The IMF makes its financial resources available to member countries through a variety of financial facilities. Except for the ESAF (see below), members avail themselves of the IMF’s financial resources by purchasing (drawing) other members’ currencies or SDRs with an equivalent amount of their own currency. The IMF levies charges on these drawings and requires that members repurchase (repay) their own currency from the IMF over a specified time.
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IMF Financial Policies
IMF financial policies govern the modalities for the use of its financial resources under existing IMF facilities. These include:
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Reserve Tranche Policies. A member has a reserve tranche position in the IMF to the extent that its quota exceeds the IMF’s holdings of its currency, excluding credits extended to it by the IMF. Subject only to balance of payments need, a member may draw up to the full amount of its reserve tranche position at any time. This drawing does not constitute a use of IMF credit, as its reserve position is considered part of the member’s foreign reserves, and is not subject to an obligation to repay.
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Credit Tranche Policies. Credits under regular facilities are made available to members in tranches (segments) of 25 percent of quota. For first credit tranche drawings, members must demonstrate reasonable efforts to overcome their balance of payments difficulties, and no phasing applies. Upper credit tranche drawings (over 25 percent) are normally phased in relation to certain conditions or “performance criteria.”
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Policy on Emergency Assistance. The IMF provides emergency assistance by allowing members to make drawings to meet balance of payments needs arising from sudden and unforeseeable natural disasters and in postconflict situations. Normally this takes the form of an outright purchase of up to 25 percent of quota provided that the member is cooperating with the IMF. It does not entail performance criteria or a phasing of drawings.
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Debt and Debt-Service Reduction Policies. Part of a credit extended to a member by the IMF under regular facilities can be set aside to finance operations involving debt principal and debt service reduction. The exact amount of the set-aside is determined on a case-by-case basis; its availability is generally tied to program performance.
Regular IMF Facilities
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Stand-by arrangements (SBA): designed to provide short-term balance of payments assistance for deficits of a temporary or cyclical nature, such arrangements are typically for 12 to 18 months. Drawings are phased on a quarterly basis, with their release made conditional on meeting performance criteria and the completion of periodic program reviews. Repurchases are made 3¼ to 5 years after each purchase.
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Extended Fund Facility (EFF): designed to support medium-term programs that generally run for three years, the EFF aims at overcoming balance of payments difficulties stemming from macroeconomic and structural problems. Performance criteria are applied, similar to those in stand-by arrangements, and repurchases are made in 4½ to 10 years.
Concessional IMF Facility
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Enhanced Structural Adjustment Facility (ESAF): established in 1987, and enlarged and extended in 1994. Designed for low-income member countries with protracted balance of payments problems, ESAF drawings are loans and not purchases of other members’ currencies. They are made in support of three-year programs and carry an annual interest rate of 0.5 percent, with a 5½-year grace period and a 10-year maturity. Quarterly benchmarks and semiannual performance criteria apply; 80 low-income countries are currently eligible to use the ESAF.
Special IMF Facilities
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Systemic Transformation Facility (STF): in effect from April 1993 to April 1995. The STF was designed to extend financial assistance to transition economies experiencing severe disruption in their trade and payments arrangements. Repurchases are made over 4½ to 10 years.
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Compensatory and Contingency Financing Facility (CCFF): provides compensatory financing for members experiencing temporary export shortfalls or excesses in cereal import costs, as well as financial assistance for external contingencies in Fund arrangements. Repurchases are made over 3¼ to 5 years.
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Supplemental Reserve Facility (SRF): provides financial assistance for exceptional balance of payments difficulties due to a large short-term financing need resulting from a sudden and disruptive loss of market confidence. Repurchases are expected to be made within 1 to 1½ years, but can be extended, with IMF Board approval, to 2 to 2½ years.
Excerpted from the Official IMF Website. Please visit www.imf.org for more information.
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