IMF Executive Board Discusses Collaboration between Regional Financing Arrangements and the IMF

IMF News, July 31, 2017

Source details

Canonical URL: IMF Executive Board Discusses Collaboration between Regional Financing Arrangements and the IMF

Meeting date: July 26, 2017.
Press Release No. 17/310.
The discussion is part of a broader effort to strengthen the Global Financial Safety Net (GFSN), including the creation of a new Policy Coordination Instrument on July 14, 2017.
Media contact: PRESS OFFICER: Ting Yan; Phone: +1 202 623-7100; Email: MEDIA@IMF.org.

As the GFSN expanded and became more multi-layered, stronger collaboration between its various elements was considered increasingly important to ensure timely and effective crisis mitigation.
Expected mutually-reinforcing benefits of stronger Fund–RFA collaboration:
- Promoting early engagement.
- Exploiting complementarities.
- Increasing the firepower.
- Mitigating contagion.
- Enhancing the Fund’s catalytic role and reducing stigma associated with the use of its resources.
Importance for countries without access to RFA resources: the Fund’s central role and readiness to assist such countries is even more critical.

Directors endorsed six operational principles to guide future Fund–RFA collaboration (principles grounded in actual Fund–RFA co-financing experience and generally aligned with existing high-level G20 principles).
Key aspects of the endorsed principles:
- Respect each institution’s mandate and independence.
- Aim at consistency and evenhandedness.
- Encourage early cooperation.
- Fully respect the Fund’s preferred creditor status.
Operational challenges noted:
- Some Directors observed that operationalizing some principles may be challenging due to inherent tensions between them.

Proposed operational modalities cover: capacity development, surveillance, non-financial support, and lending.
The framework is intended to:
- Allow tailoring of the Fund’s engagement with RFAs depending on the form of operations and each RFA’s capacity.
- Provide clear rules of engagement ranging from formal agreements (for surveillance and capacity development) to more flexible modalities (suitable where situations may change rapidly, including for lending).
Directors noted the necessity of different modalities given the diversity and heterogeneity of RFAs.
Mutual exchanges and possible attendance of RFA staff in selected Article IV mission meetings were seen as beneficial, subject to consent of the member country concerned and Fund mission chief.

Roles in program design and monitoring should reflect respective mandates, policies, and RFA capacity.
Two illustrative cases:
- Where the RFA has limited capacity or non-overlapping responsibilities: the Fund should take a leading role in establishing the macroeconomic framework, policies, and conditionality.
- Where the RFA has expertise and capacity: collaboration could be based on a single coherent and consistent program framework while preserving institutional independence.
Implementation considerations:
- Need to strike the right balance between flexibility and evenhandedness while preserving independence.
- Suggestion by some Directors to develop clear criteria for determining RFA capacity.
- The Fund must preserve its high-quality lending standards and independence of assessments in core areas, including debt sustainability analysis, and adhere to the Fund’s policies.
Co-financing conditionality:
- Co-financing by the Fund would proceed only when the member’s program, including the macroeconomic framework and conditionality, is consistent with the Fund’s lending policies.
- The Fund’s role in program design and monitoring would be independent of the share of overall financing it provides.
- Efforts by RFAs to extend the maturity of their financing to better align with that of the Fund would help address financing assurances concerns.
- The Fund must be prepared to withhold its participation whenever areas core to its mandate would be compromised.

Directors underlined the importance of sharing technical information between the Fund and RFAs, conditional on reciprocity and confidentiality assurances.
A clearly-defined legal identity and governance structure of an RFA could facilitate collaboration.
Consideration should be given to sharing country staff reports, especially in a lending context, with relevant RFAs at the time they are issued to the Fund’s Executive Board for consideration.
Information sharing and technical assistance would particularly help smaller RFAs strengthen their capacity over time.

Directors regarded the proposals as an important first step toward stronger and more structured collaboration.
Proposed next steps:
- Continued dialogue between the Fund and RFAs, both individually and collectively.
- Joint test-runs to improve operational preparedness and identify impediments to co-financing operations.
- Drawing on new experiences and ex post program evaluations.
- Provide an update to the Board once experience with the framework has been accumulated or as significant issues arise.
Recognition that formal mechanisms for resolving fundamental differences of views over program design and conditionality may be counterproductive; some Directors saw merit in developing broad parameters ex ante.

IMF Communications Department — Executive Board assessment discussed July 26, 2017.