presents analyses and advice to IMF management and staff for improvement. and support departments. the IMF’s six regional technical assistance centers. • Provides advisory services for business processes and work practices to help ensure that they are structured and conducted in a manner that enables the IMF to fulfill its objectives. and administrative processes of the IMF. the chapter discusses the structure of the IMF’s income. making particular reference to the ongoing efforts to remedy the operational deficit and restructure the income sources and position of the IMF. Managers and the Board’s Committee on the Budget. and mobilizes technical assistance resources. information and liaison department and offices. • Coordinates budget policy and administrative issues with Senior Budget 78 . In addition. • Monitors and controls expenditures within the overall budget. Assists the external audit process and • supports the activities of the External Audit Committee. Office of Budget and Planning • Prepares the medium-term budget to help deliver the IMF’s strategy. which includes the offices of the Deputy Managing Directors. The rest of the IMF comprises the area departments. budget and planning. • Oversees the IMF’s cooperation with all sources of external technical assistance financing. Each department and each unit in the Managing Director’s Office is headed by a Director who reports to the Managing Director. • Plays a lead role in developing a system of performance indicators for the IMF. and technical assistance management. implementation. • Conducts internal investigations requested by the Managing Director.

• Liaise closely with the World Bank and other donors on economic policy advice and financial assistance to member countries. and financial transactions with member countries. and • evaluation of the IMF’s general policies related to surveillance and the use of IMF resources. and regional country groupings such as the G-10 and G-24. European Department. the international monetary system. and • Maintain regional technical assistance centers to enhance the provision of technical assistance. and works closely with other departments to this end. • Advises management and prepares Board papers in the development and review of IMF policies and facilities. • Help arrange financing packages when members’ financing needs cannot be met by the IMF alone. policies and views. and the IMF’s economic policy discussions and lending operations with member countries are conducted primarily by these departments. financing assurances. • Negotiate lending programs with member countries and monitor implementation of these programs. multilateral surveillance. with responsibilities divided roughly along geographical lines: the African Department. along with the functional and special services departments described below. • Plays a central role in the IMF’s dealings with the IMFC and the Development Committee. These. Middle East and Central Asia Department. other international organizations. strengthening the international monetary system. United Nations. and assist in the preparation of multilateral surveillance reports. strengthening 79 . on policies for the use of IMF financial resources. and to efforts aimed at greater openness and transparency by the IMF. The area departments: • Execute the IMF’s bilateral and regional surveillance functions. and on issues related to balance of payments need. and Western Hemisphere Department.INTERNATIONAL MONETARY FUND Area Departments Currently there are five area departments. and IMF-World Bank collaboration. • Contributes to the wider dissemination of the IMF's analyses. the role of the IMF in low-income countries. and external viability and capacity to repay the IMF. by providing comments on briefing papers for management approval or staff reports for Board approval—aims at ensuring an even-handed application of IMF policies and practices across the entire membership and staff recommendations that conform to established policies and practices. bilateral aid agencies. Policy Development and Review Department Oversees the design. Maintain resident representative offices • in many countries that have IMF-supported economic programs or that are of systemic importance. technical assistance. and serves as the focal point for general collaboration with the World Bank. on aspects of the architecture of the international monetary system. Report to. Asia and Pacific Department. The area departments are the focal points for relations with member countries. are the core operational departments of the IMF. implementation. • Through the internal review of country work—that is. Their core functions are summarized below. Functional and Special Services Departments The nine functional and special services departments are primarily responsible for the IMF’s work in the areas of policy design and development. including on surveillance and Article IV consultation policies and procedures. • management and the Executive Board on discussions with member countries. and seek guidance from.

1. IMF Organization Chart as of December 2006 80 .10 INTERNAL ORGANIZATION Figure 10.

Monetary and Capital Markets Department Provides technical assistance to • member countries on monetary. public expenditure policy issues. • Monitors developments and trends in international capital markets. assists in developing international best practices in 81 the areas of exchange arrangements. in collaboration with the Legal Department. • Provides technical assistance and training to help member countries improve the production and dissemination of economic and financial statistics (see Chapter 6). • Conducts financial sector surveillance in close collaboration with area departments. currency convertibility on both the current and capital accounts. and other financial-sectorrelated work in collaboration with the World Bank and other international agencies. and advises area departments and member countries on all aspects of access to international capital markets and relations with creditors. • Maintains databases of country. regional. assesses systemic risks and policy issues arising from such developments and trends. assesses their observance by member countries. including the GDDS and SDDS. and reviews the fiscal content of IMF policy advice and IMF-supported adjustment programs. and the environment. including: assessment of financial sector soundness and stability through the Financial Sector Assessment Program (FSAP). • Provides technical assistance to member countries on public finance issues. • Oversees. Serves as the IMF’s main point of • contact with the official and private sector on issues relating to international capital markets. offshore financial center assessments. assessment of anti-money laundering and antiterrorism financing regimes. financial sector. including financial soundness indicators. and promotes the dissemination of good policies and best practices. and compiles and disseminates information on members' exchange arrangements. and develops analytical and operational approaches to dealing with systemic issues in international capital markets (including capital account liberalization).INTERNATIONAL MONETARY FUND Fiscal Affairs Department • Contributes to fiscal sector surveillance and fiscal policy design in member countries. and capital markets issues. and global economic statistics. • Assists in the development of internationally-recognized standards and codes in the financial sector. and surveillance notes for regional groupings such as the G-7 and G-20. • Develops and maintains standards for the dissemination of data by member countries. WEMD. exchange rate. members’ foreign exchange arrangements and restrictions on external current payments and transfers. • Publishes the daily Global Market Monitor and the semi-annual Global Financial Stability Report. Statistics Department • Develops internationally accepted methodologies and manuals for compiling macroeconomic statistics. and disseminates such statistics through the IMF’s . Fosters work within the IMF on the • integration of poverty and social impact analyses of macroeconomic and structural policies into the design of PRGF-supported programs. and oversees the development and implementation of the IMF’s policies on private sector involvement in the resolution of financial crises. • Undertakes the IMF’s work on fiscal transparency—including the preparation of ROSCs and development of the Code of Good Practices on Fiscal Transparency and the Manual on Fiscal Transparency—and on social sector issues. • Supports multilateral surveillance by contributing to the preparation of the WEO. and exchange market development and operations.

and the IMF’s database on commodity prices and emerging market economies. • Develops and maintains: early warning indicators of potential financial crises. • Undertakes comptroller responsibilities for and administers all payments and receipts under the administrative and capital budgets and under externally provided technical assistance agreements. the IMFC. Research Department • Plays the central role in the IMF’s multilateral surveillance work mainly not related to financial market developments. IMF Institute • Provides training in macroeconomic policy design and implementation for government officials of member countries. • Undertakes safeguards assessments of central banks of member countries making use of IMF resources to ensure that adequate control. and the staff on the applicable rules of law. provides comprehensive financial information on the IMF’s website. and resources devoted for concessional support. commodity and energy markets. • Conducts all financial transactions with member countries. reporting. • Develops policies and advises on the financial aspects of access to IMF resources and the design of IMF facilities. Finance Department • Mobilizes financial resources in the context of reviews of IMF quotas. • Prepares most of the decisions and other legal instruments necessary for the IMF’s activities. and serves as legal counsel to the IMF in litigation and arbitration cases. Arrives at legal findings regarding IMF • jurisdiction on exchange measures and restrictions. and monitors and assesses the financial position in the trust funds. 82 . assesses the consistency of laws and regulations with selected international standards and codes. and responds to inquiries from national authorities and international organizations on the laws of the IMF. and assists in a broad range of bilateral surveillance activities. and develops and implements policies to address arrears. IMF borrowing arrangements. implements the IMF’s trustee functions and investment strategy for the trust funds. advises management and the Executive Board on the IMF’s liquidity and income positions. or suggested by the Department’s ongoing research. and maintains the IMF’s accounts in accordance with international accounting standards. assesses financial risks to the IMF of large lending arrangements. and Direction of Trade Statistics. macroeconomic models for use in analyzing issues in multilateral and bilateral surveillance. management. Legal Department • Advises the Executive Board. • Prepares policy papers for the Executive Board on the international monetary system. and other key issues raised by the Executive Board. Prepares the World Economic Outlook • (WEO) report for meetings of the IMFC. Balance of Payments Statistics Yearbook. surveillance notes for regional groupings such as the G-7 and G-20. and multilateral assessments of exchange rates for key advanced and emerging market economies. including monitoring exchange rates. • Provides technical assistance to member countries on legislative reform. invests the Fund’s assets held in trust.10 INTERNAL ORGANIZATION global statistical publications: International Financial Statistics. and auditing systems are in place. exchange rate issues. Government Finance Statistics Yearbook. periodic reports on World Economic and Market Developments (WEMD) for the Executive Board. and IMF management.

the work of the IMF through press and public contacts and dissemination of information about the IMF. • Maintains the IMF’s external website and publishes the IMF Survey. • Support recruitment and a broad range of other activities by other departments and offices. • Advises management on the core messages on which external communications should focus. • Interacts with the secretariats of all UN organizations. • Contribute to policy development and liaison with regional and international bodies that provide policy advice and set rules having a bearing on the international economic and financial system (OECD. and to keep the IMF informed about the views of others regarding IMF policies. • Contribute to representation. European Union institutions. Support Departments Secretary’s Department • Provides secretariat support for the IMF’s governing and advisory bodies—the Board of Governors. regional. 83 . through inter-agency coordination mechanisms and bilateral contacts. and nongovernment organizations. and how to deliver those messages effectively and efficiently. and the World Trade Organization in March/April.INTERNATIONAL MONETARY FUND • Conducts an internal economics training program for IMF economists on policy issues of relevance to the IMF’s work. and the Development Committee (jointly with the World Bank)—and makes the administrative arrangements (jointly with the World Bank) for the meetings of the Boards of Governors. • Undertakes outreach activities through briefings for UN delegates. and support for. the Executive Board. WTO. and multilateral surveillance work by enhancing the monitoring of regional developments and the activities of regional governments and organizations. the Offices in Europe. the IMFC. other Europeanbased agencies). students. Regional Office for Asia and the Pacific • Assists headquarters in monitoring and assessing economic and financial developments in the region as well as the progress in regional cooperation and integration. and the Annual Report of the IMF. Offices in Europe The three Offices in Europe—Office in Brussels. and the Development Committee. • Facilitates the implementation of IMF policies and initiatives in the region. and participates in the special high-level meeting between ECOSOC. communication. the IMFC. • Promotes capacity building in the governments of Asia and the Pacific. and helps enhance the understanding of the IMF and its policies. Office at the United Nations in New York • Participates in inter-governmental activities in the IMF’s capacity as permanent observer at the United Nations—follows the regular session of the General Assembly in September-December and annual session of the Economic and Social Council (ECOSOC) in June/July. and Office in Paris—are managed by a single administrative entity. and outreach to explain IMF activities to various audiences. through the organization of seminars and the administration of the Japan-IMF and Australia-IMF scholarship programs. BIS. the Bretton Woods Institutions. Finance and Development. Office in Geneva. The External Relations Department and Liaison Offices External Relations Department • Promotes public understanding of. The offices: • Contribute to the IMF's bilateral.

the past. The Executive Board also decided to suspend the accumulation of additional precautionary balances. and executive protective services. printing and distribution of official documents. compared to the present financing model that relies primarily on income generated by lending activities. However. • Helps prepare the communiqués of the IMFC. libraries. procurement. This financing model has generated adequate income in 84 . translation and interpretation). the G-24. the IMF must secure a predictable and stable source of income to finance its central role in the global financial system. The decline in IMF lending is a positive development. and document management. including its surveillance activities and provision of technical assistance. technology infrastructure. membership matters. Technology and General Services Department • The Technology and General Services Department provides services in three areas. archives and records management. and staff development. and subsequently to build up a special reserve. more fundamentally. the substantial decline in countries experiencing balance of payments problems has led to a reduction in IMF lending activities and income (Tables 10. oversees the summings up of Executive Board discussions. and prepares the minutes of Executive Board meetings.7 billion at the time. maintains the official records of the IMF’s governing bodies. information security. the IMF is restricted in its financing activities by the Articles of Agreement. However. in recent years. However.10 INTERNAL ORGANIZATION • Manages the day-to-day work program of the Executive Board. compensation and benefits.1). to use the IMF’s existing reserves to meet any income shortfall. The IMF’s balance sheet is strong and the current level of precautionary reserves could absorb administrative deficits for a number of years. field and headquarters security. reflecting the strength of the global economy and the IMF’s success in assisting its members to resolve and prevent balance of payments difficulties through the promotion of sound macroeconomic policies. and administrative matters for the offices of Executive Directors. overseeing policy development and implementation with respect to recruitment. initially to meet a temporary income deficit. which was funded by the IMF’s reserves of US$8. The IMF is currently pursuing a range of options to address this challenge: • As a first step. Financing of IMF Operations The IMF relies primarily on the income from its lending operations to meet its operational costs. multimedia services. • Information technology services: information systems. which limit the use of its quota resources to balance of payments adjustment credit and limit the use of its substantial gold holdings.e. • Language services (i.. transportation. • Administrative services: building projects. A similar structure was maintained between 1956 and 1972. information security. • Has central responsibility for communications with the IMF’s governing bodies. and to continue a tight budgetary stance. Human Resources Department The Human Resources Department manages the human resources of the IMF in partnership with other departments. facilities management. liaises between management and staff and the Executive Board. in May 2006 the Executive Board approved the establishment of an investment account to generate additional income. the declining net interest revenue stream does require the IMF to find the means to close the gap between its income and its running costs and. As noted in the Managing Director’s Review of the IMF’s Medium Term Strategy (MTS). or the Development Committee. to review its structure and sources of revenue and find a financing model that more appropriately reflects the IMF’s role in a changing global economy.

612 85 .707.710 44.246.379.921 41.322 52.516.348 2.938 665.938 0 0 90.372 1.938 40.629 1.000 530.231.433 1. Table 10.284 132. 2006. General Department.404 0 548.792 864.350 52.520.449 2.270.496 1.503 131.136 235.035 1.671.630 40.204 665.298 0 692.201. Operational Income (In thousands of SDRs) 2002 Net operational income Operational income Interest and charges Interest on SDR holdings Income of the Special Disbursement Account Investment income Interest on Structural Adjustment Facility Loans MDRI-I Trust 1/ Other charges and income Operational expenses Remuneration Allocation to the Special Contingent Account 2/ Administrative expenses Net operational income of the General Department comprises Income of the General Resources Account Income of the Special Disbursement Account Source: Finance Department 1/ For the year ended April 30.808.295.726 2.946 132.347 0 607.940 22.922 2.770 0 3.086 707.136 1.364.801.961 94.788 40.524 44.044 16.330 48.871.676 1.051 1.431 0 0 131.431 864.507 2.449 359.794 492.157 2006 280.507 613.131 0 157. 492.515.964 828.250 28. the adjustments to charges and remuneration for the allocation to the Special Contingency Account are reflected as a liability in the balance sheet.038 61.503 Fiscal year ended April 30 2003 2004 2005 707.755 1.032. For this purpose.157 0 0 34.847 0 673.196 966.915 2. 2/ Beginning in FY 2003.033. the Managing Director has appointed an external Committee of Eminent Persons to advise on a lasting solution to the issue of the financing of the IMF’s running costs in the future.666 280.204 2.726 823.678 16.502 58.372.157 52.558 1.558 2.431 61. MDRI-I Trust was consolidated with the Special Disbursement Account and consolidated financial statements were presented.1.100 1.INTERNATIONAL MONETARY FUND • The second and more critical long-term aspect of the strategy is to ensure a lasting and sustainable solution to the IMF’s income needs.915 646.484 61.

25 0.1 92. Quotas and Voting Power As of January 18.965 1.97 0.020 1.859 1.58 0.7 6.107 63.6 164.73 0.00 0.58 0.3 171.811 81.151 7.04 0.03 0.583 925 4.652 852 1.48 0.1 63.369.02 0.9 533.8 61.7 286.07 0.30 0.09 Countries Afghanistan.04 0.04 0.86 0.04 1.0 87.611 2.03 0.01 0.096 1.08 0.03 0.170 32.600 5.19 2.7 1.1 215.07 0.10 2.2 9.08 0.973 1.01 0.1 Percent of Fund Total1 0.942 346 807 810 8.04 1.09 0.06 0.891 0.30 0.797 3.00 0.125 2.05 0.5 386.09 2. 2007 Quotas (Millions of SDRs) 161.08 0.872.39 0.6 55.25 0.04 0.0 533.580 1.4 4.04 0.5 2.9 48.236. Islamic Republic of Albania Algeria Angola Antigua and Barbuda Argentina Armenia Australia Austria Azerbaijan Bahamas.5 169.49 0.07 0.02 0.98 0.0 3.05 0.3 160.402 6.02 0.13 0.605.03 0.89 0.0 84.302 438 869 313 1.2 77.2 18.06 0. Republic of Costa Rica 86 .01 0.117.2 60.4 1.25 0.3 135.5 185.02 0.07 0.036.04 0.04 0.67 0.10 0.08 Number of Percent of Votes4 Fund Total5 1869 737 12.114 46.3 13.18 2.03 1.2 640. The Bahrain Bangladesh Barbados Belarus Belgium Belize Benin Bhutan Bolivia Bosnia and Herzegovina Botswana Brazil Brunei Darussalam Bulgaria Burkina Faso Burundi Cambodia Cameroon Canada Cape Verde Central African Republic Chad Chile China Colombia Comoros Congo.40 0.05 1. Democratic Republic of Congo.04 0.990 339 5.553 1.0 3.12 0.40 3.03 0.02 0.36 0.1 774.10 0.00 0.0 856.090.25 0.941 880 30.254.11 0.0 8.08 0.36 0.05 0.14 0.614 18.03 0.39 3.9 6.APPENDIX Appendix 1.9 130.113 385 21.1 8.86 0.94 0.3 67.7 56.09 0.421 1.

378 1.89 0.2 1.11 0.04 0.502 3.2 218.2 107.13 6.158.01 0.21 0.332 3.09 87 .4 117.08 0.39 0.2 133.6 15.03 0.76 0.08 Number of Percent of 4 5 Votes Fund Total 3.6 4.439 3.43 3.0 823.01 0.5 1.901 1.76 0.1 14.08 5.95 0.48 0.985 133.05 0.321 392 1.5 154.07 0.352 1.159 1.10 0.263.18 0.312.634 1.038.08 0.03 0.646 8.134 8.043 15.06 1.9 8.17 0.00 0.92 0.04 0.55 0.58 4.9 65.69 0.4 838.1 139.55 0.8 170.95 0.44 0.Countries Côte d'Ivoire Croatia Cyprus Czech Republic Denmark Djibouti Dominica Dominican Republic Ecuador Egypt El Salvador Equatorial Guinea Eritrea Estonia Ethiopia Fiji Finland France Gabon Gambia.26 0.634 9.6 819.635 1.05 1.963 576 409 902 1.5 13.805 2.38 0.87 0.9 302.07 0.3 32.545 10.03 0.0 11.04 0.079.532 70.753 130.3 943.38 0.01 0.90 0.01 0.3 1.3 13.07 0.2 7.940 8.02 0.069 1.14 0.8 15. The Georgia Germany Ghana Greece Grenada Guatemala Guinea Guinea-Bissau Guyana Haiti Honduras Hungary Iceland India Indonesia Iran.497.10 0.14 0.9 81.48 0.955 0.09 0.5 Percent of Fund 1 Total 0.06 0. Islamic Republic of Iraq Ireland Israel Italy Jamaica Japan Jordan Quotas (Millions of SDRs) 325.02 0.05 0.888 107.39 0.96 0.02 0.2 2.02 0.188.07 0.01 0.05 0.38 0.2 369.2 90.38 0.17 0.3 1.587 953 12.008.273 9.687 1.9 129.04 0.11 0.16 0.43 3.426 41.8 10.15 0.738.02 0.58 4.7 171.00 0.7 70.7 210.1 150.443 16.04 0.055.2 365.06 0.06 0.18 0.642.3 1.480 367 2.222 12.15 0.07 6.793 561 1.4 928.02 0.06 0.44 0.832 21.03 0.14 6.678 409 332 2.3 31.5 273.69 0.

0 3.2 93.18 0.9 71.10 0.10 0.6 2.02 0.1 68.061 1.6 258.6 2.34 0.64 0.874 9.386 2.01 0.27 0.1 123.48 0.06 0.5 588.4 136.3 1.09 0.12 0.8 52.316 1.04 0.28 0.Countries Kazakhstan Kenya Kiribati Korea Kuwait Kyrgyz Republic Lao People's Democratic Republic Latvia Lebanon Lesotho Liberia2 Libyan Arab Jamahiriya Lithuania Luxembourg Macedonia.04 0.280 599 11.3 1.18 0.753.13 0.10 0.06 0.6 131.566 1.04 0.4 1.9 122.10 0.06 0.52 0.132 1.00 0.00 1.05 0.00 0.1 27.07 0.06 0.041 939 1.35 0.907 2.01 0.138 779 1.08 0.6 130.190 10.967 2.487 1.8 5.8 203.2 113.13 0.06 0.9 126.3 102.05 0.05 1.964 306 29.38 0.07 0.00 0.05 0.69 0.42 0.4 101.77 0.6 99.04 0.81 0.183 1.09 0.03 0.17 0.02 0.02 0.692 3.4 894.07 0.01 0.0 1.13 0.4 Percent of Fund 1 Total 0.2 69.14 0.00 0.162.03 0.782 16.04 0.00 0.1 88.41 0.7 3.472 944 15.48 0.8 1.07 0.5 71.04 2.06 0.123.03 0.634 0.033.07 0.587 281 2.550 908 17.9 638.5 64.30 88 .06 1.03 2.52 0.482 761 525 6.0 65.249 6.518 2.4 5.108 301 1.07 0.05 0. Federated States of Moldova Mongolia Montenegro Morocco Mozambique Myanmar Namibia Nepal Netherlands New Zealand Nicaragua Niger Nigeria Norway Oman Pakistan Palau Panama Papua New Guinea Paraguay Peru Quotas (Millions of SDRs) 365.13 0.80 0.68 0.6 8.19 0.0 34.03 0.927.3 5.06 0.270 285 894 1.06 0.7 144.615 963 51.04 0.1 206.585.03 0.7 194.03 0.381.04 0.06 0.01 0.77 0.35 0.2 1.2 51.02 0.29 Number of Percent of 4 5 Votes Fund Total 3.64 0.7 271.01 1.266 26.834 1.02 0. former Yugoslav Republic of Madagascar Malawi Malaysia Maldives Mali Malta Marshall Islands Mauritania Mauritius Mexico Micronesia.523 14.05 0.116 332 1.2 279.03 0.07 0.671.196 1.486.

20 0.16 0. Republic of Seychelles Sierra Leone Singapore Slovak Republic Slovenia Solomon Islands Somalia South Africa Spain Sri Lanka St.4 6.5 1.14 0.947 1.02 0.0 867.069 332 984 319 3.40 0.02 0.05 0.22 0.02 0.4 6.Countries Philippines Poland Portugal Qatar Romania Russia Rwanda Samoa San Marino São Tomé and Príncipe Saudi Arabia Senegal Serbia.9 1.00 0.8 1.03 0.63 0.7 8.927 338 1.50 0.00 0.6 87.738.55 0.9 8.50 0.0 198.86 1.70 0.01 3.87 89 .06 0.002 2.635 0.48 2.01 0.19 0.01 0.985.924 2.58 0.704 1.081.02 0.00 3.08 0.5 3.16 0. Vincent and the Grenadines Sudan Suriname Swaziland Sweden Switzerland Syrian Arab Republic Tajikistan Tanzania Thailand Timor-Leste Togo Tonga Trinidad and Tobago Tunisia Turkey Turkmenistan Uganda Ukraine United Arab Emirates United Kingdom Quotas (Millions of SDRs) 879.567 354 692 18.41 0.2 180.115 12.05 0.030.055 13.48 2.4 44.05 0.40 0.00 0.60 0.935 30.888 10.28 4.8 103.10 0.3 169.03 0.15 0.12 0.0 7.1 11.287 8.5 Percent of Fund 1 Total 0.11 0.049 13.14 0.868 4.1 50.369.9 335.835 3.41 0.10 1.14 0.945.09 0.39 0.384 339 403 333 1.5 293.205 34.970 6.03 0.74 0.372.5 3.5 357.8 467.04 0.9 15.739 4.02 0.9 1.875 3.458.09 0.3 8.01 0.051 366 420 324 70.5 1. Kitts and Nevis St.22 0.825 2.29 4.63 0.04 0.105 1.13 0.7 92.186 1.120 2.395.048.41 0.4 263.08 0.7 2.09 0. Lucia St.04 0.86 1.02 1.02 0.191.17 0.04 0.552 59.12 0.95 Number of Percent of 4 5 Votes Fund Total 9.13 0.171 757 24.9 413.02 0.07 0.63 0.01 0.2 5.05 0.6 17.367 107.08 0.40 0.00 0.7 10.868.5 161.239 11.6 286.2 1.163 1.17 0.55 0.7 862.5 231.05 0.02 0.03 1.606 3.0 611.00 0.7 10.00 0.02 0.11 1.2 73.63 0.4 8.22 0.940 8.40 0.3 75.4 80.

4 216. 2006.1 329. among other things.Countries United States Uruguay Uzbekistan Vanuatu Venezuela.00 On September 18. Section 2(b) of the Articles of Agreement.23 0.315 3.16 0.13 0.23 0.0 2.15 0.5 275.01 1. Liberia's voting rights were suspended effective March 5.1 353.841 3.6 17. 2007 (Decision No. and pay for. Mexico and Turkey. This figure may differ from the sum of the percentages shown for individual countries because of rounding.8 Percent of Fund 1 Total 17.006 420 26. is extended until March 31.02 1. for these members to consent in writing to.16 100.11 0. the period for consent and payment of the quota increases provided for under paragraph 1 of Board of Governors' Resolution No. 2 3 Zimbabwe's voting rights were suspended effective June 6.14 0.3 306. 4 5 6 90 .00 Number of Percent of 4 5 Votes Fund Total 371.23 0. Voting power varies on certain matters pertaining to the General Department with use of the Fund's resources in that Department. For Mexico. ending on October 18.981 in the General Department and the Special Drawing Rights Department. Korea. and establishing a thirty-day period after the date of the Resolution. Republic of Zambia Zimbabwe3 TOTAL OF FUND QUOTAS AND VOTES Notes: 6 Quotas (Millions of SDRs) 37. Section 2(b) of the Articles of Agreement. 2.1 243.743 3.747. effective September 18.14 0.00 100.981 16.208.152. Mexico's quota and vote will remain as detailed in the table above or increased to SDR 3. Percentages of total votes.83 0. 61-5. 2003 pursuant to Article XXVI.685 5. Depending on the outcome of this process. 2006.14 0. 2006. the Board of Governors adopted Resolution No.659.5 489.15 0. República Bolivariana de Vietnam Yemen.22 0.541 2.208. 1 At the present time all 185 members are participants in the Special Drawing Rights Department.778 respectively. an increase in the quotas of China. the increase. 2003 pursuant to Article XXVI.12 0.8 million and 31.149.141 2. 61-5 approving. 13844-(06/107)).

The International Monetary Fund. Overview. Bolivia. Silent Revolution: The International Monetary Fund. Uruguay. on April 1. The International Monetary Fund. Executive Board Meeting 06/66.imf.. Brazil.. China.htm.. Report on the External Evaluation of Fund Surveillance.org/external/np/exr/facts/surv07. Articles of Agreement of the International Monetary Fund. Washington. 2002. 1976. IMF. bringing to 35 the number of countries that ratified and signed the Articles of Agreement by December 31.asp.imf.org/external/pubs/ft/aa/index. the Soviet Union. Margaret Garritsen de Vries. “Biennial Review of the Implementation of the Fund’s Surveillance and of the 1977 Surveillance Decision—Overview”. the United Kingdom. March 14. Poland. Article XII. A timeline of major events in the history of the IMF is available on the Internet at: http://www. The ten countries that did not sign the Agreement by December 31. D. “Biennial Review of the Implementation of the Fund’s Surveillance and of the 1977 Surveillance Decision. June 30. 3 4 5 See also The Acting Chair’s Summing Up. Canada. Washington. Keith Horsefield. Luxembourg.htm. D. available on the Internet at: http://www. Czechoslovakia. Denmark. Washington.org/external/np/pdr/surv/2002/031402. Washington.pdf.C. Articles of Agreement of the International Monetary Fund. and on November 11.org/external/np/pdr/surv/2002/031302. 1945. July 19. Guatemala. and Yugoslavia. Greece. the United States.imf. The Articles of Agreement were amended on July 28.. 1993. IMF. IMF. 1969. 1945 to 1986: The IMF Experience. Panama. the Union of South Africa. The International Monetary Fund. Paraguay. 1966-71: The System Under Stress. Honduras. Review of the 1977 Decision on Surveillance Over Exchange Rate Policies—Preliminary Considerations. 1979-89.imf. March 13. 1945 were Australia. Iceland. Cuba. Norway.C. New Zealand. Colombia. Egypt. 1947. In addition. IMF. 1985.pdf. Mexico.C. 1945-1965: Twenty Years of International Cooperation. D. D. 1978.imf. “Biennial Review of the Implementation of the Fund's Surveillance and of the 1977 Surveillance Decision: Framework and Conduct of Surveillance in 200001. Ethiopia. Ecuador. and Venezuela. “Review of the 1977 Decision on Surveillance Over 91 10 9 . Section 4 (d) of the Articles of Agreement.ENDNOTES See James Boughton. A fourth amendment is pending (see Chapter 9). Available on the Internet at: http://www. D. Costa Rica. 1972-78: Cooperation on Trial. D.org/external/pubs/ft/aa/index. the Netherlands.org/external/np/pdr/surv/2004/082404. J. available on the Internet at: http://www. 1992. the Phillipines. Balance of Payments Adjustment. 6 A Factsheet – IMF Surveillance – The 2007 Decision on Bilateral Surveillance.C.org/external/np/pp/eng/2006/pc. Margaret Garritsen de Vries. 7 8 These 29 countries were: Belgium. Nicaragua. the Dominican Republic. available on the Internet at: http://www. Haiti. International Monetary Fund. Chile. 1987.htm.imf. 2002”. the deadline set for the Articles of Agreement to come into force. India. 2006.C.” available on the Internet at: http://www.htm. 2001. Liberia.pdf. 2 1 The agreement between the IMF and the UN establishing such a relationship came into force on November 15. available on the IMF’s external website http://www.C. 1999. El Salvador. IMF. Iran. available on the Internet at: http://www. Washington. Margaret Garritsen de Vries. Iraq.imf. and Peru signed before the end of the year... IMF. 1969.imf. France. Washington.org/external/np/exr/chron/chron2.

2004. Background Information. available on the Internet at: http://www.imf.org/external/np/exr/ib/2006/041806. available on the Internet at: http://www. Review of the Fund’s Transparency Policy. 2004.imf. 2007. July 19.org/external/np/sec/pn/2005/pn05116. Implementing the Fund’s Medium-Term Strategy. Decision No. The Fund’s Transparency Policy—Issues and Next Steps. members can impose restrictions solely for the preservation of national or international security.org/external/np/sec/pn/2003/pn03122.imf.imf.org/external/np/pp/eng/2006/pc.asp?decision=7427-(83/83). The 1977 Decision on Surveillance over Exchange Rate Policies was reviewed in 2006 under “Review of the 1977 Decision on Surveillance Over Exchange Rate Policies Preliminary Considerations. July 19. since the IMF is not a suitable forum for discussion of the political and military considerations that lead to restrictions. and Summing Up of the Board Meeting. Background Information.org/external/np/sec/pn/2004/pn0495. the Executive Board shall reach conclusions and thereby complete the consultation under Article IV. The IMF will not object to restrictions that it is satisfied are imposed solely for security reasons. available on the Internet at: http://www.” available on the Internet at: http://www. available on the Internet at: http://www. available on the Internet at: http://www. 20 19 18 17 The 1977 surveillance decision states: “Not later than three months after the termination of discussions between the member and the staff.org/external/pubs/ft/sd/index. 12 However. 2006.imf.htm. August 14. 2006.imf. 16 15 14 13 Review of the 1977 Decision on Surveillance Over Exchange Rate Policies Preliminary Considerations. 2005 and will be reviewed no later than December 31.imf.Exchange Rate Policies Preliminary Considerations.imf.org/external/pubs/ft/sd/index. for which IMF approval is not required. Decision No.asp?decision=13183-(04/10).org/external/np/sec/pn/2004/pn0495. Decision No.htm.imf.htm. except for PRGF-eligible members. and Summing Up of the Board Meeting. A member intending to impose restrictions solely for the preservation of national or international security is expected to inform the IMF before doing so.” In this connection.htm. Executive Board Meeting 04/72.org/external/np/sec/pn/2004/pn0495. July 19. 7427-(83/83). Background Information. The Acting Chair’s Summing Up. 2006. Biennial Review of the Implementation of the Fund's Surveillance and of the 1977 Surveillance Decision. The Chairman's Summing Up. 144-(52/51). available on the Internet at: http://www. available on the Internet at: http://www.” available on the Internet at: http://www. see also Surveillance Procedures—Implementation of ThreeMonth Period. Executive Board Meeting 04/72. Executive Board Meeting 04/72.org/external/pubs/ft/sd/index. for example.imf. See.htm.htm. where the lag is maintained at three months.imf.htm. 11 The list was expanded effective January 1. 2002. 13183-(04/10) January 30. and Summing Up of the Board Meeting. available on the Internet at: http://www.pdf. The Chairman’s Summing Up—Biennial Review of the Implementation of the Fund’s Surveillance and of the 1977 Surveillance Decision. The Chairman's Summing Up. available on the Internet at: http://www. available on the Internet at: http://www.org/external/np/pp/eng/2006/pc. “Managing Director's Report to the International Monetary and Financial Committee-Streamlining and Focusing Conditionality and Enhancing Ownership of Fund-Supported Programs. 6/8/83.org/external/np/omd/2002/041702. The Acting Chair’s Summing Up. if this is not possible. The Managing Directors’ Report on Implementing the 92 21 .imf. within 30 days of doing so.imf. The decisions on streamlining in November 2006 reduced the lag from three months to 65 days. 1952.imf.asp?decision=144-(52/51).org/external/np/pdr/surv/2002/index. ” available on the Internet at: http://www. or. April 16. 2004.htm. Biennial Review of the Implementation of the Fund's Surveillance and of the 1977 Surveillance Decision.” available on the Internet at: http://www.pdf.org/external/np/pp/2007/eng/062107.htm. July 23. 2004. July 23. “Biennial Review of the Implementation of the IMF's Surveillance and of the 1977 Surveillance Decision. July 23.

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