Public Information Notice: IMF Board Agrees on Changes to Fund Financial Facilities
September 18, 2000

Concluding Remarks by the Chairman
of the IMF Executive Board
Review of Fund Facilities — Further Considerations

Executive Board Meeting 00/74
August 2, 2000

I believe we have had an interesting and fruitful discussion today on the basis of the paper prepared by the staff following the Executive Board discussion in March 2000. We have begun to explore in greater depth the range of difficult issues involved in our review of Fund facilities. We have yet to reach clear conclusions. Therefore, I will not attempt to sum up today’s discussion. Rather, my concluding remarks will outline where we are with what is essentially work in progress. These observations will, I hope, be helpful in guiding our deliberations in the coming weeks.

Although we heard today a wide variety of views, I believe it is fair to say that there is also a fair amount of common ground. There is a broad understanding that there is a need to review the Fund’s facilities to take account of the growing importance of private capital markets, while recognizing, however, that these changes have affected different countries to different degrees. Given the wide variety of situations facing our 182 member countries, I believe that there is agreement that a single financing facility would not serve the Fund’s purposes adequately and that the four core Fund facilities provide, in principle, a workable framework. At the same time, there is a need to review whether these facilities are still optimal in the evolving world economy. It is clear that, at the end of the day, any changes that we may introduce must be considered comprehensively, provide overall coherence in the Fund’s facilities, and promote efficient Fund lending.

Let me now briefly review each of the five areas we have discussed today, namely: the CCL, the EFF, early repurchase expectations, charges, and post-program monitoring.

On the CCL, Directors have generally welcomed the broad direction of the proposed changes because they consider that these will contribute importantly to encouraging the use of the CCL by members with excellent policies, thereby enhancing its effectiveness. There was broad agreement that the activation of the CCL should be more automatic with regard to the initial drawing, within a predetermined limit, with a few suggesting eliminating the activation review altogether. The activation review should be limited to determining that a member has developed a balance-of-payments need as a result of contagion, that these difficulties are judged to be beyond the member’s control, and that the member has been pursuing strong policies. Such an approach would provide greater assurance to members—and to markets—regarding the availability of resources under the CCL. Various specific proposals have been made in this regard, and we will come back to them.

There was considerable sympathy for the idea of reducing the rate of charge and reducing the commitment fee on the CCL; some Directors would go further to eliminate the commitment fee altogether. There was also support expressed for maintaining the eligibility requirements, including for private sector involvement, envisaged in the original CCL. Our discussion also flagged the need to further consider the issue of exiting from the CCL, especially in those cases in which it becomes clear that eligibility criteria are no longer met. Staff will also examine proposals to better define the contagion that would be covered under the CCL.

You have offered many thoughtful suggestions in all these areas, to which the staff will give careful attention in its further work on the CCL. As several of you have noted, these changes to the CCL must be viewed as experimental. The next Board discussion in September will serve to conclude the review of the CCL, and we will consider further the specific amendments to the CCL along the lines we have discussed, with a view to identifying the changes that we can all agree will make the CCL a more useful instrument.

One further point on the CCL: the CCL decision requires that the facility be reviewed by August 31, 2000. In light of the continuing discussion on the CCL, I believe Directors can agree to extend the deadline for review to no later than September 30, 2000.

I also see the Board coming together on the need for a better demarcation between the SBA and the EFF, and that this should be done by giving greater attention to ensuring that arrangements under the EFF are granted only to cases fully consistent with the EFF decision. These would be cases where there is a reasonable expectation that the member’s balance-of-payments difficulties will be relatively long term, including because it has limited access to private capital, and where there is an appropriately strong structural reform program. It is understood that the EFF could be especially appropriate for graduating-PRGF and some transition countries that do not have, or do not have enough, access to capital markets. Several of you consider that the EFF should continue to be available for other countries, and that, of course, remains the case so long as the eligibility criteria under the EFF decision are met—this could include countries opening their capital markets in a well-defined, structured process. A variety of views were expressed on the role of precautionary extended arrangements, ranging from eliminating them altogether to encouraging their use. On balance, there was considerable support for the idea that precautionary extended arrangements should be the exception, but we have to come back to this issue.

On repurchase periods, I believe there is much support for steps to encourage early repurchases once members have returned to a sustainable balance-of-payments position. While the current periods of repurchase obligations on stand-by and extended arrangements are generally regarded as appropriate, there is a lot of interest in exploring further the introduction of early repurchase expectations into these arrangements, possibly for both stand-by and extended arrangements, but we will need to look closely at Directors’ positions on this issue. Such an approach will provide incentives to encourage early repayment of Fund resources while giving the country the needed flexibility to request an extension of the repurchase expectation, if required, at any time while resources remain outstanding.

The most difficult area is clearly charges. While Directors are agreed that the Fund has a collective interest in ensuring that its resources are used efficiently, there are wide differences in perception as to whether a graduated rate of charge is the best approach to help us achieve that objective.

I would note first of all that consideration of graduated rates of charge has not been motivated by a desire to raise income for the Fund, and I would suggest that we leave the issue of the use of additional income, if any, aside for now. Staff will try to bring additional information and estimations to bear on this issue. It also seems clear to me that no one in the Board is interested in applying any system of graduated charges retroactively.

Nonetheless, we may have reached the point where further discussion of charges needs to be grounded in a better understanding of the possible range of impacts on members of specific proposals. I have heard Directors who have voiced serious doubts as to the merits and effectiveness of any graduation of the rate of charge. I have also heard other Directors who believe that we should have some form of graduation of the rate—mostly favoring an increase in the rate with the time resources are outstanding. I would hope that we can move forward on the basis of a consensus, not least because the changes we are considering should be seen as parts of a coherent whole. There may be nuances in Directors’ positions that have not become apparent on the basis of today’s discussion. I have noted, for instance, that a few Directors who would prefer to keep the current system unchanged seem open to the possibility of a surcharge on Fund credit outstanding above a high limit, and that some Directors who favor graduation of the rate with time might also be interested in graduation with amount. There may be other options that have not yet been explored. I will ask staff to reflect on the various options and lay those out for Directors in the follow-up paper.

There was also a range of views on whether current practices on post-program monitoring were sufficient or whether more formal guidelines along the lines discussed in the staff paper should be put in place. I hope to see some scope for consensus to form on an approach that lies somewhere between the two. Under this approach, on the occasion of Article IV consultations or country matters sessions, I could make suggestions to the Board as to members for whom—on the basis of existing consultation clauses in arrangements—the staff could provide written reports on these members for Board consideration between the regular Article IV consultations.

In sum, notwithstanding the differences that remain, the Board has made important progress today in narrowing the range of options for amending the Fund’s facilities. I particularly appreciate, despite the differences, the spirit and high quality of this discussion. I would hope that with good spirit we could reach agreement in early September on these difficult issues.