Extension of Post Program Monitoring to Cover the Use of PRGF Resources

1. In the context of the review of Fund facilities in 2000, the Executive Board agreed to establish a post-program monitoring (PPM) mechanism for members with outstanding credit from the Fund in the GRA exceeding 100 percent of quota after the expiry of their arrangements.¹ In addition, there is a possibility of PPM after the expiry of an arrangement for members with outstanding credit below 100 percent of quota. In both cases PPM applies only if at least part of that credit is the result of purchases under an arrangement.

2. On the occasion of the Board discussion on Fund's Support of Low-Income Member Countries-Considerations on Instruments and Financing (SM/04/53, BUFF/04/69), Executive Directors agreed that the scope of PPM should be expanded to cover the use of PRGF resources. The summing up noted that most Directors felt the extension of PPM would enhance the comparability of treatment across members and help safeguard scarce PRGF resources. Specifically, when a member has outstanding PRGF loans or PRGF loans combined with GRA credit in excess of 100 percent of its quota, there would be a presumption that the member would engage in PPM with the Fund.

3. Expanding PPM to cover outstanding PRGF credit is justified both on the grounds of the scarcity of PRGF resources and the need to maintain comparability of treatment across members, as noted in SM/04/53. The need to safeguard resources of the Fund as Trustee in the case of PRGF borrowers is no less than that for GRA users. Indeed, the fact that the absolute amounts of access available under PRGF arrangements are lower than under GRA arrangements reflects the greater scarcity of PRGF resources.

4. The narrow expected country coverage (see below) means that the staff resource implications of PPM will be limited. The extent of PPM for users of PRGF resources and the additional staff resource costs implied by the extension of PPM will also depend upon the modalities of Fund engagement with low-income members. If members "exiting" from use of PRGF resources do so in the context of low-access PRGF arrangements, PPM would be deferred and servicing of outstanding credit would likely bring many of them below the PPM threshold before the extension of PPM would arise, and incremental staff resource costs would be modest.

5. The proposed decision provides a consolidated framework for PPM. It expands the scope of PPM to cover any case in which the outstanding credit arising from the combined (or separate uses) of GRA and PRGF resources exceeds 100 percent of quota and the member does not have a program supported by a Fund arrangement or is not implementing a staff-monitored program with reports issued to the Executive Board.² Consistent with the current approach, PPM could be recommended by the Managing Director in cases where, although outstanding credit does not exceed 100 percent of quota, it appears warranted because, in the view of the Managing Director, there are developments that call into question the member's progress toward external viability.³ Under the proposed decision, all outstanding credit, including credit from outright purchases, is taken into account in calculating the PPM trigger thresholds, including cases where Fund credit is exclusively the result of outright purchases.⁴

6. Once the proposed decision has been adopted, management will submit to the Board its recommendations for countries that have outstanding credit exceeding 100 percent of quota. Apart from those members where PPM is already taking place (Indonesia, Jordan, and the Philippines), these countries are: Armenia, Cameroon, Madagascar, Pakistan, and Turkey (see Table 1). It is management's intention not to recommend PPM for Armenia, Cameroon, Madagascar, and Turkey because successor arrangements or SMPs are expected to be in place within six months. Regarding Pakistan, and as was indicated by management and supported by most Directors in December, PPM is not recommended because of the strength of its policies and external position and the brief period during which outstanding obligation would remain above the threshold. For Indonesia and Jordan, it is management's intention to recommend continuation of PPM. With respect to the Philippines (whose use of Fund resources is below 100 percent of quota), continuation will be recommended for one additional year.

The following draft decision, which may be adopted by a majority of the votes cast, is proposed for adoption by the Executive Board.

Proposed Decision

1. If outstanding credit to a member from the Fund's General Resources Account (GRA), or from the Fund as Trustee of the Poverty Reduction and Growth Facility Trust (PRGF Trust), or a combination thereof, exceeds a threshold of 100 percent of quota, and the member does not have a program supported by a Fund arrangement or is not implementing a staff monitored program with reports issued to the Executive Board, the member will be expected to engage in Post-Program Monitoring (PPM) with the Fund of its economic developments and policies upon the recommendation of the Managing Director. Where the above criteria are met, the Managing Director shall recommend PPM to the Executive Board, unless, in the view of the Managing Director, the member's circumstances (in particular, the strength of the member's policies, its external position, or the fact that a successor arrangement or a staff monitored program is expected to be in place within the next six months) are such that the process is unwarranted. PPM will normally cease when the member's outstanding credit falls below the threshold of 100 percent of quota.

2. The Managing Director may also propose PPM to the Executive Board in cases where outstanding credit as defined above is below the above-specified threshold if, in the view of the Managing Director, there are developments that suggest the need of such a process, particularly, where developments call into question the member's progress toward external viability.

3. For members subject to PPM, there will normally be two PPM Board discussions in a twelve-month period. One such discussion will normally coincide with the Article IV consultation. The member will be expected to engage in discussions with staff on its policies, which shall include a quantified macroeconomic framework. The staff will report to the Executive Board on the member's policies, the consistency of the macroeconomic framework with the objective of medium-term viability, and the implications for the member's capacity to repay the Fund.

4. The Executive Board's discussion of a PPM paper will be reflected in a Public Information Notice (PIN). The publication of the PIN will follow the normal PIN procedure, including the requirement of the member's consent.

Guidance Note on the Implementation of Post-Program Monitoring

1. The Executive Board has agreed that post-program monitoring (PPM), with formal involvement of the Board, could be useful in certain cases. Specifically, the Board has decided that when a member's outstanding credit in the General Resources Account (GRA) to the Fund as Trustee of the Poverty Reduction and Growth Facility Trust (PRGF Trust), or a combination thereof, exceeds a threshold of 100 percent of quota, and the member no longer has an arrangement or is not implementing a staff monitored program with reports issued to the Board, there should be a presumption that the member will engage in PPM by the Fund of economic developments and policies after the expiration of the arrangement.

2. The central objective of PPM is to provide for closer monitoring of the circumstances and policies of members that have substantial Fund credit outstanding following the expiration of their arrangements. PPM is intended to provide an early warning of policies which could call into question a member's continued progress toward external viability, and thus could eventually imperil GRA or PRGF Trust resources, or at least indicate that such resources were not being used (in the sense of continuing to be used) for their intended purpose. It also provides a mechanism for bringing this to the attention of the authorities and the Board and stimulating action to improve the situation.

3. Under PPM, members undertake more frequent formal consultation with the Fund than is the case under surveillance, with a particular focus on macroeconomic and structural policies that have a bearing on external viability. To this end, the member will be expected to discuss with the staff its policies, including a quantified macroeconomic framework. The staff will then report formally to the Board on the member's policies, the consistency of the proposed macroeconomic framework with the objective of medium-term viability, and the implications for the member's capacity to repay the Fund. There will normally be two PPM Board discussions during a twelve-month period. One of these would be expected to coincide with the Article IV consultation,⁵ and the other could be based on a short staff report covering recent economic developments and discussions with the authorities on the macroeconomic framework and medium-term prospects. It would be possible-as it is with Article IV consultations-for the Board to conclude a PPM discussion on a lapse-of-time basis, if no major issues had arisen; in such a case, the Board will be taken to have expressed its agreement with the staff appraisal in the staff report, and the latter will serve as the basis for the Executive Board's assessment in the Public Information Notice (see paragraph 8). Descriptions of developments between discussions could also be given periodically at country matters meetings if necessary.

4. Members that meet the criterion will not automatically be subject to PPM. Rather, the Managing Director would be expected to recommend PPM to the Board, unless in the Managing Director's view the member's circumstances are such that the process was unwarranted. Examples of circumstances where PPM would not be needed are when a successor arrangement or a staff monitored program is expected to be in place within six months or where the member's policies and external position were strong. If these circumstances ceased to apply, the Managing Director would be expected to recommend PPM.

5. There would remain a possibility of requiring PPM of a member that did not meet the criterion for the presumption of PPM. For example, PPM might be required in cases where outstanding credit was below the threshold, but in the view of the Managing Director and the Board, there were developments which called into question the member's progress toward external viability.

6. The decision on whether a member should be subject to PPM could be taken at any time, but it would normally be taken at the time of the last review under an arrangement when it is expected that the member's credit outstanding at the end of the arrangement would exceed the threshold of 100 percent of quota. PPM could also be instituted after the conclusion of the final review of an arrangement, if the Fund believed that PPM was necessary although it had not been earlier. When it was approval of outright purchases that took the member's outstanding credit above the threshold, PPM could be instituted from the date of the approval. In cases where the outstanding credit criterion was met, and the arrangement had not expired but had been off track (as indicated by the inability of the member to make purchases from the GRA or borrow from the PRGF Trust) for some time, the Managing Director could recommend PPM beginning at the expiry of the arrangement. A staff paper recommending PPM will contain a proposed draft Board decision to that effect. Whether the first PPM discussions should be conducted in the context of an Article IV consultation should depend on when the next Article IV consultation is scheduled. However, the staff should try to ensure that either a PPM or a combined Article IV and PPM report is discussed by the Board within six months of the initiation of PPM.

7. In calculating whether the threshold has been reached, all Fund credit in the GRA-i.e., in the credit tranches and under special policies (e.g., the EFF, the CFF, the SRF, or emergency assistance)-and outstanding loans from the PRGF Trust will be taken into account. Arrears cases covered by separate procedures will not be covered by PPM.

8. When PPM is required on account of a high level of credit outstanding, it will normally cease when the member's outstanding credit falls below the threshold. However, policy discussions and quantified frameworks should cover full years even if it is foreseen that, reflecting scheduled or expected repurchases and/or repayments, Fund credit would fall below the threshold at some point during the year. In addition, on the occasion of a PPM or other discussion, the Board could agree that PPM should be discontinued because, while the member continues to exceed the threshold of 100 percent of quota, there are other circumstances that indicate that PPM would no longer be necessary (see paragraph 4). When the Managing Director recommends that a member engage in PPM despite it not meeting the criterion on credit outstanding, the Managing Director will normally recommend that PPM continue for a period of one year, at the end of which the decision will be reconsidered. The Board's discussion of a PPM paper would be reflected in a summing up that can form the basis of a Public Information Notice (PIN). The publication of PINs would follow the normal PIN procedures, including the requirement of the member's consent. If a member does not consent to the publication of a PIN, a brief factual statement indicating that the discussion took place will be released instead. Staff reports for PPM discussions are presumed to be published, following the same procedures as for other UFR staff reports, and subject to the member's consent.⁶