Public Information Notice: IMF Board Completes Review of Fund Financial Facilities

November 30, 2000

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On November 28, 2000, the Executive Board of the International Monetary Fund (IMF) approved decisions that introduce a number of changes to the Fund's nonconcessional facilities, following Board discussions on November 17. The staff paper on which the discussions were based is posted on the IMF's website at


The Board held an initial wide-ranging discussion of the Fund's nonconcessional facilities in March 2000. In that discussion, the Board agreed to eliminate a number of little-used and obsolete facilities, and to streamline the Compensatory Financing Facility. The discussion also began a more fundamental process aimed at better adapting the Fund's lending instruments to the changing nature of the global economy.

The International Monetary and Financial Committee at its meeting in Washington in April 2000 encouraged the Board to secure rapid progress in this review, and the Board discussed in July and September an array of further possible changes to the Fund's facilities. At meetings on September 14-15 the Executive Board reached agreement on a number of changes to the Fund's facilities, as discussed in PIN No. 00/79. On November 17, the Board finalized discussions on the steps that should be taken to implement these changes, and on November 28 took the decisions needed to put them into effect. The Executive Board's assessment of the November 17 discussion follows.

Executive Board Assessment

The Board has now concluded its discussion of the Review of Fund Facilities, bringing to a close the process begun at the beginning of this year, and taking major steps to adapt the Fund's facilities to a changing global economic environment. The Board began by eliminating a number of little-used and obsolete facilities, and then continued with a discussion of fundamental issues: Were the Fund's facilities doing enough to support its members' efforts to prevent crises? Were they being used in ways consistent with the revolving character of Fund resources, especially now that increasing numbers of members have access to international private capital markets? And was the Fund staying in close enough touch with members that, while not still drawing on Fund resources under arrangements, had large obligations to the Fund still outstanding?

As regards all these questions, the Board in September reached agreement on an important package of measures. Directors agreed to enhance the Contingent Credit Lines (CCL), in the hope that this facility will become an important tool of crisis prevention, and to introduce new mechanisms, and sharpen existing ones, to ensure that countries do not rely on Fund resources for excessively long periods or in excessively large amounts. Directors also agreed to strengthen the monitoring of members with substantial Fund resources outstanding to help ensure that they make continued progress toward external viability.

The Board has now taken a number of decisions that will give effect to the agreed changes. This summing up briefly explains some of the changes, and also covers material that is not included in the formal decisions.

Time-Based Repurchase Expectations

The Board agreed in September to introduce time-based repurchase expectations for purchases in the credit tranches and under the Extended Fund Facility (EFF). We have agreed on the elements of the decisions to be adopted to put this agreement into effect. For purchases in the credit tranches, members will be expected to begin repurchases 2 ¼ years after each purchase and complete repurchases after 4 years. Under the EFF, members will be expected to meet repurchase expectations starting from 4 ½ years and ending 7 years after each purchase. Time-based repurchase expectations will not apply to any purchases made to date, but will apply to purchases made after these decisions were adopted on November 28, 2000.

The member would be expected to meet repurchase expectations, but the Fund could extend them on request by the member, if the Board agreed that the member's external position was not sufficiently strong for it to repay early without undue hardship or risk. Elements that will be taken into account in assessing the external position are the level of international reserves, the outlook for the balance of payments, and access to international capital markets, and the Board will consider the member's overall external position, including any relevant special factors, in arriving at a judgment. Fund-supported programs will continue to be guided by the requirement that the member should be able to meet repurchase obligations (rather than expectations), and the meeting of expectations will signal that the member's external position is stronger than would have been dictated by this requirement. Moreover, since Fund-supported programs will not as a general rule target adjustment sufficiently rapid for members to meet repurchase expectations, it will follow that in most cases members will be considered to be in a position to meet repurchase expectations only if their external position is stronger than had been projected at the time of approval of the arrangement.

Members may make a request for an extension of repurchase expectations at any time, although as a practical matter the Board encouraged members to make such requests at least two months before an expectation falls due, in order to avoid the expectation date passing without the Board having considered the request. The Board could agree to extend one, several, or all repurchase expectations at once, but there will be a presumption that extensions would cover repurchase expectations falling due over a period of a year. If necessary, additional extensions of expected repurchases can be requested and granted at a later date. When expected repurchases are extended, the repurchases will become due on the date of the corresponding obligations.

Should a member fail to meet a repurchase expectation that has not been extended by the Board, its right to make further drawings, including under ongoing arrangements, would be automatically suspended. The Managing Director would not recommend, and the Board would not approve, new arrangements or outright purchases in these circumstances. The following steps would also be taken when a repurchase expectation is missed, i.e., neither met on schedule nor extended: The Managing Director would be informed immediately; a communication from the Managing Director would be sent to the member after two weeks; the Executive Board would be informed of the incident after one month; and there would be a substantive consideration by the Executive Board of the situation after three months.

Directors agreed that recognition will be given to members' meeting repurchase expectations by mentioning this fact in summings up and, if they are published, Public Information Notices (PINs) following Article IV or post-program monitoring discussions, and by reporting on the member's country-specific page on the web site. Extensions of expectations will be made public in the form of a factual statement posted on the IMF web site on the member's country-specific page, and in the next weekly update of "Fund Financial Activities: Week at a Glance." With regard to the publicity to be given to repurchase expectations that are missed without being extended, Directors agreed that the Board would return to this question in parallel with a review of the transparency aspects of overdue obligations next year.

Directors agreed that the Board should review the operation of early repurchase expectations by November 2005, by which time some experience with repurchase expectations under both the credit tranches and the EFF will have been gained.

Charges on the Use of Fund Resources

The Board agreed in September to introduce surcharges on purchases in the credit tranches and the EFF, which would apply to the amount outstanding above a threshold level, in order to discourage unduly large use of Fund resources. The use of credit above 200 percent of a member's quota will carry a surcharge of 100 basis points above the regular rate of charge, and the surcharge will rise to 200 basis points for use of credit above 300 percent of quota. Purchases outstanding as of the date of the decision putting this policy into effect (November 28, 2000) will not be subject to the surcharge, nor will they be taken into account for the purpose of calculating any surcharges applicable to future purchases. Directors considered that the surcharges adopted in the context of this discussion on the review of the Fund's facilities should not be changed for a period of at least four years. They also considered that the Fund's net income target should not be increased for the primary purpose of achieving an increase in the basic rate of charge.

We have reduced the surcharge on the use of credit under the CCL. The surcharge over the regular rate of charge will now be 150 basis points initially, and will rise by 50 basis points one year from the date of the first purchase under the facility and every six months thereafter, until it reaches a maximum of 350 basis points. The surcharge will thus be, at all times, 150 basis points lower than the surcharge that would be applicable under the Supplemental Reserve Facility (SRF).

In addition, as envisaged in September, the Board has adopted a reduction in the commitment fee on all Fund arrangements charged on the amounts that can be purchased over any 12-month period, from a uniform 25 basis points to 25 basis points on amounts of up to 100 percent of quota and 10 basis points on amounts exceeding 100 percent of quota. This reduction will be especially helpful to users of the CCL, as arrangements with CCL resources are expected to be large and are unlikely to be drawn upon.

Emergency Assistance

Directors confirmed that resources made available under emergency assistance for natural disasters and post-conflict situations would not be subject to the level-based surcharge, nor be taken into account for the purpose of calculating the surcharge applicable to other resources. They further agreed that resources available under both types of emergency assistance should not feature time-based repurchase expectations. Directors considered that it would be rare for post-conflict cases to develop a sufficiently strong external position to meet expectations, and that there were important benefits in terms of simplicity in having the same conditions apply to emergency assistance for both natural disasters and post-conflict cases. Directors agreed that emergency assistance should be converted into a special policy outside the credit tranches, so that neither surcharges nor repurchase expectations would apply to it, and decisions were taken to this effect. A further implication of converting emergency assistance into a special policy is that access under emergency assistance will not count toward the limits on access under the credit tranches and the EFF. It was agreed that this issue should be considered further in the context of the forthcoming review of access policy.

Compensatory Financing Facility

Directors agreed that purchases under the Compensatory Financing Facility (CFF)—which was reviewed and streamlined earlier this year—should be subject to repurchase expectations, but would not be subject to the level-based surcharge, nor counted toward outstanding obligations that give rise to the surcharge.

Extended Fund Facility

As regards the EFF, the Board confirmed that it saw a need to ensure that arrangements under the EFF be granted only in cases that met fully the terms and spirit of the EFF Decision. These would be cases where there is a reasonable expectation that the member's balance of payments difficulties will be relatively long-term, including because it has limited access to private capital, and where there is an appropriately strong structural reform program to deal with the embedded institutional or economic weaknesses. The Board agreed that extended arrangements should generally not be formulated on a precautionary basis, as circumstances where potential balance of payments difficulties were likely to turn out to be longer-term are probably very rare. It was also noted that members with meaningful access to capital markets were not likely to suffer from the problems described in the EFF Decision, and hence that such members would not normally be expected to seek extended arrangements. It is understood that the EFF could be especially appropriate for graduating-PRGF and some transition countries that do not have, or do not have enough, access to capital markets. At the same time, the EFF remains available to all members, and there will be circumstances where it will be the most appropriate instrument to meet a member's needs.

Post-program monitoring

The Board agreed in September that, when a member's credit outstanding exceeded a threshold of 100 percent of quota, there should be a presumption that the member would engage in Post-Program Monitoring (PPM) by the Fund of economic developments and policies after the expiration of its arrangement. The threshold covers all credit outstanding to the Fund in the General Resources Account (GRA). Directors agreed that the threshold should not cover use of Fund resources outside the GRA—namely, through the Poverty Reduction and Growth Facility (PRGF). There will be a review of the PRGF next year and a redefinition of the threshold to include the PRGF will be considered at that time.

Directors agreed that PPM would normally be instituted at the conclusion of the last review under an arrangement when it was expected that the member's credit outstanding at the end of the arrangement would exceed the threshold, and would normally cease when the member's outstanding credit fell below the threshold. However, PPM could also be initiated or terminated at other times, on the recommendation of the Managing Director. Directors also reiterated that, in accordance with the existing consultation clause in Fund arrangements, PPM could be required of members that did not meet the threshold of 100 percent of quota on credit outstanding, if the Managing Director and the Board considered it important.

PPM will involve members engaging in more frequent consultation with the Fund, with a particular focus on macroeconomic and structural policies that have a bearing on external viability. To this end, the member will engage in discussions with the staff on its policies, including a quantified macroeconomic framework, much as it does in an Article IV consultation. The staff will then report formally to the Board on the member's policies, the consistency of the proposed policies with the objective of medium-term viability, and the implications for the member's capacity to repay the Fund. There will normally be two Board discussions a year. One of these might coincide with the Article IV consultation, and the other could be based on a short staff report covering recent economic developments and the policy discussions with the authorities. It would be possible-as it is with Article IV consultations-for the Board to conclude a PPM discussion on a lapse-of-time basis, if no major issues had arisen. The Board's discussions of PPM papers would be reflected in a PIN, publication of which would follow the normal PIN procedures, including the requirement for the member's consent. Directors also agreed that staff reports for PPM discussions should be published on a voluntary basis.

Contingent Credit Lines (CCL)

The Board elaborated further the changes to the CCL agreed in September to allow the CCL to play an effective role in helping members prevent and deal with crises. In addition, the Board agreed that there should be a presumption that the amount of resources scheduled to become available at the time of the activation review should normally be equal to one-third of the total commitment of resources under the member's arrangement. In order to allow for a meaningful period of experimentation with the revised facility, the Board extended the sunset clause on the CCL until November 2003. The Board will review the CCL in November 2002. These and other operational aspects of the agreed changes to the CCL are reflected in the amendments to the CCL decision, and in the revised summing up on the CCL.


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