IMF Glossary

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Surveillance and the International Monetary System

• Surveillance is the IMF’s mandate to oversee the international monetary system and assess whether members meet obligations to promote exchange rate stability and avoid manipulation.
• Two modalities:
  • Bilateral surveillance: monitoring individual members’ policies under Article IV and through Article IV Consultations; focuses on monetary, fiscal, financial, and exchange rate policies and assessment of risks and vulnerabilities.
  • Multilateral surveillance: assessing the international monetary system as a whole through reports (World Economic Outlook, Global Financial Stability Report), vulnerability and early warning assessments, and cooperation with groups such as the G-20 Mutual Assessment Program (MAP).
• The 2007 Decision on Bilateral Surveillance clarified that surveillance should focus on domestic and external stability and provided guidance on exchange rate policy consistent with promoting exchange rate stability and avoiding manipulation.
• Triennial Surveillance Review sets priorities; the Review referenced in the glossary was last conducted in 2008, with the next Review to be completed in 2011.

Global imbalances, reserve assets, and the IMS architecture

• Global imbalances: large persistent current account deficits in some systemic countries (most notably the US) mirrored by surpluses in export-oriented economies (east Asia) and oil exporters; concern over unsustainable adjustment and potential disorderly dollar depreciation.
• Reserve accumulation: by 2009, reserves totalled 13 percent of global GDP, a threefold increase from a decade earlier, driven by EMEs.
• Reserve currency and “exorbitant privilege”: major reserve currency issuers enjoy greater macroeconomic space; debate exists on the magnitude of the benefit.
• IMS features:
  • Core currencies and floating among systemic countries, with peripheral economies often managing against core currencies.
  • Multiple currency system and substitution account concepts discussed as ways to diversify reserve assets.
• SDR (Special Drawing Right):
  • Basket currently consists of the Chinese renminbi, the euro, Japanese yen, pound sterling, and U.S. dollar.
  • Most recent review completed in November 2015; effective changes and new weighting formula implemented on October 1, 2016.
  • The next review will take place by 2021.
  • SDR Interest Rate: weekly weighted average of short-term rates in SDR basket markets, subject to a 0.050 percent floor.

IMF financial architecture, resources, and accounting

• Accounting entities: General Department, SDR Department, and Administered Accounts.
• Unit of account: the SDR; gold held at average historical acquisition cost.
• General Resources Account (GRA): principal account financing regular IMF lending operations; ordinary resources derive from quota subscriptions and undistributed net income.
• Liquidity and financing backstops:
  • General Arrangements to Borrow (GAB): currently amounts to SDR 17 billion; associated arrangement with Saudi Arabia for SDR 1.5 billion.
  • New Arrangements to Borrow (NAB): total amount SDR 34 billion; combined drawing under NAB and GAB cannot exceed SDR 34 billion.
• Financial management instruments:
  • Financial Transactions Plan adopted quarterly by the Executive Board.
  • Valuation Adjustment establishes receivables/payables when holdings are revalued.

Lending facilities, arrangements, and access policies

• Arrangement: assurance by the IMF to provide foreign exchange or SDRs during a specified period; arrangements are approved in support of economic programs.
• Stand-By Arrangement: usually one to two years; provides access up to a specified amount under supporting terms.
• Extended Arrangement/Extended Fund Facility: typically three-year support aimed at overcoming balance of payments difficulties from macroeconomic and structural problems.
• Supplemental Reserve Facility (SRF): established in 1997 for exceptional balance of payments needs; no explicit access limits.
• Supplemental instruments and historical facilities:
  • Compensatory Financing Facility (CFF): for temporary export or cereal import shocks.
  • Enhanced Structural Adjustment Facility (ESAF) established December 1987; changed to PRGF in 1999.
  • Poverty Reduction and Growth Facility (PRGF): loans disbursed under three-year arrangements; loans carry an annual interest rate of 0.5 percent, with a 5-1/2 year grace period and a 10-year maturity.
• Access limits:
  • First credit tranche equivalent to 25 percent of quota on liberal terms; credit above 25 percent requires substantial justification.
  • Access policy (annual and cumulative limits) reviewed each year for credit tranches and the EFF.
  • Floating facilities (CFF and SRF) are not counted in calculating annual and cumulative access limits.

Conditionality, programs, monitoring, and safeguards

• Conditionality: policy commitments (performance criteria, benchmarks) that members undertake as conditions for use of IMF resources.
• Adjustment Program: detailed program, usually supported by IMF resources, specifying monetary, fiscal, external, and structural policies to achieve stabilization and sustainable growth.
• Performance Criteria and Benchmarks: quantitative or structural points of reference often set quarterly or semi-annually.
• Program Monitoring and Staff Monitored Programs (SMP): SMPs are informal and not financed by IMF resources; program monitoring determines compliance with performance criteria.
• Safeguards and Adequate Safeguards: IMF requires adequate safeguards for use of general resources; safeguards assessments evaluate central bank control, accounting, reporting and auditing systems. Safeguards assessments for new users to begin after mid-year 2000 and run experimentally no later than end-2001.

Debt, arrears, and relief mechanisms

• Arrears: outstanding debt due to missed payments; may arise from failure to pay interest or amortization or delayed payments to contractors, civil servants, or pensioners.
• Debt Relief mechanisms:
  • Heavily Indebted Poor Countries (HIPC) Initiative adopted 1996; eligibility criteria include strong track record under PRGF/IDA, IDA-only and PRGF-eligible status, unsustainable debt burden, and a Poverty Reduction Strategy Paper.
  • Multilateral Debt Relief Initiative (MDRI): provides 100 percent relief on eligible debt from three multilateral institutions to qualifying low-income countries; eligibility includes reaching HIPC completion point, or per capita income below US$380 and outstanding debt to the Fund at end-2004.
• Rights Accumulation Program (RAP) and Rights Approach: frameworks to address members in protracted arrears and permit accumulation of rights to future drawings.

Macroeconomic and monetary terminology and measures

• Balance of Payments (BOP): summarizes transactions in goods, services, income, transfers, and financial assets/liabilities; divided into current account and capital and financial account.
• Current Account: records exports/imports of goods and services, income payments, and current transfers.
• Broad Money vs Narrow Money: broad money includes currency, resident deposits (transferable and nontransferable), and may include foreign currency deposits; narrow money includes currency outside banks and demand deposits.
• Inflation and Consumer Price Index (CPI): CPI measures a country's general price level using a typical basket of consumer goods and services; inflation is the sustained increase in the general price level and is measured as the percentage change over a period.
• Exchange Rate and Exchange Rate Regimes:
  • Exchange rates typically quoted as units of domestic currency per U.S. dollar or as the inverse.
  • The IMF classifies regimes into 4 categories based on flexibility and formal/informal commitments: exchange rate anchors (currency boards, full dollarization, pegs and bands); monetary aggregate targeting; inflation targeting; and others.
• Real Effective Exchange Rate and Nominal Effective Exchange Rate: weighted averages of bilateral rates or price levels relative to trading partners.
• Purchasing Power Parity (PPP): theory linking nominal exchange rate changes to relative price level changes.

Selected exact figures, fees, and thresholds from IMF practice and history

• SDR basket included the Chinese renminbi effective October 1, 2016; basket composition reviewed every five years; next review will take place by 2021.
• GAB amount: SDR 17 billion; associated arrangement with Saudi Arabia for SDR 1.5 billion.
• NAB total amount: SDR 34 billion; combined NAB and GAB drawing cannot exceed SDR 34 billion.
• By 2009, reserves totalled 13 percent of global GDP.
• PRGF loans: annual interest rate of 0.5 percent; 5-1/2 year grace period; 10-year maturity.
• Commitment Fee: 1/4 of 1 percent a year on committed resources under Stand-By and Extended Arrangements (reimbursed when drawn).
• Service Charge: 1/2 of 1 percent levied on each purchase of IMF resources in the GRA other than reserve tranche purchases.
• SDR Interest Rate floor: 0.050 percent.
• Extended Burden Sharing target: SDR 1 billion; target reached in February 1997.
• Credit tranche (first tranche) equivalent to 25 percent of quota; “upper credit tranches” refer to any use of IMF credit above 25 percent of quota.
• Net cumulative SDR allocations: as of end-March 2000, there have been no cancellations of SDRs.
• Eighty low-income countries are currently PRGF-eligible.
• Quotas are reviewed normally every five years.

References

• IMF TERMINOLOGY