## Executive Summary — _032510a

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---

### Motivation and approach
- Last year’s major reforms of the Fund’s lending instruments, together with the commitment to treble its resources, made a significant contribution to global stabilization.
- Paper reviews lessons from the crisis based on policymakers, market participants, academics, and staff consultations.
- Distinction of reform types:
  - Evolutionary reforms (e.g., building on the Flexible Credit Line or FCL).
  - More radical ideas (e.g., Fund provision of pure insurance payouts or collateralized lending) covered in a Supplement.
- Next steps: After Executive Board comments, staff could develop a more defined and specific set of proposals for further consideration.

### Issues with the global financial safety net
- Three potential gaps identified:
  - FCL perceived as not as predictable and effective as it might be; possible modifications include extending duration and making qualification more predictable.
  - FCL caters to a narrow group; recent reforms offer too little to well-performing countries that do not qualify for the FCL. Proposal to modify the high access precautionary arrangement into a Precautionary Credit Line (PCL).
  - Uncertainty over instruments for proactive systemic crisis containment; proposal for a Multicountry Swap Line (MSL) mechanism to offer liquidity lines unilaterally to a limited set of systemically-important countries with strong policy track records.
- Stigma attached to Fund lending reduced instrument effectiveness; some countries used alternatives such as U.S. Federal Reserve swap lines and MDB precautionary loans.
- Three broad lessons from consultations:
  - Heightened perception of vulnerability increased demand for crisis insurance.
  - Virulence of crisis illustrated advantages of predictable multicountry mechanisms backed by adequate resources.
  - Perception that countries with larger reserve buffers fared relatively better may boost demand for reserve accumulation.
- Potential adverse responses without reforms:
  - Accelerated costly self-insurance via reserve accumulation.
  - Possible resort to protectionism or exchange controls.
- Trade-off: improve predictability/automaticity of reserve-like financing while containing moral hazard and protecting Fund safeguards.

### Way forward and scope
- Importance of gaps debatable but warrants early consideration to avoid excessive precautionary reserve accumulation.
- Need to balance a more effective global financial safety net against moral hazard and safeguards.
- Better tailor Fund lending to varying strength of countries’ fundamentals and policies.
- Recognize roles of central banks and regional financing arrangements.
- Paper structure (overview): stock of insurance/financing needs; Fund financing role and reform vision; evolutionary upgrade options; conclusions and integration; follow-up on resource mobilization.

### Selected explicit numeric and dated references
- IMFC Communiqué, Istanbul, October 4, 2009.
- Fund’s commitment to treble its resources (verbatim).
- Reform timing references: “last year’s major reforms” and “reforms introduced in early 2009” (verbatim).

---

### Costs and Benefits of Holding Foreign Reserves (Box 1)

### Benefits
- Automaticity and fungibility: immediate unconditional use for any external financing need.
- Crisis prevention: signaling capacity to meet short-term obligations and stem depreciation.
- Crisis resolution: dampen need for costly adjustments and mitigate economic consequences.
- Political and market advantages: certainty of availability and favorable signaling to markets/rating agencies.

### Costs
- Marginal cost: opportunity cost of foregone consumption and investment (higher for lower income levels).
- Fiscal (accounting) cost proxy: spread between interest paid on country debt and return on safe foreign reserve assets.
  - Example: over 2000−07, average EMBI spread ≈ 300 basis points and difference between 5-year treasuries and 3-months Treasury bill ≈ 100 basis points, for total fiscal cost ≈ 400 basis points.
- Alternative measures and critiques:
  - Rodrik (2006): sovereign-borrowing-based measure underestimates social cost.
  - Jeanne and Rancière (2006): sovereign-spread measure may overestimate social cost.
- Broader costs: welfare costs associated with externalities (including possible contribution to global imbalances and excessive risk-taking).
- Accounting treatment: costs typically not reported in government income statements; reserves often treated gross of corresponding liabilities.

### Empirical evidence and policy implication
- Reserves tend to reduce spreads and exchange rate volatility (Levy Yeyati, 2008).
- During the recent crisis, reserve coverage of short-term debt associated with better growth for emerging markets.
- Marginal benefits decline rapidly as reserve coverage increases—suggests complementing moderate own-reserve holdings with access to low-cost reserve-like instruments.
- Policy implication: reduce incentives for excessive self-insurance via reserve-like (predictable and automatic) financing instruments backed by adequate resources, with mechanisms to contain moral hazard (e.g., links of lending terms/conditionality to borrower fundamentals).

### Fund financing role relative to reserves
- Core Fund mandate: provide temporary financing primarily via the General Resources Account (GRA).
- Fund reserve-like provisions: SDRs; Special Disbursement Account (SDA); trust resources (e.g., PRGT).
- Advantages of Fund financing:
  - Risk pooling across universal membership.
  - Countercyclical role via SDR allocations and financial assistance.
  - Policy signaling: conditionality provides international seal of approval and moderates moral hazard.
  - Price: relatively inexpensive compared with building own reserves; costs incurred only when financing is drawn.
- Crisis-era innovations and outcomes:
  - Creation of the FCL and enhanced high-access precautionary arrangements (HAPAs); conditionality focused and access limits doubled (implementation at end-March 2009).
  - These reforms and larger resources contributed to generalized and sustained reduction in emerging market spreads.
  - Examples of Fund use: SBAs for 19 countries since September 2008; precautionary resources under HAPAs and FCL arrangements for Costa Rica, El Salvador, Guatemala, Mexico, Colombia, and Poland.

### Remaining reluctance to use Fund nonconcessional facilities
- Reasons:
  - Lack of automaticity and predictability: GRA resources conditioned on policy implementation and safeguards.
  - Stigma: negative connotations and perception of heavy-handed conditionality.
  - Alternatives: availability of major central bank swap lines and multilateral development bank facilities.
- Federal Reserve swap line evidence:
  - October 29, 2008: Fed established four swap lines for up to US$30 billion each with central banks of Brazil (equivalent to 650 percent of quota), Korea (670 percent of quota), Mexico (620 percent of quota), and Singapore (2,300 percent of quota).
  - Part of 14 Fed swap lines established during the crisis to address U.S. dollar wholesale funding breakdown.
  - Outstanding drawings reached almost US$600 billion at end 2008—mostly to the ECB (US$291 billion) and Bank of Japan (US$122 billion).
  - Swap maturities: overnight to three months; pricing at a spread over Overnight Index Swap or LIBOR.
  - Counterpart central banks absorbed risks; Fed retained rights to approve or deny draws and bore residual credit risk; all drawings repaid in full. Lines closed on February 1, 2010.

### Stakeholder feedback
- Academics/market participants:
  - Self-insurance entrenched; crisis likely increased reserve accumulation demand.
  - Overhauling Fund governance, making access more automatic, and ensuring adequate resources seen as important to reduce self-insurance.
  - FCL introduced without ex post conditionality seen as useful; flexible use and long repayment period advantages over short-maturity swap lines, though late availability reduced early effectiveness.
- Design issues:
  - Low take-up of precautionary instruments (FCLs and HAPAs) raises questions about design adequacy.
  - Inhibiting factors for FCL demand: preference for own reserves; stigma; uncertainty about FCL qualification; procedural burdens (e.g., explicit written request requirement).

---

### Stigma, Instrument Choice, and Modernizing the Fund’s Financing Role

### Stigma and instrument choice
- Public stigma (domestic public relations issue) deterred countries from using the FCL.
- No comparable stigma for accessing Fed swap lines, viewed as technical and routine.
- Consequence: countries with temporary liquidity difficulties may avoid FCL for fear of signaling solvency problems.

### HAPA and SBA experience
- Despite reforms enabling flexible precautionary SBA use, demand for HAPAs limited—only three countries used this instrument during the crisis.
- Stigma remains a key deterrent for countries with good policies but not strong enough for the FCL.

### Consensus on systemic crisis tool
- Broad support for a Fund lending instrument to deal with systemic crises with features:
  - Simultaneously opened to many countries.
  - State contingent with triggers linked to world financial markets.
  - Broad country qualification to mitigate stigma and reduce self-insurance incentives.
- Views on innovation:
  - Mixed views on pure insurance and sovereign guarantees.
  - Greater support for Fund guarantees akin to government guarantees used during the crisis.
  - Reserve pooling and RFAs: debate between need for global reserve pool managed by Fund vs. Fund leveraging to backstop regional arrangements.

### Evolutionary reform focus
- Emphasis on reforms not requiring Articles changes and with Executive Directors’ general support.
- Instruments: bilateral credit lines; multicountry mechanism for crisis prevention; modalities for co-financing RFAs/RPAs.
- Innovative ideas (lending against collateral, market support instruments, contingent repayment schedules, pure insurance) in Supplement and may require Articles changes or non-GRA resources.
- Caveats in design:
  - Differentiate instruments by country performance and balance of payments problem type.
  - Balance access automaticity with moral hazard—limit automaticity to countries with strong fundamentals.
  - Prioritize reforms carefully.

---

### Enhancing the Flexible Credit Line (FCL)

### Objectives for enhancement
- Increase substitutability with countries’ own reserves by:
  - Increasing predictability of qualification.
  - Increasing duration of purchase rights.
  - Removing the access cap.
  - Reducing fees (noted by a few stakeholders).
- Stakeholder priority ordering (informal survey): predictability, duration, removing access cap; a few noted reducing fees.

### Lengthening duration
- Proposal: lengthen duration of purchase rights from 6 to 12 months.
- Rationale: improve substitutability to reserves.
- Risk: weaken safeguards by limiting scope to identify policy weakening.
- Institutional suggestion: eliminate current 6-month review for annual arrangements; allow multi-year arrangements with annual reviews; incorporate smooth exit features.

### Increasing predictability of qualification
- Two avenues while retaining judgment-based qualification:
  - Surveillance-based pre-qualification:
    - Routinely conduct FCL qualification assessments in Article IV consultations.
    - Introduce standardized language in staff reports for likely qualifiers.
    - Variant: include qualification assessments in all Article IV reports and indicate how policy changes affect judgments.
  - Rule-based approach:
    - Automate qualification via transparent “Maastricht-like” quantitative criteria.
    - Challenges: selecting relevant criteria and making forward-looking robustness assessments.
- Tradeoffs: full predictability could incentivize policy strengthening and destigmatize labels but may produce market consequences, political sensitivities, and reduced flexibility.

### Removing implied access cap
- Background: recent FCL access close to implicit 1000 percent-of-quota cap; cap may create adverse signaling and an access target.
- Proposal: contemplate eliminating the implicit cap, given heightened safeguards for FCL qualifiers.
- Suggested guideline: give substantial deference to authorities’ representations of potential need if staff assesses them as reasonable.
- Constraint: actual drawings cannot exceed member’s balance of payments need at time of drawing.

### Reducing costs
- Consider moderately lower commitment fees under FCL as part of package to encourage early engagement.
- Preserve existing upward-sloping commitment fee schedule to discourage superfluous access requests.

---

### Legal Implications and Instrument Design Options

### Broadening access to FCL-style credit lines
- Two approaches:
  - (i) Broaden FCL qualification while differentiating access, duration, or charges by policy/fundamental strength.
  - (ii) Create a Precautionary Credit Line (PCL) in the credit tranches with upfront access, capped access, qualification, and light ex post conditionality.
- Stigma likely shifts to the SBA; acceptable if SBA focuses on crisis resolution rather than prevention.

### Differential terms within the FCL
- Possible differentiations:
  - Duration of purchase rights by strength of fundamentals.
  - Access levels tied to policy/fundamental strength with hard caps for weaker profiles; financing above cap via SBA.
  - Pricing differentiation by risk would require Articles amendment because commitment fee must be “uniform for all members” (Article V, Section 8(d)).
- Legal implication: differentiating access levels and duration is legally possible; charge differentiation would require Articles change.

### Precautionary Credit Line (PCL)
- Purpose: crisis prevention for countries with good policies but remaining vulnerabilities (e.g., currency peg, high dollarization).
- Key features:
  - Approved solely on precautionary basis.
  - Qualification similar to FCL (pre-qualification approaches).
  - Light ex-post conditionality/monitoring and commitment to address vulnerabilities.
- Monitoring approaches:
  - i. Review-based only: six-monthly reviews focusing on progress; no performance criteria.
  - ii. Performance criteria-based: limited set of six-monthly quantitative performance criteria; no program reviews.
- Example terms:
  - Upfront but capped access, e.g., at 500 percent of quota, for rolling six month windows.
  - Arrangement lengths not exceeding 1−2 years.
- Legal implication: creating a PCL as instrument in credit tranches would require a Board decision adopted by a majority of the votes cast.

### Multicountry Swap Lines (MSL)
- Rationale: offer liquidity lines to multiple countries simultaneously in systemic crises to address first-mover problems and attenuate stigma.
- Triggering mechanism:
  - Trigger could be generalized global or regional event, or shock in one country with spillovers.
  - Fund offer unilateral for limited term, say, 3 to 6 months; presumption that offer would not be renewed.
  - Eligibility limited to systemic countries with sufficiently strong policies; trigger must be exogenous or cross-country.
- Procedures:
  - Board decision needed to offer lines to multiple countries at once; public announcement akin to a government emergency declaration.
  - Offer unilateral; arrangement arises only if member accepts and Board confirms qualification criteria met.
- Underlying instrument options:
  - i. FCL arrangements: simultaneous FCLs to systemic countries meeting FCL qualification; uniform duration and access. Drawbacks: strict qualification may exclude systemic countries; long repayment period ties up resources.
  - ii. Short-term liquidity lines: short-term swap lines renewable over 3- or 6-month duration with 12- to 24-month repayment period applicable to resources drawn. Shorter drawing window relative to FCL adds safeguards and contains moral hazard.
- Legal implication:
  - Board can adopt MSL as new general policy specifying circumstances, eligibility, and terms.
  - Transparency: voluntary but presumed publication of full list of qualifying members; if a member objects, options include omitting the member from published list or not publishing at all (which may limit effectiveness).
- Resource implication: potential for large take-up in global crisis; mechanisms to increase Fund resources may be needed.

### Regional Financing and Reserve Pooling Arrangements (RFAs/RPAs)
- Rationale: RFAs/RPAs set up to provide insurance against external shocks (e.g., Chiang Mai Initiative, Latin American Reserve Fund); drivers include regional integration and potential dissatisfaction with multilateral pools.
- Limitations of RFAs/RPAs: link to Fund-supported programs; small resources; potential ineffectiveness in region-wide/global shocks; potentially weak enforcement under peer-monitoring.
- Role for Fund: direct financial involvement could strengthen signaling and reduce stigma if Fund resources channeled concurrent with RFA/RPA activation.

---

### Financing Options and Trade-offs

### Fund could top up resources by:
- (a) Co-financing through bilateral lending to individual RFA/RPA members in appropriate circumstances (via SBA, FCL, or possibly PCL and MSL arrangements).
- (b) Lending directly to RPAs.

### Trade-offs
- Direct lending to RPAs most appealing to countries associating stigma with Fund lending.
- Direct lending would require greater risk-sharing by pool members (collective repayment responsibility) than co-financing.

### Legal implications and alternatives
- Co-financing can be provided within existing legal framework; normal GRA financing requirements apply (uniformity of treatment; balance-of-payments need; safeguards; instrument-specific requirements).
- Any GRA lending directly to an RPA would require an Articles amendment because GRA financial support can only be provided to members.
- Alternatives to amending Articles:
  - Use SDA resources for lending to RPAs provided benefits Fund members, for balance of payments assistance, and under uniformity-of-treatment policy.
  - Establish trusts to administer third-party contributor resources for this purpose.

---

### Conclusions, Reform Priorities, and Questions for Directors

### Lessons from the crisis
- Heightened perception of vulnerability and demand for crisis insurance.
- Current global financial safety net inadequate for contagion in systemic events.
- Stigma toward the Fund remains pervasive despite reforms.

### Reform priorities
- Focus on crisis prevention and management of systemic crises.
- Develop precautionary lending instruments and multicountry mechanisms to stem contagion.
- Back Fund lending with adequate resources while increasing automaticity and predictability to mitigate incentives for reserve accumulation.
- To avoid moral hazard:
  - Make lending terms (size, duration, price) and policy conditionality explicitly linked to borrowers’ fundamentals and policies.
  - Consider routine assessments of qualification in Article IV reports.
- Improve Fund governance to help alleviate stigma.

### Suggested balanced set of reforms (high-level)
- Enhance bilateral credit lines:
  - (i) Enhance FCL usability by lengthening duration, streamlining qualification, and uncapping access.
  - (ii) Adapt HAPAs to create a Precautionary Credit Line (PCL) providing upfront but capped access with light policy monitoring for countries with good policies not qualifying for FCL.
- Establish a Multicountry Swap Line mechanism for systemic crises to enable Fund to offer assistance to systemic countries with good fundamentals facing short-term liquidity pressures.
- Backstop RFAs/RPAs by offering pari passu co-financing via Fund arrangements (FCL, PCL, or SBA) for individual members, as appropriate.

### Specific questions for Directors
- Do Directors agree that experience indicates a stronger international financial safety net is needed, including limiting overreliance on reserve accumulation?
- Should further lending reforms focus on effectiveness for crisis prevention and systemic events?
- Along what dimensions should the FCL be improved? Would Directors support signaling qualification through summary statements in Article IV reports?
- Should access to FCL-style credit lines be broadened by differentiating terms within the FCL, or by creating a PCL?
- Do Directors concur on the need for a multicountry offer mechanism to stem contagion? What should be the underlying instrument: the FCL or a new short-term liquidity line?
- Should the Fund aim to support RFAs/RPAs more explicitly and in what form?

### Core reform options (instrument summaries and key legal implications)
- FCL:
  - Streamline qualification; signal qualification in Article IV reports; adopt rule-based criteria.
  - Double duration of purchase rights from 6 to 12 months.
  - Eliminate implicit 1000 percent-of-quota cap.
  - Reduce commitment fee for FCL only or convert FCL into special facility.
  - Legal implications vary: amend FCL Decision (majority of votes cast); some options require at least 70 percent of total voting power.
- Other FCL-style lines:
  - Broaden qualification; differentiate terms; may require amending FCL Decision and possibly Articles.
- Create PCL:
  - Upfront but capped access; light ex-post monitoring.
  - Key legal implication: Board decision (majority of votes cast).
  - Example cap: 500 percent of quota; arrangement length not exceeding 1−2 years.
- Multicountry Swap Line:
  - Offer liquidity lines in limited-time window of 3 to 6 months to qualifying systemic countries.
  - Options: multiple FCLs on uniform terms, or facility for systemic liquidity pressures (6 months arrangement; repayment in 12−24 months).
  - Key legal implication options: establish new special facility (85 percent majority of voting power) or adopt new policy specifying offers (majority of votes cast).
- Regional Financing / Reserve Pooling:
  - Co-finance RFAs/RPAs (no change needed).
  - Lend directly to RFAs/RPAs (would require Articles amendment or use of SDA/donor resources).

*Source: Executive Summary and selected sections, _032510a*

### Executive Summary ......................................................................................................

### Executive Summary

### Motivation and approach
- Last year’s major reforms of the Fund’s lending instruments, together with the commitment to treble its resources, made a significant contribution to global stabilization as Fund lending created room for policy accommodation and helped countries weather the worst of the crisis.
- The paper reviews whether there is scope to build on this experience by drawing on lessons of the crisis as perceived by policymakers, market participants, and academic observers, with extensive staff consultations.
- Distinction of reform types:
  - Evolutionary reforms (e.g., building on the Flexible Credit Line or FCL).
  - More radical ideas (e.g., Fund provision of pure insurance payouts or collateralized lending) are covered in a supplement.
- Next steps: After Executive Board comments on options, staff could develop a more defined and specific set of proposals for further consideration.

### Issues with the global financial safety net
- The crisis highlighted three potential gaps:
  - The FCL is perceived as not as predictable and effective an instrument as it might be; the paper discusses modifications to the FCL’s design, such as extending its duration and making qualification more predictable.
  - The FCL caters to a narrow group of countries; recent reforms offer too little to well-performing countries that do not qualify for the FCL. The paper discusses modifying the existing high access precautionary arrangement into a Precautionary Credit Line (PCL) targeted at these countries.
  - Uncertainty over instruments for proactive systemic crisis containment where several major players may benefit from an early signal of access to resources. The paper discusses, in well defined circumstances, a Multicountry Swap Line (MSL) mechanism to offer liquidity lines unilaterally to a limited set of systemically-important countries with strong policy track records.
- Stigma attached to Fund lending reduced effectiveness of instruments; some countries sought alternatives such as swap lines from the U.S. Federal Reserve and precautionary loans from multilateral development banks.
- Three broad lessons from consultations:
  - The magnitude and confluence of multiple shocks heightened countries’ perception of vulnerability and increased demand for crisis insurance.
  - The virulence of the crisis (including dollar liquidity shortages and rapid cross-border spread) illustrated advantages of predictable multicountry mechanisms backed by adequate resources.
  - The perception that countries with larger reserve buffers fared relatively better may boost demand for reserve accumulation, a costly form of insurance.
- Potential adverse responses without further reforms:
  - Accelerated costly “self-insurance” via reserve accumulation.
  - Possible resort to protectionism or exchange controls.
- Trade-off emphasized: improving predictability and automaticity of reserve-like financing instruments while containing moral hazard and protecting Fund safeguards.

### Way forward and scope of paper
- The importance of identified gaps is debatable but warrants early consideration to avoid excessive precautionary reserve accumulation.
- Need to balance a more effective global financial safety net against moral hazard and the need for adequate safeguards.
- Better tailoring of Fund lending to varying strengths of countries’ fundamentals and policies is required.
- Acknowledgement that central banks and regional financing arrangements also play roles in the global financial safety net; reforms should account for their roles.
- Structure of the paper:
  - Section II: stock of countries’ needs for insurance and financing; comparison of instruments with self-insurance strategies.
  - Section III: review of Fund’s financing role and vision for reforms.
  - Section IV: evolutionary ideas for upgrading and expanding nonconcessional financing instruments (innovative options in the Supplement).
  - Section V: conclusions and integration of reform options; implications for size and modalities of mobilizing Fund resources to be covered in follow-up papers.

### Introduction — crisis lessons summarized
- Global contagion in the recent crisis demonstrated the need for an effective global financial safety net; highly integrated emerging markets and least diversified LICs suffered most.
- The Fund responded rapidly, but its ability to mount preventative and systemic responses was hampered by:
  - Inadequacy of precautionary lending instruments.
  - A resource base that had not kept pace with increased global trade and capital flows.
- The Stand-By Arrangement (SBA) remained useful and is likely to remain the cornerstone of the Fund’s crisis toolkit, especially against “old-style” balance of payments crises rooted in fiscal problems.
- Lending reforms introduced in early 2009 emphasized tailoring conditionality to varying policy/fundamental strengths (including use of ex-ante conditionality) and created the FCL and enhanced high access precautionary arrangements (HAPAs); these changes, along with the commitment to treble resources, helped stabilize markets and provide room for countercyclical policies.
- Concessional facilities were comprehensively overhauled to better tailor to low-income countries.

### Countries’ insurance and financing needs
- Strategy hierarchy:
  - First line of defense: increase resilience by improving policies and institutions; emerging market and low income countries have improved in recent years.
  - Complementary risk management: manage financial assets and liabilities and strengthen macro-prudential frameworks in capital-exporting countries to reduce excessive risk-taking and capital flow volatility.
- Types of instruments to manage shocks:
  - Financing instruments: access to credit before (insurance) or after an event (e.g., central bank swap lines, Fund arrangements, private credit lines—latter used infrequently). Reform options in this paper focus on Fund-provided financing instruments.
  - “Pure” insurance: pay a premium during normal times and receive unrequited transfer upon a pre-specified event (e.g., GDP-indexed bonds, catastrophe bonds, commodity derivatives). The Fund’s potential role in promoting these is discussed in the Supplement.
  - Self-insurance: accumulation of foreign currency reserves.
- Inefficiency of self-insurance:
  - Self-insurance is inefficient compared to pure insurance or financing because it does not exploit pooling of risks.
  - Example logic: to cover US$100 against a tail risk, a country must hold US$100 at all times; paying a fee to access a pooled $100 when needed is more efficient.
  - The carrying cost of reserves is typically estimated at a large multiple of the commitment fees charged for Fund precautionary instruments (see Box 1).
- Policy implication: reducing incentives for excessive self-insurance points to reserve-like (predictable and automatic) financing instruments backed by adequate resources, with mechanisms to contain moral hazard (e.g., stronger links of lending terms or policy conditionality to strength of borrower fundamentals and policies).

### Selected explicit numeric and dated references from the Executive Summary
- IMFC Communiqué, Istanbul, October 4, 2009 (quotation requesting study and report by next Annual Meetings).
- Reference to the Fund’s commitment to treble its resources (verbatim).
- References to reform timing: “last year’s major reforms” and “reforms introduced in early 2009” (verbatim descriptions used in the source).

*Source: Executive Summary, _032510a - Executive Summary*

### Box 1. Costs and Benefits of Holding Foreign Reserves for Precautionary Motives

### Box 1. Costs and Benefits of Holding Foreign Reserves for Precautionary Motives

### Benefits of foreign reserves
- Automaticity and fungibility: foreign reserves can be used unconditionally for meeting any external financing need and are usually invested in assets that are liquid and have little credit risk, limiting uncertainty as regards immediate availability and amount.
- Crisis prevention: reserves can help prevent a balance of payment crisis through signaling the ability to meet short-term obligations and stem a sharp depreciation of the currency.
- Crisis resolution: reserves can be used to dampen the need for costly adjustments against temporary shocks, mitigating the economic consequences of a crisis.
- Political and market advantages: reserves offer a high degree of certainty of immediate availability (if invested in core reserve assets) and international status in the eyes of markets and rating agencies; they may be politically easier to justify to the electorate than insurance premiums or Fund financing.

### Costs of foreign reserves
- Marginal cost concept: the opportunity cost of foregone consumption and investment (higher for lower income levels where marginal utility of consumption is higher and infrastructure needs are larger).
- Fiscal (accounting) cost proxy: defined as the spread between the interest paid on debt issued by the insuring country and the return obtained on safer, more liquid foreign reserve assets.
  - Example: over the period 2000−07, the average EMBI spread was about 300 basis points and the difference between the 5-year treasuries and the 3-months Treasury bill was about 100 basis points, for a total fiscal cost of holding reserves of about 400 basis points.
- Alternative measures and critiques:
  - Rodrik (2006): argues sovereign-borrowing-based measure underestimates social cost; suggests using the spread between interest paid by the private sector on its debt and the return obtained by the monetary authority on foreign assets.
  - Jeanne and Rancière (2006): argue the sovereign-spread measure overestimates social cost because part of the spread compensates for default risk, though some default costs may still be appropriate to account for.
- Broader cost considerations: welfare costs associated with externalities at national or global level (including possible contribution to global imbalances and excessive risk-taking, but also reduced contagion).
- Accounting treatment: costs of holding reserves are typically not reported in government income statements; reserves often treated gross of corresponding domestic or external liabilities and regarded as income-generating.

### Empirical evidence on reserve value and limits
- Reserves tend to reduce spreads and exchange rate volatility (Levy Yeyati, 2008).
- During the recent crisis, reserve coverage of short-term debt was associated with better growth performance among emerging market countries.
- Marginal benefits of self-insurance decrease rapidly as reserve coverage increases, suggesting benefit in complementing moderate own-reserve holdings with access to low-cost reserve-like instruments.
- Some emerging market countries increased reserve accumulation exiting from crisis, adding pressure for others to follow.

### Fund financing role and interaction with reserves
- The Fund’s core mandate: provide temporary financing to shield countries from shocks and mitigate their costs, primarily via the General Resources Account (GRA) subject to policy conditionality and other requirements.
- Fund reserve-like provisions:
  - Special Drawing Rights (SDRs) can be allocated uniformly to members in proportion to their quota (unconditional).
  - Special Disbursement Account (SDA) resources (from sales of pre-Second Amendment gold) and resources contributed by members/donors administered in separate trusts (e.g., PRGT) can provide assistance.
- Advantages of Fund financing relative to own reserves:
  - Risk pooling: pool risks across universal membership and mobilize large amounts of liquidity temporarily.
  - Countercyclical role: create global liquidity via SDR allocations and extend financial assistance to cushion shocks.
  - Policy signaling: conditionality provides an international seal of approval that helps catalyze private financing and facilitates creditor coordination; conditionality also moderates moral hazard.
  - Price: relying on Fund resources is relatively inexpensive compared with building own reserves; costs incurred only when Fund financing is secured.
- Crisis-era tool innovations and outcomes:
  - Creation of the FCL (no ex post conditionality for strictly qualifying countries) and enhancement of the SBA to facilitate high-access lending on a precautionary basis (HAPAs); conditionality was made more focused and access limits were doubled (implementation at end-March 2009).
  - These reforms and larger resources contributed to a generalized and sustained reduction in emerging market spreads.
  - Countries that tapped Fund resources during the crisis could create space for countercyclical policies (examples include SBAs for 19 countries since September 2008; precautionary resources under HAPAs and FCL arrangements for Costa Rica, El Salvador, Guatemala, Mexico, Colombia, and Poland).
- Remaining reluctance to use Fund nonconcessional facilities:
  - Reasons for preference for own reserves and delay in turning to the Fund:
    - Lack of automaticity and predictability: GRA resources conditioned on policy implementation and safeguards; perception of undue creditor influence.
    - Stigma: negative connotations attached to the Fund and fear that Fund use signals severe problems; perceptions that conditionality remains heavy-handed.
    - Alternatives: availability of major central bank swap lines and multilateral development bank facilities with fewer strings attached reduced demand for Fund financing.
- Evidence on central-bank swap lines (Federal Reserve example):
  - On October 29, 2008, the Fed established four swap lines for up to US$30 billion each with the central banks of Brazil (equivalent to 650 percent of quota), Korea (670 percent of quota), Mexico (620 percent of quota), and Singapore (2,300 percent of quota).
  - These were part of 14 Federal Reserve swap lines established during the crisis to address the global breakdown in U.S. dollar wholesale funding and swap markets.
  - Outstanding drawings on the lines reached a total of almost US$600 billion at end 2008—mostly to the ECB (US$291 billion) and Bank of Japan (US$122 billion), followed by the Bank of England, Swiss National Bank, and Swedish Riksbank. The central banks of Korea and Mexico also drew on the swap lines but in smaller amounts.
  - Swap maturities ranged from overnight to three months; pricing was at a spread over Overnight Index Swap or LIBOR rates. Counterpart central banks absorbed all risks on their tender operations, mitigated by collateral and haircuts; the Federal Reserve retained rights to approve or deny draws and bore any residual credit risk not covered by the foreign currency received in the swap. All drawings were repaid in full. These lines were eventually closed on February 1, 2010.

### Stakeholder feedback and policy implications
- Academics and market participants:
  - Self-insurance with foreign reserves seen as entrenched; crisis likely increased demand for reserve accumulation since countries with higher reserves fared better.
  - Overhauling Fund governance, making access more automatic and routine, and ensuring adequate Fund resources viewed as important to reduce demand for self-insurance.
  - Introduction of the FCL (without ex post conditionality) seen as a useful addition; its flexible use and long repayment period are advantages over short-maturity swap lines, though late availability during the crisis reduced its early effectiveness.
- Design issues in Fund instruments:
  - Low take-up of precautionary instruments (FCLs and HAPAs) raises questions about design adequacy.
  - Stakeholder-identified inhibiting factors for FCL demand include: strong preference for own reserves; stigma; and uncertainty regarding FCL qualification. Procedural burdens (e.g., requirement for an explicit written request) may add to stigma.

*Source: Box 1. Costs and Benefits of Holding Foreign Reserves for Precautionary Motives*

### introduction of Fed’s swap lines. The limited use of the FCL was also attributed to the stigma attached to

### _032510a - introduction of Fed’s swap lines. The limited use of the FCL was also attributed to the stigma attached to

### Stigma and instrument choice
- Market participants generally regarded use of the Fund’s instruments positively, but public stigma—primarily a domestic public relations issue—deterred some countries from using the FCL.
- No comparable stigma was seen for accessing the Fed’s swap lines, which were viewed as technical instruments and routine central bank modalities.
- Consequence: countries with temporary liquidity difficulties might have been dissuaded from using the FCL for fear of being perceived as facing graver liquidity problems, or worse, solvency issues.

### Experience with the HAPA and SBA stigma
- Despite reforms enabling more flexible precautionary use of the SBA, demand for HAPAs has been limited—only three countries used this instrument during the crisis.
- Key issue identified: stigma. There may be countries with good policies but not strong enough to qualify for the FCL for which the stigma of using an SBA is too high to approach the Fund.

### Consensus on strengthening financing instruments and systemic crisis tool
- Broad support for a Fund lending instrument to deal with systemic crises, with features:
  - Simultaneously opened to many countries.
  - State contingent, with triggers linked to the general situation of the world financial markets.
  - Broad country qualification to mitigate stigma and reduce incentives for self-insurance.
- Views on innovative instruments:
  - Mixed views on pure insurance and sovereign guarantees.
  - Concerns that markets may not offer insurance against macro risks; insurance contracts require upfront premium payments.
  - Greater support for Fund use of guarantees, akin to government guarantees used to support banking and private sector activity during the crisis.
  - Fund-provided guarantees might be less stigmatized than Fund lending facilities.
- Reserve pooling and regional financial arrangements:
  - Some argued only a truly global reserve pool would work and the Fund would be a natural manager.
  - Others suggested the Fund could efficiently leverage resources to backstop regional arrangements.

### Modernizing the Fund’s financing role — evolutionary reforms (overview)
- Focus: evolutionary reforms that do not require Articles changes and for which Executive Directors signaled general support.
- Instruments considered: bilateral credit lines; multicountry mechanism for crisis prevention; modalities for co-financing regional financing arrangements and reserve pools.
- Innovative ideas (lending against collateral, market support instruments, contingent repayment schedules, pure country insurance instruments) are presented in the Supplement paper and may require Articles amendments or non-GRA resources.
- Caveats when designing reforms:
  - Differentiate instruments by country performance and type of balance of payments problem.
  - Balance access automaticity with moral hazard risks—limit greater automaticity to countries with strong fundamentals and policies.
  - Prioritize reforms carefully, weighing synergies and redundancies.

### Enhancing the Effectiveness of the Flexible Credit Line (FCL)
- Rationale: effectiveness could be enhanced by increasing substitutability with countries’ own reserves via:
  - Increasing predictability of qualification.
  - Increasing duration of purchase rights.
  - Removing the access cap.
  - Reducing fees (noted by a few stakeholders).
- Stakeholder ordering of importance (based on an informal survey): predictability, duration, removing access cap; a few noted reducing fees.

### Lengthening duration
- Proposal: lengthen duration of purchase rights from 6 to 12 months.
- Rationale:
  - Longer duration could improve substitutability to reserves.
  - Risk: weakens safeguards by limiting scope to identify weakening macro policies.
  - Counterpoint: policy weakening generally takes time (country credit ratings remain relatively constant over time), and FCL qualifiers have very strong creditworthiness, market access, and track records.
- Institutional design suggestion:
  - Eliminate the current 6-month review for annual arrangements.
  - Allow multi-year arrangements with annual reviews.
  - Incorporate design features to facilitate smooth exit from the FCL.

### Increasing predictability of qualification
- Two avenues within judgment-based qualification:
  - Surveillance-based pre-qualification:
    - Routinely conduct FCL qualification assessments in Article IV consultations.
    - Introduce standardized language in staff reports for countries expected to qualify.
    - Variant: insert qualification assessments in all Article IV reports, indicating how policy changes would impact judgments.
  - Rule-based approach:
    - Automate qualification via transparent “Maastricht-like” criteria using quantitative ranges.
    - Challenges: selecting relevant quantitative criteria and making forward-looking assessments of fiscal, monetary, and financial sector robustness.
- Tradeoffs:
  - Full predictability could incentivize policy strengthening and destigmatize “ratings,” but could produce market consequences, political sensitivities from labeling, and reduced flexibility.

### Removing implied access cap
- Background:
  - Access under recent FCL arrangements has been close to the implicit 1000 percent-of-quota cap.
  - An informal cap may create an access target and send adverse signals.
  - The cap makes the FCL less flexible than the SBA, which has no implicit or explicit hard caps and can exceed 1000 percent of quota.
- Proposal:
  - Contemplate eliminating the implicit cap, given heightened safeguards of FCL-qualifying members.
  - Adopt new guidelines on access giving substantial deference to authorities’ representations of potential need, provided staff assesses those representations as reasonable.
- Constraint:
  - As in any GRA lending, actual drawings under the FCL cannot exceed the member’s balance of payments need at the time of the drawing.

### Reducing costs
- Consider moderately lower commitment fees under the FCL as part of a package to encourage early Fund engagement by strong-policy members.
- Rationale:
  - Opportunity and liquidity costs of committing resources remain main costs for large arrangements.
  - Experience to date suggests staff and Board time costs for FCL are less than for a standard precautionary SBA.
- Recommendation:
  - Preserve the existing upward-sloping schedule for the commitment fee to discourage superfluous access requests.

*Source: IMF staff paper excerpt (pages and numbered paragraphs as provided in the source content).*

### 22. Legal implications.

### 22. Legal implications.

### Broadening access to FCL-style Credit Lines — Rationale and options
- Two alternative approaches to give members with good policies access to FCL-like credit lines:
  - (i) Broaden qualification for the FCL while differentiating access, duration, or charges according to the strength of members’ policies and fundamentals.
  - (ii) Adapt the current framework for high-access precautionary arrangements by creating a new window in the credit tranches (a Precautionary Credit Line, PCL) with upfront access, capping access and subjecting access to qualification and light ex post conditionality.
- Stigma is likely to be shifted to the SBA; this may be acceptable if the SBA remains focused on crisis resolution rather than prevention.

### Differential terms within the FCL — Options and trade-offs
- Differentiation could preserve safeguards and signaling by grading terms according to policy/fundamental strength; markets would assess countries against peer groups.
- Potential terms to vary:
  - Duration of purchase rights: longer automatic access for countries with excellent fundamentals, ranging down for less strong participants.
  - Access levels: make access a function of policy/fundamental strength, with hard caps for less strong policies; financing need above cap provided under SBA. FCL arrangements with some vulnerabilities could be limited to precautionary use; immediate balance of payments needs would require SBA.
  - Pricing: commitment fees and charges could be differentiated by policy/fundamental strength; but price differentiation may weaken the public good basis for the Fund’s de facto preferred creditor status.
- Legal implication: Differentiating access levels and duration is legally possible. Differentiation of charges based on member-specific risk factors would require an amendment of the Articles because the commitment fee is required to be “uniform for all members” (Article V, Section 8(d)).

### Precautionary Credit Line (PCL) — Design and parameters
- Purpose: crisis prevention for countries with good policies but remaining vulnerabilities (e.g., currency peg, high dollarization); akin to a special case of HAPA and similar to earlier “RAL” proposals.
- Key features:
  - Approved solely on a precautionary basis (absence of an actual balance of payments need).
  - Qualification criteria similar to the FCL (pre-qualification per paragraph 19 approaches).
  - Light ex-post policy conditionality and monitoring, with a required commitment to policies addressing remaining vulnerabilities.
- Two monitoring approaches:
  - i. Review-based conditionality only: six-monthly reviews focusing on progress and continued qualification; no performance criteria.
  - ii. Performance criteria-based conditionality: limited set of six-monthly quantitative performance criteria; no program reviews.
- Example terms:
  - Upfront but capped access, for example, at 500 percent of quota, for rolling six month windows.
  - Length of arrangements not exceeding 1−2 years.
- Effects:
  - Contributes safeguards through relative strength of qualifying members’ policies, access cap, and monitoring framework.
  - Likely to crowd out demand for HAPAs and bridge gap between FCL and SBA.
- Legal implication: Creating a PCL as an instrument in the credit tranches (with repayments within the standard 3¼−5 years) would require a Board decision adopted by a majority of the votes cast.

### Multicountry Swap Lines (MSL) — Rationale and design
- Rationale:
  - Enable Fund to offer liquidity lines (FCL or new short-term facility) on similar terms to multiple countries simultaneously to address first-mover problems in systemic crises and attenuate stigma.
  - Purpose: strengthen confidence and install a firewall around system core; participation restricted to countries whose stability is needed to preserve confidence on global financial markets.
  - A predictable multilateral framework could mitigate demand for self-insurance in good times.
- Triggering mechanism:
  - Trigger could be a generalized global or regional event, or a shock in one country with spillovers (e.g., banking crisis in a financial center).
  - Fund’s unilateral offer open for a limited term, say, 3 to 6 months; presumption that offer would not be renewed.
  - Eligibility limited to countries assessed as systemic and having sufficiently strong policies; trigger event must be exogenous or cross-country in nature.
- Procedures:
  - Board decision needed to offer liquidity lines to multiple countries at once; public announcement akin to a government declaration of national emergency.
  - The Fund would emphasize the unilateral nature of the MSL offer; an arrangement arises only if a member accepts the offer and the Board adopts a decision confirming qualification criteria are met.
- Underlying instrument and qualification:
  - i. FCL arrangements: offer simultaneous FCLs to systemic countries meeting FCL qualification; uniform duration and access across countries. Drawbacks: strict qualification could exclude systemic countries; risk of tying up Fund resources due to FCL long repayment period; preference by some policymakers for short-term swap lines.
  - ii. Short-term liquidity lines: alternative is short-term swap lines as renewable arrangements of 3- or 6-month duration with a 12- to 24-month repayment period applicable to any resources actually drawn. Shorter drawing window relative to FCL provides added safeguards and contains moral hazard.
- Legal implication:
  - The Board can adopt MSL as a new general policy specifying circumstances, eligibility criteria, and terms of lines (e.g., FCL or a new special facility).
  - Consistent with Fund’s Transparency Policy, there would be voluntary but presumed publication of the full list of qualifying members. If a member objects, options include omitting the member from the published list or not publishing a list at all; absence of a list could limit effectiveness of public assurances.
- Resource implications:
  - Broader policy implications for the Fund’s balance sheet need careful consideration.
  - Given potentially large take-up in a global crisis, mechanisms may be needed to increase commensurately the Fund’s resources available for lending.

### Regional Financing and Reserve Pooling Arrangements — Rationale and implications
- Rationale:
  - Country groups have set up regional financing arrangements (RFAs) and reserve pooling arrangements (RPAs) to provide insurance against external shocks (examples include Chiang Mai Initiative and Latin American Reserve Fund).
  - Drivers include regional economic integration and potential dissatisfaction with multilateral pools such as the Fund.
  - Most RFAs/RPAs remain linked to Fund-supported programs; limitations include potential ineffectiveness in region-wide or global shocks, relatively small resources, and potentially weak enforcement under peer-monitoring.
- Role for the Fund:
  - Direct financial involvement by the Fund with RFAs/RPAs could help overcome their limitations, strengthen signaling, and reduce stigma if Fund resources are channeled concurrent with activation of RFA/RPA financing, particularly when multiple countries are involved.

*Source: _032510a - 22. Legal implications.*

### 35. Financing. The Fund could top up overall resources by (a) co-financing through

### _032510a - 35. Financing. The Fund could top up overall resources by (a) co-financing through

### Financing options and trade-offs
- The Fund could top up overall resources by:
  - (a) co-financing through bilateral lending to individual RFA or RPA members in appropriate circumstances (via SBA, FCL, or possibly PCL and MSL arrangements); or
  - (b) lending directly to RPAs.
- Trade-offs:
  - Lending directly to RPAs would be most appealing to countries that most associate stigma with Fund lending.
  - Direct lending to RPAs would require a greater degree of risk-sharing by the members of the pool (who would be collectively responsible for repayments to the Fund) than under the co-financing model.

### Legal implications
- Co-financing (financial backstopping of RPAs through co-financing) can be provided within the Fund’s existing legal framework.
- Normal requirements for GRA financing would apply, including:
  - uniformity of treatment,
  - balance-of-payments need for drawings,
  - safeguards,
  - and the requirements under the particular instrument under which financing is to be provided.
- Any GRA lending directly to an RPA would require an amendment of the Articles, because GRA financial support can only be provided to members.
- Alternatives to amending the Articles:
  - Use SDA resources for lending to RPAs so long as:
    - the lending is for the benefit of Fund members,
    - for balance of payments assistance,
    - and is provided under a policy that meets uniformity of treatment requirements.
  - Establish trusts to administer resources provided by third party contributors for this purpose.

### Conclusions and issues for discussion: objectives and lessons from the crisis
- The Fund’s mandate is to provide an effective global financial safety net to help countries cope with external volatility; its capacity must remain under constant review.
- Lessons from the deepest global crisis in a generation:
  - Heightened countries’ perception of vulnerability to shocks and demand for crisis insurance.
  - Exposed the inadequacy of the current global financial safety net to deal with contagion in systemic events.
  - Highlighted the pervasive nature of stigma attached to the Fund despite earlier reforms.
- Reform priorities:
  - Focus on crisis prevention and management of systemic crises.
  - Develop precautionary lending instruments and multicountry mechanisms to stem contagion in systemic crises.
  - Back Fund lending with adequate resources while increasing automaticity and predictability to mitigate incentives for reserve accumulation.
  - Recognize that increasing automaticity and predictability could exacerbate moral hazard; to avoid this:
    - Make lending terms (size, duration, and price) and policy conditionality more explicitly and transparently a function of the strength of borrowers’ fundamentals and policies.
    - Consider including assessments of qualification to lending instruments routinely in Article IV reports.
  - Improve Fund governance to help alleviate stigma attached to Fund lending.

### Suggested balanced set of reforms (high-level)
- Enhance bilateral credit lines:
  - (i) enhance the FCL’s usability by lengthening its duration, streamlining qualification criteria, and uncapping access;
  - (ii) adapt High Access Precautionary Arrangements to create a new Precautionary Credit Line providing upfront but capped access to Fund resources with light policy monitoring for countries with good policies and fundamentals but that do not qualify for the FCL.
- Establish a Multicountry Swap Line mechanism for systemic crises to enable the Fund to offer financial assistance to systemic countries with good fundamentals that face short-term liquidity pressures during systemic events.
- Backstop regional financing and reserve pooling arrangements by offering pari passu co-financing via Fund arrangements (FCL, PCL, or SBA) for individual members, as appropriate within the terms of these instruments.

### Specific questions for Directors (discussion points)
- Do Directors agree that experience from the current crisis indicates that a stronger international financial safety net is needed, including as a means to limit overreliance on reserve accumulation?
- Do Directors agree that further lending reforms should focus on the effectiveness of instruments for crisis prevention and for dealing with systemic events?
- Along what dimensions should the FCL be improved? Would Directors support signaling qualification through summary statements in Article IV reports?
- Should members’ access to FCL-style credit lines be broadened by differentiating terms within the FCL, or should consideration instead be given to creating a new crisis prevention instrument along the lines of the PCL?
- Do Directors concur with the need for a multicountry offer mechanism to stem contagion in a systemic crisis? And what should be the underlying instrument offered: the FCL or a new short-term liquidity line?
- Do Directors believe the Fund should aim to support more explicitly regional financing and reserve pooling arrangements and in what form?

### Core reform options (Table 1 — instrument summaries and key legal implications)
- Flexible Credit Line (FCL)
  - Purpose: Enhance predictability of qualification.
  - Reform options:
    - Streamline current qualification criteria.
    - Signal qualification in Article IV reports.
    - Adopt rule-based “Maastricht-like” criteria.
  - Key legal implication: Amend FCL Decision (may also require changes to other decisions) (majority of votes cast).
  - Increase automaticity:
    - Double duration of purchase rights from 6 to 12 months.
    - Key legal implication: Amend FCL Decision (majority of votes cast).
  - Eliminate access cap:
    - Remove implicit 1000 percent of quota cap.
    - Key legal implication: Clarify via new summing up (majority of votes cast).
  - Reduce cost:
    - Reduce commitment fee for FCL only.
    - Convert FCL into special facility and show lower expenses for FCL arrangements.
    - Key legal implication: (at least 70 percent of total voting power).
- Other FCL-style credit lines
  - Purpose: Enhance precautionary instruments for countries that do not qualify for the FCL.
  - Reform options: Broaden qualification and differentiate FCL terms according to countries’ policies by duration or access; pricing.
  - Key legal implication: Amend FCL Decision; possibly amend Articles.
- Create Precautionary Credit Line (PCL)
  - Features:
    - Upfront but capped access.
    - Light ex-post conditionality/monitoring.
  - Key legal implication: Adopt Board decision (majority of votes cast).
- Multicountry Swap Line
  - Purpose: Strengthen effectiveness in responding to systemic shocks.
  - Reform options:
    - Create mechanism to offer liquidity lines (limited-time window of 3 to 6 months) to qualifying “systemic” countries at once.
    - Options include:
      - Approve multiple FCL arrangements on uniform terms to qualifying countries, or
      - Adopt facility for systemic liquidity pressures (6 months arrangement; repayment in 12−24 months).
    - Qualification based on good policies; no change needed.
  - Key legal implication options:
    - Establish new special facility (85 percent majority of the voting power), or
    - Adopt new policy to specify when the Fund would offer credit lines (majority of votes cast).
- Regional Financing / Reserve Pooling Arrangements (RFAs/RPAs)
  - Purpose: Backstop RFAs/RPAs to complement Fund lending, alleviate stigma.
  - Reform options:
    - Co-finance RFAs/RPAs’ bilateral lending.
    - Lend directly to RFAs/RPAs.
  - Key legal implications:
    - No change needed for co-financing.
    - Amend Articles or use of SDA or donor resources for direct lending.

*Source: _032510a - 35. Financing. The Fund could top up overall resources by (a) co-financing through*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_032510a.pdf_