May 4, 2005
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On April, 1, 2005, the Executive Board of the International Monetary Fund (IMF) concluded its latest review of the policy regarding access to financing from the IMF's resources.
Background
The Executive Board of the IMF reviews on a two-yearly cycle the policies governing members' access to financing from the Fund's resources. This review includes consideration of the limits on lending by the Fund (currently 100 percent of a member's quota on an annual basis and 300 percent of quota cumulatively), as well as the conditions and circumstances that may lead to lending beyond the limits, as set out in the framework for exceptional access. It also considers the policies for lending under the Poverty Reduction and Growth Facility (PRGF), under which the Fund makes concessional loans to its lower-income members.
Executive Board Assessment
Directors welcomed the opportunity to review the Fund's access policy in the credit tranches, under the Extended Fund Facility (EFF), and under the PRGF. They also considered it timely to revisit the policy on exceptional access. Today's discussion has focused on whether the access limits and access criteria remain appropriate, and on the staff's proposals to reinforce the procedures under the exceptional access framework. The Board will further discuss some issues related to the exceptional access policy, including under the Supplemental Reserve Facility, in the context of the review of charges and maturities that is planned for Board discussion following the Spring Meetings.
Directors noted the broad principles underlying the Fund's access policy, which are to provide appropriate support to members undertaking adjustment measures to resolve their balance of payments problems; to treat members uniformly; and to safeguard the Fund's resources. They broadly concurred that the Fund's criteria for access in individual cases remain appropriate. Although access is determined in terms of the quotas of members, a number of Directors felt that quotas may not always faithfully reflect the size of an economy and accordingly should not be viewed as the best metric in all cases.
Directors also generally considered that the existing access limits remain appropriate. They noted that liquidity in the Fund's General Resources Account (GRA) is at present satisfactory, while resources in the PRGF Trust remain constrained, reflecting the concessional nature of the facility. Directors took note of staff estimates that suggest that the current access limits would remain appropriate even in the face of shocks, such as an increase in oil prices or a sharp contraction in financing available for emerging market members. At the same time, Directors emphasized the need for continued vigilance over changes in the outlook. Some Directors underscored the importance of further work on the measurement and assessment of financial risks facing the Fund.
Directors generally saw no strong basis for changing the existing access limits and norms.
These are:
Access by a member to the Fund's GRA is subject to overall limits of 100 percent of quota annually, and 300 percent of quota cumulatively, the latter net of scheduled repurchases. Access by a member to the Fund's GRA in the credit tranches and under the EFF is subject to the same limits.
Access to the resources of the PRGF Trust under a three-year PRGF arrangement is subject to the maximum, and exceptional maximum, limits of 140 percent of quota, and 185 percent of quota, respectively. Access under PRGF arrangements is also subject to a set of declining norms, based on the duration of use of PRGF resources.
Directors observed that the exceptional access framework is triggered once combined access under all facilities and policies in the GRA exceeds the limits of 100 percent of quota annually or 300 percent of quota cumulatively. These limits can imply a potential constraint on use of the resources under the Compensatory Financing Facility (CFF) and the policy on Emergency Assistance in cases of existing high Fund exposure. However, most Directors recognized that in practice the overall limits are unlikely to be a constraint for members that might use the CFF or Emergency Assistance, and felt that the limits set the appropriate trigger points above which any requests should be rare and based on the exceptional access policies. Directors noted that the overall limits can also imply lower effective limits in the credit tranches and under the EFF for members already using Fund resources under another GRA facility or policy.
As regards the exceptional access policy, most Directors were of the view that the exceptional access framework approved in 2002 and 2003 remains broadly appropriate. They recognized that several recent requests for exceptional access, and some that may come in the future, involve members that are not experiencing capital account crises. Some Directors felt that there would be merit in considering changes to the exceptional access policy to provide greater clarity on the Fund's actions in such cases. Many Directors also suggested that charges and maturities in exceptional access cases be reviewed. A number of Directors recalled the earlier understanding on the need to consider indicators, in addition to quotas, to provide further perspective on the appropriate scale of the exceptional access in individual cases. However, most Directors believed that, overall, changes to the existing framework of exceptional access are not needed at this time, particularly considering the flexibility to grant access under the exceptional circumstances clause, including in those rare cases where a member could not be expected to meet all four criteria. Moreover, most Directors saw no need to develop a separate framework for members with pre-existing high exposure. A few Directors reiterated the need for strict adherence to the Fund's lending into arrears policy, and in this regard called for further clarification of the good-faith criterion.
Directors broadly supported the staff proposals to improve program documents under the exceptional access framework. Most Directors agreed that a discussion of exit strategies would help foster better communication with capital markets and facilitate earlier re-access. However, other Directors pointed out that all programs are designed as an exit strategy and felt that a separate discussion of this topic is not needed. Many Directors expressed strong reservations about explicit discussions in staff reports of possible successor arrangements as part of exit strategies, and called for a strong presumption that exit strategies would be formulated in the context of a single arrangement. In this connection, the importance of scenario analysis, including scenarios based on alternative policies, in the context of debt sustainability analyses was emphasized. Directors cautioned that discussions of successor arrangements could convey the impression that policies in Fund-supported programs are insufficient to redress imbalances, or create incentives for members to postpone difficult reforms. They recognized, however, that follow-up arrangements may in some circumstances be warranted. Even in those cases, Directors emphasized that such discussions should in no way imply a Fund commitment to a further arrangement or any particular level of access, as decisions on such matters would need to be made at the appropriate time by the Executive Board in light of all relevant factors. Directors considered that alternative forecast scenarios, including private sector forecasts, while providing useful additional information, should not be used uncritically, to avoid the risk of reinforcing adverse market sentiment.
Several Directors have reiterated their interest in further work on the use of Fund financing to help prevent crises, and they looked forward to further reflecting on how the diverse needs of members could be met. Work in this area continues, and the staff will return to the Board at an appropriate time on this issue.
Consistent with the two-yearly schedule adopted by the Board in 2003, the next review of access policy in the credit tranches, and under the EFF and the PRGF, and of exceptional access policy, is scheduled to take place by April 1, 2007. A factual update on access as at end-2005 will be provided early in 2006.
