Chapter

Appendix III Principal Policy Decisions of the Executive Board

Author(s):
International Monetary Fund
Published Date:
January 1988
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A. Surveillance over Members’ Exchange Rate Policies

(a) Amendment of 1977 Document

The first sentence of Paragraph VI of Procedures for Surveillance contained in the document entitled “Surveillance over Exchange Rate Policies” attached to Decision No. 5392-(77/63),1 adopted April 29, 1977, as amended, shall be amended to read as follows:

The Executive Board shall review the general implementation of the Fund’s surveillance over members’ exchange rate policies at intervals of two years and at such other times as consideration of it is placed on the agenda of the Executive Board.

Decision No. 8856-(88/64)

April 22, 1988

(b) Review of 1977 Document

The Executive Board has reviewed the document entitled “Surveillance over Exchange Rate Policies” attached to Decision No. 5392-(77/63),2 adopted April 29, 1977, as amended, as required by paragraph 2 of that decision. The next review of the document shall be conducted not later than April 1, 1990.

Decision No. 8857-(88/64)

April 22, 1988

(c) Review of Implementation of Procedures

The Executive Board has reviewed the general implementation of the Fund’s surveillance over members’ exchange rate policies, as required by Paragraph VI of Procedures for Surveillance contained in the document entitled “Surveillance over Exchange Rate Policies” attached to Decision No. 5392-(77/63),3 adopted April 29, 1977, as amended, including the procedures for the conduct of consultations under Article IV, which in principle shall comprehend the regular consultations under Article VIII and Article XIV, and approves the continuation of the procedures as described in [the staff paper], in the light of the Managing Director’s summing up, until the next review, which shall be conducted not later than April 1, 1990.

Decision No. 8858-(88/64)

April 22, 1988

(d) The Chairman s Summing Up on Article IV Consultation Procedures—Initiation of the Bicyclic Procedure and Changes in Cycles, and Simplified Interim Procedures—July 8, 1987

On the … issue of the involvement of the Executive Board, … a majority of Directors … clearly preferred Option III whereby the staff papers on the occasion of the simplified interim procedure would be issued for information only. This is the practice that will be followed for the initial application of the bicyclic consultation procedure….

In conclusion,… Option III would furnish the Board with information on consultation discussions taking place under [Article IV, Section 3(b)]….

Under Option III, the Executive Board would not adopt any decision.

B. Policy on Enlarged Access to the Fund’s Resources

(a) Extension of Period and Access Limits for 1988

The Fund, having reviewed the decisions on the policy on enlarged access and the limits on access to the Fund’s resources under that policy and under the special facilities of the Fund (No. 6783-(81/40),4 No. 7599-(84/3), as amended,5 No. 7600-(84/3), as amended,6 and No. 7602-(84/3)),7 decides that:

1. In paragraph a. of Decision No. 7599-(84/3), as amended, “1987” shall be replaced by “1988.”

2. (a) In the third sentence of paragraph a. of Decision No. 7600-(84/3), as amended, “1986 and 1987” shall be replaced by “1986, 1987, and 1988.”

(b) In paragraph b. of Decision No. 7600-(84/3), as amended, “1987” shall be replaced by “1988.”

Decision No. 8744-(87/166)

December 4, 1987

(b) Lengthening of Program Period for Extended Arrangements

Paragraph 3, first sentence, of Decision No. 4377-(74/l 14),8 adopted September 13, 1974, as amended, shall be amended to read as follows:

Extended arrangements under this decision will be for periods not exceeding three years; where appropriate, and at the request of the member, the period of an existing extended arrangement may be lengthened up to four years.

Paragraph 6, last sentence, of Decision No. 6783-(81/40),9 adopted March 11, 1981, shall be amended to read as follows:

The period of an extended arrangement will be normally three years; where appropriate, and at the request of the member, the period of an existing extended arrangement may be lengthened up to four years.

Decision No. 8885-(88/89)

June 6, 1988

(c) Use of Ordinary and Borrowed Resources

1. Effective June 6, 1988, subparagraphs (a) and (b) of paragraph 8 of Decision No. 6783-(81/40),10 adopted March 11, 1981, on the policy on enlarged access shall read as follows:

  • (a) Under a stand-by arrangement, purchases will be made with ordinary and borrowed resources in the ratio of 2 to 1 in the first credit tranche, and 1 to 2 in the next three credit tranches. Thereafter, purchases will be made with borrowed resources only.
  • (b) Under an extended arrangement, purchases by a member will be made with ordinary resources until the outstanding use of ordinary resources in the upper credit tranches and under the extended Fund facility equals 140 percent of the member’s quota. Thereafter, purchases will be made with borrowed resources.

2. Effective June 6, 1988, Decision No. 8487-(86/205),11 adopted December 19, 1986 shall be terminated.

Decision No. 8886-(88/89)

June 6, 1988

C. Multiple Currency Practices Applicable Solely to Capital Transactions

The phrase “multiple currency practices” in decisions of the Fund relating to the use of the Fund’s resources does not, except as otherwise provided, include multiple currency practices applying solely to capital transactions.

Decision No. 8648-(87/104)

July 17, 1987

D. Special Charges on Overdue Financial Obligations to the Fund—Medium of Payment

Decision No. 8165-(85/189) G/TR,12 adopted December 30, 1985, effective February 1, 1986, Section V, paragraph 2, shall be amended by the addition of the following sentence:

Such payments may be made also in SDRs to a prescribed holder on behalf of the Special Disbursement Account, provided that use of SDRs is in accordance with Decision No. 8642-(87/101) S/TR,13 adopted July 9, 1987.

Decision No. 8641-(87/101) G/S/TR

July 9, 1987

E. Fund’s Income Position

(a) Special Contingent Account—Establishment

In view of the existing overdue obligations, a special contingent account shall be established. It shall be recorded separately in the Fund’s financial statements. There shall be placed to that account, for financial year 1987, an amount of SDR 26,547,074. This amount shall be distributed, to creditors and debtors for that year, in accordance with the principles of burden sharing, when the need for this account disappears.

Decision No. 8619-(87/90)

June 17, 1987

(b) Special Contingent Account—Additions in FY 1988 and Disposition of Amounts Placed in FY 1987 and FY 1988

1. An amount equivalent to 2½ percent of the Fund’s reserves at the beginning of financial year 1988 already provided for in accordance with Section II. 1 of Decision No. 8348-(86/122),14 adopted July 25, 1986, as amended, shall be placed to the Special Contingent Account at the end of financial year 1988.

2. An additional amount equivalent to 2½ percent of the Fund’s reserves at the beginning of financial year 1988 shall be raised in accordance with Section II.2 and Section V.1 and 2(a) of Decision No. 8348-(86/122), as amended, as follows:

  • (a) effective February 1, 1988 the rate of charge referred to in Rule 1-6(4) shall be 6.15 percent;
  • (b) the rate of remuneration shall be adjusted for the period from February 1 through April 30, 1988 in order to generate an amount of net income equal to the amount generated under (a) subject to the limitation in Section V.2(c) of Decision No. 8348-(86/122), as amended.

That additional amount shall also be placed to the Special Contingent Account at the end of financial year 1988.

3. The amounts placed to the Special Contingent Account, including the amount placed to it in financial year 1987, shall be distributed when there are no outstanding overdue charges and repurchases, or at such earlier time as the Fund may decide, in accordance with subparagraphs (a), (b), and (c) below:

  • (a) distributions of the amounts placed to the Special Contingent Account at the end of financial year 1988 shall be made in proportion to the amounts that have been paid, or have not been received, by each member in financial year 1988 as a result of adjustments made under paragraph 1 and 2 above;
  • (b) the amount placed to the Special Contingent Account in financial year 1987 shall be distributed to members that have paid charges referred to in Rule 1-6(4) in financial year 1987, in proportion to the amounts that have been paid;
  • (c) any distribution shall be made in proportion to the total amount to be distributed to each member under (a) and (b) cumulatively.

4. If any loss is charged against the Account, it shall be recorded in accordance with the principle of proportionality set forth in paragraph 3(c).

Decision No. 8780-(88/12)

January 29, 1988

(c) Principles of “Burden Sharing,” Rate of Charge, Amount for Special Contingent Account and Net Income Target, and Implementation of “Burden Sharing” for FY 1989

Section I. Principles of “Burden Sharing”

1. The financial consequences for the Fund which stem from the existence of overdue financial obligations shall be shared between debtor and creditor member countries.

2. This sharing shall be applied in a simultaneous and symmetrical fashion.

Section II. Determination of the Rate of Charge

1. (a) The rate of charge for financial year 1989 referred to in Rule I-6(4)(a) shall be determined at the beginning of the financial year, on the basis of the estimated income and expense of the Fund during the year, to generate the target amount of net income for that year.

(b) When estimating income, no deduction shall be made for projected deferred income.

2. The rate of charge shall be adjusted in accordance with the provisions of Section IV.

3. The rate of charge in force as of the end of financial year 1989, as adjusted under Section IV, shall continue to apply subsequently unless it is otherwise decided.

4. Net income for financial year 1989 exceeding the amount specified in Section III shall be used to reduce the rate of charge retroactively for financial year 1989.

Section III. Amount for Special Contingent Account and Net Income Target for FY 1989

1. An amount equivalent to 5 percent of the Fund’s reserves at the beginning of financial year 1989 shall be generated during financial year 1989, in accordance with provisions of Section IV, and shall be placed to the Special Contingent Account.

2. In addition, during financial year 1989, in accordance with Rule I-6(4)(a), the target amount of net income referred to in Rule I-6(4)(a) shall be 5 percent of the Fund’s reserves at the beginning of the year.

Section IV. Implementation of “Burden Sharing”

1. During financial year 1989, notwithstanding Rule I-6(4)(a) and (b) and Rule I-10, the rate of charge referred to in Rule 1-6(4), and the rate of remuneration prescribed in Rule I-10 shall be adjusted in accordance with the provisions of this Section.

2. (a) In order to generate the amount to be placed in financial year 1989 to the Special Contingent Account, the rate of charge, and, subject to the limitation in (c), the rate of remuneration shall be adjusted, in accordance with the provisions of this paragraph, so as to produce equal amounts of income.

(b) If income from charges becomes deferred during an adjustment period as defined in (d), the rate of charge and, subject to the limitation in (c), the rate of remuneration shall be further adjusted, in accordance with the provisions of this paragraph, so as to generate, in equal amounts, an additional amount of income equal to the amount of deferred charges. For the purposes of this provision, special charges on overdue financial obligations under Decision No. 8165-(85/189) G/TR,15 adopted December 30, 1985, as amended, shall not be taken into account.

(c) No adjustment in the rate of remuneration under this paragraph shall be carried to the point where the average remuneration coefficient would be reduced below 85 percent for an adjustment period.

(d) The adjustments under this paragraph shall be made as of May 1, 1988, as of August 1, 1988, as of November 1, 1988, and as of February 1, 1989:

  • shortly after July 31 for the period from May 1 to July 31;
  • shortly after October 31 for the period from August 1 to October 31;
  • shortly after January 31 for the period from November 1 to January 31;
  • shortly after April 30 for the period from February 1 to April 30.

(e) The operation of this decision shall be reviewed when the adjustment in the rate of remuneration reduces the remuneration coefficient to the limit in (c) above.

3. A midyear review of the Fund’s income position shall be held shortly after October 31, 1988. If, after any adjustment under paragraph 2, the actual net income for the first six months of the financial year, on an annual basis, is below the target amount for the year, by an amount equal to, or greater than, 2 percent of the Fund’s reserves at the beginning of the financial year, the Executive Board will consider how to deal with the situation. If on December 15 no agreement has been reached as a result of this consideration, the rate of charge shall be increased as of November 1 to the level necessary to reach the target amount of net income for the year.

4. (a) Subject to paragraph 3 of Decision No. 8780-(88/12),16 adopted January 29, 1988, the balances held in the Special Contingent Account shall be distributed in accordance with the provisions of this paragraph to members that have paid additional charges or have received reduced remuneration as a result of the adjustment, when there are no outstanding overdue charges and repurchases, or at such earlier time as the Fund may decide.

(b) An amount equal to the proceeds of any adjustment for deferred charges shall be distributed, in accordance with the provisions of this paragraph, to members that have paid additional charges or have received reduced remuneration as a result of the adjustment, when, and to the extent that, charges, the deferral of which had given rise to the same adjustment, are paid to the Fund. Distributions under this provision shall be made quarterly.

(c) Distributions under (a) or (b) shall be made in proportion to the amounts that have been paid or have not been received by each member as a result of the respective adjustments.

(d) If a member that is entitled to a payment under this paragraph has any overdue obligation to the Fund in the General Department at the time of payment, the member’s claim under this paragraph shall be set off against the Fund’s claim in accordance with Decision No. 8271-(86/74),17 adopted April 30, 1986, or any subsequent decision of the Fund.

(e) Subject to paragraph 4 of Decision No. 8780-(88/12),16 adopted January 29, 1988, if any loss is charged against the Special Contingent Account, it shall be recorded in accordance with the principles of proportionality set forth in (c).

Decision No. 8861-(88/67)

April 27, 1988

F. Structural Adjustment Facility Within the Special Disbursement Account

(a) Regulations for Administration—Amendment

Paragraph 5(5) of the Regulations for the Administration of the Structural Adjustment Facility, contained in the Annex to Decision No. 8238-(86/56) SAF,18 adopted March 26, 1986, shall be amended to read as follows:

Resources under three-year commitments shall be made available in the form of loans under three annual arrangements approved by the Fund. An annual arrangement may not be approved before the expiration of the preceding annual arrangement, other than under exceptional circumstances. The approval of an annual arrangement under a three-year commitment must precede the expiration of the commitment period.

Decision No. 8652-(87/105) SAF

July 22, 1987

(b) Amounts of Assistance—Amendment

Paragraph 2 of Decision No. 8240-(86/56) SAF,19 adopted March 26, 1986, as amended, shall be amended to read as follows:

The potential access of each eligible member to the resources of the Facility as of July 22, 1987 shall be 63.5 percent of quota; no more than 20 percent of quota shall be disbursed under the first annual arrangement, and no more than 30 percent of quota shall be disbursed under the second annual arrangement.

Decision No. 8651-(87/105) SAF

July 22, 1987

(c) The Chairman’s Summing Up on the Structural Adjustment Facility—Review of Experience—June 19, 1987

The discussion today concludes the first review by Executive Directors of the operation of the structural adjustment facility (SAF). In summing up, I will begin with a few general comments and then turn to some conceptual and more specific operational issues.

1. General observations

Directors expressed strong support for the facility and indicated that they considered it to be an important channel for Fund assistance to low-income developing countries. The explicit orientation of the facility toward the alleviation of structural imbalances and rigidities was considered to be particularly important for these countries, many of which have suffered for many years from low rates of economic growth and declining per capita incomes. Recognizing that the modest amount of assistance available under the facility has been one of the important impediments to its wider utilization, most Directors supported the proposal to raise the amount of second-year disbursements to 30 percent of quota.

Directors expressed concern that the catalytic role that had been envisaged for the facility in mobilizing resource flows from other sources had thus far not materialized. That role remained a crucial one, and they therefore welcomed the indications by the leaders of the major industrial countries at the recent Venice Summit that they strongly supported our initiative to triple the resources available for lending in association with SAF arrangements. Directors urged management to explore all possible options to secure truly additional resources for the SAF. It emphasized that the role that had been envisaged for the facility would not be fully realized unless the amounts of assistance that countries could obtain under SAF-supported programs were increased to levels that would be more commensurate with the problems that the facility was intended to address. Directors indicated that members who have made use of the facility or are currently negotiating arrangements should not be disadvantaged by prompt use of the SAF, in the event that its enhancement was realized. I am grateful for the indications received from a number of Directors that their authorities stood ready to contribute to the enhanced SAF. I am also pleased to hear that the suggestions which we have made regarding the modalities of financing are in the right direction.

2. Role and content of policy framework papers

Most, but not all, Directors thought that the content of policy framework papers (PFPs) should be further developed and strengthened. Many also stressed that the authorities should play a much greater role than they had so far in the formulation of PFPs. It was noted that policy framework papers should include a more pointed and forward-looking analysis and identification of macroeconomic and structural problems and of the sources of economic growth; a more focused discussion of the authorities’ strategy and the priority to be attached to key structural reforms to be sought over the next three years; a fuller description and assessment of public investment programs; and a discussion of financing requirements and the role of major aid agencies. Most Directors felt that specific policy undertakings in the initial period and general indications of policies to be pursued in the second and the third years should be spelled out in PFPs. Some Directors expressed concern that prior announcement of policy intentions could lead to speculative activities or involve sociopolitical sensitivities. In these cases, it was suggested that the precise timing and exact magnitude of intended changes could be left out of the PFP and could be included in the staff paper on the SAF program.

Directors were of the view that PFPs should contribute to the decision-making process of multilateral aid agencies, with many calling for a more central role for the PFP in guiding the World Bank’s lending strategy. Directors indicated that PFPs should be designed in such a way as to help ensure consistency of policy advice and other activities of aid agencies and to direct aid resources to countries undertaking strong policy reform in amounts that would make such reform efforts viable and sustainable. I took note of the differing views of Executive Directors on the role to be played by bilateral donors in the PFP process. These views will be taken into account in our emerging relations with these donors. The suggestion that the Fund should hold a conference for representatives of aid agencies to familiarize these institutions with the PFP process and discuss the coordination of objectives will also be examined.

Most Directors agreed that PFPs should be revised each year to cover policies and objectives to be pursued by the authorities during the following three-year period. Such a rolling framework would provide for a continuity of policy, which was useful for both the authorities and those supporting the member’s adjustment effort. Other Directors, however, stressed that an updating of the PFP would suffice; in their view a wholesale redesign of the PFP each year would be burdensome for both the staff and the authorities but might be warranted if the facility’s resources were enhanced.

Most Directors agreed that a wide circulation of PFPs was desirable, consistent with the objective of a fuller role for PFPs in the aid coordination process; however, in view of concerns expressed by some Directors, circulation of PFPs has to be subject to the consent of the authorities of the member concerned. Directors encouraged the staff to develop circulation procedures along the lines suggested in [the staff paper].

3. Issues related to the PFP/SAF process

a. Fund-Bank collaboration

Directors emphasized the importance that they attached to the members’ requests for SAF arrangements. They urged the staffs of the two institutions to work closely together to expedite the process and to avoid undue delays. Closer collaboration between the two institutions should not be allowed to lead to cross conditionality. However, for a very limited number of cases in which the Bank was not in a position to contribute to the preparation of a possible SAF operation within a reasonable time period, I take it that Directors would not regard it as an absolute requirement that the Bank be involved in the preparation of the PFP.

A number of Directors were disappointed that the PFP had not been utilized more fully for World Bank policy-based lending. Speakers welcomed the conclusion of IDA-8 negotiations and were pleased in particular that $3.0—3.5 billion was to be used for structural adjustment lending in conjunction, to the extent possible, with the SAF. Several Directors hoped that policies governing use of IDA-8 would be- finalized soon and in such a way that would enable IDA to lend in parallel with the SAF, drawing upon the policy undertakings stipulated in the PFP.

b. Staged approach

Directors emphasized that SAF-supported programs should continue to be based on comprehensive and detailed analysis and focused around comprehensive structural reform. However, some Directors indicated that in a limited number of exceptional cases where this was not practicable in the initial stages but where there may be assurance that macroeconomic policies would adequately address the immediate problems and thus improve the environment for structural reform, it would be useful to allow some flexibility and to experiment with a staged approach.

c. Two-step procedure

Most Directors expressed doubts as to whether the additional staff and Board time required by the two-step negotiation process—involving separate Board discussion of the PFP before presentation of the SAF loan request—was worthwhile. They encouraged the staff to present the PFP and the SAF request simultaneously to the Board and to limit use of the two-step procedure to cases in which there were outstanding arrears to the Fund or in which there were major difficulties in the negotiating process or significant doubts about the eventual endorsement by the Board of the policy strategy contained in the PFP. Where a two-step procedure was to be used, staff was encouraged to hold PFP discussions to the extent feasible in the context of Article IV or other discussions with the authorities.

4. SAF-related issues

a. Conditionality

The nature and form of conditionality underlying the request for SAF arrangements that have been brought to the Board thus far was considered by most Directors to be broadly appropriate. Directors reiterated that SAF resources should be provided in support of strong macroeconomic and structural adjustment programs that would remove obstacles to growth and make, as a minimum, substantial progress toward the achievement of a viable balance of payments position during the three-year program period; the programs must provide reasonable assurance of timely repayments of loans from the SAF. A number of Directors, however, urged that conditionality should be more flexible and adapted in light of the objectives, particularly for growth, of the facility.

Because balance of payments viability cannot be attained by many SAF-eligible countries in the absence of increased concessional assistance, SAF programs for these countries would have to be strong so as to provide creditor governments and aid agencies with the assurance of satisfactory macroeconomic policies and the monitoring that they require in order to move forward with their operations in support of policy reform, several Directors stressed. In this connection, the decision of the Paris Club to undertake a debt rescheduling in certain cases on the basis of a SAF arrangement was welcomed.

b. Benchmarks and prior actions

Directors noted that the use of benchmarks was necessary to delineate the expected path of structural reform and to facilitate the evaluation of progress under SAF arrangements. They emphasized that benchmarks should be limited to those few variables that are considered most important for purposes of monitoring the program. Structural benchmarks should be formulated in specific terms so as to provide a clear understanding of the expected path of program implementation. A number of Directors considered that it would be useful to provide a more explicit framework of structural reform in the three-year program by including structural benchmarks that extend beyond the annual program in a few critical areas. While some Directors considered that the use of prior actions in SAF arrangements continued to be appropriate in those cases where much remained to be done and where past performance had been somewhat unsatisfactory, other Directors noted that such use should be exceptional.

c. Protracted balance of payments criterion

While the existence of protracted balance of payments problems should remain a criterion for use of the facility, most Directors emphasized that, a priori, a low-income country satisfied this criterion. They reiterated that the assessment should involve considerable flexibility and should not be based on the mechanical application of statistical indicators.

d. Coincidence between arrangement and program periods

Directors stressed that a significant divergence between the program and the arrangement period should be generally avoided and that there should be an interval of about 12 months between the two disbursements. However, they recognized that there was a need for flexibility in the timing of presentation to the Board of annual SAF arrangements; a normal delay of about three months between the initiation of the annual policy program and its presentation to the Board was acceptable. They indicated that approval of a longer delay should be granted only in exceptional cases. In those cases in which considerable delay had been experienced in the presentation of a first-year program, Directors considered that some shortening of the period between annual disbursements would be appropriate so as to minimize the difference in timing between the approval of the subsequent annual programs and the associated disbursements.

Directors noted that the preparation of PFPs and SAF programs has absorbed a substantial amount of the staff resources of borrowing countries, the Bank, and the Fund, and they directed the staff to look for ways to simplify procedures.

I have noted the call for generalized access to Fund resources by developing countries on a concessional basis, a matter to which we will return in the context of our consideration of the recommendations of the Group of Twenty-Four on the role of the Fund.

The discussion of the first review of the operation of the structural adjustment facility has been most helpful and should contribute to a more effective and efficient operation of the facility. This will be extremely important as we advance our efforts to increase the amount of resources that can be made available to the low-income countries under the facility. The next review of the structural adjustment facility will be held not later than May 31, 1988.

Let me reiterate that I am really grateful for the many expressions of support for the initiative to increase the resources available through the SAF. I intend to report to you frequently on the progress that we are able to make. That progress will depend crucially upon your continuing support.

(d) Regulations for Administration—Amendment Relating to the Enhanced Structural Adjustment Facility

1. The following paragraph shall be added to the Regulations for the Administration of the Structural Adjustment Facility annexed to Decision No. 8238-(86/56) SAF:20

Paragraph 14

Assistance from the Structural Adjustment Facility, in conjunction with loans from the Enhanced Structural Adjustment Facility Trust, under the Enhanced Structural Adjustment Facility established by Decision No. 8757-(87/176) SAF/ESAF, adopted December 18, 1987 shall be governed by these Regulations subject to the following provisions:

(1) The amounts of such assistance shall be identified in any commitment, arrangement, or disbursement under the Enhanced Structural Adjustment Facility.

(2) Disbursements under each annual arrangement shall be made in two installments, the first after approval of the corresponding annual arrangement, and the second after

  • (i) a finding by the Managing Director that the performance criteria that have been established for that disbursement have been met, and a determination by the Fund that the midterm review of the program supported by the arrangement has been completed to the satisfaction of the Fund, or
  • (ii) if so specified in the annual arrangement, a finding by the Managing Director that the performance criteria that have been established for that disbursement have been met.

(3) Disbursements shall be made at the same time as the corresponding disbursements under Trust loans.

(4) If, pursuant to subparagraph (2) above, a second disbursement under an annual arrangement is not made, the period of the three-year commitment may be extended, and the corresponding amount may be made available during the extended period, subject to these Regulations.

2. In paragraph 6(2) of the Regulations referred to above, the terms “to the Fund as Trustee under the Trust Instrument” shall be replaced by “to the Fund as Trustee.”

Decision No. 8758-(87/176) SAF

December 18, 1987

G. Enhanced Structural Adjustment Facility

(a) Review of Structural Adjustment Facility and Establishment of Enhanced Structural Adjustment Facility

1. The Executive Board has reviewed the operation of the Structural Adjustment Facility within the Special Disbursement Account, as provided in Decision No. 8241-(86/56) SAF,21 adopted March 26, 1986.

2. (a) The Executive Board decides to establish a Facility to be known as the Enhanced Structural Adjustment Facility. Loans under that Facility shall be provided by the Enhanced Structural Adjustment Facility Trust, normally in conjunction with loans under the Structural Adjustment Facility, on concessional terms, to low-income developing members that qualify for assistance.

(b) The use of resources provided by the Structural Adjustment Facility shall be subject to the Regulations for the Administration of the Structural Adjustment Facility, as amended by Decision No. 8758-(87/176) SAF,22 adopted December 18, 1987.

(c) The use of resources provided by the Enhanced Structural Adjustment Facility Trust shall be subject to the provisions of the Enhanced Structural Adjustment Facility Trust Instrument adopted by Decision No. 8759-(87/176) ESAF,23 adopted December 18, 1987.

3. Resources provided by lenders that agree to support arrangements under the Enhanced Structural Adjustment Facility through loans to qualifying members shall be used in association with loans under the Enhanced Structural Adjustment Facility and in accordance with the arrangements between the Fund and the lenders.

4. The Fund shall review the operation of the Enhanced Structural Adjustment Facility, of the Structural Adjustment Facility, and of the Enhanced Structural Adjustment Facility Trust, not later than March 31, 1989.

Decision No. 8757-(87/176) SAF/ESAF

December 18, 1987

(b) Establishment of Enhanced Structural Adjustment Facility Trust

1. The Fund adopts the Instrument to Establish the Enhanced Structural Adjustment Facility Trust that is annexed to this Decision.

2. The Fund is committed, if it appeared that any delay in payment by the Trust to lenders would be protracted, to consider fully and in good faith all such initiatives as might be necessary to assure full and expeditious payment to lenders.

Decision No. 8759-(87/176) ESAF

December 18, 1987

ANNEX Instrument to Establish the Enhanced Structural Adjustment Facility Trust

Introductory Section

To help fulfill its purposes, the International Monetary Fund (hereinafter called the “Fund”) has adopted this Instrument establishing the Enhanced Structural Adjustment Facility Trust (hereinafter called the “Trust”), which shall be administered by the Fund as Trustee (hereinafter called the “Trustee”). The Trust shall be governed by and administered in accordance with the provisions of this Instrument.

Section I. General Provisions

Paragraph 1. Purposes

The Trust shall assist in fulfilling the purposes of the Fund by providing loans on concessional terms (hereinafter called “Trust loans”) to low-income developing members that qualify for assistance under this Instrument, in order to support programs to strengthen substantially and in a sustainable manner their balance of payments position and to foster growth.

Paragraph 2. Accounts of the Trust

The operations and transactions of the Trust shall be conducted through a Loan Account, a Reserve Account, and a Subsidy Account. The resources of the Trust shall be held separately in each Account.

Paragraph 3. Unit of account

The SDR shall be the unit of account for commitments, loans, and all other operations and transactions of the Trust, provided that commitments of resources to the Subsidy Account may be made in currency.

Paragraph 4. Media of payment of contributions and exchange of resources

(a) Resources loaned or donated to the Trust shall be received in a freely usable currency, subject to the provisions of (c) below, and provided that resources may be received by the Subsidy Account in other currency.

(b) Payments by the Trust to lenders or donors shall be made in U.S. dollars or such other media as may be agreed between the Trustee and such lenders or donors.

(c) Loans or donations to the Trust may also be made in or exchanged for SDRs in accordance with such arrangements as may be made by the Trust for the holding and use of SDRs.

(d) The Trustee may exchange any of the resources of the Trust, provided that any balance of a currency held in the Trust may be exchanged only with the consent of the issuers of such currencies.

Section II. Trust Loans

Paragraph 1. Eligibility and conditions for assistance

(a) Any member eligible for assistance from the Structural Adjustment Facility shall be eligible for assistance from the Trust.

(b) This assistance shall be committed and provided under the same conditions and on the same terms as prescribed in paragraph 14 of the Regulations for the Administration of the Structural Adjustment Facility, subject to the provisions of this Section.

(c) Before approving a three-year arrangement, the Trustee shall be satisfied that the member is making an effort to strengthen substantially and in a sustainable manner its balance of payments position.

(d) Commitments under three-year arrangements may be made during the period from January 1, 1988 to November 30, 1989.

Paragraph 2. Amount of assistance

(a) An initial maximum limit on access to the resources of the Trust shall be established by the Trustee, as a proportion of members’ quotas in the Fund, and provision shall be made for a limit up to which that maximum limit may be exceeded in exceptional circumstances. The maximum access limit and the exceptional maximum limit shall be subject to review from time to time by the Trustee in the light of actual utilization of resources available to the Loan Account, and in any event not later than March 31, 1989.

(b) To the extent that a member has notified the Trustee that it does not intend to make use of the resources available from the Trust, the member shall not be included in the calculations of the access limits on Trust loans.

(c) The access for each member that qualifies for assistance from the Trust shall be determined on the basis of an assessment by the Trustee of the balance of payments need of the member and the strength of its adjustment program.

(d) The amount of resources committed to a qualifying member under a three-year arrangement and the amounts for the second- and third-year arrangements shall be reviewed at the time of consideration of each annual program. The amounts committed to a member shall not be reduced because of developments in its balance of payments, unless such developments are substantially more favorable than envisaged at the time of approval of the three-year arrangement and the improvement for the member derives in particular from improvements in the external environment.

(e) Any commitment shall be subject to the availability of resources to the Trust.

Paragraph 3. Disbursements

(a) Any disbursement shall be subject to the availability of resources to the Trust.

(b) Disbursements shall normally be made on the fifteenth and the last day of the month, provided that if these days are not business days of the Trustee, the disbursement shall be made on the preceding business day. Following a member’s qualification for a disbursement, the disbursement shall be made on the first of these value dates for which the necessary notifications and payment instructions can be issued by the Trustee.

(c) No disbursement under a three-year commitment to a member shall be made after the expiration of the period specified in Section III, paragraph 3.

Paragraph 4. Terms of loans

(a) Interest on the outstanding balance of a Trust loan shall be charged at the rate of one half of one percent per annum subject to the provisions of Section IV, paragraph 5, and provided that interest at a rate equal to the rate of interest on the SDR shall be charged on the amounts of any overdue interest on or overdue repayments of Trust loans.

(b) Trust loans shall be disbursed in a freely usable currency as decided by the Trustee. They shall be repaid, and interest paid, in U.S. dollars or other freely usable currency as decided by the Trustee. The Managing Director is authorized to make arrangements under which, at the request of a member, SDRs may be used for disbursements to the member or for payment of interest or repayments of loans by the member to the Trust.

(c) Paragraph 7(3) of the Regulations for the Administration of the Structural Adjustment Facility shall not apply to Trust loans.

Paragraph 5. Modifications

Any modification of these provisions will affect only loans made after the effective date of the modification, provided that a modification of the interest rate shall apply to interest accruing after the effective date of the modification.

Section III. Borrowing for the Loan Account

Paragraph 1. Resources

The resources held in the Loan Account shall consist of:

(a) the proceeds of loans made to the Trust for that Account; and

(b) payments of principal and interest on Trust loans, subject to the provisions of Section V, paragraph 3.

Paragraph 2. Borrowing authority

The Trustee may borrow resources for the Loan Account on such terms and conditions as may be agreed between the Trustee and the respective lenders subject to the provisions of this Instrument.

Paragraph 3. Commitments

Commitments of loans to the Trust for the Loan Account shall extend through June 30, 1992. The commitment period with respect to a loan to the Trust may be extended by mutual agreement between the Trustee and the lender.

Paragraph 4. Drawings on loan commitments

(a) Drawings on the commitments of individual lenders over time shall be made so as to maintain broad proportionality of these drawings relative to commitments.

(b) Calls on a lender’s commitment shall be suspended temporarily if, at any time prior to December 31, 1991, the lender represents to the Trustee that it has a liquidity need for such suspension and the Trustee, having given this representation the overwhelming benefit of any doubt, agrees. The suspension shall not exceed three months, provided that it may be extended for further periods of three months by agreement between the lender and the Trustee. No extension shall be agreed which, in the judgment of the Trustee, would prevent drawing of the full amount of the lender’s commitment.

(c) Following any suspension of calls with respect to the commitment of a lender, calls will be made on that commitment thereafter so as to restore proportionality of calls on all lenders as soon as practicable.

Paragraph 5. Payments to lenders

(a) The Trust shall make payments of principal and interest on its borrowing for the Loan Account from the payments into that Account of principal and interest made by borrowers under Trust loans. Payments of the authorized subsidy shall be made from the Subsidy Account in accordance with Section IV of this Instrument, and, as required, payments shall be made from the Reserve Account in accordance with Section V of this Instrument.

(b) The Trust shall pay interest on outstanding borrowing for Trust loans promptly after June 30 and December 31 of each year, unless the particular modalities of a loan to the Trust make it necessary for the Trustee to agree with the lender on interest payments at other times.

Section IV. Subsidy Account

Paragraph 1. Resources

The resources held in the Subsidy Account shall consist of:

(a) the proceeds of donations made to the Trust for that Account;

(b) the proceeds of loans made to the Trust for that Account; and

(c) net earnings from investment of donated or borrowed resources held in that Account.

Paragraph 2. Donations

The Trustee may accept donations of resources for the Subsidy Account on such terms and conditions as may be agreed between the Trustee and the respective donors, subject to the provisions of this Instrument. To the extent possible, annual contributions should be made before May 30 of each year.

Paragraph 3. Borrowing

The Trustee may, in exceptional circumstances, borrow resources for the Subsidy Account from official lenders on such terms and conditions as may be agreed between the Trustee and the lenders; in order

(a) to prefinance an amount that is firmly committed to be donated to the Trust for the Subsidy Account; repayment of principal and any payments of interest on such borrowing shall be contingent upon the receipt by the Subsidy Account of the Trust of the donation that has been prefinanced;

(b) that the Subsidy Account may benefit from net investment earnings on the proceeds of a loan extended at a concessional interest rate; repayment of principal and any payment of interest on such borrowing shall be made exclusively from the proceeds of liquidation of the investment and the earnings thereon.

Paragraph 4. Authorized subsidy

The Trustee shall draw upon the resources available in the Subsidy Account to pay the difference, with respect to each interest period, between the interest due by the borrowers and the interest due on resources borrowed for Trust loans.

Paragraph 5. Calculation of subsidy

(a) The amount of the subsidy shall be determined by the Trustee in the light of (i) the objective of ensuring that the Enhanced Structural Adjustment Facility is a highly concessional facility and, to the extent possible, of reducing the rate of interest charged on Trust loans to 0.5 percent, (ii) the rate of interest on resources available to the Loan Account, and (iii) the availability and prospective availability of resources to the Subsidy Account.

(b) The Trustee shall keep the operation of the Subsidy Account under review. If at any time it determines that resources available or committed are likely to be insufficient to reduce the rate of interest on Trust loans to 0.5 percent throughout the operation of the Trust, the Trustee shall seek such additional resources as may be necessary to achieve this objective.

(c) Should adequate additional resources not be forthcoming to reduce the rate on Trust loans to 0.5 percent, the Trustee shall recalculate the subsidy with a view to reducing that interest rate to the lowest feasible rate that could be applied throughout the remaining life of the Trust. The rate of interest charged on all outstanding loans by the Trust shall be adjusted accordingly in the succeeding interest periods. Borrowers shall be notified promptly of such adjustments. Further recalculations and adjustments shall be made in subsequent interest periods, as necessary in light of developments with respect to the rate of interest on resources available to the Loan Account and to the availability of resources to the Subsidy Account.

(d) If the interest due to lenders for an interest period has exceeded the interest due by borrowers together with the authorized subsidy under paragraph 4 of this Section for that period, and payment to lenders of that difference has been made from the Reserve Account in accordance with Section V, paragraph 2, an amount equivalent to that difference shall be added to the interest due by borrowers for the succeeding interest period. Payment of that amount shall be made to the Reserve Account in accordance with Section V, paragraph 3. The additional interest due shall not be taken into account in the calculation of the authorized subsidy for that same interest period.

Paragraph 6. Termination arrangements

Upon completion of the subsidy operations authorized by this Instrument, the Fund shall wind up the affairs of the Subsidy Account. Any resources remaining in the Subsidy Account shall be used first to reduce to the fullest extent possible, in accordance with this Instrument, to 0.5 percent the interest rate paid by borrowers, by means of payments to borrowers. Any resources remaining after that subsidization shall be distributed to donors and lenders that have contributed to the subsidy operation, in proportion to their contributions. For the purposes of this distribution, account will be taken of donations, the net earnings from investment of the proceeds of concessional loans extended to the Subsidy Account under paragraph 3(b) above, and the subsidy element of concessional loans extended to the Trust under Section III; the subsidy element associated with such loans shall be calculated as the difference, if positive, between the SDR rate of interest and the interest on such loans, applied to the amount of the loans during the period they were outstanding.

Section V. Reserve Account

Paragraph 1. Resources

The resources held in the Reserve Account shall consist of:

(a) transfers by the Fund from the Special Disbursement Account in accordance with Decision No. 8760-(87/176),24 adopted December 18, 1987;

(b) net earnings from investment of resources held in the Reserve Account;

(c) net earnings from investment of any resources held in the Loan Account pending the use of these resources in operations; and

(d) payments of overdue principal or interest or interest thereon under Trust loans, and payments of interest under Trust loans to the extent that payment has been made to a lender from the Reserve Account.

Paragraph 2. Use of resources

The resources held in the Reserve Account shall be used by the Trustee to make payments of principal and interest on its borrowing for Trust loans, to the extent that the amounts available from receipts of repayments and interest from borrowers under Trust loans, together with the authorized subsidy under Section IV, paragraph 4, are insufficient to cover the payments to lenders as they become due and payable.

Paragraph 3. Payments to the Reserve Account

Any payments of overdue principal or interest or interest thereon under Trust loans, and any payment of interest under Trust loans to the extent that payment has been made to a lender from the Reserve Account, shall be made to the Reserve Account.

Paragraph 4. Review of resources

If resources in the Reserve Account are, or are determined by the Trustee likely to become, insufficient to meet the obligations of the Trust that may be discharged from the Reserve Account as they become due and payable, the Trustee shall review the situation in a timely manner.

Paragraph 5. Reduction of resources and liquidation

(a) Whenever the Trustee determines that amounts in the Reserve Account of the Trust exceed the amount that may be needed to cover the total liabilities of the Trust to lenders that are authorized to be discharged by the Reserve Account, the Trustee shall retransfer such excess amounts to the Fund’s Special Disbursement Account.

(b) Upon liquidation of the Trust, all amounts in the Reserve Account remaining after discharge of liabilities authorized to be discharged by the Reserve Account shall be transferred to the Special Disbursement Account.

Section VI. Transfer of Claims

Paragraph 1. Transfers by lenders

(a) Any lender shall have the right to transfer at any time all or part of any claim to any member of the Fund, to the central bank or other fiscal agency designated by any member for purposes of Article V, Section 1 (“other fiscal agency”), or to any official entity that has been prescribed as a holder of SDRs pursuant to Article XVII, Section 3 of the Fund’s Articles of Agreement.

(b) The transferee shall, as a condition of the transfer, notify the Trustee prior to the transfer that it accepts all the obligations of the transferor relating to the transferred claim with respect to renewal and new drawings, and shall acquire all the rights of the transferor with respect to repayment of and interest on the transferred claim.

Paragraph 2. Transfers among electing lenders

(a) Any lender to the Loan Account (“electing lenders”) may inform the Trustee that it stands ready, upon request by the Trustee, to purchase claims on the Trust from any other electing lender, provided that the holdings of claims so acquired shall at no time exceed the amount communicated to the Trustee and subject to the other provisions of this Section. A list of electing lenders and the amounts communicated by them shall be established separately by the Trustee. This list may be extended and the amounts therein increased in accordance with communications received subsequently.

(b) An electing lender shall have the right to transfer temporarily to other electing lenders part or all of any claim arising from its loans to the Trust under Section III, if the electing lender represents to the Trustee that it has a liquidity need to make such transfer and the Trustee, having given this representation the overwhelming benefit of any doubt, agrees.

(c) The Trustee shall allocate each transfer by an electing lender under this provision to all other electing lenders in proportion to the amounts by which the respective maximum holdings listed in the attachment exceed actual holdings of claims acquired under this provision; provided, however, that no allocation shall be made to an electing lender if it represents to the Trustee that it has a liquidity need for exclusion from an allocation and the Trustee agrees, in which case allocations to the remaining electing lenders shall be adjusted accordingly.

(d) The purchaser of any claim transferred under this provision shall assume, as a condition of the transfer, any obligation of the transferor, relating to the transferred claim, with respect to the renewal of drawings on loans to the Trust and to new drawings on loans in the event a renewal, having been requested, is not agreed by the transferor.

(e) Transfers of claims under this provision shall be made in exchange for freely usable currency and shall be reversed in the same media within three months, provided that such transfers may be renewed, by agreement between the transferor and the Trustee, for further periods of three months up to a total of one year. Notwithstanding the above, the transferor shall reverse a transfer under this provision not later than the date on which the transferred claim is due to be repaid by the Trust.

(f) Interest on claims transferred under this Section shall be paid by the Trust to the transferor in accordance with the provisions of the transferor’s lending agreement with the Trust. The transferor shall pay interest to the transferee(s) on the amount transferred, so long as the transfer remains outstanding, at a daily rate equal to that set out in Rule T-1 of the Fund’s Rules and Regulations; such interest shall be payable three months after the date of a transfer or of its renewal, or on the date the transfer is reversed, whichever is earlier.

Section VII. Administration of the Trust

Paragraph 1. Trustee

(a) The Trust shall be administered by the Fund as Trustee. Decisions and other actions taken by the Fund as Trustee shall be identified as taken in that capacity.

(b) Subject to the provisions of this Instrument, the Fund in administering the Trust shall apply the same rules as apply to the operation of the General Resources Account of the Fund.

(c) The Trustee, acting through its Managing Director, is authorized:

  • (i) to make all arrangements, including establishment of accounts in the name of the International Monetary Fund, which shall be accounts of the Fund as Trustee, with such depositories of the Fund as the Trustee deems necessary; and
  • (ii) to take all other administrative measures that the Trustee deems necessary to implement the provisions of this Instrument.

Paragraph 2. Separation of assets and accounts, audit and reports

(a) The resources of the Trust shall be kept separate from the property and assets of all other accounts of the Fund, including other administered accounts, and shall be used only for the purposes of the Trust in accordance with this Instrument.

(b) The property and assets held in the other accounts of the Fund shall not be used to discharge liabilities or to meet losses arising out of the administration of the Trust. The resources of the Trust shall not be used to discharge liabilities or to meet losses arising out of the administration of the other accounts of the Fund.

(c) The Fund shall maintain separate financial records and prepare separate financial statements for the Trust.

(d) The audit committee selected under Section 20 of the Fund’s By-Laws shall audit the financial transactions and records of the Trust. The audit shall relate to the financial year of the Fund.

(e) The Fund shall report on the resources and operations of the Trust in the Annual Report of the Executive Board to the Board of Governors and shall include in that Annual Report the report of the audit committee on the Trust.

Paragraph 3. Investment of resources

(a) Any balances held by the Trust and not immediately needed in operations shall be invested.

(b) Investments may be made in any of the following: (i) marketable obligations issued by an international financial organization and denominated in SDRs or in the currency of a member of the Fund; (ii) marketable obligations issued by a member or by a national official financial institution of a member and denominated in SDRs or in the currency of that member; and (iii) deposits with a commercial bank, a national official financial institution of a member, or an international financial institution that are denominated in SDRs or in the currency of a member. Investment which does not involve an exchange of currency shall be made only after consultation with the member whose currency is to be used, or, when an exchange of currencies is involved, with the consent of the issuers of such currencies.

Section VIII. Period of Operation and Liquidation

Paragraph 1. Period of operation

The Trust established by this Instrument shall remain in effect for as long as is necessary, in the judgment of the Fund, to conduct and to wind up the business of the Trust.

Paragraph 2. Liquidation of the Trust

(a) Termination and liquidation of the Subsidy Account shall be made in accordance with the provisions of Section IV, Paragraph 6.

(b) All other resources, if any, shall be used to discharge any liabilities of the Trust, other than those incurred under Section IV, and any remainder shall be transferred to the Special Disbursement Account of the Fund.

Section IX. Amendment of the Instrument

The Fund may amend the provisions of the Instrument, except this Section and Section I, paragraphs 1 and 2; Section III, paragraphs 4 and 5; Section IV, Paragraphs 4 and 6; Section V; Section VI; Section VII, Paragraph 2(a) and (b); Section VIII, Paragraph 2(b).

(c) The Chairman’s Summing Up on the Enhancement of the Structural Adjustment Facility—Operational Arrangements—December 15, 1987

Let me summarize the agreed position on a number of important points.

1. Establishment of the enhanced structural adjustment facility and review of the existing facility

Directors reviewed the existing structural adjustment facility and agreed that it should continue to operate as in the past. The existing facility will continue to be available to eligible members that already have arrangements under the facility as well as to those that have not yet requested use of the facility’s resources.

Directors agreed that a new lending facility—the enhanced structural adjustment facility—should be established and that it will operate concurrently with the existing structural adjustment facility. The enhanced facility will be financed from two Fund-related sources—the Special Disbursement Account and the Enhanced Structural Adjustment Facility Trust—and will also include the possibility that other lenders might support enhanced structural adjustment arrangements through loans to qualifying members in association with loans under the enhanced facility. For a member qualifying for an arrangement under the enhanced facility, resources will be provided from the Special Disbursement Account to the extent that the member has not exhausted its potential access under the existing facility; resources made available in excess of these amounts will be provided from the Trust and from associated sources.

Until the cutoff date for commitment of resources, eligible members that have not yet made use of the resources of the structural adjustment facility will have the option to request a full three-year arrangement under either the existing facility or the enhanced facility. Members currently making use of the resources of the existing facility may request a new three-year arrangement under the enhanced facility or continue their current arrangement to its conclusion. If a member currently using the resources of the structural adjustment facility chooses to request a new three-year arrangement under the enhanced facility, that request should normally be made at the time of expiration of an annual arrangement under the existing facility. However, earlier replacement of an existing arrangement by a three-year arrangement under the enhanced facility could also be permitted in exceptional cases.

2. Terms and conditions of loans under the enhanced structural adjustment facility

Commitments of resources under the enhanced facility will be made upon approval of a three-year arrangement. All commitments and disbursements will be subject to the availability of resources. Commitments may be made at any time until the cutoff date. Most Directors agreed, taking into account the limited period of time during which the resources would be made available by contributors, that the cutoff date should be November 30, 1989. At the same time, most Directors considered that the final date for disbursements should not now be extended beyond June 30, 1992, although it was recognized that maintenance of this date would imply that there would be little flexibility to accommodate delays under annual programs in arrangements that were agreed later in the commitment period. This matter will be kept under review as experience is gained with the facility.

Disbursements from the Special Disbursement Account in conjunction with enhanced structural adjustment arrangements will be provided under the financial terms applying to loans under the existing facility, as amended. To the extent possible, the financial terms applying to loans from the Enhanced Structural Adjustment Facility Trust will be the same as those under the existing facility. In particular, it was agreed that the maturities of loans will be five and a half to ten years. Most Directors also believed that it would be appropriate to set the initial interest rate charged on loans from the Trust at 0.5 percent per annum, even if the amount of firmly committed resources in the Subsidy Account was initially not fully sufficient for this purpose, but additional resources were confidently expected. These Directors indicated that if it appeared, because of inadequate contributions or future adverse developments in interest or exchange rates, that resources available or committed to the Subsidy Account were likely to be insufficient to maintain the rate of interest at 0.5 percent throughout the period of operation of the Trust, the Fund should seek the additional resources necessary to achieve this objective. This issue is to be kept under review, and the interest rate will be adjusted as necessary at the beginning of each six-month interest period whenever resources available to the Subsidy Account are judged insufficient to maintain a rate of 0.5 percent on loans under the enhanced facility.

The intended terms for the Trust’s lending, with which you have agreed, determine the essential features of the borrowing arrangements that will have to be concluded by the Fund as Trustee for the Enhanced Structural Adjustment Facility Trust and the lenders to it. These have been set out in a prototype circulated to potential lenders and annexed to [the staff paper]. While there will need to be comparability in substance among agreements, there will no doubt need to be alterations to the form and structure of this prototype to meet the particular legal and institutional requirements of individual lenders, and we will be flexible in meeting these requirements. There was further discussion of the security to be provided to the claims on the Trust. Directors accepted that the proposals that had been put forward to safeguard the resources lent to the Trust were adequate to provide the necessary assurance to potential creditors. Although noting the views of some Directors, I have repeated that the phrase “all such initiatives as might be necessary” had to be understood to include the possible use of gold.

I should also comment on a few specific financial issues raised in the papers. First, most Directors did not favor the inclusion of a provision on rescheduling because, inter alia, it was considered that this would create undue complications in light of the limited period for which resources were being committed by contributors and also because it was felt that such a provision could threaten the integrity of the Reserve that most contributors find to be an essential component of the facility. Second, most Directors did not find it appropriate to provide for temporary encashment of claims through use of the Reserve, given the relatively small amounts that will be available in the early years and the importance of the Reserve as security for claims. Third, it appeared generally acceptable to most Directors that the provision for temporary suspension of calls should apply to all lenders. I should note in this connection that we appreciate the position of several contributors who are providing support to the enhanced facility, despite a very difficult balance of payments situation of their own.

3. Framework for lending under the enhanced structural adjustment facility

Resources to be made available under the enhanced facility will be committed upon Board approval of a three-year arrangement and disbursements will be made semiannually in accordance with the provisions specified in annual arrangements. The preparation of policy framework papers will be an essential element of the enhanced facility, and the policy framework process will be strengthened to reflect the summing up of the June 1987 review of the structural adjustment facility…,25 as well as continuing discussions with eligible recipient countries, the World Bank, and the interested donors.

The list of eligible members for the use of the enhanced facility is the same as that currently applying to the existing facility….

Directors were in broad agreement that the objectives of programs under the enhanced facility should be to promote, in a balanced manner, both balance of payments viability and growth through mobilization of domestic and external resources, improvements in resource allocation, and the removal of structural impediments. Such programs should involve a substantial effort to strengthen the external payments position in a sustainable manner, and in particular to assure substantial progress during the three-year program period toward an overall position and structure of the balance of payments that is consistent with orderly relations with creditors and a reduction in restrictions on trade and payments, while permitting the timely servicing of obligations to the Fund.

Directors agreed that monitoring of enhanced programs supported by arrangements under the enhanced facility will be conducted through benchmarks. Most Directors favored the establishment of quarterly quantitative benchmarks for the key financial variables, and the use of structural benchmarks to monitor implementation of the most important structural policy measures. Most Directors supported the establishment of some benchmarks, including, where appropriate, some structural benchmarks, as semiannual performance criteria in all cases. In addition, midyear reviews will also be required in most cases. I have carefully noted the reservations expressed by a number of Directors regarding the treatment of benchmarks as performance criteria, and I assure you that performance criteria will be limited in number and will generally involve only a subset of the benchmarks. Similarly, prior actions will be required sparingly, but when necessary to lay the basis for a long or difficult adjustment process, and particularly where arrangements involve a front-loading of disbursements. In the event of a substantial delay in completion of a midyear review or in agreeing on an annual program, the total amount of resources to be made available to a member could be reduced or rephased over the remaining period of the arrangement.

Most Directors agreed that access to the resources of the enhanced facility will be differentiated according to the strength of the member’s adjustment program and its financing need. The structure of the member’s external debt and its prospective debt service burden, along with the expected evolution of other macroeconomic aggregates, will be important elements in this assessment. Directors generally agreed that access under three-year enhanced structural adjustment arrangements will be subject to a maximum limit of 250 percent of quota. However, Directors stressed again that the access limits do not constitute entitlements, and they agreed that access should normally be below the maximum and that the guidelines should be applied so that the rate of access for all qualifying members would average about 150 percent of quota. It was also indicated that, in highly exceptional circumstances, the maximum could be exceeded, but it was not envisaged that access would exceed 350 percent of quota even in these cases. These access limits, along with the operation of both the enhanced facility and the existing facility, will be subject to review in light of experience and the utilization of the available resources.

Directors agreed that the amount of resources committed to an individual qualifying member under a three-year enhanced structural adjustment arrangement and the amounts for the second- and third-year arrangements will be reviewed at the time of consideration of each annual program. However, most Directors indicated that, subject to the availability of resources, the amounts committed to a member would not normally be reduced because of developments in its balance of payments. However, in the event that balance of payments developments were markedly more favorable than envisaged at the time of approval of the three-year arrangement, and particularly because of improvements in the external environment, it would be suggested that the member reduce voluntarily its use of enhanced resources, either by requesting lower access at the time of approval of an annual arrangement or by forgoing in whole or in part a midyear disbursement.

Directors agreed that disbursements of loans under enhanced structural adjustment arrangements will be made semiannually, upon approval of an annual arrangement, and subsequently, on the basis of observance of performance criteria and, in most cases, completion of a midyear review. A range of views was expressed regarding the possibility of a limited front-loading of disbursements in some cases. Nonetheless, there seems to be a consensus that, subject to the availability of resources, the guideline should be that a uniform distribution of disbursements would be preferable and that any front-loading should not result in first-year disbursements exceeding 40 percent of the total amount to be made available under the three-year enhanced structural adjustment arrangement. However, I take it that there may be scope for a higher first-year disbursement in some very exceptional cases. Existing policies regarding members with overdue obligations to the Fund will be retained; how best to deal with cases of large and protracted arrears is a question to which we will return soon, but in a different context.

4. Relationship with other Fund facilities

Directors noted that members qualifying for loans under the enhanced structural adjustment facility would retain eligibility for access to the Fund’s general resources. Access to those resources will have to be examined carefully on a case-by-case basis, taking into account a range of factors envisaged in the present guidelines, including past performance and use of Fund resources, terms, the possible availability of financing from the enhanced facility and other sources, and the speed and time profile of the anticipated balance of payments adjustment.

(d) The Chairman’s Remarks on the Enhancement of the Structural Adjustment Facility—Legal Documentation—December 18, 1987

Two issues of substance raised during this meeting deserve special mention. First, it was reconfirmed that lending to the ESAF Trust could be considered as part of a member’s official reserves by the Fund. Second, it was explained that access to the Fund’s general resources could be provided for members that had extended loans to the Trust and that needed liquidity in an amount not exceeding their claim. Purchases under these circumstances would be allowed if the member represented that it had a need, because of developments in its reserves in the sense of Article V, Section 3(b)(ii), and the Fund agreed that the purchase was justified taking into account the amount of the requested purchase and the existence of a claim on the Trust. If the liquidity problem can be addressed on its own, there would be no need for an adjustment program to solve the balance of payments problem. Moreover, those purchases could be given certain characteristics by a decision to be taken when required. For instance, it could be decided, with respect to such purchases, to provide for special repurchase periods and for their exclusion from the definition of reserve tranche purchases. Those decisions would need to be adopted by an 85 percent majority. On the occasions on which this question was discussed, I heard no objections by an Executive Director to this approach, which had been suggested in the staff papers that have been discussed by the Board.

(e) Transfer of Resources from Special Disbursement Account to Enhanced Structural Adjustment Facility Trust and Retransfer to Special Disbursement Account

1. The following resources held in, or to be received by, the Special Disbursement Account shall be transferred to the Enhanced Structural Adjustment Facility Trust (“the Trust”) for its Reserve Account upon the establishment of the Trust or upon receipt of these resources by the Special Disbursement Account; whichever is later:

  • (i) all income already received or to be received from the investment of resources available for the Structural Adjustment Facility within the Special Disbursement Account;
  • (ii) all interest already received or to be received, including from special charges, on loans under the Structural Adjustment Facility;
  • (iii) all repayments of loans under the Structural Adjustment Facility; and
  • (iv) all the resources held in the Special Disbursement Account that are derived from the termination of the 1976 Trust Fund and that can no longer be used under the Structural Adjustment Facility;

provided that the above resources shall be retransferred to the Special Disbursement Account when and to the extent that they are needed for the reimbursement of the expenses incurred by the General Resources Account in the administration of the Structural Adjustment Facility and the Trust, which must be reimbursed in accordance with paragraph 10 of the Regulations for the Administration of the Structural Adjustment Facility and paragraph 3 of this Decision.

2. Whenever the Trustee determines that amounts in the Reserve Account of the Trust exceed the amount that may be needed to cover the total liabilities of the Trust to lenders that are authorized to be discharged by the Reserve Account, the Trustee shall retransfer such excess amounts to the Special Disbursement Account. Upon liquidation of the Trust, all amounts in the Reserve Account remaining after discharge of liabilities authorized to be discharged by the Reserve Account shall be transferred to the Special Disbursement Account.

3. The Special Disbursement Account shall reimburse the General Resources Account annually in respect of the expenses of conducting the business of the Enhanced Structural Adjustment Facility Trust.

4. This Decision replaces Decision No. 8237-(86/56) SAF,26 adopted March 26, 1986.

Decision No. 8760-(87/176)

December 18, 1987

(f) Access to Resources

The Fund as Trustee under the Instrument to Establish the Enhanced Structural Adjustment Facility Trust decides:

1. In accordance with Section II, Paragraph 2(a) of the Instrument to Establish the Enhanced Structural Adjustment Facility Trust, the initial maximum limit on access of each eligible member to the resources of the Trust shall be set at 250 percent of the member’s quota in the Fund, minus any remaining access of the member to the resources of the Structural Adjustment Facility, and minus resources committed to the member for loans in association with Trust loans.

2. The maximum limit in paragraph 1 may be increased in exceptional circumstances not to exceed 350 percent of the member’s quota in the Fund, subject to the same deductions as in paragraph 1.

Decision No. 8845-(88/61) ESAF

April 20, 1988

(g) Interest Rate on Trust Loans

The Fund as Trustee under the Instrument to Establish the Enhanced Structural Adjustment Facility Trust decides:

In accordance with Section II, Paragraph 4(a) and Section IV, Paragraph 5 of the Instrument to Establish the Enhanced Structural Adjustment Facility Trust, the interest rate on loans from the Trust shall be set at 0.5 percent effective April 20, 1988.

Decision No. 8846-(88/61) ESAF

April 20, 1988

H. General Arrangements to Borrow—Sixth Renewal

Executive Board Decision No. 7337-(83/37),27 adopted February 24, 1983, effective December 26, 1983, on the General Arrangements to Borrow, is hereby renewed for a period of five years from December 26, 1988.

Decision No. 8733-(87/159)

November 23, 1987

I. Borrowing Agreement with the Saudi Arabian Monetary Agency

(a) Amendment

The Executive Board authorizes the Managing Director to take such action as is necessary to amend Annexes A and B of the Borrowing Agreement between the Saudi Arabian Monetary Agency and the Fund effective May 7, 1981,28 and Annexes II-A and II-B of the Supplementary Agreement between the Saudi Arabian Monetary Agency and the Fund effective April 30, 1984,29 as set out in paragraph 5 of [the annex].

Decision No. 8643-(87/102)

July 10, 1987

ANNEX

a. The 1981 borrowing agreement would be amended by deleting the phrase “and weighted by the volume of transactions in” and replacing it with the word “for,” and by deleting the words “during the previous week,” in both Annex A, paragraph 3(b)(i) and Annex B, paragraph 2(c)(ii)(A). The amended paragraph in both Annexes A and B would read as follows:

For the French franc, the yield to maturity on a representative sample of securities of major French public sector enterprises with an average remaining life in the range of four and a half to five and a half years, based on market prices for the securities, as calculated by the Caisse des Dépôts et Consignations using the same method as it uses for the yield it publishes weekly.

b. The 1984 supplementary agreement would be amended by deleting the words “during the previous week,” in both Annex II-A, paragraph 3(b)(i) and Annex II-B, paragraph 2(c)(ii)(A). The amended paragraph in both Annexes II-A and II-B would read as follows:

For the French franc, the average yield to maturity on a representative sample of securities of major French public sector enterprises with a remaining life in the range of two to three years, based on market prices for the securities, as calculated by the Caisse des Dépôts et Consignations.

(b) Renewal of Borrowing Agreement in Association with the General Arrangements to Borrow

Pursuant to Article VII, Section 1 of the Articles of Agreement, the Managing Director is authorized to send to the Minister of Finance of Saudi Arabia a letter as set forth in the attachment, proposing a renewal, for a period of five years from December 26, 1988, of the 1983 borrowing agreement with Saudi Arabia in association with the General Arrangements to Borrow.30 When a reply is received from the Minister accepting the proposal, the Managing Director’s letter and the reply shall constitute an agreement on the renewal of the 1983 borrowing agreement between Saudi Arabia and the Fund, which shall enter into force on December 26, 1988.

Decision No. 8897-(88/93)

June 15, 1988

Attachment

Your Excellency:

I refer to the borrowing agreement between the International Monetary Fund (the Fund) and Saudi Arabia in association with the General Arrangements to Borrow (GAB), which entered into force on December 26, 1983 (henceforth referred to as the 1983 Borrowing Agreement). Pursuant to Executive Board Decision No. 8897-(88/93), adopted June 15, 1988, I have been authorized to propose on behalf of the Fund that Saudi Arabia agree to a renewal of the 1983 Borrowing Agreement on the same terms and conditions as set forth therein, for a period of five years from December 26, 1988.

If the foregoing proposal is acceptable to Saudi Arabia, this communication and your reply indicating Saudi Arabia’s acceptance shall constitute an agreement between Saudi Arabia and the Fund on the renewal of the 1983 Borrowing Agreement, which shall enter into force on December 26, 1988.

With kind regards,

Yours sincerely,

Michel Camdessus

J. SDRs—Use in Payment of Trust Fund Obligations

In accordance with Article XVII, Section 3, the Fund prescribes that:

1. A participant, by agreement with a prescribed holder and at the instruction of the Fund, may transfer SDRs to the prescribed holder in repayment of Trust Fund loans, in payment of interest on Trust Fund loans and in payment of special charges in respect of overdue repayments and interest of Trust Fund loans.

2. The Fund shall record operations pursuant to this prescription in accordance with Rule P-9.

Decision No. 8642-(87/101) S/TR

July 9, 1987

K. Trust Fund—Means of Payment of Interest and Repayment of Principal

1. Decision No. 6358-(79/188) TR,31 adopted December 19, 1979, shall be amended by the addition of the following sentence:

“Such payments may be made also in SDRs in accordance with Decision No. 8642-(87/101) S/TR,32 adopted July 9, 1987.”

2. Decision No. 7142-(82/85) TR,33 adopted June 18, 1982, shall be amended by the addition of the following sentence:

“Such repayment may be made also in SDRs in accordance with Decision No. 8642-(87/101) S/TR,32 adopted July 9, 1987.”

Decision No. 8640-(87/101) S/TR

July 9, 1987

L. Supplementary Financing Facility Subsidy Account—Additional Subsidy Payments for July 1, 1985 Through June 30, 1986 and Subsidy Payments for July 1, 1986 Through June 30, 1987

1. In accordance with Section 10 of the Instrument establishing the Supplementary Financing Facility Subsidy Account, as amended,34 additional subsidy payments shall be made with respect to charges paid on holdings of currency referred to in Section 7 of the Instrument for the period July 1, 1985 through June 30, 1986, in the amount indicated to each of the eligible members as listed in Column 2 of Table 1 of the attachment.

2. In accordance with Section 10 of the Instrument establishing the Supplementary Financing Facility Subsidy Account, as amended, subsidy payments shall be made with respect to charges paid on holdings of currency referred to in Section 7 of the Instrument for the period July 1, 1986 through June 30, 1987, in the amount indicated to each of the eligible members as listed in Column 5 of Table 1 of the attachment.

3. The subsidy payments shall be made to each eligible member on August 4, 1987, or as soon thereafter as the member has paid all overdue charges, if any, on balances eligible for the subsidy.

Decision No. 8674-(87/117) SBS

August 3, 1987

Attachment

Table 1.SFF Subsidy Account: Past Disbursements and Proposed Disbursements for the Years Ended June 30, 1986 and June 30, 1987(In SDRs)
Proposed Amount of Disbursement1
(1)(2)(3)(4)(5)(6)(7)
Cumulative

Approved

Subsidies

for Period

1981–June

19862
Additional

Subsidy

Disbursement

July 1985–

June 1986
July–

December

1986
January–

June 1987
Total

July 1986–

June 19873
Annualized

Percentage of

Eligible

Holdings for

the Year Ended

June 30, 19874
Grand

Total5
(a) Members eligible to receive subsidy at the full rate
Bangladesh15,439,73610,306292,599278,610571,2091.52581,515
Bolivia3,830,0261,44136,53020,66657,1961.4558,637
Dominica469,76468721,89326,46448,3571.5249,044
Gambia, The472,31583326,99631,77158,7671.5559,600
Guyana4,485,7592,15356,54352,579109,1221.52111,275
India108,145,632213,3756,767,1098,543,71815,310,8271.5115,524,202
Kenya12,436,59310,770321,835335,820657,6551.54668,425
Liberia5,608,4604,818147,282154,103301,3851.54306,203
Madagascar3,095,1692,05160,73058,460119,1901.53121,241
Malawi3,944,6972,47172,69468,176140,8701.52143,341
Mauritania2,079,0341,75955,15057,711112,8611.54114,620
Pakistan63,311,36373,5572,293,7982,598,0044,891,8021.534,965,359
Philippines45,821,49832,083947,005925,7771,872,7821.531,904,865
Senegal6,756,7016,713206,616222,836429,4521.54436,165
Sierra Leone2,361,2641,64751,21850,876102,0941.53103,741
Sri Lanka6591,705
Sudan23,464,62916,014477,390475,681953,0711.53969,085
Tanzania2,369,5241,13931,91827,67859,5961.5160,735
Togo1,008,53967620,28619,60939,8951.5340,571
Zambia63,520,127
Subtotal309,212,535382,49311,887,59213,948,53925,836,13126,218,624
(b) Members eligible to receive subsidy at half the full rate
Côte d’Ivoire14,593,55122,871717,567884,0621,601,6290.761,624,500
Jamaica15,315,33910,485306,756329,806636,5620.77647,047
Mauritius4,725,2503,10691,87588,014179,8890.76182,995
Morocco9,686,9745,788177,456165,295342,7510.76348,539
Peru14,937,6553,68073,89936,243110,1420.72113,822
Subtotal59,258,76945,9301,367,5531,503,4202,870,9732,916,903
Total368,471,304428,42313,255,14515,451,95928,707,10429,135,527

Subject to full payment by members of the relevant charges.

These figures include SDR 1,688,026 not disbursed pending payment of overdue SFF charges.

This is the disbursement for the period July 1, 1986 to June 30, 1987 (i.e., the sum of Columns 3 and 4).

Amount of subsidy for the period July 1, 1986 to June 30, 1987, expressed as a percentage of the average outstanding eligible SFF holdings.

This is the sum of the additional disbursement for the year ended June 30, 1986 and the disbursement for the year ended June 30, 1987 (i.e., the sum of Columns 2 and 5).

Sri Lanka and Zambia have no outstanding holdings purchased under the SFF.

Subject to full payment by members of the relevant charges.

These figures include SDR 1,688,026 not disbursed pending payment of overdue SFF charges.

This is the disbursement for the period July 1, 1986 to June 30, 1987 (i.e., the sum of Columns 3 and 4).

Amount of subsidy for the period July 1, 1986 to June 30, 1987, expressed as a percentage of the average outstanding eligible SFF holdings.

This is the sum of the additional disbursement for the year ended June 30, 1986 and the disbursement for the year ended June 30, 1987 (i.e., the sum of Columns 2 and 5).

Sri Lanka and Zambia have no outstanding holdings purchased under the SFF.

M. Charges

(a) Adjustment of Rate of Charge and Rate of Remuneration for the Quarter Ended April 30, 1988

1. The Executive Board has reviewed the operation of Decision No. 8348-(86/122), adopted July 25, 1986, as amended, in accordance with Section V, paragraph 2(f) of that decision.

2. The adjustment in the rate of charge for the quarter ended April 30, 1988 shall be limited so as to generate an amount equal to the amount generated through the reduction in remuneration for that quarter to cover deferred charges. The resulting shortfall shall be deemed deferred income in the quarter ending July 31, 1988; the rate of charge and the rate of remuneration shall be adjusted with respect to this amount, for the period from May 24, 1988 to the end of the quarter.

Decision No. 8878-(88/84)

May 23, 1988

(b) Retroactive Reduction of Rate of Charge for FY 1988

If the net income for FY 1988, after placement to the Special Contingent Account of an amount equal to 5 percent of the Fund’s reserves at the beginning of FY 1988, exceeds 5 percent of such reserves, minus the amount of deferred income in the quarter ended April 30, 1988 for which no adjustments are made in that quarter in accordance with Decision No. 8878-(88/84), the excess amount shall be used to reduce the rate of charge retroactively for FY 1988.

Decision No. 8879-(88/84)

May 23, 1988

(c) Retroactive Reduction of Rate of Charge for FY 1989

Section II, paragraph 4 of Decision No. 8861-(88/67), adopted April 27, 1988 is amended as follows:

4. Net income for FY 1989 exceeding the total of (i) the amount specified in Section III, and (ii) the amount of deferred income in the quarter ended April 30, 1988 for which no adjustments are made in that quarter in accordance with Decision No. 8878-(88/74), shall be used to reduce the rate of charge retroactively for FY 1989.

Decision No. 8880-(88/84)

May 23, 1988

N. Increases in Quotas of Members—Ninth General Review

Report of the Executive Board to the Board of Governors

1. Article III, Section 2(a) of the Articles of Agreement provides that “The Board of Governors shall at intervals of not more than five years conduct a general review, and if it deems it appropriate propose an adjustment, of the quotas of the members.” The five-year period since the completion of the previous review will end on March 31, 1988. This report and the attached draft resolution are submitted to the Board of Governors, the organ competent under the Articles to deal with an adjustment of quotas, in accordance with Article III, Section 2.

2. In the course of the past year, the Executive Board has considered various aspects of the adjustment of quotas, including the formulas used to calculate quotas, the variables used in those formulas, the method of calculating quotas, and updated quota calculations. The Executive Board has also considered the need for and the size of an increase in the total of quotas, the techniques and criteria that might be considered in distributing a total increase among members, and matters relating to the payment of the increased subscriptions. While the Executive Board has concluded consideration of certain technical aspects of its work, it has not completed work on a number of substantive issues. Consequently, the Executive Board is not in a position to make recommendations in time for the Board of Governors to adopt a resolution completing the Ninth General Review by March 31, 1988.

3. The Interim Committee considered the subject of the Ninth General Review of Quotas during the twenty-ninth meeting of the Committee in Washington on September 27–28, 1987. Paragraph 7 of the communiqué issued at the conclusion of the meeting reads as follows:

The Committee noted that the Committee of the Whole on the Ninth General Review of Quotas has begun its work by considering preliminary quota calculations and reviewing issues bearing on the size of the Fund. The Committee urged Executive Directors to pursue their work on the Ninth General Review of Quotas so as to be in a position to make appropriate recommendations in due course.

The Managing Director intends to make a progress report on the Ninth General Review to the Interim Committee at the next meeting of the Committee on April 14, 1988.

4. The Executive Board proposes to continue its work on this subject and to submit a report to the Board of Governors, together with appropriate recommendations regarding the size of the overall increase in quotas, increases in the quotas of individual members, and on the mode of payment of increases in subscriptions, not later than April 30, 1989.

5. In view of the foregoing considerations, it is recommended that the Board of Governors adopt the resolution set forth in the attachment to this report.

Attachment

Proposed Resolution Submitted to the Board of Governors

Increases in Quotas of Members—Ninth General Review

Resolved:

That the Board of Governors, having noted the report of the Executive Board entitled Increases in Quotas of Members—Ninth General Review, hereby resolves to continue its review under Article III, Section 2(a) and requests the Executive Board to complete its work on this matter and to submit appropriate proposals to the Board of Governors not later than April 30, 1989.

Board of Governors Resolution No. 43-1

Adopted April 22, 1988

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