## Policy Reform Proposals to Promote the Fund’s Capacity to Support Countries Undertaking Debt Restructurings ## Source details **Canonical URL:** [Policy Reform Proposals to Promote the Fund’s Capacity to Support Countries Undertaking Debt Restructurings](https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024017.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2024/english/ppea2024017.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2024/english/ppea2024017.pdf.json) --- ### Executive summary and key findings - Recent sovereign debt restructurings over the past three years faced significant delays that slowed access to Fund financial support and increased adjustment costs for debtors and creditors. - Important questions identified: (i) application of additional safeguards under the Lending Into Official Arrears (LIOA) policy; (ii) depth and definition of financing assurances reviews; (iii) requirements under the Fund’s financing assurances policy; (iv) bridging engagement gaps with debtor authorities; and (v) clarity on assisting members in arrears facing exceptional circumstances such as a natural disaster. - Proposed package of reforms includes: - (i) formally introducing a fourth strand into the LIOA policy to define how to apply safeguards; - (ii) strengthening financing assurances reviews; - (iii) establishing a more robust and agile approach for deriving financing assurances (Credible Official Creditor Process — COCP); - (iv) adjusting the Approval-in-Principle (AIP) framework to bridge a period until adequate safeguards are established; and - (v) clarifying the exceptional circumstances clause under the LIOA policy. - Staff expect the reforms to promote more agile and effective Fund engagement, with stronger uniformity of treatment, and without reducing safeguards or requiring additional risk tolerance by the Fund. - Date appearing in document: March 15, 2024. ### LIOA strands, Strand 4 introduction, and safeguards - Strands 1–3 (existing orientation) - Directors agreed LIOA policy remains broadly appropriate and current guidance on application of Strands 1–3 should be retained. - Strand 1 (representative standing forum such as the Paris Club or the Common Framework involving the Paris Club) is the central focus and preferred pathway whenever available. - Consent (Strand 2) remains a viable, faster route when creditors coordinate; Strand 3 (three criteria) remains available for limited cases but normally would not be satisfied for a creditor/group accounting for a majority of official bilateral financing contributions over the program period. - Strand 4 — triggers and structure - Strand 4 applies where: - an adequately representative agreement has not been reached through a representative standing forum; - consent is not forthcoming within 4 weeks of being requested; and - the three criteria under Strand 3 cannot be satisfied with respect to an official bilateral creditor. - Strand 4 distinguishes: - standard safeguards approach (normal access); and - enhanced safeguards approach (exceptional access under the GRA or the PRGT or high combined access under the GRA and PRGT). - Standard safeguards approach (Strand 4, normal access) - Program design elements, including: - phasing of access under the arrangement (initial purchase/disbursement capped at low access); - program conditionality to support the restructuring process where warranted under the Guidelines on Conditionality; - a debtor commitment to good faith efforts to establish safeguards for Fund lending. - Purpose: catalyze creditor progress, set timelines, and reduce first-mover problems. - Enhanced safeguards approach (Strand 4, exceptional/high combined access) - In addition to standard safeguards requires: - a direct commitment to the Fund by a “sufficient set” of creditors about their restructuring intentions. - Where such commitment provided, arrears would be considered eliminated (for purposes of the LIOA) for participating and non-participating creditors. - “Sufficient set” requires participation of any representative standing creditor forum as well as creditors with significant influence (e.g., ability to extract repayment on more favorable terms inconsistent with program parameters). - Shift to enhanced safeguards is warranted upon explicit signal that a creditor or creditor group to which Strand 3 cannot be satisfied either: - (1) is unwilling to restructure claims in line with program parameters; or - (2) views additional Fund support to the debtor’s creditor coordination efforts as essential. - Comparability of treatment and contractual clauses - Arrears arising from exercise of a contractual comparability of treatment clause shall be subject to the Fund’s non-toleration of arrears policy (i.e., classified as non-OSI for arrears policy purposes). ### Financing Assurances Reviews (FAR) — scope, enhancements, and indicators - Directors supported strengthening financing assurances reviews under the LIOA and LIA policies while external arrears remain unresolved. - Expanded scope: - Introduce FAR in cases where arrears are deemed away under Strands 1 and 4 and in preemptive restructuring cases needed to restore debt sustainability involving official bilateral creditors until restructuring is complete. - FAR functions and requirements: - Assess continued compliance with applicable arrears and financing assurances policies. - Assess whether member adjustment efforts are undermined by debtor–creditor relations developments. - Determine whether the debt situation undermines restoration of medium-term external viability and capacity to repay the Fund. - Arrangement-stage Staff Report should present expected steps and schedule for the restructuring process in an indicative way; subsequent FARs should detail progress against that schedule. - FAR should explicitly assess whether the Fund still has appropriate safeguards or needs to introduce additional standard or enhanced safeguards tailored to the situation and reason for delay. - A clear signal about a creditor’s unwillingness to restructure would motivate a shift to enhanced safeguards. - Operational implication: - Going forward, application of Strand 1 to ongoing and future debt restructuring cases after the effective date of these policy changes would require completion of a FAR until such arrears are resolved. ### Credible Official Creditor Process (COCP) and deriving assurances - COCP purpose and rationale - Operationalize creditor commitments by assessing that a “credible official creditor process” is underway rather than always seeking specific creditor statements (SCA). - Re-orients assessment toward creditor processes and track records (process steps, key decisionmakers, information provided, expected timeframe). - Application - COCP applies to cases requiring financing assurances from official bilateral creditors: - (i) pre-default (pre-emptive) cases; - (ii) Strand 1 cases where representative standing forum gives assurances; and - (iii) proposed enhanced Strand 4 cases seeking commitments from a “sufficient set” of creditors. - Each creditor needs a robust track record in delivering timely and successful debt restructurings to support COCP assessments. - In absence of sufficient information or track record, financing assurances could continue to be satisfied by specific and credible assurances on debt relief/financing (SCA). - Board role, safeguards, and transition - The Board would make COCP assessments advised by management and staff. - Staff/management must explain basis for judgment, key elements of the process, and the track record. - Subsequent similar cases for the same creditor need not repeat full explanation absent new developments. - Transition: in absence of track record, SCAs can be used as bridge while the track record is established. - Safeguard: revisit mechanism to downgrade or re-assess COCP if committed debt treatment is not delivered timely. ### Pre-default policy adjustments and private creditors - Pre-default alignment - Limit requests for financing assurances pre-default to a “sufficient set” of creditors, defined as under Strand 4. - For pre-default cases involving arrears to official creditors, require a financing assurances review at each program review until agreement in principle on the debt restructuring agreement is reached. - Private creditors - The Fund’s approach to private creditors remains unchanged: the policy does not give private creditors a veto; arrears may finance programs and be outstanding for extended periods. - Directors emphasized the Fund should retain flexibility to support members despite stalled private creditor negotiations, subject to financing assurances reviews. - Codify expectation that members share relevant information with all private creditors on a timely basis as defined under LIA. ### Approval in Principle (AIP) — clarifications and limits - Role and historical context - AIP is an optional device to bridge engagement gaps where policy agreement exists but financing assurances are not yet secured. - AIP was used historically but under-used recently; needs design adjustments for extended creditor processes. - Key clarifications and limits: - A decision to approve an arrangement in principle shall specify the date by which the approval would lapse, which would normally be no later than 4 months after approval. - A new AIP shall only be permitted once and would normally be subject to a limit of an additional 4 months. - The Fund would only approve a new AIP if financing assurances restoring debt sustainability are likely to be delivered and the member’s economic program is being implemented as agreed and remains on track. - Renewal conditions: renewal only if efforts to establish necessary safeguards are on track; staff must assess program implementation and may require prior actions or adjustments; renewal requires full Board consideration supported by a new staff report. - Once financing assurances are obtained, a second Executive Board decision is required to make the arrangement effective, normally adopted on a Lapse of Time basis. - Program design implications: - Design programs conservatively during AIP periods (e.g., conservative financial programming, adjusters on affected targets, indicative targets for short renewal intervals). - Staff should aim to bring a UCT-quality program forward as fast as possible. ### Exceptional circumstances under the LIOA and emergency financing (RCF/RFI) - Scope and focus - “Exceptional circumstances” clause should focus on natural disasters and a subset of other exogenous shocks (e.g., adverse shocks to key commodity markets or developments in a key trading partner). - Staff would not define a precise set of events or triggers but use judgment consistent with standard Fund policy on emergency financing. - Clause generally would not be satisfied for cases with long-standing arrears. - Interaction with RCF/RFI - No change to RCF and RFI qualification requirements; additional guidance on application in a restructuring context proposed. - RFI and RCF financing available only when: - a member has a balance of payments need expected to be resolved within one year with no major policy adjustments being necessary; or - the member lacks capacity to implement a UCT-quality program given the urgent nature of the BoP need or limited implementation capacity. - Qualification requirements would not be met if a UCT-quality program is needed and sufficient implementation capacity exists but financing assurances from official bilateral creditors are required and would take time (typically 7 –9 months at present). - Requirements for EF under exceptional circumstances - Staff proposes assessing that Fund support would advance normalization of relations with official bilateral creditors based on the debtor’s commitment in the LOI to: - make good faith efforts toward resolving arrears; and - promote creditor coordination (e.g., commitment to Change of Terms). - For post-default cases with long-standing arrears, additional safeguards needed (e.g., application of one of the three strands under LIOA). - Even in emergencies, best course is to work towards a UCT-quality program; EF should not undermine efforts to secure such a program. ### Implementation, timing, governance, and perimeter clarifications - Effective date and application - Directors agreed the policy changes will enter into effect immediately and apply to all future purchases and disbursements, including under existing arrangements, where relevant policies apply. - Perimeter and Direct Bilateral Claims - Direct Bilateral Claims continue to be defined as claims that are (a) held by a government, or an agency acting on behalf of a government; and (b) originate from an underlying transaction where the creditor government, or an agency acting on behalf of the government, provided or guaranteed financing to the debtor member. - Use creditor member’s budgetary process to determine which entities form part of the creditor government; case-by-case analysis for entities outside government. - Secondary market purchases by official bilateral creditors do not qualify as Direct Bilateral Claims. - Amendments: - IFI purchases in secondary market as part of the global financial safety net can be treated as claims subject to Fund arrears policies, relying on the IFI’s representation. - Any Direct Bilateral Claims or claims held by IFIs that are contractually part of a pooled voting mechanism with private creditors shall be subject to the LIA policy. - IFIs - World Bank Group arrears: continue to require an Agreed Plan between debtor and World Bank to clear arrears over a defined period. - Other IFIs: where non-OSI, require a Credible Plan credible to the Fund; in OSI cases require Board judgment whether a Credible Plan is needed with factors listed (e.g., global membership, Paris Club treatment, HIPC participation). - IFI creditor may consent to Fund financing by communicating through an Executive Director designated by the IFI or an authorized executive to the Managing Director. - Implementation guidance and communication - Emphasized need for careful implementation to ensure effective, transparent, and evenhanded application and to minimize increased burden on debtor countries. - Called for effective communication of policy changes to stakeholders, planned Guidance, capacity development support, and close cooperation with other workstreams (Common Framework, Global Sovereign Debt Roundtable). - Directors agreed to maintain review of the LIOA policy, including present reforms, on an as needed basis. ### Risks assessment, mitigants, and Board issues for discussion - Staff assessment (net effect) - Staff views proposed reforms covering financing assurances review and AIP procedures as on balance reducing risks to the Fund (reputational, business, and financial risks). - Risks of proceeding (selected) - Reputational objectivity risk: risk if proposals do not lead to faster restructurings or lead to perceived unwarranted accommodation of creditors; mitigants include incentives for faster restructurings and strong “snap back” mechanisms. - Credit risk channels: - LIOA Strand 4: risk of proceeding under standard safeguards where creditors have no intention to restructure; mitigants include low initial access and enhanced FARs. - COCP: mistaken judgments could create exposures; mitigants include transition period, track record requirement, and other non-debt conditionality. - EF proposal: risk that providing EF could complicate securing a UCT program; mitigants include focus on subset of emergencies, EF access limits, clearer interpretation of “normalizing relations,” LOI commitments. - Adequacy/liquidity of Fund lending resources: managed mitigation referencing pandemic experience and limited subset of cases covered by proposals. - Risks of not proceeding (selected) - Reputational credibility and objectivity risks rise if Fund cannot support members or appears uneven. - Credit risks from non-engagement: inability to help members could erode capacity to repay Fund and increase exposures. - Business risk on member engagement: inaction could lead to contagion and larger debt crises. - Overall judgment and next steps - Balance of risks supports proceeding with the full package of reforms. - See Appendix VI for a full DRSA (document reference in source). - Issues for Board discussion (as presented) - Do Directors agree the Fund’s ability to meet a member’s BoP needs may be constrained when engaging in debt restructuring with new major creditors? - Do Directors support preserving existing guidance on Strands 1–3 and adding Strand 4 as proposed? - Do Directors support strengthening financing assurances reviews and the COCP approach? - Do Directors support proposed pre-default policy adjustments and AIP modifications? - Do Directors support clarifying the LIOA “exceptional circumstances” clause to facilitate emergency financing where warranted? ### Appendix highlights — conditionality, AIP history, operational illustrations - Appendix II — Conditionality and program commitments (selected cases) - Examples of program commitments from: Ghana (ECF 2023), Sri Lanka (EFF 2023), Zambia (ECF 2022), Suriname (EFF 2021), Chad (ECF 2021), Ecuador (EFF 2020 / RFI 2020), Barbados (EFF 2018), Jamaica (EFF 2013 / SBA 2010), Grenada (ECF 2014). - Forms: LOI/MEFP commitments, Prior Actions, Structural Benchmarks, None/n/a. - Timing: Finalization, Intermediate, Prior Action. - Appendix III — Illustrative internal creditor processes (three PC creditor examples) - Demonstrates how a COCP assessment could identify the “key stage” in different creditor internal processes earlier than waiting for formal SCA, depending on track record and domestic legal steps. - Appendix IV — AIP history and purpose - AIP used 19 times between 1983 and 1988; last used in 2017 for Greece. - Proposed AIP clarifications formalize time limits and renewal rules to bridge longer creditor processes while preserving safeguards. *Policy Reform Proposals to Promote the Fund’s Capacity to Support Countries Undertaking Debt Restructurings (Executive summary and Board summing up, March 15, 2024).* ### 1. Directors welcomed the opportunity to consider reforms to promote the Fund’s ### POLICY REFORM PROPOSALS TO PROMOTE THE FUND’S CAPACITY TO SUPPORT COUNTRIES UNDERTAKING DEBT RESTRUCTURINGS ### Executive summary and key findings - Recent sovereign debt restructurings over the past three years faced significant delays that slowed access to Fund financial support and increased adjustment costs for debtors and creditors. - Important questions identified: (i) application of additional safeguards under the Lending Into Official Arrears (LIOA) policy; (ii) depth and definition of financing assurances reviews; (iii) requirements under the Fund’s financing assurances policy; (iv) bridging engagement gaps with debtor authorities; and (v) clarity on assisting members in arrears facing exceptional circumstances such as a natural disaster. - Proposed package of reforms includes: (i) formally introducing a fourth strand into the LIOA policy to define how to apply safeguards; (ii) strengthening financing assurances reviews; (iii) establishing a more robust and agile approach for deriving financing assurances; (iv) adjusting the Approval-in-Principle (AIP) framework to bridge a period until adequate safeguards are established; and (v) clarifying the exceptional circumstances clause under the LIOA policy. - Staff expect the reforms to promote more agile and effective Fund engagement, with stronger uniformity of treatment, and without reducing safeguards or requiring additional risk tolerance by the Fund. - Date appearing in document: March 15, 2024. ### Strands 1–3 under the LIOA (existing policy orientation) - Directors agreed LIOA policy remains broadly appropriate and current guidance on application of the first, second, and third strands should be retained. - Most Directors view Strand 1—creditor coordination through a representative standing forum such as the Paris Club or the Common Framework involving the Paris Club—as the central focus and preferred pathway whenever available. - A few Directors urged recognizing the G20 Common Framework more generally as a representative standing forum. - Consistent with current policy, the Fund would normally not apply Strand 3 (the three criteria) to a creditor or group of creditors with an adequately representative share of total financing contributions, including assessing whether Fund support would have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. ### Strand 4 under the LIOA: introduction and triggers - Directors supported adding a fourth strand under which the Fund shall seek additional safeguards when: - an adequately representative agreement has not been reached through a representative standing forum; - consent is not forthcoming within 4 weeks of being requested; and - the three criteria under Strand 3 cannot be satisfied with respect to an official bilateral creditor. - The Strand 4 approach distinguishes Fund-supported programs with normal access from those with exceptional access under the GRA or the PRGT or high combined access under the GRA and PRGT. - Standard circumstance: the “standard safeguards approach” applies for normal access cases under Strand 4 (with specified exceptions). - Complex cases with prolonged negotiations or creditor coordination issues would require a shift to the “enhanced safeguards approach.” ### Standard safeguards approach (Strand 4, normal access) - Requires a combination of program design elements, including: - phasing of access under the arrangement (with an initial purchase or disbursement capped at low access); - program conditionality to support the restructuring process where warranted under the Guidelines on Conditionality; - a debtor commitment to good faith efforts to establish safeguards for Fund lending. ### Enhanced safeguards approach (Strand 4, when signaled) - Applies in addition to the debtor commitment and conditionality of the standard safeguards approach and requires: - a direct commitment to the Fund by a sufficient set of creditors about their restructuring intentions. - Where such a commitment is provided, arrears would be considered eliminated (for purposes of the application of the LIOA policy) for both participating and non-participating creditors. - Definition of a “sufficient set” and type of commitment as set out in paragraph 22 of the paper: - A “sufficient set” requires participation of any standing creditor forum as well as any creditors with significant influence over the debtor. - A creditor has significant influence when it has the ability to extract repayment on more favorable terms, inconsistent with program parameters. - Strand 4 shifts to enhanced safeguards upon an explicit signal that a creditor or creditor group to which Strand 3 cannot be satisfied either: - (1) is unwilling to restructure their claims in line with program parameters; or - (2) views additional support by the Fund to the debtor’s effort to coordinate with creditors to be essential. - Staff Reports should transparently and factually explain which creditor(s) requested the shift and the reason for any shift; Directors emphasized limiting stigma and, where available, providing granular information about which members in any creditor group made the request. ### Comparability of treatment and contractual clauses - The Fund will subject any arrears arising out of exercise of a contractual comparability of treatment clause to the Fund’s non-toleration of arrears policy, as set out in paragraph 21 of the paper. ### Financing assurances reviews: scope and enhancements - Directors supported strengthening financing assurances reviews under the LIOA and LIA policies while external arrears remain unresolved. - Introduce financing assurances reviews in cases where arrears are deemed away under Strands 1 and 4 and in preemptive restructuring cases needed to restore debt sustainability involving official bilateral creditors until restructuring is complete. - Financing assurances reviews will: - assess continued compliance with applicable arrears and financing assurances policies; - assess whether member adjustment efforts are undermined by debtor–creditor relations developments; - determine whether debt situation undermines restoration of medium-term external viability and capacity to repay the Fund. - Requests for new Fund financing should lay out expected steps and schedule for the restructuring process in an indicative way. - Subsequent reviews should detail progress against that schedule to determine whether restructuring remains on track to ensure overall program objectives are met. - Financing assurances reviews should explicitly assess whether the Fund still has appropriate safeguards or needs to introduce additional safeguards, tailored to the situation and reason for delay. - A clear signal about a creditor’s unwillingness to restructure would motivate a shift to enhanced safeguards. - Going forward, application of Strand 1 to ongoing and future debt restructuring cases after the effective date of these policy changes would also require completion of a financing assurances review until such arrears are resolved. ### Credible official creditor process (COCP) and deriving assurances - For cases requiring financing assurances from official bilateral creditors (pre-emptive cases and Strand 1 and 4), Directors agreed assurances could be obtained through the Fund’s assessment that a “credible official creditor process” is underway. - Each creditor needs a robust track record in delivering timely and successful debt restructurings to support the Fund’s assessment of process, key decisionmakers, and expected timeframe such that the key stage has been reached to provide necessary assurances. - In absence of sufficient information or track record, required financing assurances could continue to be satisfied by specific and credible assurances on debt relief/financing. - Assessments of COCP should be transparent, evenhanded, fair, and provide enough granularity and robust evidence for the Board. - Establishing a track record for non-Paris Club creditors’ processes could move broadly at the same speed given restructuring cases typically involve multiple non-PC creditors. - In pre-emptive cases, financing assurances would only be sought from a “sufficient set” of creditors, per paragraph 22. Policy for preemptive restructuring cases for private creditors remains unchanged. ### Exceptional circumstances under the LIOA - Clarifications supported on the “exceptional circumstances” clause: - Clause should focus on natural disasters and a subset of other exogenous shocks, such as large or global shocks. - Fund’s assessment of whether support would advance normalization of relations with official bilateral creditors and resolution of arrears would be based on the debtor’s commitment to make good faith efforts toward resolving arrears and to promote creditor coordination. - The “exceptional circumstances” clause would generally not be satisfied for cases with long-standing arrears. - No change required to qualification criteria for emergency financing instruments. - Where a staff-level agreement has been reached for an upper-credit-tranche (UCT) program for a member undergoing a debt restructuring but an emergency arises that requires the UCT program to be redesigned, redesigning the UCT program may be infeasible in the emergency timeframe; even in emergencies, the best course is to work towards a UCT program and emergency financing should not undermine efforts to secure such a program. ### Approval in Principle (AIP): clarifications and limits - AIP remains a useful optional device to bridge engagement gaps when policy agreement exists but financing assurances to restore debt sustainability have not been received. - Clarifications agreed: - A decision to approve an arrangement in principle shall specify the date by which the approval would lapse, which would normally be no later than 4 months after approval. - A new AIP shall only be permitted once and would normally be subject to a limit of an additional 4 months. - The Fund would only approve a new AIP if financing assurances restoring debt sustainability are likely to be delivered and the member’s economic program is being implemented as agreed and remains on track. - Once financing assurances are obtained, a second Executive Board decision is required to make the arrangement effective, normally adopted on a Lapse of Time basis. - Staff should aim to bring a UCT program forward for Executive Board consideration as fast as possible. ### Implementation, timing, and governance - Directors agreed the policy changes will enter into effect immediately and apply to all future purchases and disbursements, including under existing arrangements, where relevant policies apply. - Emphasized need for careful implementation to ensure effective, transparent, and evenhanded application and to minimize increased burden on debtor countries. - Called for effective communication of policy changes to stakeholders, including through planned Guidance, capacity development support, and close cooperation with other workstreams such as the Common Framework and the Global Sovereign Debt Roundtable. - Directors agreed to maintain review of the LIOA policy, including present reforms, on an as needed basis. *Policy Reform Proposals to Promote the Fund’s Capacity to Support Countries Undertaking Debt Restructurings (Executive summary and Board summing up, March 15, 2024).* ### INTRODUCTION ### INTRODUCTION ### Context and recent experience - Global and country-specific factors tipped a number of countries into debt distress over the past few years. Affected countries included Ethiopia, Ghana, Sri Lanka, Suriname, and Zambia. - Official creditor restructuring processes (OSI) faced delays in the new creditor landscape but are now proceeding with greater efficiency over time: - It took 11 months for Chad to move from a staff level agreement with Fund staff (SLA) to the time when financing assurances were obtained through the Common Framework (CF) process. - It took 9 months for Zambia to cover the same ground. - It took 6 months for Sri Lanka and 5 months for Ghana. - Restructurings involving bonds have become more protracted when conducted in parallel to an OSI process because bondholders await clarity on official creditors’ actions. - Despite frictions, there has been substantial progress in collaboration with non-Paris Club official creditors achieved over a short time span by historical standards. ### Why speed and coordination matter - Debt levels rose in the wake of the pandemic and other shocks, fiscal pressures increased, and global real interest rates surged. - WEO forecasts do not anticipate a wide additional build-up of public debt vulnerabilities, but such a scenario is considered an important risk. - Delays in restructuring can: - Deepen debt distress and make adjustment more difficult. - Exacerbate the debt problem. - Create inefficiency costs for both debtor and creditors. - For smooth restructurings three elements must work well in tandem: - Restructuring processes and creditor coordination (to solve free rider problems and enforce comparability of treatment). - The Fund’s Debt Sustainability Analyses (DSA) toolkit as an objective, unbiased tool to determine debt relief/new financing envelopes and transparently explain assumptions. - Fund policies that incentivize progress by debtors and creditors (debt sustainability, financing assurances, lending instruments, and lending into arrears). ### Ongoing problems undermining timeliness - Creditor processes in the new landscape have slowed, with disagreements about processes, parameters, and comparability of treatment holding up progress. - Debt transparency remains an issue. - Questions have been raised about aspects of the Fund’s DSA frameworks, especially the older framework for Low Income Countries (LIC DSF). - Calls for earlier availability of DSA results and underlying assumptions and for greater transparency in DSA output. - The Fund may be constrained and delayed in designing programs capable of resolving BoP problems and restoring medium-term external viability because needed safeguards (including financing assurances) may not be secured in a timely manner. - Delays can damage engagement on policy implementation and structural reforms. ### Work already underway - Efforts to improve restructuring processes and debt transparency: - The Fund, the World Bank, and the G-20 Presidency convened the Global Sovereign Debt Roundtable (GSDR). - The Fund reviewed progress on debt transparency and evaluated potential next steps. - The Multi-Pronged Agenda (Fund-Bank) will continue to support these efforts. - GSDR meetings in 2023 and early 2024 covered information sharing, MDB financing contributions, cut-off dates, comparability of treatment, domestic debt restructurings, and state-contingent instruments. - GSDR co-chairs issued a Progress Report in October 2023. - DSA toolkit updates and transparency enhancements: - The new Sovereign Risk and Debt Sustainability Framework (SRDSF) is being implemented (with 98 out of 121 countries being discussed under the new framework as of end-January 2024). - Regular review of the LIC DSF is commencing; interim guidance on using the LIC DSF in restructuring situations will be issued. - Guidance issued in 2023 on sharing information in restructuring contexts (including DSA) to facilitate early engagement and information sharing with creditors. - Donor-funded training programs (e.g., DMFII facility, partnership with CICDC) continue to support country-level DSA analysis and joint training for creditors and debtors. ### Proposed Fund policy adjustments (summary) The paper covers proposed adjustments and clarifications to Fund policies (lending into official arrears, financing assurances, and lending policies). The changes proposed would make Fund lending more agile without entailing additional risk-taking and include: - Introducing a fourth strand into the Fund’s Lending into Official Arrears (LIOA) policy to define how to apply safeguards. - Strengthening the effectiveness and broadening the applicability of financing assurances reviews. - Establishing a more robust and agile approach for deriving financing assurances. - Extending elements of the strand 4 and financing assurances reviews reforms to a pre-default context (to ensure consistency in the application of Fund policy). - Adjusting the Approval-in-Principle (AIP) framework so that it can be used to bridge a period until adequate safeguards are established for Fund financing (when this is expected to be lengthy). - Supporting access to Emergency Financing (EF) by members undergoing debt restructurings when they face exceptional circumstances caused by an exogenous shock that aggravates their debt distress, such as a natural disaster. - The changes are designed to support the existing architecture and include specific elements meant to support debtor-creditor efforts towards comparability of treatment. ### Structure of the paper - Section II: challenges faced under current policies. - Section III: reform proposals and how the package delivers greater agility while maintaining safeguards and incentives to speed restructurings. - Section IV: enterprise risks and mitigating factors. - Section V: issues for discussion. ### Challenges posed by the status quo and LIOA implementation issues - Under current circumstances the Fund must assess whether its policy requirements for financing engagement have been met, including LIOA requirements where arrears to official creditors exist. - The three LIOA strands provide for reliance on a representative forum, reliance on consent, or application of the three criteria (normally to a minority of creditors). - In practice, when several meaningful official creditors are involved, two basic approaches emerge: a representative forum or consent (with three criteria possibly applied, though normally to only a minority of creditors). - Recent experience: - It has often been time-consuming to secure assurances necessary to utilize strand 1 (e.g., CF applies only to DSSI eligible countries and can take time). - When a representative forum is out of reach, securing consent from key creditors under strand 2 has taken time. - Strand 3 often could not be satisfied because relevant creditors held too large a portion of the debt and/or were too important for mobilizing future financing. Box 1 — The Three Strands of the LIOA (as presented) - Strand 1: There is an adequately representative Paris Club agreement—an agreement by bilateral creditors, involving the Paris Club, representing a majority of the total financing required from bilateral creditors over the program period. The Fund prefers a representative standing forum for creditor coordination benefits. - Strand 2: In the absence of an adequately representative Paris Club agreement, a bilateral creditor has consented to Fund financing, despite the arrears. Consent does not entail any commitment by such creditor to the Fund to undertake steps to resolve the arrears owed to it. - Strand 3: In the absence of an adequately representative Paris Club agreement and creditor consent, the Fund can proceed with financing where the following three criteria are met: - i. Prompt financial support from the Fund is considered essential, and the member is pursuing appropriate policies. - ii. The debtor is making good faith efforts to reach agreement with the creditor on a contribution consistent with the parameters of the Fund-supported program—i.e., that the absence of an agreement is due to the unwillingness of the creditor to provide such a contribution. - iii. The decision to provide financing despite the arrears would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. This criterion would normally not be satisfied with respect to a creditor or group of creditors who represent a majority of official bilateral financing required during the program period (a “majority creditor”). This criterion would also take into account the creditors’ track record of participation in restructurings involving Fund financing (e.g., the HIPC initiative). In practice, the Fund has also taken account of case-specific factors that mitigate risks for mobilizing financing (e.g., in the 2015 application to Ukraine’s arrears to Russia, the conflict between Ukraine (debtor) and Russia (creditor) was seen as creating creditor incentives specific to the case). - The design of the policy means that in a restructuring context (where multiple creditors are involved) the Fund essentially has two ways forward: (i) strand 1; or (ii) strand 2 (consent), with the possibility of co-use of strand 3 (application of the three criteria, normally not involving a majority creditor or group of creditors). ### Practical approaches and their limitations - Where a representative creditor committee has been involved (e.g., CF), the Fund has waited for required financing assurances; delays have created pressure to proceed and revealed barriers addressed in other work streams (GSDR, DSA). - An issue: how to assess when a financing assurance from the CF is in place; meanings can vary across creditors and friction arises. - Another issue: lack of clarity on handling slow progress in different stages of debt restructuring during financing assurances reviews (e.g., challenges securing timely signing of an MOU). - When a representative creditor committee was out of reach, the Fund worked separately with creditor groups to secure consent: - Fund staff has chosen not to apply the three criteria to some hesitant creditors, often because these creditors were majority or important for future financing. - With non-Paris Club creditors, Fund staff viewed them as needing to be part of the solution and carefully consulted. - Concerns about creditor coordination and burden sharing have stalled progress and pointed to an unresolved safeguards issue for the Fund—consent plus application of the three criteria does not necessarily assure restructuring will move forward to restore sustainability. Box 2 — Assurances under LIOA Strands 2 and 3 (key concerns) - Applying strand 3 to creditor(s) with influence over the debtor could allow such creditor(s) to extract repayment on more favorable terms inconsistent with program parameters, especially after the end of an arrangement. - Lack of agreement with influential creditors can impede restructuring of other official and private creditors: other creditors may wait out the eventual restructuring of influential creditors because of first-order implications for sustainability; comparability provisions are hard to specify robustly. - Delayed arrears resolution can undermine economic recovery and delay a return to capital markets, which is key to restoring medium-term external viability and the debtor’s ability to repay the Fund—thus undermining adequate safeguards for Fund lending. ### Practical outcomes observed - Some approvals proceeded by establishing safeguards (debtor commitment to comparability of treatment and no single creditor with undue influence), allowing arrangement approval and some progress, but with insufficient incentives for creditors to move quickly—creditors moved at different speeds and coordination problems persisted (e.g., Suriname 2021-23). - Other cases secured consent by establishing additional safeguards, including waiting for official bilateral creditors to signal willingness to restructure in line with program parameters; this parallel approach de facto secures cooperation but has proven time consuming with friction over form and meaning of financing assurances (e.g., Sri Lanka). *Source: ppea2024017 - INTRODUCTION* ### 12. While the Fund and creditors have been finding a way through, the experience raises a ### ppea2024017 - 12. While the Fund and creditors have been finding a way through, the experience raises a ### Issues for Fund policies - The experience raises a host of issues for Fund policies, summarized in six areas: - i. The application of additional safeguards under the LIOA policy. Questions: Should the Fund be more aggressive in applying the three criteria? Existing Fund policy allows for additional safeguards,9 but when and how should they be applied more generally? Should such choices remain discretionary given creditor interdependencies (Figure 1)? - ii. Better handling of situations where, once within a Fund supported program, progress towards a restructuring is slow. Can financing assurances reviews be given more depth (i.e., by better defining approaches to assessing and upgrading safeguards) to make reviews more effective? - iii. Application of the financing assurances (FA) policy in a consistent and even-handed manner. The FA policy is optimized to the previous official bilateral creditor landscape and does not translate fully to the new creditor landscape, creating frictions when non-PC creditors are involved. - iv. Handling financing assurances related issues in a pre-default context (including instances where default is avoided due to a standstill). The Fund may only lend under adequate safeguards, which includes an assessment that the member will be in a position to repay the Fund when its repayment obligations fall due.10 In a pre-default context, safeguards are provided by establishing financing assurances, typically seeking “specific and credible assurances” from each creditor. This process can be vulnerable to the same problems as financing assurances reviews and, if a standstill involves no arrears, there may be no near-term outlet into the LIOA framework where approaches are better defined. - v. Securing engagement with the debtor country through periods of elongated creditor processes. Can Approval-in-Principal procedures (AIP) be adjusted and modified to support better engagement when creditor processes are prolonged? - vi. Handling exceptional circumstances such as natural disasters that arise during elongated creditor processes (when UCT programs are not within near-term reach). This raises the question of standards for applying the LIOA policy to emergency financing in exceptional circumstances. ### Proposals — overview - Staff proposes a package of reforms to improve the Fund’s ability to provide financing in debt restructuring cases with adequate safeguards. The package: - Builds on existing practices and policies. - Preserves and complements what works well, adds functionality to respond to present circumstances, and fills gaps to improve even-handed application. - Aims to incentivize faster creditor processes and be robust to potential developments so policy need not be constantly fine-tuned. - Responds to the six areas above and would give the Fund options to proceed faster while preserving safeguards where actions are delayed, blocked, or subject to frictions. ### Proposed reforms to the LIOA policy - Need for more explicit guidance on the application of the LIOA policy to provide financial support to members; the policy already allows additional safeguards but clearer guidance would: - Improve even treatment of creditors. - Provide greater certainty to creditors and debtors about processes and Fund judgments. - Help overcome creditor inter-dependencies and speed restructuring and arrears resolution. - Increase transparency to explain Fund approaches to the public. - The 2015 Pathways under LIOA: - Strand 1 (representative forum) should remain the Fund’s central focus; staff proposes no change to strand 1. - The Fund must remain willing to utilize consent and/or application of the three criteria to some creditors without seeking additional safeguards. - Consent: where creditors work well together and first mover problems do not exist, consent is the fastest route and provides adequate safeguards. - Application of the three criteria: important not to allow a holdout creditor to subvert international community assistance; Board has final call advised by staff. ### Utilizing additional safeguards — Proposed LIOA Strand 4 - Rationale: Fund has used additional safeguards when LIOA pathways alone cannot provide a way forward; need better definition across three issues: - How to determine that existing LIOA pathways cannot provide a way forward. - What additional safeguards could be. - How to apply them straightforwardly and even-handedly linked to circumstance. - Determining that existing pathways cannot provide a way forward: - First case: whether requirements under strand 1, or a combination of strands 2 and 3, can be met—generally straightforward, starting with the Fund’s preferred route (representative standing forum). - Second case: possible to apply strands 2 and/or 3 but the Fund requires additional safeguards. This includes: - Situations where exceptional access is proposed (requiring high probability of debt sustainability per the exceptional access criterion).11 - Normal access situations where (i) a creditor’s authorities have conveyed consent in form but no intention to restructure in line with program parameters; and (ii) creditors communicate to staff a desire for strong support to creditor coordination. - Box 3 summary (operational determination of strand applicability): - Strand 1: Fund prefers representative standing forum; Fund has methodology to determine representativeness and is positioned to make that determination. - Strand 2: If strand 1 does not apply, staff seeks consent from creditors; creditors may withhold or delay consent due to first mover or internal process issues. - Strand 3: Where strands 1 and 2 cannot be applied, staff assesses application of the three criteria; the third criterion’s assessment is crucial, with Board guidance that it normally would not be satisfied for a creditor or group providing a majority of total financing contributions from official bilateral creditors over the program period. ### Types of safeguards and operational approach - Three types of safeguards that can be applied when needed: - (i) Program design elements (phasing and conditionality). - (ii) Commitments from the debtor to creditors on good faith efforts (embedding intention to deliver comparability of treatment). - (iii) Direct commitments from a "sufficient set” of creditors to the Fund about their restructuring intentions. - Purpose of safeguards: - Assure that a sufficient stock of the arrears will be resolved. - Bring other official bilateral creditors in to resolve arrears on similar terms. - Help ensure restructuring is agreed in a timely manner by a sufficient set of creditors within the program period.12 - Without program design timelines, restructurings risk elongation and safeguard issues for the Fund; without debtor actions, creditors may wait each other out; without sufficient bilateral commitments, holdouts more likely. - Operationalization — staff proposes (Figure 2): - Seek additional safeguards in two cases: - First: when strand 1 (and 3) are not available, and consent is not forthcoming by 4 weeks after a staff request for such (though staff may choose to wait longer if deemed useful). Staff believes 4 weeks balances need to move forward with the need to give creditors time to assess cooperation modalities. - Second: when program would involve exceptional access, staff would explain to the Board the basis for a determination that additional safeguards are needed. - Standard safeguards approach for normal access cases: - Based on program design elements and debtor commitments to creditors (commitment to good faith efforts). - Involves arrangement with capped initial access, program conditionality supporting restructuring (where warranted under the GoC), and debtor commitment to good faith efforts. - Expected to catalyze creditor progress by reassuring creditors on debtor commitments and clarifying timelines and steps (builds on Suriname example). - Enhanced safeguards approach for exceptional access cases: - Includes the standard safeguards approach plus a direct commitment to the Fund by a “sufficient set” of creditors about restructuring intentions (i.e., a “financing assurance”). - If a sufficient set commits, creditor coordination is de facto achieved and other creditors’ arrears would be deemed away for Fund arrears policy purposes.13,14 - Expectation: - Standard safeguards for regular access, with allowance to shift to enhanced safeguards if explicit signals from significant creditors (those for whom the three criteria could not be satisfied) indicate unwillingness to restructure in line with program parameters or a need for greater creditor coordination. - Staff Report would explain why enhanced approach invoked, which creditor(s) requested it, why direct creditor coordination mechanisms were not feasible, and efforts made by creditors to directly coordinate. - Immediate shift back to strand 1 if it becomes available, with realized safeguards preserved. ### Box 4 — Application of proposed LIOA Strand 4 standard safeguards (high-level) - Program design elements: - Structural conditionality to incentivize timely debtor actions within control of debtor (e.g., debt transparency, sharing information, milestones like sharing an offer) consistent with Guidelines on Conditionality. - Quantitative conditionality to address risks of creditors attempting to extract payments not in line with program parameters; staff should set QPCs comprehensively with full coverage of public sector accounts from below the line, requiring consultation with debtor’s financial advisors. - Use of normal access safeguards with capped upfront disbursement of Fund resources up to but not exceeding annual access limits under the Fund’s emergency financing instruments (the “regular window” under the RCF/RFI); phasing should align with member’s BoP needs and policies. - Debtor commitment to good faith efforts: - Upfront public commitment by debtor authorities to good faith efforts can provide a way forward when coordination mechanism lacking (examples: Sri Lanka and Suriname). - Good faith efforts per existing LIOA definition: process elements (approach creditors, engage in substantive dialogue, seek collaborative process, provide timely information) and terms offered (consistent with Fund program parameters and not implying disproportionate contribution versus other bilateral creditors). - Debtor may choose to make commitments to private creditors to facilitate broader cooperation and sequencing options. - Additional notes: - Creditors may identify methodologies for assessing CoT; Fund does not prescribe methodology. - Contractual clauses (e.g., claw back, MFCC) exist but are difficult to enforce and generally arise after program inception, limiting effectiveness for resolving first-mover problems. *Source: ppea2024017 - 12. While the Fund and creditors have been finding a way through, the experience raises a* ### 21. A key underpinning to this approach concerns the debtor’s commitment to good faith ### 21. A key underpinning to this approach concerns the debtor’s commitment to good faith ### Good-faith commitment and Change of Terms (CoT) - CoT considerations are currently given weight under Fund policies, and staff proposes to further strengthen the incentive Fund policies provide. - The proposal treats the debtor’s commitment to good-faith efforts including CoT as a key underpinning to Fund support consistent with its policies. - If a contractual dispute arises about the amount or validity of claims from applicability of a CoT clause, the Fund’s current doctrine on disputed claims applies: where the Fund accepts a member's representation that the validity or amount of a debt claim is in dispute, such disputed claim does not give rise to arrears for Fund purposes, but is taken into account as a contingent claim for financing assurances and the Fund DSA. ### Three time periods for CoT and Fund policy implications - Between agreement-in-principle and conclusion of the debt restructuring agreement: - Creditors raising CoT concerns would almost certainly prevent conclusion of the agreement. - Any pending financing assurances review under a Fund-supported program would have to take this development into account. - The program would likely not be able to move forward until resolved. - Fund policy already can give weight to CoT considerations in this period. - Between completion of the debt restructuring agreement (when arrears are resolved) and the end of the program: - If a restructuring agreement is in place and arrears resolved, financing assurances reviews would no longer apply. - A decision by creditors to trigger CoT claw backs would create financing and possibly sustainability gaps in the program, which would need to be closed for any program review to proceed. - Fund policy again already gives weight to CoT considerations in this period. - Post-program period: - Once a program is concluded the Fund does not presently have a mechanism to support continued CoT. - Proposal: modify the arrears policy to re-classify any new arrears that arise due to the exercise of a CoT clause as “not OSI-related” for arrears policy purposes in the context of a new arrangement, even if further OSI would be required. - Such arrears would be subject to the Fund’s non-toleration of arrears policy (as opposed to OSI-related arrears which fall under the LIOA policy). - This would not rule out restructuring of such arrears, but would require the non-objection or acquiescence of that creditor to the Fund approving any new financing and/or completing any subsequent reviews, providing the aggrieved creditor extra leverage. - The proposal is intended as a deterrent by raising the ex-post cost for all involved, but its effectiveness relies on debtor authorities recognizing and internalizing this. ### Defining a “sufficient” set of creditors - Staff leaves detailed assessment of commitments of individual creditors in the “sufficient set” to section C. - Simple definition analogous to LIOA strand 1: - Look for an “adequately representative” set: a creditor or group that accounts for a majority of the total financing contributions required from official bilateral creditors over the program period (covering both the restructuring and new financing). - More appropriate definition for enhanced safeguards: - Require involvement of any representative forum (whose members are creditors) and any creditors with influence over the debtor; such creditors need to be “at the table” with a voice. - Indicators that a creditor could have potential influence over the debtor: - Enforceable and economically meaningful collateral or collateral-like features in its debt contract. - A share in the total debt stock or debt service flows that is high (e.g., among the top three creditors). - Total BoP relationship with the country (trade and capital flows) is high (e.g., in the top three countries over the previous 5 years). - Case-specific mitigating factors staff would assess: - Inherent flexibility in the debtor countries’ trade (e.g., alternative sources of supply). - Whether the collateral is playing a positive role (i.e., “related” collateral which would directly give rise to repayment capacity). ### Embedding standard and enhanced safeguards in LIOA via a new strand - Staff proposes to embed the standard and enhanced safeguard approaches in the LIOA policy under a new fourth strand. - Apply strand 4 when the existing three strands cannot alone provide a way forward or when additional safeguards are needed (per considerations in paragraph 20, bullet 1). - Under strand 4, the Fund would consider lending into official arrears only if the safeguard requirements described in paragraph 20 are met, according to the type of case. - The assessment in any one case would be a judgement by the Board, informed by staff advice based on the factors listed. ### Proposed reforms to Financing Assurances Reviews (FAR) - Current shortcomings: - Financing assurances review is required alongside normal program reviews so long as there are unresolved arrears, but lack of a systematic approach limits effectiveness. - Reviews are often not reported in meaningful depth; engagement with authorities, creditors, and advisors may not be structured or deep enough, and the Board may lack insight. - Staff proposals to strengthen FAR: - Arrangement-stage Staff Report should present a clear depiction of expected steps and the schedule for a restructuring process, based on an understanding developed with the debtor and its advisors; timeline understood to be indicative and subject to change if material developments occur. - Clarity about creditors involved and the process being utilized (e.g., common framework, PC and others in parallel). - Subsequent FAR should draw on the indicative steps and schedule to assess progress and whether restructuring remains on track to meet program objectives (restoring debt sustainability and medium-term external viability). - At FAR, determine whether the Fund still has appropriate safeguards to proceed with financing; conclusions easier if restructuring is on track or ahead of schedule; lack of progress could raise concerns and necessitate stronger safeguards or a change of strand. - If exceptional access safeguards approach had been applied at arrangement approval, FAR could consider additional safeguards covering phasing and conditionality, but would usually require agreement in principle on the official sector restructuring as a condition for completing FAR. - Inability to complete a FAR would require holding the program pending progress in line with the initial indicative timeline or possibly applying additional safeguards. - When restructuring remains outstanding at FAR, expect a clear depiction of steps and an adjusted indicative schedule to facilitate subsequent review. - The Executive Board would have the opportunity in its Summing Up to calibrate messaging to debtor and creditors/creditor forum about urgency. - Additional proposal: - Application of strand 1 under the LIOA to arrears arising after adoption of this proposal would require completion of a FAR until such arrears are resolved. ### Issues with current financing assurances policy and creditor landscape - The Fund’s financing assurances policy is optimized for the previous official bilateral creditor landscape. - Two dimensions to consider: - Modalities for assessing financing assurances: - Long history of collaboration with the Paris Club (PC); PC’s processes and track record allow a simple process for assessing assurances (chair summing up, working paper, Agreed Minute). - For non-PC creditors, Fund seeks specific and credible assurances, often via written and/or verbal communication committing to negotiate a treatment consistent with program parameters, leading to lengthy processes and frictions. - SCAs content differs and may raise comparable treatment concerns across non-PC official creditors. - Approach to creditor coordination mechanisms: - PC is currently the only representative standing forum recognized by the Fund for arrears policies. - Fund policy allows engagement with another such forum should it arise; useful to assess when the Creditor Forum (CF) can be considered a representative standing forum under LIOA outside PC involvement. - At the 2022 LIOA policy review, most Directors agreed more experience is needed to recognize the CF as a representative standing forum and welcomed staff’s plan to monitor CF’s evolution and revert to the Board. - In absence of CF work without PC involvement, staff is not in a position to revert at present. ### Proposal: Credible Official Creditor Process (COCP) - Rationale: - Individual creditors’ internal processes and legal frameworks differ and cannot be expected to change quickly. - Expanding membership and reach of creditor coordination mechanisms (PC or CF) is preferred but may not be feasible near-term. - Core proposal: - Operationalize creditor commitments by assessing that a “credible official creditor process” (COCP) is in place. - Re-orient the Fund’s approach toward assessing processes rather than eliciting specific creditor statements, reducing frictions and superfluous steps. - Such judgement about processes would need to be informed by an official creditor’s track record of debt treatment delivery; not immediate but, once made, assumed to apply absent new adverse developments. - Apply COCP to cases where creditor commitments are currently sought including: - (i) pre-default cases; - (ii) strand 1 cases where the representative standing forum is giving the Fund assurances; - (iii) proposed enhanced strand 4 cases seeking commitments from a "sufficient set" of creditors. - Operationalization steps staff would seek to understand: - (i) the steps in the official creditor’s internal process; - (ii) the key decision makers involved (those with authority to commit the creditor); - (iii) the information provided to inform decision making at the relevant stage (macroeconomic outlook, debt targets, possible restructuring approaches); - (iv) the timeframe over which the decision would be expected to be executed (should be in line with Fund expectation that a restructuring would be agreed promptly, normally by the time of the first program review). - Guidance would: - Stress need for staff to interact with and support a creditor’s internal process by providing information on a timely basis upon request and by answering questions. - Defer to authorities’ representation that a key stage of decision making had been passed, aiming to identify the nature of the decision and who took it. - Rely on observed cases—track record—to establish credibility of the “key stage” in a specific creditor’s process in terms of delivering outcomes (contractually finalized debt relief and/or new financing consistent with program parameters). ### Application and distinctions across creditor circumstances - COCP standard implications: - Takes account of specific features of creditor or creditor coordination mechanisms. - Straightforward where the PC is involved given its track record, including via the CF process (supporting CF use). - For non-PC official bilateral creditors (or CF without PC involvement), approach allows faster determination as track record builds and decision-making stages become better known. - Since restructuring cases typically involve multiple non-PC creditors, establishing track records could move broadly at the same speed across creditors. - Takes account of the type of treatment sought and the track record with such treatments (e.g., longer track record for timely NPV-neutral reprofiling than for deeper treatments). - Appendix III (in the source) illustrates how judgments may differ across creditors and over time by describing internal creditor processes in three PC members (setting aside inter-creditor coordination at the Paris Club). *Source: ppea2024017 - 21. A key underpinning to this approach concerns the debtor’s commitment to good faith* ### 32. This proposal to assess COCP for official claims would differ from the existing ### 32. This proposal to assess COCP for official claims would differ from the existing ### Differences between COCP and private creditor credible process - The private sector context: generally a diverse set of small creditors subject to the contractual framework for resolving debt distress; the debtor country and its advisors play a critical role in managing this process, allowing the Fund’s assessment to focus on the debtor’s actions. - The contemplated reforms would not affect the Fund’s approach towards private creditors, which intentionally: - does not give such debtors a veto over Fund assistance; - accepts that arrears may finance the program and may be outstanding for an extended period of time.24 - Official creditor context: creditors enjoy greater leverage, including under Fund policies, and there may be significant creditors or groups of creditors with substantial additional leverage over the debtor. In such cases: - the debtor’s actions can no longer be relied on exclusively to guide the process forward; - arrears can no longer be relied on to finance the program or be outstanding for extended periods of time; - a greater focus on the actions of the creditors and their processes is needed. ### Board assessment, management/staff role, and safeguards - The Board would make the COCP assessment advised by management and staff (same institutional arrangement as an SCA). - The standard may manifest differently across cases, so judgments must be made in the context of a specific country case. - Management and staff would need to explain to the Board: - the basis for their judgment; - the key elements of the process; and - the track record. - Subsequent similar cases for the same creditor would not need to repeat the full explanation absent new developments; they would refer to the attainment of the key stage. - If committed debt treatment is not delivered in a timely manner or at all: - staff must revisit the assessment and focus on a later stage in the creditors’ process, looking for evidence that once that later stage is passed a restructuring gets concluded in a timely manner. - This revisit mechanism is a key safeguard against incorrect application of the COCP, preventing an incorrect application from setting a precedent or lowering the bar for future cases. ### Transition approach and use of SCAs - In the absence of enough information and/or track record to reach a COCP judgment, it could be satisfied by a SCA, ensuring a smooth transition to the new regime. - Staff Reports under SCA continuity would be expected to: - provide greater context to the SCA; - help establish the track record needed for an eventual COCP assessment; and - ensure that modalities across creditors would be uniformly applied (i.e., that two similarly situated creditors received similar consideration for a credible process assessment). ### Expected benefits and operational implications once transition occurs - The approach would make the Fund more agile without taking significant additional risks: - Provide a uniform way of interacting with creditors and creditor coordination mechanisms while accounting for varied circumstances; the approach can align with the CF’s processes or with creditors’ own processes. - Potentially shorten the time needed for arrangement approval or review completion by not requiring waiting for creditors to meet domestic legal requirements for giving SCA. - With sufficient track record, the Fund may be able to move its assessment earlier in the process, encouraging non-PC creditors or new creditor coordination mechanisms to refine processes for greater efficiency. - Provide a strong incentive to build and maintain a track record of two-way communication and collaboration between the Fund and those creditors. - Provide at least as strong a safeguard as the current approach of seeking SCAs; for a mature creditor process, like the PC, the two overlap perfectly. SCAs themselves represent a judgment by the Fund that the assurance provided will lead to the restructuring outcome desired. ### Proposed reforms to pre-default policies - Rationale: same problems in post-default appear pre-default—application of financing assurances requirements consistently; depth of consideration of debtor-creditor developments in program reviews; limited guidance about who should provide a SCA (the “materiality” test).25 - Objective: evening out requirements between pre- and post-default to avoid arbitrage across Fund policies (arrears may lie ahead pre-default as cooperative creditors push the debtor to stop payouts). - Key proposals: - Limit the request for financing assurances pre-default to a “sufficient set” of creditors, defined the same way as proposed for the LIOA policy, strand 4 (see paragraph 22). Remaining creditors would be considered not material and assumed to restructure on program terms. - For pre-default cases involving arrears to official creditors, require a financing assurances review under the financing assurances policy at each program review until agreement in principle on the debt restructuring agreement has been reached. At such reviews staff would: - document that assurances provided about the official sector debt treatment’s progress continue to meet the debt sustainability and financing assurances requirements; - consider whether safeguards in place are adequate and scale them up if necessary in the manner described in paragraph 20, bullet 4. ### Proposed reforms to Approval in Principle (AIP) - Observations on AIP: - AIP is under-utilized due to design shortcomings; not designed for extended debtor-creditor engagement in restructuring contexts. - AIP involves a first Board decision approving an arrangement in principle where financing assurances have not been secured; once assurances obtained, a second Board decision is required for effectiveness, adopted on a Lapse of Time (LOT) basis. The original 1984 policy expected this second decision normally not to exceed 30 days but allowed flexibility. - AIP as currently designed cannot effectively be used in cases with lengthy creditor processes because: - the arrangement can quickly become stale; - a review is not possible under AIP because the arrangement is not legally effective; - AIP can be relied on for a few months at best and has been used rarely in the last 25 years. - Proposed adjustments to AIP to bridge longer periods:30 - Specify the period between approval in principle and effectiveness: - the first decision must specify a date by which AIP would lapse (deadline for the second decision adopted on a LOT basis); - factors in setting the deadline include preventing program staleness, ensuring program implementation, and avoiding distortion in phasing; - this deadline can align with the expected timeline in a program for a review, about 3-4 months in rapidly evolving situations. - Timeframe and circumstances for renewal: - renewal normally subject to a limit of 3 -4 months (implying a maximum AIP period of 6-8 months); - such an update would only be allowed once with respect to an arrangement request. - Renewal conditions: - AIP could only be renewed if its use remains worthwhile (efforts to establish necessary safeguards are on track and likely to deliver); - staff must assess that the overall program is being implemented and remains on track; - minor updates (e.g., adjust availability dates and test dates) or more significant macroframework updates could be required; - prior actions would be expected to correct implementation shortfalls and could draw on conditions in the original program, consistent with the Guidelines on Conditionality; - the proposed extension and new LOI/MEFP/TMU would need full Board consideration, supported by a new staff report; - the Board would be informed if AIP would be allowed to lapse without renewal or achievement of the second condition, including reasons. - Required safeguards: - under current AIP, the second decision requires necessary financing assurances and a determination that debt sustainability is being restored on a forward-looking basis; - in a restructuring context, the new requirements under the financing assurances policy and the LIOA policy would have to be met to proceed; these could be broader than just financing assurances; - the Fund would require adequate safeguards to proceed (pre-default or under LIOA), and these safeguards would need to be clearly specified in the conditions for the second decision under AIP. - Program design considerations under revised AIP: - Recognize that safeguards might only be received during the extended AIP period; handle this with conservative financial programming and use of adjusters on affected targets. - It would be possible for program design to be based on semi-annual reviews even with an AIP renewal in three months; in that instance a set of Indicative Targets at the three-month point would be essential to support AIP renewal. - AIP as an option, not a requirement: - Use governed by circumstances; staff should aim to bring a UCT program forward as fast as possible (utilizing proposed strand 4 under LIOA reforms and tools like stand-alone DSA approval to overcome information sharing barriers). - In some circumstances, consultations may reveal more time is needed to secure safeguards; revised AIP could be a good option. - The Executive Board, through the Summing Up, can calibrate the message to debtors and creditors about urgency in supplying necessary safeguards. ### Fund financial support to members facing exceptional circumstances - Identified gap: Fund’s ability to support members with urgent BoP needs who are undertaking restructurings and have arrears to official creditors is limited due to lack of clarity on: - application of the LIOA exceptional circumstances clause; and - qualification requirements under the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI).32 - LIOA exceptional circumstances clause: - In emergency situations (e.g., aftermath of a natural disaster) where extraordinary demands make insufficient time for the debtor to undertake good faith efforts to reach agreement with creditors, the Fund may provide financing under the RCF or RFI despite arrears owed to official bilateral creditors without assessing whether the LIOA criteria are met or obtaining creditor consent. - Under this clause it would be expected that “Fund support provided to the debtor...would help advance normalization of relations with official bilateral creditors and the resolution of arrears.” - Staff need to clarify when and how to apply this clause, which gains importance in cases with lengthy and uncertain creditor processes. - Applicable RCF/RFI requirements: - RFI and RCF can only be approved where a UCT-quality program is either not necessary (BoP need expected to be resolved within one year and no major policy adjustments necessary) or not feasible (inability to design or implement a UCT-quality program due to urgent BoP need or limited implementation capacity).33, 34 - Qualification requirements would not be met if: - a UCT-quality program is needed and sufficient implementation capacity exists, but financing assurances from official bilateral creditors are required and would take time (typically 7 –9 months at present) for the program to move forward. - This situation can leave the Fund unable to provide emergency financing to a member experiencing an urgent BoP need and facing a long restructuring and Fund financing engagement process—an important gap as emergencies (e.g., extreme climate events) become more frequent. *Italic: Excerpt from ppea2024017 - 32.* ### 44. The “exceptional circumstances” clause in the LIOA policy focuses on emergencies ### 44. The “exceptional circumstances” clause in the LIOA policy focuses on emergencies ### Scope of "exceptional circumstances" - Focuses on emergencies such as natural disasters and adverse exogenous shocks (e.g., adverse shocks to key commodity markets or developments with or in a key trading partner). - Staff proposes to focus on: - exogenous shocks (e.g., adverse shocks to key commodity markets or developments with or in a key trading partner); and - natural disasters (e.g., hurricane, widespread flooding, etc.). - Staff would not propose to define a precise set of events nor specific triggers, consistent with the standard Fund policy on emergency financing which leaves room for some judgment. - Staff would not propose to cover urgent BoP impacts arising from sources common to all restructuring situations (i.e., the policy-driven endogenous dynamics of a debt crisis). ### Interaction with existing emergency financing instruments and access - Under existing RCF/RFI policy, the projected BoP impact of the shock would define access, up to the applicable EF limits and subject to the relevant policies. - The RFI and RCF Instruments include qualification language emphasizing that financing is available only when: - a member has a balance of payments need expected to be resolved within one year with no major policy adjustments being necessary; or - the member lacks capacity to implement an Upper Credit Tranche (UCT)-quality economic program given the urgent nature of the balance of payments need or limited implementation capacity. - Staff proposes no change to RCF and RFI qualification requirements, only additional guidance on their application in emergency financing situations in a restructuring context. ### Debt resolution prospects and debtor commitments required for EF - Applying the exceptional circumstances clause requires a judgment about debt resolution prospects. - The requirement that “Fund support to the debtor would be expected to advance normalization of relations with official bilateral creditors and resolution of the arrears” was not set as a high bar given time constraints in emergencies; Fund chose higher risk tolerance in such situations. - Staff proposes assessing this requirement based on a commitment from debtor authorities in the LOI to: - make good faith efforts towards resolving the arrears; and - conduct themselves in a way to promote and encourage creditor coordination (e.g., a commitment to CoT). - For countries facing emergencies with long-standing arrears, additional safeguards would be needed for the Fund to provide EF: - For post-default cases, application of one of the three strands under the LIOA would be required. - In the pre-default context, capacity to repay assurances would be needed (i.e., per Iraq 2006). ### Program design, infeasibility of UCT in emergency timeframe, and safeguards - If a member is already engaged with the Fund (e.g., has an SLA or AIP) and an emergency arises that renders the SLA/AIP invalid, the program would need redesign. - An infeasible combination of more adjustment and lower total financing would be necessary to meet financing assurances/safeguards for an immediate UCT program; thus a UCT program could not be designed within the emergency timeframe and the infeasibility test would be met. - Additional guidance would clarify this understanding. - Even in an emergency, the best course in a restructuring situation remains to work towards a UCT quality program because it anchors policies, helps catalyze new finance, and involves the right volume of Fund support on appropriate terms. - If urgent BoP need arises and RCF/RFI and LIOA exceptional circumstances requirements are met, provision of EF should not undermine broader efforts to secure a UCT quality program. ### Continuity towards UCT programs and intermediate modalities - Clarification of exceptional circumstances clause and RCF/RFI guidance would not affect efforts to ultimately secure a UCT program. - Where the emergency raises doubts about authorities’ capacity to implement a UCT program, consistent with existing Fund policies a staff monitored program or PMB would be appropriate to help (re-)establish a policy track record for a UCT arrangement. - Where there are no assessed implementation capacity problems, the policy proposal on AIP would help: - For countries with AIP, there is an expectation the program would be updated and renewed. - For countries with an SLA or without an SLA, guidance can set a strong expectation of renewed engagement towards an arrangement. - The LOI for EF should contain any macro critical actions identified in the SLA/AIP; these could involve prior actions where warranted, ensuring continuity towards an arrangement. ### Relation to broader package of reform proposals (contextual implications) - Clarifying the exceptional circumstances clause and RCF/RFI guidance provides a way to provide EF notwithstanding arrears to official bilateral creditors while not disrupting efforts to support members’ restructuring through a UCT program. - The proposals are intended to scale the Fund’s leverage and safeguards to circumstances and to ensure continuity of program dialogue (e.g., via AIP and financing assurances reviews) when emergencies intervene in restructuring processes. *Source: ppea2024017 - 44. The “exceptional circumstances” clause in the LIOA policy focuses on emergencies* ### 58. Staff views the proposed reforms covering the financing assurances review and AIP ### 58. Staff views the proposed reforms covering the financing assurances review and AIP ### Staff assessment of net effect - Staff views the proposed reforms covering the financing assurances review and AIP procedures as on balance reducing risks to the Fund. - Expected risk reductions: - Reputational risks (by clarifying the Fund’s approach and avoiding perceptions of inaction). - Business risk of member engagement (i.e., that creditor or debtor countries perceive the timing, modality, traction, or agility of the proposed policy as inadequate and disengage from restructuring negotiations). - Financial risks (by building in more systematic efforts at securing safeguards). - Note: the risk that engagements will be drawn out has already materialized, and this proposal responds to that. ### Risks of proceeding with the proposed LIOA, financing assurances policy, and EF reforms (paragraph 59) - a. Reputational objectivity risk. - Risk description: The Fund faces a reputational objectivity risk if proposals do not lead to faster restructurings. The Fund could be seen as having granted unwarranted accommodation to official bilateral creditors and slowing down private debt resolutions. The Fund could also face pressure to make unwarranted assessments of COCP where the conditions to support this are not fully in place, including to avoid being perceived as the source of delay. - Mitigants: - This is an unlikely risk, given where the situation is right now: most of these concerns already exist and the proposals would not make them worse. - The risk is mitigated by the incentives the proposals build toward faster restructuring processes (see paragraphs 54–55). - Strong “snap back” mechanisms in the policy if creditors do not make progress in debt restructuring (e.g., increased effectiveness of financing assurances reviews, the ability to route future case through a higher LIOA safeguards standard, and the built-in ability to revert the COCP assessment in future cases, if necessary, based on developments). - b. Credit risk. - Risk description: Implementation risks could end up making debt situations worse by, inter alia, loading countries with super-senior debt alongside creditors unwilling to restructure. Specific channels: - i. LIOA strand 4 proposals: possible that creditors’ failure to provide an answer on consent sends the Fund into the standard safeguards approach for normal access, creating financial exposures where creditors actually have no intention of restructuring. Given recent cooperation with creditors, staff considers this unlikely. - Mitigants: - Financial risks in implementation are manageable in consideration of: (a) the low initial access allowed; (b) the greater clarity at the financing assurances review stage (where the problem would be confronted). - This problem can already appear under current Fund policies, and the proposals provide a framework to mitigate this that more closely and transparently links safeguards to underlying risks. - ii. COCP proposal: mistaken judgments would leave the Fund with financial exposures to a debtor in debt distress, who in turn will face delays in resolving its balance of payments problem. Given the transition period, this is not an immediate risk, though it could be important down the line. - Mitigants: - Financial risks are manageable in consideration of: (a) the broader safeguards envisioned under LIOA strand 4; (b) the requirement that sufficient information be available to make an COCP judgement (implying some transition in building a track record); and (c) the other non-debt related conditionality under Fund arrangements (which strengthen the debtor’s solvency). - iii. Emergency Financing (EF) proposal: the debtor’s pursuit of EF could stand in the way of a UCT program if the debtor and bilateral official creditors do not set a course towards adequate debt relief; the Fund would be left with financial exposures to a debtor in debt distress which will then further complicate its balance of payments problem. This is an important risk, but one considered unlikely given the relative benefits of EF versus debt relief. - Mitigants: - Financial risks are manageable in consideration of: (a) the focus on a subset of emergency situations, such as natural disasters, where official arrears exist; (b) the limited exposure in EF via access limits; (c) the clearer interpretation placed on “normalizing relations with creditors” for the LIOA’s “extraordinary circumstances” clause; and (d) where relevant, the expectation and modalities for further engagement towards a UCT arrangement. - Additional tailored safeguards via LOI commitments would also be available. - c. Adequacy and liquidity of Fund lending resources. - Risk description: The Fund could face questions about adequacy and liquidity if the proposed policy results in broader use of emergency financing by members undergoing debt restructurings when they collectively face exceptional circumstances (e.g., a global shock). - Mitigants: - The liquidity risks of EF were shown to be manageable in the pandemic (where usage far exceeds anything that could happen under this proposal, as it would only cover a subset of cases where debt distress prevails, including official arrears, and an exogenous shock has occurred). ### Risks of not introducing the proposed reforms (paragraph 60) - a. Reputational risks. - i. Reputational credibility: The Fund’s credibility could suffer from not being able to support members in need, including in emergencies, and from not being able to work effectively with all creditors. - ii. Reputational objectivity: The Fund’s objectivity could suffer from external audiences coming to believe that the Fund lacks uniformity of treatment in lending to its membership and does not afford the same treatment across different official bilateral creditors. The Fund’s inability to adapt its requirements to different creditor processes could further erode the Fund’s reputational objectivity. - Mitigants: - These reputational risks are already materializing, with credibility risks near certain at the moment and objectivity risks very likely. - Communications have proven to be not fully effective at mitigating these risks, though could get more traction with each case that delivers. - Proceeding with the proposed reforms would offer some reprieve. - b. Credit risks from non-engagement. - Risk description: Where the Fund already has some exposure and is prevented from or delayed in further engagement with the member, the member’s capacity to repay the Fund could erode, increasing risks associated with the Fund’s existing exposure as the Fund is unable to help the member resolve its medium-term viability challenge. - Mitigants: - Proceed with the proposed package of reforms to facilitate timely and more efficient Fund engagement while preserving safeguards (indeed the members’ policy adjustment program of a UCT quality is a key safeguard, so better engagement is critical). - c. Business risk on member engagement. - Risk description: Inaction, or excessively delayed action, could lead to spillovers to the Fund’s wider membership. Creditor or debtor countries may perceive that timing, modality, traction, or agility of existing policy is inadequate and delay their efforts to address unsustainable debt burdens, contributing towards a building debt crisis, with eventual contagion. - Mitigants: - Proceed with the proposed package of reforms. Communications could be used to explain and defend the Fund’s policies and actions but would only get more traction once there are more cases that have delivered. ### Overall judgement and next steps (paragraph 61) - The balance of risks supports proceeding with the full package of reforms. - See Appendix VI for a full DRSA. - The changes to AIP and financing assurances reviews would reduce risks to the Fund on balance. - For the LIOA, financing assurances and emergency financing proposals, staff sees a lower risk in proceeding, with direct benefits, plus the feasibility of mitigating risks with proposed reforms and difficulty of mitigating key risks without proposed reforms. ### Issues for Discussion (as presented) - Do Directors agree that, notwithstanding progress in recent cases, the Fund’s ability to meet a member’s BOP needs may be constrained when we engage in debt restructuring situations involving new major creditors? - Do Directors support preserving existing guidance on application of the current LIOA strands (including the third strand where the three criteria must be met)? - Do Directors support the proposed addition of a fourth strand to the LIOA policy clarifying how to apply safeguards when the three existing strands cannot provide a pathway forward, including an expectation that under normal access the standard approach would apply absent creditor signals? - Do Directors support strengthening financing assurances reviews to make them more effective under the LIOA policy, as described in paragraphs 25–26? - Do Directors support the proposed adjustments to the Fund’s pre-default policies, including the requirements about the set of creditors to provide a commitment and introducing pre-default financing assurances reviews into the financing assurances policy? - Do Directors support adjusting the standard for judging that a creditor commitment to provide debt relief or new financing is in line with program parameters, by shifting to a “credible official creditor process" assessment? - Do Directors support the proposed modifications to the AIP policy set forth in paragraphs 40–42? - Do Directors support the proposed clarification and guidance on the “exceptional circumstances” clause in the LIOA policy to better facilitate emergency financing, where the extraordinary demands on the affected government are such that there is insufficient time for the debtor to undertake good faith efforts to reach agreement with its creditors? *International Monetary Fund — ppea2024017 (Section: Staff views the proposed reforms covering the financing assurances review and AIP)* ### Appendix II. Conditionality and Program Commitments ### Appendix II. Conditionality and Program Commitments in Fund Programs Involving Restructuring of Private Creditors ### Examples of program conditionality and commitments (selected cases) - Ghana — ECF 2023 - Restructuring Type: Domestic & External, latter post default - Form: LOI/MEFP commitment - Finalization/Intermediate: Intermediate - Specific language: - "Restoring public debt sustainability through a combination of a comprehensive debt restructuring and an ambitious, growth-friendly, and lasting fiscal adjustment. In particular, we will anchor our policies on regaining a moderate risk of debt distress (based on the IMF-World Bank LIC-DSF) by 2028." - "We are committed to completing the comprehensive public debt restructuring operation launched in December 2022 to restore public debt sustainability." - Sri Lanka — EFF 2023 - Restructuring Type: Domestic & External, latter post default - Form: LOI/MEFP commitment - Finalization/Intermediate: Intermediate - Specific language: "(iii) a sovereign debt restructuring strategy aimed at restoring public debt sustainability" - Zambia — ECF 2022 - Restructuring Type: External, post-default - Form: LOI/MEFP commitment - Finalization/Intermediate: Finalization - Specific language: "We are committed to finalizing the MOU with official creditors by the time of the first program review, and reaching agreements on comparable terms with other creditors soon after, by the time of the second review at the latest." - Suriname — EFF 2021 - Restructuring Type: External, [pre-emptive] - Form: None - Finalization/Intermediate: Intermediate - Specific language: - "The government is committed to putting public debt onto a sustainable path." - "This will require debt relief from creditors and the government has approached both official and commercial creditors to initiate orderly restructuring discussions. The government appointed financial and legal advisors in September 2020 to negotiate the restructuring of the privatelyheld external debt." - Chad — ECF (EA) 2021 - Restructuring Type: External, pre-emptive - Form: LOI/MEFP commitment - Finalization/Intermediate: Finalization - Specific language: "The authorities are committed to finalizing the MOUs with official creditors, and to reaching an agreement on comparable terms with the largest private creditor, by the time of the first review." - Ecuador — EFF 2020 - Restructuring Type: External, pre-emptive - Form: None - Finalization/Intermediate: n/a - Specific language: - "Our government is committed to restoring the sustainability of Ecuador ́s fiscal accounts and leave the next administration with stronger institutions and a more robust public financial management framework. Our proactive and market friendly initiative to restructure our international bonds of $17.4 billion, which received more than 98 percent consent from the bondholders, is a testament to this commitment" - Ecuador — RFI 2020 - Restructuring Type: External, pre-emptive - Form: LOI/MEFP commitment - Finalization/Intermediate: Intermediate - Specific language: - "to ensure that public debt remains on a sustainable path and rein in large and protracted financing gaps, we are in the process of implementing a comprehensive debt management plan. In particular, on Friday April 17 bondholders accepted a consent solicitation put forward by the Republic to defer all payments worth over USD 800 million, until August 15. During this grace period, we will work with our advisors, to put forward a second consent solicitation to the market to restructure Ecuador ́s outstanding debt." - Additional illustrative commitments (selected) - Barbados — EFF 2018: Prior Action/Intermediate — "Government to launch exchange offer for debt restructuring of the stock of central government domestic debt held by private creditors and eligible for debt restructuring consistent with EFF supported program objectives." - Cyprus — EFF 2013: Structural Benchmark/Finalization — "Roll over and extend the maturity of at least €1 billion of domestic debt held by residents through a voluntary debt exchange covering maturities falling due in 2013-15 and roll over the €1.9 billion recapitalization bond of CPB by [First Review]." - Jamaica — EFF 2013: Prior Action/Finalization — "Government to complete a debt exchange for domestic government bonds consistent with a reduction in the public debt-to-GDP ratio by 2020 equivalent to at least 8.5 percent of GDP." - Grenada — ECF 2014: Prior Action/Intermediate — program-linked targets including reducing debt to 60 percent of GDP by 2020 and developing timetables for creditor negotiations through mid-2014. - Jamaica — SBA 2010: Prior Action/Finalization — "Launch and complete debt exchange operation that, in comparison to the existing securities, achieves an estimated saving of over 3 percent of GDP in FY2010/11 and a reduction in the amount of debt maturing during 2010-2012 by at least two thirds." ### Patterns, timelines, and forms of conditionality - Forms observed across programs: - LOI/MEFP commitments - Prior Actions - Structural Benchmarks - Non-specified (None / n/a) - Timing categories used in commitments: - Finalization (e.g., "by the time of the first review", "prior to the approval of the arrangement") - Intermediate (e.g., "by the time of the second review", "during this grace period") - Prior Action (e.g., launch and completion required before program approval) - Common program objectives spelled out in commitments: - Restore public debt sustainability - Complete comprehensive public debt restructuring operations - Secure comparable treatment/terms across creditor groups - Engage private creditor negotiations and hire financial/legal advisors - Obtain financing assurances and preparatory creditor databases ### Appendix III — Internal creditor processes and assessing "credible official creditor process" - Illustration setup: - Three hypothetical Paris Club creditors (PC Creditor A, B, C) used to illustrate "credible official creditor process" versus "specific and credible assurance (SCA)". - PC Creditor A — features and process: - Credit extended through Export Credit Agency (private company under contract) and government-owned development bank for concessional lending. - Entire statutory cumulative exposure limit of the ECA is provisioned on the federal budget as a contingent liability; no additional legislative request needed in case of default. - Export companies agree to participate in restructurings upon signing contracts with the ECA. - MoF initiates procedure under national budgetary law; decision-making authority rests with the MoF. - Staff implication: SCA would be sought as a written statement by the MoF; credible official creditor process could be recognized as early as when the MoF briefs lenders on expected contributions. - PC Creditor B — features and process: - Credit extended through several agencies, each with authorizing statutes and shared risk assessment model; loans and guarantees booked at net present value. - If debt relief exceeds modeled risk criteria, additional legislative authority/funds often required. - MoF/MFA coordinate interagency, obtain debt information, coordinate with IMF/World Bank, and sign formal bilateral agreement; restructuring enters into force after MFA and borrower MoF signatures. - Staff implication: credible official creditor process point could be when internal agreement to provide debt relief has been reached; may come later if legislative action required. - PC Creditor C — features and process: - Credit extended through three agencies supervised by MoF, MoE, and MFA; annual operational budgets approved by legislature; each agency has provisioning policy covering restructuring losses in principle. - Unified strategic position developed by MoF, MFA, and MoE; legal bilateral agreement signed after Cabinet approval. - Staff implication: credible official creditor process point could be once the unified strategic position is developed, acknowledging need for consensus and possible legislative steps. - Assessment approach and implications: - Under a "specific and credible assurances" approach: - Staff would seek explicit assurances from the MoF in each creditor, typically a written statement setting willingness to restructure in line with program parameters and to finalize prior to first review. - This requires respecting domestic legal processes and waiting until those processes conclude before the assurance is provided. - Under a "credible official creditor process" assessment: - Staff and management can consider the totality of circumstances and make a judgment with more leeway than SCA. - For the three creditor examples, identification of the credible process could occur earlier (e.g., when MoF briefs lenders, when internal agreement reached, or when a unified strategic position is developed), depending on track record and whether legislative action is required. - Before determining a credible official creditor process, Management and staff (and ultimately the Board) must be satisfied that: - (i) the process is proceeding on the basis of program parameters (staff can share necessary information with debtor permission); and - (ii) the key point in the creditor’s internal process has been reached (a simple communication may suffice given good track records). - No complex negotiated SCA language would be necessary if a credible official creditor process is found. *International Monetary Fund — Appendix II and Appendix III excerpts from the provided PDF content.* ### Appendix IV. Approval in Principle ### Appendix IV. Approval in Principle ### History and Purpose of Approval in Principle - Approval in Principle (AIP) was used in the 1980s as a mechanism to catalyze agreement between Fund members and their creditors (both official and private) when policy understandings between the Fund and the member existed but no agreement had been reached with creditors on new financing or debt relief. - AIP allowed the Fund to approve, in principle, an arrangement without immediate effectiveness, providing additional time for agreements on financing or debt relief to be reached so that the necessary financing assurances for the Fund-supported program could be secured. - AIP was used 19 times between 1983 and 1988. - First used in 1983 on an ad hoc basis and used a further 7 times between 1983 and 1984. - In 1984 staff proposed and the Executive Board endorsed guidelines on the application of AIP (the “1984 Guidelines”); after adoption, the procedure was used a further 11 times. - Footnoted examples of earlier uses include: Sudan, Ecuador, Zaire, Madagascar, Sudan, Cote d’Ivoire, Jamaica, Zambia. - Footnoted post-Guidelines examples include: Kenya, Somalia, Chile, Zaire, Republic of Congo, Mexico, Nigeria, Argentina, Code d’Ivoire, Yugoslavia, Brazil. - Over time AIP became unnecessary and the 1984 Guidelines lapsed because: - Paris Club creditors increasingly provided assurances on debt relief—including for extraordinary financing—before arrangement approval. - More informal interactions between Fund staff and the Paris Club, and the use of anticipated Paris Club Agreed Minutes, obviated the need for AIP. - For private creditors, the Fund’s willingness to “lend into arrears” (LIA) reduced need for AIP; in these cases arrears provided the necessary financing under the arrangement. - The 1984 Guidelines are therefore no longer relevant and have lapsed. ### How the Approval in Principle Procedure Worked - The procedure involved a first Executive Board decision approving a Fund arrangement “in principle” once there was complete understanding between the Fund and the member on policies and the only outstanding issue was financing assurances from sovereign bilateral or commercial creditors (debt relief). - A second Executive Board decision was required to make the arrangement effective after the necessary financing assurances were obtained. - There was no automaticity: Management informed the Executive Board that necessary financing assurances had been obtained, detailed such assurances, and proposed a decision to be adopted on a lapse-of-time (LOT) basis to make the arrangement effective. - The second decision was sometimes required to be adopted within a period specified at the time of the approval in principle. - The 1984 Guidelines called for this period to “normally” not exceed 30 days, while acknowledging that the period should reflect the member’s circumstances. - Motivations for a relatively brief period between approval in principle and effectiveness included: - (a) the need to ensure that the program understandings did not become “stale”; - (b) the need to ensure that the program was indeed being implemented; and - (c) concern that an excessive delay could distort phasing under the arrangement (e.g., most purchases are available by the time the arrangement becomes effective). - Practical notes: - All 19 AIP cases in the 1980s initially envisaged the second decision on an LOT basis, but several cases required formal Executive Board meetings for effectiveness or, where AIP had lapsed, for outright approval once assurances were obtained. - In practice, some cases before and after 1984 specified no deadline; some deadlines were extended (usually on an LOT basis); and some post-Guidelines cases had deadlines longer than 30 days. - Performance criteria (PC) could be affected by delays (e.g., external arrears PCs missed requiring waivers, or quantitative PCs not yet set for a future test date). ### Recent Application of AIP - AIP was last used in 2017 to approve in principle the Stand-by Arrangement for Greece. - The decision to use AIP does not require adoption of a general policy; AIP is a procedural device to ensure consistent application without changing the Fund’s substantive policies. - Going forward, AIP may be used consistent with the 2017 statement of the Managing Director (FO/DIS/17/107). *Source: Appendix IV. Approval in Principle — ppea2024017* ### 8. Directors viewed the considerations laid out in the staff paper as useful inputs for helping to ### 8. Directors viewed the considerations laid out in the staff paper as useful inputs for helping to ### Flexibility and Fund discretion in negotiations with private creditors - Directors viewed the staff paper’s considerations as useful inputs and emphasized that judgments would need to be made flexibly. - If negotiations stall because creditors request terms inconsistent with the adjustment and financing parameters established under a Fund-supported program, the Fund should retain the flexibility to continue to support members notwithstanding the lack of progress in negotiations with creditors. - Purchases and disbursements while a member has outstanding arrears to private creditors: - Will continue to be subject to financing assurances reviews. - Financing assurances reviews provide an opportunity to monitor debtor–creditor relations and keep the Board informed at an early stage. - The policy outlined above supersedes all previous policies regarding lending into arrears to private creditors. ### Good-faith creditor engagement prior to Fund arrangement approval - Directors recognized circumstances where, following a default, the debtor may enter into good faith discussions with creditors prior to Fund arrangement approval. - Creditors may express views on program adjustment and financing parameters; such input is welcome. - Decisions on an adequate macroeconomic framework and the design of the financing plan or adjustment program that could form the basis for the Fund’s lending into arrears remain in the sole purview of the Fund. ### Emergency situations and use of Rapid Credit/Financing instruments - Emergency situations (e.g., aftermath of a natural disaster) may leave insufficient time for good faith efforts to reach agreements with creditors. - When judged that such exceptional circumstances exist, the Fund may provide financing under the Rapid Credit Facility (RCF) or the Rapid Financing Instrument (RFI) despite arrears owed to private creditors. - Expectation: Fund support in such cases should help advance normalization of relations with private creditors and resolution of arrears so that approval of any subsequent Fund arrangement would again be subject to the LIA policy on lending into sovereign arrears to private creditors. - Directors expected the “exceptional circumstances” clause would generally not be satisfied for cases with long-standing arrears. ### Codifying existing practice in preemptive restructuring cases - Current practice in preemptive restructuring cases remains appropriate. - If a contribution from external private creditors (debt restructuring) is needed to restore debt sustainability, restructuring should ideally be undertaken before Fund arrangement approval. - Flexibility: conclusion of the debt operation may be contemplated at a later date, normally by the first review under the arrangement. - Fund may provide financing only if it has adequate assurances that restructuring will be successful, judged by a credible restructuring process likely to secure sufficient creditor participation to restore debt sustainability and close financing gaps within program macroeconomic parameters, taking into account official sector commitments. - Relevant considerations for judging credibility include: - Engagement of legal and financial advisors by the member; - Launching of consultations with creditors; - Design of the debt restructuring strategy, including terms of new instruments and inducements for creditor participation. - Directors welcomed adding the expectation that the member would share relevant information as defined under the LIA policy with all private creditors on a timely basis. ### Lending Into Arrears to Official Bilateral Creditors (LIOA) — overview - Directors broadly agreed the Fund’s non-toleration of arrears policy in non-(Official Sector Involvement) OSI cases and the LIOA policy in OSI cases (three-strand approach) remain appropriate, with adjustments to introduce a fourth strand. - Most Directors agreed more experience is needed with the Common Framework (CF); staff will monitor CF’s evolution and revert to the Board on whether it emerges as a new representative standing forum. - LIOA policy retains Strand 1 as central focus and adds Strand 4 as detailed below. ### LIOA policy — Strand 1 - If an agreement is reached through the Paris Club that is adequately representative: - The Fund would rely on current practices: arrears are considered eliminated (for purposes of this policy) for both participating and non-participating creditors when financing assurances are received from the Paris Club in anticipation of an Agreed Minute. - The Fund would be open to engaging with another representative standing forum if one emerges. ### LIOA policy — Strand 2 - An official bilateral creditor may choose to consent to Fund financing notwithstanding arrears owed to it. - In such cases, the Board would not need to judge whether the three criteria in Strand 3 are satisfied. - The Fund would nevertheless continue to encourage the parties to agree to resolve arrears. ### LIOA policy — Strand 3 (three criteria) - Where an adequately representative agreement through the Paris Club is not reached and creditor consent is not received, the Fund would consider lending into arrears owed to an official bilateral creditor only where all the following criteria are satisfied: - Prompt financial support from the Fund is considered essential, and the member is pursuing appropriate policies; - The debtor is making good faith efforts to reach agreement with the creditor on a contribution consistent with the parameters of the Fund-supported program—i.e., the absence of an agreement is due to the unwillingness of the creditor to provide such a contribution; and - The decision to provide financing despite the arrears would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. - Definitions and assessment guidance: - “Adequately representative” agreement: provides a majority of the total financing contributions required from official bilateral creditors over the program period. “Contribution” comprises, and is limited to, debt relief and new financing (e.g., loans, bond financing, guarantees, and grants). - Good faith assessment: whether the debtor has approached the creditor bilaterally or through relevant groupings (including ad hoc creditor committees); offered substantive dialogue and collaborative processes; provided relevant information on a timely basis consistent with Fund confidentiality policy; and offered terms consistent with program parameters. Requests for terms that would result in financing contributions exceeding program requirements generally do not indicate good faith. An assessment also considers whether a creditor is being asked to make a contribution disproportionate relative to other official bilateral creditors. - Undue negative effect assessment: considers the signal the decision would send to official bilateral creditors as a group. Criterion would normally not be satisfied where the creditor or creditor group that has not reached agreement accounts for an adequately representative share (i.e., a majority) of total financing contributions required from official bilateral creditors over the program period. The creditor’s track record in past restructurings is also considered. ### LIOA policy — Strand 4 (additional safeguards) - Applies where an adequately representative agreement has not been reached through the Paris Club or the Common Framework involving the Paris Club, consent is not forthcoming within 4 weeks of being requested, and the three criteria under Strand 3 cannot be satisfied with respect to an official bilateral creditor. - Distinguishes Fund-supported programs with: - Normal access: - “Standard safeguards approach” applies (except as noted). Requires a combination of program design elements, including phasing of access under the arrangement (initial purchase/disbursement capped at low access), program conditionality to support the restructuring process where warranted under the Guidelines on Conditionality, and a debtor commitment to good faith efforts to establish additional safeguards for Fund lending. - Exceptional access under the GRA or the PRGT or high combined access under the GRA and PRGT: - “Enhanced safeguards approach” applies. Requires debtor commitment and conditionality under the standard safeguards approach, plus a direct commitment to the Fund by a sufficient set of creditors about their restructuring intentions. - Where such a commitment is provided, arrears are considered eliminated (for purposes of this policy) for both participating and non-participating creditors. - A “sufficient set” of creditors requires participation of any representative standing creditor forum as well as any creditors with significant influence over the debtor. A creditor has significant influence when it has the ability to extract repayment on more favorable terms inconsistent with program parameters. - Shift to enhanced safeguards warranted if a creditor or creditor group to which the three criteria in Strand 3 cannot be satisfied either: - (1) is unwilling to restructure claims in line with program parameters; or - (2) views additional Fund support to the debtor’s coordination efforts with creditors as essential. ### Emergency situations under LIOA - Emergency situations caused by significant exogenous shocks or natural disasters may leave insufficient time for good faith creditor efforts. - When judged that exceptional circumstances exist, the Fund may provide financing under the RCF or the RFI despite arrears owed to official bilateral creditors and without assessing whether the three Strand 3 criteria are satisfied or obtaining creditor consent. - Expectation: Fund support should advance normalization of relations with official bilateral creditors and resolution of arrears so that subsequent Fund arrangement approvals are again subject to all three Strand 3 criteria. - Assessment will be based on the debtor’s commitment to make good faith efforts toward resolving arrears and to promote creditor coordination. - Directors expected this clause would generally not be satisfied for cases with long-standing arrears. ### OSI-related claims and comparability of treatment - New Fund-supported programs should continue to assume that old OSI-related claims are restructured in line with terms stipulated in the original Fund-supported program. - Arrears arising due to exercise of a comparability of treatment clause shall be classified as non-OSI, and thus be subject to the Fund’s non-toleration of arrears policy, regardless of whether additional debt treatment is required. ### International Financial Institutions (IFIs) — scope and policy adjustments - Directors agreed application of the non-toleration of arrears policy to multilaterals has worked well but needs updating to clarify application to new IFIs and to ensure special treatment of multilateral creditors is not diluted. - IFIs defined as international financial institutions with at least two sovereign members (and no non-sovereign member). - Directors endorsed the alternative approach set out in Supplement 1, noting implementation is not expected to differ fundamentally from the original staff proposal. ### IFIs — specific treatment - First: Fund financing in the face of arrears to the World Bank Group should continue to require an Agreed Plan between debtor and World Bank to clear arrears over a defined period. - Second: Fund financing in the face of arrears to any other IFI should continue to require a Credible Plan in cases where an official sector contribution is not required to restore debt sustainability (non-OSI cases). A Credible Plan is a plan credible to the Fund; creditor concurrence is not required. - In OSI cases where an official sector contribution is required to restore debt sustainability: - Fund should judge whether a Credible Plan to resolve such arrears is required as a condition for lending. Factors informing judgment include: - (i) global, rather than regional, membership of the institution; - (ii) whether the institution is a regional financing arrangement or a reserve currency union central bank that forms part of the global financial safety net; - (iii) the Paris Club’s treatment of the institution; - (iv) participation of the institution in the Heavily Indebted Poor Countries (HIPC) Initiative; and - (v) whether the institution is being excluded from the scope of debt restructuring by official bilateral creditors through a creditor committee based on a representative standing forum recognized under the LIOA policy in the case at hand. - Where arrears are owed to an IFI that does not fall under the previous bullet, Directors agreed the LIOA policy should be expanded to apply mutatis mutandis, with flexibility in extraordinary circumstances consistent with the LIOA policy. ### Lending into arrears owed to IFIs — criteria and assessments - The Fund would consider lending into arrears owed to an IFI creditor only where all the following criteria are satisfied: - Prompt financial support from the Fund is considered essential, and the member is pursuing appropriate policies; - The debtor is making good faith efforts to reach agreement with the IFI creditor on a contribution consistent with the parameters of the Fund-supported program—i.e., the absence of an agreement is due to the unwillingness of the creditor to provide such a contribution; and - The decision to provide financing despite the arrears would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. - In assessing whether a debtor is acting in good faith with respect to an IFI creditor, the Fund will consider, inter alia: - whether the debtor has approached the IFI creditor bilaterally; - has offered substantive dialogue and sought a collaborative process to reach agreement; - has provided relevant information on a timely basis consistent with the Fund’s confidentiality policy; and - has offered terms consistent with program parameters. - Requests for terms that would result in financing contributions exceeding program requirements generally do not indicate good faith. - In assessing undue negative effect on Fund’s ability to mobilize official financing packages, the Fund will consider the signal such a decision would send to IFI creditors or official creditors more generally, given case-specific circumstances. ### IFI consent option - An IFI creditor may choose to consent to Fund financing notwithstanding arrears owed to it. - Consent could be conveyed either through an Executive Director designated by the IFI or an authorized executive of the IFI to the Managing Director. - In such cases, the Executive Board would not need to judge whether the three criteria are satisfied. - The Fund would continue to encourage the parties to come to an agreement during the program, as regularization of arrears remains an objective of any Fund-supported program and important for the functioning of the international financial system. *Source: ppea2024017 - 8. Directors viewed the considerations laid out in the staff paper as useful inputs for helping to (IMF).* ### 19. So long as arrears to IFI creditors remain outstanding, purchases or disbursements will be ### 19. So long as arrears to IFI creditors remain outstanding, purchases or disbursements will be ### Financing Assurances Reviews - So long as arrears to IFI creditors remain outstanding, purchases or disbursements will be subject to a financing assurances review where the Executive Board will verify that all three criteria are satisfied and the policy continues to be met for the further use of the Fund’s resources in the member’s circumstances. - Directors supported strengthening financing assurances reviews under the LIOA and LIA policies while external arrears remain unresolved, and introducing financing assurances reviews: - in cases where arrears are deemed away under Strands 1 and 4 under the LIOA policy; and - in preemptive restructuring cases needed to restore debt sustainability involving official bilateral creditors until the needed restructuring is complete. - Financing assurances reviews will: - provide the Fund with the opportunity to assess continued compliance with the applicable arrears and financing assurances policies; - assess whether the member’s adjustment efforts are undermined by developments in debtor and creditor relations; and - determine whether, in light of progress, the debt situation does not undermine the restoration of the member’s medium-term external viability and its capacity to repay the Fund. - In cases of unresolved external sovereign arrears subject to a debt restructuring, arrears deemed away under Strands 1 and 4 under the LIOA policy, or where a preemptive restructuring needed to restore debt sustainability is being undertaken that involves official bilateral creditors, requests for new Fund financing should: - lay out the expected steps and schedule for the restructuring process in an indicative way; and - include subsequent reviews that detail progress against that schedule to determine whether the restructuring remains on track to ensure that overall program objectives are met. - Financing assurances reviews should more explicitly assess whether: - the Fund still has appropriate safeguards to proceed with the financing; or - the Fund needs to introduce additional standard or enhanced safeguards as warranted. ### Form of Financing Assurances - For restructuring cases where financing assurances need to be obtained from official bilateral creditors—namely, preemptive cases and Strand 1 and 4 of the LIOA policy—Directors agreed that such assurances could be obtained through the Fund’s assessment that a “credible official creditor process” (COCP) is underway. - Directors stressed that each creditor would need to establish a track record on which the Fund could base its understanding of: - the process; - key decisionmakers involved; and - the expected timeframe for the completion of the debt restructuring, such that an assessment could be made that the key stage had been reached that would provide the Fund with the necessary assurances. - In the absence of sufficient information or a track record to make such an assessment, required financing assurances could continue to be satisfied by specific and credible assurances on debt relief/financing. - Directors endorsed the proposal that, in pre-emptive cases, financing assurances would only be sought from a “sufficient set” of creditors, as defined under the enhanced safeguards approach under Strand 4 of the LIOA policy. - Directors agreed that the policy for pre-emptive restructuring cases for private creditors remains unchanged. ### Perimeter (Definition and Operationalization) - Direct Bilateral Claims will continue to be defined as those claims that are: - (a) held by a government, or an agency acting on behalf of a government; and - (b) originate from an underlying transaction where the creditor government, or an agency acting on behalf of the government, provided or guaranteed financing to the debtor member. - In operationalizing this definition, Directors supported using the creditor member’s budgetary process to determine which entities form part of the creditor government. - For entities that fall outside the government, a case-by-case analysis, taking into account the totality of the circumstances, would continue to be required to determine whether the entity is “acting on behalf of the government.” - Directors recognized that secondary market purchases of claims by official bilateral creditors would not qualify as Direct Bilateral Claims, as they would not directly extend financing to the debtor member. - Two amendments to the classification of official claims were endorsed: - To the extent that the IFI purchases securities in the secondary market as part of the global financial safety net, such claims can be treated as claims subject to the Fund’s arrears policies as applicable to IFIs; however, the Fund would rely on the IFI’s own representation in this regard. - Any Direct Bilateral Claims or claims held by IFIs that are contractually part of a pooled voting mechanism with private creditors shall be subject to the LIA policy. ### Agreement in Principle (AIP) - Directors recognized the continued utility of the Agreement in Principle (AIP) as an optional procedural device to bridge engagement gaps when agreement on policies has been reached with the member but financing assurances to restore debt sustainability have not been received. - Clarifications to the AIP: - A decision to approve an arrangement in principle shall specify the date by which the approval would lapse, which would normally be no later than 4 months after approval. - A new AIP shall only be permitted once and would normally be subject to a limit of an additional 4 months. - The Fund would only approve a new AIP if the financing assurances restoring debt sustainability are likely to be delivered, and that the member’s economic program is being implemented as agreed and remains on track. - Once the financing assurances have been obtained, a second decision of the Executive Board is required to make the arrangement effective, which is normally adopted on a Lapse of Time basis. - Directors stressed that, in all cases, staff should aim to bring a UCT-quality program forward for Executive Board consideration as fast as possible. ### Effectiveness and Reviews - The above amendments and new policies will enter into effect immediately and will apply to all future purchases and disbursements (including under existing arrangements), where the relevant policies apply. - Directors agreed that the Fund’s arrears policies should be reviewed on an as needed basis. ### Lending Into Arrears (LIA) and Preemptive Restructuring Practices (selected points) - The Fund’s policy on lending into arrears to private creditors continues to provide a useful tool enabling the Fund to support a member’s adjustment efforts before the member has reached agreement with its private creditors on a debt restructuring. - Fund lending into sovereign arrears to private creditors should continue to be on a case-by-case basis and only where: - (i) prompt Fund support is considered essential for the successful implementation of the member’s adjustment program; and - (ii) the member is pursuing appropriate policies and is making a good faith effort to reach a collaborative agreement with its creditors. - Fund lending into non-sovereign arrears stemming from the imposition of exchange controls should continue to be on a case-by-case basis and only where: - (i) prompt Fund support is considered essential for the successful implementation of the member’s adjustment program; and - (ii) the member is pursuing appropriate policies, the member is making a good faith effort to facilitate a collaborative agreement between private debtors and their creditors, and a good prospect exists for the removal of exchange controls. - Directors agreed that greater clarity about the good faith dialogue and enhanced debt transparency could help provide better guidance about the application of the Fund’s LIA policy. - Principles guiding dialogue between debtor and private external creditors: - First, when a member has reached a judgment that a restructuring of its debt is necessary, it should engage in an early dialogue with its creditors, which should continue until the restructuring is complete. - Second, the member should share relevant information with all creditors on a timely basis, which would generally be aligned with what the member would be required to share under the Debt Limits Policy and normally include: - an explanation of the economic problems and financial circumstances that justify a debt restructuring; - a briefing on the broad outlines of a viable economic program to address the underlying problems and its implications on the broad financial parameters shaping the envelope of resources available for restructured claims; and - the provision of a comprehensive picture of the outstanding debt stock and its terms, and the proposed treatment of all claims on the sovereign, including those of official bilateral creditors; the perimeter of claims subject to the envisaged debt restructuring; and the elaboration of the basis on which the debt restructuring would restore medium-term debt sustainability, bearing in mind that not all categories of claims may need to be restructured. - Third, the member should provide creditors with an early opportunity to give input on the design of restructuring strategies and the design of individual instruments. - Fourth, any terms offered to the creditors by the member should be consistent with the parameters of the Fund-supported program. - Directors noted that in preemptive restructuring cases, the Fund may judge that a credible process for restructuring is underway and will result in sufficient creditor participation to restore debt sustainability; relevant considerations may include: - the engagement of legal and financial advisors by the member; - the launching of consultations with creditors; and - the design of the debt restructuring strategy, including the terms of the new instruments and use of inducements for creditor participation. - Directors welcomed the recommendation to add an expectation that the member would share relevant information as defined under the LIA policy with all private creditors on a timely basis. ### Lending Into Arrears to Official Bilateral Creditors (LIOA) — Selected Points - Directors broadly agreed that the Fund’s non-toleration of arrears policy in non-(Official Sector Involvement) OSI cases and the policy on lending into sovereign arrears to official bilateral creditors in OSI cases, covering a three-strand approach, continues to be appropriate and no amendments are needed, but with adjustments to introduce a fourth strand in the LIOA policy as detailed in the document. - Most Directors agreed that more experience is needed with the Common Framework (CF) and welcomed staff’s plan to closely monitor the CF’s evolution and revert to the Board on whether it emerges as a new representative standing forum. *International Monetary Fund — excerpt from "FUND SUPPORT TO COUNTRIES UNDERTAKING DEBT RESTRUCTURINGS" (selected paragraphs).* ### 14. The LIOA policy is as follows: ### ppea2024017 - 14. The LIOA policy is as follows: ### Overview - The LIOA policy sets rules for Fund financing when arrears to official bilateral creditors or International Financial Institutions (IFIs) exist, organized into Strands 1–4, with provisions for emergency situations, financing assurances reviews, and treatment of IFIs and the perimeter of claims. ### Strand 1 - If an agreement is reached through the Paris Club that is adequately representative, the Fund would rely on its current practices—i.e., arrears would be considered eliminated (for purposes of the application of this policy) for both participating and non-participating creditors when financing assurances are received from the Paris Club in anticipation of an Agreed Minute. - The Fund would be open to engaging with another representative standing forum should such a forum emerge. - Directors agreed that Strand 1 should remain the central focus of this policy and should be used whenever it is or becomes available. ### Strand 2 - An official bilateral creditor may choose to consent to Fund financing notwithstanding arrears owed to it. - In such cases, the Board would not need to make a judgment as to whether the three criteria in Strand 3 are satisfied. - The Fund would nevertheless continue to encourage the parties to come to an agreement to resolve arrears, since the regularization of arrears is an objective of any Fund-supported program and important for the functioning of the international financial system at large. ### Strand 3 — Lending into arrears to an official bilateral creditor (criteria) - The Fund would consider lending into arrears owed to an official bilateral creditor only in circumscribed circumstances where all the following criteria are satisfied: - Prompt financial support from the Fund is considered essential, and the member is pursuing appropriate policies; - The debtor is making good faith efforts to reach agreement with the creditor on a contribution consistent with the parameters of the Fund-supported program—i.e., that the absence of an agreement is due to the unwillingness of the creditor to provide such a contribution; and - The decision to provide financing despite the arrears would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. - In applying the above criteria, the Fund will need to exercise judgment based on case-specific circumstances. - Guidance for application: - An agreement is “adequately representative” when it provides a majority of the total financing contributions required from official bilateral creditors over the program period. “Contribution” comprises, and is limited to, debt relief and new financing (e.g. loans, bond financing, guarantees, and grants). - In assessing good faith by the debtor, the Fund will consider whether the debtor has approached the creditor bilaterally or through a relevant grouping of official bilateral creditors; has offered to engage in substantive dialogue and a collaborative process; has provided relevant information on a timely basis consistent with the Fund’s policy on confidentiality of information; and has offered terms consistent with the parameters of the Fund-supported program. - If the debtor requested terms from an official bilateral creditor that would result in financing contributions that exceeded the requirements of the program it would generally not indicate good faith. - Assessment of good faith also considers whether the creditor is being asked to make a contribution that is disproportionate relative to other official bilateral creditors. - In assessing undue negative effect on mobilizing official financing in future cases, the Fund will consider the signal to official bilateral creditors as a group. This criterion would normally not be satisfied where the creditor or group that has not reached agreement accounts for an adequately representative share, i.e., a majority, of total financing contributions required from official bilateral creditors over the program period. The creditor’s track record in past restructurings will also be considered. ### Strand 4 — Additional safeguards where agreement not reached and consent not forthcoming - The Fund shall seek additional safeguards where: - an adequately representative agreement has not been reached through the Paris Club or the Common Framework involving the Paris Club, - consent is not forthcoming within 4 weeks of being requested, and - the three criteria under Strand 3 cannot be satisfied with respect to an official bilateral creditor. - The approach distinguishes Fund-supported programs with normal access from those with exceptional access under the GRA or the PRGT or high combined access under the GRA and PRGT. - Standard safeguards approach (normal access): - Requires a combination of program design elements—including phasing of access under the arrangement (with an initial purchase or disbursement capped at low access), program conditionality to support the restructuring process where warranted under the Guidelines on Conditionality, and a debtor commitment to good faith efforts to establish additional safeguards for Fund lending. - Enhanced safeguards approach (exceptional access or high combined access): - Requires the debtor commitment and conditionality under the standard safeguards approach, and in addition a direct commitment to the Fund by a sufficient set of creditors about their restructuring intentions. - Where such a commitment is provided, arrears would be considered eliminated (for purposes of the application of this policy) for both participating and non-participating creditors. - A “sufficient set” of creditors requires participation of any representative standing creditor forum as well as any creditors with significant influence over the debtor. A creditor is considered to have significant influence when it has the ability to extract repayment on more favorable terms, inconsistent with program parameters. - A shift from the standard to enhanced safeguards would be warranted based on an explicit signal that a creditor or creditor group to which the three criteria in Strand 3 cannot be satisfied either (1) is unwilling to restructure its or their claims in line with program parameters; or (2) views additional support by the Fund to the debtor’s effort to coordinate with creditors to be essential. ### Emergency situations - There may be emergency situations, such as in the aftermath of a caused by significant exogenous shocks or natural disasterdisasters, where extraordinary demands prevent timely good faith efforts to reach agreement with creditors. - When a judgment has been made that such exceptional circumstances exist, the Fund may provide financing under the Rapid Credit Facility (RCF) or the Rapid Financing Instrument (RFI) despite arrears owed to official bilateral creditors and without assessing whether the three criteria above have been satisfied or obtaining the creditor’s consent. - It would be expected that the Fund’s support in such cases would help advance normalization of relations with official bilateral creditors and the resolution of arrears, so that approval of any subsequent Fund arrangement for the member would again be subject to all three criteria set out above. - This assessment would be based on the debtor’s commitment to make good faith efforts toward resolving the arrears and to conduct itself to promote and encourage creditor coordination. - Directors expected that this “exceptional circumstances” clause would generally not be satisfied for cases with long-standing arrears. ### Ongoing monitoring and purchases/disbursements - So long as unresolved arrears owed to official bilateral creditors are outstanding, every purchase or disbursement made available after approval of the arrangement will be subject to a financing assurances review by the Board and verification that all three criteria are satisfied to determine whether this policy continues to be met for further use of the Fund’s resources in the member’s circumstances. - New Fund-supported programs should continue to incorporate the assumption that old OSI-related claims would be restructured in line with the terms stipulated in the original Fund-supported program. - Should new arrears arise due to the exercise of a comparability of treatment clause, such arrears shall be classified as non-OSI, and thus be subject to the Fund’s non-toleration of arrears policy, regardless of whether an additional debt treatment is required. ### International Financial Institutions (IFIs) - IFIs are defined as international financial institutions with at least two sovereign members (and no non-sovereign member). - Directors agreed application of the non-toleration of arrears policy with respect to multilaterals has worked well, but needed clarification for new IFIs and to ensure special treatment for multilateral creditors is not diluted. - Endorsed approaches: - Fund financing in the face of arrears to the World Bank Group should continue to require an Agreed Plan between the debtor and the World Bank to clear the arrears over a defined period. - Fund financing in the face of arrears to any other IFI should continue to require that a Credible Plan be in place in cases where a contribution from the official sector is not required to restore debt sustainability (non-OSI cases). A Credible Plan is a plan that is credible to the Fund, and the creditor’s concurrence is not required. - In cases where a contribution from the official sector is required (OSI cases): - The Fund should judge whether a Credible Plan to resolve such arrears is required as a condition for lending. Factors informing the judgment include: (i) global, rather than regional, membership of the institution; (ii) whether the institution is a regional financing arrangement or a reserve currency union central bank that forms part of the global financial safety net; (iii) the Paris Club’s treatment of the institution; (iv) participation of the institution in the Heavily Indebted Poor Countries (HIPC) Initiative; and (v) whether the institution is being excluded from the scope of debt restructuring by official bilateral creditors through a creditor committee based on a representative standing forum recognized under the LIOA policy in the case at hand. - When arrears are owed to an IFI that does not fall under the previous bullet, the LIOA policy should be expanded to apply to these cases mutatis mutandis, including flexibility in extraordinary circumstances for emergency financing cases consistent with the LIOA policy. - For such IFI cases, the Fund would consider lending into arrears owed to an IFI creditor only in circumscribed circumstances where all the following criteria are satisfied: - Prompt financial support from the Fund is considered essential, and the member is pursuing appropriate policies; - The debtor is making good faith efforts to reach agreement with the IFI creditor on a contribution consistent with the parameters of the Fund-supported program—i.e., that the absence of an agreement is due to the unwillingness of the creditor to provide such a contribution; and - The decision to provide financing despite the arrears would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. - In assessing debtor good faith with respect to IFIs, the Fund will consider whether the debtor has approached the IFI bilaterally; has offered to engage in substantive dialogue and a collaborative process; has provided relevant information on a timely basis consistent with the Fund’s policy on confidentiality of information; and has offered terms consistent with program parameters. If the debtor requested terms from an IFI that would result in financing contributions that exceeded program requirements it would generally not indicate good faith. - In assessing undue negative effects from lending into IFI arrears, the Fund will consider the signal to IFI creditors, or to official creditors more generally, as a group, given the case circumstances. - An IFI creditor may choose to consent to Fund financing notwithstanding arrears owed to it. Such consent could be conveyed either through an Executive Director designated by the IFI or an authorized executive of the IFI to the Managing Director. In such cases, the Executive Board would not need to judge whether the three criteria are satisfied. - So long as arrears to IFI creditors remain outstanding, purchases or disbursements will be subject to a financing assurances review where the Executive Board will verify that all three criteria are satisfied and the policy continues to be met for further use of Fund resources. ### Financing Assurances Reviews - Directors supported strengthening financing assurances reviews under the LIOA and LIA policies while external arrears remain unresolved, and introducing financing assurances reviews in: - cases where arrears are deemed away under Strands 1 and 4 under the LIOA policy, and - preemptive restructuring cases needed to restore debt sustainability involving official bilateral creditors until the needed restructuring is complete. - Financing assurances reviews assess continued compliance with arrears and financing assurances policies, whether the member’s adjustment efforts are undermined by developments in debtor and creditor relations, and whether the debt situation undermines restoration of the member’s medium-term external viability and capacity to repay the Fund. - In cases of unresolved external sovereign arrears subject to a debt restructuring, arrears deemed away under Strands 1 and 4, or where a preemptive restructuring involving official bilateral creditors is being undertaken, requests for new Fund financing should: - lay out expected steps and schedule for the restructuring process in an indicative way; - have subsequent reviews detail progress against that schedule taking into account all developments to determine whether the restructuring remains on track to ensure overall program objectives are met. - Financing assurances reviews should more explicitly assess whether the Fund still has appropriate safeguards to proceed with financing, or needs to introduce additional standard or enhanced safeguards as warranted. ### Form of Financing Assurances - For restructuring cases where financing assurances need to be obtained from official bilateral creditors—namely, preemptive cases and Strand 1 and 4 of the LIOA policy—such assurances could be obtained through the Fund’s assessment that a “credible official creditor process” (COCP) is underway. - Directors stressed that each creditor would need to establish a track record for the Fund to understand the process, key decisionmakers, and expected timeframe for completion so an assessment could be made that the key stage had been reached to provide necessary assurances. - In the absence of sufficient information or a track record, required financing assurances could continue to be satisfied by specific and credible assurances on debt relief/financing. - In pre-emptive cases, financing assurances would only be sought from a “sufficient set” of creditors, as defined under the enhanced safeguards approach under Strand 4. - Directors agreed the policy for pre-emptive restructuring cases for private creditors remains unchanged. ### Perimeter - Directors broadly agreed with staff’s approach for determining application of the Fund’s arrears, financing assurances and debt sustainability policies. - Direct Bilateral Claims will continue to be defined as those claims that are (a) held by a government, or an agency acting on behalf of a government; and (b) originate from an underlying transaction where the creditor government, or an agency acting on behalf of the government, provided or guaranteed financing to the debtor member. *Source: ppea2024017 - 14. The LIOA policy is as follows:* ### 25. In operationalizing this definition, Directors supported using the creditor member’s ### ppea2024017 - 25. In operationalizing this definition, Directors supported using the creditor member’s ### Operationalizing the creditor government definition - Use the creditor member’s budgetary process to determine which entities form part of the creditor government. - For entities that fall outside the government, apply a case-by-case analysis taking into account the totality of the circumstances to determine whether the entity is “acting on behalf of the government.” - Secondary market purchases of claims by official bilateral creditors do not qualify as Direct Bilateral Claims, as they would not directly extend financing to the debtor member. ### Classification of official claims — endorsed amendments - Amendment 1: To the extent that the IFI purchases securities in the secondary market as part of the global financial safety net, such claims can be treated as claims subject to the Fund’s arrears policies as applicable to IFIs; the Fund would rely on the IFI’s own representation in this regard. - Amendment 2: Any Direct Bilateral Claims or claims held by IFIs that are contractually part of a pooled voting mechanism with private creditors shall be subject to the LIA policy. ### Agreement in Principle (AIP) — role and clarifications - AIP retained as an optional procedural device to bridge engagement gaps when agreement on policies has been reached with the member but financing assurances restoring debt sustainability have not been received. - A decision to approve an arrangement in principle shall specify the date by which the approval would lapse, which would normally be no later than 4 months after approval. - A new AIP shall only be permitted once and would normally be subject to a limit of an additional 4 months. - The Fund would only approve a new AIP if: - the financing assurances restoring debt sustainability are likely to be delivered; and - the member’s economic program is being implemented as agreed and remains on track. - Once financing assurances have been obtained, a second decision of the Executive Board is required to make the arrangement effective, which is normally adopted on a Lapse of Time basis. - Staff should aim to bring a UCT-quality program forward for Executive Board consideration as fast as possible. ### Effectiveness and application timing - The above amendments and new policies will enter into effect immediately and will apply to all future purchases and disbursements (including under existing arrangements), with respect to existing and future arrears where the relevant policies apply. ### Reviews of the arrears policies - Directors agreed that the Fund’s arrears policies should be reviewed on an as needed basis. ### Annex I — Lending Into Arrears (LIA) Policy — core principles and operational guidance - Purpose: Fund lending into sovereign arrears to private creditors provides a tool to support a member’s adjustment efforts before agreement with private creditors on a debt restructuring. - Continued modality: Fund lending into sovereign arrears to private creditors should continue to be on a case-by-case basis and only where: - (i) prompt Fund support is considered essential for the successful implementation of the member’s adjustment program; and - (ii) the member is pursuing appropriate policies and is making a good faith effort to reach a collaborative agreement with its creditors. - For lending into non-sovereign arrears stemming from exchange controls, case-by-case basis and only where: - (i) prompt Fund support is considered essential for the successful implementation of the member’s adjustment program; and - (ii) the member is pursuing appropriate policies, the member is making a good faith effort to facilitate a collaborative agreement between private debtors and their creditors, and a good prospect exists for the removal of exchange controls. - Need for clarity and flexibility: - Greater clarity about the good faith dialogue and enhanced debt transparency can help guide application of the LIA policy and improve capital market functioning. - Any clarification of the “good faith” criterion should support case-by-case judgments and not impair market discipline. - Principles to guide debtor–creditor dialogue: - First, when a member judges a restructuring is necessary, it should engage in an early dialogue with its creditors, which should continue until the restructuring is complete. - Second, the member should share relevant information with all creditors on a timely basis, generally aligned with what the member would be required to share under the Debt Limits Policy and normally include: - an explanation of the economic problems and financial circumstances that justify a debt restructuring; - a briefing on the broad outlines of a viable economic program to address the underlying problems and its implications on the broad financial parameters shaping the envelope of resources available for restructured claims; and - the provision of a comprehensive picture of the outstanding debt stock and its terms, and the proposed treatment of all claims on the sovereign, including those of official bilateral creditors; the perimeter of claims subject to the envisaged debt restructuring; and the elaboration of the basis on which the debt restructuring would restore medium-term debt sustainability, bearing in mind that not all categories of claims may need to be restructured. - Third, the member should provide creditors with an early opportunity to give input on the design of restructuring strategies and the design of individual instruments. - Fourth, any terms offered to creditors by the member should be consistent with the parameters of the Fund-supported program. - Expectations on negotiations and creditor representation: - Form of dialogue generally left to the debtor and its creditors, but a member in arrears is expected to initiate a dialogue consistent with the principles above. - Where creditors form a representative committee on a timely basis, the member is expected to enter into good faith negotiations with this committee, considering case-specific characteristics. - Judgments will continue to be required on issues such as whether creditor committees are sufficiently representative and whether a reasonable period has elapsed to allow formation of representative committees; in their absence, engage creditors through a less structured dialogue. - Flexibility retained: - If negotiations stall because creditors request terms inconsistent with Fund-established adjustment and financing parameters, the Fund should retain flexibility to continue support notwithstanding lack of progress. - Creditors may express views before Fund arrangement approval, but decisions on macroeconomic framework and financing plan remain the sole purview of the Fund. - Emergency situations: - In exceptional circumstances (e.g., aftermath of a natural disaster) where insufficient time exists for good faith efforts with creditors, the Fund may provide financing under the Rapid Credit Facility (RCF) or the Rapid Financing Instrument (RFI) despite arrears to private creditors. - Such support is expected to advance normalization with private creditors and resolution of arrears; approval of any subsequent Fund arrangement would again be subject to the LIA policy. - Monitoring: - All purchases and disbursements while a member has outstanding arrears to private creditors remain subject to financing assurances reviews to monitor relations between debtor and creditors and to inform the Board early. - Supersession: - The policy outlined supersedes all previous policies regarding lending into arrears to private creditors. ### Codifying practice in preemptive restructuring cases - Current practice retained: If a contribution from external private creditors via a debt restructuring is needed to restore debt sustainability, restructuring should ideally occur before Fund arrangement approval. - Flexibility where appropriate: The debt operation conclusion may be contemplated later, normally by the first review under the arrangement, if the Fund has adequate assurances that restructuring will be successful. - Adequate assurances judged by a credible process underway that will result in sufficient creditor participation to restore debt sustainability and close financing gaps within program parameters, considering official sector commitments. - Relevant considerations for judgment may include: - engagement of legal and financial advisors by the member; - launching of consultations with creditors; and - design of the debt restructuring strategy, including terms of new instruments and use of inducements for creditor participation. - Expectation added: the member would be expected to share relevant information as defined under the LIA policy with all private creditors on a timely basis. ### Lending Into Arrears to Official Bilateral Creditors (LIOA) — approach - Directors broadly agreed that the Fund’s non-toleration of arrears policy in non-(Official Sector Involvement) OSI cases and the policy on lending into sovereign arrears to official bilateral creditors in OSI cases, covering a three-strand approach, continues to be appropriate, with adjustments to introduce a fourth strand in the LIOA policy. - Most Directors agreed more experience is needed with the Common Framework (CF) and welcomed staff’s plan to closely monitor the CF’s evolution and revert to the Board on whether it emerges as a new representative standing forum. *FUND SUPPORT TO COUNTRIES UNDERTAKING DEBT RESTRUCTURINGS — Supplementary information, Annex I and related sections (April 9, 2024 Executive Board meeting updates).* ### 14. The LIOA policy is as follows: ### ppea2024017 - 14. The LIOA policy is as follows: ### Overall structure and central focus - The LIOA policy is organized around four strands. - Directors agreed that Strand 1 should remain the central focus of this policy and should be used whenever it is or becomes available. ### Strand 1 (Paris Club / Common Framework) - If an agreement is reached through the Paris Club or the Common Framework involving the Paris Club that is adequately representative, the Fund would rely on its current practices: - Arrears would be considered eliminated (for purposes of the application of this policy) for both participating and non-participating creditors when financing assurances are received from the Paris Club or the Common Framework involving the Paris Club in anticipation of an Agreed Minute. - The Fund would be open to engaging with another representative standing forum should one emerge. ### Strand 2 (Creditor consent) - An official bilateral creditor may choose to consent to Fund financing notwithstanding arrears owed to it. - If such creditor consent is provided: - The Board would not need to judge whether the three criteria in Strand 3 are satisfied. - The Fund would continue to encourage parties to reach an agreement to resolve arrears, since regularization of arrears is an objective of any Fund-supported program. ### Strand 3 (Lending into arrears without representative agreement or creditor consent) - The Fund would consider lending into arrears owed to an official bilateral creditor only when all the following criteria are satisfied: - Prompt financial support from the Fund is considered essential, and the member is pursuing appropriate policies; - The debtor is making good faith efforts to reach agreement with the creditor on a contribution consistent with the parameters of the Fund-supported program—i.e., that the absence of an agreement is due to the unwillingness of the creditor to provide such a contribution; and - The decision to provide financing despite the arrears would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. - Application requires case-specific judgment guided by considerations including: - An agreement is “adequately representative” when it provides a majority of the total financing contributions required from official bilateral creditors over the program period. “Contribution” comprises, and is limited to, debt relief and new financing (e.g., loans, bond financing, guarantees, and grants). - In assessing good faith by the debtor, the Fund will consider, inter alia: - Whether the debtor has approached the creditor bilaterally or through a relevant grouping of official bilateral creditors (including ad hoc creditor committees); - Whether the debtor has offered substantive dialogue and sought a collaborative process; - Whether the debtor has provided relevant information on a timely basis consistent with the Fund’s policy on confidentiality of information; - Whether the debtor has offered terms consistent with program parameters (requests that would result in financing contributions exceeding program requirements would generally not indicate good faith); - The extent to which a creditor is being asked to make a contribution disproportionate relative to other official bilateral creditors. - In assessing undue negative effects on future mobilization, the Fund will consider the signal to official bilateral creditors as a group. In particular, the third criterion would normally not be satisfied where the creditor or group of creditors that has not reached agreement accounts for an adequately representative share (i.e., a majority) of total financing contributions required from official bilateral creditors over the program period. The creditor’s track record in past restructurings will also be taken into account. ### Strand 4 (Additional safeguards when representative agreement absent and creditor consent not forthcoming) - Applies where: - An adequately representative agreement has not been reached through the Paris Club or the Common Framework involving the Paris Club; - Consent is not forthcoming within 4 weeks of being requested; - The three criteria under Strand 3 cannot be satisfied with respect to an official bilateral creditor. - Two approaches depending on access: - Standard safeguards approach (for Fund-supported programs with normal access): - Requires a combination of program design elements, including: - Phasing of access under the arrangement (with an initial purchase or disbursement capped at low access); - Program conditionality to support the restructuring process where warranted under the Guidelines on Conditionality; - A debtor commitment to good faith efforts to establish additional safeguards for Fund lending. - Enhanced safeguards approach (for exceptional access under the GRA or the PRGT or high combined access under the GRA and PRGT): - Requires the debtor commitment and conditionality under the standard approach, and additionally a direct commitment to the Fund by a sufficient set of creditors about their restructuring intentions. - Where such a commitment is provided, arrears would be considered eliminated (for purposes of the application of this policy) for both participating and non-participating creditors. - A “sufficient set” requires participation of any representative standing creditor forum as well as any creditors with significant influence over the debtor; a creditor has significant influence when it can extract repayment on more favorable terms inconsistent with program parameters. - The standard safeguards approach will normally be sufficient for normal access cases in Strand 4; complex cases with prolonged negotiations or creditor coordination issues would necessitate a shift to enhanced safeguards. - A shift to enhanced safeguards may occur where a creditor or creditor group is either: - Unwilling to restructure in line with program parameters; or - Views additional Fund support to the debtor’s creditor coordination efforts as essential. - Staff Reports should transparently explain which creditor(s) requested a shift and the reason for the shift, and limit stigma associated with such requests. ### Emergency situations (RCF / RFI) - In emergency situations caused by natural disasters and a subset of other exogenous shocks (e.g., large or global shocks) where there is insufficient time for good faith efforts to reach agreement with creditors: - The Fund may provide financing under the Rapid Credit Facility (RCF) or the Rapid Financing Instrument (RFI) despite arrears owed to official bilateral creditors and without assessing the three Strand 3 criteria or obtaining creditor consent. - It is expected that Fund support in such cases would help advance normalization of relations with official bilateral creditors and resolution of arrears, and subsequent Fund arrangements would again be subject to all three Strand 3 criteria. - The assessment would be based on the debtor’s commitment to make good faith efforts toward resolving arrears and to promote creditor coordination. - Directors expected that the “exceptional circumstances” clause would generally not be satisfied for cases with long-standing arrears. ### Treatment of OSI-related claims and comparability of treatment - New Fund-supported programs should continue to assume that old OSI-related claims will be restructured in line with terms stipulated in the original Fund-supported program. - Arrears arising from exercise of a comparability of treatment clause shall be classified as non-OSI, and thus be subject to the Fund’s non-toleration of arrears policy, regardless of whether additional debt treatment is required. ### International Financial Institutions (IFIs) — definitions and general approach - IFIs are defined as international financial institutions with at least two sovereign members (and no non-sovereign member). - Directors endorsed the following operational treatment: - Fund financing in the face of arrears to the World Bank Group should continue to require an Agreed Plan between the debtor and the World Bank to clear the arrears over a defined period. - Fund financing in the face of arrears to any other IFI should continue to require that a Credible Plan be in place in non-OSI cases (a Credible Plan is credible to the Fund; the creditor’s concurrence is not required). - In OSI cases (where an official sector contribution is required to restore debt sustainability): - The Fund should judge whether a Credible Plan to resolve arrears to an IFI is required as a condition for lending. Factors informing this judgment include: - (i) global, rather than regional, membership of the institution; - (ii) whether the institution is a regional financing arrangement or a reserve currency union central bank that forms part of the global financial safety net; - (iii) the Paris Club’s treatment of the institution; - (iv) participation of the institution in the Heavily Indebted Poor Countries (HIPC) Initiative; and - (v) whether the institution is being excluded from the scope of debt restructuring by official bilateral creditors through a creditor committee based on a representative standing forum recognized under the LIOA policy in the case at hand. - Where an IFI does not fall under the previous bullet, the LIOA policy should be expanded to apply mutatis mutandis and provide flexibility in extraordinary emergency financing cases consistent with the LIOA policy. ### Lending into arrears owed to IFIs (criteria) - The Fund would consider lending into arrears owed to an IFI creditor only when all the following criteria are satisfied: - Prompt financial support from the Fund is considered essential, and the member is pursuing appropriate policies; - The debtor is making good faith efforts to reach agreement with the IFI creditor on a contribution consistent with the parameters of the Fund-supported program—i.e., that the absence of an agreement is due to the unwillingness of the creditor to provide such a contribution; and - The decision to provide financing despite the arrears would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. ### Assessing good faith and signaling for IFIs - In assessing whether a debtor is acting in good faith with respect to an IFI creditor, the Fund will consider, inter alia: - Whether the debtor has approached the IFI creditor bilaterally; - Whether the debtor has offered to engage in substantive dialogue and a collaborative process; - Whether the debtor has provided relevant information on a timely basis consistent with the Fund’s confidentiality policy; - Whether the debtor has offered terms consistent with the parameters of the Fund-supported program (requests that would result in financing contributions exceeding program requirements would generally not indicate good faith). - In assessing undue negative effects from lending into IFI arrears, the Fund will consider the signal to IFI creditors or to official creditors more generally as a group, given the case-specific circumstances. ### IFI consent and financing assurances reviews - An IFI creditor may choose to consent to Fund financing notwithstanding arrears owed to it: - Consent may be conveyed through an Executive Director designated by the IFI or an authorized executive of the IFI to the Managing Director. - If consent is provided, the Executive Board would not need to judge whether the three criteria are satisfied, though the Fund would still encourage agreement during the program. - So long as arrears to IFI creditors remain outstanding, purchases or disbursements will be subject to a financing assurances review where the Executive Board will verify that all three criteria are satisfied and the policy continues to be met. ### Financing assurances reviews — strengthening and scope - Directors supported strengthening financing assurances reviews under the LIOA and LIA policies while external arrears remain unresolved, and introducing financing assurances reviews: - In cases where arrears are deemed away under Strands 1 and 4 under the LIOA policy; and - In preemptive restructuring cases needed to restore debt sustainability involving official bilateral creditors until the needed restructuring is complete. - Purposes of financing assurances reviews: - Assess continued compliance with arrears and financing assurances policies; - Determine whether the member’s adjustment efforts are undermined by debtor–creditor developments; - Assess whether the debt situation undermines restoration of medium-term external viability and capacity to repay the Fund. - Requirements and expectations: - Requests for new Fund financing should lay out expected steps and schedule for the restructuring process in an indicative way. - Subsequent reviews should detail progress against that schedule and determine whether restructuring remains on track to meet program objectives. - Staff assessments should be transparent on consistency of debt restructuring plans with program parameters. - Financing assurances reviews should explicitly assess whether the Fund still has appropriate safeguards to proceed or needs additional safeguards; such additional safeguards should be well-tailored to the reason for delay. - A clear signal about a creditor’s unwillingness to restructure would motivate a shift to enhanced safeguards. ### Form of Financing Assurances and Credible Official Creditor Process (COCP) - For restructuring cases where financing assurances need to be obtained from official bilateral creditors (preemptive cases and Strand 1 and 4), such assurances could be obtained through the Fund’s assessment that a “credible official creditor process” (COCP) is underway. - Directors emphasized: - Need for clear guidance on criteria for assessing COCP. - Each creditor should establish a robust track record in delivering timely and successful debt restructurings to support the Fund’s assessment. - In absence of sufficient information or track record, required financing assurances could continue to be satisfied by specific and credible assurances on debt relief/financing. - COCP assessments must be transparent, evenhanded, fair, with sufficient granularity and robust evidence. - Establishing track records for non-Paris Club creditors’ processes could move broadly at the same speed given multiple non-PC creditors in typical restructurings. - Directors endorsed that in pre-emptive cases, financing assurances would only be sought from a “sufficient set” of creditors as defined under the enhanced safeguards approach under Strand 4. - The policy for pre-emptive restructuring cases for private creditors remains unchanged. *Source: ppea2024017 - 14. The LIOA policy is as follows:* ### 23. For the purpose of determining the application of the Fund’s arrears, financing assurances ### 23. For the purpose of determining the application of the Fund’s arrears, financing assurances ### Definition and operationalization of Direct Bilateral Claims - Direct Bilateral Claims will continue to be defined as those claims that are (a) held by a government, or an agency acting on behalf of a government; and (b) originate from an underlying transaction where the creditor government, or an agency acting on behalf of the government, provided or guaranteed financing to the debtor member. - Directors supported using the creditor member’s budgetary process to determine which entities form part of the creditor government. - For entities that fall outside the government, a case-by-case analysis, taking into account the totality of the circumstances, would continue to be required to determine whether the entity is “acting on behalf of the government.” - Directors recognized that secondary market purchases of claims by official bilateral creditors would not qualify as Direct Bilateral Claims, as they would not directly extend financing to the debtor member. ### Amendments to classification of official claims - If an IFI purchases securities in the secondary market as part of the global financial safety net, such claims can be treated as claims subject to the Fund’s arrears policies as applicable to IFIs; the Fund would rely on the IFI’s own representation in this regard. - Any Direct Bilateral Claims or claims held by IFIs that are contractually part of a pooled voting mechanism with private creditors shall be subject to the LIA policy. ### Approval in Principle (AIP) - Directors recognized the continued utility of the Approval in Principle (AIP) as an optional procedural device to bridge engagement gaps when agreement on policies has been reached with the member but financing assurances to restore debt sustainability have not been received. - Key clarifications agreed: - A decision to approve an arrangement in principle shall specify the date by which the approval would lapse, which would normally be no later than 4 months after approval. - A new AIP shall only be permitted once and would normally be subject to a limit of an additional 4 months. - The Fund would only approve a new AIP if the financing assurances restoring debt sustainability are likely to be delivered and that the member’s economic program is being implemented as agreed and remains on track. - Once the financing assurances have been obtained, a second decision of the Executive Board is required to make the arrangement effective, which is normally adopted on a Lapse of Time basis. - Directors stressed that, in all cases, staff should aim to bring a UCT-quality program forward for Executive Board consideration as fast as possible. ### Effectiveness and reviews - The above amendments and new policies will enter into effect immediately and will apply to all future purchases and disbursements (including under existing arrangements), where the relevant policies apply. - Directors agreed that the Fund’s arrears policies should be reviewed on an as needed basis. ### Lending Into Arrears (LIA) policy — summary of Directors’ views - The Fund’s policy on lending into arrears to private creditors continues to provide a useful tool and should remain case-by-case, only where: - (i) prompt Fund support is considered essential for the successful implementation of the member’s adjustment program; and - (ii) the member is pursuing appropriate policies and is making a good faith effort to reach a collaborative agreement with its creditors. - Lending into non-sovereign arrears stemming from exchange controls should continue to be case-by-case and only where: - (i) prompt Fund support is considered essential for the successful implementation of the member’s adjustment program; and - (ii) the member is pursuing appropriate policies, the member is making a good faith effort to facilitate a collaborative agreement between private debtors and their creditors, and a good prospect exists for the removal of exchange controls. - Directors agreed that greater clarity about the good faith dialogue between a debtor and its creditors and enhanced debt transparency could help guide LIA application and improve the functioning of capital markets, while retaining flexibility in applying the “good faith” criterion. ### Principles to guide debtor–creditor dialogue under LIA - First: When a member has reached a judgment that a restructuring of its debt is necessary, it should engage in an early dialogue with its creditors, which should continue until the restructuring is complete. - Second: The member should share relevant information with all creditors on a timely basis, generally aligned with the Debt Limits Policy and normally including: - an explanation of the economic problems and financial circumstances that justify a debt restructuring; - a briefing on the broad outlines of a viable economic program to address the underlying problems and its implications on the broad financial parameters shaping the envelope of resources available for restructured claims; and - the provision of a comprehensive picture of the outstanding debt stock and its terms, and the proposed treatment of all claims on the sovereign, including those of official bilateral creditors; the perimeter of claims subject to the envisaged debt restructuring; and the elaboration of the basis on which the debt restructuring would restore medium-term debt sustainability, bearing in mind that not all categories of claims may need to be restructured. - Third: The member should provide creditors with an early opportunity to give input on the design of restructuring strategies and the design of individual instruments. - Fourth: Any terms offered to creditors by the member should be consistent with the parameters of the Fund-supported program. - The form of the dialogue remains generally for the debtor and its creditors to determine, but where representative creditor committees form on a timely basis, the member would be expected to enter into good faith negotiations with such a committee. ### Judgments, exceptional cases, and procedures - Assessments of good faith will require judgment on representativeness of creditor committees and reasonable time for committee formation; absent committees, engagement through less structured dialogue is expected. - The Fund retains flexibility to continue support if negotiations stall because creditors request terms inconsistent with Fund-established adjustment and financing parameters. - Creditors may express views on program dimensions prior to Fund approval, but decisions on macroeconomic framework and financing plan remain the sole purview of the Fund. - Emergency situations (e.g., natural disasters) may warrant RCF or RFI financing despite arrears owed to private creditors, with expectation that Fund support will advance normalization of relations and resolution of arrears; subsequent arrangements would be subject to the LIA policy. - All purchases and disbursements made while a member has outstanding arrears to private creditors will continue to be subject to financing assurances reviews to monitor debtor–creditor relations and inform the Board. ### Preemptive restructuring cases - Current practice remains appropriate: where a contribution from external private creditors is needed to restore debt sustainability, restructuring should ideally be undertaken before Fund arrangement approval. - More flexibility may be warranted so the debt operation conclusion can be contemplated later, normally by the first review under the arrangement. - The Fund may provide financing only if it has adequate assurances that the restructuring will be successful, judged by whether a credible restructuring process is underway and will result in sufficient creditor participation to restore debt sustainability within program parameters, taking into account official sector commitments. - Relevant considerations for this judgment may include engagement of legal and financial advisors by the member, launching creditor consultations, and the design of the debt restructuring strategy, including new instrument terms and use of inducements for creditor participation. - Directors welcomed adding an expectation that the member would share relevant information as defined under the LIA policy with all private creditors on a timely basis. - The policy outlined supersedes all previous policies regarding lending into arrears to private creditors. ### Lending Into Arrears to Official Bilateral Creditors (LIOA) - Directors broadly agreed that the Fund’s non-toleration of arrears policy in non-(Official Sector Involvement) OSI cases and the policy on lending into sovereign arrears to official bilateral creditors in OSI cases, covering a three-strand approach, continues to be appropriate with adjustments to introduce a fourth strand in the LIOA policy as detailed in the source. - Most Directors agreed more experience is needed with the Common Framework (CF) and welcomed staff’s plan to closely monitor the CF’s evolution and revert to the Board on whether it emerges as a new representative standing forum. *pp ea2024017 - 23. For the purpose of determining the application of the Fund’s arrears, financing assurances* ### 14. The LIOA policy is as follows: ### ppea2024017 - 14. The LIOA policy is as follows: ### Overview - The LIOA policy defines when the Fund will lend into arrears (Lending into Official Arrears — LIOA) and the safeguards and procedures that apply depending on creditor engagement and case circumstances. - Policy is organized into Strands 1–4, with additional provisions for emergency situations, International Financial Institutions (IFIs), financing assurances reviews, form of financing assurances, perimeter definitions, Approval in Principle (AIP), effectiveness, and review frequency. ### Strand 1 — Adequately representative Paris Club/Common Framework agreements - If an agreement is reached through the Paris Club or the Common Framework involving the Paris Club that is adequately representative: - The Fund would rely on its current practices—i.e., arrears would be considered eliminated (for purposes of the application of this policy) for both participating and non-participating creditors when financing assurances are received from the Paris Club or the Common Framework involving the Paris Club in anticipation of an Agreed Minute. - Directors agreed that Strand 1 should remain the central focus of this policy and should be used whenever it is or becomes available. - Fund open to engaging with any emerging representative standing forum. ### Strand 2 — Creditor consent - An official bilateral creditor may choose to consent to Fund financing notwithstanding arrears owed to it. - If such consent is given: - The Board would not need to make a judgment as to whether the three criteria in Strand 3 are satisfied. - The Fund would nevertheless continue to encourage the parties to come to an agreement to resolve arrears. ### Strand 3 — Lending into arrears only if all three criteria are satisfied - The Fund would consider lending into arrears owed to an official bilateral creditor only where all the following criteria are satisfied: - Prompt financial support from the Fund is considered essential, and the member is pursuing appropriate policies; - The debtor is making good faith efforts to reach agreement with the creditor on a contribution consistent with the parameters of the Fund-supported program—i.e., that the absence of an agreement is due to the unwillingness of the creditor to provide such a contribution; and - The decision to provide financing despite the arrears would not have an undue negative effect on the Fund’s ability to mobilize official financing packages in future cases. - In applying these criteria the Board will exercise case-specific judgment, guided by: - Definition of “adequately representative”: provides a majority of the total financing contributions required from official bilateral creditors over the program period. “Contribution” comprises, and is limited to, debt relief and new financing (e.g., loans, bond financing, guarantees, and grants). - Good faith considerations include whether the debtor has approached the creditor bilaterally or through a relevant grouping, engaged substantively, provided timely relevant information consistent with confidentiality policy, and offered terms consistent with program parameters. Requests for terms exceeding program requirements would generally not indicate good faith. - Assessment of undue negative effect considers the signal to official bilateral creditors as a group; normally not satisfied where the creditor(s) refusing to agree account for an adequately representative share (i.e., a majority) of total financing contributions required from official bilateral creditors. Creditor track record in past restructurings is also relevant. ### Strand 4 — Additional safeguards when agreement not reached and consent not forthcoming - Applies when: - An adequately representative agreement has not been reached through the Paris Club or the Common Framework involving the Paris Club; - Consent is not forthcoming within 4 weeks of being requested; and - The three criteria under Strand 3 cannot be satisfied with respect to an official bilateral creditor. - Approach distinguishes normal access programs from exceptional access under the GRA or the PRGT or high combined access under the GRA and PRGT: - Standard safeguards approach (normal access): - Requires combination of program design elements: phasing of access under the arrangement (with an initial purchase or disbursement capped at low access), program conditionality to support the restructuring process where warranted under the Guidelines on Conditionality, and a debtor commitment to good faith efforts to establish additional safeguards for Fund lending. - Enhanced safeguards approach (exceptional/high combined access): - Requires debtor commitment and conditionality under the standard safeguards approach, and in addition a direct commitment to the Fund by a sufficient set of creditors about their restructuring intentions. - Where such a commitment is provided, arrears would be considered eliminated (for purposes of the application of this policy) for both participating and non-participating creditors. - “Sufficient set” requires participation of any representative standing creditor forum as well as any creditors with significant influence over the debtor. A creditor has significant influence when it has the ability to extract repayment on more favorable terms, inconsistent with program parameters. - Standard safeguards normally sufficient for normal access cases; complex cases with prolonged negotiations or creditor coordination issues may necessitate a shift to enhanced safeguards. - Staff Reports should transparently explain which creditor(s) requested a shift to enhanced safeguards and the reasons. ### Emergency situations (RCF/RFI) - Emergency situations (e.g., aftermath of natural disasters or certain exogenous shocks) may not allow time for debtor’s good faith efforts to reach creditor agreement. - In such exceptional circumstances the Fund may provide financing under the Rapid Credit Facility (RCF) or the Rapid Financing Instrument (RFI) despite arrears owed to official bilateral creditors and without assessing the three Strand 3 criteria or obtaining creditor consent. - Expectations and limits: - Fund support in such cases should help advance normalization of relations with official bilateral creditors and resolution of arrears. - Approval of any subsequent Fund arrangement would again be subject to all three criteria in Strand 3. - This “exceptional circumstances” clause would generally not be satisfied for cases with long-standing arrears. - Ongoing purchases or disbursements after approval of an arrangement while unresolved arrears remain are subject to financing assurances review by the Board to verify that all three criteria are satisfied for further use of Fund resources. ### OSI-related and comparability of treatment clauses - New Fund-supported programs should continue to assume that old OSI-related claims would be restructured in line with the terms stipulated in the original Fund-supported program. - Should new arrears arise due to exercise of a comparability of treatment clause, such arrears shall be classified as non-OSI, and thus be subject to the Fund’s non-toleration of arrears policy, regardless of whether an additional debt treatment is required. ### International Financial Institutions (IFIs) - IFIs defined as international financial institutions with at least two sovereign members (and no non-sovereign member). - Directors endorsed the following distinctions: - World Bank Group arrears: Fund financing in the face of arrears to the World Bank Group should continue to require an Agreed Plan between the debtor and the World Bank to clear the arrears over a defined period. - Other IFIs in non-OSI cases: Fund financing should continue to require that a Credible Plan be in place where a contribution from the official sector is not required to restore debt sustainability. A Credible Plan is credible to the Fund and the creditor’s concurrence is not required. - In OSI cases (where official sector contribution required): Fund should judge whether a Credible Plan to resolve arrears to an IFI is required as a condition for lending. Factors informing judgment include: - (i) global, rather than regional, membership of the institution; - (ii) whether the institution is a regional financing arrangement or a reserve currency union central bank that forms part of the global financial safety net; - (iii) the Paris Club’s treatment of the institution; - (iv) participation of the institution in the Heavily Indebted Poor Countries (HIPC) Initiative; - (v) whether the institution is being excluded from the scope of debt restructuring by official bilateral creditors through a creditor committee based on a representative standing forum recognized under the LIOA policy in the case at hand. - For IFIs not covered above, the LIOA policy should be expanded to apply mutatis mutandis, with flexibility in extraordinary circumstances for emergency financing consistent with the LIOA policy. - Lending into arrears owed to an IFI creditor would be considered only where the same three criteria as for official bilateral creditors are all satisfied. ### Good faith and undue negative effect assessments for IFIs - Good faith factors for IFI arrears mirror those for official bilateral creditors: debtor approach to creditor bilaterally, substantive dialogue, timely provision of relevant information consistent with confidentiality policy, and offering terms consistent with program parameters. Requests for terms exceeding program requirements generally not indicate good faith. - Assessment of undue negative effect considers the signal to IFI creditors, or official creditors more generally, as a group. ### IFI consent - An IFI creditor may choose to consent to Fund financing notwithstanding arrears owed to it. - Consent can be conveyed through an Executive Director designated by the IFI or an authorized executive of the IFI to the Managing Director. - If consent is given, the Executive Board would not need to judge whether the three criteria are satisfied. - Fund continues to encourage parties to reach agreement during the program. ### Financing assurances reviews - Strengthening of financing assurances reviews under the LIOA and LIA policies while external arrears remain unresolved, and introducing such reviews: - In cases where arrears are deemed away under Strands 1 and 4 under the LIOA policy. - In preemptive restructuring cases needed to restore debt sustainability involving official bilateral creditors until restructuring is complete. - Purpose: - Assess continued compliance with arrears and financing assurances policies; - Determine whether member’s adjustment efforts are undermined by debtor–creditor developments; - Determine whether debt situation undermines restoration of medium-term external viability and capacity to repay the Fund. - Requirements for financing requests and reviews: - Requests for new Fund financing should lay out expected steps and schedule for the restructuring process in an indicative way. - Subsequent reviews should detail progress against that schedule. - Staff’s assessment should be transparent on consistency of debt restructuring plans with program parameters. - Financing assurances reviews should explicitly assess whether the Fund still has appropriate safeguards or needs to introduce additional safeguards; additional safeguards should be tailored to the situation and delays; a clear signal of creditor unwillingness to restructure would motivate a shift to enhanced safeguards. ### Form of financing assurances - For restructuring cases where financing assurances need to be obtained from official bilateral creditors (preemptive cases and Strand 1 and 4), financing assurances could be obtained through the Fund’s assessment that a “credible official creditor process” (COCP) is underway. - Directors emphasized need for clear guidance and criteria for COCP assessments: - Each creditor should establish a robust track record in delivering timely and successful debt restructurings to underpin assessments. - In absence of sufficient information or track record, financing assurances could continue to be satisfied by specific and credible assurances on debt relief/financing. - COCP assessments should be transparent, evenhanded, fair, granular, and evidence-based to enable Board judgment. - Establishing track records for non-Paris Club creditors’ processes could move broadly at the same speed across creditors. - In pre-emptive cases, financing assurances would only be sought from a “sufficient set” of creditors as defined under the enhanced safeguards approach under Strand 4. - Policy for pre-emptive restructuring cases for private creditors remains unchanged. ### Perimeter — Direct Bilateral Claims and related clarifications - Direct Bilateral Claims definition retained: claims that are (a) held by a government, or an agency acting on behalf of a government; and (b) originate from an underlying transaction where the creditor government, or an agency acting on behalf of the government, provided or guaranteed financing to the debtor member. - Operationalization: - Use creditor member’s budgetary process to determine which entities form part of the creditor government. - For entities outside the government, continue case-by-case analysis to determine whether the entity is “acting on behalf of the government.” - Secondary market purchases of claims by official bilateral creditors do not qualify as Direct Bilateral Claims. - Two amendments endorsed: - IFI purchases of securities in the secondary market as part of the global financial safety net can be treated as claims subject to the Fund’s arrears policies as applicable to IFIs, relying on the IFI’s representation. - Any Direct Bilateral Claims or claims held by IFIs that are contractually part of a pooled voting mechanism with private creditors shall be subject to the LIA policy. ### Approval in Principle (AIP) - AIP retained as an optional procedural device to bridge engagement gaps when policy agreement with the member exists but financing assurances have not been received. - Clarifications: - A decision to approve an arrangement in principle shall specify the date by which the approval would lapse, normally no later than 4 months after approval. - A new AIP shall only be permitted once and would normally be subject to a limit of an additional 4 months. - The Fund would only approve a new AIP if financing assurances restoring debt sustainability are likely to be delivered and the member’s economic program is being implemented as agreed and remains on track. - Once financing assurances have been obtained, a second Executive Board decision is required to make the arrangement effective, normally adopted on a Lapse of Time basis. - Staff should aim to bring a UCT-quality program forward for Executive Board consideration as fast as possible. ### Effectiveness and entry into force - The above amendments and new policies will enter into effect immediately and will apply to all future purchases and disbursements (including under existing arrangements), with respect to existing and future arrears where the relevant policies apply. ### Reviews of the arrears policies - Directors agreed that the Fund’s arrears policies should be reviewed on an as needed basis. *Source: ppea2024017 - 14. The LIOA policy is as follows:* --- _Source: https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024017.pdf_