25 CHAPTER - 2 PROFILE OF INTERNATIONAL MONETARY FUND (IMF) 2 . 1 INTRODUCTION This second Chapter of the Thesis presents the profile of the International Monetary Fund (IMF) as in 2006 AD. Having come into being in 1944, in the post-World War-II devastated world, with just 44 member countries, the IMF in 2007 had 185 member countries, bailed so many countries out of the balance of payment crises (including India), trained an army of financial bureaucrats worldwide in detecting the looming crises and avoiding them, and done so many other things for maintaining international liquidity and international financial flows from one country to another, and has done remarkable work in helping highly indebted poor countries to bring about their dilapidated economies to the world level. The IMF’s celebrated motto is “Making the Global Economy Work for All”. The following pages present a brief profile of the IMF, the organization whose performance is being studied under this work. 2. 2 HOW THE IMF IS RUN The highest decision-making body of the IMF is the Board of Governors, which is appointed by the member countries. Some of the Board of Governor’s powers are delegated to the Fund’s Executive Board, which is composed of 24 Executive Directors, who are appointed or elected by the member countries. The Board of Governors consists of one governor and one alternate governor from each of the IMF’s 185 member countries. The governor is usually the member country’s minister of finance or the head of its central bank. All governors meet once a year at the IMF-World Bank Annual Meetings. There are two committees of governors that represent the whole membership. The International Monetary and Financial Committee (IMFC) is an advisory body composed of 24 IMF governors (or their alternates) representing the same countries or constituencies (groups of countries) as the 24 Executive Directors. The IMFC normally meets twice a year, in March or April and at the time of the Annual Meetings in September or October. Its responsibilities include providing guidance to the Executive Board and advising and reporting to the Board of Governors on issues related to the management of the international monetary system. The current Chairman of the IMFC was Gordon Brown, the then Chancellor of the Exchequer of United Kingdom. The Development
Transcript
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CHAPTER - 2
PROFILE OF INTERNATIONAL MONETARY FUND (IMF)
2 . 1 INTRODUCTION
This second Chapter of the Thesis presents the profile of the International Monetary
Fund (IMF) as in 2006 AD.
Having come into being in 1944, in the post-World War-II devastated world,
with just 44 member countries, the IMF in 2007 had 185 member countries, bailed so
many countries out of the balance of payment crises (including India), trained an army of
financial bureaucrats worldwide in detecting the looming crises and avoiding them, and
done so many other things for maintaining international liquidity and international financial
flows from one country to another, and has done remarkable work in helping highly
indebted poor countries to bring about their dilapidated economies to the world level.
The IMF’s celebrated motto is “Making the Global Economy Work for All”.
The following pages present a brief profile of the IMF, the organization whose
performance is being studied under this work.
2. 2 HOW THE IMF IS RUN
The highest decision-making body of the IMF is the Board of Governors, which is
appointed by the member countries. Some of the Board of Governor’s powers are
delegated to the Fund’s Executive Board, which is composed of 24 Executive Directors,
who are appointed or elected by the member countries.
The Board of Governors consists of one governor and one alternate governor
from each of the IMF’s 185 member countries. The governor is usually the member
country’s minister of finance or the head of its central bank. All governors meet once a
year at the IMF-World Bank Annual Meetings.
There are two committees of governors that represent the whole membership.
The International Monetary and Financial Committee (IMFC) is an advisory body
composed of 24 IMF governors (or their alternates) representing the same countries or
constituencies (groups of countries) as the 24 Executive Directors. The IMFC normally
meets twice a year, in March or April and at the time of the Annual Meetings in September
or October. Its responsibilities include providing guidance to the Executive Board and
advising and reporting to the Board of Governors on issues related to the management
of the international monetary system. The current Chairman of the IMFC was Gordon
Brown, the then Chancellor of the Exchequer of United Kingdom. The Development
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Committee (formally, the Joint Ministerial Committee of the Boards of Governors of the
World Bank and the IMF on the Transfer of Real Resources to Developing Countries) is
a joint World Bank-IMF body composed of 24 World Bank or IMF governors or their
alternates. The Committee serves as a forum that helps build intergovernmental consensus
on development issues. It also normally meets twice a year, following the IMFC meetings.
Both committees summarize their meetings in communiqués, which are published on the
IMF’s Web site and in its Annual Reports.
Executive Board Standing Committees
In 2007 AD, there were 10 Standing Committees on which Executive Directors
served:
1. The Committee on Administrative Policies considers and makes recommenda-
tions to the Executive Board on matters of administrative policy requiring
action by the Board that are referred to it by the Chairman, the Board, or
individual Executive Directors.
2. The Committee on the Budget considers the Managing Director’s budget
proposals and other material circulated by the Managing Director regarding
the Fund’s administrative and capital budgets. It makes its views on the
budget proposals known to the Executive Board and meets as needed to
consider budget implementation.
3. The Committee on Executive Board Administrative Matters considers and
reports to the Executive Board on aspects of administrative policy relating
to the Executive Directors and their Alternates or senior advisors, advisors,
and assistants referred to it by the Executive Board or by an Executive
Director.
4. The Agenda and Procedures Committee contributes to the development and
smooth implementation of the Executive Board’s work program.
5. The Committee on Liaison with the World Trade Organization considers
and makes recommendations to the Executive Board on issues that arise
concerning the Fund’s relationship with the WTO or in connection with
matters of common interest to the Fund and the WTO.
6. The Evaluation Committee follows closely the evaluation function in the Fund
and advises the Executive Board on matters relating to evaluations.
7. The Committee on Interpretation considers and makes reports and recommen-
dations to the Executive Board on questions of interpretation. Legal
questions are sent to the Committee by the Executive Board at the request
of an Executive Director.
8. The Pension Committee decides matters of a general policy nature arising under
the Staff Retirement Plan.
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World (Political) : IMF’s Domain
Source: Readers’ Digest Association Limited (RDAL): 2002 :
“Countries of the World”, New York: RDAL, p.7.
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9. The Ethics Committee considers matters relating to the Code of Conduct for
IMF staff and may also provide guidance to Executive Directors, at their
request, on ethical aspects of the conduct of their Alternates, advisors,
and assistants.
10. The Committee on the Annual Report reviews and makes recommendations to
the Executive Board on the format and content of the Fund’s Annual Report
in line with the provisions of the Fund’s Articles of Agreement and By-
Laws, as well as with the Fund’s commitment to transparency and role in
the international monetary system. The Committee aims to ensure that
the Annual Report helps promote the Fund’s accountability.
The Board Standing Committees are reconstituted by decisions of the Executive
Board following the regular election every two years of Executive Directors, on the
basis of a proposal by the Managing Director following consultation with the Dean of
the Board. Several long-standing principles have guided the proposals for constituting
the membership of Board committees: the desirability of a reasonable geographical balance
in the composition of each committee; a need for rotation, with some continuity; and
maintenance of a reasonable distribution of the burden of committee work among
Executive Directors. There are formal requirements for some committees concerning
the number of members. In addition, account is taken, to the extent possible, of the
preferences of individual Executive Directors.
Executive Directors hold the chairmanship of all but three Board committees,
namely, the Committee on Administrative Policies, the Committee on the Budget, and
the Pension Committee, which are chaired by the Managing Director or one of his
representatives. The Secretary of the Fund, or his representative, serves as the Secretary
of every Committee except the Ethics Committee. Executive Directors may participate
in all regular meetings of the Executive Board’s committees.
The day-to-day work of the IMF is conducted at its Washington, D.C.,
headquarters by its Executive Board; this work is guided by the IMFC and supported by
the IMF’s staff. The Managing Director is Chair of the Executive Board and head of the
IMF staff; he is assisted by a First Deputy Managing Director and two other Deputy
Managing Directors. The Executive Board has a central role in policy formulation and
decision making in the IMF, and exercises all the powers for conducting the institution’s
business, except those that the Articles of Agreement reserve for the Board of Governors
or the Managing Director. The Board meets in “continuous session, ” that is, as often as
the business at hand requires, usually for three full days each week.
In calendar year 2005, total Board meeting time amounted to about 462 hours.
The Board held 266 formal meetings (including those in which decisions were made), 10
informal seminars, and 92 other informal meetings, including committee meetings. It
spent 42 percent of its time on member country matters (mainly Article IV consultations
and reviews and approvals of IMF financing arrangements); 28 percent of its time on
global and regional surveillance and general policy issues (such as the World Economic
Outlook, Global Financial Stability Report, IMF financial resources, the international
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Table 2.1
Executive Directors of IMF and their Voting Powers (as of April 30, 2007)
Director Votes by Total Percent of
Alternate Casting Votes of country votes1 total2
Appointed
Meg Lundsager United States 371,743 371,743 16.83
Vacant
Shigeo Kashiwagi Japan 133,378 133,378 6.04
Michio Kitahara
Klaus D.Stein Germany 130,332 130,332 5.90
Stephan von Stenglin
PierreD uquesne France 107,635 107,635 4.87
Bertrand Dumont
Tom Scholar United Kingdom 107,635 107,635 4.87
Jens Larsen
Elected
Willy Kiekens Austria 18,973
(Belgium) Belarus 4,114
Johann Prader Belgium 46,302
(Austria) Czech Republic 8,443
Hungary 10,634
Kazakhstan 3,907
Luxembourg 3,041
Slovak Republic 3,825
Slovenia 2,567
Turkey 12,163 113,969 5.16
Jeroen Kremers Armenia 1,170
(Netherlands) Bosnia and Herzegovina 1,941
Yuriy G. Yakusha Bulgaria 6,652
(Ukraine) Croatia 3,901
Cyprus 1,646
Georgia 1,753
Israel 9,532
Macedonia 939
Moldova 1,482
Netherlands 51,874
Romania 10,552
Ukraine 13,970 105,412 4.77
Roberto Guarnieri Costa Rica 1,891
(República Bolivariana El Salvador 1,963
de Venezuela) Guatemala 2,352
Ramón Guzmán Honduras 1,545
(Spain) Mexico 26,108
Nicaragua 2,550
Spain 30,739
Venezuela 26,841 92,989 4.21
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Arrigo adun Albania 737
(Italy) Greece 8,480
Miranda Xafa Italy 70,805
(Greece) Malta 1,270
Portugal 8,924
San Marino 420
Timor-Leste 432 90,968 4.12
Richard Murray Australia 32,614
(Australia) Kiribati 306
Wilhemina C.Mañalac Korea 16,586
(Philippines) Marshall Islands 285
Micronesia 301
Mongolia 761
New Zealand 9,196
Palau 281
Papua New Guinea 1,566
Philippines 9,049
Samoa 366
Seychelles 338
Solomon Islands 354
Vanuatu 420 85,360 3.86
GE Huayong China 81,151 81,151 3.67
(China)
HE Jianxiong
(China)
Jonathan Fried Antigua and Barbuda 385
(Canada) Bahamas,The 1,553
Peter Charleton Barbados 925
(Ireland) Belize 438
Canada 63,942
Dominica 332
Grenada 367
Ireland 8,634
Jamaica 2,985
St.Kitts and Nevis 339
St.Lucia 403
St.Vincent & Grenadines 333 80,636 3.65
Tuomas Saarenheimo Denmark 16,678
(Finland) Estonia 902
Jon T. Sigurgeirsson Finland 12,888
(Iceland) Iceland 1,426
Table 2.1 (contd.)
Director Votes by Total Percent of
Alternate Casting Votes of country votes1 total2
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Latvia 1,518
Lithuania 1,692
Norway 16,967
Sweden 24,205 76,276 3.51
Jong Nam Oh Australia 32,614
(Korea) Kiribati 306
Richard Murray Korea 16,586
(Australia) Marshall Islands 285
Micronesia 301
Mongolia 761
New Zealand 9,196
Palau 281
Papua New Guinea 1,566
Philippines 9,049
Samoa 366
Seychelles 338
Solomon Islands 354
Vanuatu 420 72,423 3.33
A.Shakour Shaalan Bahrain 1,600
(Egypt) Egypt 9,687
Samir El-Khouri Iraq 12,134
(Lebanon) Jordan 1,955
Kuwait 14,061
Lebanon 2,280
Libyan Arab Jamahiriya 11,487
Maldives 332
Oman 2,190
Qatar 2,888
Syrian Arab Republic 3,186
United Arab Emirates 6,367
Yemen,Republic of 2,685 70,852 3.26
Sulaiman M.Al-Turki Saudi Arabia 70,105 70,105 3.22
(Saudi Arabia)
Abdallah S.Alazzaz
(Saudi Arabia)
Hooi Eng Phang Brunei Darussalam 2,402
(Malaysia) Cambodia 1,125
Made Sukada Fiji 953
(Indonesia) Indonesia 21,043
Lao People ’s Demo.Republic 779
Malaysia 15,116
Myanmar 2,834
Table 2.1 (contd.)
Director Votes by Total Percent of
Alternate Casting Votes of country votes1 total2
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Nepal 963
Singapore 8,875
Thailand 11,069
Tonga 319
Vietnam 3,541 69,019 3.17
Peter J.Ngumbullu Angola 3,113
(Tanzania) Botswana 880
Peter Gakunu Burundi 1,020
(Kenya) Eritrea 409
Ethiopia 1,587
Gambia,The 561
Kenya 2,964
Lesotho 599
Malawi 944
Mozambique 1,386
Namibia 1,615
Nigeria 17,782
Sierra Leone 1,287
South Africa 18,935
Sudan 1,947
Swaziland 757
Tanzania 2,239
Uganda 2,055
Zambia 5,141 65,221 3.00
WANG Xiaoyi China 63,942 63,942 2.94
(China)
GE Huayong
(China)
Fritz Zurbrügg Azerbaijan 1,859
(Switzerland) Kyrgyz Republic 1,138
Andrzej Raczko Poland 13,940
(Poland) Serbia and Montenegro 4,927
Switzerland 34,835
Tajikistan 1,120
Turkmenistan 1,002
Uzbekistan 3,006 61,827 2.84
Aleksei V.Mozhin Russian Federation 59,704 59,704 2.74
(Russian Federation)
Andrei Lushin
(Russian Federation)
Table 2.1 (contd.)
Director Votes by Total Percent of
Alternate Casting Votes of country votes1 total2
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Abbas Mirakhor Afghanistan,Islamic Republic of 1,869
(Islamic Republic of Iran)Algeria 12,797
Mohammed Daïri Ghana 3,940
(Morocco) Iran,Islamic Republic of 15,222
Morocco 6,132
Pakistan 10,587
Tunisia 3,115 53,662 2.47
Eduardo Loyo Brazil 30,611
(Brazil) Colombia 7,990
Roberto Steiner Dominican Republic 2,439
(Colombia) Ecuador 3,273
Guyana 1,159
Haiti 1,069
Panama 2,316
Suriname 1,171
Trinidad and Tobago 3,606 53,634 2.46
B.P.Misra Bangladesh 5,583
(India) Bhutan 313
Amal Uthum Herat India 41,832
(Sri Lanka) Sri Lanka 4,384 52,112 2.39
Héctor R.Torres Argentina 21,421
(Argentina) Bolivia 1,965
Javier Silva-Ruete Chile 8,811
(Peru) Paraguay 1,249
Peru 6,634
Uruguay 3,315 43,395 1.99
Damian Ondo Mañe Benin 869
(Equatorial Guinea) Burkina Faso 852
Laurean W.Rutayisire Cameroon 2,107
(Rwanda) Cape Verde 346
Central African Republic 807
Chad 810
Comoros 339
Congo,Democratic 5,580
Congo,Republic of 1,096
Côte d ’Ivoire 3,502
Djibouti 409
Equatorial Guinea 576
Gabon 1,793
Guinea 1,321
Guinea-Bissau 392
Table 2.1 (contd.)
Director Votes by Total Percent of
Alternate Casting Votes of country votes1 total2
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Madagascar 1,472
Mali 1,183
Mauritania 894
Mauritius 1,266
Niger 908
Rwanda 1,051
São Tomé and Príncipe 324
Senegal 1,868
Togo 984 30,749 1.41
Total 2,175,345.3,4,5 99.976
Source: IMF’s Annual Report-2006.
Notes:
1. Voting power varies on certain matters pertaining to the General Department with use of
the Fund ’s resources in that Department.
2. Percentages of total votes 2,176,037 in the General Department and the Special Drawing
Rights Department.
3. This total does not include the votes of Somalia,which did not participate in the 2004
Regular Election of Executive Directors.The total votes of this member are 692 (0.03%)of
those in the General Department and Special Drawing Rights Department.
4. Liberia ’s voting rights were suspended effective March 5,2003,pursuant to Article XXVI,
Section 2 (b)of the Articles of Agreement.
5. Zimbabwe’s voting rights were suspended effective June 6,2003,pursuant to Article
XXVI, Section 2 (b)of the Articles of Agreement.
6. This figure may differ from the sum of the percentages shown for individual Directors
because of rounding.
Table 2.1 (contd.)
Director Votes by Total Percent of
Alternate Casting Votes of country votes1 total2
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financial system, the debt situation, low-income countries, and issues related to IMF
lending facilities and program design); and the remaining time on committees and
administrative and other matters.
2.3 IMF’S ORGANIZATION
The IMF staff is organized mainly into departments with regional (or area), functional,
information and liaison, and support responsibilities. These departments are headed by
directors who report to the Managing Director. The IMF’s organization chart appears
on the next page.
2.3.1 Area Departments
The five area departments - African, Asia and Pacific, European, Middle East
and Central Asia , and Western Hemisphere - advise management and the Executive
Board on economic developments and policies in countries in their regions. Their staff is
also responsible for putting together financial arrangements to support members’
economic reform programs and for reviewing performance under these IMF-supported
programs. Together with relevant functional departments, they provide member countries
with policy advice and technical assistance, and maintain contact with regional
organizations and multilateral institutions in their geographic areas. Supplemented by
staff in functional departments, area departments carry out much of the IMF’s country
surveillance work through direct contact with member countries. In addition, 87 area
department staff are assigned to members as IMF resident representatives.
2.3.2 Resident Representatives
At the end of April 2006, the IMF had 87 resident representative positions covering
92 member countries in Africa, Asia, Europe, the Middle East, and the Western Hemi-
sphere. New offices were opened in Burundi,Liberia,Paraguay,the Republic of Congo,
Sierra Leone, and Sudan. These posts, usually filled by one IMF employee supported by
local staff, enhance IMF policy advice and are often set up in conjunction with a reform
program. The representatives, who typically have good access to key national
policymakers, can bring major benefits to the quality of IMF country work.In particular,
through their professional expertise and deeper familiarity with local conditions, resident
representatives contribute to the formulation of IMF policy advice, monitor performance,
especially under IMF-supported programs, and coordinate technical assistance. They
can also alert the IMF and the host country to potential policy slippages, provide on-site
program support,and play an active role in IMF outreach in member countries. Since the
advent of enhanced initiatives for low-income countries, resident representatives have
helped members develop their Poverty Reduction Strategies by taking part in country-
led discussions on the strategy and by presenting IMF perspectives. They also support
monitoring of program implementation and institution building, working with different
branches of government, civil society organizations,donors, and other stakeholders.
2.3.3 Functional and Special Services Departments
The Finance Department is responsible for mobilizing, managing, and
safeguarding the IMF’s financial resources to ensure that they are deployed in a manner
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consistent with the Fund’s mandate. This entails major responsibilities for the institution’s
financial policies and for the conduct, accounting, and control of all financial transactions.
In addition, the department helps safeguard the IMF’s financial position by assessing the
adequacy of the Fund’s capital base (quotas), net income targets, precautionary balances,
and the rates of charge and remuneration. Other responsibilities include investing funds
in support of assistance to low-income countries and conducting assessments of financial
control systems in borrowing members ’ central banks.
The Fiscal Affairs Department is responsible for activities involving public finance
in member countries. It participates in area department missions, particularly with respect
to the analysis of fiscal issues; reviews the fiscal content of IMF policy advice, including
in the context of IMF-supported adjustment programs; helps countries draw up and
implement fiscal programs; and provides technical assistance in public finance. It also
conducts research and policy studies on fiscal issues, including tax policy and revenue
administration, as well as on income distribution and poverty, social safety nets, public
expenditure policy issues, and the environment.
As part of the IMF’s efforts under the Medium-Term Strategy to strengthen its
work on financial surveillance, the International Capital Markets Department is being
merged with the Monetary and Financial Systems Department early in FY 2007. During
FY 2006, the department assisted the Executive Board and management in overseeing
the international monetary and financial system and enhanced the IMF’s crisis prevention
and crisis management activities. It also prepared the semiannual Global Financial
Stability Report, assessing developments in international capital markets. Staff members
liaised with private capital market participants, national authorities, and official forums
dealing with the international financial system. In addition, the department played a
leading role in the IMF’s analytical work and advice to members on access to international
capital markets and on strategies for external debt management.
The IMF Institute provides training for officials of member countries, particularly
developing countries, in such areas as financial programming and policy, external sector
policies, balance of payments methodology, national accounts and government finance
statistics, and public finance. The Institute also conducts an active program of courses
and seminars in economics, finance, and econometrics for IMF economists.
The Legal Department advises management, the Executive Board, and the staff
on the applicable rules of law. It prepares most of the decisions and other legal instruments
necessary for the IMF’s activities. The department serves as counsel to the IMF in
litigation and arbitration cases, provides technical assistance on legislative reform,
assesses the consistency of laws and regulations with selected international standards
and codes, responds to inquiries from national authorities and international organizations
on the laws of the IMF, and arrives at legal findings regarding IMF jurisdiction on exchange
measures and restrictions.
As mentioned above, the Monetary and Financial Systems Department and the
International Capital Markets Department are being merged in early FY 2007 to
strengthen the IMF’s work on financial surveillance. During FY 2006, the department
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engaged in four operational areas, financial system surveillance (including the Financial
Sector Assessment Program and Article IV consultations), banking supervision and crisis
resolution, monetary and exchange rate infrastructure and operations, and technical
assistance. It provided analytical, operational, and technical support to member countries
and area departments, including development and dissemination of good policies and
best practices. An important role was coordinating with collaborating central banks,
supervisory agencies, and other international organizations.
The Policy Development and Review Department (PDR) plays a central role in
the design and implementation of the IMF’s policies related to surveillance and the use
of the IMF’s financial resources. Through its review of country and policy work, PDR
seeks to ensure the consistent application of IMF policies throughout the institution. In
recent years, the department has spearheaded the IMF’s work in strengthening the
international financial system, streamlining and focusing conditionality, and developing
the Poverty Reduction and Growth Facility (PRGF) and the Heavily Indebted Poor
Countries (HIPC) Initiative. PDR economists participate in country missions with area
department staff, typically covering 80-90 countries a year, and assist member countries
that are making use of IMF resources to mobilize other financial resources.
The Research Department conducts policy analysis and research in areas relating
to the IMF’s work. The department plays a prominent role in global surveillance and in
developing IMF policy concerning the international monetary system. It cooperates with
other departments in formulating IMF policy advice to member countries. It coordinates
the semiannual World Economic Outlook exercise and prepares analysis for the
surveillance discussions of the Group of Seven, the Group of Twenty, and such regional
groupings as the Asia Pacific Economic Cooperation (APEC) forum, and the Executive
Board’s discussions of world economic and market developments. The department also
maintains contacts with the academic community and with other research organizations.
The Statistics Department maintains databases of country, regional, and global
economic and financial statistics, and reviews country data in support of the IMF’s
surveillance role. It is also responsible for developing statistical concepts in external
sector, government finance, and monetary and financial statistics, as well as for producing
methodological manuals. The department provides technical assistance and training to
help members develop statistical systems and produces the IMF’s statistical publications.
In addition, it is responsible for developing and maintaining standards for the dissemination
of data by member countries.
2.3.4 Information and Liaison
The External Relations Department works to promote public understanding of
and support for the IMF and its policies. It aims to make the IMF’s policies understandable
through many activities aimed at transparency, communication, and engagement with a
wide range of stakeholders. It prepares, edits, and distributes most IMF publications
and other material, promotes contacts with the press and other external groups, such as
civil society organizations and parliamentarians, and manages the IMF’s Web site.
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The IMF’s offices in Asia and Europe and at the United Nations maintain close
contacts with other international and regional institutions. The UN Office also makes a
substantive contribution to the Financing for Development process, while the offices in
Asia and Europe contribute to bilateral and regional surveillance and are a major part of
the IMF’s outreach effort.
2.3.5 Support Services
The Human Resources Department helps ensure that the IMF has the right mix
of staff skills, experience, and diversity to meet the changing needs of the organization,
and that human resources are managed, organized, and deployed in a manner that
maximizes their effectiveness, moderates costs, and keeps the workload and stress at
acceptable levels. The department develops policies and procedures that help the IMF
achieve its work objectives, manages compensation and benefits, recruitment, and career
planning programs, and supports organizational effectiveness by assisting departments
with their human resource-management goals.
The Secretary’s Department organizes and reports on the activities of the IMF’s
governing bodies and provides secretariat services to them, as well as to the Group of
Twenty-four. In particular, it assists management in preparing and coordinating the work
programme of the Executive Board and other official bodies, including by scheduling
and helping ensure the effective conduct of Board meetings. In carrying out these tasks,
the department helps promote open and efficient channels of communication between
the governing bodies, management, and staff. The department, in cooperation with its
counterpart office in the World Bank, also organizes the arrangements for the Annual
Meetings.
The Technology and General Services Department manages and delivers services
essential for the IMF’s operation. These include information services (information
technology, library services, multimedia services, records and archives management,
and telecommunications); facilities services (building projects and facilities management);
general administrative services (travel management, conference and catering services,
and procurement services); language services (translation, interpretation, and preparation
of publications in languages other than English); and a broad range of security and business
continuity services (covering headquarters security, field security, and information
technology security).
The IMF also has offices responsible for internal auditing and review of work
practices, budget matters, technical assistance, and investments under the staff retirement
plan.
2.3.6 Office of Internal Audit and Inspection
The Office of Internal Audit and Inspection (OIA) contributes to the internal
governance of the IMF by providing independent examinations of the effectiveness of
the risk management, control, and governance processes of the IMF. To meet this
objective, OIA conducts about 25 audits and reviews per year. These audits and reviews
include examining the adequacy of controls and procedures to safeguard and administer
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Fund assets and financial accounts, assessing the efficiency and effectiveness with which
internal resources are being used, evaluating the adequacy of the management of
information technology, and ensuring that adequate physical and information security
measures are in place. Under its multi-year program of reviews, OIA subjects IMF
departments to comprehensive reviews that assess whether their activities are aligned
with the overall goals of the Fund, whether resources dedicated to low-priority activities
can be reallocated, and whether the work is conducted in an efficient and effective fashion.
In line with best practices, OIA reports to IMF management and to the External
Audit Committee, thus assuring its independence. In addition, the Executive Board is
briefed annually on OIA’s work program and the major findings of its audits and reviews.
2.3.7 Independent Evaluation Office
The Independent Evaluation Office (IEO) was established in 2001 with a view
to increasing transparency and accountability and strengthening the learning culture of
the IMF. The IEO is independent of IMF management and staff and operates at arm’s
length from the Executive Board, to which it reports on its findings.
During FY 2006, the IEO completed three evaluations: the Financial Sector
Assessment Program, multilateral surveillance, and IMF support to Jordan in 1989-2004.
A fourth evaluation, on the IMF’s advice on capital account liberalization, was completed
in FY 2005 but discussed by the IMF’s Executive Board in FY 2006. Formal outreach
seminars were held in Asia, Europe, and the Middle East. Currently ongoing evaluations
relate to structural conditionality in IMF-supported programs, the IMF’s role in the
determination of the external resource envelope in sub-Saharan African countries, and
the IMF’s advice on exchange rate policy.
To help prepare additions to its work program in FY 2007, the IEO has published
a broad list of possible topics for evaluation over the medium term, reflecting the many
suggestions received from outside stakeholders as well as IMF Executive Directors,
management, and staff.
2.3.8 External Evaluation of the IEO
The IEO itself underwent an external evaluation in early 2006. The resulting
report confirmed that the IEO is an important part of good governance at the IMF, and
made several recommendations to further strengthen the work of the office.
In April 2006, the IMF Executive Directors met to discuss the report on the IEO
prepared by an External Evaluation Panel. It was agreed that the IEO had served the
IMF well and earned strong support across a broad range of stakeholders. It was also
agreed that the IMF continued to need an independent evaluation office to contribute to
the institution’s learning culture and facilitate oversight and governance by the Executive
Board. In this connection, the Panel’s observation that the IEO had acted independently
was welcomed.
The weaknesses highlighted in the report were noted and welcomed the analysis
and recommendations for further strengthening the IEO’s effectiveness. In particular,
45
Directors concurred that a more focused and strategic orientation, together with strong
support from the Board and management, would help ensure the IEO’s continued
usefulness and relevance.
To maintain the high quality of IEO reports, Directors called for them to be
shorter, with more focused assessments and recommendations. Many Directors
emphasized that IEO reports should look beyond process to substance, including
judgments on the theoretical foundations and analytical frameworks underlying the Fund’s
advice. Directors generally agreed with the Panel’s recommendation that IEO outreach
activities should be intensified.
Directors generally welcomed the Panel’s suggestions for strengthening follow-
up to the IEO’s recommendations, including more Board involvement. They considered
that the Panel’s call for a more systematic approach for following up on and monitoring
the implementation of IEO recommendations approved by the Board should be further
examined. The IEO had also been taking lead in reviewing its existing publications
policy to ensure that it reflected evolving best practice. Changes in the IEO’s publications
policy were consistent with ensuring its independence.
2.4 TRANSPARENCY POLICY OF THE IMF
The IMF’s transparency policy stems from an Executive Board decision in January 2001
to allow the voluntary publication of country documents and systematic publication of
policy papers and associated Public Information Notices (PINs). The decision followed
steps that had been taken since 1994 to enhance the transparency of the IMF and to
increase the availability of information about its members’ policies. It also defined the
key elements of the IMF’s publication policy, including safeguards to maintain the
frankness of the Fund’s policy discussions with members by striking the right balance
between transparency and confidentiality. Under these safeguards,which were revisited
in the June 2005 review of transparency, members may request deletions of information
not already in the public domain that constitutes either highly market-sensitive material
or premature disclosure of policy intentions.
Disseminating Information : IMF’s Publications and Website
The IMF publishes a wide variety of material targeted at a broad range of
readerships. Many of the Fund’s publications are available both in print and on its Web
site (www. imf. org). The World Economic Outlook (WEO) and the Global Financial
Stability Report (GFSR) are the main vehicles through which the IMF publicizes its
global surveillance findings and some of its most significant analytical work.
Ø The IMF releases a large number of reports and other country documents covering
economic and financial developments and trends in member countries. Each
report, based on the staff’s analytical work and meetings with country officials,
is prepared independently by a staff team and published at the option of the
members. This series includes Article IV Reports, Reports Related to Use of
IMF Resources, Selected Issues papers, and Statistical Appendices. In almost
all cases, Executive Board discussions on these papers are summarized in
46
Public Information Notices (PINS), which are available on IMF’s Website.
Ø The IMF’s Annual Report provides a comprehensive look at the IMF’s activities
in each financial year and is designed to be used as a reference tool.
Ø The Annual Report on Exchange Arrangements and Exchange Restrictions
presents information on the exchange and trade systems of the IMF’s member
countries in a tabular format.
Ø Staff research on the international monetary system and other topical subjects is
published in IMF Staff Papers, a quarterly journal; the quarterly newsletter
IMF Research Bulletin; the IMF Working Papers series; the Occasional Papers
series; books; and various other publications.
Ø The Fund’s Dissemination Standards Bulletin Board on its Internet Website
provides links to the data and statistical Web sites of subscribers to the Special
Data Dissemination Standard (SDDS) and partici-pants in the General Data
Dissemination System (GDDS) and presents comprehensive information on
the methods and practices behind the compilation and dissemination of such
data in a user-friendly format comparable across countries.
Ø International Financial Statistics (IFS), produced monthly, provides updated
financial information from countries around the world; the IMF’s Statistics
Department also produces a yearbook containing annual data over 12 years
for the countries covered in the monthly publication. The IFS database is
available online to subscribers. Other statistical publications include the
Balance of Payments Statistics Yearbook, Government Finance Statistics
Yearbook, and Direction of Trade Statistics (quarterly, yearbook, and CD-
ROM issues).
Ø Guides and manuals published by the Fund cover a variety of subjects, such as
balance of payments statistics and compilation, external debt statistics, foreign
direct investment trends, monetary and financial statistics, the producer price
index, and financial soundness indicators.
Ø The biweekly newsletter IMF Survey reports on current IMF policies and activities,
and its annual companion, IMF In Focus, offers a clear, concise picture of
IMF policies and operations.
Ø Pamphlets such as What Is the IMF? and IMF Technical Assistance are written
for the nonspecialist, as are factsheets and issues briefs posted on the IMF’s
Web site, which aim to explain key aspects of IMF operations and policies.
Ø The quarterly magazine Finance and Development (F&D) and the Economic Issues
series (pamphlets on broad economic subjects related to the Fund’s areas of
expertise) are written in nontechnical language and aimed at disseminating
information on topical subjects to nonspecialists.
47
Ø An on-line, quarterly Civil Society Newsletter covers IMF activities and issues
of particular interest to civil society organizations.
Ø Videos about the work of the IMF are available to interested media, educational
institutions, and social organizations, and are also used in recruitment activities.
Ø Educational material is available from the IMF Center and at www. imf. org/
econed. The IMF Center hosts a permanent exhibition on the international
monetary system, offers book and economic forums and tours of the institution,
and includes a bookstore and giftshop. The IMF Center is open to the general
public daily, from Monday to Friday.
Ø Selected Fund publications are also available in languages other than English.
Communications and Outreach
The IMF communicates with the public at large and a wide range of more specific
nonofficial audiences. These communications activities are led by the IMFC management
and External Relations Department (EXR). But, in recent years, staff throughout the
organization, together with Executive Directors, have increasingly recognized the need
for and value of communication with external audiences as an integral component of the
Fund’s operational work. The relative strength of economic and financial systems during
FY 2006 meant that the Fund was able to focus its communications on a few strategically
important issues and, at the same time, to extend its outreach activities to selected non-
official audiences, especially parliamentary organizations.
2.5 AN OVERVIEW OF IMF’S FUNCTIONING
The following itemized text offers an overview of the IMF’s functioning in a typical
year.
2.5.1 Purpose and Organization
The IMF is an international organization of 185 member countries. It was
established to promote international monetary cooperation and exchange stability and
to maintain orderly exchange arrangements among members; to facilitate the expansion
and balanced growth of international trade, and contribute thereby to the promotion and
maintenance of high levels of employment; and to provide temporary financial assistance
to member countries under adequate safeguards to assist in solving their balance of
payments problems in a manner consistent with the provisions of the IMF’s Articles of
Agreement.
The IMF conducts its operations and transactions through the General Department
and the Special Drawing Rights Department (the SDR Department). The General
Department consists of the General Resources Account (GRA), the Special Disbursement
Account (SDA), including the Multilateral Debt Relief Initiative-I Trust (MDRI-I Trust),
over which the SDA has substantial control, and the Investment Account.
The IMF also administers trusts and accounts established to perform financial
and technical services and financial operations consistent with the purposes of the IMF.
48
The resources of these trusts and accounts are contributed by members or the IMF
through the SDA. With the exception of the MDRI-I Trust, whose financial statements
are consolidated with those of the General Department, the financial statements of the
SDR Department and these trusts and accounts are presented separately.
General Resources Account
The GRA holds the general resources of the IMF. Its resources reflect the payment
of quota subscriptions, use and repayment of IMF credit, collection of charges on the
use of credit, payment of remuneration on creditor positions, borrowings, and payment
of interest and repayment of borrowings.
Special Disbursement Account
The assets and resources of the SDA are held separately from the GRA and the
Investment Account of the General Department. The SDA is the vehicle for receiving
and investing profits from the sale of the IMF’s gold and for making transfers to other
accounts for special purposes authorized in the Articles, in particular for financial
assistance on special terms to low-income members of the IMF. Resources of the SDA
included proceeds from the sales of the IMF’s gold in the past, including income from
the investment of gold profits.
The SDA holds claims receivable from outstanding loans extended under the
Structural Adjustment Facility (SAF), and repayments of Trust Fund loans to the Trust
Fund (in liquidation) are transferred to the SDA Repayments of principal and interest
from SAF loans and resources derived from the termination of the Trust Fund are
transferred from the SDA to the Reserve Account of the Poverty Reduction and Growth
Facility and Exogenous Shocks Facility Trust (PRGF-ESF Trust), which is administered
separately by the IMF as Trustee.
Effective January 5, 2006, the IMF adopted the legal framework applicable to
the Multilateral Debt Relief Initiative (MDRI) to provide full debt relief to low- income
member countries. For this purpose, the MDRI-I and MDRI-II Trusts were established
to provide grant assistance under the MDRI. Subsequent to the adoption of the MDRI,
the resources held in the SDA were transferred to the MDRI-I Trust, the PRGF-HIPC
Trust, and the PRGF-ESF Trust Subsidy Account.
Investment Account
On April 28, 2006, the Executive Board of the IMF approved the establishment
of the Investment Account within the General Department and authorized the transfer
of currencies from the GRA in an amount equivalent to the total amount of the General
and Special Reserves of the GRA on April 30, 2006. The transfers to the Investment
Account were made subsequent to the financial year ended April 30, 2006.
2.5.2 Accounting Policies
Basis of Accounting
The consolidated financial statements of the General Department are prepared in
49
accordance with International Financial Reporting Standards (IFRS). The consolidated
financial statements include the accounts of the GRA, the SDA, the Investment Account
(inactive in financial year ended April 30, 2006), and the MDRI-I Trust, an entity that is
determined to be substantially controlled by the SDA owing primarily to the existence of
the Trustee’s power to terminate the Trust and the SDA’s claim to the Trust’s entire
residual assets upon termination as long as there are no contributor resources in the
MDRI-I Trust. All transactions and balances between these entities have been eliminated
during the consolidation. Specific accounting principles and disclosure practices are
explained further below.
Use of Estimates
The preparation of consolidated financial statements in conformity with IFRS
requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Unit of Account
The consolidated financial statements are expressed in terms of SDRs. The value
of the SDR is determined by the IMF each day by summing the values in U.S.dollars,
based on market exchange rates, of the currencies in the SDR valuation basket. The IMF
reviews the SDR valuation basket every five years. The latest review was completed in
November 2005, and the new composition of the SDR valuation basket became effective
on January 1, 2006. The currencies in the basket as of April 30, 2006, and 2005 and their
amounts were as follows:
Table 2.2
IMF’s SDR Valuation Basket (as of April 30, 2006)
Currency Amounts
2006 2005
Euro 0.4100 0.4260
Japanese yen 18.4000 2.0000
Pound sterling 0.0903 0.0984
U.S.dollar 0.6320 0.5770As of April 30, 2006, one SDR was equal to 1.47106 U.S.dollars
(one SDR was equal to 1.51678 U.S.dollars as of April 30, 2005).
Source: IMF’s Annual Reports for the respective years.
Currencies
Currencies consist of members’ currencies and securities held by the IMF. Each
member has the option of substituting non-negotiable and non-interest-bearing securities
for the IMF’s holdings of its currency that exceed ¼ of 1 percent of the member’s quota.
These securities are encashable by the IMF on demand.
Each member is required to pay to the IMF its initial quota and subsequent quota
increases partly in its own currency, with the remainder to be paid in usable currencies
50
prescribed by the IMF, or SDRs. The only exception was the quota increase of 1978,
which was paid entirely in members’ own currencies.
Usable currencies consist of currencies of member countries considered by the
IMF to have strong balance of payments and reserve positions. These currencies are
included in the IMF’s Financial Transactions Plan to finance purchases and other transfers
of the IMF. Participation in the Financial Transactions Plan is reviewed on a quarterly
basis. Usable currencies and SDR holdings readily available to finance IMF operations
and transactions are considered cash equivalents. The changes in non-usable currencies
result from the IMF’s transactions (purchases and repurchases) where a member’s
currency is exchanged for another member’s currency, or from the inclusion/exclusion
of a member’s currency in the IMF’s Financial Transactions Plan.
Currencies, including securities, are valued in terms of the SDR on the basis of
the currency/SDR exchange rate determined for each currency. Securities can be
substituted by members for currencies at their option. These securities are not marketable
but can be converted into currencies on demand. Each member is obligated to maintain,
in terms of the SDR, the value of the balances of its currency, including its securities,
held by the IMF in the GRA. This requirement is referred to as the maintenance-of-value
obligation. Whenever the IMF revalues its holdings of a member’s currency, a receivable
or a payable is established for the amount required to maintain the SDR value of the
IMF’s holdings of that currency. The currency balances in the balance sheet include
these receivables and payables. All currencies are revalued periodically in terms of the
SDR, including at each financial year end.
Credit Outstanding
The IMF provides balance of payments assistance in accordance with established
policies by selling to members, in exchange for their own currencies, SDRs or currencies
of other members. When members make purchases, they incur obligations to repurchase
the IMF’s holdings of their currencies arising from the purchases within specified periods
by payments in SDRs or other currencies, as determined by the IMF. The IMF credit is
subject to specific repayment schedules over periods that vary depending on the type of
facility used. Members are entitled to repurchase, at any time, the IMF’s holdings of
their currencies on which charges are levied and are expected to make repurchases as
and when their balance of payments and reserve position improve.
The repurchase policies of the IMF are intended to ensure the revolving character
of its resources. Purchases of currencies from the GRA are subject to repurchase
obligations, which can differ depending on the policy or facility under which purchases
are made. In keeping with a long-standing principle of the IMF that its resources should
be repaid as soon as the balance of payments and reserve position improve, members in
a position to do so are expected to make repurchases under predetermined time-based
expectation schedules. However, if a member’s external position is not sufficiently strong,
it may request that repurchases on the expectation schedule be extended to the original
obligation schedule. A member is considered overdue only after failure to make a payment
on the repurchase obligation schedule.
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Overdue Obligations and Burden-sharing Mechanism
It is the policy of the IMF to exclude from current income charges due from
members that are six months or more overdue in meeting any financial obligation to the
IMF. The IMF fully recovers this lost income from the burden-sharing mechanism, through
adjustments, in the current period, to therates of charge and remuneration. Members
that have borne the financial consequences of overdue charges receive refunds to the
extent that overdue charges that had given rise to burden-sharing adjustments are
subsequently settled.
An impairment loss would be recognized if there is objective evidence of
impairment as a result of a past event that occurred after initial recognition, and is
determined as the difference between the outstanding credit’s carrying value and the
present value of the estimated future cash flows. No impairment losses have been
recognized.
First Special Contingent Account
In view of the risk resulting from overdue obligations, the IMF accumulates
balances in the first Special Contingent Account (SCA-1) by collecting resources under
the burden-sharing mechanism. Losses arising from overdue principal, if realized, would
be charged against the SCA-1. The IMF has not realized any losses on overdue financial
obligations. However, the IMF considers it prudent to maintain the SCA-1 as an added
protection until all arrears are fully settled. Balances in the SCA-1 are refundable to the
members that shared the cost of its financing in proportion to their contributions when
there are no outstanding overdue repurchases and charges, or at such earlier time as the
IMF may decide.
IMF’s SDR Holdings
Although SDRs are not allocated to the IMF, the IMF may acquire, hold, and
dispose of SDRs through the GRA. The IMF receives SDRs from members in the
settlement of their financial obligations to the IMF and uses SDRs in transactions and
operations with members. The IMF earns interest on its SDR holdings at the same rate
as all other holders of SDRs.
Gold Holdings
The Articles of Agreement limit the use of gold in the IMF’s operations and
transactions. Any use provided for in the Articles requires a decision adopted by an 85
percent majority of the total voting power. Under the Articles, the IMF may sell gold
outright on the basis of prevailing market prices but cannot engage in any other gold
transactions, such as loans, leases, swaps, or the use of gold as collateral. In addition,
the IMF does not have the authority to buy gold, but it may accept payments from a
member in gold instead of SDRs or currencies in any operation or transaction under the
IMF’s Articles at prevailing market prices.
In accordance with the provisions of the Articles, whenever the IMF sells gold
held on the date of the Second Amendment of the IMF’s Articles of Agreement (April 1,
52
1978), the portion of the proceeds equal to the historical cost must be placed in the
GRA. Any portion of the proceeds in excess of the historical cost will be held in the
SDA or transferred to the Investment Account. The IMF may also sell gold held on the
date of the Second Amendment to those mem- bers that were members on August 31,
1975, in proportion to their quotas on that date, in exchange for their own currencies at
the historical cost. The IMF values its gold holdings at historical cost using the specific
identification method. The carrying value of the Fund’s gold holdings is derived from
quota subscriptions prior to the Second Amendment and the settlement of financial
obligations by members in 1992 and 1999.
2.5.3 Financial Risk Management
In providing financial assistance to member countries and conducting its
operations, the IMF is exposed to various types of risks, including credit, interest rate,
exchange rate, liquidity, and operational risks. Because of its unique role in the
international monetary system, the principal risk facing the IMF is credit risk.
Credit Risk
Credit risk refers to potential losses on the credit outstanding owing to the inability,
or unwillingness, of member countries to make repurchases. While the IMF is accorded
preferred creditor status, i.e., the claims of other creditors are subordinate to those of
the IMF, credit risk is inherent since the IMF generally provides financing when other
sources are not available to a member and has limited ability to diversify its loan portfolio.
As a result, credit concentration is high.
The IMF’s credit-risk-mitigating measures comprise policies on access limits;
program design and monitoring, including conditionality attached to its financing; early
repurchase policies; and preventative, precautionary, and remedial measures to cope
with the financial consequences of protracted arrears.
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate because of changes
in market interest rates. The IMF’s cost structure and its income position are interest-
rate driven. Fluctuations in interest rates could widen or narrow the spread between the
rate of charge on credit outstanding and the rate of remuneration paid to member countries
with remunerated reserve tranche positions. To minimize the effect of interest rate
fluctuations on income, the IMF links the rate of charge directly to the SDR interest rate
(which is equal to the rate of remuneration).
Exchange Rate Risk
Exchange rate risk is the exposure to the effects of fluctuations in the prevailing
foreign currency exchange rates on an entity’s financial position and cash flows. The
IMF uses the SDR as the unit of account and conducts its transactions in terms of the
SDR. It has no exchange rate risk exposure on its holdings of members’ currencies
since, under the Articles of Agreement, members are required to maintain the value of
such holdings in terms of the SDR. Any depreciation/appreciation in their currency vis-
53
à-vis the SDR gives rise to a currency valuation adjustment receivable or payable that
must be settled on an annual basis and that is included in the stock of the IMF’s currency
holdings. Therefore, the value of the IMF’s currency holdings does not fluctuate in SDR
terms. Exchange rate risk on IMF investments is managed by investing in securities
denominated in SDRs or in the constituent currencies of the SDR valuation basket. The
IMF also has other assets and liabilities, such as trade receivables and payables,
denominated in currencies other than SDRs and makes administrative payments largely
in U.S.dollars, but the exchange rate risk exposure is very limited.
Liquidity Risk
Liquidity risk is the risk of non-availability of resources to meet the IMF’s financing
needs and obligations. The IMF must have usable resources available to meet members’
demand for credit. While the IMF’s sources are revolving, uncertainties in timing and
amount of credit extended to members during financial crises expose the IMF to liquidity
risk. Moreover, the IMF must also stand ready to meet the potential demands from
members drawing upon their reserve tranche positions, which have no fixed maturity
and are part of members’ reserves.
The IMF manages its liquidity risk not by matching the maturity of assets and
liabilities but by closely scrutinizing developments in its liquidity position, especially as
they relate to the adequacy of quota-based resources to meet liquidity needs. The Articles
of Agreement require the IMF to conduct a general review of members’ quotas at intervals
of no more than five years in order to assess the adequacy of quota-based resources to
meet members’ demand for IMF financing. There have been eight quota increases,
including an ad hoc increase, as a result of the reviews. The last general review (the
twelfth) was completed in January 2003 with no proposed quota increase. Should the
available quota-based resources be inadequate to meet financing needs, the IMF may
activate its standing credit lines totaling SDR 34 billion under the General Arrangements
to Borrow and the New Arrangements to Borrow, and its associated agreement with
Saudi Arabia for an additional SDR 1.5 billion. The IMF also monitors its liquidity
position over a shorter term, using objective criteria such as the forward commitment
capacity for the next twelve-month period.
Operational Risk
Operational risk includes risk of loss attributable to errors or omissions because
of failures in executing or processing transactions, inadequate controls, human factors,
and/or failures in underlying support systems.
The IMF mitigates operational risk by (i) identifying key operational risks, (ii)
maintaining a system of internal controls, (iii) documenting policies and procedures on
administrative and accounting and reporting processes, and (iv) conducting internal audits
to ensure accurate processing of transactions and minimize the possibility of undetected
errors. The design and effectiveness of controls are evaluated continuously and
improvements are implemented on a timely basis. The results of the internal evaluation
of the effectiveness of internal controls are reported by the Office of Internal Audit and
Inspection to the External Audit Committee, which also exercises oversight over the
54
external audit of the IMF’s accounts and its controls.
The IMF has adopted a Code of Ethics to promote the highest standards of ethics
among its staff, including senior management and members of the Executive Board. The
enforcement of the Code of Ethics is supplemented by procedures for the reporting and
investigation of irregularities and improprieties, including fraudulent acts.
2.5.4 Multilateral Debt Relief Initiative
Under the MDRI, debt relief is provided to Heavily Indebted Poor Countries
(HIPCs) and non-HIPCs with annual per capita income of $380 or less, and to HIPCs
with an annual per capita income of more than $380. Grant assistance from the MDRI
Trusts (together with assistance under the HIPC Initiative) provides debt relief to cover
the full stock of debt owed to the IMF as of December 31, 2004, that remains outstanding
at the time the member qualifies for such relief.
During the financial year ended April 30, 2006, debt relief under the MDRI was
granted to 20 members amounting to SDR 2,503 million, consisting of outstanding credit
in the GRA of SDR 90 million and PRGF-ESF Trust loans of SDR 2, 413 million. MDRI
grant assistance provided from resources held in the MDRI-I Trust amounted to SDR 1,
120 million. All HIPCs will receive MDRI assistance upon reaching the completion point
under the HIPC Initiative. Since the stock of debt owed to the IMF as of December 31,
2004, decreases over time, the actual debt eligible for MDRI assistance for the remaining
members depends on the timing of their completion points. The IMF periodically reviews
the qualification of members for MDRI debt relief as these members make progress
toward reaching the completion point under the HIPC Initiative.
MDRI grant assistance to the remaining eligible members is subject to the
availability of resources and is accrued when it is probable that a liability has been incurred
and the amount of such grant assistance can be reasonably estimated. The liability recorded
in the MDRI-I Trust amounted to SDR 380 million as of April 30, 2006, and is based on
the evaluation of currently available facts with respect to each individual eligible member
and includes factors such as progress made toward reaching the completion point under
the HIPC Initiative and the capacity to meet the macroeconomic performance and other
objective criteria after reaching the completion point. As the qualification of members
for MDRI debt relief is assessed, the amounts recorded are reviewed periodically and
adjusted to reflect additional information that becomes available.
2.5.5 Special Disbursement Account
Investments
As at April 30, 2006, there were no investments in the SDA. Investments in the
MDRI-I Trust consisted of short-term fixed-term deposits with maturities of less than
one year and amounted to SDR 384 million. As at April 30, 2005, the investments in the
SDA consisted of short-term fixed-term deposits with maturities of less than one year
and amounted to SDR 2,519 million.
55
Investment income of the SDA and the MDRI-I Trust for the years ended April
30, 2006, and 2005 was SDR 49 million and SDR 52 million, respectively.
Contributions to Administered Accounts
Assets in the SDA can be used for special purposes authorized in the Articles,
including providing financial assistance on special terms to low-income member countries.
Proceeds from the repayment of SAF loans are transferred from the SDA to the Reserve
Account of the PRGF-ESF Trust as contributions. During the financial years ended April
30, 2006, and 2005, such contributions amounted to SDR 37 million and SDR 41 million,
respectively.
In addition, the accumulated investment earnings in the SDA are available for
financing the PRGF-HIPC Trust on an as-needed basis. During the financial year ended
April 30, 2006, the SDA contributed SDR 63 million to the PRGF-HIPC Trust (SDR
164 million during the financial year ended April 30, 2005).
Trust Fund
The IMF is the Trustee of the Trust Fund, which was established in 1976 to
provide balance of payments assistance on concessional terms to eligible members that
qualify for assistance. The Trust Fund is in liquidation.
In 1980, the IMF, as a Trustee, decided that, upon the completion of the final
loan disbursements, the Trust Fund would be terminated as of April 30, 1981. Since that
date, the activities of the Trust Fund have been confined to the conclusion of its affairs.
The Trust Fund has no assets other than claims receivable, including interest and special
charges, from Liberia, Somalia, and Sudan amounting to SDR 118 million at April 30,
2006, and 2005. All interest is deferred. Cash receipts on these loans are to be transferred
to the Special Disbursement Account.
2.5.6 Borrowings
Under the General Arrangements to Borrow (GAB) and an associated agreement
with Saudi Arabia, the IMF may borrow up to SDR 18.5 billion when supplementary
resources are needed, in particular, to forestall or to cope with an impairment of the
international monetary system. The GAB became effective on October 24, 1962, and
has been renewed through December 25, 2008. Interest on borrowings under the GAB
is set at a rate equal to the SDR interest rate.
Under the New Arrangements to Borrow (NAB), the IMF may borrow up to
SDR 34 billion of supplementary resources. The NAB is the facility of first and principal
recourse, but it does not replace the GAB, which will remain in force. Outstanding
drawings and commitments under these two borrowing arrangements are limited to a
combined total of SDR 34 billion. The NAB became effective for a five-year period on
November 17, 1998, and has been renewed through November 16, 2008. Interest on
borrowings under the NAB is payable to the participants at the SDR interest rate or any
such higher rate as may be agreed between the IMF and participants representing 80
percent of the total credit arrangements. There was no balance outstanding as at April
56
30, 2006, and 2005 under the GAB or the NAB.
2.5.7 Arrangements
An arrangement is a decision of the IMF that gives a member the assurance that
the IMF stands ready to provide SDRs or usable currencies during a specified period
and up to a specified amount, in accordance with the terms of the arrangement. At April
30, 2006, the undrawn balances under the 11 arrangements that were in effect in the
GRA amounted to SDR 7,539 million (SDR 7,927 million under 12 arrangements at
April 30, 2005).
2.5.8 Burden-sharing and Special Contingent Account
Under the burden-sharing mechanism, the basic rate of charge is increased and
the rate of remuneration is adjusted downward to offset the effect on the IMF’s income
of the nonpayment of charges and also to finance the additions to the SCA-1. Cumulative
charges, net of settlements, that have resulted in adjustments to charges and remuneration
since May 1,1986 (the date the burden-sharing mechanism was adopted) amounted to
SDR 859 million at April 30, 2006, (SDR 848 million at April 30, 2005). The cumulative
refunds for the same period, resulting from the settlements of overdue charges for which
burden-sharing adjustments have been made, amounted to SDR 1, 080 million and SDR
1,073 million, at April 30, 2006, and 2005, respectively.
The SCA-1 is financed by adjustments to the rate of charge and the rate of
remuneration. Balances in the SCA-1 are to be distributed to the members that shared
the cost of its financing when there are no outstanding overdue repurchases and charges,
or at such earlier time as the IMF may decide. Amounts collected from members for the
SCA-1 are akin to refundable cash deposits and are recorded as collections of cash and
as a liability to those who paid it. Losses arising from overdue obligations, if realized,
would be shared by members in proportion to their cumulative contributions to the SCA-
1. For the financial years ended April 30, 2006, and 2005, the annual addition to the
SCA-1 amounted to SDR 94 million.
2.5.9 Technical Assistance and Training
The IMF complements its surveillance operations and its lending in support of
member countries' policy programmes with technical assistance and training. The goal is
to help member countries strengthen their human and institutional capacity to design
and implement macroeconomic and structural policies that promote macroeconomic and
financial stability, economic growth, and poverty reduction.
The IMF offers technical assistance and training mainly in its core areas of its
expertise, such as macroeconomic policy, tax and revenue administration, public
