Publication of List of Members with Longer-Term Program Engagements

Reports on the Incidence of a Longer-Term Program Engagement

Press Release: IMF Releasing Semiannual Reports on the Incidence of Longer-Term Program Engagement
March 5, 2004

Report on the Incidence of a Longer-Term Program Engagement
February 25, 2004

Operational Guidance for Assessments of Countries with a Longer-Term Program Engagement
August 20, 2003

Conclusions of the Task Force on Prolonged Use of Fund Resources
February 4, 2003

Public Information Notice: IMF Concludes Discussion on Prolonged Use of Fund Resources
April 9, 2003

Operational Guidance on the New Conditionality Guidelines
May 8, 2003

Guidelines on Conditionality
September 25, 2002

Publication of List of Members with Longer-Term Program Engagements

Prepared by the Policy Development and Review Department

In consultation with other Departments

Approved by Mark Allen

February 25, 2004

I. Introduction

1. During the Executive Board discussion of the Report of the Task Force on Prolonged Use of Fund Resources in April 2003, the Board asked staff to prepare a semiannual factual report on the incidence of a longer-term program engagement. The first such report is now being issued, based on information for end-December 2003 and using the criteria set out in the summing up from that Board discussion (BUFF/03/51).

2. The circulation of that factual report to the Executive Board provides an opportunity to address an issue raised by some Directors in connection with the Operational Guidance Note on Assessments of Countries with a Longer-Term Program Engagement (SM/03/233, Revision 1), namely whether a list of members subject to an ex-post assessment (EPA) should be made public.

II. Criteria Used in Defining the List

3. The criteria established in the summing up for determining which countries should be subject to EPAs are based on the recommendations contained in the Conclusions of the Task Force on Prolonged Use of Fund Resources (SM/03/46), which in turn took as its starting point the Board's discussion of the Independent Evaluation Office report on Prolonged Use of Fund Resources.¹ The criteria for determining which members are subject to ex post assessments are as follows: "A country will be considered a prolonged user when it has spent 7 or more of the last 10 years under upper credit tranche stand-by or extended arrangements, including precautionary arrangements, or a mix of GRA and PRGF or ESAF resources. Most Directors also supported the proposal that, for countries using the Fund's concessional resources, the new assessment process be triggered when a country has gone through two or more multi-year arrangements under the PRGF or ESAF."²

4. In discussing the report on the Task Force, and later in connection with the Operational Guidance for Assessments of Countries with a Longer-Term Program Engagement (SM/03/233), some Directors argued that countries with precautionary arrangements should not be subject to the same treatment as those with other arrangements under the GRA. Countries with precautionary arrangements do not intend to draw on the facility and thus do not make direct use of Fund resources. In addition, precautionary arrangements should often be seen as a sign of strength, in many cases as part of a strategy for orderly exit from a prolonged period of program engagement, while classifying such members as countries with a longer-term program engagement could stigmatize them.³ On the other hand, a precautionary arrangement does entitle the member to use the Fund's resources--as exemplified by those countries with a prolonged GRA-supported program relationship that had a precautionary arrangement some time during the past ten years, but subsequently needed to draw on Fund resources. Moreover, in some instances a precautionary arrangement may help a member to access private financial markets; in such cases, if the underlying policies are inappropriate from a medium-term perspective, both the Fund's reputation and its resources may be at risk.⁴ Other considerations raised in the Independent Evaluation Office report on Prolonged Use of Fund Resources related to the possibility that a longer-term program relationship could in some cases be problematic in itself, for instance by overshadowing the policy dialogue within the country. On balance, therefore, it was decided that the EPAs would be undertaken for members with precautionary arrangements, but that the precautionary nature of the arrangement would be taken into consideration in the assessment, recognizing that, especially in such cases, a longer-term program engagement may be consistent with a generally favorable assessment of policies. The factual report has achieved this differentiation in listing countries with precautionary arrangements separately from other users of GRA resources.
5. Ex post assessments are also to be undertaken for countries with two or more arrangements under the concessional facilities (PRGF, ESAF, or SAF). On this issue, some Directors noted that the nature of economic problems faced by low-income countries makes a longer-term program engagement particularly useful in such cases. For this reason, the Fund has accepted a longer-term program relationship with its low-income members, even after the initial period of macroeconomic stabilization.⁵ At the same time, as highlighted in the IEO report, in a number of cases, a long-term program relationship has not been reflected in adequate or sustained progress in addressing those problems. In some cases, the need for a program relationship, rather than relying on surveillance and technical assistance, may be questioned. The IEO report also pointed out in this context that the long-term nature of the relationship itself can, in some cases, be problematic. It was thus concluded that, for low-income members, the ex post assessments can play a constructive role in guiding decisions on whether to continue a program engagement and how to enhance the quality of that engagement.
6. In the staff's view, the considerations for deciding the criteria used to determine whether members should be subject to ex post assessments remain as discussed in April 2003. The relevant considerations on both sides of the question were taken into consideration in arriving at those criteria, and there is no reason to change them at this time. It is proposed, however, to review the criteria and other aspects of the ex post assessment process after a significant period of experience with the EPAs, in the context of future conditionality reviews.
III. Publication
7. The Fund has made public its intention to issue a factual "periodic report on the incidence of a longer-term program engagement." There is a presumption under the Fund's transparency policies that the report will be published. It is difficult to publish such a report without making public the list of members with a longer-term program engagement and therefore subject to ex post assessments. The staff's view is that the report should be made public in its entirety.
8. Staff has reached this conclusion after considering three possible alternatives: refraining from publishing the report; publishing the report while excluding the list of members with a longer-term program engagement; or deleting from the published list those countries with precautionary arrangements. Suppressing publication of the report would be difficult to justify under the Fund's transparency policies: given that both the initial report of the Independent Evaluation Office and the report of the associated Task Force, which have already been made public, contain such a list, it would be difficult to argue that publishing the list is damaging. Moreover, given that the definition of a longer-term program engagement has been made public, the list could readily be constructed using information that is already in the public domain. Publishing the report without the list would convey little information, and would be equally problematic from a transparency standpoint. Publishing the list while deleting members with precautionary arrangements would create confusion, as under existing policies these members would nonetheless be subject to ex post assessments some of which would be made public; moreover, the precautionary nature of their arrangements is public information.
9. At the same time, staff recognizes that there are sensitivities to the publication of the list and proposes to mitigate these concerns by ensuring that the paper:

Provides a brief explanation of the derivation of and rationale for the list.

Identifies clearly those countries without a current program engagement, those with a longer-term program engagement that currently have precautionary arrangements, and those that had precautionary arrangements for part of the relevant period.

¹See SM/02/87 and BUFF/03/51.
²For arrangements under the GRA, the duration of the use of Fund resources is measured by the period of time covered by the Fund arrangement. For PRGF arrangements, all are counted even if they terminate prematurely.
³No EPA has yet been undertaken for a country with a precautionary arrangement; Peru, the first one to be undertaken, will be discussed by the Board in the first quarter of 2004.
⁴This risk is most prominently illustrated by the case of Argentina during part of the 1990s, where despite the precautionary nature of the Fund's arrangements, the underlying policies were, in hindsight, unsustainable, putting the Fund's resources and reputation increasingly at risk. See SM/03/345.
⁵The appropriateness of such a long-term engagement is addressed in the paper on Role of the Fund in Low-Income Member Countries over the Medium Term-Issues Paper for Discussion (SM/03/257).