1998 IMF Survey Supplement on the Fund / September 1998
IMF Strategy Stresses Prevention, Cooperation
To maintain the cooperative nature and protect the monetary character of the IMF and to keep other sources of official and private credit open to them, members must meet their financial obligations to the IMF on time. When arrears do arise, they are expected to be settled as quickly as possible. The IMF’s strengthened cooperative strategy, introduced in 1990, helps prevent new cases of arrears from emerging or existing arrears from becoming protracted and assists members that are willing to cooperate with the IMF in finding a solution to their arrears problems. At the same time, the strategy allows for appropriate remedial actions to be taken in cases of failure to cooperate with the IMF. The strategy entails close collaboration among the IMF, the World Bank, and other international financial organizations in encouraging cooperating member countries to resolve their arrears problems.
Prevention. The first key element of the IMF’s arrears strategy is to prevent new cases of arrears from emerging and to keep existing arrears from becoming protracted. To forestall new arrears, the IMF applies conditionality on the use of its resources, assesses borrowers’ medium-term balance of payments viability and capacity to repay, cooperates with donors and other official creditors to ensure that IMF-supported adjustment programs are adequately financed, and provides technical assistance to help members formulate and implement appropriate adjustment programs.
Strengthened surveillance as well as debt sustainability analyses prepared jointly by the IMF and the World Bank staffs and the country authorities for the heavily indebted poor countries (HIPCs) in the context of the HIPC Initiative has reinforced the IMF’s ability to assess a member’s capacity to repay.
Intensified Collaboration and the Rights Approach. Intensified collaboration provides a framework for countries in arrears to the IMF to establish a track record of policy and payments performance, mobilize resources from international creditors and donors, and normalize relations with the IMF, including clearing arrears. In some cases, a country’s economic policies are formulated in the context of a “rights accumulation program” or a staff-monitored program. A rights accumulation program shares many of the features of a regular IMF-supported macroeconomic stabilization and structural reform program. It allows a country in protracted arrears to accumulate rights to future drawings of IMF resources through adjustment and reform efforts in accordance with a phased schedule and in amounts up to the level of arrears outstanding at the beginning of the program. Disbursements are made only after the arrears are cleared and are conditional upon satisfactory conclusion of the rights program and IMF approval of a successor arrangement or arrangements.
The availability of the rights approach is limited to the 11 countries that were in protracted arrears to the IMF at the end of 1989. Five of the original 11 eligible countries—Cambodia, Guyana, Honduras, Panama, and Vietnam—cleared their arrears to the IMF without recourse to the rights approach. Peru, Sierra Leone, and Zambia adopted rights accumulation programs and successfully completed those programs and cleared their arrears. Liberia, Somalia, and Sudan continue to have outstanding overdue obligations to the IMF.
Remedial Measures. The arrears strategy includes a timetable of remedial measures of increasing intensity to be applied when members with protracted arrears do not actively cooperate with the IMF in resolving their arrears problems. The steps can range from a temporary limitation on the member’s use of IMF resources (on the basis of a complaint issued to the Executive Board) to compulsory withdrawal. Six notifications were issued to the Executive Board at the one-month stage of arrears in 1997/98, but the arrears in five instances were cleared before a complaint was issued. In the sixth case, the complaint was withdrawn following clearance of arrears. In the case of Sudan, which has the largest and most protracted arrears to the IMF, the procedure for compulsory withdrawal was initiated on April 8, 1994. The Board considered this question on two occasions during 1997/98 but did not recommend compulsory withdrawal to the IMF’s Board of Governors, given Sudan’s satisfactory implementation of the program of economic adjustment monitored by IMF staff in 1997, adherence to its committed payments schedule, adoption of a strengthened program for 1998, and a proposed schedule of payments to the IMF for 1998, which would lead to a reduction in its arrears.
The level of outstanding overdue financial obligations to the IMF increased slightly in 1997/98, to SDR 2.3 billion from SDR 2.2 billion in 1996/97, with the number of countries in arrears to the IMF by six months or more remaining at seven. As of April 30, 1998, four countries remained ineligible to use the IMF’s general resources. Declarations of noncooperation remained in effect for three countries. The deadline for entry into a rights accumulation program has been extended on a number of occasions. Most recently, in March 1998, the Board agreed to extend the availability of the rights approach until the spring 1999 meeting of the Interim Committee.