Safeguarding Stability Amid Uncertainties
During the 2002 financial year the IMF faced important new challenges
in an unusually unsettled world environment. These placed increased demands
on the institution in two of its main areas of responsibility: preserving
world economic and financial stability and assisting in the global war
After a period of strong expansion, the global economy experienced a
widespread slowdown during the 2001 calendar year. Contributing to this
were further downward adjustments in equity prices, together with a rise
in energy prices and the tightening of monetary policy in industrial countries
that had occurred in 2000. The already weak international economy was
further affected by the September 11, 2001, terrorist attacks in the United
States, which had a substantial—although largely temporary—impact
on economic conditions. By early 2002, however, thanks in large part to
actions taken by key central banks to lower interest rates, there were
encouraging signs that growth was recovering, although serious concerns
remained in a number of countries.
In the face of the prevailing uncertainties, the IMF continued to work
on the reform of the international monetary system and to focus on its
core responsibilities, among them helping to prevent financial crises
among its members.
Following are some of the highlights of the IMF's work during FY2002:
The IMF's regular and concessional lending increased
strongly as the slowdown in the world economy contributed to a worsening
of the balance of payments difficulties of several members whose access
to international capital markets was curtailed.
- Commitments under the IMF's regular loan facilities—Stand-By
Arrangements and the Extended Fund Facility (EFF)—tripled,
to SDR 39.4 billion1 (almost $50 billion)
in FY2002 from SDR 13.1 billion (almost $17 billion) in FY2001. The largest
commitments were Standby Arrangements for Brazil and Turkey, SDR 12.1
billion and SDR 12.8 billion respectively. Of the commitment to Brazil,
SDR 10 billion was provided under the Supplemental Reserve Facility
(SRF), which is designed to assist members experiencing a sudden and
disruptive loss of market access. A growing volume of IMF financing
commitments are now treated as precautionary, with borrowers indicating
that they do not intend to draw on the funds committed. Actual drawings
were made in only 16 of the 34 Standby and Extended Arrangements in
place during the year. As of the end of April 2002, undrawn balances
amounted to SDR 26.9 billion.
- The IMF's net uncommitted usable resources amounted to SDR
64.7 billion ($82 billion) at the end of April 2002. The
liquidity ratio (the ratio of net uncommitted usable resources to
liquid liabilities) was 117 percent, significantly lower than the 168
percent reached a year previously, but more than three and a half times
the low point reached before the 1999 increase in IMF quotas.
- In FY2002, the IMF's concessional lending for poverty
reduction continued to be channeled through the Poverty Reduction
and Growth Facility (PRGF) and the joint IMFWorld Bank Initiative
for Heavily Indebted Poor Countries (HIPCs). During
the financial year, the Executive Board approved nine new PRGF arrangements
totaling SDR 1.8 billion, with total disbursements amounting to SDR
1.0 billion, compared with SDR 0.6 billion in FY2001. By end-April 2002,
26 HIPC-eligible members had been brought to their decision points under
the enhanced HIPC Initiative and one under the original Initiative,
and the IMF had committed SDR 1.6 billion in grants and disbursed about
SDR 0.7 billion.
The IMF conducts surveillance over the exchange rate policies of its
member countries to ensure the effective operation of the international
monetary system. To this end, it regularly discusses with members their
economic and financial policies and continuously monitors economic and
financial developments at the country, regional, and global levels.
- In April 2002 the Executive Board completed in large part its latest
biennial review of the principles and implementation of IMF surveillance.
While the review found that the current system of surveillance was working
well, it identified a number of areas where further efforts were needed,
including enhancing coverage of institutional and structural issues,
especially relating to financial sectors, and improving analysis of
- The Board in September 2001 discussed the IMF's role in promoting
an open trading system and trade liberalization. Directors agreed
that the IMF should stress the need for a successful launch of the Doha
trade round; continue to address trade issues in the context of surveillance
and IMF-supported programs; lay the groundwork for trade liberalization
through its technical assistance; and cooperate closely with the World
Trade Organization and the World Bank.
Strengthening the International Financial System
Since the Mexican crisis of 1994–95 and the Asian crises of 1997–98,
much has been done to strengthen the international financial system and
the capacity of the IMF and its members for crisis prevention.
Nevertheless, it would be unrealistic to suppose that all countries will
be able to avoid crises at all times. Thus, work has also advanced toward
assisting countries to resolve crises.
- The IMF has strengthened its monitoring of members' vulnerability
to external crises by drawing on updated World Economic Outlook
projections, early warning system models, detailed analyses of countries'
financing requirements, market information, and assessments of financial
sector vulnerability and risks of contagion.
- In recent years, the IMF has actively promoted increased transparency
of its members' policies, sought to improve public understanding of
its own policies and operations, and encouraged feedback from both national
authorities and the public. Through its website (www.imf.org)
it releases a wealth of information on its activities.
- During FY2002, the IMF reviewed its Data Standards Initiatives
and approved a Data Quality Assessment Framework, integrated with
the Reports on the Observance of Standards and Codes (ROSCs).
- Recognizing the critical importance of concerted action to strengthen
financial systems, the IMF continued to conduct financial "health checkups"
under the Joint IMFWorld Bank Financial Sector Assessment Program
(FSAP). By April 2002, 27 countries had completed their FSAP participation,
and 50 others had committed to participate.
- During the year, discussions continued on a range of issues relating
to resolving financial crises and the role of the private sector.
A plan of work on crisis resolution outlined a four-point program designed
to increase the IMF's capacity to assess a country's debt sustainability;
clarify the policy on access to IMF resources; strengthen the tools
available for securing private sector involvement in resolving financial
crises; and examine a more orderly and transparent legal framework for
sovereign debt restructurings. Proposals for a new sovereign debt
restructuring mechanism were spelled out in late 2001 and early
2002 by Anne O. Krueger, the IMF's First Deputy Managing Director.
- The IMF's work on anti-money-laundering issues acquired increased
importance after the September 11 attacks, when it was extended to combating
the financing of terrorism.
Lending Policies and Conditionality
The IMF regularly reviews its "conditionality"—the conditions
it attaches to its financial assistance to ensure that it is repaid (so
that its resources become available to other members in need) and that
external viability, financial stability, and sustainable economic growth
are restored in the borrowing member country—and its policy on access
to its financial resources.
- The latest review of conditionality, which was still in progress
at the end of FY2002, emphasized that conditionality must be applied
in a way that reinforces national ownership, should focus on policies
critical to achieving a program's macroeconomic goals, and set a clearer
division of labor between the IMF and other institutions, particularly
the World Bank.
- After reviewing the policy governing members' access to its resources,
the IMF determined to maintain current annual and cumulative access
limits, but agreed to later review the policy involving high access
Reducing poverty in low-income countries is a major international challenge,
and the IMF continues to play its role. Besides the lending mentioned
above, the IMF took a number of steps in FY2002 to reinforce and strengthen
its support for reform and development efforts in low-income countries.
- The IMF received about SDR 7 million in contributions from five members
to subsidize the rate of charge on Post-Conflict Emergency Assistance.
- The IMF and the World Bank jointly reviewed the Poverty Reduction
Strategy Paper (PRSP) approach, which, combined with sound policies,
is expected to put countries on a path to sustainable growth and poverty
reduction and toward achieving the UN's Millennium Development Goals.
- The IMF—jointly with the World Bank, Asian Development Bank, and
European Bank for Reconstruction and Development—sponsored an initiative
to help the seven low-income members of the Commonwealth of Independent
States accelerate growth and poverty reduction.
- A review of the PRGF in March
2002 emphasized the need to build on progress in several specific
areas, including designing policies to foster pro-poor economic growth,
improving the quality and efficiency of government spending, coordinating
program design with the World Bank, and enhancing communication with
authorities, donors, and civil society in PRGF countries.
- Late in the financial year, the IMF reviewed the status of the HIPC
Initiative and the movement toward long-term external debt sustainability.
At that time, HIPC countries had received commitments of $40 billion
(in nominal terms) in debt relief.
Technical Assistance and Training
IMF technical assistance supports the institution's
surveillance and program work, and its importance has grown steadily in
recent years. Recommendations emerging from the FSAP, the adoption of
international standards, tracking indicators for the HIPC Initiative,
and combating money laundering and the financing of terrorism have all
increased members' requests for technical assistance.
- During the year, the IMF's Caribbean Regional Assistance Center was
established; two more centers will open in late 2002 in East and West
Africa under the IMF's Africa Capacity-Building Initiative.
- The IMF Institute increased training by about 9 percent over FY2001.
A Joint Regional Training Center for Latin America was opened, bringing
the number of such regional centers to five.
Organization, Budget, and Staffing
FY2002 saw several major changes within the IMF.
- The IMF bid farewell to First Deputy Managing Director Stanley Fischer
and to Economic Counsellor and Director of the Research Department Michael
Mussa and welcomed their successors—Anne Krueger and Kenneth Rogoff.
Jack Boorman, who stepped down as Director of the Policy Development
and Review (PDR) Department, retained his position as Counsellor and
became a Special Advisor to the Managing Director. He was succeeded
as PDR director by Timothy Geithner. Gerd Häusler joined the IMF
as Counsellor and Director of the new International Capital Markets
Department, which came into being in FY2002.
- The Independent Evaluation Office became operational.
- The IMF's internal budgeting process was reviewed by a panel of external
experts, who made a number of recommendations. Some of these have already
been put in place, while other changes will be introduced in FY2003
* * *
After the end of the financial year, on July 23, 2002, the Democratic
Republic of East Timor became the 184th member of the IMF.
1As of April 30, 2002, SDR 1 = US$1.2677