IMF Finances

Public Information Notice: IMF Board Completes Review of Fund Financial Facilities
November 30, 2000

Review of Fund Facilities -- Decisions
November 28, 2000

Summing Up by the Acting Chairman of the IMF Executive Board Contingent Credit Lines
November 17, 2000

Statement by the Staff on Review of Fund Facilities Proposed Decisions and Implementations Guidelines IMF Executive Board Meeting
November 17, 2000

Where Does the IMF Get its Money? -- A Factsheet

Public Information Notice (PIN) No. 00/79: IMF Board Agrees on Changes to Fund Financial Facilities - September 18, 2000

Glossary of Selected Financial Terms




Review of Fund Facilities
Proposed Decisions and Implementation Guidelines

Prepared by the Legal, Policy Development and Review,
and Treasurers Departments

November 2, 2000

Contents
 
I. Introduction
 
II. The Contingent Credit Lines
 
III. Emergency Assistance and the Compensatory Financing Facility
 
IV. Time-Based Repurchase Expectations
 
V. Charges on the Use of Fund Credit
  A. Level-Based Surcharge
B. Surcharge on the Contingent Credit Lines
C. Commitment Fee
 
VI. Post-Program Monitoring
 
VII. Proposed Decisions
  Proposed Decision 1
   (see adopted Decision 1)
Proposed Decision 2
   (see adopted Decision 2)
Proposed Decision 3
   (see adopted Decision 3)
Proposed Decision 4
   (see adopted Decision 4)
Proposed Decision 5
   (see adopted Decision 5)
Proposed Decision 6
   (see adopted Decision 6)
Proposed Decision 7
   (see adopted Decision 7)
Proposed Decision 8
   (see adopted Decision 8)
 
Text Boxes
1. Summary of Repurchase Expectations
2. Some Implications of the Proposed Method of Linking Expectations and Obligations
3. Criteria for Extending Repurchase Periods or Postponing Expectations
4. Summary of Changes to Charges
 
Figure 1.
  Attribution of Repurchase Expectations under Credit Tranches/CFF and EFF: Schedules for a Single Purchase (211 kb pdf file. Use the free Adobe Acrobat Reader to view pdf files. )
 
Annexes
1. Draft Contingent Credit Lines Summing Up (367 kb pdf file. Use the free Adobe Acrobat Reader to view pdf files. )
   (see Adopted Contingent Credit Lines Summing Up)
2. Guidance Note on Programming with Repurchase Expectations
3. Guidance Note on the Implementation of Post-Program Monitoring
4. Some Explanatory Notes Regarding the Proposed Decisions

 

I.  Introduction

1. The Executive Board completed a comprehensive review of the Fund’s facilities in September 2000. The Board agreed on a number of changes that would allow the Fund’s facilities to play a more effective role in supporting members’ efforts to prevent crises and help ensure more efficient use of the Fund’s resources. The agreed changes are summarized in "Summing Up by the Acting Chairman - Review of Fund Facilities - Supplementary Information, EBM/00/96" (BUFF/00/153, 9/18/00).

2. The present paper contains proposed decisions that would implement the changes, for the consideration of the Executive Board. The paper also discusses some technical aspects of these changes that were not specifically addressed when they were agreed.

3. The paper is structured as follows: Section II considers the changes to the Contingent Credit Lines (CCL); Section III, changes to emergency assistance and the Compensatory Financing Facility (CFF); Section IV, time-based repurchase expectations for some policies; Section V, the surcharge on high levels of credit outstanding under some policies, the surcharge on the CCL, and the commitment fee; and Section VI, post-program monitoring. Section VII presents the proposed decisions for consideration by the Executive Board.

II. The Contingent Credit Lines

4. The agreement reached by the Board in September involved a number of important changes to the CCL. It was agreed that (i) the Fund’s monitoring of the member’s program would be less intensive than for other arrangements, although the Fund and the member would remain in close consultation; (ii) the activation review would be divided into an activation and a post-activation review, with the purchase to be made available on completion of the former to be specified upon commitment of CCL resources; (iii) the separate condition for the activation review related to adherence to the program would be subsumed into the condition that the crisis must have been triggered by contagion; and (iv) the Fund, in the activation review, would give the member the strong benefit of the doubt as to any required policy adjustments. In addition, it was agreed that the rate of charge on the CCL would be reduced, as would the commitment fee on arrangements with CCL resources, by means of a change in the commitment fee for all arrangements. These latter changes are discussed in Section V below.

5. The changes above would be operationalized in a new CCL summing up (see Annex I), and change (ii) is also reflected in the amendment of the CCL decision set out in Section VII. The existing CCL summing up would be replaced by a new summing up, which would be part of the summing up of the Board’s discussion of the present paper. The new summing up differs from the original summing up only in that it is amended to operationalize the changes agreed and to eliminate clauses that have been made irrelevant by the passage of time.

6. The one issue remaining is that of the size of the purchase scheduled on approval of a CCL that would be released upon completion of the activation review.1 The summing up of the September discussion states that this purchase should be "large." The staff papers discussed various options in this regard-first, the possibility that the purchase on activation would be a uniform 100 percent of quota or one third of the total commitment of resources under the arrangement;2 and second, whether there should be either a rule or a presumption in this regard:

  • Regarding the former, the staff would recommend that the purchase available on activation be equivalent to one third of the arrangement. Markets are likely to read into the total commitment of resources under the arrangement a sign of the Fund’s confidence in the member, and backing up this confidence with a larger purchase to be made available on activation would help enhance the signaling effect of the CCL.

  • Regarding the latter, although it is not clear under what circumstances in which the purchase that would be scheduled to become available on activation should be different from the norm, the staff would recommend retaining some flexibility in case of unforeseen circumstances. This could be achieved by agreeing on a presumption rather than on a rigid rule that the purchase scheduled for release upon completion of the activation review would be of a certain size (equivalent to one third of the arrangement in the proposal above).

7. The Board may also wish to consider whether, given the delays in the completion of the review of the CCL, the sunset clause on the CCL should be extended. The CCL was established in April 1999 and incorporates a sunset clause that will make it expire, unless the Board decides to extend it, on May 4, 2001. The first review of its operation was due to be completed by May 5, 2000, but, because the CCL review became part of the review of facilities, it was completed only on September 15, 2000, and the amendments to the CCL will become effective only upon adoption of Proposed Decision No.1 in Section VII and the summing up in Annex I. In order to allow for a meaningful period of experimentation with the amended CCL, and because the revised CCL can be seen as a new start for the facility, the Board may wish to consider extending the sunset clause so that the CCL would expire two years from the date it is amended-that is, in November, 2002.3

III. Emergency Assistance and the Compensatory Financing Facility

8. An issue that has not yet been fully resolved is how the changes agreed for the credit tranches and the Extended Fund Facility should affect use of Fund resources for emergency assistance in the credit tranches and under the Compensatory Financing Facility. The Board has already agreed that the resources made available under the guidelines on emergency assistance for natural disasters and for post conflict situations should not be counted toward outstanding obligations that give rise to surcharges on high levels of outstanding credit. It is also clear that the SRF and CCL neither should nor will be affected by these changes, since they feature their own surcharges and repurchase expectations, and are special policies subject to their own terms. The Board needs to consider, however, whether repurchase expectations should apply to the policies on emergency assistance, and how the proposed changes should affect the Fund’s other special policy, the Compensatory Financing Facility (CFF).

9. For simplicity, the staff would propose that resources made available under emergency assistance for natural disasters and post conflict situations not feature time-based repurchase expectations, just as they would be outside the framework of credit subject to surcharges. 4 Repurchase expectations would encourage members to repurchase emergency assistance resources early if their external position allowed it. However, while some members may recover quickly from natural disasters, it will be rare for post-conflict cases to have a sufficiently strong external position to meet expectations, and there are important benefits in terms of simplicity to having similar terms in both types of emergency assistance. Moreover, use of emergency assistance is not frequent, and access is modest, typically at 25 percent of quota, and thus far no higher than 50 percent of quota. On balance, the staff is of the opinion that the advantage of simplicity in Fund facilities outweighs the benefit of time-based repurchase expectations for emergency assistance.

10. In order to be exempted from surcharges and time-based repurchase expectations, emergency assistance for natural disasters and for post-conflict situations needs to be converted into a special policy (and thus outside the credit tranches). Changes that have been agreed for the credit tranches would also apply to the two types of emergency assistance, which are currently policies in the credit tranches, unless these are converted into a special policy. Since the access limits in the credit tranches and the EFF are defined to cover only these two policies, a by-product of converting emergency assistance into a special policy will be, effectively, a slight increase in the access limits in the credit tranches and under the EFF, as access to emergency assistance will no longer count toward these access limits. However, the use of emergency assistance is sufficiently rare (as noted in RoF I, Table 3, 15 cases between 1989 and 1999) that this effect is minor. A draft decision converting the two types of emergency assistance into a special policy is included as Proposed Decision No. 2 in Section VII, and the repurchase provisions for this new policy are included in Proposed Decision No. 3 in Section VII.5 As with all other special policies, it is proposed that purchases under emergency assistance be excluded from the definition of reserve tranche purchase in accordance with Article XXX(c)(iii) (that is, the availability of the reserve tranche will not be affected by emergency assistance purchases).

11. There is an issue whether purchases under the CFF should be subject to the repurchase expectations agreed for credit tranche purchases and also be counted toward outstanding obligations that give rise to a level-based surcharge. The CFF is not part of the credit tranches, and is not automatically affected by the introduction of repurchase expectations or a level-based surcharge in the credit tranches and under the EFF. However, rapid improvements in a member’s external position can occur following a CFF purchase, just like (or even more than) following a credit tranche purchase. Moreover, as suggested in the earlier staff papers, keeping the terms of the CFF unchanged even as repurchase expectations and surcharges are introduced in the credit tranches and under the EFF could bias members toward use of the CFF.6 This effect could be avoided by making similar changes to the CFF as to the credit tranches and EFF. The staff would therefore propose that resources made available under the CFF be subject to the same repurchase terms and charges as resources in the credit tranches. As repurchase obligations under the CFF are the same as for purchases in the credit tranches, the schedule of repurchase expectations under the CFF would be aligned with that in the latter. Further, outstanding credit under the CFF would be counted toward determining outstanding obligations that give rise to the surcharge on high levels of credit outstanding. If Directors agree to the proposals in this paragraph, the relevant draft decisions (Proposed Decision No. 3 and 7) are in Section VII.

IV. Time-Based Repurchase Expectations

Summary of changes agreed by the Board

12. The Executive Board has agreed to introduce time-based repurchase expectations for purchases in the credit tranches and under the EFF. Details are summarized in Box 1.

Box 1. Summary of Repurchase Expectations

Agreed:

  • Repurchase expectations to apply to all purchases in the credit tranches and under the EFF after decision date.

  • In the credit tranches, repurchases expected to begin 2¼ years after date of purchase and to be completed after 4 years.

  • Under the EFF, repurchases expected to begin 4½ years after date of purchase and to be completed after 7 years.

  • Extensions of the expectation period are to be granted on the basis of the member’s external position.

  • Requests for changes to the expectations schedule are in principle possible at any time.

Proposed:

  • Emergency assistance would be excluded from repurchase expectations.

  • Purchases under the CFF made after the decision date would be subject to repurchase expectations.

  • An extension removes an expectation, requiring the member to meet the corresponding obligation when due.

  • Extensions can be granted for one, several, or all repurchase expectations at once, but the presumption would be that they would be granted for expectations over the coming year.

  • Not adhering to repurchase expectations without prior extension by the Board would lead automatically to the suspension of further drawings, and to increasingly formal responses from management and the Board. The Board could lift the suspension at any time.

  • The granting of extension requests would be publicized by means of a factual press release.

  • For purchases in the credit tranches, normally made under stand-by arrangements (SBAs), members will be expected to begin repurchases after 2¼ years and complete repurchases after 4 years. Each purchase by a member will be expected to be repurchased in 8 equal and consecutive quarterly installments, as under the obligation schedule, but with repurchases beginning 2¼ years, rather than 3¼ years, after the date of the purchase. Repurchases will thus be expected one year earlier than under the obligations schedule, with no change in the repurchase amounts.

  • Under the Extended Fund Facility (EFF), members will be expected to meet repurchase expectations starting from 4½ years and ending 7 years after each purchase, in addition to meeting repurchase obligations falling due during that period. Each repurchase during this period will be for double the amount due under the obligations schedule. Thus, if the member observes the expectation schedule, while also discharging repurchase obligations falling due in the same period, repurchases will be completed in 7 rather than 10 years from the date of each purchase.

Effectiveness

13. Time-based repurchase expectations would apply to all purchases made after decisions are taken to give effect to the policy change, whether under current or new arrangements, as indicated in the summing up of the September 14 discussion. They would not apply to purchases already made.

Timing of requests for extensions of repurchase expectations

14. Members have the right to make a request for an extension7 of repurchase expectations at any time but, to avoid the expectation date passing without the Board having considered its extension request, a member should allow some time for consultation with staff and preparation of Board documentation for a request for extension. A request for extension requires a certain amount of preparation to bring it to the Executive Board. As an operational matter, a member should thus normally bring a request for extension of expectations to the attention of staff about two months before the date of the first of the expected repurchases for which the member would like to have the extension applied to. While requests could be put to the Board as stand-alone issues, it would be helpful, in order to minimize demands on staff resources and Board time, if members made requests for extensions in the context of Article IV consultations, requests for use of Fund resources, or discussions on post-program monitoring.

Interaction between the expectation and obligation schedules

15. The parameters already set by the Board will determine the repurchase schedule for members that adhere entirely either to the expectation schedule or (following an extension) to the obligation schedule. For these members, there will be no particular complications related to tracking repurchases.

16. For other members, that switch from the expectation to the obligation schedule, the policy will need to be clear on how the expectation and obligation schedules interact:

  • The policy will need to be clear on how the meeting of repurchase expectations, and any extensions, respectively, affect the obligation schedule. It will be important for the member to know these implications, both because they will influence its decision whether or not to request an extension, and because the member needs to be clear on its obligations in order to be able to meet them. The following paragraphs make proposals in this regard.

  • It would be possible to determine a rule whereby extensions of repurchase expectations, would affect the remaining expectation schedule (or, indeed, to leave flexibility to the Board in this regard), but the staff would propose that extensions of expectations simply eliminate the corresponding expectations, rather than create alternative expectations. Simulations indicate that little would be gained from extensions that created new expected repurchases short of the obligation dates, while operational and accounting complexities for members and the Fund would increase substantially as the number of different repayment schedules expanded.

17. With regard to how the meeting of expectations affects the obligation schedule, one option would be to apply the same treatment to the payment of repurchase expectations as is currently applied to all repurchases in excess of obligations falling due at a given time, but the staff would not recommend this in view of the operational complexities it would introduce. When a member makes a repurchase in excess of obligations, it is allowed to attribute it to extinguish any obligation it chooses; if the member does not indicate otherwise, the payment is allocated to the next maturing obligation.8 This system of free attribution, however, brings major complications, which have been manageable in the case of the relatively rare voluntary advance repurchases that have taken place in the past, but would become overwhelming for both members and the Fund with the application of repurchase expectations for most repurchases.9

18. Instead, the staff would propose a simple pairing of repurchase expectations with repurchase obligations (stemming from the same purchase), whereby expected repurchases would be paired with repurchase obligations due one year later, under the credit tranches and the CFF, and three years later, under the EFF. The meeting of a repurchase expectation would extinguish the corresponding "paired" obligation, while an extension of a repurchase expectation would make it necessary to meet the "paired" obligation when due. The scheme is illustrated in Figure 1 as it would apply to an individual purchase; the "repurchase streams" stemming from different purchases would each be treated separately but in the same manner. The proposed pairing seems especially natural for the credit tranches and the CFF, where the timing of repurchase expectations effectively shifts repurchases forward by one year relative to obligations. The application of a similar pairing method to the EFF would allocate each repurchase, made to meet an obligation and an expectation, first to discharge the obligation falling due on that date, and the balance, on account of the expectation, to extinguish the repurchase obligation falling due three years later. This would effectively shift repurchases forward by three years relative to the later obligations.

19. This extension method would appear to be consistent with the objectives the Board had in mind in agreeing to the principle of introducing repurchase expectations. It would not advance the moment in time when the last repurchase is made (if it is made as an obligation rather than an expectation), but any expected repurchases that were actually made would lower the average duration of outstanding credit compared to the duration under the obligations schedule, and thereby contribute to a reduction in unduly long use of Fund resources, as intended by the Board.

20. Although the proposed method can be considered to have some drawbacks (these are discussed in Box 2), the staff believes that these are outweighed by the fact that the method would be reasonably simple to understand and implement. In particular, thanks to the unique mapping of expectations to obligations, it is sufficient to know the date of the expectation at issue in order to determine the implications of the meeting or extension of an expectation for the obligation schedule.10 The staff believes that the advantages of simplicity loom very large, not least because a member’s repurchases will not typically be composed of a single repurchase stream (arising from a single purchase, as illustrated in Figure 1 above), but of a multiplicity of repurchase streams (each arising from a different purchase). Period for which extensions are granted

21. The staff would propose that the policy include a presumption that repurchase expectations covering a certain period-specifically, one year-could be extended, while the Board would retain the flexibility to grant extensions for expectations covering a longer or shorter period if appropriate. Flexibility would allow the Board to treat members appropriately if their external position is expected to strengthen particularly quickly or slowly, while a presumption as to the number of expectations that would be extended at once would provide the system with an "anchor" to help ensure uniformity of treatment. If repurchase expectations covering one year-a reasonably predictable time horizon-were extended, expectations in subsequent years would be left intact, to allow for the possibility of an improvement in the member’s external position. A year later the Board could, based on a request by the member and an assessment of its external position at that time, approve a further extension. The staff proposes that the presumption be for an extension of expectations falling due over one year both in order to discourage requests for extensions of expectations falling due over a shorter period, which would be difficult to justify,11 and so as to ensure that requests for extensions of repurchases falling due over a longer period are accompanied by clear justification as to why the member’s external position is unlikely to strengthen over a longer time horizon.

Box 2. Some Implications of the Proposed Method of Linking Expectations and Obligations

In the credit tranches and under the CFF, an extension for only some repurchase expectations could result in a bunching of repurchases. The bunching would occur because the extended expectations would mean that obligations remain in the following year, on top of the expectations in that year.1 Consequently, an extension of only some repurchases would lead to higher repurchases in the subsequent year than under either the original expectation or obligation schedules. Bunching, however, already occurs in use of Fund credit-for instance, when a member is granted a stand-by arrangement following an arrangement under the EFF. In cases where bunching causes difficulties, moreover, it could be avoided by extending all expectations, either at once or sequentially.

Extensions after a member has met some expectations would result in lower repurchases than under the original obligation schedule, as the expectations already met have extinguished some of the initial obligations. For instance, if an extension took place 3 ½ years after the first purchase under a stand-by arrangement, no repurchases would be due for a year, as the original obligations had been extinguished by the meeting of expected repurchases in the previous year. The resulting repurchase profile would be uneven, and would feature a "gap" relative to the original repurchase obligations in the fourth year. A similar gap could arise in the eighth to tenth years after a purchase under the EFF (although, in the overall repurchase schedule, the gap effect in the EFF is moderated because of the aggregation with other repurchases under the arrangement that are in a different repurchase phase2). Gaps, however, can be considered to be no more than a reflection of the fact that the member made early payments on the obligations due in the period of the gap, and are the logical corollary of the desire to allow members the full benefit of the original obligation period, should they run into difficulties at any time during that period. ______________________

1 Within a given repurchase stream, there would be no bunching of repurchases under the EFF, as extended repurchases would shift into a period (the eighth through tenth years) that does not otherwise feature repurchase expectations.

2 For instance, while a gap may arise with respect to repurchases arising from a particular purchase under an extended arrangement, repurchase obligations will be falling due on repurchases arising from later purchases, on which the corresponding expectations have not yet been met.

Conditions for extensions

22. The Board would approve a member’s request for an extension if it agreed that the member’s external position was not sufficiently strong to enable it to make early repurchases without undue hardship or risk. The ability of the member to meet repurchase expectations would be assessed on the basis of criteria including the level of international reserves, the outlook for the balance of payments, and access to capital markets, as elaborated in Box 3 (reproduced from Box 2 of RoF III). The Board would be provided with a brief staff analysis of the member’s request and a staff recommendation.

23. As further discussed in Annex II, Fund-supported programs will continue to be guided by the requirement that the member should be able to meet the repurchase obligations. There is no need to program more or faster adjustment in order that the member be able to meet the repurchase expectations. Fund-supported programs would continue to be designed so as to permit a member to meet repurchase obligations.12 Because programs will not generally target adjustment sufficiently rapid for members to meet repurchase expectations, members will generally be in a position to meet these expectations only if their external position is stronger than had been programmed.

24. The approval of a new arrangement would generally be consistent with an extension of outstanding repurchases to the obligation schedule, and such requests would generally be preceded or accompanied by request for extensions. Unless it is precautionary, an arrangement indicates that the member has a need for exceptional financing stemming from a weakness in the balance of payments and/or in the level of international reserves.13 Meeting repurchase expectations in these circumstances would further aggravate this weakness, implying undue risk to the member, and/or undue hardship arising from the additional required adjustment. Therefore, the approval of a new nonprecautionary arrangement would imply that the member’s external position was such that a request for an extension would be granted. Indeed, since it is intended to be members in a strong external position that meet repurchase expectations (and not members making use of Fund resources for this purpose), the member’s balance of payments need and its access to Fund resources would be determined on the assumption that the member would meet obligations. In the case of a precautionary arrangement, where the member has no immediate need for new Fund resources, it could, but would not necessarily, be the case that the external position is sufficiently strong to meet repurchase expectations on credit outstanding from previous arrangements.

Box 3. Criteria for Extending Repurchase Expectations

The granting of an extension of time-based repurchase expectations should hinge on an assessment of the member’s external position. In particular, the Board would have to agree with the member that the member’s external position was not sufficiently strong to permit early repurchases. In practice, judgments on the strength of the external position would be based on a range of indicators, taking into account all relevant information, including: (i) foreign reserves, including in relation to imports and short-term debt; (ii) medium-term balance of payments (BOP) outlook under sound economic policies; and (iii) access to international capital markets, as reflected, inter alia, in trends in sovereign spreads and sovereign credit ratings. A member’s overall position would be considered, because repurchase expectations may be justified even if some elements of the external position are not strong.

Early repayments of other credit would be one indicator of strength in the external position. If a member had made voluntary early net repayments during the period since the outset of the arrangement on other official or commercial external debt, foreign reserves would be lower than otherwise. Nevertheless, early net repayments provide prima facie evidence that a member has confidence in the strength of its BOP position and in the reliability of its access to capital markets, such that it could also meet an early repurchase schedule pertaining to the Fund.

In reaching judgments on repurchase expectations, special factors affecting the external position of each member should be taken into account, and appropriate safeguards should be applied to ensure that undue hardship or risks are not imposed on members. The strength of the external position would need to be evaluated bearing in mind factors including the member’s foreign exchange regime, exposure to external shocks (including commodity prices), foreign debt, and foreign exchange liquidity exposure. For example, a member with a currency board arrangement may need higher reserves than otherwise. If an extension is to be refused, the medium-term BOP projection incorporating the proposed early repurchase schedule and based on sound policies (including debt and reserve management policies) should not involve the member bearing undue hardship or risks.

________________

Consequences of missed repurchase expectations

25. Remedies would apply if a member did not adhere to the repurchase expectation schedule and an extension had not been granted. The member’s right to make further drawings, including under ongoing arrangements, would be automatically suspended. Suspension of drawings would affect both arrangements in the GRA and arrangements under the PRGF (see Proposed Decisions No. 3, 4, and 5 in Section VII). In addition, the Managing Director would not recommend, and the Board would not approve, new arrangements or outright purchases. The application of remedies would cease if and when the member met the missed expectation, and at the latest, at the time of meeting the repurchase obligation. It would also cease if the Executive Board decides to lift the suspension.

26. A member that had missed a repurchase expectation without an extension having been granted would also, of course, be subject to "peer pressure," and the staff would propose that procedures in this regard parallel those in arrears cases.14 While missed expectations are not by any means as serious a matter as arrears, the graduated response developed to deal with arrears cases does provide a model for a gradual intensification of representations to the member.15

Information provision outside the Fund

27. The staff would propose that extensions of expectations be publicized immediately following the Board decision. A member’s financial data, including past disbursements, repurchase schedule, repurchases made, and charges, are available monthly on the Fund’s website, normally after a lag of less than one month. Consistent with this, approvals of extensions should be briefly and factually reported as soon as they are granted. Any effort to conceal developments in a member’s actual repurchase schedule could only suggest that the Fund views extensions in a negative light, while the approval of a request for extension of expectations would confirm that the member remains in good standing with the Fund, without suggesting that the member’s program was not developing satisfactorily.

28. The staff would propose that extensions be publicized in the form of a factual statement posted on the IMF website.16 This would be consistent with the characterization that such extensions would not normally be accompanied by heightened concern on the Fund’s part. However, should an extension be coupled with an Article IV or a PPM discussion, more information about the member’s external circumstances could be made available in the Public Information Notice (PIN) that follows these discussions.

Other issues

29. It is proposed that the Board review the operation of repurchase expectations by end-2005. Since repurchase expectations will be included only in future purchases, the first ones will fall due, for credit tranche purchases, in early 2003, and under the EFF, toward mid-2005. By end-2005, sufficient experience should have been accumulated to permit a thorough review. The staff will monitor implementation of the new policy closely, and an additional review could be held in the interim if unexpected issues arose.

30. Draft Decision Nos. 3 through 6 in Section VII reflect the proposals set out in this section. Proposed Decision Nos. 3 and 4 introduce time-based repurchase expectations with respect to purchases in the credit tranches and under the CFF, and under the EFF, respectively. They also provide for the non-approval of any request for the use of the Fund’s general resources by a member that is not meeting any such expectation for which the Fund has not granted an extension, as well as for the suspension of further purchases under arrangements in the same event. Proposed Decision No. 5 provides for the suspension of disbursements under PRGF arrangements, and the non-approval of new PRGF arrangements, should a member fail to meet a time-based repurchase expectation for which the Fund has not granted an extension. Proposed Decision No. 6 implements the attribution method proposed in paragraphs 15-20 above.

V. Charges on the Use of Fund Credit

A. Level-Based Surcharge

31. The Executive Board agreed to introduce surcharges on purchases in the credit tranches and the EFF above a threshold level to discourage unduly large outstanding use of Fund resources.17 The use of credit above 200 percent of a member’s quota will carry a surcharge above the regular rate of charge of 100 basis points, and the surcharge will rise to 200 basis points for use of credit above 300 percent of quota. The Executive Board considered that the level-based surcharge should not be changed for a period of at least four years. A summary of the proposed changes to charges is provided in Box 4.

32. The surcharge does not apply to the total amount of purchases but only to the amount above the threshold. The Fund will compute the average daily balances of a member’s currency held in the General Resources Account that are subject to periodic charges under Article V, Section 8(b) (excluding the portion of grandfathered holdings and of holdings arising from purchases under excluded policies-SRF/CCL, Emergency Assistance) and levy surcharges on the amount of credit outstanding above the threshold amounts.

33. The Board agreed that purchases outstanding in the credit tranches and under the EFF at the time these proposed decisions are taken will not be considered for the purposes of applying the surcharge. Only purchases made after the adoption of the proposed decisions will be considered for the purposes of calculating the surcharge. During the transition period, the Fund, in effect, will maintain records on two separate stocks of outstanding purchases: those made prior to the effective date of introduction of the surcharge and those made thereafter.

34. Draft Decision No. 7 in Section VII will create the level-based surcharge.

Box 4. Summary of Changes to Charges

Level-based Surcharge

  • A surcharge will be levied as follows: 100 basis points on cumulative holdings resulting from purchases in the credit tranches, the EFF, and the CFF above a threshold of 200 percent of quota and 200 basis points on amounts above 300 percent of quota;1/

  • Holdings from other purchases are excluded;

  • The surcharge does not apply to purchases outstanding at the time of the adoption of these propsed decisions; nor are such purchases taken into account in determining when surcharges apply.

Surcharge on the Contingent Credit Lines (CCL)

Charges on the CCL are reduced as follows:

  • The surcharge on the CCL will initially equal 150 basis points and will increase by 50 basis points at the end of the first year from the date of the first purchase, and every six months thereafter, until the surcharge reaches 350 basis points.

Commitment Fee

  • The schedule of commitment fees applicable to all Fund arrangements will consist of two tiers: 25 basis points on amounts up to 100 percent of quota that could be purchased over each twelve-month period and 10 basis points on amounts in excess of 100 percent of quota that could be purchased over the same period.

___________________

1/ As explained in paragraph 11, the staff proposes that purchases under the CFF would count towards the surcharge.

B. Surcharge on the Contingent Credit Lines

35. The Executive Board reached agreement on reducing the initial surcharge on the use of credit under the CCL, from 300 basis points to 150 points. The surcharge will increase by 50 basis points one year after the first purchase as a result of the activation of the CCL, and every six months thereafter until it reaches 350 basis points. To implement this change, the decision on the CCL is amended accordingly (see Proposed Decision No.1 in Section VII).

C. Commitment Fee

36. Directors agreed that the commitment fee on all Fund arrangements, including those with CCL resources, will be replaced by a two-tier schedule. Under the new schedule, the commitment fee will amount to 25 basis points per annum on amounts of up to 100 percent of quota that can be purchased in each twelve-month period, and 10 basis points on the portion of the amount that exceeds 100 percent of quota that can be purchased in the same period. The commitment fees will be levied annually at the beginning of each twelve-month period.

37. Commitment fees paid over the course of an arrangement are refunded when the member makes purchases under the arrangement. Under the existing rule,18 the refund amount is calculated on the basis of the proportion of the amount of the purchase in relation to the total amount that can be purchased under the arrangement during the period of twelve months or less in which the purchase was made. Applying the same rule in the presence of the new schedule of commitment fees would effectively defer the full refund of the higher commitment fee (i.e., 25 basis points), levied on commitments exceeding 100 percent of quota during a twelve-month period or less, until all purchases available during that period are made. The mismatch, caused by timing difference, between the fee levied on amounts committed and the refunds on actual purchases would be particularly pronounced for members with large commitments.19

38. It is proposed that the refund of commitment fees be made in the same sequence in which they are levied, i.e., 25 basis points on purchases up to 100 percent of quota over a twelve-month period or less, and 10 basis points on purchases above 100 percent of quota during the same period. The higher commitment fee levied (25 basis points) is refunded first until cumulative purchases during the twelve-month period, for which the commitment fee was levied, reach 100 percent of quota. The same procedure would apply to multi-year arrangements. As is the case under the existing rule, the commitment fees collected on the unused portion of a multi-year arrangement, which are carried over to subsequent years, would be refunded for purchases made in those years. In accordance with the current rule, unrefunded commitment fees on expired or canceled arrangements would accrue to the Fund.

39. Draft Decision No. 8 in Section VII reflects the changes to the commitment fee scheme discussed above.

VI. Post-Program Monitoring

40. The Board agreed that, when a member’s credit outstanding exceeded a threshold of 100 percent of the member’s quota, there should be a presumption that the member would engage in post-program monitoring (PPM) by the Fund of economic developments and policies after the expiration of its arrangement. Directors noted that a presumption of PPM would not imply that members that met the criteria would automatically be subject to PPM. Rather, the Managing Director would be expected to recommend PPM to the Board at the time of the last review of the member’s arrangement, unless in his view the member’s circumstances were such that the process was unnecessary. There would also remain a possibility of requiring PPM of a member that did not meet the criteria for the presumption of PPM, as already provided for in the consultation clauses in all Fund arrangements, for example, in cases where in the view of the Managing Director and the Board there were developments which called into question the member’s progress toward external viability.20 Directors also agreed that the Board’s discussions of PPM papers would be reflected in a summing up and, when published, in a Public Information Notice (PIN). The publication of PINs would follow the PIN procedure, including the requirement for the member’s consent. Finally, the Board agreed that experience with PPM should be reviewed in about 18 months.

41. The operational guidance note attached to this paper (Annex II) is designed to provide guidance to the staff and to members in implementing PPM. It draws on the summing up of the Board discussion and on the discussion of PPM in the papers on the review of Fund facilities.21 It discusses the focus and modalities for PPM, including the frequency of Board discussions-normally expected to be twice yearly, with one discussion likely to coincide with the Article IV consultation,22 and with the option being available, as it is with Article IV consultations, for the Board to conclude a PPM discussion on a lapse-of-time basis, if no major issues had arisen.

42. The guidance note also discusses circumstances in which a member might not be expected to undertake PPM, despite having outstanding Fund credit in excess of the threshold. Such circumstances could arise when a successor arrangement or a staff monitored program has already been put in place or is expected to be put in place shortly, or when the Board considered that the member’s policies and external position were so strong that PPM was unnecessary.23

43. The guidance note proposes that the decision on whether a member should be subject to PPM normally be taken at the time of the last review under an arrangement which would result in a member’s credit outstanding at the end of the arrangement exceeding the threshold of 100 percent of quota. However, PPM could also be instituted after the conclusion of the final review of an arrangement, if the Fund believed that PPM was necessary, although it had not been earlier. When it was approval of outright purchases that took the member’s outstanding credit above the threshold, PPM would be instituted from the date of the approval. Decisions on whether the first staff report following the initiation of PPM would take the form of an Article IV consultation report or a PPM report could be taken by the staff in consultation with the authorities, based on the timing of the next scheduled Article IV consultation. PPM would generally end when the member’s outstanding credit fell below the threshold.

44. Cases where the outstanding credit criterion was met, but the arrangement had gone off track before completion of the last review, call for more difficult judgments. In cases where the arrangement is close to its expiration date, it would seem reasonable to start PPM once the program has expired. In cases where the program is not close to expiration, but has been off track (as indicated by the inability of the member to make purchases) for some time, the Managing Director might recommend procedures similar to PPM or some less formal means of monitoring the member’s policies, depending in part on the status of negotiations with the member. For example, if a positive outcome to discussions with the member on putting the program back on track seems unlikely, or if discussions had effectively ceased, the Managing Director might propose either that a PPM-type paper be brought to the Board for discussion, or that an Article IV consultation be held and PPM-type procedures be initiated thereafter.24

45. The Board agreed that the threshold should cover all credit outstanding to the Fund in the GRA.25 This would include purchases in the credit tranches and under the EFF, the CCL, the SRF, the CFF, and under the Fund’s policy on emergency assistance.26 It would not cover use of Fund resources outside the GRA, e.g., the Poverty Reduction and Growth Facility (PRGF). While there is a case for applying PPM to members that had used PRGF resources, based on the same arguments as in other cases, the discussion of PPM in the Review of Facilities was framed entirely in the context of use of GRA resources. The staff would therefore suggest that PPM be applied only to use of GRA resources at present, and that a redefinition of the threshold to cover PRGF resources could be considered at the time of the Board review of PPM in 18 months, by which time more experience with PPM will have been gained.

46. The staff would suggest that staff reports sent to the Board for PPM discussions should be published, subject to the member’s consent. Directors have already agreed that the Board’s discussions of PPM papers would be reflected in a Public Information Notice (PIN), with publication procedures the same as those for PINs following Article IV consultation discussions; but there was no discussion at the earlier meetings of the possibility of publishing PPM staff reports. The staff would suggest that the staff reports sent to the Board for PPM discussions should be subject to the same publication policy as Article IV and use of Fund resources staff reports: that is, publication would be done with the member’s consent, and subject to the same procedures as those for Article IV consultation and use of Fund resources staff reports.27 If Directors agree to this proposal, the staff would prepare an amendment to the decision on Publication Policies of the Fund to include PPM staff reports in the list of papers subject to publication on a voluntary basis. This amendment would be circulated on a lapse of time basis.

VII. Proposed Decisions

47. Set out below are the proposed decisions to implement the changes discussed in the preceding sections. To assist Directors, brief explanations of Proposed Decision numbers 1 through 6 are provided in Annex IV. The majorities required for the adoption of the decisions are as follows: Proposed Decision numbers 1 and 2 - eighty-five percent majority of the total voting power; Proposed Decision numbers 7 and 8 - seventy percent majority of the total voting power; Proposed Decision numbers 3, 4, 5 and 6 - a majority of the votes cast.

Proposed Decision 1 (see adopted Decision 1)

Amendments to the SRF/CCL Decision (to be adopted together with the new CCL summing up set out in Annex I)

Decision No. 11627-(97/123)SRF, adopted December 17, 1997 shall be amended as follows:

1. Paragraph 13 shall be amended to read as follows:

    "13. Through [November [xx], 2002], the Fund will be prepared to commit and provide financial assistance to a member under the terms and conditions specified in this section."

2. Paragraph 17 shall be amended to read as follows:

    "17. The Fund may commit resources under this section at any time under an arrangement, but will only make such resources available after the completion of an activation review under the arrangement when it finds that the member meets the conditions specified in paragraph 15. The arrangement will specify the total amount of resources committed under this section and the amount of such resources that will be made available upon the completion of the activation review. The availability of the rest of the committed resources under this section shall be subject to such phasing and conditionality as the Fund shall consider appropriate, normally at the time of a post-activation review. In addition, the arrangement will normally provide for the continued commitment of resources under this section beyond a specified date to be subject to the completion of a program review by the Fund. The Fund may commit resources under this section for a period of up to one year and, after it makes such resources available, may extend such period for up to one year from the date such resources are made available."

3. Paragraph 19 shall be amended to read as follows:

    "19. Paragraphs 6, 7, 10 and 11 of this decision shall apply to purchases made under this section."

4. The current paragraph 20 shall be deleted in its entirety and replaced by the following:

    "20. During the first year from the date of the first purchase financed under this section, the rate of charge under Article V, Section 8(b) on holdings acquired as a result of purchases under this section shall be 150 basis points per annum above the rate of charge referred to in Rule I-6(4) as adjusted for purposes of burden sharing. Such rate shall be increased by 50 basis points at the end of that period and every six months thereafter, until the surcharge reaches 350 basis points, subject to the provisions of paragraph 21."

5. The following new paragraph 21 shall be added:

    "21. The provisions of Decision No. 8165-(85/189) G/TR, December 30, 1985, except section IV, shall apply to overdue obligations arising under this section, subject to the following provision:

      The rate of charge on overdue repurchases shall be determined by the Fund but shall not be less than the maximum rate of charge specified in paragraph 20."

Proposed Decision 2 (see adopted Decision 2)

Conversion of Emergency Assistance into a Special Policy

1. The Fund will be prepared to provide financial assistance to members who are afflicted by natural disasters or are in post-conflict situations. This assistance will be provided in accordance with the provisions of this decision and the guidelines on emergency assistance for natural disasters and post-conflict situations set out in: (i) pages 17 and 18 of EBM/82/16 (2/10/82); (ii) Summing Up by the Chairman - Fund Involvement in Post Conflict Countries - Executive Board Meeting 95/82- September 6, 1995 (BUFF/95/98 (9/19/95)); and (iii) Summing Up by the Acting Chairman - Fund Assistance to Post-Conflict Countries - Executive Board Meeting 99/38 - April 5, 1999 (BUFF/99/48 (4/9/99)).

2. Purchases under this decision and holdings resulting from such purchases shall be excluded for the purposes of the definition of reserve tranche purchase pursuant to Article XXX(c).

3. Except for the purpose of determining the level of conditionality applied to purchases in the credit tranches, the Fund’s holdings of a member’s currency resulting from purchases under this decision shall be considered separate from the Fund’s holdings of the same currency resulting from purchases under any other policy on the use of the Fund’s general resources.

4. In order to carry out the purposes of this decision, the Fund will be prepared to grant a waiver of the limitation of 200 percent of quota in Article V, Section 3(b)(iii), whenever necessary to permit purchases under this decision or to permit other purchases that would raise the Fund’s holdings of the purchasing member’s currency above that limitation because of purchases outstanding under this decision.

Proposed Decision 3 (see adopted Decision 3)

Repurchases under Emergency Assistance; Purchases in the Credit Tranches and Compensatory Financing Facility - Repurchase Expectations

1. Decision No. 5703-(78/39), adopted March 22, 1978, shall be amended as follows:

    (i) paragraph 1(a) shall be amended by adding: "or the decision on Emergency Assistance (Decision No. )," before "shall be completed";

    (ii) the current paragraph 1(b) shall be deleted in its entirety and replaced by the following:

      "(b) A member will be expected to repurchase the Fund’s holdings of its currency resulting from purchases in the credit tranches or under the Compensatory Financing Facility made after [date of this decision] in equal quarterly installments during the period beginning two years and ending four years after the date of the purchase, provided that the Fund may, upon request by the member, amend the schedule of repurchase expectations, if in the judgment of the Fund the member’s external position is not sufficiently strong for repurchases to be made in accordance with the expectation schedule set out in this paragraph. In determining whether to amend the schedule, the Fund may consider all relevant information, including the size of the member’s foreign reserves, the member’s medium-term balance of payments outlook, and the degree of the member’s access to international capital markets.";

    and

    (iii) the following new paragraph 1(c) shall be added:

      "(c) The Fund shall not approve, and the Managing Director shall not recommend for approval, any request for the use of the Fund’s general resources by a member that is failing to meet a repurchase expectation under paragraph 1(b) above. Provision shall be made in each stand-by and extended arrangement for the suspension of further purchases under the arrangement whenever a member fails to meet a repurchase expectation under paragraph 1(b) above."

2. The Fund shall review the time-based repurchase expectation scheme set out in paragraph 1(b) of Decision No. 5703-(78/39), adopted March 22, 1978, no later than [November 30, 2005].

Proposed Decision 4 (see adopted Decision 4)

Extended Fund Facility-Repurchase Expectations

1. Decision No. 4377-(74/114), adopted September 13, 1974, shall be amended by adding the following new paragraph:

    "10. (a) In addition to making repurchases in accordance with paragraph 5, a member will be expected to repurchase an amount of the Fund’s holdings of its currency resulting from purchases under this decision made after [date of this decision] equal to, and at the time of, the six-monthly installments of repurchases falling due during the period beginning four years and ending seven years after the date of the purchase, provided that the Fund may, upon request by the member, amend the schedule of repurchase expectations, if in the judgment of the Fund the member’s external position is not sufficiently strong for repurchases to be made pursuant to the expectation schedule set out in this paragraph. In determining whether to amend the schedule, the Fund may consider all relevant information, including the size of the member’s foreign reserves, the member’s medium-term balance of payments outlook, and the degree of the member’s access to international capital markets.

    (b) The Fund shall not approve, and the Managing Director shall not recommend for approval, any request for the use of the Fund’s general resources by a member that is failing to meet a repurchase expectation under paragraph 10(a) above. Provision shall be made in each stand-by and extended arrangement for the suspension of further purchases under the arrangement whenever a member fails to meet a repurchase expectation under paragraph 10(a) above."

2. The Fund shall review the time-based repurchase expectation scheme set out in paragraph 10(a) of Decision No. 4377-(74/114), adopted September 13, 1974, no later than [November 30, 2005].

Proposed Decision 5 (see adopted Decision 5)

Non-approval of New PRGF Arrangements and Suspension of Loan Disbursements under Existing PRGF Arrangements Whenever a Member is not Meeting a Repurchase Expectation

The Instrument to Establish the Poverty Reduction and Growth Facility annexed to Decision No. 8759-(87/176) ESAF shall be amended by adding the following at the end of paragraph 1(e) of Section II:

    ", or is failing to meet a repurchase expectation pursuant to paragraph 1(b) of Decision No 5703-(78/39) or paragraph 10(a) of Decision No. 4377-(74/114)."

Proposed Decision 6 (see adopted Decision 6)

Attribution of Repurchases made to meet Time-Based Repurchase Expectations

Decision No. 6831-(81/65), adopted April 22, 1981, shall be amended as follows:

1. Paragraph 1(a) shall be amended to read as follows:

    "(a) Subject to paragraphs (b), (c), (d) and (e) below a member shall be free to attribute a reduction in the Fund’s holdings of its currency (i) to any obligation to repurchase, and (ii) to enlarge its reserve tranche."

2. The following new paragraphs 1(d) and 1(e) shall be added:

    "(d) A reduction resulting from a repurchase made pursuant to a repurchase expectation under paragraph 1(b) of Decision No. 5703-(78/39) shall be attributed to the member’s repurchase obligation arising from the same purchase one year after the original date on which that repurchase expectation was to be met.

    (e) A reduction resulting from a repurchase made pursuant to a repurchase expectation under paragraph 10(a) of Decision No. 4377-(74/114) shall be attributed to the member’s repurchase obligation arising from the same purchase three years after the original date on which that repurchase expectation was to be met."

Proposed Decision 7 (see adopted Decision 7)

Surcharge on Purchases in the Credit Tranches, under the Extended Fund Facility and the Compensatory Financing Facility

The rate of charge under Article V, Section 8(b) on the Fund’s combined holdings of a member’s currency in excess of 200 percent of the member’s quota in the Fund resulting from purchases in the credit tranches, under the extended Fund facility and the Compensatory Financing Facility made after the date of this decision shall be 100 basis points per annum above the rate of charge referred to in Rule I-6(4) as adjusted for purposes of burden sharing, provided that the rate on such holdings in excess of 300 percent of the member’s quota shall be 200 basis points per annum above the rate of charge referred to in Rule I-6(4) as adjusted for purposes of burden sharing.

Proposed Decision 8 (see adopted Decision 8)

Changes to the Commitment Charge for Stand-By and Extended Arrangements

Rules I-8(a) and I-8(b) of the Rules and Regulations shall be amended to read as follows:

    "(a) A charge shall be payable at the beginning of each twelve-month period ("the relevant period") of an arrangement as follows:

      (i) ¼ of 1 percent per annum on amounts of up to 100 percent of the member’s quota that could be purchased during the relevant period; and

      (ii) 1/10 of 1 percent per annum on amounts in excess of 100 percent of the member’s quota that could be purchased during the relevant period.

    (b) When a purchase is made under an arrangement, the amount of the charge paid shall be reduced, and a refund equal to the reduction shall be made, as follows:

      (i) to the extent that purchases during the relevant period do not exceed 100 percent of the member’s quota, the portion of the charge calculated in accordance with subparagraph (a)(i) above shall be reduced by the proportion that the amount of the purchase bears to the amount of the arrangement not exceeding 100 percent of the member’s quota that could be purchased during the relevant period; and

      (ii) to the extent that purchases during the relevant period exceed 100 percent of the member’s quota, the portion of the charge calculated in accordance with subparagraph (a)(ii) above shall be reduced by the proportion that the amount of the purchase bears to the amount of the arrangement not exceeding 100 percent of the member’s quota that could be purchased during the relevant period.

ANNEX II

Guidance Note on Programming with Repurchase Expectations

1. The Board has agreed to incorporate repurchase expectations for purchases made in the credit tranches, under the Extended Fund Facility (EFF), and under the Compensatory Financing Facility (CFF), so that members with a sufficiently strong external position will make repurchases in advance of the obligatory schedule.28 For purchases in the credit tranches and under the CFF, the expectation schedule will be one year in advance of the obligation schedule, beginning 2¼ years after a purchase and ending after 4 years. For the EFF, the expectation schedule will begin after 4½ years, as with the obligation schedule, but repurchases will be doubled, such that the expectation schedule will end after 7 years rather than 10 years under the obligation schedule.

2. Members will be expected to meet repurchase expectations, unless the Board grants a member’s request for an extension of expectations due to an insufficiently strong external position. Unless the Board has made a decision to extend repurchase expectations, the member is expected to make repurchases according to the expectation schedule, and failure to do so will result in a suspension of the right to make further purchases, including purchases forthcoming under an ongoing arrangement. However, the member would not be in arrears until it failed to meet a repurchase obligation.

3. Programs should continue to be guided by the requirement that the member should be able to meet the repurchase obligations. There is no need to program more or faster adjustment in order that the member be able to meet the repurchase expectations, and the balance of payments projections in the program would normally show the member meeting repurchase obligations.29 (It will follow from this that in most cases members will be considered to be in a position to meet repurchase expectations only if their external position is stronger than had been projected at the time of approval of the arrangement.) The evaluation of the member’s capacity to repay the Fund will continue to be based on obligations.

4. A member’s request for a new arrangement would generally be preceded or accompanied by a request for an extension of repurchase expectations on outstanding credit. Unless it is precautionary, the approval of an arrangement (SBA, extended arrangement, arrangement with SRF resources) establishes that a member’s external position is not sufficiently strong to meet repurchase expectations on outstanding Fund credit, because meeting expectations would aggravate the weakness in the balance of payments or in reserves that implies their need for exceptional financing. 30 While a member cannot be compelled to request an extension of repurchase expectations, access under the new arrangement would be set on the basis of the balance of payments need that would result from repurchase obligations being met, so that program design would need to be correspondingly more ambitious if the member chose not to request an extension of repurchase expectations.

5. For a precautionary arrangement, it could, but would not necessarily, be the case that a member’s external position is likely, but not necessarily, sufficiently strong for it to meet repurchase expectations on outstanding Fund credit. 31 The design of the program would reflect a repurchase schedule consistent with the member’s intention either to meet repurchase expectations or to request an extension. If the member did not intend to request an extension, the program would be designed on the basis of meeting repurchase expectations. In this case, if the member were to make a purchase under its precautionary arrangement, it would be expected that the member would also request an extension of repurchase expectations.32 If the member intended to make an extension request, the program design would assume that obligations, rather than expectations, would be met. If the extension request was rejected, the program itself would need adjustment before the arrangement could be approved, because it would have inadequate financing.

ANNEX III

Guidance Note on the Implementation of Post-Program Monitoring

1. The Executive Board has agreed that post-program monitoring (PPM), with formal involvement of the Board, could be useful in certain cases. Specifically, the Board has decided that when a member’s outstanding credit in the General Resources Account (GRA) exceeds a threshold of 100 percent of quota, and the member no longer has an arrangement, there should be a presumption that the member will engage in PPM by the Fund of economic developments and policies after the expiration of the arrangement.

2. The objective of PPM is to provide for closer monitoring of the circumstances and policies of members that have substantial Fund credit outstanding following the expiration of their arrangements. PPM is intended to provide an early warning of policies which could call into question a member’s continued progress toward external viability, and thus could eventually imperil Fund resources, or at the least indicate that such resources were not being used (in the sense of continuing to be used) for their intended purpose. It will also provide a mechanism for bringing this to the attention of the authorities and the Board and stimulating action to improve the situation.

3. PPM will involve members being subject to more frequent formal consultation with the Fund than is the case under surveillance, with a particular focus on macroeconomic and structural policies that have a bearing on external viability. To this end, the member will be expected to engage in discussions with the staff on its policies, including a quantified macroeconomic framework, much as it does in an Article IV consultation. The staff will then report formally to the Board on the member’s policies, the consistency of the proposed policies with the objective of medium-term viability, and the implications for the member’s capacity to repay the Fund. There will normally be two PPM Board discussions a year. One of these would be expected to coincide with the Article IV consultation,33 and the other could be based on a short staff report covering recent economic developments and discussions with the member on its policies and on medium-term prospects. It would be possible-as it is with Article IV consultations-for the Board to conclude a PPM discussion on a lapse-of-time basis, if no major issues had arisen; in such a case, the Board will be taken to have expressed its agreement with the staff appraisal in the staff report, and the latter will serve as the basis for the Executive Board’s assessment in the Public Information Notice (see paragraph 9). Descriptions of developments between discussions could also be given periodically at country matters meetings if necessary.

4. A presumption of PPM does not imply that members that meet the criterion would automatically be subject to PPM. Rather, the Managing Director would be expected to recommend PPM to the Board, unless in his view the member’s circumstances were such that the process was unnecessary. 34 Examples of circumstances were PPM would not be needed are when a successor arrangement or a staff monitored program is in place or is expected to be in place shortly. Also, the Board might conclude that the member’s policies and external position were so strong that PPM was unnecessary. Finally, since PPM will involve a more intensive use of staff resources than would otherwise have been the case, in making a recommendation to the Board, the Managing Director could weigh the use of staff resources involved in PPM against other demands on the Fund’s staff resources, and might in some cases recommend that PPM not be undertaken.

5. There would remain a possibility of requiring PPM of a member that did not meet the criterion for the presumption of PPM, as already provided for in the consultation clauses in all Fund arrangements. For example, PPM might be required in cases where outstanding credit was below the threshold, but in the view of the Managing Director and the Board there were developments which called into question the member’s progress toward external viability.

6. The decision on whether a member should be subject to PPM could be taken at any time, but it would normally be taken at the time of the last review under an arrangement when it is expected that the member’s credit outstanding at the end of the arrangement would exceed the threshold of 100 percent of quota.35 PPM could also be instituted after the conclusion of the final review of an arrangement, if the Fund believed that PPM was necessary although it had not been earlier. When it was approval of outright purchases that took the member’s outstanding credit above the threshold, PPM could be instituted from the date of the approval. In cases where the outstanding credit criterion was met, and the arrangement had not expired but had been off track (as indicated by the inability of the member to make purchases) for some time, the Managing Director could recommend PPM beginning on the expiration of the arrangement, or procedures similar to PPM beginning before the arrangement had expired, or some less formal means of monitoring the member’s progress. If PPM is recommended at the time a staff paper is put to the Board (for a program review, an outright purchase, an Article IV consultation, or another occasion), the paper should make the recommendation that the member be asked to engage in PPM. Alternatively, staff or management could recommend PPM orally in a country matters session, in which case the staff should inform the Board in advance of the meeting of the Managing Director’s intention to recommend PPM for a member. Whether the first PPM discussions should be conducted in the context an Article IV consultation should depend on when the next Article IV consultation is scheduled. However, the staff should try to ensure that either a PPM or an Article IV Consultation report is discussed by the Board within six months of the initiation of PPM.

7. In calculating whether the threshold had been reached, all use of Fund resources in the GRA-including in the credit tranches and under the Extended Fund Facility, under the Compensatory Financing Facility, and under emergency assistance will be taken into account. Outstanding credit outside the GRA (e.g., under the Poverty Reduction and Growth Facility) will not be taken into account. Arrears cases covered by separate procedures will also not be covered by PPM. Because PPM is based on the consultation clauses in members’ arrangements, it would not be implemented if a member’s credit outstanding exceeded 100 percent of quota but resulted entirely from outright purchases, e.g., under the CFF or emergency assistance. However, given the access limits applying to these policies, it is extremely unlikely that a member’s credit outstanding would ever reach 100 percent of quota without the member having had at least one arrangement.

8. When PPM is required on account of a high level of credit outstanding, it will normally cease when the member’s outstanding credit falls below the threshold. However, policy discussions and quantified frameworks should cover full years even if it is foreseen that, reflecting scheduled or expected repurchases, Fund credit would fall below the threshold at some point during the year. In addition, on the occasion of a PPM or other discussion, the Board could agree that PPM should be discontinued because, while the member continues to exceed the threshold of 100 percent of quota, there are other circumstances that indicate that PPM would no longer be necessary (see paragraph 4). When the Managing Director requests that a member engage in PPM despite its not meeting the criterion on credit outstanding, he/she will normally request that PPM continue for a period of one year, at the end of which the decision will be reconsidered. The Board’s discussions of PPM papers would be reflected in a summing up and, when published, in a Public Information Notice (PIN). The publication of PINs would follow the normal PIN procedures, including the requirement for the member’s consent. Staff reports for PPM discussions could also be published, following the same procedures as for other country-specific staff reports, and on a voluntary basis.36

ANNEX IV

Some Explanatory Notes Regarding the Proposed Decisions

Proposed Decision 1 - Amendments to the SRF/CCL Decision 1. Paragraph 1 of the proposed decision will extend the sunset clause of the CCL. 2. Paragraph 2 of the proposed decision will amend paragraph 17 of the SRF/CCL decision, to provide, inter alia, that the amount of resources available upon activation will be specified at the time of commitment of CCL resources.

3. Paragraphs 4 and 5 of the proposed decision deal with the new charges for the use of CCL resources.

4. The SRF/CCL decision (Decision No. 11627-(97/123)SRF) being amended may be found on pages 276 to 281 of Selected Decisions, Twenty-Fourth Issue, June 30, 1999.

Proposed Decision 2 - Conversion of Emergency Assistance into a Special Policy 1. Paragraph 1 of the proposed decision retains the guidelines for emergency assistance, which are found in the following three documents:

    (a) EBM/82/16 (2/10/82), at pages 17 and 18 (see Selected Decisions, Twenty-Fourth Issue, June 30, 1999, at pages 172 to 175);

    (b) Summing Up by the Chairman - Fund Involvement in Post Conflict Countries - Executive Board Meeting 95/82- September 6, 1995 (BUFF/95/98 (9/19/95)) (see Selected Decisions, Twenty-Fourth Issue, June 30, 1999, at pages 175 to 178); and

2. Paragraphs 2 to 4 of the proposed decision contain the normal features of all of the Fund’s special policies.

Proposed Decision 3 - Repurchases under Emergency Financing; Purchases in the Credit Tranches and Compensatory Financing Facility - Repurchase Expectations

1. The proposed decision will amend Decision No. 5703-(78/39), which may be found on pages 321 to 323 of Selected Decisions, Twenty-Fourth Issue, June 30, 1999. Decision No. 5703-(78/39) deals with the making of repurchases by members.

2. Paragraph 1(a) of Decision No. 5703-(78/39) sets out the rule that for purchases made under General Resources Account policies that do not contain special repurchase periods, repurchases shall be made in "equal quarterly installments during the period beginning three years and ending five years after the date of the purchase...". Paragraph 1(i) of the proposed decision will insert into paragraph 1(a) of Decision No. 5703-(78/39) a reference to the new special policy on emergency assistance to be created by proposed Decision number 2, so as to subject purchases under this new policy to the same repurchase rule described above.

3. Paragraph 1(ii) of the proposed decision will delete the existing paragraph 1(b) of Decision No. 5703-(78/39), which is obsolete, and replace it with a new paragraph 1(b) setting out the time-based repurchase expectation scheme for purchases made in the credit tranches and the CFF.

4. Paragraph 1(iii) will add a new paragraph 1(c) to Decision No. 5703-(78/39), to provide for the suspension of purchases in the event a member fails to meet a time-based repurchase expectation.

Proposed Decision 4 - Extended Fund Facility - Repurchase Expectations The proposed decision will apply the time-based repurchase expectation scheme to purchases made under the EFF. To accomplish this, a new paragraph 10 will be inserted into Decision No. 4377-(74/114), which is the decision setting up the EFF. Decision No. 4377-(74/114) may be found on pages 150 to 154 of Selected Decisions, Twenty-Fourth Issue, June 30, 1999.

Proposed Decision 5 - Non-approval of New PRGF Arrangements and Suspension of Loan Disbursements under Existing PRGF Arrangements Whenever a Member is not Meeting a Repurchase Expectation

1. The proposed decision will amend the PRGF Instrument to provide for the non-approval of new PRGF arrangements, and the suspension of loan disbursements under existing PRGF arrangements, if a member fails to meet a time-based repurchase expectation. The PRGF Instrument may be found on pages 31 to 50 of Selected Decisions, Twenty-Fourth Issue, June 30, 1999.

2. The amendment will be made to Section II, paragraph 1(e) of the PRGF Instrument, which deals with the non-approval of new PRGF arrangements in specified situations. In that connection, the failure to meet any time-based repurchase expectation arising from proposed Decision numbers 3 or 4 will be added as one of those situations. As regards the suspension of disbursements under existing PRGF arrangements, Section II, paragraph 1(f) of the PRGF Instrument provides that this shall occur in all the cases specified in Section II, paragraph 1(e) of the Instrument.

Proposed Decision 6 - Attribution of Repurchases made to meet Time-Based Repurchase Expectations

1. The proposed decision will enable the attribution of repurchases in accordance with the method proposed in paragraphs [18] to [20] of the text of this paper. This will require amendments to Decision No. 6831-(81/65), which deals with the attribution of reductions in the Fund’s holdings of a member’s currency. In particular, new paragraphs 1(d) and 1(e) will be inserted into Decision No. 6831-(81/65) to deal with the attribution of repurchases made in order to meet time-based expectations for credit tranche/CFF purchases and EFF purchases, respectively.


1 The purchase scheduled to become available upon completion of the activation review would be released as long as the conditions for the activation review were met. It would remain possible for the Board to decide, through a rephasing of the arrangement, to release more resources than had initially been committed for release at that time.

2 Since arrangements with CCL resources are generally expected to be in the range of 300-500 percent of quota, one third of the amount of the arrangement would be expected to be 100-165 percent of quota.

3 A decision to extend the sunset clause would require 85 percent of the total voting power.

4 See Boxes 5 and 6 in "Review of Facilities-Preliminary Considerations," EBS/00/37, March 2, 2000 (hereafter RoF I) for an overview of emergency assistance.

5 Separate provision for repurchase installments will now be needed for emergency assistance purchases, as they will no longer be credit tranche purchases.

6 See "Review of Facilities-Follow Up," EBS/00/187, August 31, 2000 (hereafter RoF III), paragraph 15.

7 The terms "extension of expectations" and "extension", as used in this paper, encompass not only the extension of the period within which the expectation should be met, but also the postponement and the setting aside of an expectation. Technically, an "extension" can only be granted prior to the date on which the expectation is to be met. After that, a "postponement" may be granted.

8 Decision No. 6831-(81/65), adopted April 22, 1981. See Selected Decisions, 24th Issue, June 30, 1999, page 324.

9 These complications arise primarily because the "next maturing obligation" may be, and typically would be, an obligation stemming from a different purchase from that giving rise to the repurchase expectation. A member’s repurchase schedule often reflects repurchase installments arising from different purchases.

10 Other conceivable options would condition the mapping of an expectation into an obligation either on the expectation’s position in the sequence of expectations within a given repurchase stream (for instance, if the meeting of the first expectation extinguished the last obligation), or-still more complex-on whether any expectations in the repurchase stream at issue had previously been met (for instance, if the meeting of expectations reduced all remaining obligations proportionately).

11 It is again relevant in this regard that a member’s repurchases typically consist of a multiplicity of repurchase streams, each arising from a single purchase. There would thus be little point in extending a single or a few repurchase expectations.

12 Programs with SRF resources have assumed that the member could meet repurchase expectations on the SRF resources.

13 A precautionary arrangement is one in which the member has stated that it does not intend to make purchases, and accordingly Fund purchases are not programmed as part of the balance of payments. Under both precautionary and nonprecautionary arrangements, the member has the right to purchase if it meets the conditions of the arrangement.

14 Peer pressure would be the only effective remedy in the case of a member not using Fund resources, as the remedies discussed in paragraph 25 all relate to interruption of the right to purchase.

15 Thus management would be informed immediately of missed repurchase expectations; there would be communication with the member two weeks after the missed expectation; the Board would be informed after one month; and there would be substantive consideration by the Board of the situation after three months.

16 This statement would be accompanied by a brief explanation of the nature of repurchase expectations, phrased in such a way that an extension would not be seen as a sign that the member’s external position was unsatisfactory.

17 As noted in Section III, the staff proposes that purchases under the CFF be counted toward the outstanding obligations that are subject to the surcharge on high levels of credit outstanding.

18 Rule I-8, By-Laws, Rules and Regulations of the Fund, 57th Issue, February 25, 2000, page 35.

19 Refunds on purchases by members with commitments below 100 percent of quota amount to 25 basis points. For members with commitments above 100 percent of quota, the refund on each purchase is effectively the weighted average of the two tiers of commitment fees (25 and 10 basis points, respectively). Thus, the larger the size of a commitment, the smaller is the "average" refund on each purchase.

20 PPM would itself also be based on the consultation clauses included in Fund arrangements.

21 RoF II, paragraphs 93-99, and RoF III, paragraphs 75-81.

22 There would be large overlap between Article IV issues and PPM discussions, with the additional requirement for PPM discussions that there be an explicit focus on the relationship between a member’s medium-term prospects and its capacity to repay.

23 The summing up of the Board’s discussion in September identifies the 100 percent of quota threshold as "a key criterion" for PPM, implying that there could be other criteria. However, the staff does not think it productive to try to develop additional criteria before experience is gained with PPM. Rather, experience in the exercise of discretion to override the presumption of PPM in certain cases and to require PPM in others which do not meet the 100 percent threshold may provide a basis for the development of additional criteria at a later time, or may indicate that additional formal criteria are not necessary.

24 Because the program would still be in existence, these discussions would not be appropriately titled "Post-Program Monitoring." They might be titled instead "Interim Program Monitoring."

25 For the definition of outstanding Fund credit see also page 43 and especially footnote 48 of Review of Fund Facilities-Further Considerations (EBS/00/131, July 10, 2000).

26 Because PPM is based on the consultation clauses in members’ arrangements, it would not be implemented if a member’s credit outstanding exceeded 100 percent of quota but resulted entirely from outright purchases-e.g., under the CFF or emergency assistance. However, given the access limits applying to these policies, it is extremely unlikely that a member’s credit outstanding would ever reach 100 percent of quota without the member’s having had at least one arrangement.

27 When a PPM discussion coincides with an Article IV consultation, a single PIN would cover both discussions.

28 Early repurchase expectations apply to all purchases made on or after November 29, 2000, whether under current or new arrangements.

29 Programs with SRF resources have assumed that the member could meet repurchase expectations on the SRF resources.

30 A precautionary arrangement is one in which the member has stated that it does not intend to make purchases, and accordingly Fund purchases are not programmed as part of the balance of payments. Under both precautionary and nonprecautionary arrangements, the member has the right to purchase if it meets the conditions of the arrangement.

31 A member with an arrangement with CCL resources would be presumed to have a sufficiently strong external position to meet repurchase expectations.

32 The same would be true upon activation of an arrangement with CCL resources.

33 There would be large overlap between Article IV issues and PPM discussions, with the additional requirement for PPM discussions that there be an explicit focus on the relationship between a member’s medium-term prospects and its capacity to repay. Nevertheless, when a PPM discussion coincides with an Article IV consultation, it is important for the staff report to be clear on the dual purpose of the discussion, including through inclusion of "Post-Program Monitoring Discussion" in the title of the report.

34 No formal decision would be taken, but the Managing Director would be guided by the views of the Board.

35 The member’s intentions as to purchases under the arrangement would be taken into account. For instance, if at the last review the member were below the threshold of 100 percent of quota and had indicated its intention to treat the remainder of the arrangement as precautionary, it would not be taken to satisfy the criterion for the presumption of PPM. Of course, should the member later make purchases and exceed the threshold, it would be taken to satisfy the presumption, and the Managing Director would be expected to recommend PPM to the Board.

36 When a PPM discussion coincides with an Article IV consultation, a single PIN would cover both discussions.