Completion of the Review of the Contingent Credit Lines and Consideration of Some Possible Alternatives

Statement by the Staff

November 18, 2003

1. We have been engaged since March in a discussion about whether to extend the Contingent Credit Lines, perhaps with some changes, and whether there are other options that should be pursued. It now seems doubtful that there will be a sufficient majority in the Board to extend the CCL beyond its scheduled expiration on November 30, 2003.

2. Our discussion has been, nevertheless, quite fruitful in exploring possible approaches to the larger problem: developing ways that Fund financing can help to support and encourage our diverse membership to pursue strong policies when times are good, to help prevent or reduce the severity of a crisis. Surveillance has a key role to play in crisis prevention, but instruments that also provide for a financial backstop from the Fund may help to encourage a closer discussion on the design and implementation of strong policies, send clearer signals to private and official sources of capital, and give a degree of insurance. The paper Directors have before them sets out two such options that could be complementary: precautionary arrangements with exceptional access and a new approach called the Enhanced Monitoring Policy.

3. The staff recommends the following for Board consideration:

• Conclude the CCL review and allow the facility to expire. Even if a Board majority sufficient to extend the CCL could be reached, staff sees little advantage in such an extension. Staff does not expect that any member would request the CCL during the period of an extension. Nor does staff think it possible to make the CCL more attractive to members, while providing adequate safeguards.
  
  
• Make a statement on the Fund's readiness to provide quick assistance to its members as outlined in Option 2 in the paper-perhaps in the context of the PIN for the review of the CCL.
  
  
• Adapt precautionary arrangements to make explicit the possibility of exceptional access (Option 3). The staff continues to favor developing the use of precautionary arrangements with exceptional access in appropriate circumstances. We see such precautionary arrangements as providing the best available combination of a Fund endorsement of the member's policy, access sufficient to be useful against capital account shocks, and safeguards for the Fund based on upper credit tranche conditionality and activation reviews.
  
  
• The staff also sees attractions to the idea of an Enhanced Monitoring Policy (Option 4), as a framework that would develop further the Fund's means for an intensified surveillance-like relationship. An issue that needs to be considered is whether the EMP would be a sufficiently differentiated instrument in the Fund's toolkit to make the innovation necessary.