SYMPOSIUM
SPONSORED BY THE WASHINGTON COLLEGE OF LAW IN
COOPERATION WITH THE LEGAL DEPARTMENT
OF THE WORLD BANK
MAY 28-29, 1981
LEGAL ASPECTS OF DEVELOPMENT
FINANCING
IN THE 1980'S
THE ROLE OF THE
INTERNATIONAL MONETARY
FUND
STEPHEN
A. SILARD*
INTRODUCTION
The International Monetary Fund (Fund) is not a development
agency; rather, it is a universal intergovernmental organization that
serves both industrial and developing countries. Although it has a
strong interest in sound economic development, the Fund's main purpose is not to promote economic development as such. The Fund's purposes, as elaborated further by the comprehensive 1978 amendments to
its Articles of Agreement,' are broad.
The Fund's responsibilities include the oversight of the international
monetary system in order to ensure its effective operation. The essential
* Assistant General Counsel, International Monetary Fund. The views expressed in this
Article do not necessarily reflect the views of the Fund.
1. International Monetary Fund, Articles of Agreement, Dec. 27, 1945, 60 Stat. 1401,
T.I.A.S. No. 1501, 2 U.N.T.S. 39, as amended May 31, 1968, 20 U.S.T. 2775, T.I.A.S. No. 6748, and
Apr. 30, 1976, 29 U.S.T. 2203, T.I.A.S. No. 8937 [hereinafter cited as Fund Agreement].
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purpose of this system is to "provide a framework that facilitates the
exchange of goods, services, and capital among countries, and that sustains sound economic growth." '2 A principal objective of the Fund is to
promote "the orderly underlying conditions necessary for financial and
3
economic stability" in all member countries.
The Fund is normally regarded as a balance of payments institution,
because its historically well-established purpose is "[t]o give confidence
to members by making the general resources of the Fund temporarily
available to them under adequate safeguards, thus providing them with
opportunity to correct maladjustments in their balance of payments
without resorting to measures destructive to national or international
prosperity."' 4 The Fund's financial policies, framed in terms of balance
of payments need, have been derived from this purpose.
With regard to developing countries, this purpose has traditionally
been implemented by the support of short-term stabilization programs
or medium-term programs of structural balance of payments adjustment. These programs have been formulated with due regard to development policies and have sought to mitigate the balance of payments
constraint impeding development. Because severe maladjustments have
developed in the international economy in recent years, however, the
Fund has approached the developing countries' balance of payments
problems both in light of the individual country's needs and from the
broader perspective of the international monetary system. Thus, the
Fund has placed new emphasis on its financial function of recycling balance of payments surpluses in international payments in such a way as
to promote economic adjustments in accordance with the Fund's purposes and policies.
Recycling is not limited to the Fund. Other institutions, including
commercial banks, recycle considerably greater amounts than does the
Fund. The Fund's approach differs, however, in that the leverage of
financial recycling is deployed to promote-through cooperative arrangements and in a global framework-the stabilization policies, strategies for development, and structural adjustments that provide the basis
for the sustainable growth of national economies.
With these tasks in mind, the Fund is able to make the following contribution to arrangements for financing developing countries in the
1980's:
(a) As a financial institution, the Fund uses its own resources and obtains further resources from countries in a strong balance of payments
2. Id art. IV, § 1.
3. Id art. IV,§§1, 3.
4. Id art. I, para. v.
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ROLE OF THE
IMF
S 91
and reserve position or their central banks, or indirectly through the
Bank for International Settlements, and makes such resources available
to countries in need of balance of payments.
(b) As a monetary institution, the Fund makes these resources available in support of adjustment policies in a framework that has a comprehensive economic policy content. This practice distinguishes the
Fund's recycling from that of commercial banks.
(c) The Fund, although not a development agency, seeks to make development both possible and efficient. To fulfill this goal, the Fund provides advice and finance to support the policies in developing countries
that seek to limit external deficits to what can be serviced, on a sustainable basis, out of a growing income. This requires effective economic policies, and often implies the need for a sound development plan or
investment program with adequate financing as part of the budget and
the balance of payments program. Promoting this process does not give
development aid as such, but rather supports a financially sound framework for economic policymaking. Development policies are an integral
part of any such framework. Furthermore, a financially sound framework can be the basis for attracting investment finance.
These concepts are complex, and, the activities of the Fund and of
development agencies unavoidably overlap in some areas. Overlap exists because the Fund and these agencies pursue distinct but interrelated
functions; they deal with the same countries and economic processes, in
cooperation with each other, but from different perspectives.
The Fund's unique role provides a framework for understanding its
legal arrangements and practices. Although these practices were once
unique, other institutions have begun to employ them because of their
demonstrated usefulness. This Article discusses the following practices:
decisionmaking, financing through subscriptions and borrowing, use of
resources to support economic programs by stand-by and extended arrangements, maintenance of value, and special drawing rights (SDR).
Although these arrangements and practices may appear distinct, they
are-when viewed within the Fund's overall role-interrelated. Understanding these practices will illustrate how the Fund's various activities
are connected and reinforce one another. Moreover, this discussion will
provide a basis for analyzing the relationship between the Fund and the
World Bank.
I.
LEGAL ARRANGEMENTS AND PRACTICES
A. Decisionmaking
The Fund's decisionmaking structure is similar to that of the World
Bank. It is based on the principle of weighted voting, which achieves an
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evolving balance among the various interests of the membership and
provides for an effective and adaptable combination of representation of
all member countries. Although there are many ways of looking at the
balance at any given time, and claims for changing it are seldom absent,
it is fair to say that the system has proven itself effective. At present,
industrial countries have approximately sixty percent of the voting
power, and developing countries, including the oil exporting countries,
have the remaining forty percent. Decisions regarding the use of the
Fund's resources in individual cases, including the specific amounts of
use, require a majority of the votes cast. Several of the financial terms,
however, are set. on a general basis by an effective majority of seventy or
eighty-five percent of the total voting power, thereby reflecting a broad
consensus. The achievement of a consensus is not strictly a function of
voting power. There exists in the Fund an established preference for
taking decisions by broad consensus whatever the necessary majority is
in the formal sense.
The Executive Board, the Fund's central decisionmaking authority, is
in continuous session, headed by the Managing Director, and assisted by
the staff. The members of the Executive Board, the Executive Directors,
function as officers of the Fund and also represent their countries in the
sense that they look out for the interests of their countries, although they
do not bind the countries formally. It has been said that, in a nontechnical sense, the Executive Directors are representatives of their
countries to the Fund and the representatives of the Fund to their countries. At present there are twenty-two Executive Directors. The United
States, the United Kingdom, Germany, France, and Japan, the five
members with the largest quotas, each appoint one director. The
Fund's largest creditor, Saudi Arabia, which is not otherwise entitled to
make an appointment, appoints one director. Groups of members, in
combinations of their choice, elect the remaining sixteen Directors, subject only to technical rules of election designed to achieve reasonable
equality of voting power among them.
The Board of Governors is the apex.of the Fund's decisionmaking
structure. Each member of the Fund appoints a Governor, who is usually the Minister of Finance or the head of the Central Bank. Given the
large size of the Board of Governors, an Interim Committee of the
Board meets periodically to provide political guidance to the Executive
Board on important policy issues. The Committee, which is composed of
Governors of the Fund, ministers, or others of comparable rank, is based
on a system of constituency representation paralleling that of the Executive Board.
The interplay between the political and technical aspects of decision-
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making in the Fund would make an interesting subject for further study.
It should suffice to say that the Fund's decisionmaking arrangements
have proved to be well suited to the complex process of reconciling the
goals of economic effectiveness with political acceptability at the international level, and hence the availability of financing on a cooperative
basis with the formulation and implementation of national policies that
the financing supports.
B
Financing
Essentially, two sources finance the Fund: subscribed and borrowed
resources. Unlike the World Bank, the Fund has no subscribed but unpaid capital to guarantee its borrowing. Rather, the entire subscription
of each member is paid in. Then, on the basis of economic criteria in
the context of quarterly operational budgets, the Fund decides which
currencies to use (sell) or to accept in repurchases (repayments). With
respect to subscribed currencies, the system operates on the basis of periodic assessments of which members are in a sufficiently strong balance of
payments and reserve position and of the objective of comparable positions in the Fund among members in such a position.
With respect to borrowing, the adequacy of the Fund's liquid resources is considered in relation to the anticipated levels of use. If necessary, the Fund is authorized to try to supplement its resources through
borrowing. The Fund's authority to borrow is not formally limited in
terms of amounts. Voluntary limitations on the exercise of the Fund's
borrowing authority, in the form of guidelines for borrowing, may be
developed in the future to assure creditors that the Fund's borrowings
will be managed prudently. Until now, the Fund has borrowed exclusively from official sources in the context of the General Arrangements
to Borrow (GAB), the 1974 and 1975 Oil Facilities, and the Supplementary Financing Facility. The most recent borrowing agreement, which
will finance the Fund's Enlarged Access Policy,5 totals SDR 8 billion,
with the possibility of a further commitment, and is with the Saudi Arabian Monetary Agency. Other agreements that will provide an additional SDR 1.1 billion for this purpose are being put into effect with the
central banks or other official agencies of thirteen industrial countries.
Unlike development banks, the Fund has not yet borrowed in the private markets, although it has the authority to do so. Thus, the Fund is
not precluded from possible recourse to the private markets, and may do
so if this were indispensable.
5.
For the text of the Fund's decision on Enlarged Access Policy, see infra Appendix A (repro11, 1981), INTERNATIONAL MONETARY FUND, 1981 AN-
ducing Decision No. 6783-(81/40) (Mar.
NUAL REPORT 153-55).
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The differences between the financing of the Fund and of the development banks have well-established historical roots and reflect the different roles assigned to these institutions. The Fund's role as the central
institution for international monetary collaboration is reflected in the
revolving character of its resources on a short- to medium-term basis
and in concessional rates of charges (interest rates) as an inducement for
balance of payments adjustment. By contrast, development banks lend
long-term, and they have to pay market interest rates for most of their
funding, which is obtained by borrowing in the private markets. Consequently, their ability to offer comparable concessional financing is
limited.
Nevertheless, there has been a certain convergence in this process. On
the one hand, the Fund's more recent borrowing has led increasingly to
market-based terms, which are passed on to the users of the Fund's resources. The market-based interest rates may be mitigated, however,
under special policies for low income developing members by subsidy
arrangements from special contributions or other sources of finance. On
the other hand, the development banks have developed their soft-loan
windows through specially subscribed or contributed resources for such
members. In practice, both the Fund and the development banks may
be regarded as providing financial packages to their members. These
packages blend owned, market-source, and, in some cases, specially contributed resources that generally result in a somewhat concessional effective rate of interest. Special arrangements or policies may provide an
even more concessional rate for low income developing countries.
C
Use of Resources
The Fund makes resources available to members under a variety of
policies, some of which were designed to deal with different aspects of
balance of payment problems. Examples of these policies include: the
compensatory financing of export fluctuations, which has been extended
to cover fluctuations in the cost of cereal imports as an optional feature;
international buffer stock financing; and the oil facilities in 1974 and
1975. What may be regarded as the Fund's basic or "all-purpose" 6 policies currently in effect are the tranche policy and the Extended Fund
Facility. These policies are financed entirely from the Fund's subscribed
resources, with the exception of financing the use of the Fund's resources
by the industrial country participants under the GAB. In addition to
these basic policies, two temporary policies have been designed to provide balance of payments assistance to members facing serious payments
6. "All purpose" is used in the sense that the policies deal with all aspects of a member's
balance of payments and reserve problems.
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imbalances that are large in relation to their quotas. These temporary
policies are financed with the Fund's subscribed resources under the
tranche policy or the Extended Fund Facility and with borrowed resources. The temporary policies include the Supplementary Financing
Facility, which is in the process of running out, and the Enlarged Access
Policy, which is replacing it. Under these policies, resources are made
7
available, in accordance with the Fund's Guidelines on Conditionality,
under stand-by and extended arrangements. 8 The Fund has adopted
guidelines that regulate the amounts available to members under the
Enlarged Access Policy. At present, a member may obtain a maximum
of 450% of quota over three years, subject to outstanding use equivalent
to a cumulative limit of-600% of quota net of scheduled repurchases.
The stand-by arrangement, of which the extended arrangement is a
variant, is "a decision of the Fund by which a member is assured that it
will be able to make purchases. . . in accordance with the terms of the
decision during a specified period and up to a specified amount."9 The
stand-by arrangement, unlike loan agreements of development banks, is
not an international agreement. A member that fails to pursue the economic policy goals that the arrangement supports has not violated its
international obligations; yet, the member would forego further use of
resources under the arrangement. Furthermore, the Fund's procedures
for justified modifications or waivers requested by the members are flexible and prompt. Although the arrangement is binding on the Fund in
accordance with the Fund Agreement, the Fund has adequate safeguards. First, the Fund's decision to grant the arrangement is contingent on its satisfaction that the member's policies deserve the Fund's
support. Thus, policy changes may be necessary prior to the granting of
an arrangement. Second, under the arrangement, the use of resources is
phased beyond the first credit tranche. The purchase in installments is
subject to performance criteria that may include review clauses for the
purpose of reaching understandings on specific policies and on setting
performance criteria for periods of the arrangement beyond six months
or a year from its entry into effect.
Development banks have established similar and effective safeguards
in the context of loan agreements. For example, the World Bank's structural adjustment loans include such safeguards. Notwithstanding the
7. For the text of these guidelines, see infra Appendix B (reproducing Decision No. 6056(79/38) (Mar. 2, 1979), INTERNATIONAL MONETARY FUND, 1979 ANNUAL REPORT 136-38 [hereinafter cited as 1979 REPORT]).
8. For the forms of such arrangements under the Enlarged Access Policy, see infra Appendix C
(reproducing Decision No. 6838-(81/70) (Apr. 29, 1981), INTERNATIONAL MONETARY FUND, 1980
ANNUAL REPORT 156-61).
9.
Fund Agreement, supra note 1, art. XXX, para. b.
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different underlying legal arrangements, which reflect different historical and conceptual roots, the convergence of results also exists in this
area. The Fund's experience has proven that the stand-by arrangement
has enhanced the Fund's ability to support the economic programs of its
0
members. 1
Several special features relating to the use of the stand-by arrangement, which reflect the unique role of the Fund, should be noted. First,
the Fund's resources-hence, its stand-by arrangements-may be made
available not only to the developing countries, but also to industrial
countries. Even issuers of reserve currencies have obtained the Fund's
stand-by arrangements. Second, the purpose of the arrangement may
not be in all cases to provide for actual use of the Fund's resources, but
rather to provide assured access to the resources in case of need. Such
precautionary arrangements, designed to give confidence to members
with expected or possible deterioration of their balance of payments or
reserve position, carry out the purposes of the Fund. Indeed, this comparison clearly illustrates the different purposes of the Fund and the development banks: although the Fund can carry out its purpose to give
confidence to a member by an arrangement under which resources often
are not used, or are not used fully, even though the member fully carries
out the policies supported by the arrangement, it would seem to be inconsistent with the purposes of development banks to provide for loans
that would not be used, although all conditions for their use are met.
The third special feature is that the Fund makes use of the stand-by
arrangement to promote certain of its regulatory and general policy
objectives, including the avoidance of restrictions on payments and
transfers for current international transactions, multiple currency practices, discriminatory currency arrangements, and restrictions on imports
for balance of payments reasons. A standard performance clause in the
arrangement covers these objectives, and thus demonstrates the broader
functions of the Fund." Fourth, the comprehensive scope of the economic policies supported by the arrangement often makes it a useful
basis for "parallel financing." This is a practice whereby creditors or
donors, whether formally or informally, make other sources of financing
conditional on the ability of a member to obtain such an arrangement
from the Fund and to make the phased purchases under the arrangement. Because the member's objective in obtaining an arrangement may
be to reassure its creditors rather than to use the Fund's resources, the
precautionary arrangement assumes added significance.
10. For a detailed description and analysis of the technique, see J. GOLD, THE LEGAL CHARACTER OF THE FUND'S STAND-BY ARRANGEMENTS AND WHY IT MATTERS (International Monetary Fund, Pamph. No. 35, 1980).
11. See, e.g., infra Appendix C, para. 4(d).
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The economic policies the Fund supports by these techniques illuminate the rationale for the techniques and for the Fund's approach. In
addition to the regulatory policies, the arrangements include quantitative performance criteria' 2 that normally cover such macroeconomic
targets as the following: a ceiling on domestic credit; a subceiling on
public sector credit, which, by implication, deals with private sector
credit; external borrowing; and payments arrears where these exist. By
limiting the financing of budgetary deficits, these criteria deal indirectly
with budgetary performance. Where the exchange rate and producer
prices have important effects on the economy, they may also be included
as performance criteria. Supporting policies, although not considered
performance criteria, may deal with the levels and structure of interest
rates, the introduction or improved administration of tax measures to
raise revenues, and the control of and reductions in governmental expenditures through incomes policies, the elimination of subsidies, or the
improvement of the financial performance of parastatal enterprises, to
list only some examples. The adoption and implementation of a development or investment plan supported by the World Bank, as well as
other supply-oriented policies such as pricing policies for energy and
food, have received increasing attention in arrangements by the Fund,
particularly with respect to extended arrangements supporting structural adjustments in the economy. The Fund may also provide technical assistance in support of some of these policies.
The scope of these policies illustrates the comprehensive nature of the
Fund's approach. The evolution of this approach is based on a combination of at least three factors: the monetary character of the Fund, the
greatly increased financial support it provides for members in present
circumstances, and the difficulty of other lenders to perform this task.
The first factor, the concern with balance of payments problems,
leads to an examination of existing policies and the options for policy
adjustments to prevent the otherwise undesirable outcome that would
prevail on the basis of existing economic policies. The Fund would support not only satisfactory existing policies, but also needed policy
changes. This may be seen as a process of working upward from the
"bottom line" of economic policies, that, in a sense, the balance of payments represents, in a continuing dialogue with the national authorities.
Because of the difficult policy choices countries must make to adjust
their great imbalances in present circumstances, the Fund, in an attempt to make its support relevant and effective, promotes more com12. Performance criteria are specific economic policies that are used in an arrangement "to
evaluate implementation of the program with a view to ensuring the achievement of its objective."
See infra Appendix B, Guidelines on Conditionality, para. 9 (reproducing 1979 REPORT, supra note 7,
at 137).
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prehensive adjustment policies than it did in the past. The search for
effectiveness is tempered by the Fund's policy of achieving adjustment
while "pay[ing] due regard to the domestic social and political objecincludtives, the economic priorities, and the circumstances of members,
3
ing the causes of their balance of payments problems."'
The second factor contributing to the Fund's approach is the continuing increase in its financial support for members, which is unprecedented but necessary in view of the severe structural maladjustment in
the international economy. The dimensions of these problems are
shown by the fact that the current account deficit of the non-oil developing countries rose from $38 billion in 1978 to $80 billion in 1980, and is
expected to increase further in 1981. The industrial countries moved
from a surplus of $30 billion in 1978 to a deficit of $46 billion in 1980.
Furthermore, the surplus of the oil exporting countries increased from
$3 billion in 1978 to $112 billion in 1980. This largely accounts for the
fact that at the end of April 1981, there were twenty-two stand-by and
fifteen extended arrangements in effect, for a total approved amount of
approximately SDR 10.8 billion. This increased level of financial support has further energized the Fund, thereby creating greater effectiveness because the Enlarged Access Policy to the Fund's resources is being
made available under stand-by or extended arrangements on "upper
credit tranche" terms. Thus, the financial leverage of being able to provide larger amounts of resources has added to the persuasiveness of the
Fund's views. As official and commercial creditors and development
assistance donors have found the Fund's support of appropriate economic policies a useful basis for their own relations with debtor countries, the catalytic effect of Fund support has continued to spread.
Available evidence indicates that the techniques for using the Fund's
resources are flexible and adaptable to the evolving role of the Fund,
including its supportive role for investment policies.
The third factor, the difficulty of other lenders in performing the special blend of tasks that have made the Fund a unique institution in international finance, requires little elaboration. Commercial banks, as
well as sovereign lenders, find it difficult to match the Fund's effective
intergovernmental machinery in dealing with sovereign borrowers. Because other international financial institutions are restricted to specific
tasks or regions, they have limited functions. One can argue that in
international finance a critical mass is required to sustain a unique activity. Given the existing level of economic interdependence, such a critical mass can exist only within a framework of a universal
intergovernmental organization such as the Fund.
13.
Id, para. 4 (reproducing 1979 REPORT, supra note 7, at 136).
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D. Maintenance of Value
The value of the Fund's subscriptions and currency assets in the general resources account, as well as the value of its liabilities, is maintained
in terms of the SDR.1 4 Although the Fund has the legal authority to
incur liabilities through borrowing in currencies, thereby incurring an
exchange risk,1 5 the Fund has not done so. 16 The Fund's borrowings
have been uniformly denominated in terms of the SDR, not only because the Fund must denominate its lending in terms of this unit, but
also because the Fund seeks to make the SDR the "principal reserve
asset in the international monetary system." 1 7 That this has been possible reflects both the cooperative context of the Fund's financing and
that the SDR has been sufficiently well established in international
finance to become the basis of large-scale international lending.
The Fund's choice of the SDR, the new financial instrument of its
own creation, as the basis for its financial activities again reflects the
unique international monetary role of the Fund. The force of changes in
the international monetary system, including the second amendment to
the Fund Agreement on April 1, 1978, to redefine their capital structure
in terms of the SDR. Several development banks, including the World
Bank, have not followed the Fund in denominating their borrowing and
lending in terms of the SDR. The International Fund for Agricultural
Development and the Nordic Investment Bank, however, have done so
to some extent. In addition, the International Development Association
(IDA) of the World Bank Group has denominated its lending in terms of
the SDR. There would be good reasons for the others to follow: to collaborate with the Fund to improve the operation of the international
monetary system by making the SDR the principal reserve asset of the
system and to serve their members more effectively and equitably by
reducing the combined exchange and interest risks for and among their
borrowers. Convergence between the Fund's techniques for the maintenance of value and the techniques by which these development banks
match their assets and liabilities may be expected during the 1980's.
E
Special DrawingRights
The unit of account function of the SDR, which makes it useful as the
means for maintaining international value, is based on the existence of
14. Fund Agreement, supra note 1, art. V, § 11.
15. Id art. VII, § I.
16. Under some of the Fund's borrowing agreements, an SDR value different from the current value may be applied in some circumstances if the Fund changes the method of SDR valuation. This is a legal possibility that is a safeguard for the lenders, but, to date, no situation requiring
the use of such a safeguard has developed.
17. Fund Agreement, upra note 1,art. VIII, § 7, art. XXII.
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the SDR as an international reserve asset. 18 The Fund allocates this
asset, which may be referred to as the primary SDR to distinguish it
from SDR-denominated claims of increasing popularity, to participants
in the Fund's Special Drawing Rights Department in proportion to their
quotas. All members of the Fund are participants. At present, SDR
21.43 billion are outstanding; the question of further allocations is under
consideration.
The SDR may be regarded as the Fund's "own currency" to be used
in the Fund's operations and among its members. The Fund may designate other official entities as "other holders." Because the World Bank
and IDA, as well as other development banks, have been so designated,
they have the same freedom as Fund members to use SDR's in operations and transactions with any other prescribed holder and with any
Fund member. Thus, they can buy and sell SDR's both spot and forward, as well as receive or use them in loans, pledges, swaps, or donations. In this context, the SDR represents a monetary asset, governed by
the rules of international law, that development banks are in a position
to use in their activities. The 1980's should mark an increased use of the
SDR. The Fund's role in this context again provides a basis for convergence between the techniques introduced in order to improve the operation of the international monetary system and the techniques of
development financing.
II.
RELATIONSHIP BETWEEN THE FUND AND THE WORLD BANK
The legal relationship between the Fund and the World Bank is close.
According to the Bank's Articles of Agreement, only members of the
Fund may become members of the World Bank. 19 The Fund Agreement
contains no comparable provision. This suggests that the founders believed that countries should be prepared to accept the Fund's code of
conduct as an assurance that the development financing made available
by the Bank would be properly used. Even though both institutions
have evolved considerably since 1944, the initial legal relationship has
continued to be the basis of their respective roles in development financing. Instead of Fund "discipline" in the context of a par value system,
one finds surveillance over exchange arrangements and support for a
comprehensive economic policy framework. In the case of the Bank,
,project lending continues to be the financially most important part of
the Bank's operations; yet, structural adjustment loans indicate growing
18. See Silard, The GeneralStandardof InternationalValue in Public InternationalLaw, 1979 PRoc.
AM. Soc'v INT'L L. 15, 15-24.
19. International Bank for Reconstruction and Development, Articles of Agreement, Dec. 27,
.1947, art. II, § 1, art. VI, § 3, 60 Stat. 1440, T.I.A.S. No. 1502, 2 U.N.T.S. 39.
1982]
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interest in a similar framework dealing with development policies. Although the two frameworks overlap in principle, with appropriate cooperation between the two institutions the work of each complements and
reinforces the work of the other.
Another legal point that helps to place the nature of cooperation between the Fund and the Bank into a practical perspective is the absence
of a cross-default clause in both the Fund's stand-by arrangements and
the Bank's loan agreements. No such provision exists-although it is
typical in financial relationships involving commercial lenders-because
there has been no need for such a provision. 20 Informal techniques for
cooperation between the Bank and the Fund are more effective. These
techniques are not substitutes for a cross-default clause, but rather explain its absence. Accordingly, the existence of a stand-by arrangement
from the Fund gives the Bank confidence that a country to which it is
considering lending has adopted appropriate economic policies. The
country's ability to make purchases under the arrangement maintains
this confidence. Similarly, the Bank's approval of a structural adjustment loan gives the Fund confidence that the country's development
and investment policies are sound. Even absent such formal actions, the
two institutions informally exchange information, appraisals, and assessments. Furthermore, the participation of each institution's staff in the
other's mission has been increasing. There is a growing realization that
both institutions can achieve greater effectiveness through mutual
support.
Cooperation, however, does not mean identity of views. The Fund
may wish to support an economic stabilization program regardless of
whether the Bank is active in that country. Similarly, the Bank may
wish to lend for investment projects although differences of view exist
between the country and the Fund on the policies that could form the
basis of the Fund's support. As with any activity involving the exercise
of discretion, good faith and informed judgment should be considered
implied requirements for the administrators. Although reaching a common view is voluntary, both the Bank and the Fund share the desire to
serve their members effectively.
Cooperation is limited by subject matter because it takes place in areas of shared or reinforcing competence. The Fund's surveillance activi20. The Bank's General Conditions Applicable to Loan and Guarantee Agreements enable
the Bank to suspend the right of a borrower to make withdrawals from the loan account if the
member of the Bank which is the borrower or the guarantor "shall have ceased to be a member of
the International Monetary Fund." International Bank for Reconstruction and Development, General Conditions Applicable to Loan and Guarantee Agreements, Oct. 27, 1980, art. VI, § 6.02(0.
This provision does not deal, however, with either nonperformance of obligations under the Fund
Agreement or failure to carry out an economic program supported by the use of the Fund's
resources.
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ties with respect to industrial countries, its provision of unconditional
international liquidity in the forms of reserve positions and SDR's, and
its policies with respect to the role of gold in the international monetary
ystem are examples of functions that the Fund performs with no or
limited "inputs" from development banks.
CONCLUSION
The present decade began with substantial and increasing disequilibria in international payments for developing countries. In coping
.with their growing economic difficulties, these countries increasingly
'have looked to the organized international community for help. The
Fund and the development banks are straining to respond to an unprecedented demand for resources, advice, and technical assistance. In this
setting, the legal and institutional aspects of their activities have been
"affected by the pressures of growth. Adaptations that evidence convergence in several areas have occurred and are continuing. As a result, the
law of international development financing in the 1980's appears to be a
growth industry.
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APPENDIX
IMF
A*
L. Policy on Enlarged Access to the Fund's Resources
1. From the date on which the Fund determines that all available supplementary financing has
been committed and additional borrowing arrangements have been concluded, the Fund will be
prepared to provide balance of payments assistance to members facing serious payments imbalances that are large in relation to their quotas in accordance with this decision (hereinafter referred
to as enlarged access). Access to the Fund's resources under this decision will be provided under a
stand-by or an extended arrangement, and purchases under the arrangement will be financed by
resources that the Fund obtains for this purpose by replenishment under Article VII, Section I(i)
(hereinafter referred to as borrowed resources), in conjunction with the use of the other resources of
the Fund (hereinafter referred to as ordinary resources).
2. Access to the Fund's resources under other policies of the Fund will remain available in accordance with the terms of those policies.
3. A member contemplating use of the Fund's resources under this decision shall consult the
Managing Director before making a request for such use. A request will be met only if the Fund is
satisfied: (i) that the member needs financing from the Fund that exceeds the amount available to it
in the four credit tranches or under the extended Fund facility and its problem requires a relatively
long period of adjustment and a maximum period for repurchase longer than the three to five years
under the credit tranche policies; and (ii) on the basis of a detailed statement of the economic and
financial policies the member will follow and the measures it will apply during the period of the
stand-by or extended arrangement, that the member's program will be adequate for the solution of
its problem and is compatible with the Fund's policies on the use of its resources beyond the first
credit tranche or under the extended Fund facility.
4. The Fund may approve a stand-by or extended arrangement that provides for enlarged access
at any time until the Eighth General Review of Quotas becomes effective, provided that the Fund
may extend this period.
5. A stand-by or extended arrangement approved under this decision will be in accordance with
the Fund's policies, including the policies on conditionality, phasing, and performance criteria.
6. The period of a stand-by arrangement approved under this decision will normally exceed one
year, and may extend up to three years in exceptional cases. The period of an extended arrangement will be normally three years.
7. The amounts that will be made available under stand-by or extended arrangements approved
under this decision will be determined according to guidelines adopted by the Fund from time to
time.
8. The amounts available under a stand-by or extended arrangement approved under this decision will be apportioned between ordinary and borrowed resources as follows:
(a) Under a stand-by arrangement purchases will be made with ordinary and borrowed resources
in the ratio of 2 to I in the first credit tranche, and 1 to 1.2 in the next three credit tranches.
Thereafter, purchases will be made with borrowed resources only. In the event that a member has
already an outstanding use of all or part of its credit tranches because of previous purchases in the
credit tranches or under the extended Fund facility, purchases will be made first with borrowed
resources until that use of borrowed resources, together with any outstanding use of supplementary
financing and exceptional use of the Fund's resources under Decision No. 5732-(78/65),20 adopted
April 24, 1978, as amended on December 27, 1978, equals the amount of borrowed resources that
would have been used if the previous purchases had been made under this decision.
(b) Under an extended arrangement purchases will be made with ordinary and borrowed resources in the ratio of I to I until the outstanding use of the upper credit tranches and the extended
Fund facility equals 140 per cent of quota. Thereafter, purchases will be made with borrowed
resources only. In the event that a member already has an outstanding use of all or part of its
upper credit tranches or the extended Fund facility, purchases will be made with borrowed resources until that use of borrowed resources, together with any outstanding use of supplementary
financing and exceptional use of the Fund's resources under Decision No. 5732-(78/65),21 adopted
April 24, 1978, as amended on December 27, 1978, equals the amount of borrowed resources that
would have been used if the outstanding use of the upper credit tranches and the extended Fund
facility had been made under this decision.
*
INTERNATIONAL MONETARY FUND, 1981 ANNUAL REPORT 153-55.
20. See Annual Rpor, 1978, page 120.
21. Bid
104
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:89
(c) The apportionment in accordance with (a) and (b) above will be made on the basis of the
outstanding use by the member of the Fund's resources at the time the arrangement for the mcniber is approved.
(d) From time to time the Fund will review the proportions of ordinary and borrowed resources
specified in (a) and (b) above and may modify them, and the modified proportions shall apply
uniformly to both arrangements approved after the modification and amounts that may be
purchased under existing arrangements after the modification.
9. (a) A stand-by or extended arrangement approved under this decision may provide, in part,
for supplementary financing in accordance with Decision No. 5508-(77/127),22 adopted August 29,
1977, if
(i) the arrangement replaces an arrangement approved under that decision, or
(ii) an amount of supplementary financing becomes available because of the cancellation of an arrangement or because it is reasonably certain that an arrangement will
not be fully utilized, in which ease the arrangement approved under this decision
may provide for the utilization of a part or all of the available amount.
(b) When an arrangement under this decision provides for supplementary financing, the supplementary financing will be used before borrowed resources.
10. (a) Repurchases in respect of outstanding purchases under this decision will be made in
accordance with the provisions of the Articles of Agreement and decisions of the Fund, including
those relating to repurchase as the member's balance of payments and reserve position improves,
provided that repurchases in respect of outstanding purchases financed by borrowed resources shall
be completed seven years after the purchase, and that the repurchases shall be made in equal
semiannual installments during the period beginning three and one half years and ending seven
years after the purchase.
(b) If a purchase is financed by ordinary and borrowed resources, a repurchase attributed to the
purchase made with borrowed resources in advance of this schedule of installments must be accompanied by a repurchase in respect of the purchase made with ordinary resources at the same time if
any part of the latter purchase is still outstanding. The amounts of the two repurchases will be in
the same proportions in which ordinary and borrowed resources were used in the purchases, provided, however, that the repurchase in respect of the purchase financed with ordinary resources will
not exceed the amount of the purchase still outstanding.
II. In order to carry out the purposes of this decision, the Fund will be prepared to grant a
waiver of the limitation in Article V, Section 3(b) (iii) that is necessary to permit purchases under
this decision or to permit purchases under other policies that would raise the Fund's holdings of a
member's currency above the limits referred to in that provision because of purchases outstanding
under this decision.
12. The Fund will apply its credit tranche policies as if the Fund's holdings of a member's
currency did not include holdings resulting from purchases under this decision that have been
made with borrowed resources. Purchases under this decision with borrowed resources and holdings resulting from these purchases will be excluded under Article XXX().
13. The Fund will state which purchases by a member are made under this decision and the
amounts of ordinary and borrowed resources used in each purchase.
14. The Fund will determine the charges that it will levy on holdings of a member's currency
resulting from purchases outstanding under this decision to the extent that they are made with
borrowed resources.
15. The Fund will review this decision not later than June 30, 1983, and annually thereafter as
long as the decision remains in effect.
Decision No. 6783-(81/40)
March II, 1981
22. Selected Decisions of the InternationalMonetary Fund and Selected Documents, Supplement to
Eighth Issue (Washington, 1978), pages 19-25.
1982]
ROLE OF THE
APPENDIX
105
IMF
B*
K. Guidelines on Conditionality
The Executive Board agrees to the text of the guidelines on conditionality for the use of the
Fund's resources and for stand-by arrangements as set forth [below].
Decision No. 6056-(79/38)
March 2, 1979
Use of Fund's General Resources and Stand-By Arrangements
1. Members shoula be encouraged to adopt corrective measures, which could be supported by
use of the Fund's general resources in accordance with the Fund's policies, at an early stage of their
balance of payments difficulties or as a precaution against the emergence of such difficulties. The
Article IV consultations are among the occasions on which the Fund would be able to discuss with
members adjustment programs, including corrective measures, that would enable the Fund to approve a stand-by arrangement.
2. The normal period for a stand-by arrangement will be one year. If, however, a longer period
is requested by a member and considered necessary by the Fund to enable the member to implement its adjustment program successfully, the stand-by arrangement may extend beyond the period
of one year. This period in appropriate cases may extend up to but not beyond three years.
3. Stand-by arrangements are not international agreements and therefore language having a
contractual connotation will be avoided in stand-by arrangements and letters of intent.
4. In helping members to devise adjustment programs, the Fund will pay due regard to the
domestic social and political objectives, the economic priorities, and the circumstances of members,
including the causes of their balance of payments problems.
5. Appropriate consultation clauses will be incorporated in all stand-by arrangements. Such
clauses will include provision for consultation from time to time during the whole period in which
the member has outstanding purchases in the upper credit tranches. This provision will apply
whether the outstanding purchases were made under a stand-by arrangement or in other transactions in the upper credit tranches.
6. Phasing and performance clauses will be omitted in stand-by arrangements that do not go
beyond the first credit tranche. They will be included in all other stand-by arrangements but these
clauses will be applicable only to purchases beyond the first credit tranche.
7. The Managing Director will recommend that the Executive Board approve a member's request for the use of the Fund's general resources in the credit tranches when it is his judgment that
the program is consistent with the Fund's provisions and policies and that it will be carried out. A
member may be expected to adopt some corrective measures before a stand-by arrangement is
approved by the Fund, but only if necessary to enable the member to adopt and carry out a program consistent with the Fund's provisions and policies. In these cases the Managing Director will
keep Executive Directors informed in an appropriate manner of the progress of discussions with the
member.
8. The Managing Director will ensure adequate coordination in the application of policies relating to the use of the Fund's general resources with a view to maintaining the nondiscriminatory
treatment of members.
9. The number and content of performance criteria may vary because of the diversity of
problems and institutional arrangements of members. Performance criteria will be limited to those
that are necessary to evaluate implementation of the program with a view to ensuring the achievement of its objectives. Performance criteria will normally be confined to (i) macroeconomic variables, and (ii) those necessary to implement specific provisions of the Articles or policies adopted
under them. Performance criteria may relate to other variables only in exceptional cases when they
are essential for the effectiveness of the member's program because of their macroeconomic impact.
10. In programs extending beyond one year, or in circumstances where a member is unable to
establish in advance one or more performance criteria for all or part of the program period, provision will be made for a review in order to reach the necessary tnderstandings with the member for
the remaining period. In addition, in those exceptional cases in which an essential feature of a
program cannot be formulated as a performance criterion at th6 beginning of a program year
because of substantial uncertainties concerning major economic trends, provision will-be made for a
review by the Fund to evaluate the current macroeconomic policies of the member, and to reach
new understandings if necessary. In these exceptional cases the Managing Director will inform
Executive Directors in an appropriate manner of the subject matter of a review.
*
INTERNATIONAL MONETARY FUND,
1979
ANNUAL REPORT
136-38.
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THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:89
11. The staff will prepare an analysis and assessment of the performance under programs supported by use of the Fund's general resources in the credit tranches in connection with Article IV
consultations and as appropriate in connection with further requests for use of the Fund's resources.
12. The staff will from time to time prepare, for review by the Executive Board, studies of programs supported by stand-by arrangements in order to evaluate and compare the appropriateness
of the programs, the effectiveness of the policy instruments, the observance of the programs, and tile
results achieved. Such reviews will enable the Executive Board to determine when it may be appropriate to have the next comprehensive review of conditionality.
APPENDIX C*
M. Forms of Stand-By and Extended Arrangements Under Enlarged Access Policy
The Executive Board approves the forms of stand-by and extended arrangements contained in
Attachments A and B [below] that will be used by the Fund to provide for enlarged access to the
Fund's resources under Decision No. 6783-(81/40),2:1 adopted March 11, 1981.
Decision No. 6838-(81/70)
April 29, 1981
Attachment A
Form of Stand-By Arrangement Under Enlarged Access Policy
from (Minister of
Attached hereto is a letter [, with annexed memorandum,] dated
Finance and/or Governor of Central Bank) requesting a stand-by arrangement and setting forth:
(a) the objectives and policies that the authorities of (member) intend to pursue for the
period of this stand-by arrangement;
(b) the policies and measures that the authorities of (member) intend to pursue for the
[first year] of this stand-by arrangement; and
(c) understandings of (member) with the Fund regarding [a] review[s] that will be made
of progress in realizing the objectives of the program and of the policies and measures
that the auth3rities of (member) will pursue for the remaining period of this stand-by
arrangement.
To support these objectives and policies the International Monetary Fund grants this stand-by
arrangement in accordance with the following provisions:
to ___ (member) will
[For the period from
1. [For a period of - years from _
subject
-,
have the right to make purchases from the Fund in an amount equivalent2 4to SDR
to paragraphs 2, 3, 4, and 5 below, without further review by the Fund.
2. (a) Until (end of first year) purchases under this stand-by arrangement shall not, without the
provided that purchases shall not ex-,
consent of the Fund, exceed the equivalent of SDR
and
_,
until
, the equivalent of SDR until _
ceed the equivalent of SDR 2.5
until _
the equivalent of SDR
(b) The right of (member) to make purchases during the remaining period of this stand-by arrangement shall be subject to such phasing as shall be determined.
(c) None of the limits in (a) or (b) above shall apply to a purchase under this stand-by arrangement that would not increase the Fund's holdings of (member's) currency in the credit tranches
beyond 25 per cent of quota or increase the Fund's holdings of that currency resulting from
purchases of supplementary financing or borrowed resources beyond 12.5 per cent of quota.
3. Purchases under this stand-by arrangement shall be made from . . .,24i provided that any
modification by the Fund of the proportions of ordinary and borrowed resources shall apply to
amounts that may be purchased after the date of modification.
4. (Member) will not make purchases under this stand-by arrangement that would increase the
Fund's holdings of (member's) currency in the credit tranches beyond 25 per cent of quota or
increase the Fund's holdings of that currency resulting from purchases of supplementary financing
or borrowed resources beyond 12.5 per cent of quota:
(a) during any period in the first year in which [the data at the end of the preceding period
*
INTERNATIONAL MONETARY FUND,
1981
ANNUAL REPORT
156-61.
23. See pages 153-55.
24. The text would be adapted for a stand-by arrangement for only one year.
25. The text would be adapted for a stand-by arrangement for only one year.
26. The text to be added will depend on the situation of the member at the time; a sample
text is set forth in the Appendix below.
1982]
ROLE OF THE
IMF
107
27
indicate that]
(i) [the limit on domestic credit described in paragraph - of the attached letter], or
of the attached
(ii) [the limit on credit to the public sector described in paragraph __
letter], or
(iii) . . .[These provisions would incorporate other quantitative performance criteria of
the program] are not observed, or
(b) if (member) fails to observe the limits on authorization of new public and publicly guaranteed
of the attached letter; or (c) during the second or
foreign indebtedness described in paragraph third year of this stand-by arrangement until suitable performance criteria have been established in
of the attached letter, or after such
consultation with the Fund as contemplated by paragraph 28
(d) during the
performance criteria have been established, while they are not being observed;
entire period of this stand-by arrangement, if (member)
(i) imposes [or intensifies] restrictions on payments and transfers for current international transactions, or
(ii) introduces [or modifies] multiple currency practices, or
(iii) concludes bilateral payments agreements which are inconsistent with Article VIII,
or
29
(iv) imposes [or intensifies] import restrictions for balance of payments reasons.
When (member) is prevented from purchasing under this stand-by arrangement because of this
paragraph 4, purchases will be resumed only after consultation has taken place between the Fund
and (member) and understandings have been reached regarding the circumstances in which such
purchases can be resumed.
5. (Member's) right to engage in the transactions covered by this stand-by arrangement can be
suspended only with respect to requests by the Fund after (a) a formal ineligibility, or (b) a decision
of the Executive Board to suspend transactions, either generally or in order to consider a proposal,
made by an Executive Director or the Managing Director, formally to suppress or to limit the
eligibility of (member). When notice of a decision of formal ineligibility or of a decision to consider
a proposal is given pursuant to this paragraph 5, purchases under this arrangement will be resumed
only after consultation has taken place between the Fund and (member) and understandings have
been reached regarding the circumstances in which such purchases can be resumed.
6. Purchases under this stand-by arrangement shall be made in the currencies of other members
selected in accordance with the policies and procedures of the Fund, and may be made in SDRs if,
on the request of (member), the Fund agrees to provide them at the time of the purchase.
7. The value date of a purchase under this stand-by arrangement involving borrowed resources
will be normally either the fifteenth day or the last day of the month, or the next business day if the
selected day is not a business day. (Member) will consult the Fund on the timing of purchases
involving borrowed resources.
8. (Member) shall pay a charge for this stand-by arrangement in accordance with the decisions
of the Fund.
9. (a) (Member) shall repurchase the outstanding amount of its currency that results from a
purchase under this stand-by arrangement in accordance with the provisions of the Articles of
Agreement and decisions of the Fund, including those relating to repurchase as (member's) balance
of payments and reserve position improves.
(b) Any reductions in (member's) currency held by the Fund shall reduce the amounts subject to
repurchase under (a) above in accordance with the principles applied by the Fund for this purpose
at the time of the reduction.
(c) The value date of a repurchase in respect of a purchase financed with borrowed resources
under this stand-by arrangement will be normally either the sixth day or the twenty-second day of
the month, or the next business day if the selected day is not a business day, provided that repurchase will be completed not later than seven years from the date of purchase.
10. During the period of the stand-by arrangement (member) shall remain in close consultation
with the Fund. These consultations may include correspondence and visits of officials to the Fund
to (member) or of representatives of (member) to the Fund. (Member) shall provide the Fund,
through reports at intervals or dates requested by the Fund, with such information as the Fund
27. The performance criteria enumerated here are indicative only.
28. These subparagraphs would be adapted in accordance with the period of the stand-by
arrangement.
29. These subparagraphs would be adapted in accordance with the period of the stand-by
arrangement.
108
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:89
requests in connection with the progress of (member) in achieving the objectives and policies set
forth in the attached letter [and annexed memorandum].
of the attached letter (member) will consult the Fund on
11. In accordance with paragraph the adoption of any measures that may be appropriate at the initiative of the government or whenever the Managing Director requests consultation
Version A
[because any of the criteria in paragraph 4 above have not been observed or because he considers
that consultation on the program is desirable. In addition, after the period of the arrangement and
while (member) has outstanding purchases in the upper credit tranches, the government will consult with the Fund from time to time, at the initiative of the government or at the request of the
Managing Director, concerning (member's) balance of payments policies].
Version B
[because he considers that consultation on the program is desirable].
Attachment B
Form of Extended Arrangement Under Enlarged Access Policy
from (Minister of FiAttached hereto is a letter [, with annexed memorandum,] dated
nance and/or Governor of Central Bank) requesting an extended arrangement and setting forth:
(a) the objectives and policies that the authorities of (member) intend to pursue for the
period of this extended arrangement;
(b) the policies and measures that the authorities of (member) intend to pursue for the
first year of this extended arrangement; and
(c) understandings of (member) with the Fund regarding reviews that will be made of
progress in realizing the objectives of the program and of the policies and measures
that the authorities of (member) will pursue for the second and third years of this
extended arrangement.
To support these objectives and policies the International Monetary Fund grants this extended
arrangement in accordance with the following provisions:
(member) will have the right to make purchases
1. For a period of [three years] from subject to paragraphs 2, 3, 4, and 5 below,
from the Fund in an amount equivalent to SDR __,
without further review by the Fund.
2. (a) Until (end of first year) purchases under this extended arrangement shall not, without the
provided that purchases shall not exceed
consent of the Fund, exceed the equivalent of SDR , and the
the equivalent of SDR - until _
the equivalent of SDR - until
until
equivalent of SDR (b) Until (end of second year) purchases under this extended arrangement shall not, without the
consent of the Fund, exceed the equivalent of SDR
(c) The right of (member) to make purchases during the second and third years shall be subject
to such phasing as shall be determined.
3. Purchases under this extended arrangement shall be made from . . .:30 provided that any
modification by the Fund of the proportions of ordinary and borrowed resources shall apply to
amounts that may be purchased after the date of modification.
4. (Member) will not make purchases under this extended arrangement:
(a) throughout the3 first year, during any period in which the data at the end of the preceding
period indicate that '
of the attached letter], or
(i) [the limit on domestic credit described in paragraph of the attached
(ii) [the limit on credit to the public sector described in paragraph letter], or
(iii) . . . [These provisions would incorporate other quantitative performance criteria of
the program] are not observed; or
(b) if (member) fails to observe the limits on authorization of new public and publicly guaranteed
of the attached letter; or (c) throughout the secforeign indebtedness described in paragraph ond and third years, if before the beginning of the second year and the beginning of the third year
of the extended arrangement suitable performance clauses have not been established in consultaof the attached letter or such clauses, having
tion with the Fund as contemplated in paragraph 30. The text to be added will depend on the situation of the member at the time; a sample
text is set forth in the Appendix below.
31. The performance criteria enumerated here are indicative only.
1982]
ROLE OF THE
IMF
been established, are not being observed; or (d) throughout the duration of the extended arrangement, if (member)
(i) imposes [or intensifies] restrictions on payments and transfers for current international transactions, or
(ii) introduces [or modifies] multiple currency practices, or
(iii) concludes bilateral payments agreements which are inconsistent with Article VIII,
or
(iv) imposes [or intensifies] import restrictions for balance of payments reasons.
When (member) is prevented from purchasing under this extended arrangement because of this
paragraph 4, purchases will be resumed only after consultation has taken place between the Fund
and (member) and understandings have been reached regarding the circumstances in which such
purchases can be resumed.
5. (Member's) right to engage in the transactions covered by this extended arrangement can be
suspended only with respect to requests received by the Fund after (a) a formal ineligibility, or (b) a
decision of the Executive Board to suspend transactions, either generally or in order to consider a
proposal, made by an Executive Director or the Managing Director, formally to suppress or to limit
the eligibility of (member). When notice of a decision of formhl ineligibility or of a decision to
consider a proposal is given pursuant to this paragraph 5, purchases under this arrangement will be
resumed only after consultation has taken place between the Fund and (member) and understandings have been reached regaiding the circumstances in which such purchases can be resumed.
6. Purchases under this extended arrangement shall be made in the currencies of other members
selected in accordance with the policies and procedures of the Fund, and may be made in SDRs if,
on the request of (member), the Fund agrees to provide them at the time of the purchase.
7. The value date of a purchase under this extended arrangement involving borrowed resources
will be normally either the fifteenth day or the last day of the month, or the next business day if the
selected day is not a business day. (Member) will consult the Fund on the timing of purchases
involving borrowed resources.
8. (Member) shall pay a charge for this extended arrangement in accordance with the decisions
of the Fund.
9. (a) (Member) shall repurchase the amount of its currency that results from a purchase under
this extended arrangement in accordance with the provisions of the Articles of Agreement and
decisions of the Fund, including those relating to repurchase as (member's) balance of payments
and reserve position improves.
(b) Any reductions in (member's) currency held by the Fund shall reduce the amounts subject to
repurchase under (a) above in accordance with the principles applied by the Fund for this purpose
at the time of the reduction.
(c) The value date of a repurchase in respect of a purchase financed with borrowed resources
under this extended arrangement will be normally either the sixth day or the twenty-second day of
the month, or the next business day if the selected day is not a business day, provided that repurchase will be completed not later than seven years from the date of purchase.
10. During the period of the extended arrangement (member) shall remain in close consultation
with the Fund. These consultations may include correspondence and visits of officials of the Fund
to (member) or of representatives of (member) to the Fund. (Member) shall provide the Fund,
through reports at intervals or dates requested by the Fund, with such information as the Fund
requests in connection with the progress of (member) in achieving the objectives and policies set
forth in the attached letter [and annexed memorandum].
of the attached letter (member) will consult the Fund on
11. In accordance with paragraph the adoption of any measures that may be appropriate at the initiative of the government or whenever the Managing Director requests consultation because of any of the criteria under paragraph 4
above have not been observed or because he considers that consultation on the program is desirable. In addition, after the period of the extended arrangement and while (member) has outstanding purchases under this extended arrangement, the government will consult with the Fund from
time to time, at the initiative of the government or at the request of the Managing Director, concerning (member's) balance of payments policies.
Appendir
Illustrhtions for the Determination of Proportions of
Ordinary and Borrowed Resources
Example 1
The Fund's holdings of a member's currency in the credit tranches are at 150 per cent of quota,
and the Fund also holds an amount equivalent to 25 per cent of quota under the SFF. The stand-by
110
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:89
arrangement is for 300 per cent of quota. The following text would be used in paragraph 3 of
Attachment A:
from borrowed resources until purchases under this arrangement reach the equivalent of
SDR - (17.5 per cent of member's quota), then from ordinary and borrowed resources
in the ratio of 1 to 1.2 until purchases under this arrangement reach the equivalent of
(127.5 per cent of member's quota), and then from borrowed resources.
SDR These figures are divided as follows:
Borrowed
Resources
Credit Tranches
First
Second
Third
Fourth
Ordinary
Resources
(25)
(25)
25
25
Purchased
(12.5)
(12.5)
Available
Cumulative
Total
17.5
30
30
17.5
72.5
127.5
Example 2
The facts are the same as in example 1, but the member is being granted an extended arrangement for 450 per cent of quota. The following text would be used:
from ordinary and borrowed resources in the ratio of I to 1 until purchases under this
arrangement reach the equivalent of SDR (230 per cent of member's quota), and then
from borrowed resources.
Borrowed
Resources
Extended
Fund
Facility
125-150
150-265
Ordinary
Resources
(25)
115
Purchased
(25)
Available
Cumulative
Total
115
230