Selected Decisions and Selected Documents of the IMF, Thirty- Sixth Issue -- The Acting Chair’s Summing Up—Multilateral Debt Relief Initiative and Exogenous Shocks Facility—Proposed Decisions

Prepared by the Legal Department of the IMF
As updated as of December 31, 2011

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ARTICLE V, SECTION 2(b)
Technical and Financial Services
Financial Services

The Acting Chair’s Summing Up—Multilateral Debt Relief Initiative and Exogenous Shocks Facility—Proposed Decisions
Executive Board Meeting 05/99, November 23, 2005

Today’s adoption by the Executive Board of the decisions to implement the Multilateral Debt Relief Initiative (MDRI) marks an important step in strengthening the Fund’s ability to assist its poorest member countries in addressing their protracted balance of payments problems and reach the Millennium Development Goals (MDGs). In addition, today’s adoption by the Executive Board of the decisions to establish an Exogenous Shocks Facility (ESF) within the PRGF Trust will enable the Fund to provide financing on more appropriate terms to low-income countries confronting sudden and exogenous shocks.

Directors reaffirmed the broad consensus reached on various elements of the MDRI at the last Executive Board meeting on the subject, including eligibility, qualification requirements, and financing arrangements. Directors noted that upon a determination of qualification of an eligible member for debt relief, the Fund would use resources from the applicable MDRI Trust to repay, on behalf of the qualifying member, its eligible debt to the Fund (including to the Fund as Trustee). Debt relief under the MDRI would only be provided to a qualifying member upon its request.

Directors discussed the conditions that non-HIPCs should meet to qualify for debt relief under the MDRI. They agreed that satisfactory performance in the same three key areas applicable to HIPCs should be a requirement. These areas are: (i) macroeconomic performance; (ii) implementation of a poverty reduction strategy or a similar framework; and (iii) the public expenditure management (PEM) system. The proposed specific qualification requirements will be: a track record of at least 6 months of sound macroeconomic policies and satisfactory implementation of a poverty reduction strategy (or equivalent framework) in the period immediately prior to the assessment, and an assessment that the quality of the PEM system would allow resources freed by debt relief to help meet the MDGs. Directors noted that, unlike HIPCs, for non-HIPCs no formal comprehensive assessment of their PEM systems has been undertaken. They underscored that performance in the area of PEM systems should be assessed drawing from a variety of sources to ascertain that PEM systems in these countries are, and are expected to remain, sufficiently strong to provide comfort that resources freed by MDRI debt relief will be used productively. Should a country fail that test, staff would propose remedial actions involving a sustained strengthening of its PEM system.

Directors also reaffirmed the consensus reached at the last Executive Board meeting on the purpose and modalities of the ESF, including with respect to eligibility, qualification, conditionality, access guidelines, and financing terms.

Directors agreed to rename the current PRGF Subsidy Account as the PRGF-ESF Subsidy Account. The resources in this account will be used flexibly to subsidize either PRGF or ESF loans. They noted that such a fungible use of resources in the new PRGF-ESF Subsidy Account will allow for an early activation of the ESF using existing resources. Directors supported the creation of two new subsidy accounts—one to receive earmarked contributions and provide subsidies for PRGF loans only, and the other to receive earmarked contributions and provide subsidies for ESF loans only. They agreed that the resources in the PRGF-ESF Subsidy Account will be used only if there are no resources in the PRGF Subsidy Account or in the ESF Subsidy Account, as the case may be.

Directors recognized that the use of PRGF Subsidy Account resources for the MDRI will require the consent of all contributors to such account, and that the amendments to the PRGF Trust to establish the ESF will also require the consent of such contributors and, in addition, the consent of all lenders to the Loan Account. To address the contingency that a contributor may refuse to consent to such amendments, Directors agreed to authorize the Managing Director to return the remaining resources attributable to such dissenting contributor in full. To that effect, it was understood that the letter requesting contributors’ consents to the amendments should also elicit their consent for the Managing Director to take this action. Directors urged contributors and lenders to provide early consent, so that MDRI debt relief can be provided to qualifying countries in early January 2006 as planned.

Directors agreed that consistent with the current policy, members with arrears to the Fund in the GRA or to the Fund as Trustee will not be eligible for debt relief under the MDRI until such arrears are cleared. They looked forward to a follow-up paper on the issues related to the three protracted arrears cases (Liberia, Somalia, and Sudan).

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