## _082012

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---

### I. Introduction
- This paper reviews progress under the Fund’s strengthened cooperative strategy on overdue financial obligations since the last review and proposes certain modifications to the strategy.

### II. Recent developments — Overview and key statistics
- Total arrears to the Fund at end-June 2012: SDR 1,302.3 million (decline of SDR 1.6 million since end-June 2011).
- Distribution of arrears by account (end-June 2012):
  - 85.8 percent to the General Resources Account (GRA).
  - 6.9 percent to the Trust Fund.
  - 6.6 percent to the Poverty Reduction and Growth Trust (PRGT).
  - 0.8 percent to the Structural Adjustment Facility (SAF).
- Composition of total arrears (End-June 2011 → End-June 2012; in millions of SDRs):
  - Total arrears: 1,303.9 → 1,302.3
  - Principal: 429.4 → 423.5
    - GRA principal: 283.7 → 279.4
    - PRGT principal: 71.1 → 69.5
    - Other principal1/: 74.5 → 74.5
  - Interest: 874.5 → 878.8
    - GRA interest: 833.7 → 837.4
    - PRGT interest: 16.2 → 16.4
    - Other2/: 24.6 → 25.0
- Protracted arrears status:
  - Three members in protracted arrears (outstanding six months or more): Somalia, Sudan, Zimbabwe.
  - All arrears outstanding at end-June 2012 were attributable to protracted arrears cases.
  - Two members—Somalia and Sudan—have accumulated arrears dating back to the mid-1980s.
  - Share of total arrears by member (in millions of SDRs; as of end-June 2012):
    - Somalia: 233.1
    - Sudan: 983.3
    - Zimbabwe: 85.9
  - Sudan accounted for 76 percent of total arrears; Somalia 18 percent; Zimbabwe 7 percent.
- Burden-sharing and related financial impacts:
  - Total burden-shared deferred charges as of end-June 2012: SDR 703.6 million (increase of SDR 3.5 million from a year earlier).
  - SDRs drawn from PRGT Reserve Account to repay PRGT lenders due to Zimbabwe’s PRGT arrears: SDR 70.2 million.
- Short-term arrears:
  - Four instances of short-term arrears (less than six months) in the twelve months to end-June 2012 (compared with one instance in the prior twelve months); these were technical in nature and settled before formal Managing Director communication.
- Arrears to other international financial institutions by members in protracted arrears (as of end-June 2012; in millions of SDRs):
  - World Bank: 1,236.2 (increase of SDR 145.9 or 13.4 percent since last review).
  - African Development Bank Group (AfDB): 637.6 (increase of SDR 50.6 or 8.6 percent since last review).
  - Combined totals (Fund, World Bank, AfDB): 1,302.3; 1,236.2; 637.6 → Total: 3,176.1
  - Breakdown by country (Fund / World Bank / AfDB / Total):
    - Somalia: 233.1 / 165.9 / 60.1 → 459.1
    - Sudan: 983.3 / 455.7 / 201.2 → 1,640.3
    - Zimbabwe: 85.9 / 614.6 / 376.2 → 1,076.7
- Overdue currency valuation adjustments:
  - Overdue currency valuation adjustments of 9 members: SDR 1.1 billion at end-June 2012 (decline of SDR 159 million from end-June 2011).
- SDR Department status:
  - Since the general SDR allocation on August 28, 2009, members with protracted overdue financial obligations have remained current to the SDR Department.

### III. Recent reviews of protracted arrears cases — case-by-case findings
- General:
  - Remedial measures remained in place in all three protracted arrears cases during the period under review.
  - Staff monitors developments and stands ready to re-engage when conditions permit.

- Somalia:
  - Executive Board has postponed its review of Somalia’s overdue financial obligations since October 1990.
  - No basis for assessing Somalia’s cooperation due to:
    - Absence of a government recognized by the Fund.
    - Highly uncertain political and security situation.
    - Lack of economic and financial information.
  - Somalia has remained current with obligations to the SDR Department since the August 2009 general SDR allocation.
  - Somalia’s arrears are contained to the GRA, Trust Fund, and SAF.
  - Declaration of ineligibility to use the Fund’s general resources remains in place.
  - Staff continues to monitor mainly through media reports and is ready to re-engage when feasible.

- Sudan:
  - Executive Board review and Managing Director’s complaint last considered in October 2011.
  - Directors’ findings:
    - Sudan’s cooperation with the Fund on policies broadly satisfactory amid immediate pressures related to secession of South Sudan and significant loss of oil-related revenues and foreign exchange earnings.
    - Significant uncertainties remain regarding post-secession economic and financial relations with South Sudan.
    - Directors urged policies to:
      - Enhance non-oil revenues and streamline public expenditures.
      - Promote exchange rate flexibility.
      - Implement reforms to support the non-oil sector.
      - Minimize nonconcessional borrowing given Sudan’s unsustainable external debt burden.
    - Payments from February 2011 to end-September 2011: SDR 3.2 million against obligations falling due of SDR 2.2 million.
    - Level of payments continued to exceed new obligations, but payment indicators weakened compared with 2008.
    - Directors strongly urged regular and timely payments and significant increases as payment capacity improves.
  - Review scheduling:
    - Executive Board postponed next review originally to no later than July 27, 2012, then to end-September 2012, to allow incorporation of findings from the May 2012 Article IV mission and consideration of a successor staff monitored program (SMP).

- Zimbabwe:
  - Executive Board reviewed Zimbabwe’s PRGT arrears in September 2011 and April 2012.
  - Directors’ findings and recommendations:
    - Cooperation on policies had weakened; urged strengthening of cooperation.
    - Urged alignment of 2012 budget execution with realistic revenue forecasts to return to a path toward medium-term fiscal and external sustainability.
    - Recommended actions to increase economic resilience and restore policy credibility, including:
      - Improve expenditure management.
      - Strengthen financial sector prudential regulations and enforcement.
      - Improve the business climate.
      - Refrain from incurring nonconcessional liabilities, including use of SDR resources.
    - Emphasized need to demonstrate capacity and commitment to implement strengthened policies under a staff monitored program, including:
      - Timely data reporting.
      - Remedial measures to resolve irregularities in employment practices and control the payroll.
      - Improve transparency in the diamond sector.
      - Take additional actions to reduce financial sector risks.
    - Cooperation on payments remains poor; Directors strongly encouraged regular and timely payments and increases as payment capacity improves.
    - Directors attached highest importance to prompt settlement of Zimbabwe’s arrears and urged action to discharge these arrears as soon as possible.
    - Directors agreed to continue technical assistance in targeted areas and to maintain previously taken remedial measures; review to occur within six months.

### IV. Progress under the Fund’s arrears strategy and related policy proposals
- Assessment:
  - The Fund’s strengthened cooperative strategy on overdue financial obligations remains broadly effective in dealing with both short-term and protracted arrears.
- Proposed modifications to the strategy:
  - Lengthen the frequency for reviewing the arrears strategy to three years (with the possibility of an earlier review if warranted by developments).
  - Allow the postponement of the country-specific review for a member with protracted arrears for up to one year in exceptional circumstances where the Managing Director judges there is no basis for an earlier evaluation of the member’s cooperation with the Fund.

### V. Extension of the rights approach
- Proposal:
  - Extend the availability of the rights approach by three years, to end-August 2015.
- Rationale:
  - The rights approach remains an important option for arrears clearance for the remaining two eligible members (Somalia and Sudan).
- Background and mechanics:
  - Initiated in 1990; used in clearing arrears of Peru, Sierra Leone, and Zambia in the 1990s.
  - Eligibility restricted to the eleven members that had protracted arrears to the Fund at end-1989; only Somalia and Sudan remain eligible.
  - Under the approach, an eligible member must establish a track record of cooperation on policies with the Fund by undertaking an economic program with conditionality equivalent to that of upper credit tranche Fund arrangements, and make payments at a minimum sufficient to meet new obligations falling due.
  - By establishing such a track record, the member accumulates “rights” to future drawings of Fund resources following the clearance of its arrears. Bilateral creditors would provide a bridge loan to clear the member’s arrears to the Fund, followed by the member’s access to new Fund financing.
- Use of the rights approach is not required for eligible members but could provide a useful approach for arrears clearance in light of country-specific circumstances.

### VI. Remedial measures and monitoring
- Status:
  - Remedial measures continue to apply across protracted arrears cases (specific remedial measures and timetables are referenced in Tables and Annexes).
- Monitoring:
  - Updates of developments in protracted cases will be provided at the next six-monthly review of each member’s arrears.
- Procedural note:
  - The paper proposes allowing in exceptional circumstances the postponement of a country-specific review for up to one year when the Managing Director assesses there is no basis for an earlier evaluation.

### Overview of the Fund’s arrears strategy and effectiveness
- Strategy elements: prevention; intensified collaboration (including the rights approach); remedial measures.
- Timetables for remedial measures for overdue financial obligations to the Fund’s General and SDR Departments and the PRGT are provided in Annexes I and II.
- Preventive element has generally worked well in avoiding new arrears or bringing about quick clearance of such arrears.
- Number of countries in protracted arrears and amounts outstanding have declined over the last two decades and protracted arrears have recently been relatively stable.
- As of end-June 2012, countries with protracted arrears (six months or more) and their overdue totals (SDR millions):
  - Somalia: 233.1
  - Sudan: 983.3
  - Zimbabwe: 85.9
  - Total: 1,302.3

### Deferred GRA charges and overdue currency valuation adjustments (selected figures)
- Deferred GRA charges of countries with protracted arrears, balances (in millions of SDRs, as of June 30, 2012):
  - Somalia: 119.3
  - Sudan: 19.2
  - Total: 838.5 (aggregate rows in table show cumulative Total 838.5 as of Apr. 30, 2012 and Balance Jun. 30, 2012 of 838.5)
- Countries with overdue currency valuation adjustments (in millions of SDRs; as of end-June 2012) and total:
  - Angola: 218.3
  - Iran: 260.5
  - Marshall Islands: 0.2
  - Micronesia: 0.4
  - Palau: 0.4
  - Panama: 6.6
  - Somalia: 135.6
  - Sudan: 498.0
  - Turkmenistan: 1.9
  - Total: 1,121.9

### Proposed streamlining and procedural changes
- Reduce frequency of Fund arrears strategy reviews from annual to a three-year cycle, with earlier review possible if warranted.
- Allow longer postponement of the six-month country-specific review for members with protracted arrears where there is no basis for earlier evaluation:
  - Current practice: six-month postponement in exceptional cases (e.g., absence of a government recognized by the Fund and/or ongoing conflict situations).
  - Proposed: allow extension of the country-specific review for up to one year in these exceptional cases; staff to continue monitoring and to resume the six-month schedule once an assessment is feasible.

### Remedial measures timetables (summary of Annexes I and II)
- Annex I: Overdue Financial Obligations to the General Department and the SDR Department—Timetable of Remedial Measures
  - Immediately: Staff sends a cable urging payment; member not permitted use of Fund resources; requests for Fund resources not placed before Executive Board until arrears cleared.
  - 2 weeks: Management communication to the Governor stressing seriousness and urging settlement.
  - 1 month: Managing Director notifies the Executive Board that an obligation is overdue.
  - 6 weeks: Managing Director notifies member that a complaint will be issued unless settled; may recommend communications to selected or all Governors.
  - 2 months: Complaint issued by the Managing Director to the Executive Board.
  - 3 months: Brief factual statement posted on Fund’s external website; complaint given substantive consideration by Executive Board; Board may limit member’s use of general resources and, if applicable, suspend right to use SDRs; press release issued following Board decision.
  - 6–12 months: Executive Board will review its decision on limitation within three months, with possibility of a second review; declaration of ineligibility considered to take effect not more than twelve months after emergence of arrears; sending communications to all Fund Governors and heads of selected international financial institutions to be considered.
  - Up to 15 months: Declaration of noncooperation considered within three months after dispatch of communications; technical assistance to member suspended upon declaration unless Board decides otherwise.
  - Up to 18 months: Decision on suspension of voting and representation rights considered within three months after declaration of noncooperation.
  - Up to 24 months: Procedure on compulsory withdrawal initiated within six months after decision on suspension.
- Annex II: Overdue Financial Obligations to the Poverty Reduction and Growth Trust (PRGT)—Timetable of Remedial Measures
  - Immediately: Staff sends a cable urging payment; member’s access to Fund resources, including Trust resources, is suspended.
  - 2 weeks: Management communication to the Governor stressing seriousness and urging settlement.
  - 1 month: Managing Director notifies the Executive Board that an obligation to the Trust is overdue.
  - 6 weeks: Managing Director notifies member that a report concerning arrears will be issued to the Executive Board; may recommend communications to selected or all Governors.
  - 2 months: Report issued by the Managing Director to the Executive Board requesting limitation of member’s use of PRGT Resources.
  - 3 months: Report given substantive consideration; factual statement posted on country-specific page on Fund’s external website; press release issued following Board decision.
  - 6 months: Executive Board reviews its decision on limitation and may remove the member from the list of PRGT-eligible countries; reinstatement requires a new Executive Board decision.
  - 12 months: Declaration of noncooperation with the PRGT may be issued depending on Board assessment; upon a declaration of noncooperation, the Fund could suspend technical assistance; Managing Director may limit technical assistance if it is not contributing adequately to resolution of overdue problems.

*Source: Executive Summary, IMF paper on the Fund’s strengthened cooperative strategy on overdue financial obligations (end-June 2012).*

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

### EXECUTIVE SUMMARY

### I. Introduction
- This paper reviews progress under the Fund’s strengthened cooperative strategy on overdue financial obligations since the last review and proposes certain modifications to the strategy.

### II. Recent developments — Overview and key statistics
- Total arrears to the Fund at end-June 2012: SDR 1,302.3 million (decline of SDR 1.6 million since end-June 2011).
- Distribution of arrears by account (end-June 2012):
  - 85.8 percent to the General Resources Account (GRA).
  - 6.9 percent to the Trust Fund.
  - 6.6 percent to the Poverty Reduction and Growth Trust (PRGT).
  - 0.8 percent to the Structural Adjustment Facility (SAF).
- Composition of total arrears (End-June 2011 vs End-June 2012; in millions of SDRs):
  - Total arrears: 1,303.9 → 1,302.3
  - Principal: 429.4 → 423.5
    - GRA principal: 283.7 → 279.4
    - PRGT principal: 71.1 → 69.5
    - Other principal1/: 74.5 → 74.5
  - Interest: 874.5 → 878.8
    - GRA interest: 833.7 → 837.4
    - PRGT interest: 16.2 → 16.4
    - Other2/: 24.6 → 25.0
- Protracted arrears status:
  - Three members in protracted arrears (outstanding six months or more): Somalia, Sudan, Zimbabwe.
  - All arrears outstanding at end-June 2012 were attributable to protracted arrears cases.
  - Two members—Somalia and Sudan—have accumulated arrears dating back to the mid-1980s.
  - Share of total arrears by member (in millions of SDRs; as of end-June 2012):
    - Somalia: 233.1
    - Sudan: 983.3
    - Zimbabwe: 85.9
  - Sudan accounted for 76 percent of total arrears; Somalia 18 percent; Zimbabwe 7 percent.
- Burden-sharing and related financial impacts:
  - Total burden-shared deferred charges as of end-June 2012: SDR 703.6 million (increase of SDR 3.5 million from a year earlier).
  - SDRs drawn from PRGT Reserve Account to repay PRGT lenders due to Zimbabwe’s PRGT arrears: SDR 70.2 million.
- Short-term arrears:
  - Four instances of short-term arrears (less than six months) in the twelve months to end-June 2012 (compared with one instance in the prior twelve months); these were technical in nature and settled before formal Managing Director communication.
- Arrears to other international financial institutions by members in protracted arrears (as of end-June 2012; in millions of SDRs):
  - World Bank: 1,236.2 (increase of SDR 145.9 or 13.4 percent since last review).
  - African Development Bank Group (AfDB): 637.6 (increase of SDR 50.6 or 8.6 percent since last review).
  - Combined totals (Fund, World Bank, AfDB): 1,302.3; 1,236.2; 637.6 → Total: 3,176.1
  - Breakdown by country (Fund / World Bank / AfDB / Total):
    - Somalia: 233.1 / 165.9 / 60.1 → 459.1
    - Sudan: 983.3 / 455.7 / 201.2 → 1,640.3
    - Zimbabwe: 85.9 / 614.6 / 376.2 → 1,076.7
- Overdue currency valuation adjustments:
  - Overdue currency valuation adjustments of 9 members: SDR 1.1 billion at end-June 2012 (decline of SDR 159 million from end-June 2011).
- SDR Department status:
  - Since the general SDR allocation on August 28, 2009, members with protracted overdue financial obligations have remained current to the SDR Department.
  - Combined SDR allocations to Somalia, Sudan and Zimbabwe from general and special allocations are noted in the text (no changes to these figures are proposed or summarized beyond statement).

### III. Recent reviews of protracted arrears cases — case-by-case findings
- General:
  - Remedial measures remained in place in all three protracted arrears cases during the period under review.
  - Staff monitors developments and stands ready to re-engage when conditions permit.

- Somalia:
  - The Executive Board has postponed its review of Somalia’s overdue financial obligations since October 1990.
  - No basis for assessing Somalia’s cooperation due to:
    - Absence of a government recognized by the Fund.
    - Highly uncertain political and security situation.
    - Lack of economic and financial information.
  - Somalia has remained current with obligations to the SDR Department since the August 2009 general SDR allocation.
  - Somalia’s arrears are contained to the GRA, Trust Fund, and SAF.
  - Declaration of ineligibility to use the Fund’s general resources remains in place.
  - Staff continues to monitor mainly through media reports and is ready to re-engage when feasible.

- Sudan:
  - Executive Board review and Managing Director’s complaint last considered in October 2011.
  - Directors’ findings:
    - Sudan’s cooperation with the Fund on policies broadly satisfactory amid immediate pressures related to secession of South Sudan and significant loss of oil-related revenues and foreign exchange earnings.
    - Significant uncertainties remain regarding post-secession economic and financial relations with South Sudan.
    - Directors urged policies to:
      - Enhance non-oil revenues and streamline public expenditures.
      - Promote exchange rate flexibility.
      - Implement reforms to support the non-oil sector.
      - Minimize nonconcessional borrowing given Sudan’s unsustainable external debt burden.
    - Payments from February 2011 to end-September 2011: SDR 3.2 million against obligations falling due of SDR 2.2 million.
    - Level of payments continued to exceed new obligations, but payment indicators weakened compared with 2008.
    - Directors strongly urged regular and timely payments and significant increases as payment capacity improves.
  - Review scheduling:
    - Executive Board postponed next review originally to no later than July 27, 2012, then to end-September 2012, to allow incorporation of findings from the May 2012 Article IV mission and consideration of a successor staff monitored program (SMP).

- Zimbabwe:
  - Executive Board reviewed Zimbabwe’s PRGT arrears in September 2011 and April 2012.
  - Directors’ findings and recommendations:
    - Cooperation on policies had weakened; urged strengthening of cooperation.
    - Urged alignment of 2012 budget execution with realistic revenue forecasts to return to a path toward medium-term fiscal and external sustainability.
    - Recommended actions to increase economic resilience and restore policy credibility, including:
      - Improve expenditure management.
      - Strengthen financial sector prudential regulations and enforcement.
      - Improve the business climate.
      - Refrain from incurring nonconcessional liabilities, including use of SDR resources.
    - Emphasized need to demonstrate capacity and commitment to implement strengthened policies under a staff monitored program, including:
      - Timely data reporting.
      - Remedial measures to resolve irregularities in employment practices and control the payroll.
      - Improve transparency in the diamond sector.
      - Take additional actions to reduce financial sector risks.
    - Cooperation on payments remains poor; Directors strongly encouraged regular and timely payments and increases as payment capacity improves.
    - Directors attached highest importance to prompt settlement of Zimbabwe’s arrears and urged action to discharge these arrears as soon as possible.
    - Directors agreed to continue technical assistance in targeted areas and to maintain previously taken remedial measures; review to occur within six months.

### IV. Progress under the Fund’s arrears strategy and related policy proposals
- Assessment:
  - The Fund’s strengthened cooperative strategy on overdue financial obligations remains broadly effective in dealing with both short-term and protracted arrears.
- Proposed modifications to the strategy:
  - Lengthen the frequency for reviewing the arrears strategy to three years (with the possibility of an earlier review if warranted by developments).
  - Allow the postponement of the country-specific review for a member with protracted arrears for up to one year in exceptional circumstances where the Managing Director judges there is no basis for an earlier evaluation of the member’s cooperation with the Fund.

### V. Extension of the rights approach
- Proposal:
  - Extend the availability of the rights approach by three years, to end-August 2015.
- Rationale:
  - The rights approach remains an important option for arrears clearance for the remaining two eligible members (Somalia and Sudan).

### VI. Remedial measures and monitoring
- Status:
  - Remedial measures continue to apply across protracted arrears cases (specific remedial measures and timetables are referenced in Tables and Annexes).
- Monitoring:
  - Updates of developments in protracted cases will be provided at the next six-monthly review of each member’s arrears.
- Procedural note:
  - The paper proposes allowing in exceptional circumstances the postponement of a country-specific review for up to one year when the Managing Director assesses there is no basis for an earlier evaluation.

*Source: Executive Summary, IMF paper on the Fund’s strengthened cooperative strategy on overdue financial obligations (end-June 2012).*

### 14.      The Fund’s strategy on arrears has been broadly effective in dealing with cases

### 14.      The Fund’s strategy on arrears has been broadly effective in dealing with cases

### Overview of the Fund’s arrears strategy
- Strategy elements: prevention; intensified collaboration (including the rights approach); remedial measures.
- Timetables for remedial measures for overdue financial obligations to the Fund’s General and SDR Departments and the PRGT are provided in Annexes I and II.

### Effectiveness and outcomes
- The preventive element has generally worked well in avoiding new arrears or bringing about quick clearance of such arrears, thereby preventing new cases of protracted arrears.
- The number of countries in protracted arrears and the amounts of outstanding arrears have declined over the last two decades and protracted arrears have recently been relatively stable.
- As of end-June 2012, countries with protracted arrears (six months or more) and their overdue totals (SDR millions):
  - Somalia: 233.1
  - Sudan: 983.3
  - Zimbabwe: 85.9
  - Total: 1,302.3
- Deferred GRA charges of countries with protracted arrears, balances (in millions of SDRs, as of June 30, 2012):
  - Somalia: 119.3
  - Sudan: 19.2
  - Total: 838.5 (table shows cumulative Total 838.5 as of Apr. 30, 2012 and Balance Jun. 30, 2012 of 838.5; aggregate row lists Total 801.0, 13.6, 814.6, 11.2, 825.8, 4.0, 829.8, 3.9, 833.7, 4.0, 837.7, 0.8, 838.5 across the period)
- Countries with overdue currency valuation adjustments (in millions of SDRs; as of end-June 2012) and total:
  - Angola: 218.3
  - Iran: 260.5
  - Marshall Islands: 0.2
  - Micronesia: 0.4
  - Palau: 0.4
  - Panama: 6.6
  - Somalia: 135.6
  - Sudan: 498.0
  - Turkmenistan: 1.9
  - Total: 1,121.9

### Proposed streamlining and procedural changes
- Reduce the frequency of reviews of the Fund’s arrears strategy:
  - The Fund has reviewed annually the strengthened cooperative strategy on overdue financial obligations since it was established in the early 1990s.
  - Staff proposes moving the review to a three-year cycle, although a review could be held earlier if warranted by developments.
- Allow longer postponement of the review for a member with protracted arrears where there is no basis for evaluating the member’s cooperation with the Fund:
  - The cooperation of a member in protracted overdue financial obligations is reviewed every six months.
  - In exceptional cases where there is no basis for evaluating earlier (typically absence of a government recognized by the Fund and/or ongoing conflict situations), the deadline for the review is postponed for six months.
  - Staff further proposes allowing extension of the country-specific review of the member’s protracted arrears to the Fund for up to one year in these exceptional cases; staff would continue to monitor developments and bring relevant developments to the Board’s attention promptly. The six-month schedule would resume once there is a basis to make an assessment.

### Extension of the rights approach
- The rights approach remains an important option for arrears clearance for the two members that remain eligible: Somalia and Sudan.
- Background and mechanics (as described):
  - Initiated in 1990; used in clearing arrears of Peru, Sierra Leone, and Zambia in the 1990s.
  - Eligibility was restricted to the eleven members that had protracted arrears to the Fund at end-1989; only Somalia and Sudan remain eligible.
  - Under the approach, an eligible member must establish a track record of cooperation on policies with the Fund by undertaking an economic program with conditionality equivalent to that of upper credit tranche Fund arrangements, and make payments at a minimum sufficient to meet new obligations falling due. By establishing such a track record, the member accumulates “rights” to future drawings of Fund resources following the clearance of its arrears. Bilateral creditors would provide a bridge loan to clear the member’s arrears to the Fund, followed by the member’s access to new Fund financing.
- Proposal: extend the availability of the rights approach to end-August 2015.
- Use of the rights approach is not required for eligible members but could provide a useful approach for arrears clearance in light of country-specific circumstances.

### Remedial measures timetables (summary of Annexes I and II)
- Annex I: Overdue Financial Obligations to the General Department and the SDR Department—Timetable of Remedial Measures (key timing and actions after emergence of arrears)
  - Immediately: Staff sends a cable urging payment; member not permitted use of Fund resources; requests for Fund resources not placed before Executive Board until arrears cleared.
  - 2 weeks: Management communication to the Governor stressing seriousness and urging settlement.
  - 1 month: Managing Director notifies the Executive Board that an obligation is overdue.
  - 6 weeks: Managing Director notifies member that a complaint will be issued unless settled; may recommend communications to selected or all Governors.
  - 2 months: Complaint issued by the Managing Director to the Executive Board.
  - 3 months: Brief factual statement posted on Fund’s external website; complaint given substantive consideration by Executive Board; Board may limit member’s use of general resources and, if applicable, suspend right to use SDRs; press release issued following Board decision.
  - 6–12 months: Executive Board will review its decision on limitation within three months, with possibility of a second review; declaration of ineligibility considered to take effect not more than twelve months after emergence of arrears; sending communications to all Fund Governors and heads of selected international financial institutions to be considered.
  - Up to 15 months: Declaration of noncooperation considered within three months after dispatch of communications; technical assistance to member suspended upon declaration unless Board decides otherwise.
  - Up to 18 months: Decision on suspension of voting and representation rights considered within three months after declaration of noncooperation.
  - Up to 24 months: Procedure on compulsory withdrawal initiated within six months after decision on suspension.
- Annex II: Overdue Financial Obligations to the Poverty Reduction and Growth Trust (PRGT)—Timetable of Remedial Measures (key timing and actions)
  - Immediately: Staff sends a cable urging payment; member’s access to Fund resources, including Trust resources, is suspended.
  - 2 weeks: Management communication to the Governor stressing seriousness and urging settlement.
  - 1 month: Managing Director notifies the Executive Board that an obligation to the Trust is overdue.
  - 6 weeks: Managing Director notifies member that a report concerning arrears will be issued to the Executive Board; may recommend communications to selected or all Governors.
  - 2 months: Report issued by the Managing Director to the Executive Board requesting limitation of member’s use of PRGT Resources.
  - 3 months: Report given substantive consideration; factual statement posted on country-specific page on Fund’s external website; press release issued following Board decision.
  - 6 months: Executive Board reviews its decision on limitation and may remove the member from the list of PRGT-eligible countries; reinstatement requires a new Executive Board decision.
  - 12 months: Declaration of noncooperation with the PRGT may be issued depending on Board assessment; upon a declaration of noncooperation, the Fund could suspend technical assistance; Managing Director may limit technical assistance if it is not contributing adequately to resolution of overdue problems.

*Source: IMF Finance Department material in the provided chapter.*

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