Public Information Notice: IMF Executive Board Establishes a Post-Catastrophe Debt Relief Trust
July 21, 2010
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.
July 21, 2010
On June 25, 2010 the Executive Board of the International Monetary Fund (IMF) approved the creation of a Post-Catastrophe Debt Relief Trust.
On May 19, 2010, the Executive Board of the International Monetary Fund (IMF) discussed options for providing exceptional debt relief to very poor countries hit by the most catastrophic of natural disasters, such as the recent devastating earthquake in Haiti (see Executive Board assessment below). Reflecting this discussion, on June 25, 2010, the Executive Board established a Post-Catastrophe Debt Relief (PCDR) Trust that allows the IMF to join international debt relief efforts in these cases. Debt relief provided under the PCDR Trust is intended to free up additional resources to meet exceptional balance of payments needs created by the catastrophic disaster and subsequent recovery, complementing fresh donor financing and the IMF’s concessional facilities.
Executive Board Assessment
Executive Directors considered a proposal for providing debt relief to eligible low-income countries with exceptional balance of payments needs as a result of catastrophic disasters. Following the devastating earthquake in Haiti, the Fund has explored options for joining international efforts to provide extraordinary debt relief to the country. The proposed general framework would allow the Fund to respond quickly to future catastrophic events, ensuring uniformity of treatment and permitting the use of the Fund’s own resources to finance debt relief for Haiti and other eligible members facing a similar situation. Directors underlined the Fund’s role in complementing, not substituting for, other bilateral and multilateral initiatives.
Most Directors supported, or were open to considering, establishing a Post-Catastrophe Debt Relief (PCDR) Trust Fund and the underlying policy framework as set out in the staff paper. Directors broadly agreed that PCDR support should be limited to the poorest and most vulnerable Poverty Reduction and Growth Trust (PRGT) eligible countries, consistent with the criteria for entry onto the PRGT-eligibility list; however, a few Directors argued that special consideration should be given to small countries. They also agreed that debt relief should only be provided after the most devastating of natural disasters that have an exceptionally large impact on the economy and the population, although a few cautioned against too restrictive criteria. A number of Directors would have preferred an approach to providing debt relief on a case-by-case basis, tailored to country circumstances and financed by bilateral contributions, with some favoring a Haiti-only solution.
Most Directors supported the proposal that countries meeting the qualification criteria as specified in the staff paper would automatically receive debt flow relief for a period of two years following the catastrophic event, subject to the availability of resources in the PCDR Trust Fund. Most Directors also agreed that, after more data become available, the Board could declare the country’s debt eligible for full stock relief, which could also cover any emergency liquidity support extended immediately following the disaster. Directors saw merit in taking appropriate time for a decision on debt stock relief, and a number suggested setting a minimum period for decision-taking of 6 to 12 months. Such a decision would be based on an assessment of relevant factors, including debt vulnerabilities as measured by an updated debt sustainability analysis. Directors emphasized that debt stock relief would be conditional on concerted debt relief efforts by other official creditors, as well as an assessment of the member’s implementation of macroeconomic policies in the period preceding the decision to disburse debt relief. A number of Directors encouraged further work to ensure greater consistency in the debt cancellation operations between the proposed PCDR mechanism and the Highly Indebted Poor Countries (HIPC) Initiative.
Directors took note that both emergency liquidity support and subsequent assistance in the recovery phase would be provided through existing PRGT instruments. PRGT assistance in the latter phase is expected to be moderate, supplementing grant-based reconstruction assistance from donors.
Most Directors supported, or could go along with, the proposal to transfer the surplus balance of the Multilateral Debt Relief Initiative (MDRI-I) Trust to fund the PCDR Trust, although a number would have preferred funding from donor contributions. In this context, most Directors endorsed transferring at least SDR 260 million (about US$392 million), and up to SDR 290 million (US$437 million), so long as sufficient resources would remain in the MDRI-I Trust to cover debt eligible for assistance from this Trust, with the specific amount of the transfer to be determined at the time of the actual Executive Board decision on the establishment of the PCDR Trust. It would be expected that, over time, members would contribute bilateral resources as may be needed to ensure adequate financing of the PCDR Trust for potential future cases.
Many Directors noted that it may be appropriate in the future to consider options for facilitating members’ contributions to the PCDR Trust using part of the profits from the ongoing gold sales, to the extent that profits are realized in excess of what is already anticipated for the new income model and PRGT financing. A few Directors did not support such use. Directors recognized that the possible use of resources linked to gold sales proceeds cannot be assumed in the near term, and in any case would have to be considered along with other alternative uses.
In light of the financing uncertainties, Directors looked forward to a comprehensive review of the new PCDR Trust Fund after a reasonable period of time following its establishment.