Transcript of a Conference Call on the Expansion of The IMF's New Arrangements to Borrow

April 13, 2010

Washington, D.C.
Friday, April 9, 2010

SENIOR IMF OFFICIAL: Thanks, and hello everybody. What we wanted to do this afternoon was give you a bit of a heads up on the decision that we hope will be taken by the Board on Monday on the New Arrangements to Borrow (NAB).

As you probably recall, the G-20 leaders in April last year in their meeting in London agreed that the Fund should seek additional financing of US$250 billion to help address the global crisis and that that should be folded into a expanded and more flexible New Arrangements to Borrow that should be increased by up to US$500 billion. You will probably recall that there was a meeting of the 26 existing and 13 potential new NAB participants in late November last year right before Thanksgiving where they agreed to expand the NAB to up to US$600 billion. We are now at the point where we hope that expanded and reformed NAB will be approved by the Fund's Executive Board and that's the meeting that will be held on Monday.

Let me just give you a few of the key elements. As you probably know, the NAB is the Fund's primary standing credit facility which is intended as a backstop to quota resources. The NAB which has been in place since 1998 currently has 26 participants and it is a credit line totaling 34 billion SDRs, or a bit over USUS$50 billion.

The expansion and reforms that are to be considered on Monday will do three broad things. One, increase the overall size of the NAB. The final numbers may change a little bit by Monday, but broadly it should be an increase of the order of tenfold, so we think it will be to a little bit over US$550 billion. It's about US$50 billion at present, so that would be in line with or even slightly exceed the commitment that the G-20 leaders made a year ago. It will secondly also increase the number of participants. As I said, there are 26 at present. We think the increase is likely to be of the order of 13. Again, this final number may change at the last minute, but I think it will be in this range. Most of those 13 will be emerging-market countries so that another aspect of this reform is to significantly increase the participation of emerging-market countries in the new arrangements to borrow, and at the end of this the emerging-market countries will probably provide close to a quarter of the total credit arrangements and make up roughly 40 percent of the number of participants in the NAB. So it's a significant broadening of the base of the credit arrangements and that's also an important development.

The third aspect to highlight is that the reforms are intended to make the NAB more flexible. It will not change the fundamental character of the NAB, which will remain a backstop to quota resources, so that it is clear that it's not intended to substitute for quota resources. But it will include reforms that make it more flexible in using it in a crisis, so it will be a more credible backstop. Among the changes will be that we'll be able to use the NAB resources to finance the full range of the Fund's lending activities from the General Resources Account, so that includes one notable exclusion in the current NAB, which is that we cannot use it to finance drawings under the Flexible Credit Line. This will enable us to use the NAB to finance all potential drawings using the Fund's general resources. The second aspect in terms of flexibility is that we will move away from the current loan-by-loan activation procedure. Currently when the Fund wants to draw on the NAB it has to be approved by the participants for each individual loan. The proposal on the table is to move that to an activation period so the Fund would activate the NAB for a period of up to 6 months rather than having to go through what is a fairly complex approval process on an individual loan basis. Another important reform is that members' participation in the NAB can take the form of loans, as at present, but also of notes. So similar to the reform we already introduced last year, of the Fund issuing notes for its bilateral borrowing, we will also be able to draw on participants through the issuance of notes rather than solely through loans. There will be some other reforms to increase the flexibility of admitting new participants with a high majority of the approval of the existing participants. Finally, just to note that participants' contributions to the Fund under the NAB are currently counted as part of their international reserves and that will remain the case with the reformed NAB and expanded NAB.

Let me just say a couple of final words on process. The meeting of the Board on Monday will be for a decision by the Board to approve the amendments to the NAB. Following that, these changes will require the consent of each of the existing participants whose credit arrangements are being changed, so most existing participants will have an increase in their credit arrangements and they will have to approve those changes, as well, 85 percent of them will have to approve the changes in the NAB decision itself. So most of the participants will have to go through domestic procedures to approve these changes before they can come finally into effect, so that will still take a little while. Once that happens, what is envisaged is that the bilateral loans and notes that we currently have outstanding as part of the arrangements that were put in place in the middle of the crisis last year, the intention is that they would fold into the new NAB. So it will take probably some time for participants to adhere to the agreement. Up to that point we would continue to have access to the bilateral borrowing and once the NAB is in effect, the bilateral borrowing and notes could fold into the NAB.

Then just one other point. It is also proposed that the NAB would be reviewed again by November 2011. The intention here is to review the NAB in light of the outcome of the 14th quota review, which is currently underway, and obviously the objective of the quota review is to assess the adequacy of the Fund's quota resources. Once that is done, the NAB would be reviewed again in light of the outcome of the quota review. I think those are the main points I'd like to highlight, but I'd be happy to respond to any questions you might have.

QUESTIONER: I just wanted to go over a few figures if you don't mind. This agreement to increase it to up to US$600 billion, does that represent any change from the original G-20 pledge to increase IMF resources by up to US$500 billion?

SENIOR IMF OFFICIAL: In fact, it slightly exceeds it. The current NAB is about US$50 billion, so the G-20 agreement last year was to increase it by up to US$500 billion, so that would be to up to US$550 billion. The announcement by the participants new and prospective last year was to increase to up to US$600 billion, so slightly above that. In the end I think it will probably a little bit above US$500 billion. It partly depends on the exchange rate of the dollar and the SDR which has been fluctuating, but it will be in that range. So it's broadly in line with the G-20 agreement last year, if anything, slightly above it.

QUESTIONER: Then how much in pledges or how much in actual money has the IMF received between the loans and bonds at this point?

SENIOR IMF OFFICIAL: We have total commitments in bilateral loans and notes a bit over US$300 billion, which is also in excess of the original objective which was US$250 billion. Most of those are effective. We have a bit over US$250 billion effective and we have another roughly US$50 billion that we're in the process of finalizing and making effective.

QUESTIONER: None of the bonds have actually been issued yet. Is that correct?

SENIOR IMF OFFICIAL: No, they have been. We've already started. Since the summer we have been drawing on the bilateral arrangements for both notes and loans as part of financing our lending operations. We're currently doing it in a roughly one-to-one split, so we're drawing when we make loans to members, we're financing it roughly half and half using borrowed resources, or loans and notes, and quota resources.

QUESTIONER: How much has actually been spent in all?

SENIOR IMF OFFICIAL: How much has been?

QUESTIONER: Used, drawn down or whatever the term may be?

SENIOR IMF OFFICIAL: I don't know. Matthew, do you have that number? I'm sure somebody can give it to you.

QUESTIONER: Thank you.

QUESTIONER: I have several questions, but the previous question confused me a little bit. The US$550 billion my understanding was coming from these bilateral agreements. Is this not the case?

SENIOR IMF OFFICIAL: No, the G-20 agreement last April had two elements: i) increase, basically double, the Fund's existing capacity through bilateral borrowing, so that was about US$250 billion. Then the idea was that that would be folded into an expanded NAB which was to be increased by about US$500 billion, so we are now getting towards the second step. The NAB is a multilateral agreement, so it takes longer to be put into effect, including both expanding the number of participants, and also reforming along the lines that I've mentioned, so it was a two-step approach.

QUESTIONER: You say you've been trying to draw equally on quota and on bilateral loans. Between countries did you take on each bilateral agreement for a given loan or are you just drawing some, and how do you choose?

SENIOR IMF OFFICIAL: We draw on them roughly evenly. The bilateral agreements have been coming into effect over time. They didn't all come into effect at one time. So as we've expanded the number of agreements that are in place, then we draw on the new agreements, but the idea is that we do it roughly evenly across the agreements. I think we've actually drawn down in answer to the earlier question a bit over 6 billion SDRs so far, so it's probably in the order of US$10 billion, and we do that on a proportional basis across the agreements.

QUESTIONER: The new NAB, would it be the U.S. and Japan as the main two--I don't know if I should say--contributors, or who would be the biggest?

SENIOR IMF OFFICIAL: They will remain the largest two contributors, yes. I don't want to get into the specific numbers until it's released on Monday because the final numbers may change slightly, but the U.S. and Japan will be the largest two lines under the new NAB.

QUESTIONER: Last question. If you had a big loan to do tomorrow, how would that operate? Would you have enough to continue with that? Because given according to what you say, the NAB because it requires domestic agreement wont be active for quite some while, quite some time, so you would have enough in bilateral to cover a large loan?

SENIOR IMF OFFICIAL: With the bilateral agreements that we already have in place plus our quota resources, we have the capacity to commit over 160 billion SDRs, so that's about US$240 billion or so, which is actually an all-time in terms of the Fund's liquidity. So we have substantial capacity now with the bilateral lines.

QUESTIONER: Thank you. I actually have two questions. One is again about the numbers. I'm also a bit confused. You said that you have total commitments of over US$300 billion now, but at the same time you want to expand the NAB to over US$500 billion. Are you lacking US$250 billion or how does it work? Or am I confusing things here?

SENIOR IMF OFFICIAL: Maybe I'm confusing you, but let me try again. There were two steps. The first step which was agreed in London last year was to seek bilateral resources, so these are agreements with individual member countries, either note purchase agreements or loan agreements, and the aim there was to raise US$250 billion, and we in the end raised slightly over US$300 billion, so these are all individual loan agreements between the Fund and the particular country. Actually we have 16 that are in place right now. Then the NAB is a multilateral agreement and it's a standing agreement so it's intended to be a fairly permanent backstop to the Fund's quota resources, and that is what the Board will be discussing on Monday. That should be increased to a bit over US$550 billion. Once it becomes effective, these bilateral agreements would then fold into that NAB.

Is that clear?

QUESTIONER: Yeah. So sort of the extra 250 billion, countries have committed that in the new NAB and there is an allocation of the 550 billion among countries that are members, right? Is that how it goes?

So you already have the numbers and everything, yeah?

SENIOR IMF OFFICIAL: Right. There are 26 current participants and then it might be the order of 13 new participants, so we’d have in total almost 40. Each one of them will have a credit arrangement that will add up to the total of US$550 billion, so it’ll be shared amongst those participants.


SENIOR IMF OFFICIAL: And it’s a multilateral framework, so when we draw on the NAB, we do it, to the extent we can, on a proportionate basis across those members.

QUESTIONER: And these changes that you are doing on Monday, do they have to be approved by the legislatures of countries--like the United States Congress has to approve it?

SENIOR IMF OFFICIAL: Yeah, in many cases but not all of them. I think last time when the NAB was originally approved, roughly half of them had to go to legislatures. So this time I’m sure there’ll be many that have to do that.

QUESTIONER: The United States?

SENIOR IMF OFFICIAL: The U.S. participation was already approved last year.

QUESTIONER: Oh, okay. So it doesn’t have to go to Congress?


QUESTIONER: Okay. Can I ask you a final question, a broader question? If let’s say there is another crisis, you know, in a few years or whatever, how will your response be better with this arrangement in comparison with what you had to do in this crisis?

SENIOR IMF OFFICIAL: Well, I think the difference would be that we would have in place already at the time of the crisis a credible funding source to address it. If you remember when the crisis -- when this crisis broke in late 2008 and early 2009, there was a lot of discussion about the role of the IMF and whether it had sufficient resources available to address the crisis. And there were a lot of people who said it didn’t and I think we didn’t have the resources. And that was why the G-20 agreed -- took the steps it did to agree on an immediate increase in bilateral funding and then moving into the NAB. So we had to -- in the midst of the crisis, we had to seek bilateral resources. Now, fortunately, we were able to do that successfully. And I think the announcement of the G-20 of the commitment to provide the Fund with those resources played a significant role in calming the crisis.

The importance of this change would be that in a future crisis we would already have this line in place, so there would not be the question about whether the Fund had sufficient resources or not.

QUESTIONER: Hi. How are you all? Thanks for this. Two things real quick just to clarify:

I’m unclear of the base here. The US$250 billion versus the US$50 billion, I’ve seen this characterized as a tripling of the IMF’s resources, but at the start of this, you said it was going to be a tenfold increase. So I’m a little bit unclear about whether the starting base is US$50 billion or the US$250 billion and what the distinction is there.

SENIOR IMF OFFICIAL: Yeah. So the current NAB is about US$50 billion. It’s actually 34 billion SDRs, which at the current exchange rate is slightly over US$50 billion.


SENIOR IMF OFFICIAL: The new NAB will be a little bit over US$550 billion, so that’s roughly a tenfold increase.


SENIOR IMF OFFICIAL: US$250 billion is what I mentioned separately. This is bilateral -- this was the target for bilateral borrowing, not the NAB.


SENIOR IMF OFFICIAL: So again, after the crisis -- when the crisis broke, the agreement was first to seek bilateral borrowing up to US$250 billion and then to fold that into an expanded NAB up to US$500 billion.

QUESTIONER: So at the end of the day is the total going to be US$550 billion or, you know, US$750 billion to US$800 billion?

SENIOR IMF OFFICIAL: Oh, it’ll be US$550 billion.


SENIOR IMF OFFICIAL: A bit over, plus our quota resources.

The total credit line -- it’s not additional. It’s not 250 plus 550.

QUESTIONER: Okay, gotcha. Now, there is a -- in the press release that went out or was updated today, there’s a table of contributions. I assume that’s good as of today and is roughly what we’re going to see on Monday?

SENIOR IMF OFFICIAL: You might have seen a bilateral agreement today.

QUESTIONER: Yeah, I guess. Well, it’s kind of irrelevant because I guess we’ll get the details on Monday.

But I did want to ask sort of a broader question, which was, you mentioned about the importance of this and kind of expanding the role of the emerging economies. And there’s been some discussion among economists about how maybe this is a way to get some of their reserves in circulation, things like that. Is there -- besides sort of guaranteeing liquidity at the Fund for future crises, is there a larger kind of macroeconomic value to doing it this way, to bringing those countries in?

SENIOR IMF OFFICIAL: Well, I think it’s part of these countries having a larger role in the international financial system and in particular in the international financial institutions. So they are -- as you know, already we’ve had a quota reform in 2008 that increased the share of the emerging market countries in the Fund. There is the 14th quota review that is underway now. Part of that -- the objective of that reform is also to increase the share of emerging market countries and developing countries in the Fund. This is the other side of it, that these countries are now playing a larger role in the financing of the Fund. So they have both a larger voice in the IMF, but also play a larger role in financing the IMF.

QUESTIONER: And they will amount to about 40 percent of the new NAB, you said, or 25 percent, right?

SENIOR IMF OFFICIAL: In terms of numbers it’s going to be close to 40 percent. In terms of the size of their credit participation it’s going to be, I think, of the order of a quarter, yeah.

QUESTIONER: Okay. All right, great. Thank you.

QUESTIONER: Hello. Thank you. Could you please elaborate a little bit about the changes when you said more flexibility, especially what does it mean to open up this backstop lending, this backstop credit line with an activation period of six months, as you said? Can you into more details?

SENIOR IMF OFFICIAL: Yes. As I said, the backstop role will not change.– Basically the NAB at present can only be drawn when there’s a need to supplement the Fund’s resources to either forestall or cope with an impairment of the international monetary system. That basic condition will still exist. So the NAB resources will only be able to be activated if quota resources are not sufficient and there’s a need to deal with a global crisis, effectively. And to do so will require the agreement of a very high proportion of the participants, which is 85 percent of the participants will need to agree.

So the backstop character is not changed. What is changed is that currently, when it is activated, it is activated for individual loans or each individual loan -- this is IMF loans to borrowing countries. And each loan requires its own activation process.

Now, obviously in the sort of crisis that we’ve just seen, and probably we should anticipate we might need to deal with again in the future given increased interconnection amongst countries and globalization of capital flows, we need to be in a position where we can deal with several countries at once. And so the idea of this reform is to make it easier to use the NAB in that context. So rather than having to go through the same approval procedures loan by loan, we would have a procedure where the participants would agree that the NAB could be activated for a period, as I said, of up to six months. And during that -- and they would agree on by how much, which would not necessarily be the full amount. There would be a judgment at that time how much was needed. And then the Fund would be able to call on those resources up to the limits and up to the period agreed by the participants. So basically, the participants still effectively have control over the extent to which their resources are called upon.

QUESTIONER: Okay. And if I may ask a second question, you mentioned the advantage of this reform, that in future crises the Fund would not run out of money in the middle of the crisis. If I understand it right, didn’t you say before that until now you have drawn about 6 billion SDR out of the volume of the bilateral loans and bilateral credit lines? So nonetheless, the sum that is going to be decided upon next week seems to be much bigger than the money actually needed in this crisis. Could you comment on that?

SENIOR IMF OFFICIAL: Yeah. I mean, this is what we’ve drawn so far. We will -- we still have substantial commitments out to members, so we have a number of loans that are being drawn down as reviews are being completed. So we will use significantly more than we have so far. And, of course, we have some large precautionary arrangements, particularly under the Flexible Credit Line, which are intended to remain precautionary, so we don’t expect those to be drawn, but we need to have resources available in case they are drawn.

I think the general intention with these sorts of arrangements is to have a large amount of resources available so that we give confidence that we have the resources if they are needed, but not to actually need to use them. So that was an important achievement of the London Summit last April, as I mentioned: the announcement alone of the commitment of the G-20 leaders to providing the Fund with substantial resources had a significant role in calming the crisis and, therefore, probably avoiding us actually having to use the resources.

QUESTIONER: Okay. Last question. What is the upcoming amount of capital you need which you have already promised under the Flexible Credit Lines, which you might need, or in other credit arrangements? Do you have any number for how much would be upcoming in the next one or two years?

SENIOR IMF OFFICIAL: I think it’s available on our website. All the current arrangements are listed on our website. [see]. We currently have, in active arrangements, roughly 110 billion SDRs, of which roughly a half is the Flexible Credit Lines that I mentioned. They are precautionary.


SENIOR IMF OFFICIAL: The other half is arrangements, many of which are drawing, not all. And that information is on the website.

QUESTIONER: Okay. Thank you.

QUESTIONER: Yes, hi. I was wondering if you think that the US$550 billion is adequate enough and would instill confidence in the Fund, that the Fund can actually come to the aid of countries during crises.

SENIOR IMF OFFICIAL: Yes, it’s substantial -- it’s roughly a tripling of our previous resources, so this is a substantial response. And I think it does represent a very credible amount that the Fund would have available to deal with a wide range of possibilities.

QUESTIONER: Right. And then I also wanted to ask you: one of the sensitivities around the NAB was from the emerging economies, which said that that they’d first like to figure out any quota increase and that the current commitment was not a permanent one until the quota increase had been finalized. First of all, let me ask, you said earlier that it was semi-permanent, so I gather some of them have committed only up to two years to the NAB?

SENIOR IMF OFFICIAL: Well, I mean semi-permanent in the sense that the NAB is reviewed every five years.


SENIOR IMF OFFICIAL: So it’s a standing arrangement, but it’s not permanent capital. Every five years the participants come together and decide whether to maintain it. They could always decide not to. So far it’s been renewed twice.


SENIOR IMF OFFICIAL: I think it is a pretty permanent part of our financing toolkit, but, of course, it is always subject to that review.

QUESTIONER: Okay. So the emerging markets, like China, Russia, you know, India, and Brazil, theirs is pretty much sewn up. It’s not contingent on an agreement in quotas in 2011?

SENIOR IMF OFFICIAL: Everybody is coming in on the same basis, but what has been agreed is that the NAB will be reviewed again in 2011.


SENIOR IMF OFFICIAL: The idea of that is exactly what you mentioned, that a number of participants, not just the emerging market economies, wanted that. We’re having to do that in a sequenced way, of course, because it takes time to do the quota review.


SENIOR IMF OFFICIAL: So quite a number of the participants were willing to commit to the NAB now, but wanted to come back to it again in light of what happens with the quota review, which we don’t yet know. –

QUESTIONER: Right. So could -- is it possible that it could go much bigger then after the quota?


QUESTIONER: Is it possible that it could be increased a lot more after the quota increase? –

SENIOR IMF OFFICIAL: Above the US$550 billion?


SENIOR IMF OFFICIAL: Well, it’ll be reviewed again, so anything is possible.


SENIOR IMF OFFICIAL: But I don’t think that’s the sense of it. I mean, I think the participants view the US$550 billion as being a substantial and credible backstop. If they thought this was not enough, they would presumably have agreed on something larger even now. I guess the expectation would be that there will be, following the quota review, an increase in quotas and then it would be a judgment of what the Fund’s total resources should be and what should be the mix of quota resources and the NAB.

QUESTIONER: Okay, fine. Thanks a lot.


QUESTIONER: Yes. I apologize. I just want to return to the numbers again, just to make sure that it’s all clear. Because, you know, on the page that I think the other reporter was referring to are the different agreements that have been signed, and that obviously adds up to way over the 300 billion in commitments that you mentioned that have already been made. So I guess the point I want to make is that when this thing is agreed, to increase it to US$ 550 billion, for example, Japan has already committed its US$100 billion; it’s not going to commit any more to reach that US$550 billion. The U.S. has already committed the amount that it’s going to commit. You know, everything that’s listed under those agreements has already been committed and that’s going to contribute to the increase in NAB, right? We’re not going to see the U.S. coming up with more money or Brazil or China, right?

SENIOR IMF OFFICIAL: Well, it differs depending on who you’re talking about. The U.S. has not provided a bilateral loan to the Fund. Their commitment was to provide resources in the context of the NAB. So for the U.S., there is nothing at present. Once the NAB is in effect, they have committed to increase their participation by US$100 billion.

In the case of Japan, Brazil, China, they have bilateral agreements in place. And the intention is that those bilateral agreements would fold into the NAB and the specific amounts you’ll see when the decision is released on Monday, but they won’t be exactly what is the current bilateral agreements in most cases. So they -- and the intention is that once the NAB is in place, whatever has been drawn under those bilateral arrangements could be folded into a drawing under the NAB, and then the bilateral arrangements could be cancelled.

So as I said at one point, these are not additional. Right now we have bilateral lines. They add up to a bit over US$300 billion. Once we get the NAB in place, whatever we’ve drawn at that point would fold into the NAB and the bilaterals would disappear.

QUESTIONER: But to a large extent this is kind of a formality of all these pledges that have already been committed. This is just formalizing those commitments with some changes in some of the figures.

SENIOR IMF OFFICIAL: No. I mean, there will be a broader list of members, of participants in the NAB, than are providing us with bilateral resources now. So I think it goes beyond just a formalization. I think this is actually a pretty significant development because this, as we’ve discussed, is a standing agreement. It’s a multilateral agreement, so it reflects a cooperative response across a broad range of countries, which will include a significant number of emerging market countries to support the Fund if it needs to supplement its resources to deal with a global crisis.



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