## Supplement to FFR: Reform Proposals — Revised FCL and PCL Decisions and Explanatory Text (_082510)

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---

### Overview
- Purpose: Provide clarifications and propose revisions to the reforms of the nonconcessional lending toolkit contained in the staff papers on “The Fund’s Mandate—Future Financing Role: Reform Proposals” based on feedback from Executive Directors in three informal meetings.
- Focus: Flexible Credit Line (FCL) and Precautionary Credit Line (PCL).
- Attachments: Revised proposed decisions for FCL and PCL (changes highlighted in Annexes I-III in source).
- Parallel work: Exploring synergies between the Fund and Regional Financing Arrangements (RFAs); seminar with RFA representatives to be held during the Annual Meetings.

### Refining the design of the Flexible Credit Line (FCL)
- Target population: Members with very strong fundamentals and policies.
- Proposed enhancements:
  - Lengthen duration of purchase rights by eliminating the mid-term review in 12-month arrangements and allowing two-year arrangements with an interim review of qualification after one year.
  - Increase flexibility of access by removing the implicit cap of 1000 percent of quota; access decisions to be based on individual country financing needs.
- Safeguards discussed:
  - Some Directors proposed raising the implicit access cap or increasing commitment fees to guard against excessive precautionary use.
  - Staff view: Preserving a cap may create a higher access “norm”; commitment fees were overhauled in March 2009, replacing a downward sloping schedule with an upward sloping schedule, with fees doubling to 60 bps for access above 1000 percent of quota, providing a significant deterrent.
  - Procedural note: Modifying commitment fees would require a 70 percent majority of the total voting power.
- Additional procedural safeguard proposed:
  - Early Board involvement when contemplated access exceeds 1000 percent of quota or SDR 10 billion, whichever is lower:
    - Require the concise staff note for the informal Board meeting to include:
      - (I) a rigorous assessment of the member’s actual or potential need for Fund resources and capacity to repay; and
      - (II) an assessment of the impact of the contemplated access on Fund liquidity in the context of other potential demand for Fund resources when access is above 1000 percent of quota or SDR 10 billion, whichever is lower (Revised Proposed Decision I, paragraph 1(b)).
  - Early Board review trigger when aggregate outstanding credit and commitments under FCL and PCL instruments reach SDR 100 billion (Revised Proposed Decision IV).
- Emphasis: The strict qualification standard of the FCL is the primary safeguard.

### Establishing the Precautionary Credit Line (PCL) — Purpose and design
- Purpose: Provide effective crisis prevention to members with sound fundamentals, policies, and institutional frameworks but moderate vulnerabilities that would not meet the FCL qualification standard.
- Design features:
  - Ex ante conditionality to signal policy strength and identify vulnerabilities for ex post conditionality focus.
  - Phased access: up to 500 percent of quota on approval and up to a total of 1000 percent of quota after 12 months.
  - Semiannual reviews.
  - Early Board involvement under the exceptional access procedures when access is above normal GRA access limits.
- Revisions incorporated from Directors’ feedback:
  - Clarify the qualification framework to increase predictability and facilitate evenhanded decisions.
  - Strengthen ex post conditionality by allowing the use of semi-annual performance criteria (PCs).
  - Allow augmentations under PCL arrangements (subject to applicable PCL access ceilings) regardless of whether the member had made a drawing at the time of the augmentation (paragraph 4(b) revision noted).

### PCL qualification framework (Revised Proposed Decision II, Paragraph 2)
- Core standard: Member does not face an actual balance of payments need at the time of approval and:
  - (i) has sound economic fundamentals and institutional policy frameworks;
  - (ii) is implementing—and has a track record of implementing—sound policies; and
  - (iii) remains committed to maintaining such sound policies in the future.
- Role of surveillance: Fund surveillance and recent Article IV consultations to inform Board judgment.
- Clarified assessment approach:
  - Members assessed against five broad areas (derived from the FCL’s nine specific qualification criteria):
    1. External position and market access
    2. Fiscal policy
    3. Monetary policy
    4. Financial sector soundness and supervision
    5. Data adequacy
  - Strong performance expected in most of these areas (i.e., at least three out of five), with no substantial underperformance in any of the five.
  - PCL users may face moderate vulnerabilities that can be credibly reduced during the PCL arrangement; they should not face entrenched fiscal or bank solvency problems.
- Circumstances under which a PCL would not be approved (no circumstances would a PCL arrangement be approved for a member facing any of the following):
  - (i) sustained inability to access international capital markets;
  - (ii) the need to undertake large macroeconomic or structural policy adjustments, unless set credibly in train before approval (judgment on whether an adjustment is large informed by the member’s own experience and that of similarly-situated members);
  - (iii) a public debt position that is not sustainable in the medium term with a high probability; or,
  - (iv) widespread bank insolvencies.

### PCL ex post conditionality, monitoring, and performance criteria
- All PCL arrangements require ex post conditionality; extent tailored to member circumstances informed by initial qualification assessment and subsequent semi-annual reviews.
- Conditionality features:
  - Members must present written policy commitments and a quantified macroeconomic framework underpinned by indicative targets and, where needed, structural benchmarks.
  - Prior actions may be established, including for approval of an arrangement or completing reviews, when upfront implementation is critical—prior actions may often be appropriate given PCL’s frontloaded access.
  - Observance of policy commitments monitored by the Executive Board in semiannual program reviews; reviews assess observance of applicable PCs, indicative targets and structural benchmarks, continued adherence to PCL qualification standard, and policy understandings for the future.
- Performance criteria (PCs):
  - Quantitative targets provide benchmarks for assessing progress in program reviews.
  - Concerns about semi-annual PCs:
    - Potential redundancy (purchase rights interrupted if semiannual reviews not completed).
    - Stigma linked to waivers.
    - Blackout periods for verifying PC observance due to data lags.
  - Countervailing view: semi-annual PCs could be useful in some cases to strengthen confidence about attainment of key objectives (e.g., guide fiscal consolidation plans).
  - Proposal: Permit use of semi-annual PCs in addition to standard PCs identified in FFR: Reform Proposals paper (Revised Proposed Decision II, paragraph 3(a)). Whether semi-annual PCs are used depends on understandings between authorities and staff and consistency with Fund policy. PCs apply to variables critical to program goals or monitoring such that purchases should be interrupted in cases of nonobservance.

### Qualification: Relevant areas, criteria, and indicators (selected)
- I. External Position and Market Access
  - Indicators: Gross external debt/GDP including DSA assessment; debt-stabilizing noninterest current account deficit; net external debt/GDP; short-term gross external debt/GDP; share of bank, nonbank and public sector gross external debt.
- II. Fiscal Policy
  - Indicators: Public sector debt-to-GDP ratio, and debt sustainability assessment; primary and overall fiscal balance (average for the last 3/5 years); structural fiscal balances and debt-stabilizing primary balance; assessment of MT plans anchoring fiscal policy outcomes; overall sound institutional budgetary framework as informed by recent fiscal ROSCs, where available.
- III. Monetary Policy
  - Indicators: Recent evolution of core and headline inflation and inflation expectations; past and announced policy responses to inflationary shocks; adequacy of monetary policy instruments; accountability, transparency, and communication regarding policy objectives and policy responses.
- IV. Financial sector soundness and supervision
  - Soundness indicators: Capital adequacy and profitability — CAR (overall banking system and individual banks); return on equity (overall banking system and individual banks). Liquidity and funding risks — liquid assets to total liabilities; liquid assets to short-term liabilities; loan-to-deposit ratio; share of external funding in total liabilities. Asset quality — Credit to the private sector (real growth rate and share of GDP); nonperforming loan ratios (overall banking system and individual banks).
  - Supervision indicators: Assessment based on FSAP findings, where available; assessment of legal and institutional framework and operational capacity for prompt corrective actions and emergency liquidity assistance.
- V. Data Adequacy
  - Indicators: Subscription to the SDDS or judgment that satisfactory progress is being made toward meeting its requirements; routine assessments (Article IVs) of data quality and integrity.
- Additional market-access indicators:
  - Private flow dominance: FDI plus portfolio inflows as a share of total inflows; ratio of private holdings of external debt to gross external debt; private foreign holdings of domestic debt/total domestic debt.
  - Sovereign access track record: EMBI spread; spread between country EMBI and EMBI overall index (latest observation and averages over previous five years); current yield on benchmark bonds; credit ratings; last external issuance (details on amount issued/original yield/maturity).
  - Reserve position: Ratio of reserves to short-term debt (remaining maturity basis); short-term debt (remaining maturity basis) plus current account deficit; imports; and broad money.

### Proposed Decisions — FCL (amendments to Decision No. 14283-(09/29), adopted March 24, 2009)
- Amendment to Paragraph 5(a):
  - New text: “5. (a) The Fund may approve a member’s request for an FCL arrangement of either one year or two years duration. For FCL arrangements with a two-year duration, no purchase shall be made after one year has elapsed from the date of the approval of the FCL arrangement until an Executive Board review of the member’s policies has been completed. Such a review will assess the member’s continued adherence to the qualification criteria specified in paragraph 2 of this Decision, and would be scheduled with the objective of completion by the Executive Board immediately prior to the lapse of the one-year period referred to above.”
- Amendment to Paragraph 6(a)(iii):
  - New text: “6. (a)(iii) Once management decides that access to Fund resources under this Decision may be appropriate, it will consult with the Executive Board promptly in an informal meeting. For this purpose, Executive Directors will be provided with a concise staff note setting out the basis on which approval could be recommended under this Decision, including (I) a rigorous assessment of the member’s actual or potential need for Fund resources and repayment capacity, and (II) an assessment of the impact of the arrangement on Fund liquidity in cases where it is contemplated that access would exceed 1000 percent of quota or SDR 10 billion, whichever is lower.”
- Paragraph 10 shall be deleted.
- Transitional provision:
  - All FCL arrangements with a twelve-month duration that are in effect as of the date of this Decision are amended to eliminate the requirement that the Executive Board conduct a review of the member’s policies six months from the date of approval of these arrangements.

### PCL — Decision text: Eligibility, duration, access, reviews, and program content
- Eligibility and qualification criteria:
  - A PCL arrangement shall be approved upon request where the member does not have an actual balance of payments need at the time of approval and the Fund assesses that the member:
    - (i) has sound economic fundamentals and institutional policy frameworks,
    - (ii) is implementing—and has a track record of implementing—sound policies, and
    - (iii) remains committed to maintaining such policies in the future.
  - Qualification assessed across five areas (member expected to perform strongly in most and not to substantially underperform in any):
    - (i) external position and market access,
    - (ii) fiscal policy,
    - (iii) monetary policy,
    - (iv) financial sector soundness and supervision,
    - (v) data adequacy.
  - The Fund shall not approve a PCL arrangement for a member facing any of the following:
    - (i) sustained inability to access international capital markets,
    - (ii) the need to undertake a large macroeconomic or structural policy adjustment (unless such adjustment has credibly been launched before approval),
    - (iii) a public debt position that is not sustainable in the medium term with a high probability,
    - (iv) widespread bank insolvencies.
- Duration, reviews, and program content:
  - A PCL arrangement may have a duration of between one year and two years.
  - PCL arrangements shall include:
    - indicative targets,
    - the standard performance criteria related to trade and exchange restrictions, discriminatory currency arrangements, multiple currency practices and non-accumulation of external debt payments arrears as specified in paragraphs 3(d) and 3(b)(ii), respectively, of Attachment A of Decision No. 10464-(93/130), adopted September 13, 1993 as amended.
  - PCL arrangements may also include other performance criteria, prior actions and structural benchmarks where warranted under the Guidelines on Conditionality set forth in Decision No. 12864-(02/102), adopted September 25, 2002, as amended.
  - Reviews:
    - PCL arrangements shall provide for six-monthly reviews by the Executive Board to assess whether the member’s PCL-supported program remains on track based on:
      - observance of performance criteria, indicative targets and structural benchmarks, as applicable;
      - continued adherence to the PCL qualification standard set forth in paragraphs 2(a) and 2(b);
      - policy understandings for the future.
    - Such reviews would be scheduled with the objective of completion by the Executive Board immediately prior to the lapse of each six-month period.
- Expiration and re-approval:
  - A PCL arrangement will expire upon the earlier of:
    - (i) the expiration of the approved term of the arrangement,
    - (ii) the purchase by a member of the entire amount of approved access under the PCL arrangement,
    - (iii) the cancellation of the PCL arrangement by the member.
  - Upon expiration, the Fund may approve additional PCL arrangements for the member in accordance with this Decision, subject to the cumulative limit on PCL arrangements set forth in Decision No. 14064-(08/18), adopted February 22, 2008, as amended by Decision No. 14716-(10/83).
- Access limits, phasing, and purchases:
  - For PCL arrangements with a one-year duration:
    - Access shall not exceed 500 percent of quota at the time of approval.
    - The entire amount of access is available to the member upon approval and remains available throughout the arrangement period subject to completion of the six-monthly review.
  - For PCL arrangements with a duration of more than one year:
    - Access shall not exceed 1000 percent of quota.
    - Access shall be phased: an initial amount not in excess of 500 percent of quota is made available upon approval; the remaining amount is made available at the beginning of the second year subject to completion of the relevant six-monthly review.
  - Rephasing and additional access:
    - Subject to the limits in paragraph 4(a) and Decision No. 14064-(08/18), as amended by Decision No.14716-(10/83), the Fund will consider requests to rephase access under multi-year PCL arrangements or to make additional amounts available under any PCL arrangement.
    - Such requests shall be considered in the context of a review assessing the member’s actual or potential need for Fund resources and the extent to which the PCL-supported program remains on track based on the six-monthly review factors.
  - Purchases:
    - A member may make one or more purchases up to the amount available under a PCL arrangement at any time during the period of the arrangement, subject to the Decision’s provisions.
    - The Fund shall not challenge a representation of need by a member for a purchase requested under a PCL arrangement.
  - Phasing and performance clauses:
    - Phasing and performance clauses shall be omitted in any PCL arrangement in the first credit tranche.
    - They will be included in other PCL arrangements pursuant to the Decision, but will apply only to purchases outside the first credit tranche.
- Member documentation and policy framework:
  - In requesting a PCL arrangement, the member shall submit a concise written communication outlining:
    - its policy goals and strategies for the duration of the arrangement,
    - measures aimed at addressing its remaining vulnerabilities,
    - a quantified macroeconomic framework underpinned by a streamlined set of indicative targets, and where warranted, structural benchmarks and performance criteria.
- Waiver of Article V limitation:
  - The Fund will be prepared to grant a waiver of the limitation of 200 percent of quota in Article V, Section 3(b)(iii), whenever necessary to permit purchases under this Decision or to permit other purchases that would raise the Fund's holdings of the purchasing member's currency above that limitation because of purchases outstanding under this Decision.
- Amendments to Access and Exceptional Access policy (Decision No. 14064-(08/18)):
  - Introductory sentence in paragraph 3 amended to:
    - “3. Subject to paragraph 4 below, the Fund may approve access in excess of the limits set forth in this Decision in exceptional circumstances, provided the following four substantive criteria are met:”
  - Paragraphs 4 and 5 renumbered as Paragraphs 5 and 6, respectively.
  - New paragraph 4 added:
    - “4. When exceptional access is approved under a PCL arrangement pursuant to paragraph 3, such access, combined with the member’s access to the Fund’s resources under other PCL arrangements, shall in no event exceed a cumulative limit of 1000 percent of quota, net of scheduled repurchases.”

### Review provisions and review triggers
- Joint review requirement:
  - Decisions on Flexible Credit Line Arrangements and on Precautionary Credit Line Arrangements shall be reviewed jointly by the Fund no later than two years after the date of adoption of this Decision or whenever aggregate outstanding credit and commitments under these two decisions reach SDR 100 billion, whichever is earlier.
- Specific review date:
  - The decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/29), adopted March 24, 2009, as amended, and the decision on Precautionary Credit Line Arrangements, Decision No.14715-(10/83) adopted August 30, 2010, shall be reviewed jointly by the Fund by August 30, 2013 or whenever aggregate outstanding credit and commitments under these two decisions reach SDR 100 billion, whichever is earlier.

*Source — Supplement to FFR: Reform Proposals paper (revised proposed FCL and PCL decisions and explanatory text).*

### 1.      This supplement provides clarifications and proposes revision to the reforms of

### This supplement provides clarifications and proposes revision to the reforms of the nonconcessional lending toolkit

### Overview
- Purpose: Provide clarifications and propose revisions to the reforms of the nonconcessional lending toolkit contained in the staff papers on “The Fund’s Mandate—Future Financing Role: Reform Proposals” (FFR: Reform Proposals paper) based on feedback from Executive Directors in three informal meetings.
- Focus: Flexible Credit Line (FCL) and Precautionary Credit Line (PCL).
- Attachments: Revised proposed decisions for FCL and PCL (changes highlighted in Annexes I-III in source).
- Parallel work: Exploring synergies between the Fund and Regional Financing Arrangements (RFAs); seminar with RFA representatives to be held during the Annual Meetings.

### Refining the design of the Flexible Credit Line (FCL)
- Target population: Members with very strong fundamentals and policies.
- Proposed enhancements:
  - Lengthen duration of purchase rights by eliminating the mid-term review in 12-month arrangements and allowing two-year arrangements with an interim review of qualification after one year.
  - Increase flexibility of access by removing the implicit cap of 1000 percent of quota; access decisions to be based on individual country financing needs.
- Safeguards discussed:
  - Some Directors proposed raising the implicit access cap or increasing commitment fees to guard against excessive precautionary use.
  - Staff view: Preserving a cap may create a higher access “norm”; commitment fees were overhauled in March 2009, replacing a downward sloping schedule with an upward sloping schedule, with fees doubling to 60 bps for access above 1000 percent of quota, providing a significant deterrent.
  - Procedural note: Modifying commitment fees would require a 70 percent majority of the total voting power.
- Additional procedural safeguard proposed:
  - Require early Board involvement in assessing contemplated access and impact on Fund liquidity when access is above 1000 percent of quota or SDR 10 billion, whichever is lower.
  - Proposed Decision I amendment: initial informal Board meeting staff note to include (I) a rigorous assessment of the member’s actual or potential need for Fund resources and capacity to repay and (II) an assessment of the impact of the contemplated access on Fund liquidity in the context of other potential demand for Fund resources when access is above 1000 percent of quota or SDR 10 billion, whichever is lower (Revised Proposed Decision I, paragraph 1(b)).
  - An additional safeguard: early Board review trigger when aggregate outstanding credit and commitments under FCL and PCL instruments reach SDR 100 billion (Revised Proposed Decision IV).
- Emphasis: The strict qualification standard of the FCL is the primary safeguard.

### Establishing the Precautionary Credit Line (PCL)
- Purpose: Provide effective crisis prevention to members with sound fundamentals, policies, and institutional frameworks but moderate vulnerabilities that would not meet the FCL qualification standard.
- Design features:
  - Ex ante conditionality to signal policy strength and identify vulnerabilities for ex post conditionality focus.
  - Phased access: up to 500 percent of quota on approval and up to a total of 1000 percent of quota after 12 months.
  - Semiannual reviews.
  - Early Board involvement under the exceptional access procedures when access is above normal GRA access limits.
- Revisions incorporated from Directors’ feedback:
  - Clarify the qualification framework to increase predictability and facilitate evenhanded decisions.
  - Strengthen ex post conditionality by allowing the use of semi-annual performance criteria (PCs).
  - Proposed revision to allow augmentations under PCL arrangements (subject to applicable PCL access ceilings) regardless of whether the member had made a drawing at the time of the augmentation (paragraph 4(b) revision noted).

### PCL qualification framework (Revised Proposed Decision II, Paragraph 2)
- Core standard: Member does not face an actual balance of payments need at the time of approval and:
  - (i) has sound economic fundamentals and institutional policy frameworks;
  - (ii) is implementing—and has a track record of implementing—sound policies; and
  - (iii) remains committed to maintaining such sound policies in the future.
- Role of surveillance: Fund surveillance and recent Article IV consultations to inform Board judgment.
- Clarified assessment approach:
  - Members assessed against five broad areas (derived from the FCL’s nine specific qualification criteria):
    1. External position and market access
    2. Fiscal policy
    3. Monetary policy
    4. Financial sector soundness and supervision
    5. Data adequacy
  - Strong performance would be expected in most of these areas (i.e., at least three out of five), with no substantial underperformance in any of the five.
  - PCL users may face moderate vulnerabilities that can be credibly reduced during the PCL arrangement; they should not face entrenched fiscal or bank solvency problems.
- Circumstances under which a PCL would not be approved (no circumstances would a PCL arrangement be approved for a member facing any of the following):
  - i. sustained inability to access international capital markets;
  - ii. the need to undertake large macroeconomic or structural policy adjustments, unless set credibly in train before approval (judgment on whether an adjustment is large informed by the member’s own experience and that of similarly-situated members);
  - iii. a public debt position that is not sustainable in the medium term with a high probability; or,
  - iv. widespread bank insolvencies.

### PCL ex post conditionality, monitoring, and performance criteria
- All PCL arrangements require ex post conditionality; extent tailored to member circumstances informed by initial qualification assessment and subsequent semi-annual reviews.
- Conditionality features:
  - Members must present written policy commitments and a quantified macroeconomic framework underpinned by indicative targets and, where needed, structural benchmarks.
  - Prior actions may be established, including for approval of an arrangement or completing reviews, when upfront implementation is critical—prior actions may often be appropriate given PCL’s frontloaded access.
  - Observance of policy commitments monitored by the Executive Board in semiannual program reviews; reviews assess observance of applicable PCs, indicative targets and structural benchmarks, continued adherence to PCL qualification standard, and policy understandings for the future.
- Performance criteria (PCs):
  - Quantitative targets provide benchmarks for assessing progress in program reviews.
  - Concerns noted about semi-annual PCs: potential redundancy (purchase rights interrupted if semiannual reviews not completed), stigma linked to waivers, and blackout periods for verifying PC observance due to data lags.
  - Countervailing view: semi-annual PCs could be useful in some cases to strengthen confidence about attainment of key objectives (e.g., guide fiscal consolidation plans).
  - Proposal: Permit use of semi-annual PCs in addition to standard PCs identified in FFR: Reform Proposals paper (Revised Proposed Decision II, paragraph 3(a)). Whether semi-annual PCs are used depends on understandings between authorities and staff and consistency with Fund policy. PCs apply to variables critical to program goals or monitoring such that purchases should be interrupted in cases of nonobservance.

### Qualification: Relevant areas, criteria, and indicators (Table excerpt)
- I. External Position and Market Access
  - Indicators: Gross external debt/GDP including DSA assessment; debt-stabilizing noninterest current account deficit; net external debt/GDP; short-term gross external debt/GDP; share of bank, nonbank and public sector gross external debt.
- II. Fiscal Policy
  - Indicators: Public sector debt-to-GDP ratio, and debt sustainability assessment; primary and overall fiscal balance (average for the last 3/5 years); structural fiscal balances and debt-stabilizing primary balance; assessment of MT plans anchoring fiscal policy outcomes; overall sound institutional budgetary framework as informed by recent fiscal ROSCs, where available.
- III. Monetary Policy
  - Indicators: Recent evolution of core and headline inflation and inflation expectations; past and announced policy responses to inflationary shocks; adequacy of monetary policy instruments; accountability, transparency, and communication regarding policy objectives and policy responses.
- IV. Financial sector soundness and supervision
  - Indicators for soundness: Capital adequacy and profitability — CAR (overall banking system and individual banks); return on equity (overall banking system and individual banks). Liquidity and funding risks — liquid assets to total liabilities; liquid assets to short-term liabilities; loan-to-deposit ratio; share of external funding in total liabilities. Asset quality — Credit to the private sector (real growth rate and share of GDP); nonperforming loan ratios (overall banking system and individual banks).
  - Indicators for supervision: Assessment based on FSAP findings, where available; assessment of legal and institutional framework and operational capacity for prompt corrective actions and emergency liquidity assistance.
- V. Data Adequacy
  - Indicators: Subscription to the SDDS or judgment that satisfactory progress is being made toward meeting its requirements; routine assessments (Article IVs) of data quality and integrity.
- Additional market-access indicators:
  - A capital account position dominated by private flows: FDI plus portfolio inflows as a share of total inflows; ratio of private holdings of external debt to gross external debt; private foreign holdings of domestic debt/total domestic debt.
  - Track record of steady sovereign access to international capital markets at favorable terms: EMBI spread; spread between country EMBI and EMBI overall index (latest observation and averages over previous five years); current yield on benchmark bonds; credit ratings; last external issuance (details on amount issued/original yield/maturity).
  - Reserve position: Ratio of reserves to short-term debt (remaining maturity basis); short-term debt (remaining maturity basis) plus current account deficit; imports; and broad money.

### Proposed Decisions — FCL (amendments to Decision No. 14283-(09/29), adopted March 24, 2009)
- (a) Amendment to Paragraph 5(a):
  - New text: “5. (a) The Fund may approve a member’s request for an FCL arrangement of either one year or two years duration. For FCL arrangements with a two-year duration, no purchase shall be made after one year has elapsed from the date of the approval of the FCL arrangement until an Executive Board review of the member’s policies has been completed. Such a review will assess the member’s continued adherence to the qualification criteria specified in paragraph 2 of this Decision, and would be scheduled with the objective of completion by the Executive Board immediately prior to the lapse of the one-year period referred to above.”
- (b) Amendment to Paragraph 6(a)(iii):
  - New text: “6. (a)(iii) Once management decides that access to Fund resources under this Decision may be appropriate, it will consult with the Executive Board promptly in an informal meeting. For this purpose, Executive Directors will be provided with a concise staff note setting out the basis on which approval could be recommended under this Decision, including (I) a rigorous assessment of the member’s actual or potential need for Fund resources and repayment capacity, and (II) an assessment of the impact of the arrangement on Fund liquidity in cases where it is contemplated that access would exceed 1000 percent of quota or SDR 10 billion, whichever is lower.”
- (c) Paragraph 10 shall be deleted.
- Transitional provision:
  - All FCL arrangements with a twelve-month duration that are in effect as of the date of this Decision are amended to eliminate the requirement that the Executive Board conduct a review of the member’s policies six months from the date of approval of these arrangements.

*Italic: Source — Supplement to FFR: Reform Proposals paper (revised proposed FCL and PCL decisions and explanatory text).*

### 1. The Fund decides that resources in the credit tranches may be made available under a

### 1. The Fund decides that resources in the credit tranches may be made available under a Precautionary Credit Line (PCL) arrangement

### Overview
- The Fund decides that resources in the credit tranches may be made available under a Precautionary Credit Line (PCL) arrangement, in accordance with the terms and conditions specified in this Decision.

### Eligibility and qualification criteria
- A PCL arrangement shall be approved upon request where the member does not have an actual balance of payments need at the time of approval and the Fund assesses that the member:
  - (i) has sound economic fundamentals and institutional policy frameworks,
  - (ii) is implementing—and has a track record of implementing—sound policies, and
  - (iii) remains committed to maintaining such policies in the future, all of which give confidence that the member will take the policy measures needed to reduce any remaining vulnerabilities and will respond appropriately to balance of payments difficulties it might encounter.
- In addition to a generally positive Executive Board assessment in the most recent Article IV consultations, qualification shall be assessed in the following areas (with the member expected to perform strongly in most and not to substantially underperform in any):
  - (i) external position and market access,
  - (ii) fiscal policy,
  - (iii) monetary policy,
  - (iv) financial sector soundness and supervision,
  - (v) data adequacy.
- The Fund shall not approve a PCL arrangement for a member facing any of the following circumstances:
  - (i) sustained inability to access international capital markets,
  - (ii) the need to undertake a large macroeconomic or structural policy adjustment (unless such adjustment has credibly been launched before approval),
  - (iii) a public debt position that is not sustainable in the medium term with a high probability,
  - (iv) widespread bank insolvencies.

### Duration, reviews, and program content
- A PCL arrangement may have a duration of between one year and two years.
- PCL arrangements shall include:
  - indicative targets,
  - the standard performance criteria related to trade and exchange restrictions, discriminatory currency arrangements, multiple currency practices and non-accumulation of external debt payments arrears as specified in paragraphs 3(d) and 3(b)(ii), respectively, of Attachment A of Decision No. 10464-(93/130), adopted September 13, 1993 as amended.
- PCL arrangements may also include other performance criteria, prior actions and structural benchmarks where warranted under the Guidelines on Conditionality set forth in Decision No. 12864-(02/102), adopted September 25, 2002, as amended.
- Reviews:
  - PCL arrangements shall provide for six-monthly reviews by the Executive Board to assess whether the member’s PCL-supported program remains on track based on:
    - observance of performance criteria, indicative targets and structural benchmarks, as applicable;
    - continued adherence to the PCL qualification standard set forth in paragraphs 2(a) and 2(b);
    - policy understandings for the future.
  - Such reviews would be scheduled with the objective of completion by the Executive Board immediately prior to the lapse of each six-month period.

### Expiration and re-approval
- A PCL arrangement will expire upon the earlier of:
  - (i) the expiration of the approved term of the arrangement,
  - (ii) the purchase by a member of the entire amount of approved access under the PCL arrangement,
  - (iii) the cancellation of the PCL arrangement by the member.
- Upon expiration, the Fund may approve additional PCL arrangements for the member in accordance with this Decision, subject to the cumulative limit on PCL arrangements set forth in Decision No. 14064-(08/18), adopted February 22, 2008, as amended by Decision No. 14716-(10/83).

### Access limits, phasing, and purchases
- Access rules:
  - For PCL arrangements with a one-year duration:
    - Access shall not exceed 500 percent of quota at the time of approval.
    - The entire amount of access is available to the member upon approval and remains available throughout the arrangement period subject to completion of the six-monthly review.
  - For PCL arrangements with a duration of more than one year:
    - Access shall not exceed 1000 percent of quota.
    - Access shall be phased: an initial amount not in excess of 500 percent of quota is made available upon approval; the remaining amount is made available at the beginning of the second year subject to completion of the relevant six-monthly review.
- Rephasing and additional access:
  - Subject to the limits in paragraph 4(a) and Decision No. 14064-(08/18), as amended by Decision No.14716-(10/83), the Fund will consider requests to rephase access under multi-year PCL arrangements or to make additional amounts available under any PCL arrangement.
  - Such requests shall be considered in the context of a review assessing the member’s actual or potential need for Fund resources and the extent to which the PCL-supported program remains on track based on the six-monthly review factors.
- Purchases:
  - A member may make one or more purchases up to the amount available under a PCL arrangement at any time during the period of the arrangement, subject to the Decision’s provisions.
  - The Fund shall not challenge a representation of need by a member for a purchase requested under a PCL arrangement.
- Phasing and performance clauses:
  - Phasing and performance clauses shall be omitted in any PCL arrangement in the first credit tranche.
  - They will be included in other PCL arrangements pursuant to the Decision, but will apply only to purchases outside the first credit tranche.

### Member documentation and policy framework
- In requesting a PCL arrangement, the member shall submit a concise written communication outlining:
  - its policy goals and strategies for the duration of the arrangement,
  - measures aimed at addressing its remaining vulnerabilities,
  - a quantified macroeconomic framework underpinned by a streamlined set of indicative targets, and where warranted, structural benchmarks and performance criteria.

### Waiver of Article V limitation
- The Fund will be prepared to grant a waiver of the limitation of 200 percent of quota in Article V, Section 3(b)(iii), whenever necessary to permit purchases under this Decision or to permit other purchases that would raise the Fund's holdings of the purchasing member's currency above that limitation because of purchases outstanding under this Decision.

### Amendments to Access and Exceptional Access policy (Decision No. 14064-(08/18))
- The introductory sentence in paragraph 3 of Decision No. 14064-(08/18) is amended to:
  - “3. Subject to paragraph 4 below, the Fund may approve access in excess of the limits set forth in this Decision in exceptional circumstances, provided the following four substantive criteria are met:”
- Paragraphs 4 and 5 of that Decision shall be renumbered as Paragraphs 5 and 6, respectively.
- A new paragraph 4 is added:
  - “4. When exceptional access is approved under a PCL arrangement pursuant to paragraph 3, such access, combined with the member’s access to the Fund’s resources under other PCL arrangements, shall in no event exceed a cumulative limit of 1000 percent of quota, net of scheduled repurchases.”

### Review of FCL and PCL Decisions
- The Decision establishes that decisions on Flexible Credit Line Arrangements and on Precautionary Credit Line Arrangements shall be reviewed jointly by the Fund no later than two years after the date of adoption of this Decision or whenever aggregate outstanding credit and commitments under these two decisions reach SDR 100 billion, whichever is earlier.
- The decision on Flexible Credit Line Arrangements, Decision No. 14283-(09/29), adopted March 24, 2009, as amended, and the decision on Precautionary Credit Line Arrangements, Decision No.14715-(10/83) adopted August 30, 2010, shall be reviewed jointly by the Fund by August 30, 2013 or whenever aggregate outstanding credit and commitments under these two decisions reach SDR 100 billion, whichever is earlier.

*Source: 1. The Fund decides that resources in the credit tranches may be made available under a Precautionary Credit Line (PCL) arrangement.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_082510.pdf_