Annamaria Viterbo
International Monetary Fund (IMF)
Facilities
The Evolution of IMF Lending
International Monetary Fund (IMF) lending has evolved over the years. Originally, the IMF could only provide outright disbursement to requesting countries subject to an assertion of an actual or potential balance of payments need. The practice of lending in tranches through Stand-By Arrangements was introduced in 1952 and later formalized in the 1978 Second Amendment to the IMF Articles of Agreement. Only duringIt was not until the 1960s,that the Fund introduced a variety of “special” facilities (or lending windows) to address specific specific
balance of payments problems whenevefor whichr ordinary stand-by arrangements would be inadequate or insufficient. In the mid-1970s, the Fund started to provide financial assistance onits loans on concessional terms to low-income countries through trust funds separate from its general resources.
IMF Lending Today
Currently, the IMF finances its members through both regular and concessional lending operations. In the former case, different facilities are established to address a variety of balance of payments problems. The funds are loaned at the IMF’s market-related interest rate.
In the latter, facilities are designed to address the specific needs of low-income countries by making loans available at low or zero percent interest rates. IMF facilities establish the maximum amount a member may borrow, the phasing of loan disbursements, maturities and charges, conditionality connected to the loan, and procedures for reviews of a country’s performance under the arrangement.
Usually, IMF resources are made available under a lending “arrangement”, akin to credit lines.
Based on the facility to be accessed, arrangements stipulatestipulating the adjustment policies and reforms agreed upon to solve a country’s balance of payments problem and restore economic growth. The economic policy program underlying the arrangement is presented in a Letter of Intent by the borrowing country’s authorities in a Letter of Intent after consultation with IMF staff. Once the arrangement is approved by the IMF Executive Board, the loan is disbursed in installments, subject to the achievement of incremental conditionality. Loans are disbursed through a purchase-repurchase mechanism by which the borrowing country purchases reserve assets from the IMF in its own currency and the loan will beis considered repaid when the borrower repurchases its currency from the IMF using reserve assets.
The IMF conducts its regular lending operations through the General Resources Account (GRA), which is regulated by the IMF “credit tranche policies”. A member country facing balance of payments difficulties is free to draw on its reserve tranche (which amounts to 25 percent of its quota) and up to the limit of the first credit tranche. When a member seeks financial assistance in upper credit tranches, the loan is usually provided under one of the Fund’s established facilities, with different forms of conditionality attached.
Non-Concessional Lending
The legal basis for the adoption of non-concessional facilities is Article V, Section 3(a), under which the Fund adopts specific policies on the use of its general resources for a set of balance of payments problems. The establishment or modification of special facilities requires the approval of Executive Directors representing at least 85 percent of the voting power.
Non-concessional loans are provided through: Stand-By Arrangements, the IMF’s main lending instrument, which are designed to address short-term balance of payments problems; Flexible Credit Lines, for countries with strong fundamentals and track records of policy
implementation, meeting a pre-established set of qualification criteria; Precautionary and Liquidity Lines, to assist countries with sound fundamentals facing moderate vulnerabilities; the Extended Fund Facility, established for members with medium- and long-term balance of payments problems reflecting extensive distortions requiring fundamental economic reforms; the Rapid Financing Instrument, providing emergency assistance to members facing urgent balance of payments needs.
Concessional Lending
Access to non-concessional facilities is subject to
the payment of the IMF’s market-related interest rate, known as the
“rate of charge”, based on the Special Drawing Rights interest rate.
Concessional facilities provide balance of payments support
specifically tailored to the needs of low-income countries (LICs), which
borrow on more favorable terms (zero interest rate until end-2016)
and are granted grace periods.
The IMF started to provide concessional financing to developing countries in 1976 through its Trust Fund (terminated in 1981), the monies of which came from . Funding did not come from the general resources of the IMF, but from the proceeds deriving from the sale of part of the
IMF gold stock. Pursuant to the IMF Articles, in fact, general resources should be made available for all member countries on an equitable basis. The establishment of the Trust Fund was therefore a departure from the principle that general resources should be made available for all member countries on an equitable basisof uniformity of treatment among member countries. This principle was meant to prevent discrimination among members on the basis of their stage of development and to ensure reasonable uniformity in accessing IMF resources and in rates of charge and maturities of loans conditions.
Only wWith the 1978 Second Amendment to the IMF Articles of Agreement, special provisions were introduced to allow the allocation of surplus proceeds from IMF sales of gold to
concessional lending. In particular, as set forth in Article V, Section 12 (f) (ii),Thus, balance of payments assistance could be made available on special terms to developing countries in
difficult circumstances and for this purpose the Fund could take into account the level of pro-capita income. Besides, under Article V, Section 2(b), tThe Fund can also establish administered accounts (financed through voluntary contributions by its members) to provide countries with financial and technical services.
After Since the 2010 reform of the IMF concessional lending structure, the Poverty Reduction and Growth Trust (PRGT) provides financial assistance to LICs under three facilities: the
Extended Credit Facility, currently the main tool for medium-term support to LICs experiencing protracted balance of payments problems; the Stand-by Credit Facility, providing financial assistance to LICs with short-term balance of payments needs; and the Rapid Credit Facility, providing rapid financial assistance atwith limited conditionality to LICs facing urgent balance of payments needs. A country can receive concessional lending from the PRGT if it is unable to access international financial markets on a durable and substantial basis and it is eligible for IDA support. The PRGT is funded by members’ donations and by reserves deriving from profits from the 2009-2010 gold sales. IMF-supported programs focus on poverty reduction and growth objectives (as outlined in the Poverty Reduction Strategy of the requesting country) and aim to support policies that safeguard social and other priority spending.
Administered accounts were established also to provide financing in the form of debt relief to poor countries as in the case of the Heavily Indebted Poor Countries Initiative and the
Selected works
Erik Denters and Annamaria Viterbo, International Monetary Fund (Kluwer Law International 2015)
International Monetary Fund, ‘IMF Financial Operations’ (2014)
James M Boughton, Tearing Down Walls: The International Monetary Fund 1990-1999 (IMF 2012)
Michael Mussa, ‘Reflections on the Function and Facilities for IMF Lending’ in Edwin M Truman (ed), Reforming the IMF for the 21st Century (Peterson Institute for International Economics
