Glossary of Selected Financial Terms

Terms and Definitions

Last Updated: October 31, 2006

A   B   C   D   E   F   G   H   I   L   M   N   O   P   Q   R   S   T   U   V   W   List of Terms

A

Access Policy

Policies that govern the use of IMF resources by its members, including access limits set in terms of members’ quotas. The access policy, including annual and cumulative limits, under the credit tranches and the Extended Fund Facility (EFF) are reviewed each year. Access under other facilities also is reviewed periodically. Access under the Supplemental Reserve Facility (SRF) and the Contingent Credit Line (CCL) are not subject to limits in relation to quotas.

Accounting Unit

The IMF’s unit of account is the special drawing right, or SDR. Members’ currencies are valued by the IMF in terms of the SDR on the basis of their representative rates of exchange, normally against the U.S. dollar at spot market rates if available. Gold held by the IMF is valued at the average historical acquisition cost. As of January 31, 2000, the IMF held about 103 million fine ounces of gold at designated depositories with a book value of SDR 4.9 billion and a value at market prices of about SDR 21.7 billion.

Accounts, IMF

The IMF operates its financial functions through three separate accounting entities: the General Department, the SDR Department, and the Administered Accounts. The financial functions of the IMF are discharged by the Finance Department, which is an organizational unit of the staff. The IMF has 15 other departments that are organizational units, as well as the Office of the Managing Director, four institutes, offices in Paris, Geneva, Tokyo and at the United Nations, and resident representatives located in various member countries.

Adequate Safeguards

Under the Articles of Agreement, the IMF is to make its general resources temporarily available to members "under adequate safeguards." The IMF considers the principal safeguard of repayment to be strong economic adjustment programs but has also adopted specific measures to protect against misuse of IMF resources by ensuring that members have in place adequate accounting, reporting and auditing systems and provide the IMF timely, accurate and comprehensive information (see also Safeguard Assessments and Non-complying Purchase).

Adjustment Program

A detailed economic program, usually supported by use of IMF resources, that is based on an analysis of the economic problems of the member country and specifies the policies being implemented or that will be implemented by the country in the monetary, fiscal, external, and structural areas, as necessary, to achieve economic stabilization and set the basis for self-sustained economic growth.

Administered Accounts

Accounts established for financial and technical services, that are consistent with the purposes of the IMF, including the administration of resources contributed by individual members to provide assistance to other members. All operations and transactions involving the Administered Accounts are separate from those of the IMF’s other accounts.

Amendments to the Articles of Agreement

The Articles of Agreement have been amended three times: The First Amendment (July 1969) introduced the special drawing right (SDR). The Second Amendment (April 1978) reflected the change from the par value system based on a fixed price for gold to an international monetary system based on floating exchange rates. The Third Amendment (November 1992) allowed for the suspension of the voting and certain related rights of a member that fails to fulfill any of its obligations under the Articles (other than obligations with respect to SDRs). The Board of Governors in September 1997 adopted a resolution to amend the Articles to allow for a special one-time allocation of SDRs. The Fourth Amendment will become effective when three-fifths of membership having 85 percent of the total voting power have accepted it.

Amortization

Scheduled reimbursement or repayment of the amount borrowed.

Arrangement

A decision by the IMF that gives a member the assurance that the institution stands ready to provide foreign exchange or SDRs in accordance with the terms of the decision during a specified period of time. An IMF arrangement—which is not a legal contract—is approved by the Executive Board in support of an economic program under which the member undertakes a set of policy actions to reduce economic imbalances and achieve sustainable growth. Resources used under an arrangement carry with them the obligation to repay the IMF in accordance with the applicable schedule, and to pay charges on outstanding purchases (drawings) and loans.

Arrears

A stock of outstanding debt, either domestic or external, resulting from payments not being made when due. Arrears of the government may arise, for example, from a failure to pay interest or amortization obligations when due or when there is a delay in paying bills to contractors, wages to civil servants, or retirement benefits to pensioners beyond the date that these payments are legally obligated to be made.

Article IV Consultation

A regular, usually annual, comprehensive discussion between the IMF staff and representatives of individual member countries concerning the member's economic and financial policies. The basis for these discussions is in Article IV of the IMF Articles of Agreement (as amended, effective 1978) which direct the Fund to exercise firm surveillance over each member's exchange rate policies.

Articles of Agreement

An international treaty that sets out the purposes, principles, and financial structure of the IMF. The Articles, which entered into force in December 1945, were drafted by representatives of 45 nations at a conference held in Bretton Woods, New Hampshire. The Articles have since been amended three times, in 1969, 1978, and 1992, as the IMF responded to changes in the world economic and financial structure; see Amendments (to the Articles of Agreement).

B

Go to top of page

Balance of Payments (BOP)

A statement summarizing the economic transactions between the residents of a country and nonresidents during a specific period, usually a year. The BOP includes transactions in goods, services, income, transfers and financial assets and liabilities. Generally, the BOP is divided into two major components: the current account and the capital and financial account.

Basic Period

Each of the consecutive periods of five years (or less) during which a determination is made whether there is a global need for additional international reserves to justify a new allocation of SDRs. There has not been an allocation since the third basic period (1978-81).

Basic Rate of Charge

The interest rate that is charged on outstanding IMF credit financed from the IMF's general resources. The basic rate is determined by the IMF's net income target in any financial year and is stated as a proportion of the SDR interest rate.

Benchmarks

In the context of IMF programs, a point of reference against which progress may be monitored. Benchmarks may be either quantitative or structural in content, and may be set on a quarterly or semi-annual basis.

Broad Money

A measure of the money supply in an economy, with broad coverage. Broad money usually includes national currency and deposits held by residents in depository institutions; these deposits may be either transferable, such as demand deposits, or nontransferable, such as term deposits; deposits denominated in foreign currency and held by residents may also be included in broad money.

Budget

A statement of the projected revenues, proposed expenditures, and planned financing of any surplus or deficit of an entity, especially government

Burden Sharing

Decisions adopted by the Executive Board of the IMF since 1986 regarding the sharing, between members paying charges and members receiving remuneration, of the financial consequences to the IMF of overdue obligations. An amount equal to overdue charges (excluding special charges) and an allocation to the Special Contingent Account are generated each quarter by an upward adjustment of the rate of charge and a downward adjustment of the rate of remuneration (see Extended Burden Sharing, Special Charges, Remunerated Reserve Tranche, and Remuneration).

C

Go to top of page

Capital Account

A standard component of the balance of payments accounts, usually a shortened term for the capital and financial account, which refers to (i) capital transfers and acquisition/disposal of non-produced, nonfinancial assets and (ii) financial assets and liabilities.

Commitment Fee

A charge of 1/4 of 1 percent a year payable at the beginning of each period (usually one year) on the resources committed for that period under Stand-By and Extended Arrangements. This fee is reimbursed when committed resources are drawn.

Compensatory Financing Facility (CFF)

A special IMF financing facility (window) that was established to provide resources to members to cover shortfalls in export earnings and services receipts, as well as excesses in cereal import costs, that are temporary and arise from events beyond the members’ control.

Conditionality

Economic policies that members intend to follow as a condition for the use of IMF resources. These are often expressed as performance criteria (for example, monetary and budgetary targets) or benchmarks, and are intended to ensure that the use of IMF credit is temporary and consistent with the adjustment program designed to correct a member’s external payments imbalance.

Consumer price index (CPI)

A measure of a country's general level of prices based on the cost of a typical basket of consumer goods and services.

Convertibility

The ability to freely use a currency for international transactions by the residents of any country.

Credit Tranche Policies

Policies under which members may make use of IMF credit. Provided a member is making reasonable efforts to solve its balance of payments problems, it can make use of IMF resources up to the limit of its first credit tranche, equivalent to 25 percent of its quota, on liberal terms. Requests for the use of IMF resources in the "upper credit tranches," or more than 25 percent of quota, require substantial justification for the expectation that the member's balance of payments difficulties will be resolved within a reasonable period of time.

Cross-Conditionality

To avoid duplication of requirements by the IMF and the World Bank—known as cross-conditionality—there is an understanding that each institution must proceed with its own financial assistance according to the standards laid down in its Articles of Agreement and the policies adopted by its Executive Board. In other words, compliance with the requirements of one institution ought not be made a condition for the availability of financial assistance by the other institution.

Currency Holdings

The currency holdings of the IMF are the resources held at its disposal in the IMF No. 1 Account, No. 2 Account, and IMF Securities Account in its member countries which are obtained as a result of member's quota payments and transactions and operations between the IMF and members.

Current Account

The record of all transactions in the balance of payments covering the exports and imports of goods and services, payments of income, and current transfers between residents of a country and nonresidents.

D

Go to top of page

Debt

Outstanding financial liabilities arising from past borrowing. Debt may be owed to external or domestic creditors and typically, debt financing is in the form of loans or bonds. The debtor may be either a public (government) or private sector entity.

Debt Relief

Agreements by creditors to lessen the debt burden of debtor countries by either rescheduling interest and principal payments falling due over a specified time period, sometimes on a concessional basis, or by partially or fully cancelling debt service payments falling due during a specified period of time.

Debt Service

Scheduled interest and principal payments (amortization) due on public and publicly guaranteed debt outstanding during a year.

Default

In finance, default is the term used when a party is unwilling or unable to pay their debt obligations. This can occur with all debt obligations including bonds, debentures, mortgages, loans, and notes. Default can also occur with sovereign bonds, that is, governments can default on their payments to creditors. In corporate finance, a default is typically a prelude to bankruptcy. With most loans the total amount owed becomes immediately payable on the first instance of a default of payment.

Depository and Fiscal Agency

Each member designates a fiscal agency (ministry of finance, central bank, or similar entity) as a channel for the conduct of financial transactions with the IMF and a depository (central bank or similar agency) to maintain the accounts of the IMF (the IMF No. 1 and No. 2 Accounts and the Securities Account).

Designation Plan

A list of participants in the SDR Department whose balance of payments and reserve positions are sufficiently strong for them to be called upon to provide freely usable currency in exchange for SDRs within a financial quarter, together with the amounts they may be called upon to provide. The designation plan is established in advance of each financial quarter (currently only on a precautionary basis) by approval of the Executive Board.

E

Go to top of page

Early Repurchase

A repurchase (repayment) made before the end of the established maximum repurchase period. Under specific circumstances, the IMF may call upon a member to make an early repurchase.

Early Repurchase Expectation

The expectation of repurchase (repayment) in advance of its originally scheduled due date. According to the Articles of Agreement, a member is normally expected to repurchase its currency (make repayment of usable currencies) as its balance of payments and reserve positions improve. The current early repurchase policy has been in effect since June 1979 and establishes amounts expected to be repurchased taking into account the level of a member’s reserves and their growth, as well as other parameters. A separate repurchase expectation applies to purchases made under the Supplemental Reserve Facility and the Contingent Credit Line. Such repurchases are expected one year before they become obligatory, except that at the request of the member the IMF may decide to extend the expectation period by up to one year, though not beyond the due date.

Emergency Financing Mechanism

A set of exceptional procedures to facilitate rapid Executive Board approval of IMF financial support for a member while ensuring the conditionality necessary to warrant such support. These emergency measures are used only in circumstances representing, or threatening to give rise to, a crisis in a member’s balance of payments that requires an immediate IMF response.

Emergency Post-conflict Assistance

Since 1962, the IMF has provided emergency assistance in the form of outright purchases to help members overcome balance of payments problems arising from sudden and unforeseeable natural disasters. This assistance was extended in September 1995 to cover certain post-conflict situations. Assistance is normally limited to 25 percent of quota and is available only if the member intends to move within a relatively short time to an IMF arrangement. In post-conflict cases an additional 25 percent of quota can be provided in certain circumstances.

Emerging Markets

The capital markets of developing countries that have liberalized their financial systems to promote capital flows with nonresidents and are broadly accessible to foreign investors.

Enhanced Structural Adjustment Facility (ESAF)

Facility established in December 1987 to provide assistance on concessional terms to low-income member countries facing protracted balance of payments problems. (Changed to the Poverty Reduction and Growth Facility in 1999.)

Enhanced Surveillance Procedure

Policy introduced in 1985 to help members make progress in addressing their debt problems and improving relations with their creditors. During the enhanced surveillance period, economic developments in the member country are monitored by the IMF. The staff prepares an assessment of the member’s economic program, which may be presented by the member to official and private creditors for consideration. The policy was broadened in 1993 to cover any situation in which a member would find this enhanced monitoring by the IMF helpful.

Exchange Rate

The price of one currency in terms of another. Most commonly, exchange rates are expressed as the number of units of domestic currency that will purchase one unit of foreign currency (e.g. units of currency per U.S. dollar). An exchange rate may also be defined as the inverse: the number of units of foreign currency that one unit of domestic currency will purchase.

Excluded Holdings

The part of a member’s currency held in the General Resources Account (GRA) that reflects the member’s use of IMF credit and is therefore excluded when determining the member’s reserve tranche position in the IMF. When determining a member’s reserve tranche position, holdings in the IMF No. 2 Account that are less than 1/10th of 1 percent of the member’s quota also are excluded.

Extended Arrangement

A decision of the IMF under the Extended Fund Facility that gives a member the assurance of being able to purchase (draw) resources from the General Resources Account (GRA) in accordance with the terms of the decision during a specified period, usually three years, and up to a particular amount.

Extended Burden Sharing

The IMF established a second Special Contingent Account on July 1, 1990, and decided to place SDR 1 billion to the account within about five years (through quarterly downward adjustments to the rate of remuneration and upward adjustments to the basic rate of charge). These actions were taken to safeguard against possible losses arising from undischarged repurchase obligations related to purchases financed by the encashment of "rights" following the successful completion of a rights accumulation program. The target of SDR 1 billion was reached in February 1997. The account was dissolved in 1999 and the resources made available to contributors to assist in financing special assistance to poor countries under the HIPC/PRGF initiatives. (See Burden Sharing.)

Extended Fund Facility

A financing facility (window) under which the IMF supports economic programs that generally run for three years and are aimed at overcoming balance of payments difficulties resulting from macroeconomic and structural problems. Typically, the member's economic program states the general objectives for the three-year period and the specific policies for the first year; policies for subsequent years are spelled out at the time of program reviews (see Extended Arrangement).

External Debt

Financial obligations to a creditor who is not a resident of the debtor's country

F

Go to top of page

Financial Transactions Plan

The Executive Board adopts a financial transaction plan (previously known as the operational budget) for each upcoming quarter specifying the amounts of SDRs and selected member currencies to be used in purchases and repurchases (transfers and receipts) expected to be conducted through the General Resources Account during that period.

Financing Assurances

An IMF policy developed in response to the external debt crisis of the late 1970s and early 1980s to help mobilize financial support from the international banking community for countries experiencing debt-servicing difficulties. Under the policy, the IMF would not make its resources available to a member undertaking an adjustment program until receiving assurances that the financing for the program would be forthcoming.

First Credit Tranche Purchase

See Credit Tranche Policies.

Floating Facilities

Purchases (drawings) made under the special facilities (currently the Compensatory Financing Facility and the Supplemental Reserve Facility) are not counted in calculating annual and cumulative access limits. These are therefore termed "floating facilities." However, for the purpose of determining the level of conditionality (whether first tranche or higher), all purchases are taken into account.

Foreign Direct Investment (FDI)

The acquisition of at least ten percent of the ordinary shares or voting power in a public or private enterprise by nonresident investors. Direct investment involves a lasting interest in the management of an enterprise and includes reinvestment of profits.

Foreign Exchange

Any type of financial instrument that is used to make payments between countries is considered foreign exchange. Examples of foreign exchange assets include foreign currency notes, deposits held in foreign banks, debt obligations of foreign governments and foreign banks, monetary gold, and SDRs.

Freely Usable Currency

A currency that the IMF has determined is widely used to make payments for international transactions and widely traded in the principal exchange markets. At present, the euro, Japanese yen, pound sterling, and U.S. dollar are classified as freely usable currencies.

G

Go to top of page

General Arrangements to Borrow (GAB)

Long-standing arrangements under which 11 industrial countries stand ready to lend to the IMF to finance purchases (drawings) that aim at forestalling or coping with a situation that could impair the international monetary system. The GAB currently amounts to SDR 17 billion, and there is also an associated arrangement with Saudi Arabia for SDR 1.5 billion. Since their establishment in 1962, these arrangements have been renewed every four or five years.

General Department

An accounting entity of the IMF comprised of the General Resources Account (GRA), the Special Disbursement Account (SDA), the Investment Account (not activated), and the Borrowed Resources Suspense Accounts (inactive since December 1991).

General Resources

Assets, whether ordinary (owned) or borrowed, maintained within the IMF’s General Resources Account (GRA)

General Resources Account (GRA)

The principal account of the IMF, consisting of a pool of currencies and reserve assets, representing the paid subscriptions of member countries' quotas. The GRA is the account from which the regular lending operations of the IMF are financed.

Globalization

The process through which an increasingly free flow of ideas, people, goods, services, and capital leads to the integration of economies and societies. Major factors in the spread of globalization have been increased trade liberalization and advances in communication technology.

Gross Domestic Product (GDP)

Gross domestic product is the most commonly used single measure of a country's overall economic activity. It represents the total value of final goods and services produced within a country during a specified time period, such as one year.

Gross National Product (GNP)

Gross national product was formerly used as a measure of a country's overall economic activity, equal to GDP less compensation of employees and property income payable to the rest of the world plus the corresponding items receivable from the rest of the world; GNP has been renamed gross national income (GNI) in the System of National Accounts.

H

Go to top of page

Heavily Indebted Poor Countries Initiative (HIPC)

The HIPC Initiative, adopted in 1996, provides exceptional assistance to eligible countries to reduce their external debt burdens to sustainable levels, thereby enabling them to service their external debt without the need for further debt relief and without compromising growth. It is a comprehensive approach to debt relief which involves multilateral, Paris Club, and other official and bilateral creditors. To be eligible, countries must (1) have established a strong track record of performance under programs supported under the Poverty Reduction and Growth Facility (PRGF) and the International Development Association (IDA); (2) be IDA-only and PRGF-eligible; (3) face an unsustainable debt burden; and (4) have developed a Poverty Reduction Strategy Paper. A strong track record of policy implementation is intended to ensure that debt relief is put to effective use. Following a comprehensive review in 1999, the Initiative was enhanced to provide faster, deeper, and broader debt relief and to strengthen the links between debt relief, poverty reduction, and social policies. In 2005, the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative (MDRI).

Holdings Rate

The exchange rate of the member’s currency against the SDR, at which the IMF holds the currency of the member (see Representative Rate).

I

Go to top of page

Inflation

A sustained increase in the general price level, often measured by an index of consumer prices. The rate of inflation is the percentage change in the price level in a given period.

Interest

Scheduled payments made to a creditor in return for the use of borrowed money and which will be determined by the interest rate, the amount borrowed (principal) and the duration of the loan.

Interest Rate

The fixed charge or return, usually expressed on an annual basis, on a financial asset expressed as a percentage of the price of the asset.

International Monetary Fund (IMF)

Organization established by international treaty in 1945 to promote monetary cooperation among its members. Its statutory purposes include promoting the balanced growth of international trade, stability of exchange rates and the maintenance of orderly exchange arrangements among members. The IMF monitors global economic and financial developments and gives policy advice, lends to member countries with balance of payments problems, and provides technical assistance in its areas of expertise.

Investment

Investment from the perspective of the domestic economy is the purchase of capital equipment, e.g., machines and computers, and the construction of fixed capital, e.g., factories, roads, housing, that serve to raise the level of output in the future. From the perspective of an individual, investment is expenditure, usually on a financial asset, designed to increase the individual's future wealth.

L

Go to top of page

Letter of Intent (LOI)

A document in which a member country of the IMF formally requests an arrangement to use the Fund's financial resources and describes its commitments to strengthen its economic and financial policies. The letter of intent may be accompanied by a more detailed Memorandum of Economic and Financial Policies

LIBOR

LIBOR stands for the London Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale (or "interbank") money market.

Liquidity Ratio

A measure used to gauge the IMF's capacity to provide financial assistance to members and meet members' claims on the IMF. It is the ratio of the IMF’s net uncommitted usable resources to its liquid liabilities.

M

Go to top of page

Money

Anything that is generally accepted in exchange as payment for goods and services. While the key function of money is to act as a medium of exchange, money also serves as a store of value, unit of account, and standard of deferred payment.

Moral Hazard

In general, a feature of insurance that arises when the provision of insurance increases the probability of the occurrence of the event being insured against, usually because the insurance diminishes the incentives for the insured party to take preventive actions. For example, banks may lend for riskier ventures than they otherwise would if they expect losses to be effectively covered by the government through deposit insurance or otherwise. On an international level, recourse to IMF financing may generate moral hazard on the part of both borrowers and lenders, leading to less due diligence by private lenders, and allowing borrowing governments to incur larger debts and get by with weaker policies and institutions. Hence, the availability of IMF financing, while offering a cushion to countries in times of financial crises, may increase the likelihood of such crises occurring.

Multilateral Debt Relief Initiative (MDRI)

The Multilateral Debt Relief Initiative (MDRI) provides for 100 percent relief on eligible debt from three multilateral institutions to a group of low-income countries to free up additional resources to help these countries reach the MDGs. All countries that reach the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative), and those with per capita income below US$380 and outstanding debt to the Fund at end-2004, are eligible for the MDRI. Unlike the HIPC Initiative, the MDRI does not propose any parallel debt relief on the part of official bilateral or private creditors, or of multilateral institutions beyond the IMF, IDA, and the AfDF.

N

Go to top of page

Narrow money

Designation of a narrow measure of the money supply - usually including currency held outside banks and demand deposits.

Net Cumulative SDR Allocations

Cumulative allocations of SDRs less any SDR cancellations. (As of end-March 2000, there have been no cancellations of SDRs.)

New Arrangements to Borrow (NAB)

Arrangements, which became effective in 1998, under which 25 member countries or their financial institutions stand ready to lend to the IMF under circumstances similar to those covered by the General Arrangements to Borrow (GAB). The NAB do not replace the GAB but are to be the first and principal recourse in the event of a need to provide supplementary resources to the IMF. The total amount of the NAB is SDR 34 billion, and the combined amount that can be drawn under the NAB and the GAB also cannot exceed SDR 34 billion.

Nominal effective exchange rate

A measure of the exchange rate of a currency in terms of the exchange rates of a group of currencies. It is typically calculated for a particular country's currency as a weighted average of the bilateral exchange rates of the currencies of that country's main trading partners and presented as an index number.

Noncomplying Purchase

A purchase (drawing) made by a member under a Stand-By or an Extended Arrangement that the member is later found not entitled to make—that is, a purchase made on the basis of incorrect information. The IMF has a set of guidelines to apply in such cases.

Norm for Remuneration

Calculated as the total of (1) 75 percent of a member’s quota before the Second Amendment of the Articles (April 1, 1978), plus (2) any subsequent increases in its quota. For a country that became a member after April 1, 1978, the norm is the percentage of its quota equal to the weighted average relative to quota of the norms applicable to all other members on the date that the member joined the IMF, plus the amounts of any increases in its quota afterwards. At each quota increase, a member’s norm rises, becoming closer to 100 percent of its quota. A member’s norm determines its remunerated reserve tranche position.

O

Go to top of page

Official Development Assistance (ODA)

Official development assistance - loans, grants, and technical assistance that governments provide to developing countries. It is administered with the promotion of the economic development and welfare of developing countries as its main objective, and it is concessional in character, containing a grant element of at least 25% (calculated at a rate of discount of 10%). "Aid" often stands for development aid and is usually used to refer specifically to Official Development Assistance (ODA).

Operations

The use or receipt of monetary assets by the IMF, other than exchanges of monetary assets (that is, other than transactions.) Examples are the payment of remuneration and receipt of charges. Operations in SDRs are uses of SDRs other than exchanges of SDRs for monetary assets (that is, other than transactions by agreement or with designation).

Ordinary Resources

Assets held in the General Resources Account (GRA) that derive from members’ quota subscription payments and the undistributed net income from the use of these resources.

Outright Purchase

A purchase (drawing) for which there is no formal IMF arrangement, such as a purchase under a special policy, e.g., the policy on the emergency assistance.

P

Go to top of page

Performance Criteria

Macroeconomic indicators such as monetary and budgetary targets that must be met, typically on a quarterly or semi-annual basis, for the member to qualify for purchases under the phasing schedule for Stand-By Arrangements, Extended Fund Facility (EFF) Arrangements, and Poverty Reduction and Growth Facility Arrangements. Some performance criteria are those necessary to implement specific provisions of the Articles of Agreement. (See also Benchmarks.)

Periodic Charges

Charges (interest) are payable by a member on its outstanding use of IMF credit.

Phasing

The practice of making the IMF’s resources available to its members in installments over the period of an arrangement. The pattern of phasing can be even, front-loaded, or back-loaded, depending on the financing needs and the speed of adjustment.

Poverty Reduction and Growth Facility (PRGF)

Established as the Enhanced Structural Adjustment Facility (ESAF) in 1987, enlarged and extended in 1994, and further strengthened in 1999 to make poverty reduction a key and more explicit element. The purpose of the facility is to support programs to strengthen substantially and in a sustainable manner balance of payments positions, and to foster durable growth, leading to higher living standards and a reduction in poverty. Eighty low-income countries are currently PRGF-eligible. Loans are disbursed under three-year arrangements, subject to observance of performance criteria and the completion of program reviews. Loans carry an annual interest rate of 0.5 percent, with a 5-1/2 year grace period and a 10-year maturity.

Precautionary Arrangement

A Stand-By or an Extended Arrangement under which the member agrees to meet specific conditions for use of IMF resources although it has indicated to the Executive Board its intention not to make purchases (drawings).

Precautionary Balances

Balances held in the form of General and Special Reserves, and the Special Contingent Accounts that were established in the context of the arrears strategy.

Prescribed SDR Holder

A nonparticipant in the SDR Department that has been prescribed by the IMF as a holder of SDRs.

Program Monitoring

Monitoring by the IMF to determine whether the performance criteria specified and policy commitments made in the context of a Stand-By or an Extended Arrangement are being observed by the member receiving resources (see Conditionality).

Purchases and Repurchases

When a member draws on the IMF's general resources, it does so by purchasing SDRs or other members’ currencies in exchange for its own (domestic) currency. The IMF’s general resources are, by nature, revolving: purchases (or drawings) have to be reversed by repurchases (or repayments) in installments within the period specified for a particular policy or facility.

Purchasing Power Parity (PPP)

A theory which relates changes in the nominal exchange rate between two countries currencies to changes in the countries' price levels. The purchasing power parity theory predicts that an increase in a currency's domestic purchasing power will be associated with a proportional currency appreciation, and that a decrease will be associated with a proportional currency depreciation.

Q

Go to top of page

Quota

Each member of the IMF is assigned a quota, denominated in SDRs, that is based broadly on the country's economic position relative to other members. The size of a country's quota takes into account its GDP, current account transactions, and official reserves. Quotas determine members' capital subscriptions to the Fund, voting power, and the amount of financial assistance available to them from the Fund. Quotas are reviewed regularly, normally every five years. During reviews they may be adjusted to reflect changes in the global economy or changes in members' economic positions relative to other members.

R

Go to top of page

Rate of Remuneration

The IMF pays remuneration (interest) on members' reserve tranche positions; the basic rate of remuneration has been set equal to the SDR interest rate since February 1, 1987 and must be maintained in the range of 80-100 percent of the SDR interest rate.

Real Effective Exchange Rate

A broad summary measure of the prices of one country's goods and services relative to the prices of goods and services in that country's trading partners. It is typically calculated as a weighted average of the ratios of a country's domestic price index to the price indices of its foreign trading partners, where the indices are expressed in the same currency units.

Remunerated Reserve Tranche Position

A member receives remuneration from the IMF (at a rate determined by the IMF) on any excess of its reserve tranche position over the difference between its quota and its norm for remuneration.

Remuneration

The interest paid by the IMF every quarter on a member’s remunerated reserve tranche position.

Representative Rate

The exchange rate of a member's currency—normally against the U.S. dollar. If the member has an exchange market where a representative spot rate for the U.S. dollar (against the member's currency) can be readily ascertained, then that representative rate will be used. If such a market rate cannot be readily ascertained for the U.S. dollar but can be ascertained for another currency for which a representative market rate against the U.S. dollar exists, then that cross rate can be used. Otherwise, the IMF determines a rate for the currency that is appropriate.

For members whose currencies are used in Fund financial transactions, the representative rate is reported daily to the Fund by the issuing central bank. A currency's representative rate, in conjunction with the SDR/USD rate determines the SDR per currency rate, which would be used in the Fund's transactions and operations with that member.

Reserve Position in the IMF

A member has a creditor (or reserve) position in the IMF if it has lent reserve assets to the IMF under a loan agreement, and/or the member has provided reserve assets to the IMF either as a result of its initial quota payment or through IMF use of the holdings of the member's currency to provide financial assistance to other members. More precisely, the creditor (or reserve) position is the sum of outstanding borrowing by the IMF from the member, if any, and the member’s reserve tranche position.

Reserve Tranche Position

The extent to which the IMF's holdings of a member's currency (excluding holdings that reflect the member's use of IMF credit, and holdings in the IMF number two account that do not exceed 10 percent of quota) are less than the member's quota. The reserve tranche position is part of the member country's external reserves.

Rights Accumulation Program (RAP)

An economic program agreed between the IMF and an eligible member in protracted arrears to the IMF that provides a framework for the member to establish a satisfactory track record of policy and payments performance, and permits the member to accumulate rights to future drawings of IMF resources following clearance of arrears to the IMF, up to the level of arrears outstanding at the beginning of the program.

Rights Approach

A special approach to address the situation of members that were in protracted arrears to the IMF at end-1989, on the basis of a rights accumulation program.

S

Go to top of page

Safeguards Assessment

A two-stage evaluation of a member country central bank's control, accounting, reporting and auditing systems to ensure that resources, including those provided by the Fund, are adequately monitored and controlled. The first stage will determine whether there are clear vulnerabilities in these systems, based on information provided by central banks. If weaknesses in internal procedures are suspected, a second stage will comprise on-site evaluations and recommendations for improvements. Safeguards assessments for all new users of Fund resources will begin after mid-year 2000 and will run on an experimental basis no later than end-2001.

SDR Interest Rate

Weighted average of interest rates on short-term financial instruments in the markets of the currencies included in the SDR valuation basket. The SDR Interest Rate Calculation is determined on a weekly basis and is subject to a 0.050 percent floor.

Self-Financing PRGF

Under a self-sustained Poverty Reduction and Growth Facility, loans would not be financed by PRGF Trust borrowing (as under the current PRGF), but by IMF resources currently in the PRGF Trust Reserve Account, on a revolving basis.

Service Charge

A fixed charge of 1/2 of 1 percent levied on each purchase (drawing) of IMF resources in the General Resources Account other than reserve tranche purchases, which carry no charges. The service charge is payable at the time of the transaction.

Sovereign debt

A debt instrument issued by a sovereign government. Most sovereign debt takes the form of bonds.

Special Charges

Charges in addition to the basic rate of charge levied on a member’s overdue repurchases and charges.

Special Contingent Accounts

Accounts established to hold precautionary balances in order to strengthen the IMF’s financial position in connection with members’ overdue financial obligations.

Special Drawing Right (SDR)

International reserve asset created by the IMF in 1969 as a supplement to existing reserve assets.

  • SDR Allocation. Distribution of SDRs to members by decision of the IMF. A "general" allocation requires a finding by the IMF that there is a global need for additional liquidity.
  • SDR Assessment. An assessment levied by the IMF, at the same rate for all participants in the SDR Department, on a participant’s net cumulative SDR allocations, to cover the expenses of conducting the business of the SDR Department.
  • SDR Department. This department, an accounting entity rather than an organizational unit of the IMF, records and administers all transactions and operations involving SDRs.
  • SDR Interest and Charges. Interest is paid to each holder of SDRs. Charges are levied, at the same rate, on each participant’s net cumulative SDR allocations. The SDR interest rate is determined weekly by reference to a short-term market interest rates on the currencies used for SDR valuation. Interest on SDR holdings is paid, and charges on net cumulative allocations are collected, on a quarterly basis, and are settled on the first day of the subsequent quarter.
  • SDR Use. Participants in the SDR Department (currently all members of the IMF) and prescribed holders may use SDRs in a variety of voluntary transfers, including transactions by agreement, swap arrangements, forward operations, and so forth. Participants may also use SDRs in operations and transactions involving the General Resources Account (GRA), such as the payment of charges and repurchases (repayments). In addition, the IMF ensures that a participant with a balance of payments or reserve need to acquire foreign exchange is able to use its SDRs in a "transaction with designation".
  • SDR Valuation. The currency value of the SDR is determined daily by the IMF by summing the values in U.S. dollars, based on market exchange rates, of a basket of four major currencies—the euro, Japanese yen, pound sterling, and the U.S. dollar. The SDR valuation basket is normally reviewed every five years. The last review, which took place in 2000 (see Press Release No. 00/55), resulted in a revision of the weights assigned to each currency in order to take into account the introduction of the euro on January 1, 1999 and the growing role of international financial markets. The revisions in the valuation basket became effective on January 1, 2001 (see Press Release No. 00/87).

Staff Monitored Program (SMP)

A staff-monitored program is an informal and flexible instrument for dialogue between the IMF staff and a member country on its economic policies. Under a staff-monitored program the country's targets and policies are monitored by the IMF staff; a staff-monitored program is not supported by the use of the Fund's financial resources; nor is it subject to the endorsement of the Executive Board of the IMF.

Stand-By Arrangement

A decision of the IMF by which a member is assured that it will be able to make purchases (drawings) from the General Resources Account (GRA) up to a specified amount and during a specified period of time, usually one to two years, provided that the member observes the terms set out in the supporting arrangement.

Structural Adjustment

Changing the way in which an economy is organized in order to raise productive capacity. Reforms associated with structural adjustment can include liberalization of trade and investment policies and anti-competitive agricultural policies; removal of exchange and price controls; and reform of tax policies.

Structural Adjustment Facility (SAF)

A financial facility of the Fund established in 1986 to provide concessional loans to low-income Fund member countries. It recycled resources lent under the IMF's Trust Fund. It was superseded by the Enhanced Structural Adjustment Facility (ESAF) which was established in 1987 to promote stronger adjustment and reform measures than those under the SAF. The ESAF was replaced by the Poverty Reduction and Growth Facility in 1999.

Supplemental Reserve Facility (SRF)

A financial facility of the IMF, established in 1997, designed to provide financial assistance to member countries experiencing exceptional balance of payments difficulties due to a large short-term financing need related to a sudden and disruptive loss of market confidence. There are no explicit access limits. Financial resources under this facility are provided under an associated stand-by or extended arrangement when access under either of these arrangements would exceed either the annual or cumulative limit.

Surveillance

An essential aspect of the IMF’s responsibilities associated with overseeing the policies of its members in complying with their obligations specified in the Articles of Agreement in order to ensure the effective operation of the international monetary system.

T

Go to top of page

Tranche

A slice or segment, usually used as either "reserve tranche," the name given to a country's creditor position in the Fund, or as "credit tranche," a designation of the extent of a country's purchases (borrowing) from the Fund. When a country borrows from the Fund under a stand-by arrangement, credit is typically made available in segments, or tranches, traditionally equivalent to 25 percent of a country's quota. Policies that govern the IMF's general lending practices under stand-by arrangements are referred to as "Credit Tranche Policies."

Transactions

An exchange of monetary assets by the IMF for other monetary assets (for example, a purchase or a repurchase).

Transactions by Agreement

Transactions in which participants in the SDR Department (currently all members) and/or prescribed holders voluntarily exchange SDRs for currency at the official rate as determined by the IMF. These transactions are usually arranged by the IMF.

Transparency

Openness, honesty, and accountability in public and private transactions. The term "transparency" is frequently used to mean openness in the working of institutions. It is linked to a variety of demands for broader public access to information. The IMF has developed codes of good practices on fiscal transparency, and transparency in monetary and financial policies.

U

Go to top of page

Upper Credit Tranches

Originally, referred to credit available from the Fund in an amount between 25 and 100 percent of a country's quota. Since access to IMF credit is now permitted substantially above 100 percent of quota, the upper credit tranches now refer to any use of IMF credit above 25 percent of quota.

Use of IMF Resources

The extension of credit to members through the use of IMF resources under the General Resources Account, loans made to members of resources in the Special Disbursement Account or resources borrowed by the IMF as Trustee for the PRGF Trust.

V

Go to top of page

Valuation Adjustment

Each member has the obligation of maintaining the value in terms of the SDR of the balances of its currency held by the IMF. Whenever the holdings of a member’s currency are revalued, a receivable (for the IMF) or a payable (by the IMF) is established for the amount of currency payable by or to the member.

W

Go to top of page

World Bank

The World Bank includes two development institutions owned by 184 member countries: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD is concerned with middle income and creditworthy poor countries, while the IDA focuses on alleviating poverty in the poorest countries in the world. Both institutions provide low-interest loans, interest-free credit and grants to developing countries for projects and programs to, for example, build schools and health centers, provide water and electricity, fight disease, and protect the environment. World Bank assistance is funded both by member country contributions and through bond issuance.