CHAPTER 6 Financial Operations and Policies in FY2001

International Monetary Fund
Published Date:
September 2001
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The IMF is a cooperative institution that lends money to its member countries experiencing temporary balance of payments financing problems on the condition that the borrower undertake economic adjustment and reform policies to address these difficulties. In recent years, for example, the IMF has played a central role in resolving a series of economic and financial crises in emerging market countries in Asia and Latin America, and in Russia and Turkey. The IMF is also actively engaged in promoting economic growth and poverty reduction in its poorer member countries by providing financing on special terms in support of efforts to stabilize economies, implement structural reforms, and achieve sustainable external debt positions.

The IMF extends financing to member countries through three channels:

1. Regular operations. The IMF provides loans to member governments from a revolving pool of funds consisting of members’ capital subscriptions (quotas). These loans are extended under a variety of policies and facilities designed to address specific balance of payments problems. Interest is charged on the loans at market-related rates and with repayment periods that vary depending on the lending facility (see Table 4.1).

2. Concessional financing. The IMF lends at a very low interest rate to poor countries to help them restructure their economies to promote growth and reduce poverty. The IMF also provides assistance on a grant (no-charge) basis to heavily indebted poor countries to help them achieve sustainable external debt positions. The principal for concessional loans is mostly funded by bilateral lenders to the IMF at market-based rates. Resources to subsidize the rate charged to borrowers, and grants for debt relief, are financed through voluntary bilateral contributions by members and income from the IMF’s own resources.

3. SDRs. The IMF can also create international reserve assets by allocating Special Drawing Rights (SDRs) to members, which can be used to obtain foreign exchange from other members and to make payments to the IMF. The SDR also serves as the IMF’s unit of account and its value is based on a basket of major international currencies. The SDR interest rate is based on market interest rates for the currencies in the valuation basket and serves as the basis for other IMF interest rates.

The key financial developments in FY2001 include:

  • A reduction in outstanding IMF loans as improved conditions in the world economy and financial markets contributed to a moderation of new financing and facilitated the repayment of loans extended during the height of the 1997–99 financial crises.
  • Intensifying efforts to assist the IMF’s poorest members with implementation of initiatives to reduce the debt burdens of the heavily indebted poor countries and to focus the IMF’s concessional lending activities more explicitly on poverty reduction.
  • Introducing important changes to the IMF’s loan policies to encourage early adoption of sound economic policies as a means of preventing crises and to discourage overly long and heavy use of IMF resources by member countries (see Chapter 4).
  • Modifying the valuation of the SDR to take account of the introduction of the euro as the common currency for a number of IMF members and to reflect changes in global financial markets.

Regular Financing Activities

The IMF’s regular lending activity is conducted through the General Resources Account (GRA), which holds the subscriptions of members (see Box 6.1). The bulk of the financing is provided under Stand-By Arrangements, which address members’ balance of payments difficulties of a short-term cyclical nature, and under the Extended Fund Facility (EFF), which focuses on external payments difficulties arising from longer-term structural problems. Loans under Stand-By and Extended Arrangements can be supplemented with short-term resources from the Supplemental Reserve Facility (SRF) to assist members experiencing a sudden and disruptive loss of capital market access. All loans incur interest charges and can be subject to surcharges based on the type and duration of the loan, and the amount of IMF credit outstanding. Repayment periods also vary by facility (see Table 4.1).

Box 6.1IMF’s Financing Mechanism

The IMF’s lending is financed from the capital subscribed by member countries. Each country is assigned a quota that determines its maximum financial commitment to the IMF. A portion of the quota is provided in the form of reserve assets (foreign currencies acceptable to the IMF or SDRs) and the remainder in the member’s own currency. The IMF extends financing by providing reserve assets to the borrower from the reserve asset subscriptions of members or by calling on countries that are considered financially strong to exchange their currency subscriptions for reserve assets (Box 6.2).

The loan is disbursed or drawn by the borrower “purchasing” the reserve assets from the IMF with its own currency. Repayment of the loan is achieved by the borrower “repurchasing” its currency from the IMF with reserve assets. The IMF levies a basic rate of interest (charges) on loans based on the SDR interest rate (Box 6.7) and imposes surcharges depending on the amount and maturity of the loan and the level of credit outstanding.

A country that provides reserve assets to the IMF as part of its quota subscription or through the use of its currency receives a liquid claim on the IMF (reserve position) that can be encashed on demand to obtain reserve assets to meet a balance of payments financing need. These claims earn interest (remuneration) based on the SDR interest rate and are considered by members as part of their international reserve assets. As IMF loans are repaid (repurchased), the amount of SDRs and the currencies of creditor members is restored and the creditor claim on the IMF is extinguished.

The “purchase/repurchase” approach to IMF lending affects the composition of the IMF’s resources but not the overall size. An increase in loans outstanding will reduce the IMF’s holdings of reserve assets and the currencies of members that are financially strong, and, at the same time, increase the IMF’s holdings of the currencies of countries that are borrowing from the IMF. The amount of the IMF’s holdings of reserve assets and the currencies of financially strong countries determines the IMF’s lending capacity (liquidity) (Box 6.3).


Favorable global economic and financial conditions contributed to a decline in new IMF commitments in FY2001. Total commitments fell to SDR 14.5 billion in FY2001 from SDR 23.5 billion in FY2000 (Table 6.1). The IMF approved nine new Stand-By Arrangements involving commitments totaling SDR 2.1 billion,1 and two commitments under Stand-By Arrangements already in place were increased by SDR 11 billion. Only one new EFF Arrangement was approved, for the former Yugoslav Republic of Macedonia, for SDR 24 million. The commitment under Yemen’s Extended Arrangement was reduced by SDR 37 million.

Table 6.1IMF Financial Assistance Approved in FY2001
MemberType of

Financial Assistance
Date of


Approved (in

millions of SDRs)
ArgentinaAugmentation of Stand-ByJanuary 12, 20015,186.9
BeninThree-year PRGFJuly 18, 200027.0
CameroonThree-year PRGFDecember 21, 2000111.4
Congo, Rep. ofEmergency postconflict assistanceNovember 22, 200010.6
Croatia14-month Stand-ByMarch 19, 2001200.0
EthiopiaThree-year PRGFMarch 22, 200186.9
Gabon18-month Stand-ByOctober 23, 200092.6
GeorgiaThree-year PRGFJanuary 12, 2001108.0
GhanaAugmentation of PRGFAugust 24, 200037.0
Guinea-BissauThree-year PRGFDecember 15, 200014.2
KenyaThree-year PRGFAugust 4, 2000150.0
Augmentation of PRGFOctober 18, 200040.0
Lao People’s Dem. Rep.Three-year PRGFApril 25, 200131.7
Latvia20-month Stand-ByApril 20, 200133.0
LesothoThree-year PRGFMarch 9, 200124.5
Macedonia (formerThree-year PRGFDecember 18, 200010.3
Yugoslav Rep. of)Three-year Extended ArrangementNovember 29, 200024.1
MadagascarThree-year PRGFMarch 1, 200179.4
Augmentation of PRGFJune 23, 200024.4
MalawiThree-year PRGFDecember 21, 200045.1
MoldovaThree-year PRGFDecember 21, 2000110.9
NigerThree-year PRGFDecember 22, 200059.2
Nigeria12-month Stand-ByAugust 4, 2000788.9
Pakistan10-month Stand-ByNovember 29, 2000465.0
Panama21-month Stand-ByJune 30, 200064.0
Peru12-month Stand-ByMarch 12, 2001128.0
Sierra LeoneEmergency postconflict assistanceSeptember 13, 200010.4
Sri Lanka14-month Stand-ByApril 20, 2001200.0
TurkeyAugmentation of Stand-ByDecember 21, 20005,784.0
Uruguay22-month Stand-ByMay 31, 2000150.0
VietnamThree-year PRGFApril 6, 2001290.0
YemenReduction of Extended ArrangementFebruary 28, 2001(33.0)
Yugoslavia, Federal Rep. of
(Serbia/Montenegro)Emergency postconflict assistanceDecember 20, 2000116.9

For augmentations, only the amount of the increase is shown.

For augmentations, only the amount of the increase is shown.

The largest IMF commitments during the year reflected additions to existing Stand-By Arrangements for Argentina and Turkey, including the provision of shorter-term financing under the SRF. In December 2000, the arrangement with Turkey was increased by SDR 5.8 billion (all from the SRF) to deal with a loss of market confidence that threatened progress on macroeconomic stabilization and structural reform under the program adopted by Turkey in 1999.2 In January 2001, Argentina’s Stand-By Arrangement was increased by SDR 5.2 billion (of which SDR 2.1 billion involved SRF resources) as part of an international effort to support the country’s reform program and improve its access to international capital markets.

In a continuation of recent trends, a growing volume of IMF financing commitments under Stand-By and Extended Arrangements are being treated as precautionary, with borrowers indicating that they do not intend to draw on the funds committed to them by the IMF. Drawings were made under only 16 of the 37 Stand-By and Extended Arrangements in place during the year (see Appendix II, Table II.7). At the end of April 2001, undrawn balances under the 25 Stand-By and Extended Arrangements still in effect amounted to SDR 22.4 billion, about two-thirds of the total amount committed (SDR 31.7 billion).

Financing provided under the IMF’s facilities for emergency assistance and compensatory financing was modest in FY2001. Emergency postconflict assistance of SDR 138 million was provided to three countries (Republic of Congo, Sierra Leone, Federal Republic of Yugoslavia). No country received assistance under the Compensatory Financing Facility (CFF).

No commitments were made under the Contingent Credit Lines (CCLs) during the year. Changes were adopted as part of the review of IMF facilities with the aim of making the facility more attractive to potential users (see Chapter 4).

During the financial year, the IMF disbursed SDR 9.5 billion in loans from its General Resources Account. The amount of new credit was more than offset by continued substantial repayment of loans extended in earlier years. Total repayments were SDR 11.2 billion, including advance repayments by Korea (SDR 2.0 billion) and Mexico (SDR 2.3 billion). Consequently, IMF credit outstanding at the end of the financial year amounted to SDR 42.2 billion, a little lower than a year earlier and some SDR 18 billion below the peak attained during the recent financial crises.

A review of IMF facilities resulted in a number of other important measures affecting the duration and size of future IMF financing under Stand-By and Extended Arrangements (see Chapter 4). The new policies on time-based early repurchase expectations and the level-based interest surcharge apply to drawings made after the date of the decision by the Executive Board (November 28, 2000). As of April 30, 2001, financing of SDR 3.7 billion was subject to early repurchase expectations under these policies; at that time no outstanding credit was subject to the level-based surcharge.

Resources and Liquidity

The IMF’s lending is financed primarily from the fully paid-in capital (quotas) subscribed by member countries in the form of reserve assets and currencies (see Box 6.1).3 Only a portion of the resources are readily available to finance new lending, however, because of prior commitments and IMF policies that limit the use of the currencies of those members that are financially strong (see Boxes 6.2 and 6.3). General reviews of IMF quotas are conducted at five-yearly intervals during which adjustments are proposed in the overall size and distribution of quotas to reflect developments in the world economy. A member’s quota can also be adjusted separately from a general review to take account of major developments. The IMF can also borrow to supplement its quota resources (see Box 6.4).

Box 6.2Financial Transactions Plan

The IMF extends loans by providing reserve assets from its own holdings and by calling on financially strong countries to exchange the IMF’s holdings of their currencies for reserve assets. The members that participate in the financing of IMF transactions in foreign exchange are selected by the Executive Board based on an assessment of each country’s financial capacity. These assessments are ultimately a matter of judgment and take into account recent and prospective developments in the balance of payments and reserves, trends in exchange rates, and the size and duration of external debt obligations.

The amounts transferred and received by these members are managed to ensure that their creditor positions in the IMF remain broadly the same in relation to their quota, the key measure of each member’s rights and obligations in the IMF. This is achieved in the framework of an indicative quarterly plan for financial transactions. The IMF publishes on its website the outcome of the financial transactions plan for the quarter ending three months prior to publication. As of April 30, 2001, the 38 members listed below were participating in financing IMF transactions. In addition, Korea was included in the plan since it was making advance repayments under the IMF’s early repurchase policy.





Brunei Darussalam




Czech Republic














New Zealand






Saudi Arabia






Trinidad and Tobago

United Arab Emirates

United Kingdom

United States

The IMF’s financial position, which improved significantly following the 1999 increase in quotas, remained strong at the close of the financial year. On April 30, 2001, the IMF had SDR 78.7 billion in usable quota resources available for new lending, compared with SDR 74.8 billion a year earlier and nearly four times higher than the low point prior to the quota increase. In addition to the net reflows noted earlier, a number of Stand-By and Extended Arrangements with large undrawn balances expired (including Korea, Mexico, and Russia), which made about SDR 7.0 billion in funds available for new lending. Finally, three new countries were considered sufficiently strong for their currencies to be included in the IMF’s financial operations (Korea,4 Oman, and Qatar), and an increase in China’s quota provided additional usable funds.

Other Developments

A number of quota-related developments took place during the financial year:

  • China’s quota was increased to reflect the resumption of Chinese sovereignty over Hong Kong SAR. The increase of SDR 1,682.0 million raised China’s quota to SDR 6,369.2 million, or 3.0 percent of total quotas (Box 6.5).
  • The Executive Board considered a report and recommendations by an external panel of independent experts on possible reform of the formulas used to calculate member quotas. A staff commentary, including a preliminary quantification of the recommended formula, was also reviewed.5 The Board agreed that the quota formulas should be simplified and updated to reflect developments in the world economy, including the growing role of financial markets. However, concern was expressed that the formula recommended by the panel of experts could contribute to a further concentration of quotas in the largest IMF members. Executive Directors agreed to consider possible alternative formulas following additional analysis by staff (see Box 6.6).
  • In December 2000, the Federal Republic of Yugoslavia (Serbia/Montenegro) fulfilled the necessary conditions to succeed to membership of the former Socialist Federal Republic of Yugoslavia and consented to, and paid for, a quota of SDR 467.7 million.
  • As of April 30, 2001, 174 member countries accounting for more than 99 percent of total quotas proposed in 1998 under the Eleventh General Review of Quotas had consented to, and paid for, their quota increases. Three member countries eligible to consent to the proposed increases in their quotas had not done so by the end of the financial year, and six countries were ineligible to consent to their proposed increases because they are in arrears to the IMF. On January 16, 2001, the Executive Board approved an extension of the period for consent to, and payment of, quota increases under the Eleventh Review until July 31, 2001.6 At the close of the financial year, total quotas amounted to about SDR 212.4 billion. The quotas of individual members at the end of April 2001 are shown in financial statements of the General Resources Account, Schedule 1 (see Appendix IX).

Box 6.3IMF Financial Resources and Liquidity

While the IMF’s lending and other transactions are financed primarily from the quota subscriptions of member countries, only a portion of these funds is available to finance new lending. The IMF’s usable resources consist of its holdings of the currencies of financially strong members included in the financial transactions plan (Box 6.2) and SDRs. Moreover, some of these usable resources will have been committed under existing loans and must be retained for working balances. Thus, the IMF’s net uncommitted usable resources represent the funds available for new lending and to meet requests for encashment of creditor liquid claims (reserve positions) on the IMF. As of April 30, 2001, the IMF’s net uncommitted usable resources amounted to SDR 78.7 billion, about 37 percent of total quotas (see Schedule 2 to the financial statements of the General Resources Account). Detailed information on the IMF’s liquidity position is published monthly on the IMF’s website.

The IMF’s two standing borrowing arrangements—the New Arrangements to Borrow (NAB) and the General Arrangements to Borrow (GAB)—can provide up to SDR 34 billion in supplementary resources in specified circumstances (Box 6.4). Any such borrowing increases the creditor members’ reserve positions and thus adds to the IMF’s liquid liabilities.

The IMF must maintain sufficient liquidity to meet current and prospective financing needs. A liquidity ratio has traditionally been used to assess the IMF’s liquidity position, which is the ratio of the IMF’s net uncommitted usable resources to its liquid liabilities. As of April 30, 2001, the liquidity ratio was 168.4 percent, more than five times the low point prior to the 1999 increase in IMF quotas (Figure 6.1).

Figure 6.1IMF Liquidity Ratio, April 1992–April 2001

(In percent)

Concessional Financing

The IMF provides concessional assistance to help its poorest members boost their economic growth and reduce poverty through the Poverty Reduction and Growth Facility (PRGF) and in the context of the Initiative for Heavily Indebted Poor Countries (HIPCs) (see Chapter 5). In FY2001, the financing of the PRGF and the HIPC Initiative was largely completed, with significant progress in obtaining bilateral contributions and in securing the full use of the investment income on the profits from the off-market gold transactions undertaken in FY2000 (see below). A total of 37 member countries received PRGF financing during FY2001, and 23 countries had received financial commitments under the HIPC Initiative by the end of the financial year.

Box 6.4The IMF Can Borrow to Supplement Quota Funding

The IMF’s Articles of Agreement authorize it to borrow if necessary to supplement its members’ quota subscriptions. To date, the IMF has borrowed only from official sources (such as governments and central banks), but it may also borrow from private sources. The IMF has two sets of credit arrangements—the General Arrangements to Borrow (GAB) and the New Arrangements to Borrow (NAB)—whose purpose is to make resources available to the IMF when supplementary resources are needed to forestall or cope with an impairment of the international monetary system. The NAB is the facility of first and principal recourse (unless a GAB participant requests the use of IMF resources, in which case a proposal for calls may be made under either of the arrangements). The total amount of resources available to the IMF under both arrangements combined is up to SDR 34 billion, double the amount available under the GAB alone.

General Arrangements to Borrow. The GAB are a set of arrangements under which 11 participants (industrial countries or their central banks) have agreed to provide resources to the IMF to forestall or cope with an impairment of the international monetary system (see Table 6.2). The most recent activation of the GAB was in 1998, the first in 20 years, and was in support of the IMF’s lending to Russia at that time.

Table 6.2General Arrangements to Borrow(GAB)

(In millions of SDRs)
Deutsche Bundesbank2,380.0
Sveriges Riksbank382.5
Swiss National Bank1,020.0
United Kingdom1,700.0
United States4,250.0
Associated Agreement with Saudi Arabia1,500.0

New Arrangements to Borrow. The NAB, which entered into effect in 1998, are a new set of credit arrangements between the IMF and 25 members and institutions (see Table 6.3). The NAB have not replaced the existing GAB, which remain in force. The first, and thus far only, activation of the NAB was in December 1998 to finance the IMF’s support for Brazil.

Table 6.3New Arrangements to Borrow(NAB)

(In millions of SDRs)
Deutsche Bundesbank3,557
Hong Kong Monetary Authority340
Saudi Arabia1,780
Sveriges Riksbank859
Swiss National Bank1,557
United Kingdom2,577
United States6,712

Borrowing under both the GAB and NAB was repaid in March 1999, following the boost to the IMF’s liquidity arising from the increase in IMF resources through quota payments.

Box 6.5China’s Quota Increase

In 1997, the Chinese authorities requested a special increase in China’s quota to better reflect its position in the world economy following the resumption of Chinese sovereignty over Hong Kong SAR. The request was made at a late stage of the Eleventh General Review of Quotas, and the Executive Board decided to complete the review on the understanding that it would return to China’s request after the general review.

The Executive Board considered the request in 2000 and on January 4, 2001, recommended to the Board of Governors an increase in China’s quota from SDR 4,687.2 million to SDR 6,369.2 million, which amounts to 3.0 percent of total quotas. The Board of Governors approved the proposal on February 5, 2001, and the increase became effective when China consented to and paid the increased subscription on February 28, 2001.

The increase in China’s quota was only the fourth time in the past 30 years that the IMF has provided a special increase to a member outside the regular general review of quotas (the other cases were China in 1980, Saudi Arabia in 1981, and Cambodia in 1994).

Poverty Reduction and Growth Facility (PRGF)

In 1999, the objectives of the IMF’s concessional lending were modified to include an explicit focus on poverty reduction in the context of a growth-oriented economic strategy. The IMF supports, along with the World Bank, strategies elaborated by the borrowing country in a Poverty Reduction Strategy Paper, which is prepared with the participation of civil society and other development partners. Reflecting the new objectives and procedures, the IMF established the PRGF, in place of the Enhanced Structural Adjustment Facility (ESAF), to provide financing based on the Poverty Reduction Strategy Paper.

During FY2001, the Executive Board approved 14 new PRGF arrangements (Benin, Cameroon, Ethiopia, Georgia, Guinea-Bissau, Kenya, Lao People’s Democratic Republic, Lesotho, Macedonia (FYR), Madagascar, Malawi, Moldova, Niger, and Vietnam) with commitments totaling SDR 1.2 billion; in addition, increases in existing commitments totaling SDR 101.4 million were approved for Ghana, Kenya, and Madagascar (Appendix II, Tables II.1 and II.5). Total PRGF disbursements amounted to SDR 0.6 billion during FY2001, compared with SDR 0.5 billion in FY 2000. As of the end of April 2001, 37 member countries’ reform programs were supported by PRGF arrangements, with IMF commitments totaling SDR 3.3 billion and undrawn balances of SDR 2.0 billion. (Appendix II, Table II.5). During FY2001, the growth prospects and external positions of China, Egypt, and Equatorial Guinea were deemed by the Executive Board to have improved to the point where they were considered no longer eligible under the PRGF. As a result, the number of PRGF-eligible countries decreased from 80 in FY 2000 to the current 77.

Financing for the PRGF is provided through trust funds administered by the IMF that are separate from the IMF’s quota-based resources. Loans and grant contributions from a broad spectrum of the IMF’s membership constitute the bulk of the financing of the PRGF Trust. The Trust borrows resources at market or below-market interest rates from loan providers—central banks, governments, and government institutions—and lends them to PRGF-eligible borrowers at a highly concessional rate of interest. The PRGF Trust receives grant contributions to subsidize the rate of interest on PRGF loans and maintains a Reserve Account as security for loans to the Trust.

Box 6.6External Review of IMF Quota Formulas

In 1999, the IMF established an external panel of independent experts, the Quota Formula Review Group, to assess the adequacy of the formulas used to guide the determination of quotas and to make recommendations for reforms that take account of changes in the world economy and the international financial system and the increasing globalization of markets. The eight-member panel, chaired by Professor Richard Cooper (Harvard University), submitted a report that was considered by the Executive Board, along with a staff commentary, in August 2000.

The Quota Formula Review Group report provided information about the history and operation of the quota formulas, suggested guiding principles for future reforms, and presented recommendations to simplify and update the formulas. The Executive Board discussion revealed a wide range of views on the issues raised in the report and the staff commentary. Directors generally recognized the need to simplify the current formulas and to update them to take account of the growing role of capital flows. Concern was expressed, however, that a preliminary partial quantification of the formula recommended by the panel pointed toward a greater concentration of quotas among the largest industrial countries (later confirmed by more complete and updated staff calculations). Executive Directors agreed on the need to carry forward the work of the external panel with a view to developing quota formulas that more fully reflect members’ roles in the world economy. The International Monetary and Financial Committee (IMFC) supported this view at their meeting in Prague in September 2000, and a work program has been adopted that provides for further consideration of alternative quota formulas prior to the 2001 Annual Meetings.

During FY2001, new borrowing agreements were concluded with Denmark (SDR 100 million) and Germany (SDR 350 million). As of the end of April 2001, the borrowing limit for loan resources of the PRGF Trust was SDR 11.5 billion, and total effective loan commitments to the PRGF Trust amounted to SDR 11.3 billion. The commitment period for PRGF Trust loans to eligible members runs through December 31, 2001, and available loan resources are expected to be fully committed by late 2001 or early 2002.

Contributions to the Subsidy Account enable loans from the PRGF Trust to be made at an annual interest rate of one half of one percent. The total value of bilateral subsidy contributions is estimated at SDR 3.5 billion. In addition, SDR 0.4 billion was transferred from the IMF’s Special Disbursement Account to the Subsidy Account. This contribution by the IMF, including the interest it will earn, is valued at SDR 0.6 billion.

The framework for the PRGF envisages commitments under the current PRGF Trust through late 2001 or early 2002, to be followed by a four-year interim PRGF with a commitment capacity of about SDR 1.0 billion a year. The purpose of the interim PRGF will be the same as that of the current facility: to promote sustainable economic growth and achieve durable poverty reduction. The modalities of concessional lending for the period after 2005 will need to be reassessed closer to the time, but a substantial proportion of such lending is expected to be provided by the IMF’s own resources accumulating in the PRGF Trust Reserve Account. These resources will become available as PRGF lenders are repaid and the security provided by the Reserve Account is no longer needed.

Enhanced HIPC Initiative

The HIPC Initiative, originally launched by the IMF and World Bank in 1996, was considerably strengthened last year to provide faster, broader, and deeper debt relief for the world’s heavily indebted poor countries. By April 30, 2001, the IMF and the World Bank had brought 22 HIPC-eligible members to their decision points under the enhanced initiative and one (Côte d’Ivoire) under the original initiative. In addition, Chad reached the decision point in May 2001 (that is, after the end of FY2001).

The IMF provides HIPC Initiative assistance in the form of grants or interest-free loans that are used to service part of member countries’ debt to the IMF. As of April 30, 2001, the IMF had committed SDR 1.3 billion in HIPC Initiative grants to 23 eligible countries (Benin, Bolivia, Burkina Faso, Cameroon, Côte d’Ivoire, The Gambia, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Tanzania, Uganda, and Zambia). One member (Uganda) reached its completion point under the enhanced HIPC Initiative during FY2001. Under the enhanced initiative, a portion of the resources committed at the decision point can be disbursed prior to the country reaching its completion point. As of April 30, 2001, total disbursements of HIPC Initiative assistance by the IMF amounted to SDR 476 million (see Table 6.4).

Table 6.4Commitments and Disbursements of HIPC Initiative Assistance, as of April 30, 2001(In millions of SDRs)
Burkina Faso31.317.8Mozambique104.895.5
Côte d’Ivoire14.4Niger21.60.4
Guinea24.22.4São Tomé and
Twenty-three members, of which 22 under the enhanced HIPC framework41,322.9475.5

Amounts may include interest on assistance committed but not disbursed during the interim period.

These amounts are grants from the PGRF-HIPC Trust Account to a member’s account, to be used for repayments to the IMF as they fall due.

The IMF’s share of assistance under the HIPC Initiative was zero.

Côte d’Ivoire reached its decision point under the original HIPC Initiative.

Amounts may include interest on assistance committed but not disbursed during the interim period.

These amounts are grants from the PGRF-HIPC Trust Account to a member’s account, to be used for repayments to the IMF as they fall due.

The IMF’s share of assistance under the HIPC Initiative was zero.

Côte d’Ivoire reached its decision point under the original HIPC Initiative.

Financing of the HIPC Initiative and Interim PRGF

Grant resources. The financing of the IMF’s participation in the enhanced HIPC Initiative and the subsidy requirements of the interim PRGF are administered through the PRGF-HIPC Trust. The total grant resources required for these initiatives are estimated at $3.8 billion (end-2000 net present value (NPV) terms),7 of which HIPC Initiative assistance accounts for about two-thirds of the total financing requirement. The main elements of the financing package consist of contributions by member countries and by the IMF.

Bilateral pledges from member countries amount to about $1.5 billion in NPV terms and come from a wide cross section of the IMF’s membership, demonstrating the broad support for the HIPC and PRGF initiatives. Altogether, 94 countries have pledged support: 27 advanced countries, 58 developing countries, and 9 countries in transition. As of April 30, 2001, effective bilateral contributions amounted to $1.4 billion in NPV terms, or 93 percent of total pledged contributions (see Appendix II, Table II.11).

The IMF’s own contributions amount to $2.3 billion in NPV terms. The bulk of this contribution—$1.7 billion in NPV terms—comes from investment income on the net proceeds generated from off-market transactions in gold of 12.9 million troy ounces. The off-market transactions were completed in April 2000, generating net proceeds of SDR 2.226 billion (see Annual Report 2000, p. 71). These funds have been placed in the Special Disbursement Account (SDA) and invested for the benefit of the HIPC Initiative. On December 8, 1999, the IMF Executive Board authorized the transfer of nine-fourteenths of the investment income from net gold proceeds to be used for this purpose. Subsequently, on November 30, 2000, the IMF’s Executive Board authorized the transfer of the remaining five-fourteenths of the investment income.

The IMF also contributes about $0.6 billion in NPV terms by forgoing compensation for the administrative expenses related to PRGF operations for the financial years 1998 through 2004. The equivalent amount is transferred from the PRGF Trust Reserve Account to the PRGF-HIPC Trust. In addition, part of the interest surcharge on financing provided in 1998 and 1999 under the Supplemental Reserve Facility related to activation of the New Arrangements to Borrow has also been transferred to the PRGF-HIPC Trust.

Interim PRGF loan resources. To ensure the continuity of PRGF operations after existing loan resources in the PRGF Trust are fully committed, additional loan resources of SDR 4.0–4.5 billion need to be mobilized for an interim period until PRGF operations become self-sustaining after 2005. As of April 30, 2001, a number of member countries had indicated their readiness to provide new loans for this purpose in the amount of SDR 3.2 billion. Consultations will be undertaken with current PRGF creditors on the possible use of the Reserve Account to provide security for the new loans.

Investment income. In March 2000, the IMF initiated a new investment strategy for SDR 6.4 billion in resources supporting the PRGF and HIPC initiatives with the objective of supplementing returns over time while maintaining prudent limits on risk. Supplemental income will be used to help meet the financial requirements of the PRGF and HIPC initiatives.

Under the new approach, the maturity of investments was lengthened by shifting the bulk of assets previously invested in short-term SDR-denominated deposits with the Bank for International Settlements (BIS) to portfolios of bonds and other medium-term instruments structured to reflect the currency composition of the SDR basket. Remaining short-term deposits are held at a level sufficient to meet liquidity requirements and to conform with the administrative arrangements agreed with certain contributors.

The performance benchmark for the portfolio of bonds and medium-term instruments is a customized index comprising 1- to 3-year government bond indices for Germany, Japan, the United Kingdom, and the United States, with each market weighted to reflect the currency composition of the SDR basket. Regular portfolio rebalancing ensures that the currency composition of the investment portfolio matches as closely as practicable the currency composition of the SDR basket. The new strategy is implemented on the IMF’s behalf by the BIS, the World Bank, and three private investment managers.

In the first 12 months since its inception, the new investment strategy added about 220 basis points (on an annualized basis, net of fees) to returns over the previous approach of investing in SDR-denominated deposits—generating supplemental income of nearly SDR 140 million in support of PRGF and PRGF-HIPC operations.

Special Drawing Rights

The SDR is a reserve asset created by the IMF in 1969 and allocated to members in proportion to their IMF quotas to meet a long-term global need to supplement existing reserve assets. A member may use SDRs to obtain foreign exchange reserves from other members and to make payments to the IMF. Such use does not constitute a loan; members are allocated SDRs unconditionally and may use them to meet a balance of payments financing need without undertaking economic policy measures or repayment obligations. However, a member that makes net use of its allocated SDRs pays the SDR interest rate, while a member that acquires SDRs in excess of its allocation receives interest. A total of SDR 21.4 billion has been allocated to members, in two allocations, most recently in 1981. The SDR also serves as the unit of account for the IMF, and the SDR interest rate provides the basis for calculating the interest charges on regular IMF financing and the interest rate paid to members that are creditors to the IMF.

  • Special one-time allocation. In September 1997, the IMF Board of Governors proposed an amendment to the Articles of Agreement to allow a special onetime allocation of SDRs to correct for the fact that more than one-fifth of the IMF membership has never received an SDR allocation since they joined the IMF after the last allocation in 1981. The special allocation of SDRs would enable all members of the IMF to participate in the SDR system on an equitable basis and would double cumulative SDR allocations to SDR 42.87 billion. The proposal will become effective when three-fifths of the IMF membership (110 members) having 85 percent of the total voting power have accepted the proposal. As of April 30, 2001, 107 members having 71 percent of the total voting power had agreed.
  • SDR valuation. The value of the SDR is based on the value of a basket of currencies. The currency basket is reviewed every five years to ensure that the currencies included in it are representative of those used in international transactions, and that the weights assigned to the currencies reflect their relative importance in the world’s trading and financial system. The latest valuation review was completed in October 2000, and the IMF Executive Board decided on changes in the valuation basket, effective January 1, 2001, to take account of the introduction of the euro as the common currency for a number of IMF members, and to reflect the growing role of international financial markets (Box 6.7). The new valuation basket includes the U.S. dollar, euro, Japanese yen, and pound sterling, and its value is determined daily based on exchange rates quoted on major international currency markets (Tables 6.5 and 6.6).8
  • SDR interest rate. The SDR interest rate is determined weekly based on a weighted average of representative interest rates on short-term instruments in the markets of the currencies included in the SDR valuation basket. In keeping with the change in the valuation of the SDR, effective January 1, 2001, the representative rate for the euro area became the three-month Euribor (Euro Interbank Offered Rate). The representative interest rate for the Japanese yen was changed to the yield on Japanese government 13–week financing bills to reflect changes in Japanese financial markets and the resulting reduced liquidity of the three-month certificate of deposit. The yields on the three-month U.S. and U.K. Treasury bills continued to serve as the representative rates for the U.S. dollar and pound sterling, respectively. The SDR rate evolved during the year in line with developments in the major money markets, rising in the first half of the financial year and declining thereafter, averaging 4.48 percent over the course of FY2001 (see Figure 6.2).
  • SDR operations and transactions. All SDR transactions are conducted through the SDR Department. SDRs are held largely by member countries with the balance held in the IMF’s General Resources Account and by official entities prescribed by the IMF to hold SDRs. Prescribed holders do not receive SDR allocations but can acquire and use SDRs in operations and transactions with IMF members and with other prescribed holders under the same terms and conditions as IMF members.9 Transactions in SDRs are facilitated by voluntary arrangements with 13 members and one financial institution under which the parties stand ready to buy or sell SDRs for currencies that are readily usable in international transactions, provided that their own SDR holdings remain within certain limits. These arrangements have helped ensure the liquidity of the SDR system.10
Table 6.5Currency Weights in SDR Basket(In percent)

January 1, 2001

U.S. dollar4539
Deutsche mark21
French franc11
Japanese yen1518
Pound sterling1111

On January 1, 1999, the deutsche mark and French franc in the SDR basket were replaced by equivalent amounts of euro.

On January 1, 1999, the deutsche mark and French franc in the SDR basket were replaced by equivalent amounts of euro.

Table 6.6SDR Valuation(As of April 30, 2001)
CurrencyAmount of

Currency Units

U.S. Dollar

Japanese yen21.0000123.530000.169999
Pound sterling0.09841.431800.140889
U.S. dollar0.57701.000000.577000
SDR 1 = US$1.265793
US$1 = SDR 0.790019

Exchange rates in terms of U.S. dollars per currency unit except for the Japanese yen, which is currency units per U.S. dollar.

Exchange rates in terms of U.S. dollars per currency unit except for the Japanese yen, which is currency units per U.S. dollar.

Figure 6.2SDR Interest Rates, 1991–2001

(In percent)

Box 6.7SDR Valuation and Interest Rate

Valuation. The value of the SDR is based on the weighted average of the values of a basket of major international currencies. The method of valuation is reviewed at five-yearly intervals. The latest review was completed on October 12, 2000, and the Executive Board decided on a number of changes to take account of the introduction of the euro as the common currency for a number of European countries and the growing role of international financial markets. The criterion for selecting the currencies of those member countries that are the largest exporters of goods and services was extended to include exports by a monetary union (netting trade among members of the union). A second selection criterion was introduced to ensure that the currencies included in the valuation basket are among the most widely used in international transactions and widely traded in the principal foreign exchange markets. On the basis of these two criteria, the currencies selected for inclusion in the SDR basket for the period 2001–2005 are the U.S. dollar, euro, Japanese yen, and pound sterling. The weights of each currency are shown in Table 6.5.

The amounts of each of the four currencies included in the new SDR valuation basket were calculated on December 29, 2000, in accordance with the new weights. The calculation was made on the basis of the average exchange rate for these currencies over the three months ending on that date in such a manner as to ensure that the value of the SDR on December 29, 2000, was the same under both the revised valuation and previous valuation baskets. The value and composition of the SDR on April 30, 2001, is shown in Table 6.6.

Interest rate. The IMF also reviewed the method for determining the SDR interest rate and decided to continue to set the weekly interest rate on the basis of a weighted average of interest rates on short-term instruments in the markets of the currencies included in the SDR valuation basket. However, the financial instruments used to determine the representative interest rate for the euro and the Japanese yen were modified to reflect financial market developments (see text).

The total level of transfers of SDRs continued to decrease in FY2001—to SDR 18.7 billion, compared with SDR 22.9 billion the previous year and the peak of SDR 49.1 billion in FY1999 when the volume of SDR transactions increased significantly because of payments for the quota increase. Summary data on transfers of SDRs are presented in Table 6.7.

Table 6.7Transfers of SDRs
Financial Years Ended April 30
Transfers among participants and prescribed holders
Transactions by agreement15,0563,1228,9878,9317,4118,56713,8176,6395,046
Prescribed operations25,6104061241,95188864,577293544
IMF-related operations394436301704606901756684923
Net interest on SDRs337121174319268284289214302
Transfers from participants to General Resources Account
Quota payments12,6437124708,64452864
Interest received on General
Resources Account holdings12833626253514435138118
Transfers from General Resources Account to participants and prescribed holders
Repayments of Fund borrowings3503008621,429
Interest on Fund borrowings92162974618
In exchange for other members’ currencies—Acquisitions to pay charges6991669949224205451,5771,107
Total transfers34,15710,93320,33627,44819,77320,25649,13022,86718,702
General Resources Account holdings at end of period7,9306,0381,0018251,4947643,5722,7242,437

Transactions by agreement are transactions in which participants in the SDR Department (currently all members) and/or prescribed holders voluntarily exchange SDRs for currency at the official rate as determined by the IMF. These transactions are usually arranged by the IMF.

Operations involving prescribed SDR holders. A prescribed SDR holder is a nonparticipant in the SDR Department that has been prescribed by the IMF as a holder of SDRs.

Operations in SDRs between members and the IMF that are conducted through the intermediary of a prescribed holder are referred to as “IMF-related operations.” The IMF has adopted a number of decisions to prescribe SDR operations under the Trust Fund, the SFF Subsidy Account, the SAF, the ESAF, the PRGF, and the HIPC Initiative.

Transactions by agreement are transactions in which participants in the SDR Department (currently all members) and/or prescribed holders voluntarily exchange SDRs for currency at the official rate as determined by the IMF. These transactions are usually arranged by the IMF.

Operations involving prescribed SDR holders. A prescribed SDR holder is a nonparticipant in the SDR Department that has been prescribed by the IMF as a holder of SDRs.

Operations in SDRs between members and the IMF that are conducted through the intermediary of a prescribed holder are referred to as “IMF-related operations.” The IMF has adopted a number of decisions to prescribe SDR operations under the Trust Fund, the SFF Subsidy Account, the SAF, the ESAF, the PRGF, and the HIPC Initiative.

Pattern of SDR Holdings

By the end of FY2001, the IMF’s own holdings of SDRs, which had risen sharply as a result of payments for quota subscriptions in 1999, had fallen to SDR 2.4 billion from SDR 2.7 billion a year earlier, toward the targeted range of SDR 1.0–1.5 billion in which the IMF seeks to maintain its SDR holdings. SDRs held by prescribed holders also decreased—by SDR 0.2 billion. Consequently, the SDR holdings by participants increased to SDR 18.6 billion from SDR 18.1 billion in FY2000.

The SDR holdings of the industrial and net creditor countries relative to their net cumulative allocation increased from a year earlier. This increase was mainly due to large interest (remuneration) payments made to those members. The SDR holdings of nonindustrial members declined to 54.6 percent of their net cumulative allocations from 62.5 percent a year earlier, mainly as a result of repayments and payments of interest charges on loans from the General Resources Account.

Income, Charges, Remuneration, and Burden Sharing

The IMF, like other financial institutions, earns income from interest charges and fees levied on its loans and uses the income to meet funding costs and pay for administrative expenses. The IMF’s reliance on capital subscriptions and internally generated resources provides some flexibility in setting the basic rate of charge. However, the IMF also needs to ensure that it provides creditors with a competitive rate of interest on their IMF claims. As additional safeguards, the IMF’s charter sets limits on the interest rate paid to creditors based on the SDR interest rate and on the possible uses of IMF income on loans financed with quota resources.

The basic rate of charge on regular lending is determined at the beginning of the financial year as a proportion of the SDR interest rate to achieve an agreed net income target for the year. This rate is set to cover the cost of funds and administrative expenses as well as to add to the IMF’s reserves. The specific proportion is based on projections for income and expenses for the year and can be adjusted at midyear in light of actual net income and if income for the year as a whole is expected to deviate significantly from the projections. At year-end, any income in excess of the target is refunded to members that paid interest charges during the year and shortfalls are made up in the following year.

In November 2000, the IMF introduced level-based surcharges to discourage unduly large use of credit in the credit tranches, including Stand-By Arrangements and under the Extended Fund Facility (see Chapter 4 and Table 4.1). These surcharges apply to new credit extended after November 28, 2000, the date the decision was adopted by the Executive Board. As noted earlier, the IMF also imposes surcharges on shorter-term loans under the SRF and CCL, which vary according to the length of time credit is outstanding. Income derived from surcharges is placed in the IMF’s reserves and is not taken into account in determining the income target for the year.

The IMF also receives income from debtor members in the form of service charges, commitment fees, and special charges. A one-time service charge of 0.5 percent is charged on each loan disbursement from the General Resources Account. A refundable commitment fee is charged on Stand-By and Extended Fund Facility credits, payable at the beginning of each 12-month period on the amounts that may be drawn during that period, including amounts available under the SRF or CCL. The fee is 0.25 percent on amounts committed up to 100 percent of quota and 0.10 percent for amounts exceeding 100 percent of quota. The commitment fee is refunded when credit is used in proportion to the drawings made. The IMF also levies special charges on overdue principal payments and overdue charges that are overdue by less than six months.

The IMF pays interest (remuneration) to creditors on their IMF claims (reserve positions) based on the SDR interest rate. The basic rate of remuneration is currently set at 100 percent of the SDR interest rate (the maximum permitted) but the IMF’s charter allows it to be set as low as 80 percent of the SDR rate.

Since 1986, the rates of charge and remuneration have been subject to a burden-sharing mechanism that distributes the cost of overdue financial obligations evenly between creditor and debtor members. Loss of income from unpaid interest charges is recovered through upward adjustments to the rate of charge and downward adjustments to the rate of remuneration. The amounts thus collected are refunded when the overdue charges are settled. Additional adjustments to the basic rates of charge and remuneration are made to generate precautionary balances in the form of contributions to a Special Contingent Account (SCA–1), which was established specifically to protect the IMF against the risk of loss resulting from overdue obligations. Resources in the SCA–1 are refundable after all arrears have been eliminated but can be refunded earlier by a decision by the IMF. In FY2001, the combined adjustment for unpaid interest charges and the allocation to the SCA–1 resulted in an increase to the basic rate of charge of 17 basis points, and a reduction in the rate of remuneration of 18 basis points. The adjusted rates of charge and remuneration averaged 5.33 percent and 4.28 percent, respectively, for the financial year.

In April 2000, the basic rate of charge for FY2001 was set at 115.9 percent of the SDR interest rate to achieve the agreed income target. The IMF’s net income, net of refunds of interest charges (see below), in FY2001 totaled SDR 176 million. This included SDR 119 million derived from net pension assets. SRF income, net of the annual expenses of administering the PRGF Trust, amounted to SDR 9 million. As initially agreed in FY1998, the IMF was not reimbursed for the expenses of administering the PRGF Trust in FY2001; instead, an equivalent amount (SDR 55 million) was transferred from the PRGF Trust through the Special Disbursement Account to the PRGF-HIPC Trust. As agreed at the beginning of the financial year, SDR 42 million of net income in excess of the income target was returned to members that paid interest charges at the end of FY2001, retroactively reducing the FY2001 rate of charge to 113.7 percent of the SDR interest rate. In addition, SDR 94 million generated through the adjustments to the rate of charge and the rate of remuneration described above was placed in the SCA–1.

Following the retroactive reduction in the rate of charge, SDR 176 million was placed to the IMF’s reserves, of which SDR 9 million of SRF net income was to the General Reserve and the remainder to the Special Reserve. Total reserves rose to SDR 3.3 billion as of April 30, 2001, from SDR 3.1 billion a year earlier.

In April 2001, the Executive Board decided to continue the financial mechanism in place, and set the basic rate of charge for FY2002 at 117.6 percent of the SDR interest rate. The Board also decided that for FY2002, after meeting the expenses of administering the PRGF Trust, any remaining net operational income generated by surcharges on purchases in the credit tranches and under the EFF, SRF, and CCL would be placed to the General Reserve at the end of the financial year.

Safeguarding IMF Resources and Dealing with Arrears

In FY2001, the IMF’s efforts to safeguard its resources intensified with the implementation of safeguards assessments for countries making use of IMF resources. These assessments focus on the adequacy of the central bank’s internal control, accounting, reporting, and auditing systems. In addition, the IMF introduced strengthened remedial actions to deal with misreporting of information provided to the IMF and misuse of IMF resources. Continued progress was also made under the strengthened arrears strategy to reduce overdue obligations to the IMF.

Safeguards Assessments

In March 2000, the IMF Executive Board adopted a strengthened framework of measures to safeguard the financing provided to member countries. These measures include the conduct of safeguards assessments of member country central banks, which began in July 2000 (see Box 6.8). The strengthened framework, adopted against the background of several instances of misreporting of information to the IMF and allegations of misuse of IMF resources, aims at supplementing conditionality, technical assistance, and other means that have traditionally ensured the proper use of IMF loans. In particular, safeguards assessments aim to provide reasonable assurance to the IMF that a central bank’s framework of reporting and controls is adequate to manage resources, including IMF disbursements. Safeguards assessments are conducted for central banks because they are typically the recipients of IMF disbursements.

Safeguards assessments consider the adequacy of five key areas of control and governance within a central bank, summarized under the acronym ELRIC, as follows: External audit mechanism, Zegal structure and independence of the central bank, financial Reporting practices, Internal audit mechanism, and the system of internal Controls. The ELRIC framework is derived from the IMF’s Code of Good Practices on Transparency in Monetary and Financial Polices and employs International Accounting Standards (IAS), International Standards on Auditing (ISA), and the IMF’s data dissemination standards (Special Data Dissemination Standard and General Data Dissemination System) as benchmarks.

Safeguards assessments apply to all countries with arrangements for use of IMF resources approved after June 30, 2000. Member countries with arrangements in effect prior to June 30, 2000, are subject to transitional procedures. These countries are required to demonstrate the adequacy of only one key element of the safeguards framework, namely, that their central banks publish annual financial statements that are independently audited by external auditors in accordance with internationally accepted standards.

Box 6.8Early Experience with IMF Safeguards Assessments

The implementation of the safeguards policy beginning in July 2000 has resulted in a heightened awareness regarding transparency and governance issues in central bank operations; it is hoped that this will lead to improved overall effectiveness of the safeguards employed by central banks. For example, at least nine central banks that did not previously have private independent external auditors have recently appointed, or are in the process of appointing them for the first time. They are those of Albania, Cambodia, Croatia, the former Yugoslav Republic of Macedonia, Peru, Romania, Turkey, the Federal Republic of Yugoslavia, and the Banque des Etats de I’Afrique Centrale (BEAC). Several of these appointments can be directly attributed to the advent of safeguards assessments and a number of central banks have sought IMF staffs advice in this matter.

The early experience with safeguards assessments suggests that they provide a useful tool for preventing the potential misreporting of data to the IMF and for raising awareness among central bank officials of the need for vigilance over controls to safeguard central bank resources, especially foreign reserves, from misuse. Although the sample of completed cases is too small to confirm a trend, recurring findings of safeguards assessments include the absence of reconciliation between audited financial statements and economic data used in the monitoring of IMF-supported programs; weak oversight by central bank boards over control, audit, and financial reporting processes; and, more generally, inadequate financial reporting. In general, central bank officials have been receptive to the findings of safeguards assessments and have adopted the staffs recommendations. In some cases, central banks have undertaken a deeper analysis of their safeguards already in place in response to the IMF initiative.

The implementation of safeguards assessments is undertaken in two stages. Stage One is a preliminary assessment by IMF staff at headquarters of the adequacy of a central bank’s ELRIC, based on a review of documentation provided by the authorities and, if necessary, discussions with the central bank’s external auditors. A confidential Stage One report that documents vulnerabilities identified in a central bank’s ELRIC, together with staff’s proposed remedial measures, is prepared for IMF management. If necessary, a Stage Two, on-site, assessment is undertaken to confirm or modify the preliminary conclusions drawn by the Stage One assessment and to agree on appropriate remedial measures with the central bank authorities. Multidisciplinary teams led by IMF staff and including external experts conduct Stage Two assessments. The final confidential report is discussed with central bank officials and includes their formal response. The conclusions and agreed-upon remedial measures are reported to the IMF Executive Board.

In FY2001, 17 safeguards assessments were completed, including those under the transitional procedures. Toward the end of 2001, the Executive Board will review the framework governing the assessments and the collective experience from the new policy. The review will be aided by the same panel of eminent external experts that had endorsed the introduction of the new policy. The panel will provide the Executive Board with an independent evaluation of the implementation of the safeguards policy and its effectiveness.

Following the March 2000 review of the IMF’s overall framework governing misreporting, the Board addressed specific issues related to the Misreporting Guidelines in July 2000. In its July meeting, the Board strengthened the coverage of the Guidelines in several respects. The limitation period allowed for under the Guidelines was lengthened from two years to four and the Guidelines were extended to cover outright purchases in the General Resources Account, including emergency assistance and the CFF. Policies were also adopted to bring prior actions under the Guidelines and to make waivers conditional on the accuracy of the information provided. In addition, the Board reconsidered and reaffirmed the policy of making information public in each case of misreporting. In December 2000, the Board considered in an informal seminar the issues posed by bringing into the misreporting framework information that is provided to the IMF in the context of the HIPC Initiative.

Progress Under the Strengthened Cooperative Strategy

The strengthened cooperative strategy on overdue financial obligations to the IMF, initiated in May 1990 in response to mounting concerns about rising arrears during the 1980s, consists of three essential elements: prevention, intensified collaboration, and remedial measures.

  • Prevention remains the first line of defense against the emergence of new cases of arrears. Preventive measures include IMF surveillance of members’ economic policies, policy conditionality attached to the use of IMF resources, technical assistance by the IMF in support of members’ adjustment and reform efforts, the assurance of adequate balance of payments financing for members under IMF-supported programs, and other measures to safeguard the IMF’s resources.
  • The intensified collaborative element of the arrears strategy provides a framework for cooperating members in arrears to establish a strong track record of policy performance and payments to the IMF and, in turn, to mobilize bilateral and multilateral financial support for their adjustment efforts and to clear arrears to the IMF and other creditors. Pursuit of the intensified collaborative approach has resulted in the normalization of relations between the IMF and most of the members in protracted arrears at the time of establishment of the strengthened cooperative strategy in 1990.In addition, a “rights” approach, also established in 1990, allows eligible members (limited to the 11 members in protracted arrears to the IMF at the end of 1989) to build a track record of policy performance and payments under IMF-monitored programs. Under a rights accumulation program, the member accumulates “rights” to future disbursements under a subsequent IMF arrangement, following the clearance of arrears to the IMF. The Executive Board extended the availability of the rights approach until end-June 2001.11
  • An escalating timetable of remedial measures is applied to member countries with overdue obligations that do not actively cooperate with the IMF in seeking a solution to their arrears problems. This timetable guides Executive Board consideration of remedial measures of increasing intensity, although the application of each particular step is considered in light of the individual circumstances of the member concerned. In the cases of Afghanistan, the Democratic Republic of the Congo, Iraq, and Somalia—where civil conflicts, the absence of a functioning government, or international sanctions have prevented the IMF from reaching a judgment regarding the member’s cooperation—the application of remedial measures has been delayed or suspended until such a judgment can be reached.

The Executive Board conducted several reviews of member countries’ overdue financial obligations to the IMF during FY2001. The Board reviewed Liberia’s overdue obligations on November 15, 2000, and noted a regrettable weakening of policy implementation. The Board decided to defer the application of further remedial measures for six months. Absent a strengthening of policy performance, consideration would be given to the initiation of the procedure for the suspension of Liberia’s voting rights in the IMF. The Executive Board reviewed Sudan’s overdue obligations twice (on July 31, 2000 and on March 5, 2001), and noted that Sudan’s payments to the IMF were in line with commitments, and that policy performance was broadly on track under the staff-monitored programs for 1999–2001. Under its policy of de-escalation of remedial measures, the Board terminated its suspension of Sudan’s voting rights in the IMF, with effect from August 1, 2000, following the earlier lifting of the declaration of noncooperation regarding Sudan in August 1999 (see the Annual Report 2000, page 74). The Board held no reviews of the overdue obligations of the Democratic Republic of the Congo, Somalia, and the other protracted arrears cases.

At the end of April 2001, the Democratic Republic of the Congo, Liberia, Somalia, Sudan, Iraq, and the Islamic State of Afghanistan remained ineligible under Article XXVI, Section 2(a), to use the general resources of the IMF. Declarations of noncooperation—a further step under the strengthened cooperative arrears strategy—were in effect for the Democratic Republic of the Congo (issued on February 14, 1992) and Liberia (issued on March 30, 1990). In addition, the voting rights of the Democratic Republic of the Congo remained suspended (effective June 2, 1994).

Protracted arrears to the IMF (defined as obligations overdue six months or more) declined in FY2001 to SDR 2.24 billion as of April 30, 2001, from SDR 2.32 billion a year earlier. These arrears continued to be concentrated among four member countries—the Democratic Republic of the Congo, Liberia, Somalia, and Sudan—whose arrears accounted for almost all overdue obligations to the IMF as of April 30, 2001 (Table 6.8).

Table 6.8Arrears to the IMF of Countries with Obligations Overdue by Six Months or More, by Type and Duration, as of April 30, 2001(In millions of SDRs)
By TypeBy Duration
TotalGeneral Department

(incl. SAF)


Less than

one year


3 years

or more
Afghanistan, Islamic State of6.
Congo, Democratic Republic of the392.2376.116.113.719.227.8331.5

The Federal Republic of Yugoslavia (Serbia/Montenegro) cleared its arrears of SDR 101.1 million on December 20, 2000, prior to succeeding to the membership in the IMF of the former Socialist Federal Republic of Yugoslavia.


As of April 30, 2001, SDR 1 = US$1.26579.


A further commitment of SDR 6.4 billion of stand-by funds was made to Turkey in May 2001.


Quotas also determine a country’s voting power in the IMF, its access to IMF financing, and its shares in SDR allocations.


Korea was included for early repayment only; the currency will be used for transactions beginning in September 2001.


The report, commentary, and a subsequent further quantification of the formula proposed by the experts have been published on the IMF’s website.


Subsequently, this deadline was extended to January 31, 2002.


Net present value is the value at a point in time of a series of future cash flows discounted at an assumed interest rate. The NPV approach facilitates comparison of flows with different terms.


See the IMF website for data on the value of the SDR and the SDR interest rate.


There are 16 prescribed holders of SDRs: the African Development Bank, African Development Fund, Arab Monetary Fund, Asian Development Bank, Bank of Central African States, Bank for International Settlements, Central Bank of West African States, East African Development Bank, Eastern Caribbean Central Bank, European Central Bank, International Bank for Reconstruction and Development, International Development Association, International Fund for Agricultural Development, Islamic Development Bank, Latin American Reserve Fund, and Nordic Investment Bank. The European Central Bank became the latest prescribed holder on November 15, 2000.


There is also a designation mechanism under which participants whose balance of payments and reserve positions are deemed sufficiently strong may be obliged, when designated by the IMF, to provide freely usable currencies in exchange for SDRs up to specified amounts. Owing to the existence of voluntary arrangements, the designation mechanism has not been used since 1987.


Of the eight countries eligible for a rights accumulation program that had cleared their arrears to the IMF by the mid-1990s, three availed themselves of the rights approach. The three remaining eligible countries are Liberia, Somalia, and Sudan.

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