## Appendix VI) ## Source details **Canonical URL:** [Appendix VI)](https://www.imf.org/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/ar/98/pdf/_file04pdf.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/ar/98/pdf/_file04pdf.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/ar/98/pdf/_file04pdf.pdf.json) --- ### Five aspects of a strengthened international monetary system - Reinforcing international and domestic financial systems. - Strengthening IMF surveillance. - Promoting more widely available and transparent data on member countries’ economic situation and policies. - Underscoring the central role of the IMF in crisis management. - Increasing the involvement of the private sector in forestalling or resolving financial crises. ### Strengthening Financial Systems - Vulnerable and unstable financial systems can severely disrupt macroeconomic performance and increase vulnerability to economic crises. - IMF should work actively with other organizations and members to help members design improved banking and financial systems. - Priority actions for members: - Strengthen financial sector supervisory and regulatory frameworks. - Establish the independence of central banks. - Strengthen governance, including in the corporate sector. - Improve accounting practices to conform with international standards. - International community responsibilities: - Continue developing standards for banking supervision, accounting and disclosure, auditing and valuation of bank assets, and guidelines for effective corporate governance. - Increase international cooperation in sharing information among regulators, especially those supervising institutions operating in major financial centers. - Regulators should seek and examine information on flows from offshore centers and off-balance-sheet items to avoid obscuring analysis of a country’s exposure and delay in identifying potential balance of payments problems. - IMF role: - Develop expertise and devote resources to offer detailed advice in these areas. - Play an important role via surveillance by disseminating internationally agreed standards and encouraging adoption of best practices. - Board to continue discussions on the scope of the IMF’s work in developing and disseminating international standards. Interim Committee endorsed this approach (April 1998). ### Strengthening IMF Surveillance - IMF surveillance is central to preventing crises; measures after the Mexican financial crisis in 1994–95 helped adapt IMF surveillance. - Areas for reinforcement: - Intensify surveillance of financial sector issues and collaborate with World Bank, Bank for International Settlements, and the private sector. - Pay more attention to capital account issues, including sequencing and pace of capital account liberalization. - Focus on risks of large reversals of capital flows, rapid accumulation of short-term debt, unhedged exposure to currency fluctuations, and impacts of selective capital account liberalization. - Pay greater attention to policy interdependence, risks of contagion, and policies of countries of particular importance to the international monetary system. - Increase frequency and systematization of exchanges with market participants to incorporate market perceptions while protecting confidentiality and ensuring even-handed dealings. - Effective surveillance depends on members’ willingness to take IMF advice; IMF must provide the best analysis possible and concentrate on issues of importance to individual members. - Communicate IMF views effectively through possible incremental steps: - A member could be asked to respond to IMF concerns within a specified time so the member’s reaction could be brought expeditiously to the Board’s attention. - In cases where a member’s policies appear to depart from IMF staff advice, concerns could be shared with the Board at an early stage while protecting confidentiality. - Interim Committee requested the Board “to develop a ‘tiered response,’ whereby countries believed to be seriously off course in their policies would be given increasingly strong warnings” by the IMF. ### Greater Availability and Transparency of Information - IMF encourages members to be transparent about economic developments and policymaking. - Need for further improvement in data provision, particularly on data timeliness. - Proposal to broaden the IMF’s Special Data Dissemination Standard to cover additional financial data. - Consider increasing the Special Standard’s usefulness, accessibility to the public and market participants, and publication of members’ record of compliance. - Promote greater transparency in economic policymaking, including encouraging members to release Letters of Intent and Policy Framework Papers. - IMF transparency actions: - Issuance of a Press (now “Public”) Information Notice (PIN) following the conclusion of a member’s Article IV consultation. - Emphasis on clear, concise, and analytically sound staff reports and frank, comprehensive Board assessments for the effectiveness of the PIN process. - Return to issues including ways to expedite PIN publication. - Interim Committee encouraged more members to release PINs and asked the IMF “to continue its efforts to increase dissemination of information on its policy recommendations and encouraged member countries to increase the transparency of their policies.” ### IMF’s Central Role in Crisis Management - Not every crisis can be anticipated or prevented. - International community must be prepared to respond quickly with policy advice, well-integrated technical assistance, and, if necessary, adequate financing. - World Bank and Asian Development Bank provided critical technical and financial support in the Asian crisis; bilateral support also important. - Need for IMF coordination of assistance to ensure complementarity with IMF conditionality. - Interim Committee (April 1998): - Endorsed the central role of the IMF, particularly in supporting necessary reforms through conditionality. - Welcomed the timely international response to the Asian crisis, including the IMF. - Stated the IMF could not be expected to finance every balance of payments deficit; its catalytic role is essential to attract other sources of financing and to coordinate support when needed. ### Involving the Private Sector in Preventing and Resolving Crises - Need to strengthen the capacity to respond to balance of payments crises with appropriate involvement of all creditor groups, including the private sector, to share burdens equitably and limit moral hazard. - Concerns: - Resolution methods should not encourage imprudent behavior by creditors or debtors. - Private creditors sustained large losses in recent crises; equities and long-term debt instruments lost value; investors in bankrupt enterprises received no special treatment. - Special challenge with creditors holding short-term claims, where liquidity can make it easier to “bolt for the exit.” - Efforts to avoid defaults on short-term claims have included rollovers, extensions, or restructurings to protect financial system stability and market access. - Preventive measures to discourage excessive reliance on short-term financing: - Appropriate macroeconomic and debt-management policies. - Nondistortionary tax systems. - Effective prudential supervision of financial systems. - Timely and comprehensive data to financial markets, including corporate sector debt. - Appropriate sequencing in capital account opening. - Strengthen countries’ capacity to withstand sudden shifts in market sentiment by strengthening financial systems, while recognizing prevention is not foolproof. - IMF approach in crises: ensure appropriate adjustment programs include continued involvement of private creditors (see Policy on Sovereign Arrears to Private Creditors in Chapter VIII). - Interim Committee (April 1998) asked the Board to consider ways to increase private sector involvement in crisis prevention and burden sharing and suggested mechanisms: - Closer contacts with private creditors to explain IMF-supported arrangements and develop modes of private sector financing that would help “bail in” private creditors in times of crisis. - Study the possibility of introducing provisions in bond contracts for bondholders to be represented, in case of nonpayment, in negotiations on bond contract restructuring. - Extend the IMF’s policy of providing financing to members in arrears to include sovereign bonds (“lending into arrears”) when appropriate. - Encourage adoption of strong bankruptcy laws to improve operation of domestic and international capital markets. - Advise members to exercise caution with respect to public guarantees to reduce the risk of private debt problems turning into sovereign debt problems. ### Supplemental Reserve Facility (SRF) - Established by the Executive Board in December 1997 as a new short-term lending facility. - Purpose: - Deal with members experiencing exceptional balance of payments problems owing to a large short-term financing need from a sudden and disruptive loss of market confidence reflected in capital account pressure and reserve losses. - SRF assistance available when strong adjustment policies and adequate financing are reasonably expected to result, in a short period, in early correction of the balance of payments difficulties. - Likely to be used where outflows may create contagion risk threatening the international monetary system. - Features: - In approving SRF use, IMF considers financing provided by other creditors. - To minimize moral hazard, SRF users are encouraged to maintain participation of official and private creditors until pressure on the balance of payments ceases. - Financing under SRF is available as additional resources under a Stand-By or Extended Arrangement, committed for up to one year and generally available in two or more tranches. - The first tranche is available at approval of financing, normally coinciding with approval of the corresponding arrangement. - IMF determines SRF financing amount by considering member needs; capacity to repay, including program strength; outstanding use of IMF credit; record in using IMF resources and cooperating with IMF in surveillance; and IMF’s liquidity position. - Repayment and charges: - Countries borrowing under the SRF are expected to repay within 1–1!/2years of the date of each disbursement; the Board may extend this repayment period by up to one year, at which point the borrower is obligated to repay. - During the first year from approval of financing to a country under the SRF, borrowers pay a surcharge of 300 basis points above the rate of charge on IMF drawings. - This rate increases by 50 basis points at the end of the first year and every six months thereafter until the surcharge reaches 500 basis points. - Note on IMF credit denomination: - IMF credit is denominated in SDRs, whose value is determined on the basis of a basket of the five leading currencies. The SDR interest rate is a weighted average of short-term interest rates in the domestic money markets of the five countries whose currencies are included in the valuation basket. ### Trade Liberalization in IMF-Supported Programs - Board considered a staff report (October 1997) on trade reform in medium-term IMF-supported adjustment programs. - Conclusions and guidance: - Trade liberalization, as a complement to appropriate macroeconomic and structural policies, should play an increasingly important role in IMF-supported programs to foster sustainable high-quality growth. - Closer cooperation with the World Bank and the World Trade Organization is important. - Promote trade liberalization in nonprogram countries via IMF surveillance. - Trade reform promotes transparency and good governance by reducing administrative discretion, lobbying incentives for protection, and opportunities for rent seeking. - Many reviewed countries started with restrictive trade regimes; broader and more rapid liberalization should have been targeted in a significant number of programs. - Staff urged to aim for further liberalization in future programs; many Directors supported front-loaded liberalization and use of prior actions, performance criteria, structural benchmarks, and reviews to monitor implementation. - Other Directors cautioned trade-related conditionality should be applied flexibly, accounting for initial conditions, political support, and authorities’ commitment. - Trade reform is a long-term process requiring a well-specified, comprehensive, and publicly announced program and avoidance of policy slippages. - Mutually reinforcing trade and fiscal reforms are important; trade liberalization need not adversely affect the fiscal position and may strengthen it by replacing nontariff barriers with tariffs and eliminating duty exemptions and trade-related subsidies. ### Policy on Sovereign Arrears to Private Creditors - Emphasis on involving private creditors early in a crisis to ensure adequate burden sharing and limit moral hazard. - Globalization and improved market access increased importance of private capital and vulnerability to shifts in market sentiment. - Need for early, forceful adjustment measures, restraint in foreign borrowing (especially short maturities), and caution regarding waivers of sovereign immunities by central banks. - In responding to a liquidity crisis risking default on international sovereign bonds: - Balance between promoting effective balance of payments adjustment and orderly debtor-creditor relations while limiting moral hazard. - Consider extension of “lending into arrears” (continuing to provide financing when a member is behind in payments to some private creditors), with conditions: - Lending should be limited and provided only where prompt IMF support is essential for successful implementation of the member’s adjustment program. - Negotiations between the member and private creditors on restructuring must have begun. - There must be firm indications that the sovereign borrower and private creditors will negotiate in good faith toward a debt-restructuring plan. - All drawings under an IMF-supported adjustment program with a member with sovereign arrears to private creditors must be subject to financing reviews so the Executive Board can monitor unexpected developments, including litigation. - Some Directors opposed lending into arrears without further protection, citing risks of aggressive litigation by individual creditors and adverse effects on safeguards of IMF resources. --- ### Box 9 — Group Travel by Executive Directors and Related Governance Issues ### Group travel program and objectives - Purpose: broaden Directors’ understanding of economic problems and policies in individual member countries to enhance contributions to Board discussion of member country policies. - Trips cited: - February 1998: Cameroon, Côte d’Ivoire, and Mali. - June 1996: Egypt, Jordan, and the Republic of Yemen. - October 1996: Georgia, Hungary, and Ukraine. - Board review (June 1997): - Aim: normally two trips a year, each to two or three countries, with flexibility in the number of annual trips. - Focus: many favored concentration on program and intensive-surveillance countries. - Participation: participation by a Director (or Directors) from a program country in a group visit would be useful. - Selection: maintain flexibility in the selection process. ### Sovereign arrears, moral hazard, and crisis-resolution proposals - Directors’ view on arrears and moral hazard: - Toleration of arrears to bondholders and other private creditors under IMF-supported adjustment programs may be seen by market participants as lowering the cost of a default to debtors, creating debtor moral hazard. - However, Directors felt that even under a policy of lending into arrears, the cost to debtors of default would remain substantial. - IMF conditionality was seen as providing an effective limitation on debtor moral hazard. - Three preliminary suggestions for improvements in mechanisms to resolve sovereign liquidity crises: 1. Modification of legal provisions of bond contracts: - Measures considered: introduction of sharing provisions, collective representation of bondholders, and qualified majorities to alter bond contract terms. - Observation: no market response to the Group of Ten Deputies’ proposals in this area. - Some Directors felt progress might require official action, possibly leadership by major industrial country borrowers introducing such provisions into their own bond offerings. 2. Sovereign bankruptcy mechanism: - Most Directors continued to believe that proposals for establishing a formal international debt-adjustment mechanism were cumbersome and impractical and should not be pursued. 3. Modification of Article VIII, Section 2(b), of the IMF’s Articles of Agreement: - Consideration: permit the IMF to sanction a temporary stay on creditor litigation, providing members protection from litigation in the context of IMF lending into arrears. - Directors believed this raised complex issues of legal procedures and interpretation that would need further consideration. ### Postprogram monitoring - October 1997 Board consideration: - Broad support for post-program monitoring where IMF credit outstanding remained in excess of 300 percent of a member’s quota. - For cases with access below the 300 percent threshold, the Board asked staff to study further possible modalities and to suggest draft guidelines for further consideration. ### Member Countries’ Use of IMF Facilities (1997/98 activity) - Approved in 1997/98: - Nine new Stand-By Arrangements. - Four new Extended Fund Facility Arrangements. - Eight new arrangements under the Enhanced Structural Adjustment Facility. - Arrangements with Korea included disbursements via the newly created Supplemental Reserve Facility. - Four drawings under the policy on emergency postconflict assistance. ### Facility descriptions and key terms - Stand-By Arrangements: - Typical coverage: one to two years. - Focus: macroeconomic policies and structural policy measures. - Drawings: generally made in quarterly installments. - Repayments: each drawing repaid in eight quarterly installments beginning 3!/4 years after the drawing. - Extended Fund Facility Arrangements: - Support for medium-term programs generally running for three years (up to four years in exceptional circumstances). - Program format: general objectives for the three-year period; specific policies for the first year; subsequent years spelled out in program reviews. - Repayments: made over 4!/2 to 10 years. - Enhanced Structural Adjustment Facility Arrangements: - Provide highly concessional loans to low-income members facing protracted balance of payments problems. - Eligible members must develop a policy framework paper (PFP) for a three-year adjustment program, updated annually, developed with IMF and World Bank staff. - Disbursement: ESAF loans are disbursed semiannually. - Repayment: repaid in 10 equal semiannual installments, beginning 5!/2 years and ending 10 years after the date of each disbursement. - Interest rate: 0.5 percent a year. - Emergency assistance (natural disasters or postconflict situations): - Normally limited to 25 percent of a member’s quota. - Available only if the member intends to move within a relatively short period to a Stand-By, Extended, or ESAF arrangement. - Repayments: made in eight quarterly installments beginning 3!/4 years after the drawing. --- ### Chapter IX — Selected Country Program Summaries and Program Objectives ### Highlights of selected country programs and specific financial support - Albania: - IMF approved a credit of SDR 8.8 million under emergency postconflict assistance on November 7, 1997. - Objectives: limit decline of real GDP to 8 percent in 1997 and achieve real growth of about 12 percent in 1998; contain annual inflation to a range of 51–54 percent in 1997 and reduce to 15–20 percent in 1998; keep gross international reserves to the equivalent of some 3.5 months’ imports through 1998. - Fiscal: limit domestically financed budget deficit to about 13 percent of GDP in 1997 and to below 10 percent in 1998. - Argentina: - IMF approved a three-year EFF credit for SDR 2.1 billion on February 4, 1998. - Objectives: treat arrangement as precautionary; reduce overall federal government deficit from 1.4 percent of GDP in 1997 to 1 percent in 1998 and to 0.3 percent by 2000. - Armenia: - IMF approved a second annual ESAF loan for SDR 33.8 million on June 24, 1997. - Objectives: achieve real GDP growth of about 6 percent in 1997; bring down inflation to less than 10 percent; increase gross reserves to 2.8 months of imports. - Azerbaijan: - IMF approved a total credit of SDR 48.7 million on December 22, 1997 (SDR 29.2 million under second-year ESAF and SDR 17.5 million under second year of EFF). - Objectives include accelerating growth to 7 percent in 1998, maintain inflation below 5 percent, and limit external current account deficit to some 27 percent of GDP. - Bolivia: - IMF approved third annual ESAF loan for SDR 33.7 million on September 10, 1997. - Objectives: reduce inflation to 7 percent and achieve GDP growth of 5 percent. - Burkina Faso: - IMF approved second annual ESAF loan for SDR 13.3 million on September 8, 1997. - Cameroon: - IMF approved a three-year ESAF loan for SDR 162.1 million on August 20, 1997. - Objectives: achieve real GDP growth above 6 percent; contain inflation at 3 percent; reduce external current account deficit to 10.5 percent of GDP. - Cape Verde: - IMF approved a 14-month Stand-By Arrangement for SDR2.1 million on February 20, 1998 (treated as precautionary). - Objectives: real GDP growth of 4 percent in 1998; average inflation rate of 3.5 percent; external current account deficit (excluding transfers) target of 15.7 percent of GDP; reduce overall fiscal deficit to 8.7 percent of GDP in 1998 from an estimated 15 percent in 1997. - Chad: - IMF approved a third annual ESAF loan for SDR 16.5 million on April 29, 1998. - Objectives: real GDP growth of 6 percent; limit inflation to 3.5 percent; contain current account deficit at 17 percent of GDP in 1998. - Côte d’Ivoire: - IMF approved a three-year ESAF credit for SDR 285.8 million on March 17, 1998. - Objectives (1998–2000): real GDP growth of about 6 percent a year; maintain inflation of about 3 percent a year; reduce external current account deficit to 2 percent of GDP by 2000. - Djibouti: - Stand-By Arrangement extensions and augmentations in 1997–98 totaling SDR 6.6 million (including an initial SDR 4.6 million). - Estonia: - IMF approved a 15-month Stand-By Arrangement for SDR 16.1 million on December 17, 1997 (precautionary). - Objectives: annual real GDP growth over 5 percent; reduce inflation to about 8 percent in 1998; expand general government surplus to 1.8 percent of GDP. - Ghana: - IMF approved a second annual ESAF loan for SDR 82.2 million on March 23, 1998. - Objectives: annual real GDP growth of 5.6 percent; reduce inflation to 11 percent by end-1998 and to 5.5 percent by end-1999; maintain gross official reserves at 2.7 months of imports. - Guinea: - IMF approved a second annual ESAF loan for SDR 23.6 million on April 3, 1998. - Objectives: growth of 5 percent; reduce inflation to about 3.5 percent; contain current account deficit at 7.7 percent of GDP. - Guinea-Bissau: - IMF approved a third annual ESAF loan for SDR 4.7 million on July 25, 1997 (augmented by SDR 1.1 million). - Objectives include lowering inflation from 51 percent in 1996 to about 6 percent in 1999. - Indonesia: - IMF approved a Stand-By Arrangement for SDR 7.3 billion over three years on November 5, 1997; additional SDR 1 billion approved on July 15, 1998. - Korea: - IMF approved a three-year Stand-By Arrangement for SDR15.5 billion on December 4, 1997; SRF activated after first review on December 18. - Latvia: - IMF approved an 18-month Stand-By Arrangement for SDR33 million on October 10, 1997 (precautionary). - Objectives include real GDP growth of 4 percent for 1997 and 5 percent for 1998; reduce inflation to 9 percent in 1997 and 7 percent in 1998. - Mauritania: - IMF approved a third annual ESAF loan for SDR 14.3 million on July 14, 1997. - Objectives: real GDP growth of 4.9 percent in 1997; hold inflation at 5 percent; achieve overall government surplus of 4.1 percent of GDP in 1997. - Mongolia: - IMF approved a three-year ESAF loan for SDR 33.4 million on July 30, 1997. - Objectives: reduce inflation to single-digit rates; achieve annual real growth of 6 percent; increase reserves to over 15 weeks of import cover. - Mozambique: - IMF approved a second annual ESAF loan for SDR 25.2 million on June 23, 1997. - Objectives: increase nonenergy GDP by 5 percent in 1997 and total GDP by 6 percent; cut end-of-period inflation to 14 percent in 1997; increase reserves to about five months of imports. - Nicaragua: - IMF approved a three-year ESAF loan for SDR 100.9 million on March 18, 1998. - Program targets for 1998: increase gross reserves—net of central bank paper—to 1.8 months of imports; achieve real GDP growth of 4.8 percent; limit inflation to 8.0 percent. - Niger: - IMF approved a second annual ESAF loan for SDR 19.3 million on July 28, 1997. - Objectives: raise real GDP growth to 4–5 percent a year; reduce inflation to 3 percent by end-1997; contain current account deficit at 11.1 percent of GDP in 1997. - Pakistan: - IMF approved a three-year financing package for SDR 1.14 billion on October 20, 1997 (SDR 682.4 million under ESAF and SDR 454.9 million under EFF). - Objectives: raise average annual growth to 5–6 percent; reduce inflation to about 7 percent; cut overall budget deficit to 4 percent of GDP by third year. - Panama: - IMF approved a three-year EFF credit for SDR 120 million on December 10, 1997. - Objectives: raise GDP growth to 5 percent by 2000; hold annual inflation at about 1!/2percent. - Philippines: - IMF approved augmentation and extensions under EFF and a two-year Stand-By Arrangement for SDR 1.0 billion on March 27, 1998 (precautionary). - Program objectives include containing slowdown of real GNP growth to 3 percent in 1998 and 5 percent in 1999 and limiting inflation to 8 percent in 1998. - Rwanda: - IMF approved a credit for SDR 6.0 million on December 12, 1997 under emergency postconflict assistance (second drawing), bringing total 1997 disbursements to SDR 14.9 million. - Senegal: - IMF approved a three-year ESAF loan for SDR 107 million on April 20, 1998. - Objectives: real GDP growth of 5–6 percent; keep inflation below 3 percent; reduce external current account deficit to less than 7 percent of GDP by 2000. - Sierra Leone: - IMF approved a third annual ESAF loan for SDR 10.1 million on May 5, 1997. - Objectives: target real GDP growth at about 10 percent; target inflation at 8 percent; target gross international reserves at 1.8 months of imports. - Tajikistan: - IMF approved emergency postconflict credits of SDR 7.5 million on December 19, 1997 and a second SDR 7.5 million on April 1, 1998. - Objectives: achieve real GDP growth of 4–5 percent in 1998; reduce inflation to about 18 percent; raise reserves to about 1.5 months of imports by end-1998. - Tanzania: - IMF approved a second annual ESAF loan for SDR 71.4 million on December 3, 1997 (increase from initial SDR 51.4 million by SDR 20 million). - Objectives: achieve real GDP growth of 4.7percent; reduce inflation to not more than 13percent; limit current account deficit to 14.4 percent of GDP. - Thailand: - IMF approved a Stand-By Arrangement for SDR 2.9 billion on August 20, 1997 under Emergency Financing Mechanism. - Togo: - IMF approved a third annual ESAF loan for SDR 21.7 million on June 30, 1997. - Objectives: achieve average annual real GDP growth of more than 5.5 percent; reduce inflation to 3 percent; lower external current account deficit (excluding grants) to less than 5 percent of GDP. - Uganda: - IMF approved a three-year ESAF loan for SDR 100.4 million on November 10, 1997. - Ukraine: - IMF approved a one-year Stand-By Arrangement for SDR398.9 million on August 25, 1997. - Objectives: reduce inflation to 15 percent in 1997 and to 12 percent in 1998; increase reserves to 6.0 weeks of imports in 1997 and to 7.4 weeks in 1998; limit consolidated budget deficit to 4.6 percent in 1997 and 4.5 percent in 1998. - Uruguay: - IMF approved a 21-month Stand-By Arrangement for SDR125 million on June 20, 1997 (precautionary). - Objectives: reduce inflation to single-digit levels by end-1998; achieve real GDP growth of at least 3 percent in 1997 and 1998. - Yemen: - IMF approved a financial package for SDR 370.6 million on October 29, 1997 (SDR 264.8 million under ESAF and SDR105.9 million under EFF). - Objectives: achieve real non-oil GDP growth of 6 percent a year; achieve a core inflation rate of at most 5 percent a year; reduce external current account deficit to 2 percent of GDP by 2000; maintain reserves to cover 4.5 months of imports. ### Cross-cutting program objectives and policies - Program Objectives (general): - Sustain high and broad-based economic growth and ensure that the poor participate in and benefit from increased economic activity. - Maintain macroeconomic stability, liberalize further the economy to promote private sector and export-oriented growth, and undertake structural and institutional reforms to reduce impediments to growth and job creation. - Achieve real GDP growth of at least 7 percent a year on average; reduce annual inflation to about 5 percent; increase gross international reserves to the equivalent of 4.9 months of imports; increase the gross-investment-to-GDP ratio to about 23 percent in 1999/2000; reduce the overall fiscal deficit by about 1.7 percent of GDP over the program period. - Policies (general): - Improve customs and tax administration substantially, reduce smuggling, and prevent revenue leakages while exercising expenditure restraint. - Monetary policy to sustain gains in reducing inflation and accommodate private sector credit needs and increased government savings in the banking system. - Deepen structural reforms in financial sector, civil service, tax and customs administration, trade liberalization, privatization, and enterprise restructuring. - Improve environment for private sector activity through deregulation. - Social and poverty-focused measures: increase social expenditures and intensify measurement and monitoring of outcomes. *Source: _file04pdf.* ### Appendix VI). ### Appendix VI) ### Five aspects of a strengthened international monetary system - Reinforcing international and domestic financial systems. - Strengthening IMF surveillance. - Promoting more widely available and transparent data on member countries’ economic situation and policies. - Underscoring the central role of the IMF in crisis management. - Increasing the involvement of the private sector in forestalling or resolving financial crises. ### Strengthening Financial Systems - Vulnerable and unstable financial systems can severely disrupt macroeconomic performance and increase vulnerability to economic crises. - IMF should work actively with other organizations and members to help members design improved banking and financial systems. - Priority actions for members: - Strengthen financial sector supervisory and regulatory frameworks. - Establish the independence of central banks. - Strengthen governance, including in the corporate sector. - Improve accounting practices to conform with international standards. - International community responsibilities: - Continue developing standards for banking supervision, accounting and disclosure, auditing and valuation of bank assets, and guidelines for effective corporate governance. - Increase international cooperation in sharing information among regulators, especially those supervising institutions operating in major financial centers. - Regulators should seek and examine information on flows from offshore centers and off-balance-sheet items to avoid obscuring analysis of a country’s exposure and delay in identifying potential balance of payments problems. - IMF role: - Develop expertise and devote resources to offer detailed advice in these areas. - Play an important role via surveillance by disseminating internationally agreed standards and encouraging adoption of best practices. - Board to continue discussions on the scope of the IMF’s work in developing and disseminating international standards. Interim Committee endorsed this approach (April 1998). ### Strengthening IMF Surveillance - IMF surveillance is central to preventing crises; measures after the Mexican financial crisis in 1994–95 helped adapt IMF surveillance. - Areas for reinforcement: - Intensify surveillance of financial sector issues and collaborate with World Bank, Bank for International Settlements, and the private sector. - Pay more attention to capital account issues, including sequencing and pace of capital account liberalization. - Focus on risks of large reversals of capital flows, rapid accumulation of short-term debt, unhedged exposure to currency fluctuations, and impacts of selective capital account liberalization. - Pay greater attention to policy interdependence, risks of contagion, and policies of countries of particular importance to the international monetary system. - Increase frequency and systematization of exchanges with market participants to incorporate market perceptions while protecting confidentiality and ensuring even-handed dealings. - Effective surveillance depends on members’ willingness to take IMF advice; IMF must provide the best analysis possible and concentrate on issues of importance to individual members. - Communicate IMF views effectively through possible incremental steps: - A member could be asked to respond to IMF concerns within a specified time so the member’s reaction could be brought expeditiously to the Board’s attention. - In cases where a member’s policies appear to depart from IMF staff advice, concerns could be shared with the Board at an early stage while protecting confidentiality. - Interim Committee requested the Board “to develop a ‘tiered response,’ whereby countries believed to be seriously off course in their policies would be given increasingly strong warnings” by the IMF. ### Greater Availability and Transparency of Information - IMF encourages members to be transparent about economic developments and policymaking. - Need for further improvement in data provision, particularly on data timeliness. - Proposal to broaden the IMF’s Special Data Dissemination Standard to cover additional financial data. - Consider increasing the Special Standard’s usefulness, accessibility to the public and market participants, and publication of members’ record of compliance. - Promote greater transparency in economic policymaking, including encouraging members to release Letters of Intent and Policy Framework Papers. - IMF transparency actions: - Issuance of a Press (now “Public”) Information Notice (PIN) following the conclusion of a member’s Article IV consultation. - Emphasis on clear, concise, and analytically sound staff reports and frank, comprehensive Board assessments for the effectiveness of the PIN process. - Return to issues including ways to expedite PIN publication. - Interim Committee encouraged more members to release PINs and asked the IMF “to continue its efforts to increase dissemination of information on its policy recommendations and encouraged member countries to increase the transparency of their policies.” ### IMF’s Central Role in Crisis Management - Recognized that not every crisis can be anticipated or prevented. - International community must be prepared to respond quickly with policy advice, well-integrated technical assistance, and, if necessary, adequate financing. - World Bank and Asian Development Bank provided critical technical and financial support in the Asian crisis; bilateral support also important. - Need for IMF coordination of assistance to ensure complementarity with IMF conditionality. - Interim Committee (April 1998): - Endorsed the central role of the IMF, particularly in supporting necessary reforms through conditionality. - Welcomed the timely international response to the Asian crisis, including the IMF. - Stated the IMF could not be expected to finance every balance of payments deficit; its catalytic role is essential to attract other sources of financing and to coordinate support when needed. ### Involving the Private Sector in Preventing and Resolving Crises - Need to strengthen the capacity to respond to balance of payments crises with appropriate involvement of all creditor groups, including the private sector, to share burdens equitably and limit moral hazard. - Concerns: - Resolution methods should not encourage imprudent behavior by creditors or debtors. - Private creditors sustained large losses in recent crises; equities and long-term debt instruments lost value; investors in bankrupt enterprises received no special treatment. - Special challenge with creditors holding short-term claims, where liquidity can make it easier to “bolt for the exit.” - Efforts to avoid defaults on short-term claims have included rollovers, extensions, or restructurings to protect financial system stability and market access. - Preventive measures to discourage excessive reliance on short-term financing: - Appropriate macroeconomic and debt-management policies. - Nondistortionary tax systems. - Effective prudential supervision of financial systems. - Timely and comprehensive data to financial markets, including corporate sector debt. - Appropriate sequencing in capital account opening. - Strengthen countries’ capacity to withstand sudden shifts in market sentiment by strengthening financial systems, while recognizing prevention is not foolproof. - IMF approach in crises: ensure appropriate adjustment programs include continued involvement of private creditors (see Policy on Sovereign Arrears to Private Creditors in Chapter VIII). - Interim Committee (April 1998) asked the Board to consider ways to increase private sector involvement in crisis prevention and burden sharing and suggested mechanisms: - Closer contacts with private creditors to explain IMF-supported arrangements and develop modes of private sector financing that would help “bail in” private creditors in times of crisis. - Study the possibility of introducing provisions in bond contracts for bondholders to be represented, in case of nonpayment, in negotiations on bond contract restructuring. - Extend the IMF’s policy of providing financing to members in arrears to include sovereign bonds (“lending into arrears”) when appropriate. - Encourage adoption of strong bankruptcy laws to improve operation of domestic and international capital markets. - Advise members to exercise caution with respect to public guarantees to reduce the risk of private debt problems turning into sovereign debt problems. ### Supplemental Reserve Facility (SRF) - Established by the Executive Board in December 1997 as a new short-term lending facility. - Purpose: - Deal with members experiencing exceptional balance of payments problems owing to a large short-term financing need from a sudden and disruptive loss of market confidence reflected in capital account pressure and reserve losses. - SRF assistance available when strong adjustment policies and adequate financing are reasonably expected to result, in a short period, in early correction of the balance of payments difficulties. - Likely to be used where outflows may create contagion risk threatening the international monetary system. - Features: - In approving SRF use, IMF considers financing provided by other creditors. - To minimize moral hazard, SRF users are encouraged to maintain participation of official and private creditors until pressure on the balance of payments ceases. - Financing under SRF is available as additional resources under a Stand-By or Extended Arrangement, committed for up to one year and generally available in two or more tranches. - The first tranche is available at approval of financing, normally coinciding with approval of the corresponding arrangement. - IMF determines SRF financing amount by considering member needs; capacity to repay, including program strength; outstanding use of IMF credit; record in using IMF resources and cooperating with IMF in surveillance; and IMF’s liquidity position. - Repayment and charges: - Countries borrowing under the SRF are expected to repay within 1–1!/2years of the date of each disbursement; the Board may extend this repayment period by up to one year, at which point the borrower is obligated to repay. - During the first year from approval of financing to a country under the SRF, borrowers pay a surcharge of 300 basis points above the rate of charge on IMF drawings. - This rate increases by 50 basis points at the end of the first year and every six months thereafter until the surcharge reaches 500 basis points. - Note on IMF credit denomination: - IMF credit is denominated in SDRs, whose value is determined on the basis of a basket of the five leading currencies. The SDR interest rate is a weighted average of short-term interest rates in the domestic money markets of the five countries whose currencies are included in the valuation basket. ### Trade Liberalization in IMF-Supported Programs - Board considered a staff report (October 1997) on trade reform in medium-term IMF-supported adjustment programs. - Conclusions and guidance: - Trade liberalization, as a complement to appropriate macroeconomic and structural policies, should play an increasingly important role in IMF-supported programs to foster sustainable high-quality growth. - Closer cooperation with the World Bank and the World Trade Organization is important. - Promote trade liberalization in nonprogram countries via IMF surveillance. - Trade reform promotes transparency and good governance by reducing administrative discretion, lobbying incentives for protection, and opportunities for rent seeking. - Many reviewed countries started with restrictive trade regimes; broader and more rapid liberalization should have been targeted in a significant number of programs. - Staff urged to aim for further liberalization in future programs; many Directors supported front-loaded liberalization and use of prior actions, performance criteria, structural benchmarks, and reviews to monitor implementation. - Other Directors cautioned trade-related conditionality should be applied flexibly, accounting for initial conditions, political support, and authorities’ commitment. - Trade reform is a long-term process requiring a well-specified, comprehensive, and publicly announced program and avoidance of policy slippages. - Mutually reinforcing trade and fiscal reforms are important; trade liberalization need not adversely affect the fiscal position and may strengthen it by replacing nontariff barriers with tariffs and eliminating duty exemptions and trade-related subsidies. ### Policy on Sovereign Arrears to Private Creditors - Emphasis on involving private creditors early in a crisis to ensure adequate burden sharing and limit moral hazard. - Globalization and improved market access increased importance of private capital and vulnerability to shifts in market sentiment. - Need for early, forceful adjustment measures, restraint in foreign borrowing (especially short maturities), and caution regarding waivers of sovereign immunities by central banks. - In responding to a liquidity crisis risking default on international sovereign bonds: - Balance between promoting effective balance of payments adjustment and orderly debtor-creditor relations while limiting moral hazard. - Consider extension of “lending into arrears” (continuing to provide financing when a member is behind in payments to some private creditors), with conditions: - Lending should be limited and provided only where prompt IMF support is essential for successful implementation of the member’s adjustment program. - Negotiations between the member and private creditors on restructuring must have begun. - There must be firm indications that the sovereign borrower and private creditors will negotiate in good faith toward a debt-restructuring plan. - All drawings under an IMF-supported adjustment program with a member with sovereign arrears to private creditors must be subject to financing reviews so the Executive Board can monitor unexpected developments, including litigation. - Some Directors opposed lending into arrears without further protection, citing risks of aggressive litigation by individual creditors and adverse effects on safeguards of IMF resources. *Appendix VI).* ### Box 9 ### Box 9 — Group Travel by Executive Directors ### Group travel program and objectives - Purpose: broaden Directors’ understanding of economic problems and policies in individual member countries to enhance contributions to Board discussion of member country policies. - Trips cited: - February 1998: Cameroon, Côte d’Ivoire, and Mali. - June 1996: Egypt, Jordan, and the Republic of Yemen. - October 1996: Georgia, Hungary, and Ukraine. - Board review (June 1997): - Aim: normally two trips a year, each to two or three countries, with flexibility in the number of annual trips. - Focus: many favored concentration on program and intensive-surveillance countries. - Participation: participation by a Director (or Directors) from a program country in a group visit would be useful. - Selection: maintain flexibility in the selection process. ### Sovereign arrears, moral hazard, and crisis-resolution proposals - Directors’ view on arrears and moral hazard: - Toleration of arrears to bondholders and other private creditors under IMF-supported adjustment programs may be seen by market participants as lowering the cost of a default to debtors, creating debtor moral hazard. - However, Directors felt that even under a policy of lending into arrears, the cost to debtors of default would remain substantial. - IMF conditionality was seen as providing an effective limitation on debtor moral hazard. - Three preliminary suggestions for improvements in mechanisms to resolve sovereign liquidity crises: 1. Modification of legal provisions of bond contracts: - Measures considered: introduction of sharing provisions, collective representation of bondholders, and qualified majorities to alter bond contract terms. - Observation: no market response to the Group of Ten Deputies’ proposals in this area. - Some Directors felt progress might require official action, possibly leadership by major industrial country borrowers introducing such provisions into their own bond offerings. 2. Sovereign bankruptcy mechanism: - Most Directors continued to believe that proposals for establishing a formal international debt-adjustment mechanism were cumbersome and impractical and should not be pursued. 3. Modification of Article VIII, Section 2(b), of the IMF’s Articles of Agreement: - Consideration: permit the IMF to sanction a temporary stay on creditor litigation, providing members protection from litigation in the context of IMF lending into arrears. - Directors believed this raised complex issues of legal procedures and interpretation that would need further consideration. ### Postprogram monitoring - October 1997 Board consideration: - Broad support for post-program monitoring where IMF credit outstanding remained in excess of 300 percent of a member’s quota. - For cases with access below the 300 percent threshold, the Board asked staff to study further possible modalities and to suggest draft guidelines for further consideration. ### Member Countries’ Use of IMF Facilities (1997/98 activity) - Approved in 1997/98: - Nine new Stand-By Arrangements. - Four new Extended Fund Facility Arrangements. - Eight new arrangements under the Enhanced Structural Adjustment Facility. - Arrangements with Korea included disbursements via the newly created Supplemental Reserve Facility. - Four drawings under the policy on emergency postconflict assistance. - Facility descriptions and key terms: - Stand-By Arrangements: - Typical coverage: one to two years. - Focus: macroeconomic policies and structural policy measures. - Drawings: generally made in quarterly installments. - Repayments: each drawing repaid in eight quarterly installments beginning 3!/4 years after the drawing. - Extended Fund Facility Arrangements: - Support for medium-term programs generally running for three years (up to four years in exceptional circumstances). - Program format: general objectives for the three-year period; specific policies for the first year; subsequent years spelled out in program reviews. - Repayments: made over 4!/2 to 10 years. - Enhanced Structural Adjustment Facility Arrangements: - Provide highly concessional loans to low-income members facing protracted balance of payments problems. - Eligible members must develop a policy framework paper (PFP) for a three-year adjustment program, updated annually, developed with IMF and World Bank staff. - Disbursement: ESAF loans are disbursed semiannually. - Repayment: repaid in 10 equal semiannual installments, beginning 5!/2 years and ending 10 years after the date of each disbursement. - Interest rate: 0.5 percent a year. - Emergency assistance (natural disasters or postconflict situations): - Normally limited to 25 percent of a member’s quota. - Available only if the member intends to move within a relatively short period to a Stand-By, Extended, or ESAF arrangement. - Repayments: made in eight quarterly installments beginning 3!/4 years after the drawing. ### Country program summaries (selected) - Albania - Financial support: On November 7, 1997, the IMF approved a credit of SDR 8.8 million under its emergency postconflict assistance. - Program objectives: - Limit the decline of real GDP to 8 percent in 1997 and achieve real growth of about 12 percent in 1998. - Contain the annual inflation rate to a range of 51–54 percent in 1997, and reduce it to 15–20 percent in 1998. - Keep gross international reserves to the equivalent of some 3.5 months’ imports through 1998. - Policies: - Fiscal: limit domestically financed budget deficit to about 13 percent of GDP in 1997 and to below 10 percent in 1998 via restoring/improving tax collection, raising tax rates (including a significant increase in the value-added tax rate), and expenditure restraint including reductions in the public sector workforce. - Monetary: Bank of Albania to maintain an appropriately tight monetary stance. - Structural: privatization or liquidation of two of three state-owned commercial banks; winding up pyramid scheme companies; civil service reform; resumption of enterprise privatization; creation of a functioning agricultural land market. - Social: temporary expansion of the social safety net, accelerate disbursements of social assistance, introduce public works and community service schemes for beneficiaries who could work. - Argentina - Financial support: On February 4, 1998, the IMF approved a three-year EFF credit for SDR 2.1 billion. - Program objectives: - Treat arrangement as precautionary; draw only if adverse external circumstances made it necessary. - Consolidate macroeconomic gains and structural improvements; strengthen fiscal position and complete structural reform agenda. - Reduce overall federal government deficit from the equivalent of 1.4 percent of GDP in 1997 to 1 percent in 1998, and to 0.3 percent by 2000. - Strengthen confidence by maintaining a sound financial system under the currency board arrangement and provide an adequate cushion of liquidity given the limited role of the central bank as lender of last resort. - Policies: - Labor market reform by mid-1998. - Comprehensive tax reform to improve efficiency and equity and promote competitiveness. - Budgetary procedure reforms to promote transparency and efficiency: widen budget coverage, move to a pluriannual process, prepare annual assessments of the cost of fiscal benefits and incentives, introduce expenditure efficiency indicators. - Health initiatives: revise regulatory framework for private health care providers; finalize restructuring of health insurance for retirees and health organizations run by unions. - Social programs: better target budgetary resources toward vulnerable groups. - Judicial reform initiatives: modify judicial procedures to speed resolution of tax cases and increase legal security in credit markets. - Armenia - Financial support: On June 24, 1997, the IMF approved a second annual ESAF loan for SDR 33.8 million. - Program objectives: - Achieve a real GDP growth rate of about 6 percent in 1997. - Bring down inflation to less than 10 percent. - Increase gross reserves to the equivalent of 2.8 months of imports. - Policies: - Fiscal: reduce overall deficit to below 7 percent of GDP in 1997 via increased revenue through tax administration improvements, full implementation of the tax arrears payment scheme, legal framework to enforce revenue collections, and revenue measures to rationalize and simplify important taxes. - Expenditure: reduce current expenditure to about 18.5 percent of GDP through elimination of open-ended price subsidies to privileged groups, cuts in defense expenditures, and lower interest payments. - Monetary: consistent with inflation targets. - Structural: accelerate privatization, enterprise restructuring to improve financial discipline, and reforms in energy, health, and education sectors. - Social: measures to improve targeting of social safety net benefits to alleviate poverty and improve income distribution. - Azerbaijan - Financial support: On December 22, 1997, the IMF approved a total credit of SDR 48.7 million—SDR 29.2 million available in two equal semiannual installments under the second-year ESAF, and SDR 17.5 million under the second year of the EFF. - Program objectives: - Speed up transition to a market economy and develop oil resources without adverse impact on the rest of the economy. - Use macroeconomic and structural policies to dampen pressures of domestic demand and encourage domestic savings. - Use supply-side policies to remove obstacles to growth in the non-oil sector. - Fiscal: reduce general government deficit to less than 1 percent of GDP during the next three years. - Monetary: maintain low levels of inflation. - Targets for 1998: accelerate growth to 7 percent, maintain inflation below 5 percent, and limit the external current account deficit to some 27 percent of GDP, including imports related to oil sector development. - Policies: - Public sector management reform, bank restructuring and privatization, and equitable enterprise and land privatization. - Over 70 percent of state enterprises—by asset value and employment rate—would be transferred to private hands through 2000. - Commitment to substantial health sector reforms. - Bolivia - Financial support: On September 10, 1997, the IMF approved a third annual ESAF loan for SDR 33.7 million and an extension of the loan’s period through September 1998. - Program objectives: - Raise sustainable economic growth and alleviate poverty, while ensuring progress toward lower inflation and a viable balance of payments. - Reduce inflation to 7 percent and achieve GDP growth of 5 percent. - Note: For support under the HIPC Initiative, see Chapter IX (not reproduced here). - Policies: - Fiscal: combined public sector deficit expected to widen between 1996 and 1997–98 and then return to its 1996 level by early in the next decade. - Structural: continue privatization; adopt Basle norms for risk weighting of bank assets from mid-1998; raise minimum capital-to-risk-weighted assets ratio to 10 percent from 8 percent starting in 1999. - Institutional: establish a superintendency of pensions; intensify judicial reform and public service and customs reform; strengthen sectoral superintendencies regulating public utility sectors; improve commercial and property registers. - Social and sectoral: continue education reform; implement an integrated national health plan covering mothers, infants, and elderly citizens in needy areas; accelerate land titling to strengthen property rights of small farmers; increase investment in rural infrastructure. - Burkina Faso - Financial support: On September 8, 1997, the IMF approved a second annual ESAF loan for SDR 13.3 million. - Note: For support under the HIPC Initiative, see Chapter IX (not reproduced here). *Source: _file04pdf - Box 9* ### Chapter IX. ### Chapter IX. ### Cameroon - Financial Support - On August 20, 1997, the IMF approved a three-year ESAF loan for SDR 162.1 million. - Program Objectives - Further increase the ratio of budgetary revenue to GDP and accelerate structural reforms. - Achieve a real GDP growth rate above 6 percent. - Contain inflation at 3 percent. - Reduce the external current account deficit to 10.5 percent of GDP. - Improve the quality of economic statistics. - Policies - Fiscal: increase the primary budgetary surplus to 1.9 percent of GDP in 1997 through a rise in the revenue-to-GDP ratio to 12.9 percent of GDP; revenue increases to reflect the full-year impact of a September 1996 rise in the value-added tax rate to 18 percent from 15 percent and further efforts to strengthen customs revenues. - Expenditure management: better monitoring through computerization of the budgetary cycle. - Monetary: contain bank credit expansion, in line with the program’s inflation objectives. - Structural reforms: expedite privatization; open public utilities; judicial system reform; deregulation of rice and sugar sectors; elimination of nontariff barriers to agricultural trade; restructure the cotton sector by reinforcing farmers’ cooperatives. - Social: set quantitative objectives in education and health to raise primary school enrollment rates (including for girls) and increase numbers of health centers. ### Cape Verde - Financial Support - On February 20, 1998, the IMF approved a 14-month Stand-By Arrangement for SDR2.1 million. The authorities indicated they would treat the arrangement as precautionary and would draw on it only if adverse circumstances made it necessary. - Program Objectives - Achieve real GDP growth of 4 percent in 1998. - Achieve an average inflation rate of 3.5 percent. - Target an external current account deficit (excluding transfers) of 15.7 percent of GDP in 1998. - Reduce the overall fiscal deficit to 8.7 percent of GDP in 1998 from an estimated 15 percent in 1997. - Policies - Administrative measures to strengthen budgetary execution. - Maintain a pegged exchange rate; gear monetary policy to balance private sector credit needs against reserve accumulation targets. - Further liberalize trade by replacing remaining import quotas with tariffs, then rationalize and reduce overall tariffs. - Social/poverty objectives to be achieved through higher growth, lower inflation, and continued budgetary support for primary health and education. ### Chad - Financial Support - On April 29, 1998, the IMF approved a third annual ESAF loan for SDR 16.5 million. - Program Objectives - Achieve real GDP growth of 6 percent. - Limit inflation to 3.5 percent. - Contain the current account deficit at 17 percent of GDP in 1998. - Policies - Strengthen fiscal adjustment: overall budget deficit on a commitment basis limited to 8.6 percent of GDP; current budget for 1998 projects a surplus of 0.7 percent reflecting a revenue increase of 36 percent to 9 percent of GDP. - Revenue measures: more efficient revenue collection, tightened controls on exemptions, strengthened and computerized customs operations. - Expenditure restructuring in favor of health and education; initiate comprehensive civil service reform. - Monetary: regional monetary authorities to maintain a prudent stance to support low inflation and consolidate foreign exchange reserves. - Structural: enhance efficiency of productive sectors and improve government revenues. - Social: continue social policies designed to reduce poverty substantially. ### Côte d’Ivoire - Financial Support - On March 17, 1998, the IMF approved a three-year ESAF credit for SDR 285.8 million. - Program Objectives - Under the medium-term adjustment strategy for 1998–2000: achieve real GDP growth of about 6 percent a year, allowing per capita income to rise by more than 2 percent annually. - Maintain inflation of about 3 percent a year. - Reduce the external current account deficit to 2 percent of GDP by 2000. - Bring the fiscal position close to balance by 2000 and achieve a surplus thereafter. - Adopt structural reforms to promote private sector development and investment; reduce poverty through targeted education and health measures. - Policies - Fiscal: strengthen revenue performance via improved tax and customs administration, reduce exemptions, fight fraud and evasion; prudent expenditure policy while providing for basic health and education and infrastructure maintenance. - Monetary: regional-level policy consistent with fixed exchange rate and improving CFA franc zone net foreign asset position. - Structural: pursue trade liberalization in regional context; accelerate privatization (sale of 15 enterprises in 1998); liberalize coffee and cocoa marketing (liberalization of coffee beginning October 1998). - Social: redirect public spending toward education and health; establish system to monitor poverty indicators. ### Djibouti - Financial Support - On May 21, 1997, the IMF approved extension of a Stand-By Arrangement for SDR 4.6 million through end-March 1998 and augmentation by SDR 2 million; further extension through end-June 1998 approved in March 1998. - Program Objectives - Regain control of the fiscal situation. - Implement structural measures to improve supply responsiveness and competitiveness. - Policies - Reduce current expenditures and improve tax system quality and overall regulatory framework. - Enhance flexibility in factor inputs and create conditions conducive to investment resumption. - Create new job opportunities. ### Estonia - Financial Support - On December 17, 1997, the IMF approved a 15-month Stand-By Arrangement for SDR 16.1 million. Authorities indicated they would treat the arrangement as precautionary and draw on it only if adverse external circumstances made it necessary. - Program Objectives - Achieve an annual real GDP growth rate of over 5 percent. - Reduce inflation to about 8 percent in 1998. - Expand the general government surplus to 1.8 percent of GDP to reduce demand pressures. - Reduce the current account deficit. - Policies - Three-pronged approach: tighter fiscal policies to restrain domestic demand; monetary measures within currency board constraints to reduce credit expansion and raise prudential banking standards; accelerate structural reforms to improve productivity and raise private savings. - Fiscal: tax revenues to improve via expansion, new tax measures, and stronger administration; ratio of general government expenditures to GDP to decline. - Financial sector: raise capital adequacy ratios and required bank reserves; raise banks’ minimum capital requirements; impose consolidated prudential regulations on banks and nonbank financial subsidiaries; strengthen securities and capital markets; intensify financial sector surveillance. - Structural: faster enterprise privatization and land reform to improve scope for noninflationary growth. ### Ghana - Financial Support - On March 23, 1998, the IMF approved a second annual ESAF loan for SDR 82.2 million. - Program Objectives - Secure a stable macroeconomic environment to support private-sector-led growth. - Achieve annual real GDP growth of 5.6 percent (2.5 percent on a per capita basis). - Reduce annual inflation to 11 percent by end-1998 and to 5.5 percent by end-1999. - Contain the current account deficit at 7.3 percent of GDP in 1998. - Maintain gross official reserves at 2.7 months of imports. - Policies - Strengthen fiscal adjustment and increase 1998 tax revenue by about 1 percent of GDP through improved sales tax collection and introduce the value-added tax effective December 1, 1998; intensify tax system reforms. - Monetary: bring down inflation through control of the money supply; condition any interest rate reductions on abatement of inflation expectations. - Structural reforms: enhance private investment and resource allocation; further deregulate petroleum and cocoa sectors; pursue divestiture program aggressively; liberalize financial sector; reform civil service and autonomous government agencies. ### Guinea - Financial Support - On April 3, 1998, the IMF approved a second annual ESAF loan for SDR 23.6 million. - Program Objectives - Implement tight financial policies and further structural reforms to consolidate stabilization and create conditions for sustainable diversified growth. - Achieve growth of 5 percent in real terms. - Reduce inflation to about 3.5 percent. - Contain the current account deficit at 7.7 percent of GDP (excluding official transfers). - Increase gross official reserves to 3.4 months of imports. - Policies - Fiscal: further improvements in tax and customs administration; ensure compliance with the VAT; introduce a new unified real estate tax and a lower VAT threshold for service-sector enterprises to raise total revenues to 11.6 percent of GDP. - Increase allocations to health, primary education, rural development, and roads; provide sufficient local counterpart funds for foreign-financed investment projects. - Budget management reform: improve efficiency and transparency; implement new computerized expenditure monitoring system. - Monetary: support external sector and achieve inflation objectives. - Banking: tighten supervision and enforce prudential regulations. - Structural: accelerate privatization, public sector restructuring, judicial reform; reinforce civil service efficiency; extend cost-reduction in public enterprises to mining and energy; prepare divestiture timetable by end-June 1998; improve legal environment for business by creating an arbitration court and prepare judicial transparency and efficiency reforms. - Social: reorient resources toward primary education and increase nonwage health expenditure. ### Guinea-Bissau - Financial Support - On July 25, 1997, the IMF approved a third annual ESAF loan for SDR 4.7 million and an extension through end-March 1998; the ESAF Arrangement was augmented by SDR 1.1 million. - Program Objectives - Maintain annual economic growth of about 5 percent. - Lower average annual inflation to about 6 percent in 1999 from 51 percent in 1996. - Reduce the external current account deficit (excluding grants) by about 5 percentage points to 16 percent of GDP by 1999. - Maintain investment at 22 percent of GDP while raising gross domestic saving to 4 percent of GDP in 1999. - Policies - Fiscal: raise the current primary surplus through an increase in the revenue-GDP ratio and overhaul the tax system; introduce a general sales tax and major reform of external tariffs; reduce export taxes; revise excise taxes, particularly on petroleum. - Expenditure: contain nonessential outlays and further streamline the civil service. - Budget procedures: require prior authorization from the Ministry of Finance Budget Directorate for all expenditure commitments. - Monetary: keep domestic credit policy tight to quell inflation. - Structural: accelerate public enterprise privatization; increase efficiency in the energy sector; enhance private sector role in agriculture, fisheries, and forestry; improve social services; reform the civil service. ### Guyana - For support under the HIPC Initiative, see Chapter IX. ### Indonesia - Financial Support - On November 5, 1997, the IMF approved a Stand-By Arrangement for SDR 7.3 billion over three years using the Emergency Financing Mechanism; on July 15, 1998, the IMF approved an additional SDR 1 billion. - Program Objectives and Policies - For details, see Chapter V. ### Korea - Financial Support - On December 4, 1997, the IMF approved a three-year Stand-By Arrangement for SDR15.5 billion using the Emergency Financing Mechanism. On December 18, the Board concluded its first review of the arrangement and activated the new Supplemental Reserve Facility. - Program Objectives and Policies - For details, see Chapter V. ### Latvia - Financial Support - On October 10, 1997, the IMF approved an 18-month Stand-By Arrangement for SDR33 million. The authorities indicated they would treat the arrangement as precautionary and would draw on it only if adverse external circumstances made it necessary. - Program Objectives - Attain real GDP growth of 4 percent for 1997 and 5 percent for 1998. - Reduce annual inflation to 9 percent in 1997 and 7 percent in 1998. - Narrow the external current account deficit to 6.1 percent of GDP in 1997 and to 4.9 percent in 1998. - Target gross international reserves at the equivalent of about three months of imports for 1997 and 1998. - Reduce the general government fiscal deficit to 0.9 percent of GDP in 1997 and 0.5 percent in 1998. - Policies - Accelerate structural reforms: complete enterprise privatization and strengthen and extend private property rights to establish a market economy, encourage restructuring, and stimulate saving and investment. - Privatize virtually all remaining state-owned enterprises, including large companies, by mid-1998. - Resolve consumer arrears and set energy tariffs on a cost-recovery basis. - Continue trade liberalization and submit legislation by mid-1998 for a substantial reduction in agricultural tariffs. - Improve tax administration and expenditure productivity, including civil service reform, enabling increased spending on social services and infrastructure. - Improve efficiency of social spending, including reform of the national health insurance system. ### Mauritania - Financial Support - On July 14, 1997, the IMF approved a third annual ESAF loan for SDR 14.3 million. - Program Objectives - Achieve real GDP growth of 4.9 percent in 1997. - Hold inflation at 5 percent. - Limit the external current account deficit (excluding official transfers) to 5.5 percent of GDP. - Achieve an overall government surplus of 4.1 percent of GDP in 1997. - Policies - Monetary policy consistent with inflation and balance of payments objectives. - Legal, judicial, and regulatory reforms: accelerate procedures for establishing new enterprises and adopt measures to encourage private sector investment in mining. - Prepare legislation to encourage private participation, particularly in transport and utilities. - Commit to minimum expenditure levels on health and education and adopt measures to improve quality and coverage of services. ### Mongolia - Financial Support - On July 30, 1997, the IMF approved a three-year ESAF loan for SDR 33.4 million. - Program Objectives - Reduce inflation to single-digit rates. - Achieve annual real growth of 6 percent. - Increase official gross international reserves to the equivalent of over 15 weeks of import cover. - Reduce the budget deficit to 6 percent of GDP by 2000. - Raise national savings over the medium term. - Achieve fiscal adjustment by reducing public sector size and adopting public administration and taxation reforms. - Policies - Monetary: maintain positive real interest rates on central bank bills and limit commercial bank access to central bank credit to refinancing and rediscount facilities. - Fiscal: elimination of import duties and large up-front bank restructuring costs projected to cause the budget deficit to rise to 10.5 percent in 1997; deficit to fall significantly in 1998 as bank restructuring costs decline and tax reforms are phased in. - Public administration reforms to improve expenditure control and accountability and enable decentralized decision making. - Social sector: reform education and health to improve service delivery and restructure social welfare to reduce budgetary costs and improve targeting. ### Mozambique - Financial Support - On June 23, 1997, the IMF approved a second annual ESAF loan for SDR 25.2 million. - Program Objectives and Policies - For support under the HIPC Initiative, see Chapter IX. *Source: _file04pdf - Chapter IX.* ### Chapter IX. ### Chapter IX. ### Mozambique - Program Objectives: - Increase nonenergy GDP by 5 percent in 1997 and total GDP by 6 percent. - Cut end-of-period inflation to 14 percent in 1997. - Increase gross international reserves to the equivalent of about five months of imports of goods and nonfactor services. - Policies: - Tight monetary policy and maintenance of a floating exchange rate system. - Fiscal focus on strengthening tax administration, reducing exemptions, and modernizing the direct and indirect tax systems to encourage compliance and remove distortions. - Continue privatization program, with a view to completing it by mid-1999. - Reform and strengthen public administration, including greater decentralization, increased transparency and accountability in government, and civil service reforms. - Commit to expanding the share of social sectors in total spending and improving the effectiveness of social expenditure. - 1997/98 program targeted an increase in social spending to reduce poverty and improve the human capital base. ### Nicaragua - Financial Support: - On March 18, 1998, the IMF approved a three-year ESAF loan for SDR 100.9 million. - Program Objectives: - Move toward sustainable public finance and external sector positions, carry out structural reform, and promote growth to alleviate poverty and reduce unemployment. - Increase public saving by 6 percentage points of GDP and achieve a small surplus in the combined public sector balance (after grants) by 2000. - Increase gross reserves—net of central bank paper—to three months of imports. - Achieve real GDP growth of about 6 percent and reduce inflation to about 5 percent. - 1998 program targets: increase gross reserves—net of central bank paper—to the equivalent of 1.8 months of imports, achieve real GDP growth of 4.8 percent, and limit inflation to 8.0 percent. - Policies: - Reduce the size of the public sector and increase central government revenues by broadening the tax base, increasing tax system transparency, and eliminating many discretionary VAT and customs exemptions. - Freeze central government current expenditures and eliminate export subsidies. - Monetary policy geared to supporting external sector and inflation objectives. - Continue public sector reforms to improve services and efficiency; restructure the executive branch to reduce ministries and agencies reporting directly to the president. - Prepare comprehensive judicial reform to improve legal procedures and enforcement of contracts and property rights. - Eliminate discriminatory treatment against foreign investors, complete state banking sector reform, and privatize public utilities, state oil distribution, and services of the major ports. ### Niger - Financial Support: - On July 28, 1997, the IMF approved a second annual ESAF loan for SDR 19.3 million. - Program Objectives: - Raise real GDP growth to 4–5 percent a year. - Allow real per capita income to increase by at least 1 percent a year. - Reduce inflation to 3 percent by the end of 1997. - Contain the external current account deficit (excluding official transfers) at 11.1 percent of GDP in 1997, lowering it to 10.5 percent of GDP in 1998. - Raise budgetary revenue to the equivalent of 9.3 percent of GDP in 1997 and to 10.7 percent in 1998. - Policies: - Reduce overall budget deficit to 7.3 percent of GDP by 1998 through enhanced revenue mobilization and cautious expenditure policy. - Ensure wages and salaries do not crowd out maintenance and key social services. - Streamline regulatory framework and reduce government involvement in areas of private sector interest. - Strengthen legal provisions for commercial transactions and recovery of commercial bank loans. - Increase current budgetary expenditures allocated to health and education by 10 percent a year in real terms during 1997–2000. ### Pakistan - Financial Support: - On October 20, 1997, the IMF approved a three-year financing package for SDR 1.14 billion, with SDR 682.4 million available under the ESAF and SDR 454.9 million under the EFF. - Program Objectives: - Raise the average annual growth rate of real GDP to the 5–6 percent range. - Progressively reduce annual inflation to about 7 percent. - Reduce the external current account deficit (excluding official transfers) to the range of 4–4.5 percent of GDP, strengthening external reserves substantially. - Design fiscal policy to cut the overall budget deficit to 4 percent of GDP by the third year, boosting national savings to about 15 percent of GDP in 1999/2000. - Policies: - Further rationalize the public sector, shifting primary productive roles to the private sector and strengthen local institutional capacity. - Broaden the domestic tax base, strengthen tax administration, shift government expenditure toward social services and human capital formation, and restructure key public enterprises. - Enhance authority and ability of the State Bank of Pakistan to regulate and supervise banks, improve legal and judiciary processes for enforcing financial contracts, privatize state-owned banks and financial institutions, and develop the capital market. - Deepen the interbank foreign exchange market and guide exchange rate policy increasingly by market developments. ### Panama - Financial Support: - On December 10, 1997, the IMF approved a three-year EFF credit for SDR 120 million. - Program Objectives: - Deepen and broaden structural reforms with continued prudent fiscal policy and low inflation to promote sustainable output and employment growth and reduce poverty. - Raise GDP growth to 5 percent by 2000, while holding annual inflation at about 1!/2percent. - Policies: - Structural measures: further privatization, import tariff reduction, and financial sector reform during the first half of the program. - Reforms relating to taxation, civil service, and social security to be implemented during the second half of the program. - Implement ambitious privatization program and substantial tariff reform to increase transparency and efficiency and attract foreign investment. - Complete a comprehensive tax study in 1998 and implement its recommendations in the second half of 1999 to improve tax collection by 2000. - Strengthen the social safety net for the most vulnerable groups; improve efficiency in basic health and education services through investment income from privatization proceeds. ### Philippines - Financial Support (I): - On July 18, 1997, the IMF approved the extension of an arrangement under the EFF for SDR 474.5 million through December 31, 1997, and its augmentation by SDR 316.7 million. The IMF used, for the first time, the accelerated procedures under the Emergency Financing Mechanism. - Program Objectives (I): - Achieve economic growth of 6.3 percent in 1997. - Reduce average inflation to 6.5 percent. - Contain the external current account deficit to about 4!/2percent of GNP. - Hold adjusted reserve cover equivalent to 2.1 months of imports of goods and services by year-end. - Policies (I): - New floating exchange rate policy supported by strong monetary and fiscal policies. - Keep interest rates high until foreign exchange market stabilizes; reduce base money growth to keep annual growth in broad money (including foreign currency deposits) at 23 percent. - Tighten fiscal policy in the second half of 1997 to offset first-half slippages and achieve a public sector surplus of 0.3 percent of GNP for the year. - Fiscal tightening to include revenue-enhancing measures and expenditure cuts; seek passage of remaining elements of the Comprehensive Tax Reform Package. - Strengthen the financial system: tighten limits on banks’ exposure to real estate, discourage growth of foreign currency liabilities through new liquidity requirements, and remove tax disincentives on peso deposits. - Financial Support (II): - On March 27, 1998, the IMF approved a two-year Stand-By Arrangement for SDR 1.0 billion; authorities intended to treat it as precautionary and would draw on it only if necessary. - Program Objectives (II): - Contain slowdown of real GNP growth to 3 percent in 1998 and to 5 percent in 1999. - Limit inflation to 8 percent in 1998 and to 6.5 percent in 1999. - Reduce the current account deficit to 3.1 percent of GNP in 1998 and 2.7 percent in 1999. - Raise adjusted reserve cover to 1.9 months of imports in 1998 and to 2.3 months of imports in 1999. - Policies (II): - Limit consolidated public sector deficit to 0.9 percent of GNP in 1998, followed by balance in 1999. - Compensate higher interest payments with cuts in other current and capital expenditures; protect programs directed at poverty reduction. - Monetary policy consistent with inflation objective and restoring confidence in the peso, within base money targets and a floating exchange rate regime. - Implement comprehensive and proactive banking sector reforms: increase capital requirements, tighten provisioning requirements, strengthen regulatory oversight, reduce disincentives to peso intermediation, and adopt a resolution strategy for problem banks. - Strengthen the corporate sector: continue trade and investment liberalization, comprehensive power sector reform, and further privatization. - Strengthen agriculture and improve education and health services with focus on primary education and rural areas to reduce poverty. - Ensure availability of rice stocks and other basic commodities, contain inflationary impact of peso depreciation on socially sensitive petroleum products, and use best efforts to protect social programs in the budget, especially those directed at poverty reduction and the poorest regions. ### Rwanda - Financial Support: - On December 12, 1997, the IMF approved a credit for SDR 6.0 million, the second of two drawings under the IMF’s policy of emergency postconflict assistance, bringing total disbursements for calendar year 1997 to SDR 14.9 million. - Program Objectives: - Fiscal consolidation, including reduction in the primary budget deficit through tax reform and improvements in budget and treasury management. - Initiate reforms of the civil service and public enterprise sector, and consolidate financial sector restructuring. - Policies: - Ministry of Finance, Economy, and Planning established an administrative unit to spearhead public enterprise reform; three enterprises privatized and eight offered for sale. - Demobilization program initiated with departure of 5,000 soldiers. - National Assembly approved support for genocide survivors; government, assisted by NGOs and international community, implementing programs for other vulnerable groups. ### Senegal - Financial Support: - On April 20, 1998, the IMF approved a three-year ESAF loan for SDR 107 million. - Program Objectives: - Achieve real GDP growth of 5–6 percent a year, allowing per capita income to rise by 2–3 percent a year. - Keep inflation below 3 percent. - Reduce the external current account deficit (excluding official transfers) to less than 7 percent of GDP by 2000. - Policies: - Fiscal policy geared toward limiting the overall fiscal deficit, on a commitment basis and excluding grants, to 2 percent of GDP in 1998. - Implement WAEMU’s Common External Tariff, substantially reducing average import duties. - Offset short-term revenue losses from tariff reform by measures to broaden the tax base, drastically reduce exemptions, and improve tax system efficiency. - Maintain strong financial discipline while reordering priorities in favor of social services and investment program. - Monetary policy to support WAEMU’s growth, inflation, and external sector objectives. - Speed up implementation of unfinished reform agenda, particularly public enterprise and energy sector reforms, and undertake new reforms to modernize public administration. - Design an action plan for public sector reform to promote good governance, strengthen the judicial system, and build more constructive relations with the private sector. ### Sierra Leone - Financial Support: - On May 5, 1997, the IMF approved a third annual ESAF loan for SDR 10.1 million. - Program Objectives: - Intensify postconflict recovery by strengthening macroeconomic and structural reforms. - Target real GDP growth at about 10 percent. - Target inflation at 8 percent. - Target gross international reserves at 1.8 months of imports. - Reduce the overall budget deficit and improve quality of expenditure. - Policies: - Significantly increase revenue and substantially cut military expenditure in line with improved security. - Achieve ambitious 1997 revenue target through discretionary measures and strengthen income tax and customs administration. - Shift budgetary resources from military outlays to education, health, economic services, and capital expenditure. - Keep inflation under control, strengthen reserve position, support economic recovery and reintroduction of money in rural areas. - Rationalize government workforce to improve public services; streamline public enterprise reform to reduce government involvement; simplify legal requirements for investment. - Judicial reforms to make legal procedures more transparent and simplify adjudication of civil and commercial cases. - Improve fisheries surveillance and deregulate petroleum product prices. - Target increases in budgetary spending on social and economic services primarily toward human capital development. ### Tajikistan - Financial Support: - On December 19, 1997, the IMF approved a credit for SDR 7.5 million under emergency postconflict assistance. On April 1, 1998, the IMF approved a second emergency postconflict credit of SDR 7.5 million. - Program Objectives: - Establish financial stability through fiscal adjustment, tight monetary policy, and enhanced financial discipline in the enterprise sector. - Achieve real GDP growth of 4–5 percent in 1998. - Reduce inflation to about 18 percent. - Raise gross international reserves to about 1.5 months of imports by end-1998. - Reduce government deficit to less than 3 percent of GDP in 1998 and eliminate budgetary wage and cash compensation arrears while reducing central bank credit to the government. - Policies: - Emphasis on structural measures and institution building: privatization, land reform, bank restructuring, and enterprise reform. - Ensure continued open trade and exchange regime by refraining from introducing restrictions on exports or imports. - Use technical assistance to build capacity in statistics, tax administration, treasury system, bank supervision, and central bank operations. - Reduce annual growth rate of broad money to less than 25 percent in 1998. - Normalize relations with external creditors, clear external debt-service arrears, and avoid new debt-service arrears. - Facilitate sustainable and balanced growth via banking sector reform; privatize smaller businesses and restructure or sell medium- and large-scale enterprises. - Strengthen tax administration, finalize introduction of a treasury system, begin to align fiscal accounts with international standards, and increase outlays on the social safety net. ### Tanzania - Financial Support: - On December 3, 1997, the IMF approved a second annual ESAF loan for SDR 71.4 million, incorporating an increase in the initial amount of SDR 51.4 million by SDR 20 million to help Tanzania deal with the effects of drought. - Program Objectives: - Achieve real GDP growth of 4.7percent. - Reduce inflation to not more than 13percent. - Limit the external current account deficit (excluding official transfers) to 14.4 percent of GDP. - Policies: - Fiscal policy target: surplus on the current government budget of 1.1 percent of GDP in 1997/98 and rationalize revenue and expenditure structure, including introduction of a value-added tax in July 1998. - Monetary policy consistent with inflation and balance of payments objectives. - Continue reforms of banking and parastatal sectors, and civil service reform. - Widen scope and accelerate pace of privatization to include utilities and other core parastatals. - Strengthen delivery of health and education services. ### Thailand - Financial Support: - On August 20, 1997, the IMF approved a Stand-By Arrangement for SDR 2.9 billion under the accelerated procedures of the Emergency Financing Mechanism. - Program Objectives and Policies: - For details, see Chapter V. ### Togo - Financial Support: - On June 30, 1997, the IMF approved a third annual ESAF loan for SDR 21.7 million. - Program Objectives: - Correct weaknesses that occurred in 1996, particularly in fiscal consolidation, and accelerate agreed structural reforms. - Achieve average annual real GDP growth of more than 5.5 percent. - Reduce annual average inflation to 3 percent by end of program period. - Lower the external current account deficit (excluding grants) to an annual average of less than 5 percent of GDP. - Reduce the overall fiscal deficit to 4.3 percent of GDP, while improving the primary balance to a surplus of 0.8 percent of GDP. - Policies: - Correct weaknesses in fiscal consolidation and accelerate structural reforms. - Continue tax system and tax administration reforms with IMF technical support. - Increase outlays in real terms for health, education, and infrastructure rehabilitation and maintenance while curtailing nonpriority spending. - Enhance control of expenditures through budgetary and treasury procedures and undertake comprehensive restructuring of domestic debt. - Pursue poverty fight through investment in health, basic education, and vocational training; continue labor-intensive public works projects to protect vulnerable segments. ### Uganda - Financial Support: - On November 10, 1997, the IMF approved a three-year ESAF loan for SDR 100.4 million. - Note: - For support under the HIPC Initiative, see source document. *Source: Chapter IX.* ### Chapter IX. ### Chapter IX. ### Program Objectives - Sustain high and broad-based economic growth and ensure that the poor would be able to participate in, and benefit from, increased economic activity. - Maintain macroeconomic stability, liberalize further the economy to promote private sector and export-oriented growth, and undertake structural and institutional reforms to further reduce impediments to growth and job creation. - Achieve real GDP growth of at least 7 percent a year on average. - Reduce annual inflation to about 5 percent. - Increase gross international reserves to the equivalent of 4.9 months of imports of goods and nonfactor services. - Increase the gross-investment-to-GDP ratio to about 23 percent in 1999/2000. - Reduce the overall fiscal deficit by about 1.7 percent of GDP over the program period. - Reduce the incidence of poverty through increased social expenditures and intensify efforts to measure and monitor the outcome of these expenditures. ### Policies - Improve customs and tax administration substantially, reduce the incidence of smuggling, and prevent other forms of revenue leakages while exercising considerable expenditure restraint. - Monetary policy to continue building upon the major gains achieved in reducing inflation, taking into account projected balance of payments developments, the need for adequate provision of credit to the private sector, and increased savings by the government in the banking system. - Deepen and broaden structural reforms in the financial sector, civil service, tax and customs administration, trade liberalization, privatization program, and enterprise restructuring. - Improve the environment for private sector activity through deregulation. ### Ukraine — Financial Support - On August 25, 1997, the IMF approved a one-year Stand-By Arrangement for SDR398.9 million. ### Ukraine — Program Objectives - Lay the basis for the resumption of economic growth through structural reforms. - Reduce inflation to 15 percent during 1997 and to 12 percent during 1998. - Increase gross international reserves to the equivalent of 6.0 weeks of imports in 1997, and to 7.4 weeks of imports in 1998. - Design fiscal policy to reduce existing arrears on wages, pensions, and social benefits, while avoiding new arrears. - Accelerate privatization, demonopolization (particularly in the agricultural sectors), and deregulation to provide a conducive environment for private sector development. ### Ukraine — Policies - Main thrust: further deregulation, privatization, and demonopolization. - Shift focus from small-scale privatization (virtually complete) to privatizing medium- and large-scale enterprises. - Limit the consolidated budget deficit to 4.6 percent in 1997 and 4.5 percent of GDP in 1998. - Establish more efficient labor markets through increased wage flexibility. - Implement faster land reform and privatization within the agro-industrial complex. - Widen and deepen energy sector restructuring. - Maintain a liberal and transparent trade regime as part of an outward-oriented growth strategy. - Strengthen means testing of social programs, streamline allowances to provide a higher level of benefits to the most needy recipients, and rationalize the pension and unemployment insurance systems. ### Uruguay — Financial Support - On June 20, 1997, the IMF approved a 21-month Stand-By Arrangement for SDR125 million. The authorities intended to treat the arrangement as precautionary and would draw on it only if adverse external circumstances made it necessary. ### Uruguay — Program Objectives - Reduce inflation to single-digit levels by the end of 1998 in an environment of sustained output and employment growth and maintain a viable external position. - Achieve real GDP growth of at least 3 percent in 1997 and 1998, led by expanded investment and exports. - Reduce inflation to 14–17 percent by the end of 1997. - Strengthen the international reserve position. ### Uruguay — Policies - Consolidate public finances. - Adopt prudent credit and wage measures—including gradual deindexation of wages and administered public sector prices. - Continue structural reforms. - State reform to reduce civil service positions by eliminating vacancies, outsourcing, and cutting employment. - Increase participation of the private sector in activities previously reserved for public entities. - Make special efforts under the program to assist the most vulnerable groups in society through targeted programs. ### Yemen — Financial Support - On October 29, 1997, the IMF approved a financial package for SDR 370.6 million, with SDR 264.8 million under the ESAF and SDR105.9 million under the EFF. ### Yemen — Program Objectives - Achieve real non-oil GDP growth of 6 percent a year on average over the three-year program period. - Achieve a core inflation rate of at most 5 percent a year on average. - Reduce the external current account deficit to 2 percent of GDP on average by 2000. - Maintain sufficient foreign exchange reserves to cover 4.5 months of imports. - Seek significant improvements in social indicators through substantially higher budgetary allocations for education and health as well as strengthened social safety net arrangements. ### Yemen — Policies - Continue to maintain a tight fiscal stance and appropriately supportive monetary policies directed at ensuring positive real interest rates. - Structural reforms to focus on: - Expenditure reorientation toward the social sectors and public investment in infrastructure. - Direct and indirect tax reforms. - Elimination of subsidies. - Civil service, pension fund, customs administration, and budget management reforms. - Financial sector reforms focused on indirect monetary control, the quality of the banking system, and prudential supervision. - A broad privatization program. *Annual Report 1998 — Chapter IX.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/ar/98/pdf/_file04pdf.pdf_