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Write an essay on International Monetary Fund.
Question:Write an essay on International Monetary Fund.
The International Monetary Fund (IMF) works to foster international monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. Created in 1945, the IMF is governed by and accountable to the 187 countries that make up its near-global membership
Why the IMF was created and how it works
The IMF, also known as the “Fund,” was conceived at a United Nations conference convened in Bretton Woods, New Hampshire, United States, in July 1944. The 44 governments represented at that conference sought to build a framework for economic cooperation that would avoid a repetition of the vicious circle of competitive devaluations that had contributed to the Great Depression of the 1930s.
The IMF’s responsibilities: The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with one other. This system is essential for promoting sustainable economic growth, increasing living standards, and reducing poverty. Following the recent global crisis, the Fund has been clarifying and updating its mandate to cover the full range of macroeconomic and financial sector issues that bear on global stability
The IMF’s resources are provided by its member countries, primarily through payment of quotas, which broadly reflect each country’s economic size. At the April 2009 G-20 Summit, world leaders pledged to support a tripling of the IMF's lending resources from about US$250 billion to US$750 billion. To deliver on this pledge, the current and new participants in the New Arrangements to Borrow (NAB) agreed to expand the NAB to about US$590 billion, which was approved by the Executive Board of the IMF on April 12, 2010 and became effective on March 11, 2011 following completion of the ratification process by NAB participants. When concluding the 14th General Review of Quotas in December 2010, Governors agreed to double the IMF’s quota resources to approximately US$767 billion and a major realignment of quota shares among members. When the quota increase becomes effective, there will be a corresponding rollback in NAB resources.
1. Historically, the annual expenses of running the Fund have been met mainly by interest receipts on outstanding loans, but the membership recently agreed to adopt a new income model based on a range of revenue sources better suited to the diverse activities of the Fund.
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to around SDR 204 billion (equivalent to about $328.3 billion, converted using the rate of August 31, 2011).
The role of the SDR
The SDR was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets—gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.
However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime. In addition, the growth in international capital markets facilitated borrowing by creditworthy governments. Both of these developments lessened the need for SDRs.
The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR, serves as theunit of account of the IMF and some other international organizations.
Basket of currencies determines the value of the SDR
The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies,today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollar-equivalent of the SDR is posted dailyon the IMF’s website. It is calculated as the sum of specific amounts of the four basket currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market.
The basket composition is reviewed every five years by the Executive Board, or earlier if the Fund finds changed circumstances warrant an earlier review, to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems. In the most recent review (in November 2010), the weights of the currencies in the SDR basket were revised based on the value of the exports of goods and services and the amount of reserves denominated in the respective currencies that were held by other members of the IMF. These changes become effective on January 1, 2011. The next review will take place by 2015.
The SDR interest rate
The SDR interest rate provides the basis for calculating the interest charged to members on regular (non-concessional) IMF loans, the interest paid to members on their SDR holdings and charged on their SDR allocation, and the interest paid to members on a portion of their quota subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.
SDR allocations to IMF members
Under its Articles of Agreement (Article XV, Section 1, and Article XVIII), the IMF may allocate SDRs to member countries in proportion to their IMF quotas. Such an allocation provides each member with a costless, unconditional international reserve asset on which interest is neither earned nor paid. However, if a member's SDR holdings rise above its allocation, it earns interest on the excess. Conversely, if it holds fewer SDRs than allocated, it pays interest on the shortfall. The Articles of Agreement also allow for cancellations of SDRs, but this provision has never been used. The IMF cannot allocate SDRs to itself or to other prescribed holders.
General allocations of SDRs have to be based on a long-term global need to supplement existing reserve assets. Decisions on general allocations are made for successive basic periods of up to five years, although general SDR allocations have been made only three times. The first allocation was for a total amount of SDR 9.3 billion, distributed in 1970-72, and the second allocated SDR 12.1 billion, distributed in 1979-81. These two allocations resulted in cumulative SDR allocations of SDR 21.4 billion. To help mitigate the effects of the financial crisis, a third general SDR allocation of SDR 161.2 billion was made on August 28, 2009.
Separately, the Fourth Amendment to the Articles of Agreement became effective August 10, 2009 and provided for a special one-time allocation of SDR 21.5 billion. The purpose of the Fourth Amendment was to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the IMF after 1981—more than one fifth of the current IMF membership—never received an SDR allocation until 2009. The 2009 general and special SDR allocations together raised total cumulative SDR allocations to about SDR 204 billion.
Buying and selling SDRs
IMF members often need to buy SDRs to discharge obligations to the IMF, or they may wish to sell SDRs in order to adjust the composition of their reserves. The IMF may act as an intermediary between members and prescribed holders to ensure that SDRs can be exchanged for freely usable currencies. For more than two decades, the SDR market has functioned through voluntary trading arrangements. Under these arrangements a number of members and one prescribed holder have volunteered to buy or sell SDRs within limits defined by their respective arrangements. Following the 2009 SDR allocations, the number and size of the voluntary arrangements has been expanded to ensure continued liquidity of the voluntary SDR market. The number of voluntary SDR trading arrangements now stands at 32, including 19 new arrangements since the 2009 SDR allocations.
In the event that there is insufficient capacity under the voluntary trading arrangements, the Fund can activate the designation mechanism. Under this mechanism, members with sufficiently strong external positions are designated by the Fund to buy SDRs with freely usable currencies up to certain amounts from members with weak external positions. This arrangement serves as a backstop to guarantee the liquidity and the reserve asset character of the SDR.
The main objective of IMF is to grant loans in foreign currencies to member countries to correct any disequilibrium in their balance of payments, when disequilibrium is of temporary nature and likely to be removed in the earliest possible period. According to the Article 1st of the agreement, the objectives of the IMP are-
(i) To promote international monetary cooperation through a permanent institution of the fund which provides the machinery for Consultation and Collaboration on international monetary problems?
(ii) To facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high level of employment and real income;
(iii) To promote exchange stability and maintain orderly exchange arrangements among members by avoiding competitive exchange depreciation;
(iv) To assist in the establishment of a multi-lateral system of payments in respect of current transactions between members and elimination of foreign exchange restrictions which hamper the growth of world trade.
(v) To create confidence among members by making the general resources of the fund temporarily available to them and providing opportunity to correct mal-adjust¬ments in their balance of payments without resorting to the measures destructive of national or international prosperity.
IMF is governed by a board of governors, board of executive directors and a managing director. Board of governors is the highest authority. Every member country of IMF appoints one governor and an alternate governor for a period of 5 years. The board of governors has delegated many of its powers to the board of executive directors. Executive board deals regularly with a wide variety of administrative and polity matters. It is responsible for conducting the business of the fund. There are at present 21 executive directors. Managing director is appointed by the executive board. He conducts the ordinary business of the fund under the directions of the executive board. To improve the functioning of IMF and to advise it from time to time, an Interim Committee was appointed in 1974. It has 20 members. A Development Committee was also appointed in 1974 to solve the problems of developing countries and to give suggestions to the governors of IMF and the World Bank. The decisions of IMP are taken on the basis of majority. Every member country has 250 votes. Besides it, for a quota of everyone lakh dollar, there is one more vote. In this way a country having more quotas will have more votes.
International liquidity is generally used as a synonym for international reserves. Such reserves include a country's official gold stock, holdings of its convertible foreign currencies, SDRs and its net position in the IMF. It is the aggregate stock of inter-nationally acceptable assets held by the central bank to settle a deficit in the balance of payments of a country. In other words international liquidity provides a measure of a country's ability to finance its deficit in the balance of payments without resorting to adjustment measures.
The sources of international liquidity include - owned reserves and borrowed reserves. Borrowed reserves were constituted by Capital imports in the form of borrowing from abroad and direct investments by foreign countries. The demand for international liquidity was increasing more than its supply due to which the problem of international liquidity arose. The shortage of international liquidity was due to the increasing deficits in the balance of payments of the majority of countries in the world. Too much dependence on exports exposed these economies to international fluctuations in the prices of their products. IMF in 1970 introduced a scheme for the creation and issue of Special Drawing Rights (SDRs) as unconditional reserve asset to remove all the related problems of international liquidity. Now SDR is the principal source of international liquidity to its members.
As one of the main objectives of establishing the IMF was to bring the stability in exchange rates by stopping the competitive devaluation of currencies of the member nations, so that they could get foreign exchange easily, to get this objective done IMF accepted gold as a medium to determining the exchange rate. The cur¬rency value of every country was fixed in'gold and American dollar. At that time American dollar was the most powerful international currency so it 'was fixed as IMF's 'Money of Account'. The value of one unit of dollar was equal to 0•888671 gm of gold. But due to the regular fluctuation's in the value of dollar and irregular supply, IMP gave up dollar and introduced SDR.
SDR is like a fiat money behind which there is no reserve but it is the medium Of international payments. It is only the 'Money of Account'. It is intangible money which is written only in account and is used as gold in international payments. Therefore, it is also called 'Paper Gold'. It is an easy and important source of increas¬ing the international liquidity.
On July 1974, the value of one unit of SDR was fixed on the basis of a 'Basket of Currencies' of 16 countries. In 1978, the currencies of Denmark and South Africa were excluded from the basket of currencies and the currencies of Iran and Saudi Arabia were included. In 1981, the value of SDR was again fixed in five currencies in which American dollar, British pound, Mark of Germany, Franc of France and Japani yen were included. At present, the value of currency of every country is fixed in SDR. Mutual Exchange rates of different currencies can be increased or decreased accord¬ing to the demand and supply in the market and thus, the par value system started by IMF has been ended by the floating rate system.
Sources and Uses of IMF
The resources and the capital of the fund are determined on the basis of quotas obtained in gold and legal money from the member countries. At the time of establishment, the resources of IMF were estimated at at $ 1000 crore but due to the exclusion of Russia, these stood at $ 880 crore only. Every country had to pay 25 per cent of its fixed quota or 10 per cent of its authorised reserves of gold and dollars whichever is lesser in gold and the balance quota was to be deposited by the member nation in its legal currency. There was no change in these quotas till the end of 13 years since the establishment of IMP.
The assistance given by the IMF is equal to the quota of applicant country. This assistance is given in foreign currency temporarily to correct the disequilibrium in balance of payments of a member country. IMF provides assistance to the Central Bank of the member nation and does not make any transaction with the local persons. The assistance provided by IMF cannot increase 100 per cent of quotas of the member country. This assistance is provided into four parts and every part is equal to the 25 per cent of quota.
Besides the general assistance provided by IMF, there are also some special facilities in addition to 100 per cent quotas as Extended Fund facility, compensatory financing, Buffer stock financing facility, Trust fund, structural adjustment facility, Extended structural adjustment facility, technical assistance and training programmes. In Extended fund facility introduced in 1974, medium term assistance is provided in instalments to the member countries for a period of 3 years to do the structural adjustments and economic reforms. The Compensatory financing facility is provided to the member nations facing the balance of payments difficulties due to the temporary export shortfall for reasons beyond the members' control since 1963. In 1988 Compensatory and Contingency financing facility was provided by IMF. Under this facility, assistance given to the member coun-tries may be compensatory assistance, contingency assistance and the assistance for the import of foodgrains. Buffer stock financing facility is available since 1969 for building international buffer stock in order to prevent fluctuations in the export earnings of member countries. In May 1976, the trust fund
was established to give assistance to those poor countries whose per capita income in 1973 was not more than 300 SDR.
This fund was created from the profits obtained by selling the gold reserves of IMP. In March 1986, structural adjustment facility was initiated to help the poor countries in improving their balance of payment system by structural adjustments. This assistance is given from the Special Disbursement Account. It is provided only to those countries which are eligible to get aid from the International Development Association (IDA). Extended structural adjustment facility was also started from April 1988 for very poor countries. For this purpose, the resources were raised by special contributions.
The technical assistance and advice provided by the fund to its members is an integral part of its activities. These take many forms, which operate at all levels of authority and cover a wide array of topics ranging from broad policy issues to narrow technical problems. Much of the assistance provided by the fund is in the nature of regular / annual consultations with members which provide an opportunity for review and appraisal of the country's economic and financial situation. When a member country develops a financial stabilisation programme, the fund assists in its execution and in monitoring its effectiveness. IMF also advises its members on specific, economic and financial problems encompassing aspects of general economic policy, problems arising from inflation, exchange and trade system, balance of payments, macro economic modelling, computer programme for economic analysis and data processing.
In May 1964, IMF institute was established to conduct various courses for officials in Washington. In order to provide technical assistance in the field of central banking, the central banking service was started in 1963. The Fiscal Affairs department was created in 1964 to provide technical assistance in public finance. IMF also created a legal department to render technical assistance in banking, central banking, currency exchange and negotiable instruments in close association with the central banking service. It also renders technical assistance in fiscal affairs in close association with the fiscal affairs department
involving primarily the drafting of legislation on individual and corporation income taxes, direct taxes, capital gain taxes and land taxes.
In an economic crisis, countries often need financing to help them overcome their balance of payments problems. Since its creation in June 1952, the IMF’s Stand-By Arrangement (SBA) has been used time and again by member countries, it is the IMF’s workhorse lending instrument for emerging and advanced market countries. Rates are non-concessional, although they are almost always lower than what countries would pay to raise financing from private markets. The SBA was upgraded in 2009 to be more flexible and responsive to member countries’ needs. Borrowing limits were doubled with more funds available up front, and conditions were streamlined and simplified. The new framework also enables broader high-access borrowing on a precautionary basis.
Lending tailored to member countries’ needs
The SBA framework allows the Fund to respond quickly to countries’ external financing needs, and to support policies designed to help them emerge from crisis and restore sustainable growth.
Eligibility. All member countries facing external financing needs are eligible for SBAs subject to all relevant IMF policies. However, SBAs are generally used by middle income member (and, more recently, advanced) countries more often, since low-income countries have a range of concessional instruments tailored to their needs.
Duration. The length of a SBA is flexible, and typically covers a period of 12–24 months, but no more than 36 months, consistent with addressing short-term balance of payments problems.
Borrowing terms. Access to IMF financial resources under SBAs are guided by a member country’s need for financing, capacity to repay, and track record with use of IMF resources. Within these guidelines, the SBA provides flexibility in terms of amount and timing of the loan to help meet the needs of borrowing countries. These include:
• Normal access. Borrowing limits were recently doubled to give countries access of up to 200 percent of quota for any 12 month period, and 600 percent of total credit outstanding (net of scheduled repurchases).
• Exceptional access. The IMF can lend amounts above normal limits on a case-by-case basis under its Exceptional Access policy, which entails enhanced scrutiny by the Fund’s Executive Board. During the current global economic crisis, countries facing acute financing needs have been able to tap exceptional access SBAs.
• Front-loaded access. The new SBA framework provides increased flexibility to front load funds where warranted by the strength of the country’s policies and the nature of its financing needs.
• Rapid access. Fund support under the SBA can be accelerated under the Fund’s Emergency Financing Mechanism, which enables rapid approval of IMF lending. This mechanism was utilized in several instances during the recent crisis.
Precautionary access. The new SBA framework has expanded the range of high access precautionary arrangements (HAPAs), a type of insurance facility against very large potential financing needs. Precautionary arrangements are used when countries do not intend to draw on approved amounts, but retain the option to do so should they need it. Three HAPAs, with Costa Rica, El Salvador, and Guatemala, were approved during the crisis.
Fewer conditions, focus on objectives
When a country borrows from the IMF, it agrees to adjust its economic policies to overcome the problems that led it to seek funding in the first place. These commitments, including specific conditionality, are described in the member country’s letter of intent (which often includes memorandum of economic and financial policies).
Building on earlier efforts, the IMF has further reformed the conditions of its lending to focus on criteria that are measurable and observable. These changes include:
Quantitative conditions. Member countries progress is monitored using quantitative program targets. Fund disbursements are conditional on the observance of such targets, unless the Executive Board decides to waive them. Examples include targets for international reserves and government deficits or borrowing, consistent with program goals.
Structural measures. The new SBA framework has eliminated structural performance criteria. Instead, progress in implementing structural measures that are critical to achieving the objectives of the program are assessed in a holistic way, including via benchmarks in key policy areas, in the context of program reviews.
Frequency of reviews. Regular reviews by the IMF’s Executive Board play a critical role in assessing performance under the program and allowing the program to adapt to economic developments. The SBA framework allows flexibility in the frequency of reviews based on the strength of the country’s policies and the nature of its financing needs.
Repayment. Repayment of borrowed resources under the SBA are due within 3¼-5 years of disbursement, which means each disbursement is repaid in eight equal quarterly installments beginning 3¼ years after the date of each disbursement.
Lending rate. The lending rate is tied to the IMF’s market-related interest rate, known as the basic rate of charge, which is itself linked to the Special Drawing Rights (SDR) interest rate. Large loans carry a surcharge of 200 basis points, paid on the amount of credit outstanding above 300 percent of quota. If credit remains above 300 percent of quota after three years, this surcharge rises to 300 basis points, and is designed to discourage large and prolonged use of IMF resources.
Commitment fee. Resources committed under all SBAs are subject to a commitment fee levied at the beginning of each 12 month period on amounts that could be drawn in the period (15 basis points for committed amounts up to 200 percent of quota, 30 basis points on committed amounts above 200 percent and up to 1,000 percent of quota and 60 basis points on amounts exceeding 1,000 percent of quota). These fees are refunded if the amounts are borrowed during the course of the relevant period. As a result, if the country borrows the entire amount committed under an SBA, the commitment fee is fully refunded, while no refund is made under a precautionary SBA under which countries do not draw.
Service charge. A service charge of 50 basis points is applied on each amount drawn.
A core responsibility of the IMF is to provide loans to member countries experiencing actual or potential balance of payments problems. This financial assistance enables countries to rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth, while undertaking policies to correct underlying problems. Unlike development banks, the IMF does not lend for specific projects.
When can a country borrow from the IMF?
A member country may request IMF financial assistance if it has a balance of payments need (actual or potential)—that is, if it cannot find sufficient financing on affordable terms to meet its net international payments while maintaining adequate reserve buffers going forward. An IMF loan provides a cushion that eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth.
The changing nature of IMF lending
The volume of loans provided by the IMF has fluctuated significantly over time. The oil shock of the 1970s and the debt crisis of the 1980s were both followed by sharp increases in IMF lending. In the 1990s, the transition process in Central and Eastern Europe and the crises in emerging market economies led to further surges of demand for IMF resources. Deep crises in Latin America kept demand for IMF resources high in the early 2000s. IMF lending rose again starting in late 2008, as a period of abundant capital flows and low pricing of risk gave way to global deleveraging in the wake of the financial crisis in advanced economies.
The process of IMF lending
Upon request by a member country, an IMF loan is usually provided under an “arrangement,” which may, when appropriate, stipulate specific policies and measures a country has agreed to implement to resolve its balance of payments problem. The economic program underlying an arrangement is formulated by the country in consultation with the IMF and is presented to the Fund’s Executive Board in a “Letter of Intent.” Once an arrangement is approved by the Board, the loan is usually released in phased installments as the program is implemented. Some arrangements provide countries with a one-time up-front access to IMF financial resources.
Over the years, the IMF has developed various loan instruments, or “facilities,” that are tailored to address the specific circumstances of its diverse membership. Low-income countries may borrow on concessional terms through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF) (see IMF Support for Low-Income Countries). Concessional loans carry zero interest rates until the end of 2011 (see below). Nonconcessional loans are provided mainly through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility (EFF). The IMF also provides emergency assistance via the newly-introduced Rapid Financing Instrument (RFI) to all its members facing urgent balance of payments needs. All non-concessional facilities are subject to the IMF’s market-related interest rate, known as the “rate of charge,” and large loans (above certain limits) carry a surcharge. The rate of charge is based on the SDR interest rate, which is revised weekly to take account of changes in short-term interest rates in major international money markets. The amount that a country can borrow from the IMF, known as its access limit, varies depending on the type of loan, but is typically a multiple of the country’s IMF quota. This limit may be exceeded in exceptional circumstances. The Flexible Credit Line has no pre-set cap on access.
The new concessional facilities for LICs were established in January 2010 under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the Fund’s financial support more flexible and better tailored to the diverse needs of LICs. Access limits and norms have been approximately doubled compared to pre-crisis levels. Financing terms have been made more concessional, and the interest rate is reviewed every two years. All facilities support country-owned programs aimed at achieving a sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.
• The Extended Credit Facility (ECF) succeeds the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for providing medium-term support to LICs with protracted balance of payments problems. Financing under the ECF currently carries a zero interest rate, with a grace period of 5½ years, and a final maturity of 10 years.
• The Standby Credit Facility (SCF) provides financial assistance to LICs with short-term balance of payments needs. The SCF replaces the High-Access Component of the Exogenous Shocks Facility (ESF), and can be used in a wide range of circumstances, including on a precautionary basis. Financing under the SCF currently carries a zero interest rate, with a grace period of 4 years, and a final maturity of 8 years.
• The Rapid Credit Facility (RCF) provides rapid financial assistance with limited conditionality to LICs facing an urgent balance of payments need. The RCF streamlines the Fund’s emergency assistance for LICs, and can be used flexibly in a wide range of circumstances. Financing under the RCF currently carries a zero interest rate, has a grace period of 5½ years, and a final maturity of 10 years.
Stand-By Arrangements (SBA). The bulk of non-concessional IMF assistance is provided through SBAs. The SBA is designed to help countries address short-term balance of payments problems. Program targets are designed to address these problems and disbursements are made conditional on achieving these targets (‘conditionality’). The length of a SBA is typically 12–24 months, and repayment is due within 3¼-5 years of disbursement. SBAs may be provided on a precautionary basis—where countries choose not to draw upon approved amounts but retain the option to do so if conditions deteriorate—both within the normal access limits and in cases of exceptional access. The SBA provides for flexibility with respect to phasing, with front-loaded access where appropriate.
Flexible Credit Line (FCL). The FCL is for countries with very strong fundamentals, policies, and track records of policy implementation and is particularly useful for crisis prevention purposes, although it can also be used for responding to a crisis. FCL arrangements are approved, at the member country’s request, for countries meeting pre-set qualification criteria. The length of the FCL is 1-2 years (with an interim review of continued qualification after 1 year) and the repayment period the same as for the SBA. Access is determined on a case-by-case basis, is not subject to the normal access limits, and is available in a single up-front disbursement rather than phased. Disbursements under the FCL are not conditioned on implementation of specific policy understandings as is the case under the SBA. There is flexibility to either draw on the credit line at the time it is approved or treat it as precautionary. In case a member draws, the repayment term is the same as that under the SBA.
Precautionary and Liquidity Line (PLL). The PLL replaced the Precautionary Credit Line (PCL), building on its strengths and enhancing its flexibility. The PLL can be used for both crisis prevention and crisis resolution purposes by countries with sound fundamentals and policies, and a track record of implementing such policies. PLL-eligible countries may face moderate vulnerabilities and may not meet the FCL qualification standards, but they do not require the same large-scale policy adjustments normally associated with SBAs. The PLL combines qualification (similar to the FCL) with focused ex-post conditions that aim at addressing the identified vulnerabilities in the context of semi-annual monitoring. Duration of PLL arrangements can be either six months or 1-2 years. Access under the six-month PLL is limited to 250 percent of quota in normal times, but this limit can be raised to 500 percent of quota in exceptional circumstances due to exogenous shocks, including heightened regional or global stress. 1-2 year PLL arrangements are subject to an annual access limit of 500 percent of quota and a cumulative limit of 1000 percent of quota. The repayment term of the PLL is the same as for the SBA.
Extended Fund Facility (EFF). This facility was established in 1974 to help countries address longer-term balance of payments problems reflecting extensive distortions that require fundamental economic reforms. Arrangements under the EFF are thus longer than SBAs—usually 3 years. Repayment is due within 4½–10 years from the date of disbursement.
Rapid Financing Instrument (RFI). The RFI was introduced to replace and broaden the scope of the earlier emergency assistancepolicies. The RFI provides rapid financial assistance with limited conditionality to all members facing an urgent balance of payments need. Access under the RFI is subject to an annual limit of 50 percent of quota and a cumulative limit of 100 percent of quota. Emergency loans are subject to the same terms as the FCL, PLL and SBA, with repayment within 3¼–5 years.