News Brief: Financing the HIPC and ESAF Initiatives

IMF News, September 27, 1999

Source details

Agreement reached on main elements of a financing package to enable the IMF to make its contribution to the HIPC Initiative and to continue concessional lending under ESAF for sustainable growth and poverty reduction.
Total financing package amounting to SDR 3.9 billion on an "as needed" basis (US$3.5 billion in end-1998 net present value terms).
The financing package comprises contributions by member countries and by the IMF itself.
The financing of the cost of the HIPC Initiative to the IMF is projected to account for about two thirds of the IMF's total financing requirement.

Bilateral pledges amount to about SDR 1.5 billion "as needed".
Pledges come from a wide cross-section of the IMF's membership, including industrial countries and a large number of developing countries, some of which are low-income countries that have had ESAF-supported programs in the past.

IMF own contributions will amount to about SDR 2.4 billion "as needed."
Investment income from off-market transactions in gold of up to 14 million ounces is estimated to provide about SDR 1.8 billion "as needed."
The off-market transactions in gold by the IMF of up to 14 million ounces are envisaged as a one-time operation of a highly exceptional nature.
The IMF will also contribute about SDR 0.6 billion "as needed" by:
- foregoing compensation for the cost of administrative expenses related to ESAF operations through 2004, with the equivalent amount transferred from the ESAF Trust Reserve Account to the ESAF-HIPC Trust, and
- transferring to the ESAF-HIPC Trust part of the interest surcharge on certain outstanding purchases under the Supplemental Reserve Facility related to activation of the New Arrangements to Borrow.

Transactions entail separate but closely linked transactions between the IMF and member countries that have financial obligations falling due to the IMF.
Step 1: The IMF will sell gold to a member at the prevailing market price, and the profits from the sale will be placed in a special account and then invested for the benefit of the HIPC and ESAF initiatives.
Step 2: Immediately following Step 1, the IMF will accept, at the same market price, the same amount of gold from the member in settlement of that member's financial obligations falling due to the IMF.
Net effects:
- IMF's holdings of physical gold remain unchanged.
- No gold will be released to the market; thus there will be no impact on the supply and demand balance in the market.
- Gold accepted in settlement will be recorded at a higher value in the IMF's balance sheet.
- Acceptance of gold (instead of currencies or SDRs) in such settlements will reduce the IMF's liquidity by the amount of profits transferred for the benefit of the HIPC and ESAF initiatives, and will reduce its net income.

Total IMF financing requirements:
- SDR 3.9 ("as needed")
- US$3.5 (end-1998 NPV)
Cost of the HIPC Initiative to the IMF:
- SDR 2.6
- US$2.3
Subsidy requirement for the ESAF:
- SDR 1.3
- US$1.2
Sources of financing:
- Bilateral contributions: SDR 1.5; US$1.4
- IMF contributions: SDR 2.4; US$2.1
- Investment income from the IMF's off-market gold transactions of 14 million ounces: SDR 1.8; US$1.6
- Other contributions by the IMF: SDR 0.6; US$0.5

International Monetary Fund — News Brief: Financing the HIPC and ESAF Initiatives (September 27, 1999)