Statement by the Staff Representative on the Review of the Flexible Credit Line, the Precautionary and Liquidity Line, and the Rapid Financing Instrument—Specific Proposals, Executive Board Meeting, June 11, 2014

This statement provides additional explanatory information on the redlined Annex I presented in SM/14/113, Supplement 2.

1. ARA metric. The addition of the ARA metric in paragraph 5, 4th bullet was aimed simply at reflecting its increasing operational use as one of several tools for measuring reserve adequacy in FCL- and PLL-related staff reports. Indeed, all recent staff reports for current FCL and PLL users show or discuss the ARA metric as one of the tools to measure reserve adequacy. The recent Board paper on the Review of the FCL, PLL, and RFI (SM/14/36, 1/28/14) and the 2011 Review of the FCL and PLL (SM/11/288, 11/1/11) referred to this metric specifically as one possible measure to determine reserve adequacy for access discussions. Thus, the language in the redlined Annex I (“Assessments of reserve levels would take into account a number of metrics (imports, short-term debt, monetary base, ARA metric) as relevant given the member’s exchange rate regime”) aimed only at including a reference to this metric as another tool for measuring reserve adequacy without giving it any different role from other measures of reserve adequacy also listed in the Annex.

2. Indicators of institutional strength. Under existing FCL and PLL policies, the Fund has to assess a member’s institutional strength to determine whether it meets the relevant FCL or PLL qualification standards. For this purpose, to inform its judgment, the Fund has already been using a range of indicators that are associated with the relevant qualification criteria as set forth in the Annex to SM/09/69 (the 2009 Annex I) and in the FCL and PLL Operational Guidance Notes (SM/12/114 and SM/12/115). As the staff report (SM/14/113) noted, the proposed new indicators aim to complement the existing indicators of institutional strength. The report categorizes these new indicators by policy area related to corresponding qualification criteria (paragraph 17, footnote 8). This is consistent with the grouping of indicators under the FCL qualification criteria in the 2009 Annex I. In line with this, staff considered it appropriate to show the new indicators that inform judgment on institutional strength with respect to fiscal and monetary policy cyclicality in the same paragraphs where the existing indicators relating to these two policy areas are contained. The other proposed indicators to inform judgment on institutional strength that cannot be directly tied to specific policy areas were presented separately under paragraph 6 in the redlined Annex I. As discussed in the staff report, all these indicators are meant to complement those already used to help inform the qualification assessment process, and are not a substitute for the judgment of the Board and the staff.

BUFF/14/49,

June 5, 2014