Selected Decisions and Selected Documents of the IMF, Thirty- Ninth Issue -- The Chairman’s Summing Up—Maintaining Access to Bilateral Borrowing and Review of the Borrowing Guidelines, Executive Board Meeting 16/77, August 29, 2016

Prepared by the Legal Department of the IMF
As updated as of March 31, 2017

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ARTICLE VII
Borrowing

The Chairman’s Summing Up—Maintaining Access to Bilateral Borrowing andReview of the Borrowing Guidelines, Executive Board Meeting 16/77, August 29, 2016

Executive Directors welcomed the opportunity to discuss the framework to maintain temporary access to bilateral borrowing by the Fund and to review the Fund’s Borrowing Guidelines. They acknowledged that the 2012 Borrowing Agreements have played a critical role as a third line of defense after quotas and the New Arrangements to Borrow (NAB) in providing confidence to members and markets that the Fund has adequate resources to meet the membership’s potential needs if tail risks materialized.

While reiterating that the Fund is and must remain a quota-based institution, Directors recognized that securing continued access to bilateral borrowing is the most practical option to maintain the Fund’s overall lending capacity amid elevated risks in the global economy. They observed that while risks in the euro area have eased and the strengthening of regulatory reform and the global financial safety net has advanced, global risks remain elevated.

Against this background, Directors broadly endorsed the staff’s proposal to maintain bilateral borrowing as a third line of defense, and welcomed the proposed new elements of the 2016 borrowing framework, which will strengthen the role creditors have in the activation of the borrowing agreements while building closely on the key modalities of the 2012 borrowing framework. In particular, Directors supported the new multilateral voting structure, which would give creditors a formal say in the activation of the agreements. Directors expressed varying views with regard to the voting majority requirement for activation of the agreements. With a view to secure broad support, Directors agreed to adopt an 85 percent majority requirement.

Directors welcomed the inclusion of the activation requirements in the 2016 Borrowing Agreements, in addition to their inclusion in the Borrowing Guidelines, so that the conditions can only be changed with the agreement of creditors.

Directors supported a common maximum end date for the 2016 Borrowing Agreements of end-2020, avoiding the staggered expiration of the agreements under the 2012 framework. Most Directors supported an initial term through end-2019, extendable by one year through end-2020. While many agreed that the extension could be approved by the Executive Board by a simple majority in consultation with creditors, others preferred that the one-year extension would require consent from creditors. A number of Directors would have preferred adopting the modality for the 2012 Borrowing Agreements consisting of an initial two-year term and two subsequent one-year extensions, with the final extension requiring creditor consent. On balance, Directors agreed to an initial term through end-2019, extendable by one year by the Fund and requiring, with respect to the extension of each individual agreement, consent of the creditor of that agreement.

Directors endorsed the key provisions of the proposed 2016 Borrowing Agreements as proposed in EBS/16/77 and Supplement 1, with the modification to the proposal set out in EBS/16/77, Sup. 2, and with further modifications discussed at the Board meeting. They stressed that the key provisions should be the same across all 2016 agreements, although drafting variations not affecting the substance of these key provisions could be accommodated.

Directors considered that the Fund’s Borrowing Guidelines remain appropriate and endorsed the proposed modifications in the Borrowing Guidelines to reflect the new voting structure and terms of the 2016 Borrowing Agreements, including burden-sharing among creditors. Directors also supported the arrangements for handling the transition from the 2012 to the 2016 framework, as set out in EBS/16/77, Sup. 1.

Directors welcomed the indications expressed by many chairs that members in their constituencies would be willing to maintain access to their borrowing agreements or consider providing new borrowing agreements under the new framework. Directors noted the importance of securing broad participation by members and looked forward to concluding as many agreements as possible by the Annual Meetings in early October.

Directors underscored that borrowing provides only temporary and supplementary resources to quota resources and that the new agreements should not lead to any delay in the 15th General Quota Review. A number of Directors stressed that members’ voluntary financial contributions, including participation in the bilateral borrowing agreements, should be recognized in the deliberations on future quota adjustments. It was agreed that this issue be taken up in the context of the 15th Review discussions.

BUFF/16/66

September 1, 2016

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